Singapore Tech Eng Ltd

Good morning ladies and gentlemen. Welcome to SD Engineering's first half 2022 results briefing. Thank you for joining us this morning. We will begin today's briefing with a presentation by our Group CFO Cedric Foo, following which our Group President and CEO Vincent Chong will give his remarks. After that, we will open up the floor to a Q&A session. Without further ado, may I invite Cedric to give his presentation please.

Good morning to everyone. Those who are joining us here physically, it's good to see you in person, and also those who are joining us over webcast. On slide two, I would like to bring your attention to these statements, which says that the group's actual future performance and results may differ materially from those expressed in forward-looking statements as a result of a number of risks, uncertainties, and assumptions including COVID-19, the Russian-Ukraine conflict, inflation in general, and global supply chain disruptions. Agenda for this morning is financial highlights. We'll talk about the group highlights, some of the segments, and the outlook, followed by Q&A. First, group highlights. Slide number five shows a summary of our first half 2022 results. On your left, group revenue achieved a 17% growth year-on-year, which is first half 2022 versus first half 2021, to reach $4.3 billion. Despite a drop of $125 million in government support to almost nil in first half 2022, EBIT or interest before interest and tax was 8% higher at $385 million for first half 2022. Profit before tax was 3% higher at $351 million. Net profit stood at $280 million for first half 2022, however excluding the transaction and integration expenses for the Transcore acquisition, which is one-off in nature, as well as the tax exam effect of the job support scheme which we enjoyed last year and no longer enjoy this year since the government support has dropped to almost nil. If we exclude those effects, the net profit will be $307 million or 4% higher year on year. Slide number 6. Commercial aerospace constituted 33% Urban Solutions, USS, 18%, and DPS, Defense and Public Security, 49% of the group's revenue. And that's the pie chart on the left. DPS, to clarify, includes defense, public security, critical information infrastructure, as well as commercial businesses, both local and overseas. Hence, If you look at the bar chart in the middle of the slide, the defense revenue of $1.5 billion in first half 2022 is a subset of the DPS revenue of $2.1 billion in the pie chart. Commercial revenue increased to $2.8 billion. driven by continued but not yet complete recovery in commercial aerospace and the addition of Transcor. We have some technical interferences. Are we okay now? Alright, very good. Let me just repeat the last sentence. The group's commercial revenue increased to $2.8 billion and that's in the middle of the slide. One slide back please. and is driven by continued, so that's the dark blue bar in the middle of the slide there, $2.8 billion, that's commercial revenue. It is driven by continued but not yet complete recovery in the commercial aerospace and of course the addition of transport. Geographical spread of revenue for Asia is 52%, that's on the right, the US is 23%, Europe is 19% and others 6%. Next slide please. Slide 7. Here is the waterfall to bridge first half 21 revenue to first half 22 revenue. As I said, group revenue grew 17% to $4.3 billion with contribution from all segments Excluding Transcor, our revenue would still have grown by more than 10%. Next slide. Slide 8. Commercial aerospace revenue reached $730 million, which is on your far right of the slide, the dark blue bar chart, in second quarter of 2022, or 25% higher year-on-year compared to second quarter of 2021. With the continued opening of borders for aviation travel, strong PTF growth for passenger to freighter, healthy orders for nacelles coming out of MRAS, and gradual but not yet full recovery in MRO businesses, our commercial aerospace business area continued to ride the path of recovery. PTF slots for A320 and A321 as well as A330 are booked through 2025 and 2026 respectively. A very healthy growth in orders. Commercial Aerospace also secured $2.1 billion of new contracts in the first half of 2022. Slide number nine. The TransCore acquisition, the biggest to date for the company, was completed in mid-March 2022. We are pleased to say that the integration activities are on track and Transcor is expected to be cash flow positive in year one, as we have informed earlier. In the second quarter, Transcor won more than $170 million worth of electronic tolling projects and also RFID sales, both in the US as well as in Dubai. The New York Congestion Pricing Project is also on track and expected to resume by end of this year, pending the outcome of the Environmental Assessment Study. Slide number 10. This is a slide that talks to EBIT or Earnings Before Interest and Tax. EBIT for the first half saw growth and cost savings, which is the green bar, More than offset the drop in government support of $125 million, the red bar, and the one-off transfer transaction and integration expense of $21 million, also shown in red. The growth and cost savings has an element of pension restructuring, which is basically a gain by the company's proactive efforts to align pension plans, for example, from defined benefit to defined contribution, to what is market practice. And this particular one happens to be in the US. We will continue to look for such opportunities and we think there are some more ahead of us. The government's support in 2021 and 2020 during COVID was most helpful, especially to our aerospace business, which was heavily impacted when aviation came to a stop. These have helped us ride through the downturn, and we are very appreciative of that. However, in 2022, this government support has teared off to a mere $0.5 million, compared to $125 million in the first half of 2021. But despite that, as the chart illustrates, our growth as well as our cost savings, which was assiduously pursued, more than offset this drop. Base operating performance, as we defined, without the government support, one-off pension and without core transaction and integration expenses. In other words, removing all these items from both 1Q2022 and 1Q2021. And then comparing these two figures, which is on the right, it's a 45% increase, which really illustrates the efforts behind working hard and keeping to our pledge to offset drop in government support. Slide 11. These charts here show the impact of government support on each of the business segments EBIT in first half 2022 compared to the prior year. As shown in the chart on the left, commercial aerospace, business recovery and cost savings more than offset the drop in garment support of $86 million. So this is the sub-segment which received the most garment support back in 2021 and it's been fully offset. For USS, Urban Solutions and SECCOM, excluding lower garment support, which is not as significant, $3 million, and Transcore Transaction and Integration Expenses, which is significant, at $21 million. The EBIT on a base operating business performance basis was $1 million higher year-on-year. Our SECCOM EBIT, which is a subset of the USS, was weaker in first half 2022 because of an exceptionally high and strong base in first half 21. So in other words, in 21, it was exceptionally strong for first half, and therefore compared to that base, the first half 2022 performance looks weaker. This is somewhat outside of the norm. Usually in the SECCOM business, the second half is usually stronger, and we believe that will return. It was also impacted by the shortage of semiconductor chips. Defence and Public Security had a $36 million reduction in government support, which was partially offset by a better operating performance and posted an EBIT of $240 million. Excluding government support, the DBS EBIT would be 5% higher. So in other words, excluding the government support both sides, it would be 5% higher. Slide number 12 talks about net profit. The group reported a net profit of $280 million for first half 2022. So we started off from the net profit of $296 million in first half 2021. We took the delta of the EBIT and then we built in the finance cost and tax that brings it to net profit and then we take out the transaction and integration expense for Transcor, net of tax. If we then we reached $280 million. However, if we exclude the TransCore transaction and integration expense and the tax-exempt effect of JSS, which we enjoyed the previous year but not this year, the first half 2022 net profit would be $307 million or 4% higher year-on-year. Slide 13. During the second quarter, new contract wins totalled $3.1 billion. As highlighted above in the slide, with very notable wins all across the segments. Together with the wins recorded in one quarter 2022, because this slide shows two quarters, second Q, in one quarter we had a new contract win of $2.4 billion. We totaled that with $3.1 billion in the second quarter. Total wins for the first half is $5.5 billion, a very healthy level of new wins. The next slide illustrates the areas where new contracts were won in the second quarter, including those from Transcor. Slide 18. With a strong new contract win, we ended the first half year with a very robust order book of $22.2 billion. We expect to deliver $4.6 billion in the remaining six months of 2022. Slide number 16. Our balance sheet remained very strong with credit rating by Moody's at AAA and by S&P at AA+, post the Transcor acquisition and financing. Slide 17. Lower operating cash flow for first half 2022 but still a healthy level of $321 million. was mainly due to working capital movements, including investments in inventories and WIP, as well as passenger to freighter conversions projects, MRO contracts and other projects supporting revenue growth. Higher investing outflow and higher financing inflow are mainly related to the acquisition of Transcorps, as well as aircraft and engines for our AAM business, and of course, creating new capacity to support demand like new PTF lines. Finally, in slide 18, I will leave you with the Group President and CEO's message, and maybe I will just read it out. Despite a challenging operating environment in the first half of 2022, our businesses continued to demonstrate their underlying strengths and resilience Year-on-year revenue growth and the base business profitability, continued cost savings and productivity initiatives more than offset the substantial reduction of $125 million in government support. The TransCorp acquisition, which was completed in March this year, will accelerate the Group's smart city growth. Contract win momentum continues to remain strong and our robust order book provides a healthy revenue visibility for the next few years. This ends my segment of the presentation. Thank you for your attention.

Thank you, Cedric. May I now invite Cedric and our panelists to the head table. The panelists this morning are Vincent Chong, Group President and CEO, Group CFO Cedric Foo, who just gave us a presentation, Ravida Singh, Group COO, Technology and Innovation, and President of Defense and Public Security, and Tan Lee Chew, President, Commercial. Joining the ex-co-members at the panel is Jeffrey Lum, President of Commercial Aerospace. I will now hand the floor over to Group President and CEO to deliver his remarks. Vincent, please.