Singapore Tech Eng Ltd

Good morning. Welcome to ST Engineering's full year 2023 results briefing. This morning, we will begin with a presentation by our Group CFO, Cedric Foo. Our Group President and CEO, Vincent Chong, will then give his remarks. After that, we will open up the floor to a Q&A session. For participants dialing in, please note that you will be placed on a listen-only mode until we open up individual lines for the Q&As. Without further ado, may I invite Cedric to give his presentation. Cedric, please.

Good morning to everyone here in person at the SE Engineering Hub, as well as those joining us via our webcast. Welcome to SE Engineering's full year 2023 results briefing. Before I begin, I would like to bring your attention to slide two, which states, amongst others, that the group's actual future performance and outcomes and results may differ materially from those expressed. Slide three shows the agenda for today. I'll be covering group highlights, business discussions of each of the segments, order book and debt profile, dividends and outlook. Thereafter, CEO Vincent Chong will make some remarks followed by Q&A. First, let's take a look at group highlights. On slide five, We are very pleased to report a very strong set of results for financial year 2023. First, let me take the second half year on year figures first. For the second half of 2023, the group achieved double digit year on year growth in major financial metrics. 10% growth in revenue, 17% growth in EBITDA, 34% growth in EBIT, 43% growth in PBT, and 20% growth in net profit. Strong sets of results. This second half 2023 year-on-year comparison to second half 2022 is a better way to look at momentum compared to, say, second half 2023 versus first half 2023. Because this latter sequential method is distorted by seasonal factors. So as you know, in the second half versus second half, you take away all the seasonal factors. You're comparing the correct season to season. Next, the full year results. The group achieved also double-digit year-on-year growth in major financial metrics. Revenue up 12%, and we breached or surpassed the 10 billion mark for the first time. EBITDA up 16%. EBITDA, as you know, is a proxy for operating cash flow, and it's at a very strong 1.5 billion. EBIT up 24%, PBT 18%, and net profit 10% at 586 million. Our order book came in at $27.4 billion, with about $7.9 billion to be delivered in 2024. Moving on to slide 6, here we discuss revenue growth. This slide shows year-on-year increase in revenue by segment. The group recorded a 12% increase in revenue, And this increase is contributed by all segments, including commercial aerospace, DPS, and USS. In the DPS case, we have normalized 2022 base by taking out the US Marine, which was sold in 2022. Slide seven, from left to right, shows the revenue breakdown by segment, by type, and by location of customers. Revenue by segment, in financial year 2023, commercial aerospace contributed 39%, DPS segment, defense and public security segment, 42%, and USS, 19%. So USS, as you know, is our URS, urban solution-based business, Transcor, as well as Seccom. I would like to clarify that DPS as a segment included both local and international customers, so not just Singapore defence customers. It also covered commercial domains such as public security and safety, critical infrastructure and others. Hence, the DPS segment revenue of $4.3 billion It's different from the defense revenue of $3 billion, because this is only a subset of this, right? Because this has non-defense public security elements as well. Now, in the center of slide 7, it shows the revenue by type of business. Commercial grew steadily to $7.1 billion. Defense grew as well. If we take off the US Marine, $2.6, $2.8, and $3 billion. On the right hand side, it shows the revenue breakdown by customer location. Asia contributed 49%, US 24%, Europe 20%, and others 7%. So Asia and US actually clumped a little bit compared to the year before. Slide eight, this slide shows the revenue by segment and the growth for each of the three segments. Commercial aerospace grew robustly by 31% to $3.9 billion. So we are pleased to share that commercial aerospace surpassed one, the 2019 pre-COVID revenue level of about $3 billion. And two, our November 21 investor day target of more than $3.5 billion by 2026. So this is 2023, and it's already exceeding $3.5 billion. This good performance is attributed to strong MRO, but also partly attributed to the success of the MRAS acquisition, which produces the aircraft nacelles. Two, DPS, excluding U.S. Marine revenue of 249 recorded in 2022 and was sold in that year as well, DPS revenue of $4.3 billion was higher by $229 million or 6%. USS revenue grew 10% to $1.9 billion. is contributed by Urban Solutions, including Transcor, and partially offset by SECCOM. Slide 9. 2022 EBIT was $735 million. 2023 EBIT was $915 million. So there's an increased in the EBIT per reporting standards of 24%, driven by business growth and cost savings of $268 million. Now, if we strip out the one-off effects, which we term as base operating performance, so excluding the pension restructuring gains that we had in 2022, and also the lower performance transaction and integration expenses that we experienced in 23 versus 22. The 2022 BOP EBIT is at $678 million. We take out the one-off for 2023, which is the satisfied divestment loss and SECCOM severance cost, totaling $32 million. The 2023 BOP is at $946 million. So comparing 946 to 678, at the base operating performance level, there's an increase of 40%. So the underlying operating performance is indeed quite strong. We discussed a bit about energy in previous briefings. The average energy rate in 2023 is lower than 2022. So the rate, in other words, dollar per megawatt hour is lower. However, consumption increased in 2023 versus 2022 to support a higher business volume and higher revenue. Slide 10, please. Here we discuss net profit. It improved from $535 million to $586 million, an increment of 10% year-on-year. Again, at the base operating profit, or BOP net profit level, it improved from 493 to 610, or a strong 24% at the operating level. All figures here are after tax because we're discussing net profit. Now let's move on to business area discussions. Slide 12. Here we will discuss commercial aerospace EBIT. EBIT grew 12% from $301 million to $337 million, or a very strong 47%. Again, normalizing for 2022 EBIT by removing the pension, restructuring gain in 2022, Base operating performance EBIT grew 47% from 229 to 327. This strong commercial aerospace performance is attributed to the recovery of the aviation industry, as well as the very good performance of MRAS and the improving PTF margin as we climb the learning curve. More on CA for slide 13. The aerospace MRO business continued to recover in tandem with the aviation market. This business has done well as we continue to invest in it, even during the difficult COVID period. So these steady investments included new hangar capacity in Pensacola, in Guangzhou, and so forth. And this positions us to emerge stronger when COVID is behind us. Unrelentingly, post-COVID, we continue to invest in new capabilities like the new CFM CBSA for LIB181B, as well as Changi Creek and others. And this will, again, position us for a brighter future. Continuous improvement in operations has been the modest operandee of commercial aerospace. In fact, Jeffrey chairs our Continuous Improvement Committee for the whole group. For aerostructure and systems, MRAS nacelle growth benefited from the increased A320neo fleet deliveries. So as you know, for narrow-body A320neo, if the LEAP engine is chosen, then MRAS is the exclusive provider. MRAS has indeed performed very well, and it has been a very successful M&A to date. As I said earlier, has also turned positive at the program level as we climb the learning curve. For asset under management, the AUM, which is under our aviation asset management unit, exceeded US $2 billion. as of end 2023. Again, we have set in November 21, Investor Day, a 2026 target of US $2 billion, and we have now exceeded it in 2023. Now, this AAM business, based fundamentally is to purchase aircraft and engines, lease them out, and when we reach a critical mass, to securitize it or to sell it down to joint venture or other parties. But even after securitization or selling it down, this portfolio will continue to be managed by AAM companies. of ST Engineering and it avails us to more airframe engine and component MRO opportunities. So it is working well for us. Slide 14, DPS. DPS EBIT improved from 405 million in 22 to 567 million in 23, a very robust 40% year-on-year growth. This is due to business growth, better margin makes, cost savings, as well as the avoidance of US marine losses, which was divested in 2022. Slide 15. This slide discusses DPS business highlights. Firstly, the strong order book for DPS, which comprises the frigate upgrades, MRCV construction, among others, provide clear visibility of future revenue for this segment. For 2023, DPS won international contracts totaling about $950 million. So we are showing this figure to demonstrate our ability to penetrate international markets, even for the DPS segment. We also made good progress in international markets like Europe and the Middle East. The digital business continues to do well and is on track to exceed, again, our November 21 investor day target of more than $500 million by 2026. Revenue of $463 million was achieved in 2023, representing a 20% year-on-year growth and with three more years to exceed more than $500 million. Finally, we will continue to harness the rapidly evolving digital technologies in cloud, AI, analytics, and cyber to seek even further growth. Slide 16 is about USS. I'm pleased to announce that Transcore earnings became accretive in 2023, which is slightly ahead of plan as we have guided when we made the acquisition. So Transcore was cash-accretive in the first year, and it was P&L equitive ahead of plan before the end of the second year. The EBIT for USS dropped 66%, and this is largely due to Satisfy and SECOM weakness. Excluding the Satisfy divestment loss and SECOM severance expenses, the USS base operating performance EBIT declined by 6%. from 44 million to 42 million in 2023. Even though the USS EBIT dropped, this segment performed significantly stronger in second half 23 versus first half 23. In first half 23, this segment recorded an EBIT loss of 34 million. In second half 23, this segment recorded a positive EBIT of 44 million, bringing the full year segment EBIT to a positive 10 million. as guided previously. As you know, the SECCOM industry is rapidly evolving, the industry itself, into a multi-orbit cloud convergent space. Hence, our SECCOM business, iDirect, is also responding and transforming likewise. Slide 17 will review the business updates for Urban Solutions. So you have USS, you have Urban Solutions, which is the Urban Solutions-based business, and Transcall. Then you have SACCOM, right? So we are talking about Urban Solutions. We have announced yesterday that we want a contract to enable automatic and ticketless parking fee collection at the Dubai Mall. which is one of the largest malls in the world, 13,000 car park lots, just hard to imagine. This is a demonstration of how we could derive synergies from the Transcall acquisition. The project demonstrates the Urban Solutions team's ability to synergize by combining Transcall's expertise in the SELIC traffic toll system, which they developed for SELIC in Dubai, with the barrier-free smart car park technology developed here by Urban Solutions in Singapore. So they are combining this to win a good contract in Dubai. So we were able to tap capabilities everywhere in the US, in the Middle East, of course, the folks working the ground, and in Singapore, and combining technologies and channel network to offer a superior solution to the customer. So I would also like to reiterate again that Transcorps became earnings secretive in 23 ahead of plan. So it is doing well. Thirdly, URS recorded its first international airport security project win to deploy the Agile Secure Integrated Security Management Platform at the Doho Kidiri International Airport in Indonesia. In addition, URS has also won a root project in Abu Dhabi and real projects in Chennai, Sydney, and Ontario, Canada. Slide 18 describes the measures we are taking for our SECCOM business. In 23, these actions were taken. Firstly, we undertook an organization right-sizing with a reduction of about 20% of the workforce. So this puts us in the better cost base. Secondly, we focus our engineering efforts on developing the next generation platform. And this leverages on the existing Velocity platform, just one platform, leverage on it. We plan to convert the best in class features from both the Velocity as well as the Dialog platforms into our future product offerings. Thirdly, we have successfully completed proof of concept on interoperability and cloud deployment. So these are features of the future. Our Internet of Things and over-the-top services have helped us expand into adjacent markets. In 2024, we will unveil the NGP brand. This will be done at a satellite show in Washington, D.C. in the middle of next month to showcase the NGP's capabilities to our customers. Secondly, we will continue with cost optimization and process improvements and improve the revenue quality to better pricing and contract management. Let's move on to the group's order book and debt profile. Slide 20 highlights some of our major wins in 4Q23. I will leave you to read the details. But in this period, the group secured $3.1 billion of new contracts, $1 billion from commercial aerospace, $1.5 billion from defense and public security segment, and $645 million from urban solutions and SECOM. This brings the total contract value, new contract rather, the total new contract value for the year 2023 to $14.8 billion, the year as a whole. The group ended the year, slide 21, With a robust order book balance of $27.4 billion, 19% higher than the $23 billion recorded at the end of 2022. About $7.9 billion of this $27.4 billion is expected to be delivered in 2024. This strong order book provides visibility for future revenue in the coming periods. Slide 22, our debt profile. Our borrowings as of 31st December 2023 has reduced by 7% from $6.5 billion the year before. EBITDA has increased to $1.5 billion by a strong 16%. Debt to EBITDA leverage ratio, which is what rating agencies look at, improved from 5.2, that means more debt to EBITDA in 2022, to 4.2, which is less debt to EBITDA in 2023. More than $500 million has been invested in capital expenditure and capability building to support future growth, such as LEAP 1A, 1B, Changi Creek, Gal Yat, etc. So we are also incurring interest expenses which may not have seen EBITDA for future growth. This is investing in the future. Our debt profile remains balanced at 62% fixed interest rate and 38% floating interest rate. Group weighted average borrowing cost for 2023 is still at a competitive level of 3.3%. Our credit ratings remain very strong, with a AAA stable by Moody's and AA plus stable by S&P. Next, dividends. Slide 24. As you have read in the press release, we are pleased that the final tax exam cash dividend will be $0.04 per ordinary shares for the year ending December 23rd. Payment of the final dividend is subject to the approval of shareholders of the company at the forthcoming AGM in April. If so approved, the record date to be eligible is 2 May 2024, and shareholders will receive the dividends on 14 May 2024. For the first three quarters of 2023, we have paid three interim dividends at a very rateable manner of $0.04 each. making a total of 12 cents for the first three interim dividends. And as a total dividend for the year ending December 23 will be 16 cents after including the final dividend of another 4 cents. Next slide please. We now look at the outlook and the Group CEO statement. So let me just read it out. In 2023, our group achieved significant financial milestones. Group revenue exceeded $10 billion, while group net profit grew 10% year-on-year to $586 million. This performance was underpinned by the strength of our commercial aerospace and DPS segments and a high-graded portfolio. Our investment in Transcorps became accretive in 2023 ahead of plan, This strong set of results was also supported by productivity and cost savings measures and investments made during the COVID-19 downturn. We remain focused on executing our robust order book of $27.4 billion while delivering sustainable growth and creating value for our shareholders. Finally, in summary, Group did well for 2023 and is well positioned for the future. Revenue, EBITDA, EBIT, and net profit in 2023 had all witnessed strong growth. Contract wins, $14.8 billion. A robust order book, $27.4 billion, will provide visibility of revenue in the periods ahead. Our strong results are underpinned by commercial aerospace and DPS good performances. MRAS performed very well. Transcorps became earning-accurative ahead of plan. SECCOM transformation is well underway. Cost of borrowings remain competitive at 3.3% per annum. And we have made consistently and steadily investments for capacity expansion and capability building with an eye for better performance and growth into the future. Last but not least, final dividend of 4 cents, making a total dividend for 23.16 cents. This brings me to the end of my presentation, and thank you for your attention.

Thank you, Cedric. May I now invite our panelists to the head table. The panelists this morning are Vincent Chong, Group President and CEO, Cedric Foo, our Group CFO, Rabida Singh, Group COO, Technology and Innovation and President, Defense and Public Security, Tan Lee Chew, Group Chief, Commercial Officer, Market Development and President, Smart City and Digital Solutions, and Jeffrey Lum, President of Commercial Aerospace. I will now hand the floor over to Vincent to deliver his remarks. Vincent, please.

Good morning, everyone. Those of you at the ST Engineering Hub and also participants who are joining us virtually, welcome to ST Engineering's Financial Results Briefing for second half and full year of 2023. First, let me just extend my appreciation to those who took time to visit STNG Pavilion at the Singapore Airshow, which just concluded over the last weekend. It was really heartening to hear from those who attended the show that the show provided the opportunity for you to review our suite of solutions, and our showcase featured numerous new innovations, underscoring our emphasis on deep tech capabilities for this year's show. This focus expands beyond our well-established strengths in MRO products and hardware, and the feedback we have received indicate that your visit allowed for a deeper understanding of our comprehensive capabilities and value proposition, placing them into meaningful context when you have a show-and-tell, particularly regarding our long-standing investments in deep tech capabilities now. So let me just now move on to our financial results. In the second half of 2023, as Cedric presented, our revenue grew by 10% year-on-year, driven by improved performance in commercial aerospace and VPS as well as USS. Our second half EBIT saw a 34% increase year-on-year, with strong contributions from commercial aerospace and defense and public security segments, as well as a higher urban solutions and SECCOM EBIT. In alignment with our earlier guidance for the segment performance to be second-half weighted, if you recall, that's what we have been informing the market, Group net profit for second half increased strongly by 20% compared to the year before, boasted by strong business growth, productivity improvements, and cost savings. We had a strong sequential half performance in second half 2023 compared to first half of 2023, this being another indicator of our growth momentum. Group revenue was 8% higher sequentially, EBIT was 6% higher and net profit was 9% higher. On a full year basis, our results achieved several milestones. The group exceeded $10 billion in annual revenue. We also achieved very strong EBIT and net profit with year-on-year growth of 24% and 10% respectively. This set of results was underpinned by the strength of commercial aerospace and defense and public security, as well as a high-graded portfolio. Further support came from productivity gains and cost savings, as well as positive impact stemming from continual investments made during the COVID-19 downturn. As you would recall, when we were briefing you during the height of COVID, we kept sharing with you that we continue to invest in growth projects so that we are ready for the upturn, and I'm really glad that we made those investments during the downturn. Amidst inflationary pressures, we achieved notable improvements in our unit operating expenses defined as OPEX per unit revenue. decreasing from 12.1% in 2022 to 11.4% in 2023. So if you use all of our OPEX divided by our revenue, that ratio came down to 11.4% in 2023, underscoring our consistent focus on achieving better productivity and lower costs. This is a result of our ongoing effort. As I mentioned to you, we have a team of people doing continuous improvement across the group, and then our functions, including procurement organization, continue to look at opportunities to optimize our purchases and costs. These outcomes underscore our strong group fundamentals and strategic focus. Let me just point to you some highlights. At the segment level, the commercial aerospace segment demonstrated remarkable growth for its full-year revenue and EBIT, which increased by 31% and 12% respectively. Its $3.9 billion revenue exceeded our investor-date target of $3.5 billion set for 2026. This strong performance was attributed to contributions from all of our commercial aerospace business lines, reflecting the ongoing recovery in the aviation industry. I mean, albeit that half on half, we have project timing that would cause some intra-half or cross-half fluctuations in margins, but overall our momentum is very, very strong. And just to remind you that our PTF also achieved accretion in 2023, as we have committed. And there is continued recovery in air travel. Asia-Pacific has not yet recovered to pre-COVID level as a whole. It was at 83% at the end of last year. So we see more upside in our commercial aerospace business. And our nacelle production is also ramping up in conjunction and in alignment with the growth in aircraft production by the OEM, by Airbus. And we also have new hangers coming on stream in the next few years. We broke ground at Changi Creek, and we're going to start our fourth hanger at Guangzhou very shortly. And of course, later on, we'll have Jeff share more with you. This segment posted a strong 35% year-on-year second-half EBIT growth. Now that's quite remarkable. And as Cedric said, we already surpassed pre-COVID level for commercial aerospace in terms of the revenue and EBIT performance ahead of the global industry. Notably, as I mentioned just now, our Airbus PTF conversion program achieved positive EBIT in 2023, benefiting from improved learning curve and realized productivity savings. So with further progress, we expect the EBIT margin percentage to reach mid-2023. single-digit this year and high single-digit percentage by 2025. In 2023, we got low single-digit percent EBIT margin as we also guided earlier on. This projection is underpinned by ongoing efforts to mature the learning curve, especially at the new PTF sites, and a dedicated effort on enhancing turnaround time for each conversion. importantly, fundamental demand for converted freighters remains strong. Looking ahead, we expect sustained momentum from the ongoing aviation recovery, especially in Asia-Pacific, which was still lagging the other regions. But I think we should get past the notion of recovery to pre-COVID. We are really now very well positioned for growth way past what we achieved pre-COVID, given all the investments that we have made over the last few years and the focus on growing our top and bottom line for commercial aerospace business. And as I mentioned, our decision to invest in capacity expansion during COVID-19 pandemic downturn has really paid off for us now that the aviation industry has rebounded strongly. The second hangar in Pensacola, which was operational since February of last year, following groundbreaking in July of 2021, is a testament to this success. Looking ahead, I mentioned just now 4th Hangar in Guangzhou should be ready this quarter and we have ongoing construction projects including the 1st Hangar at Changi Creek and the 1st Hangar in Er Chou, Hubei from our JV with SF Airlines and both of them are slated to be operational by the end of 2025. Overall, our current expansion plans will add about 30% more airframe man-hours to our global MRO capacity. And that's a significant improvement or increase. Our commitment to strategic investments in global capacity and the expansion of our MRO business, coupled with the introduction of innovative solutions such as our new LEAP 1A, 1B solutions or engine MRO, positions us for continued success. Furthermore, our nacelle business will grow in tandem with A320 new deliveries. Let me just move on to defense and public security segment. This segment's annual revenue grew 6%. In the second half, revenue grew 5% year-on-year. If we exclude U.S. marine business revenue in 2022, if we exclude those revenue, then 2023 would have grown by 6% and second half would have grown by 5%. The EBIT was a very strong 40% increase for both reporting periods, driven by a combination of factors including avoidance of losses from the divested U.S. marine business, project margin mix, and positive outcomes from cost-saving initiatives. While revenue and EBIT may be lumpy at times, that's nature of the defense business, stemming from project mix and timing, the segment has very robust order book, providing clear revenue stream in the years ahead. We are very confident in the performance of this particular segment, or our DPS segment. Notably, as Cedric mentioned, our digital business, comprising cloud AI analytics and cyber business, recorded 20% year-on-year growth, poised to well exceed our investor day revenue target of more than $500 million by 2026. Our international business growth for the DPS segment gained momentum as evident in the full-year contract wins of close to $1 billion from its continued internalization. Specifically, for our international defense business, we have forged partnerships within global defence ecosystems, strengthening our foothold in Europe and the Middle East, positioning us for continued growth in these target markets. Next, for our urban solutions and SECCOM segment. Revenue improved for the reporting periods. Despite full-year EBIT being impacted by SECCOM weakness, second-half EBIT was 7% stronger year-on-year. We also had stronger SECCOM performance second-half versus first-half of 2023 as we guided. As we guided for the segment EBIT to be second-half weighted, I will call out that as projected, sequential second-half segment EBIT was stronger, contributed by transcore and smaller SECCOM losses. This resulted in an improved EBIT from minus $34 million in the first half of 2023 to $44 million in the second half of 2023, with a very strong improvement in performance during the period. As you have heard earlier, our investment in Transcore became earnings-equitif ahead of projected second-year post-acquisition timeline. If you look at second-year post-acquisition, that will be March of this year, but then we achieved a crescent in the full year of 2023, a few months ahead of schedule. And when we talk about acquisition means after you take all, you know, we consider all the amortization, interest expense, we are, you know, positive on the bottom line for our investment in Transcor. And as Cendric mentioned yesterday, we announced a new project in Dubai to extend Transcor's tolling technology, currently used in Dubai, to a smart car park system at Dubai Mall, one of the largest malls in the world. The significance of this win really is that it demonstrates our urban solution team's synergistic capabilities by combining trans-course expertise in traffic toll system with the barrier-free smart car park technology developed by our teams in Singapore. And we have a good pipeline of synergistic projects that are being worked on, prospects in this part of the world, in Southeast Asia, as well as in the United States. Of course, we'll share more in due course when we have more success. We continue to work on cross-selling our smart mobility solutions, and then we'll provide, again, updates of significant development as time passes. Meanwhile, we expect the transformation efforts of our SECCOM business implemented in the middle of last year to continue this year. Cedric, in his presentation, has highlighted key focus areas that we have outlined to strengthen the business in 2024 and beyond. Moving on to new contract wins in 2023, we secured close to $15 billion of new contracts, including $3.1 billion secured in the last quarter of this year. This is 13% more than the year before. Lifted by these new contract wins, we ended 2023 with a very strong order book of $27.4 billion, and we expect to deliver about $7.9 billion in 2024. The robust order book remains a leading indicator of growth in the years ahead, keeping us on track towards exceeding our five-year plan targets, which we have shared and invested in. So we are confident that we are on the right track and we will exceed our five-year plan targets based on our momentum in the last few years. Finally, our board of directors has approved a final dividend of $0.04 per share, bringing our total dividend for 2023 to $0.16 per share. Now, I've come to the end of my prepared remarks. We will now take questions, so we welcome questions that you may have at this time.

Thank you, Vincent. We will now move on to the Q&A session. I will open up the floor to our participants in the room first. Kindly state your name and the company you are from before asking your question. For our online analyst participants, please click the Raise Your Hand icon and we will place you in the queue. May we have our first question from the floor, please?

Yes. I am from Taobao. Thank you very much for having me here today. So the first question I would like to understand is I noticed that the capex for 2023 is significantly lower than the year before, lower than $500 million. I think it's only over $200 million. Yes. compared to FY22, which was about $4.6 billion. So I'm just wondering, what's the key reason behind this drop in CapEx, and whether you expect this to climb back up to the $4 to $5 billion range in FY24? That's the first question.

Okay. Okay. Would you want to complete your questions or you want us to address one by one? It's up to your preference.

You can address one by one because I'm afraid it might be a bit overwhelming if I ask you.

Okay, well, I'll let Cedric go into a little bit more details, but 2022 reflected our investments in Transcor. Our ongoing capex, we expect run rate to be anywhere between $300 million, $400 million, $500 million, depending on the year. So that's kind of our run rate. So $540 million is really not extraordinary. $540 million-ish capex in 2023 is not extraordinary. It's quite in line with our run rate.

I think that's almost the complete answer. Indeed, 2023, our capex is about $540 million.

Okay, so the other question I would like to understand is more straightforward. Notice that you mentioned $7.9 billion of the order books going to be delivered in FY24. So I'm wondering whether it will be evenly spread out across the quarters or would it be maybe more back heavy?

There's no particular exceptions that we would like to highlight. I think it's no different than the past cyclical or quarterly trends. So what we mention here is just the drawdown from our order book. There's nothing that would cause us to believe the so-called pattern of drawdown would be different than previous years. But of course, quarterly, there are always plus and minuses, but I wouldn't say that it's weighted in any way differently than previous years.

Previous year meaning it will be more back heavy towards the end of the year?

Yeah, but it's not. So when we say last year, back and waited, it's really for USS. And then, of course, for the rest of the sector, for commercial aerospace, it also reflects more projects, but also recovery of the aviation industry. Okay.

Okay, last question is on the margin profile. I would like to understand across the three primary segments, how different are their margins and whether you expect the revenue mixed by segments to differ significantly in 2024 and how would that look like this year?

Okay, so for the growth momentum Maybe I'll invite Ravi and Jeff especially later on in the Q&A, maybe not now, to talk a little bit about their business. The margin profile has been very robust and healthy, I must say, across the group, as you saw the strong EBIT performance. In between quarters, there are always timing of projects, but the overall momentum has been very strong, as evident in our sequential half performance. And so I think we are on a very strong footing.

Would you be able to rank the margin profile from best to worst among the three segments?

Well, you would have seen the EBIT dollar value versus revenue. I think DPS had a very good year and then aerospace is really climbing up, ramping up because we are accurate for passenger to freighter conversion. We will see more momentum because as I said, we're going to improve from single digit EBIT margin percentage for our PTF business to now meet single digit for this year. So you will see aerospace margin continue to... For defense and public security, we had a good year of margin strength, and that's the highest EBIT margin sector. But it depends on the project timing. Overall, we are on very solid foundation. I think our revenue momentum and project momentum will kick in, will continue to allow us to perform very well in this segment.

So in terms of the revenue breakdown, will it be similar to FY23 or will we maybe see more CA revenue in 2024?

We do not give any revenue forecast for the segment. Suffice to say that all three segments are getting good momentum, as we've shown sequentially. And also across quarter, between third and fourth quarter, all segments have done well in terms of revenue growth. So short of giving specific guidance on revenue, I think all three segments are on good momentum. Thank you, Jatin, for your questions.

I think the EBIT margin by segment can be found in this booklet.

Thank you. Hi, this is Kenneth from CGS. Congrats to the team on a good set of results. I have three questions, all on the aerospace sector. Firstly, the aerospace EBIT margin was down half on half by about 2%. It was driving the half on half softness and is second half a good runway that we should expect going to 2024. Second question is on the labour market. Quarter-on-quarter basis, have we seen any changes in aerospace labour market trends? Is there any difference in the labour tightness across your key markets, or is it mostly broad-based? Last question is on clarification whether there was any aircraft sales in the fourth quarter. Are we expecting any more in 2024, and what's the guidance? Thank you.

Maybe I'll invite Jeff to take on this question. Thanks. Thank you.

The EBIT margin half on half, we have to consider the project mix and the project timing. So I would really read the full year EBIT margin and then be able to project forward. We certainly have differences between quarters and between halves. The momentum, as Vincent said, continues. So we do expect to see continued growth and good recovery. On the labour market trends, it's abating gradually. Nevertheless, we continue to see challenges, particularly in the U.S. market, where there's a very tight labor market and huge demand. So it does drive some inflation. But if we look at our labor costs per headcount over 2023, we've been able to keep it very moderated. And with the high revenue growth rate and the recovery and the EBIT margin growth, I think we managed to keep it under management. We continue to work with the regional schools. We work with the governments on foreign visas for the foreign contract labor. And of course, we continue to automate our operations. Last but not least, aircraft sales. We continuously rationalize and develop our portfolio, so you can expect that there continues to be movement in aircraft sale, purchase, rationalization, working with our partners. So yes, the answer is we will continue to see aircraft sales. They tend not to be... constant throughout the year. So once again, don't read too much into the quarter and a half financials. Thank you.

Just to add that those aircraft sales that we did were profitable, although it's not a material percentage of our total EBIT. In terms of second half versus first half EBIT profile, as Jeff mentioned, it sometimes depends on project timing. I won't read too much into it. We're actually quite confident of this continued trajectory. for our commercial aerospace. Given the project pipeline that we have and the continued strengthening of our PTF EBIT accretion, even in the fourth quarter of 2023, you are able to do the mathematics. Actually, our revenue for commercial aerospace increased 9% versus third quarter of 2023. So you can see the growth momentum building up. Because we did disclose commercial aerospace revenue in the third quarter of 2023. When you use your second half, the minus off, then you'll see the continued growth momentum for the fourth quarter of 2023.

Hi, thank you for the opportunity to ask questions. This is Jason from DBS. Yeah, so thanks for providing more color on the aerospace segment earlier, but I wanted to get a bit more color on how MRAS, in terms of its margin profile, how has it trended over the past few years and how does it compare to 2019? Next question is on Transcore. So very encouraging to see that it has turned a bit positive ahead of plans. So I just wanted to see what kind of, what level of margins you're actually targeting for Transcore business this year. And just one more question on your cost of debt. So cost of debt for 2023 has been very impressive. So I'm hoping that you can provide an update on your expected all-in cost of debt in 2024 and what are the underlying assumptions behind this expectation. Thank you.

Maybe we start with question three, Cedric, to answer the expected weighted average cost of debt in 2024, which we did give an indication some time back, even assuming no reduction in interest rate at the Fed level. Now then, on transcore margin target, I'll let Liqiu talk about. We don't really give a forecast on margin specifically, but we can give you some color on transcore's performance. And then we end with the third question in reverse order, MRS margin. Again, we don't get to that specific, but we are actually very pleased with MRS performance. the cost takeout that has happened in the last few years. So it's giving us very strong performance. So maybe let's start with Cedric. Thanks, Vincent.

The weighted average cost of borrowing between floating and fixed rate for 2023 is a competitive 3.3%. Next year, assuming no Fed interest rate cuts, because nobody knows when they were cut, how much they were cut, but assuming no cuts, which is kind of a conservative estimate, we will come out mid-3%. But if they do cut, then we expect that mid-3% to be even better, even lower. Just a clarification, when we mentioned Transcor is earnings-equitative, it's not EBIT-equitative only, it's net profit-equitative.

So thanks for the question on Transco. First of all, I apologize for the occasional cough and talk too much at the show last week. So like Vincent mentioned, we actually look at Transco as a very integrated part of our smart mobility business right now. And as we look at the margin profile of that business, no different from everything else that we own, we are looking at scaling the business. We're looking constantly at driving down costs. And we're also looking at how, as we go to market, we continue to develop partnerships. So we will obviously focus on how we can bring a more high-graded margin profile as we conduct all the projects and the businesses across many parts of the globe.

TransCorp certainly did better in the second half of 2023 than the first half, both revenues as well as margins. So we expect the performance to be on a very strong foundation going into 2024 and the years forward, especially when we have actually quite a few projects in the pipeline, synergistic projects, and of course when we have some more to share, we will share along the way. Maybe we'll finish up the question.

Okay. So on Middle River, as we continue to deliver more nacelles to our customers, obviously the scale synergies begin to kick in even more. And our focus on productivity to take costs out of the production system so that we can improve our margins. In addition, there's also spare sales that also can come in based on the market requirements. So we saw a good profile in 2023 that contributed to the margin improvement. We certainly hope this will continue. And we expect, as we continue to deliver more, that we will derive more scale synergies. For example, even beyond the A320neo, we saw increases in the deliveries to support the Chinese C919 and the ARJ21 programs. So we do have a diverse portfolio that enables us to enjoy these synergies and address market requirements. Thank you.

Jason, thanks for your question. Yes, Silky.

I just wanted to check on two questions. For USS, we had some surveillance costs in second half, which is about $6 million. I just wanted to check if there are any more going ahead in 2024. That's the first one on USS. And without that, I think your EBIT has actually recovered very strongly in the segment, whether your margin profile is sustainable and all the challenges that you had actually guided us over the past year or so in terms of supply chain, chip shortage, is it all over on USS? Yes. Just on financial costs, you have actually seen a big improvement in terms of total debt coming down. Whether this would be the run rate that we should be looking at, or are you looking at increasing it? Is there anything that you're spending that will actually bring up your borrowings?

I think on the second question, the strong balance sheet allows us to pursue growth when the opportunities come. The strong cash flow, of course, that we'll expect to continue would also allow us to pay down our debt when appropriate. But I think we're not constrained in terms of pursuit of growth using our balance sheet. Maybe I'll let Cedric add a little bit more colour to your specific question. And then after that, we... get Vichu to talk about USS in terms of the savings cost for SECOM, and then the restructuring and transformation plan, which is going on well. We expect results to continue to strengthen, even all the work that has been put in.

I just want to highlight that the EBITDA is very strong for 2023 at close to $1.5 billion, so it's a good proxy of operating cash flow. It's slightly lower than the EBITDA, but it's a good proxy. So with this operating cash flow, really the decision before management is one, do we pay more dividend? Do we pay down debt? Or do we invest? So again, dividend, we have been quite steady at the rateable rate of four cents per quarter. We don't really nearly change dividend rate. On paying down debt, I think we have to evaluate together with investment opportunities and what kind of returns we can get. And of course, we'll be sensible about size of investment. We're also digesting some of the big M&As. So I would say on a trendline basis, if we have consistent CAPEX and all that, you may see a gradual reduction in the total debt. But of course, if we have good investment opportunities, then the debt may rise. But all this we will do in the best interest of shareholders.

So in the second half, we reported that $6 million was spent on severance. In the go forward, we will be managing our resourcing needs in line with our business. So it will be taken as required when we execute to the business requirements. The question on whether EBIT is going to be improving. So first of all, in 2023, we have a one-off divestment of Satisfye. Vincent also mentioned that the transformation is progressing well. So we continue to double down and focus. We believe that there will be and we expect steady improvement of that as we stay focused on the execution. Obviously, as a result of the right sizing, our cost base now is already lower than last year.

So as you mentioned, Satisfy in itself is a one time minus negative 24 million impact. We won't see that in 2024. So straight off EBIT effects will be better off by 2024, the absence of this investment. And severance is always, I think, based on business case, and it's always based on savings that you expect to get. So we cannot give you any forecast at this time, but if it's in the normal course of the business we think that there needs to be, then it's going to be justified based on cost savings anyway.

Hi.

Thank you. Lauren?

I just have a few questions. Starting maybe with Transcore. Just curious what the order book is for Transcore, whether you can indicate whether there were any additional wins in 2023 and as of now? Also, and that note for this on the SATCOM side, whether the transformation, in terms of transformation, what areas of growth are you potentially looking at going forward for that business? Second question on the DPS. I noticed that digital and cybersecurity, the growth is pretty good, 10%. I'm just wondering whether that is the expected outlook going forward. And also, given that the EBIT margin was also because of the absence of marine, whether that would be the normal outlook? new normal we should be looking at for that, for the segment. And, yeah, I may have a follow-up, but I'll stop there for now.

Okay. Well, we'll come back to you if you have a follow-up. So, I'll let you talk about TransCore, you know, what kind of, you know, wind momentum we had in 23. And then, of course... SACCOM, which areas of growth, which are actually, as we shared before, SACCOM is really a growth sector globally. And then I will move on to Ravi to talk about digital and cyber revenue growth, which is, we are very pleased with the growth momentum and then EV margin trend. Lichu, maybe to you first.

Okay, so we have been including Transcor's wins and order book in our quarterly updates. And if you look at our 2023 reports over the various quarters, you will see that we reported new contracts of about $2 billion over the course of 2023. And Transcor projects are really a part of that. And we don't specifically call out all wins or announce deal value of all wins. But during the acquisition, we did say that our contract renewal rates for Transcorps is high at 95% and the occurring and reoccurring business of Transcore is more than 50%. So as we look at the projects for Transcore, there's obviously a part of that business that's from existing customers that we continue to do maintenance and operations. And then there's the other part of the business where we look at taking on new projects. So that's Transcall. And the question on SECOM was, where are the growth opportunities? Is it Lorraine? So in the SECCOM world, and we've constantly said over the last, especially 12 to 18 months, that the whole industry is going through a big shift and a big evolution. And we are seeing, you know, Actually, some of the NGSOs coming in to disrupt the market. Having said that, the aerospace as well as the maritime market has also improved with the whole aero industry improving. And when we look at in-flight connectivity from the aerospace side, and when we look at the maritime business now recovering out of COVID, I think those are the two areas we see continued opportunities. And we continue to be a market leader in these two spaces. We also see that cellular backhaul and what we call land mobility becoming interesting for our industry and our market. Think about this against the backdrop of why our next generation platform is focused on multi-orbit and is focused on integrating with 5G. Because connectivity, the expectation of connectivity is going to be that no matter where you are, you want to be able to connect to the people and the rest of the world. So even in the announcements that we made in 2023, you'll see that we went into... cellular backhaul opportunities in Argentina. We are looking at broadcast opportunities in Peru. So you will see that as we take satellite beyond just connectivity in those two main areas, some of the sub-segments like cellular backhaul that has been very fragmented in the past and land mobility will become interesting and important.

Yes, it's for the growth potential in this SETCOM sector that we are developing our next generation platform with multi-orbit compatibility and cloud virtualization, which we mentioned about in Cedric's presentation. And we are very excited that we will very soon be unveiling our NGP brand not too distant in the future. This all underscores the growth potential in this particular industry. And of course, for Transcore, we are very heartened by the pipeline of projects, both in our core business in Transcore and also the synergistic ones in this region. And also the ability for us to synthesize our solutions together within a group to address new market opportunities. More to come as we have more projects to share in due course. And maybe I'll move on to Ravi.

So, Lauren, thank you for your questions. So, firstly, on the growth of the digital systems and cyber, as you noted, we've grown by more than 10%. And as Cedric shared, our digital business, which is cloud, software, AI, as well as cyber, has actually grown by 20%. And we are on track to actually exceed the target, which we set for ourselves, which is to achieve 500 million by 2026. So, the momentum is there. I think at the recent ASHO, for those of you who went down, we demonstrated many of our new capabilities, the AgileOps Hub, as well as the Agile Vision. So we're beginning to implement AI as well as generative AI into our solutions. So we think that, of course, there are a lot of opportunities in that space. And certainly on the cyber side, I think we have announced we are acquiring Decrypt and we are going to close that acquisition soon. So we're also building our cyber business. And I think the capabilities that we are putting together with Decrypt acquisition is going to really help our cyber business to be well positioned for future growth. So overall, I would say that we're optimistic. There are many opportunities, you know, you see the digital revolution and our businesses have continued to invest and build up capabilities in new technologies especially in AI, in cloud, in software and cyber. And this then puts us in a good position. And we also believe that the market demand, as we saw during the airshow, is there for the digital system and cyber business. So we expect that growth. On the margins, DPS margin was about 9.5% last year, and now we've crossed double digit. So the margin growth, I think there are two components, as we have shared in the past. I think first, the acceptance of loss because of our divestment of Horton Marine. So that's, I think, one big part. And the other part really is from our growth. and also the way our projects are being managed, and also cost-cutting. So I would say that we do intend to strive to continue with double-digit margin for DPS business. And if you look at our order book, in fact, this year we achieved new orders. This year, 2023, we secured $7.7 billion of new orders. And if you look three years back, I was looking over the last three years, On average, about $6.5 billion of orders. So, of course, defense and public security projects are longer term. It takes a couple of years to deliver them. But there is actually a strong momentum. If we can deliver those orders that we have in our order book well, then I think the DPS business can certainly maintain the rate we are going. And certainly, we are focused on making sure that the margins are – get good margins for the business and for the group. Okay.

So we are really pleased with the progress that we have made for our defense and public security segment. Just to add to what Ravi said and second validate his very positive comments. So we are very pleased.

Now I invite our online analyst participant to ask a question. Sean from JP Morgan will now omit your line. Please ask your question.

Hi. Thank you so much for the presentation. I think I just have three questions, very quick one. One is on order book. Do we think that the current order book, given its strength, has still further legs to go? Maybe I think the question we really wanted to ask is, do we have enough capacity to take on additional orders? Earlier you talked about MRO capacity expansion, but what about the other segments across the group? The second key thing is on aerospace. We've seen OEMs implementing price hikes globally since last year. Do we expect to implement similar price hikes to our customers this year and therefore have a positive contribution to margins? And then I think on the third things on defense, we secured a lot of international defense contracts Last year, we showcased a lot of new products in a recent airshow. Maybe you can provide an outlook for 2024 in terms of defense. Do we expect defense contract wins this year to be similarly strong, similar to last year or even stronger? And will we see even more overseas orders? And for overseas, which category are we targeting? Is it cyber munitions or is it naval vessels?

Thank you. Sean, can you repeat your question on order book? You asked whether we have enough capacity to take on new order, but there's a second part of that question. Can you remind me, please?

I think it's just more about capacity, whether we have sufficient capacity across all three segments to take on additional orders.

The answer is yes, sir. We're very happy to take on new orders. But, of course, it's done in a very well-thought-through fashion. We increase our, of course, team size, expand our capacity to take on new orders. As you see over the years, our top line and bottom line improved. So yes, we do have capacity to take on the growth in each of the three segments, but of course it has to go through a very thoughtful planning process in terms of equipment, in terms of our human resource manpower, which we have been expanding. Our workforce has also gone up. So I think that's to your question, Sean, your first question. Second question on OEM price hikes, similar hikes, but we're also in the OEM businesses. Certain parts of our business are in OEM. And of course, we have MRO, we have system integration. Of course, we always try to pass through the cost increases to the market very conscientiously. So yes, pricing is being managed at all times. And in fact, in contracts that we sign, we always... to the extent possible, building escalation factors based on inflationary factors. So we do that a fair bit across all our business lines. And then for international defense business outlook for 2024, will it be similarly strong in terms of new orders, especially for overseas and which category? Perhaps I can get Ravi to give a little bit more color.

Well, first, Sean, thank you for the question. On international defense business, we've explained previously that we have been making some concerted effort, and you can actually see it in the ASHO. I think first, products. Actually, so we've been building new products, and during the ASHO, we launched a few new products, the Xtreme V products, which is also the HED version of Xtreme V. 40mm munition, we have one of the world's first rocket-assisted round. If you haven't seen it, I'd be happy to talk to you about that. And then, of course, in terms of the command and control systems we are building. So you see a lot more products because we recognize that that's the way to go forward in the international defense business. That's one. Two is a lot of, we still started building a lot of partnerships. Typically in the defense business, there's always a desire, Especially post-Ukraine, there's always a desire, and COVID-19. Post-Ukraine, COVID-19, there's a lot of concern about supply chain. So most countries are beginning to recognize that they actually want some of the work to be done in-country, or at least the support can be done in-country. So we've been working with partners in different countries, in different regions to... to build capacity so that the end customer is assured that in the long term they have support. And the third, of course, is building up our marketing teams and putting people overseas and finding the right people who can help us who are familiar with these markets. So I think we've done that. So this last year we secured for defense and public security, we secured close to 500 million of new contracts. And I just want to give you a flavor of some of this so you get a sense of what we are doing. For example, for the 40mm, we managed to sell to three new Eastern European countries, Poland, Slovenia, and Romania. We mentioned also, I think we are doing the C-130 upgrade for Tunisia, and we've actually been successful in selling autonomous masks to two Middle Eastern countries recently. And we delivered last year the Xtreme V to a customer in Germany, actually German Army, Mexico, and then during the air show to a customer in Sweden. So I think I just want to share this with you because, first of all, defense, as Vincent has always said, takes a long, gas station period is a long time. And then, of course, the approval process, the budgeting takes some time. So these are early indicators of the outcomes of the effort that the teams have put in, which I think is good. What's our outlook? We are actually working on quite a few major projects, but defense business is defense business. Until you cross the line, it's not yours. So there's always many, many considerations beyond price and performance. So we have quite a few approaches we are pursuing, including in the marine business, ammunition, in platforms, and so on the cyber side and the digital system side. We have been pursuing these opportunities. Some of this we believe should come in. I mean, 4DMM, you know, we are the world leader in 4DMM, and I think the team has done well. We continue to see a lot of repeat orders. We are very confident. In terms of platforms, we are chasing quite a few. With Xtreme B, you can see the momentum is building, and we are pushing the team to do more and to increase the numbers. Enable programs take a bit longer. Typically, they are larger and they take a couple of years to gestate and to create the opportunity for us to win the deals. But we are also working on them. So our focus really in terms of opportunities right now is a lot in Europe, in Eastern Europe, Northern Europe, and of course in the Middle East. I think that's where the demand has been strong in the last year and we think in the next couple of years. And that's where we are going to focus on.

So it's actually quite... we are really quite optimistic about our continued progress in the international defense business. Maybe I'll just add one more point to the question on price hikes. When you have inflationary pressures and higher costs, what we do, yes, we pass through costs to the market. We also try to increase our price. We build in inflation protection factors in our contracts. We also take costs out of our equation. productivity savings, cost savings, which explain why in the last couple of years when inflation pressures were high, we maintained a very good margin resilience across the group for those reasons. So thanks, Sean, for your questions. May I maybe ask Ziwei, because I think Ziwei has a few questions.

Yes, thank you, Matt Vincent. Congratulations on your strong set of results. I have three questions. This question is a bit of housekeeping. Notice under your segment report for the second half of 2023, there's a non-operating income of about $16 million on the DPS. And what is that? And then after that smaller one, is this a gain on ineffective cash flow hedges that's in the second half of 2023? What's that also? Second question is TLOC gains. Didn't see a mention of a number in your slides. How much is left? Third question is on aerospace, commercial aerospace margins. Using second half as a fair comparison, EBIT margins excluding your associates and JVs was 6.1% in 2022. It became 6.3% in 2023. Now, PKF also turned positive in second half of 2023. You likely had some aircraft sales in second half as well. I'm a bit surprised that given this turnaround between a year, your EBIT margin didn't expand much more than, I mean, it didn't expand more than one percentage point. It's small. So, wondering how to reconcile that delta. Thanks. Thanks.

Okay, so thanks for your questions and also your well wishes. Thanks for that. The segment non-operating income, we have the very simple answer for you. Cedric will take you through. And then on the question on hedges and TLOC gain, we don't have any more TLOCs in our balance sheet, as we mentioned. So that has been... fully flushed out in 2023. And then we can talk about commercial aerospace and let Jeff talk about it. As I mentioned, project timing sometimes has bearing. I won't read too much into the near-term EBIT margin, but I think we are really on a good trajectory. But I'll let Jeff give you a little bit more color. So maybe I'll let the Cedric, talk about your two questions.

Yeah, DPS has non-operating income, and that's because we had a favourable settlement on the sale of U.S. marine business, where at post-closing, we have to look at the net working capital settlement. Because in a typical M&A, you have a target net working capital and the actual, which will happen post-closing, because you don't have the results at the date of closing. So in the end, it was settled in our favor. So that was the reason for the other income. It's a positive thing. And then there's a question on hedges. Yeah, TLOCs have all been taken in 2023. Yeah, so in 2023, there is some TLOC gains which account to about $24 million. So that's the one. But they're all taken already, so going forward, you won't see the T-locks, but you'll see hedges.

We did, I think, we will continue to keep you posted. We did share those information along the way. Jeff?

Thank you. So, as we said, project mix and project timing also crosses these quarterly and half-yearly timelines. In addition, we also said earlier we continue to invest in capability and capacity. If you just look at the number of projects we've executed last year, including the LEAP licensing for the future, including Changi Creek hangar investment for the future, as well as all our other capacity expansion projects that we're doing that Vincent alluded to. From a capability point of view, LEAP is going to bring significant growth in top line and bottom line in the coming years. We also have invested in additional capability for the new aircraft types, for example, the 320neo, 737 MAX, the 350, and Nacelle MRO capabilities that we're expanding for the 320neo in particular across all our MRO sites. So you can see the activity level, we didn't just keep up, we actually increased the activity level for investments in the future, and all this comes with tooling, training, and so on. So really, I think you have to look at commercial aerospace as a growth business, and we continue to scale our PTF conversions. So, for example, last year we added three new sites to PTF conversions. So As Vincent also alluded to, we continue to expect the PTF margins to improve in the coming years. So it's all a combination of the high number of activities we're doing as well as all the investments we continue to make.

Thanks for the answer, Jeff. Just one follow-up on that. So I take your point that there is a bit of passive expansion that's suppressing your margin. If I reverse that out, how much margin percentage points would that... cost you?

I certainly hope it will be. We are working towards expanding margins in the coming years. We are working towards expanding revenue, expanding margins, scale synergies, and certainly a lot of growth. That's my short answer.

Well, PTF, we already said that last year we had low single-digit EBIT margin. This year we'll get to mid- single digit and make sure will be high single digit. So you'll see the traction and PTF revenue is actually quite a substantial part of our commercial aerospace business. We do expect margin to be quite robust.

We've come to the end of our Q&A session.

Maybe we'll let Rahul ask a question and then after that we'll see if we have further questions. If not, we can always take it offline later on.

Thank you Rahul from HSBC. Thanks for taking my question. I want to get back on the point that you mentioned about dividends, dividend 2023. I want to understand how you're thinking about using the future cash flows between new investments, dividends and paying out debt. Is there any priority in your mind or you're trying to maybe have a balance between all the three? Second question is on the USS division. Could you talk more about the sub-segment urban solutions? Obviously, great, Transcore became earnings executive. Congratulations on that. But if we strip out Transcore, that sub-segment, how is the business going on? Because it appears that it may not be growing or the margins might be low. I know you normally look at it in a combined basis, but I'm just trying to understand what is happening on the ground, that particular subject. Thank you.

Well, thanks for the question. These are good questions. Let me just talk about how we use our cash, and then after that, of course, Cedric can weigh in, and then we'll let... Lee Chew talked about our urban solution business, which, you know, there's a lot of good projects in the pipeline, including our mobility projects in Taiwan that will kick into full gear very soon. So actually, the momentum is quite good. I'll let Lee Chew talk a little bit about that. So when we talk about our management of our cash, whether it's a dividend or whether it is a continued investment, the reality is that because our balance sheet is very strong, remains to be very robust, it gives us a lot of flexibility. If you look at our track record of dividend payout over the years, even in the deepest, most difficult times in COVID, we did not cut dividend. We maintained at 15 cents. And two years ago, from 2022 onwards, we started moving it to 16 cents, 4 cents a quarter, showing the confidence of us being able to return value to shareholders minimally through our dividend in a rateable fashion. And there's no plan to change that. Our balance sheet is strong enough that beyond paying dividend, our cash flow is strong enough that beyond paying dividend, we can still invest in growth, which is what we have been doing. In the last few years, we have been working very hard and I think very successfully in transforming this company to not just being a dividend yield company, but also one that is growth, given the very strong order book that we have recorded. So we now have to execute those order books with the margin that we expect. But we have a lot of flexibility. But dividend payout, we want it to be very stable and very readable. And we have no plans to change in the near term.

When you say dividend payout, Do you mean by as a percent of your profit or you're talking about the absolute dividend?

Absolutely. So four cents a quarter is what we are doing now and we have no plan to change this kind of rateable dividend payout on a quarterly basis in a level that is rateable and predictable. No plan to change that. Okay. Okay. Then we talk about sub-segment URS, I suppose. So yes, you hit the nail on the head. We now look at Transcore and the rest of Urban Solutions as one Urban Solution. Transcore is now our base business. This is third year, or rather we're coming to the end of second year of ownership. And I'm very glad to see that the teams are really working as one team. I'll let Lichu talk about the other aspects of Urban Solutions.

Thanks, Rahul. So outside of Transco, the urban solution business is healthy and progressing well. I think during the presentation today, you saw that we are making progress on the road front with Abu Dhabi. project. We have also talked about our platform screen door wins across multiple sites globally. There are a few projects that perhaps in the beginning of 2023 and the end of 2022 that have contributed significantly to our order book and maybe I can just flag them up here. So you remember the yellow line, which is our first turnkey project awarded to us towards late 2022 at $1.4 billion. We continue to execute to that across 2023 and obviously in the forward-looking years. We also announced a $450 million contract for our Kaohsiung Red Line extension in the beginning of last year as well. In that same measure, we talked about our communications and control system project that we won with LTA about $200 million. in the beginning of 2023. So you can see that the over $2 billion order book that I was referencing in 2023 is going to give us a good solid foundation for us to deliver our revenue. And even on the, because if you look at our smart city focus, there's smart mobility, there's smart infrastructure and utilities, and then there is smart security. If you were at the Astro, you would have seen us launch our product on smart building energy efficiency. That whole system is going to meet some of the needs that we know customers are looking for in terms of managing their resources in building, even as we add to the smart city OS that we have been developing previously. And then on the smart security side, so the wind that we flag today about the airport security in Indonesia is an indication that we continue to double down on that. So there are many projects that we're working across outside of Transcore. Obviously, Transcore's accretion is a big milestone for us. We're very excited about it, but we're also very positive about the opportunities that we're seeing across the other aspects of the business. So hopefully that helps.

Yes. Thank you, Rahul. We'll take one last question. Please.

Hi, this is Douglas from The Edge. I just have one question and it's regarding the commercial aerospace segment, which is with the recent sort of interest generated on sustainable aviation fuel, SAF, are there sort of any plans by ST or an area of interest, is SAF an area of interest for ST? I know back in 2022, There was an MOU signed with Safran to sort of study the use of SAF on helicopter engines. So since then, is there an update on that? Thank you.

Jeff, thanks for the question.

So firstly, at a broad level, sustainability is one of our key focus areas. Certainly, if you look at the work we've done around reducing our carbon footprint, as well as using greener energy, we have actually done a huge amount of work. In fact, last year we won the National Award for this project. by NEA for our efforts in sustainability. And so if you look at SAF, the use of SAF, it will primarily be driven by our customers because we would use SAF in testing these engines in the test cell or even on wing based on our customer requirements. So kind of unlike the airlines which would consider using SAF and asking our passengers to pay, we use it in a more limited scope through the testing of engines. And we certainly have provided the option to our customers. So based on their interest level and of course also their willingness to contribute to the cost of SAF, then we would adopt it in our facilities. So the answer is yes, we will move as fast as our customers would like us to.

Thank you, Douglas. Thanks for your question. In the area of sustainability, we see ourselves as a responsible corporate citizen, so we do our part in making our own business operations sustainable, including Using solar energy, we have run out of rooftops across the group to fix any more solar. In fact, solar energy accounts for more than 10% of our group electricity needs. But at the same time, we see sustainability as opportunities for us to use our solutions to help and support our customers. For example, smart energy-saving solutions for buildings. And as Jeff talked about, area of sustainable aviation fuels. And we have many other solutions within the group that help cities manage their carbon footprint. For example, smart traffic management that will reduce traffic congestion and therefore reduce fuel burn, including congestion pricing solutions. So we continue to see where are the other opportunities for us to add value to our customers using our technology and innovation. But thanks for your question. This is very relevant and very topical. So maybe on that note, we'll bring the Q&A to a close. We thank you very much for attending today's session, including those who joined us online virtually. And we look forward to further engagements with you as the months proceed in 2024. Thank you very much.