Singapore Tech Eng Ltd

Good morning. Welcome to ST Engineering's first half 2024 results briefing. 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. Without further ado, may I invite Cedric to give his presentation, please?

Thank you. For those attending in person and via webcast, a very good morning and welcome to ST Engineering's first half results update. I would like to bring your attention to slide number two, which states, amongst others, that the Group's future performance, outcomes and results may differ materially from those expressed in forward-looking statements. Slide three, please. This slide shows the agenda for today. I will be covering group highlights, business discussions for commercial aerospace, CA for short, Defence and Public Security, DPS for short, and Urban Solutions and SECCOM, which is USS for short. I will also cover contract wins and order book, debt profile, dividends and outlook. First, group highlights. Slide number five shows a summary of our first half 2024 results. Group revenue recorded a very strong 14% year-on-year increase to $5.5 billion for first half of 2024. Group EBIT was $523 million, up 18% year-on-year. Group profit before tax was up 19% year-on-year at $416 million. Group net profit up by a very healthy 20% year-on-year at $337 million, largely from business growth. Slide 6, from left to right, shows the revenue breakdown by segment, by type, and by location of our customers. First, revenue by segment. In first half 2024, CA contributed 40%, DPS 43% and USS 17%. DPS segment includes both local and international customers. It also covers commercial domains such as public security and safety, critical information infrastructure and others. Hence, DPS segment revenue, as you can see on the slide, of $2.4 billion in the first half of 2024 is different from defence revenue. as you can see from the right-hand side of the bar chart, which is $1.6 billion. So basically the $2.4 billion and $1.6 billion is different because the $1.6 billion is a subset of DPS, which also contains commercial businesses as well. In the centre of slide 7, the chart shows revenue by type. So commercial revenue increased from $2.8 billion in 1.522 billion to $3.3 billion in 2023 to $3.9 billion in 2024. Defence revenue increased from $1.5 billion in 2022 to $1.6 billion in 2023 Now both 1.523 and 1.524 defence revenue are showing $1.6 billion due to rounding. But in fact, defence revenue grew around 5% in 1.5 2024 versus 1.5 2023. On the right-hand side of slide 7, it shows the revenue breakdown by customer location. Asia contributed 50%, US 24%, Europe 20% and others 6%. This split is quite similar to that of 2023. Slide 7. Group revenue grew strongly at 14% year-on-year to $5.5 billion, contributed by all segments. Slide 8. First half 2024 EBIT grew by 18% year-on-year to $523 million. In first half 2023, we also incurred $24 million loss on the full divestment of shares in a company called Satisfy, as well as $2 million of servants' costs for Satcom. Excluding the effects of this, the Group would have posted an EBIT increase of 11% year-on-year at the base operating performance level. Slide 9. Net profit improved strongly from $281 million in first half 2023 to $337 million in first half 2024, or a 20% year-on-year improvement. Excluding SECCOM one-offs as mentioned in the previous slide, net profit improved 12% year-on-year on a base operating performance basis. Next, I'll move on to business discussions, starting with commercial aerospace on slide 11. CA segment reported a 20% growth in revenue to $2.2 billion. This segment benefited from the strong growth for its MRO as well as aerostructure and systems sub-segments. However, second quarter 24 revenue, well, if you use the first half 24 and minus the first quarter 24, you will see both first quarter and second quarter 24. The second quarter 24 revenue was lower than first quarter due to project timing and also lower sale of nacelle spares in second quarter 24. $2.1 billion of new contracts was recorded in first half 2024, of which $1.3 billion was for second quarter 2024. Slide 12. Here, DPS segment reported a 12% year-on-year growth in revenue to $2.4 billion. All sub-segments contributed to this strong growth. $2.6 billion of new contracts were recorded in first half 2024, of which $1 billion was recorded for second quarter 2024. We made good progress in international market development. More than $500 million was achieved in the international market sales in first half 2024. Slide 13 talks to USS . This segment reported a 3% year-on-year growth in revenue to $918 million, with growth in URS and partially offset by lower SECCOM revenue. The New York Congestion Pricing Project, as you will have read in the papers, has been paused since mid-June. Nevertheless, I am pleased to inform that the engineering and procurement and construction portion of the contract, which is the EPC part of it, has been completed and delivered as scheduled by Transcor. Currently, we are operating in accordance with the terms and conditions of the contract and do not expect the financial impact from this pause in the New York Congestion Pricing Project to be material on the USS segment. 1.4 billion of new contracts were recorded in first half 2024, of which 0.8 billion was recorded for second quarter 2024. Slide 14. Let me go a little deeper into the SECOM sub-segment. This industry continues to undergo transformation, as we have briefed you previously, and it presents both opportunities as well as challenges. The key challenge is the disruptions from LEO constellations, LEO standing for Low Earth Orbiting Satellite, and the rise of well-funded vertically integrated providers. As you know, LEO satellite communications offers higher bandwidth because it's closer to Earth and lower latency. However, there were reports of bandwidth congestions with LEO satellites. So even as LEO satellites continue to be launched, geo-satellite, which is geo-stationary, are also being launched concurrently. So these geo-satellites offer different kinds of advantages compared to LEO in terms of wider coverage and reliability. Hence, our customers are looking for ground equipment for which we supply through iDirect that are capable of seamlessly switching between satellite networks. whether it's geo or non-geo. And this switching capability is better known as multi-orbit systems equipment. iDirect is currently developing such a multi-orbit system, rendered as Intuition. And in addition to being multi-orbit, Intuition will also be cloud native, standard spaced, and terrestrial satellite convergent. so as to provide seamless connectivity, to tap on the growing demand for digitalisation and also for end-to-end network orchestration. This changing industry landscape and our development of intuition represent both opportunities and of course, execution risks. We are actively engaging our customers in the meanwhile to transition them to intuition and focusing on the operation side to improving the quality of our revenue and also our cost-based. Barring on the seen circumstances, USS financial performance is expected to be better in the second half, so second half waited. And this segment, USS, full year 2024 performance is also expected to be better than 2023. Slide 15. This slide shows the year-on-year increase in segment EBIT. On the left side, CA continues to perform well, with EBIT growth from $178 million to $190 million. If you strip out aircraft sale revenue of $101 million in 1.523 and only $7 million in 1.524, the EBIT margin for CA would have grown by 13%, so instead of 7%. So this is more in line with its revenue growth of 20%. As mentioned earlier, CA revenue grew 20%, and the lower margin in one-half, 24%, is also due to project mix. In the middle of the slide, DPS EBIT grew $301 million to $324 million, or 8% year-on-year. This is driven by higher revenue and better cost management. On the right-hand side, the US S segment improved its EBIT from a loss of $34 million to a profit of $9 million. due to strong trans-core EBIT growth, and also the absence of the SECCOM one-off losses in first half 2024. It was incurred in first half 2023, so it was absent in first half 2024. If we exclude this one-off loss from SECCOM, then the USS EBIT would have improved from first half 2023 to first half 2024 by about 20 million. So the momentum is good. USS Financial Performance is also second-half weighted. Now let me move on to the group's contract wins and order book. Slide 17. Our contract wins totalled $6.1 billion. that's on the left, for the first half ended 30th June 2024. And this is contributed by CA, $2.1 billion, DPS, $2.6 billion, and USS, $1.4 billion. This $6.1 billion of new contracts in first half 2024 more than replaces our first half 2024 revenue of $5.5 billion. So it's a healthy pipeline of new contracts. Consequently, our order book as at 30 June 2024 stood at $27.9 billion. $4.9 billion of this is expected to be delivered in the second half of the year. Slide 18 will focus on Q2 2024 contract wins. In the second quarter of 2024, the Group secured $3.1 billion new contracts, with CA recording $1.3 billion, DPS $1 billion and USS $0.8 billion worth of new contracts. Next, let me move on to the debt profile of the Group. Slide 20. The Group total borrowings is predominantly in US dollar to match the asset side of the balance sheet, which are mostly in US dollars as well. In US dollar terms, the total borrowings was reduced by 2.5% in first half 24 year-on-year, and this is obviously through debt repayment. However, in sink dollar terms, the total borrowings as of 30 June 24 remains flat compared to 30 December 23, at $6.1 billion SING. This is due to a stronger US dollar. So while we are able to pay down the US dollar debt, the balance of the US dollar debt translated to SING shows a similar SING dollar number of $6.1 billion. EBITDA increased 11% year-on-year to $786 million in the first half of 2024. This cash was applied towards capital expenditure for growth, debt repayment, interest expense and obviously dividends. Debt to last 12 months trailing EBITDA leverage ratio also improved from 4.2 times as at 31st December 2023 to 4 times as at 30th June 2024. our fixed to floating interest rate ratio remains balanced at 61% and 39% respectively. Finance Year 2024 weighted average borrowing costs for both fixed and floating is estimated to be 3.7%. And this is assuming there is no Fed rate cut for the rest of 2024, which is not the popular view. I think the popular view is that the Fed will do something in September and so forth. Assuming there is no Fed cut, we forecast 2024 weighted average borrowing cost to be 3.7%. Credit rating remains very strong at AAA stable by Moody's and AA plus stable by S&P. Next, dividends. Slide 20. We are pleased to announce that an interim tax exam cash dividend of $0.04 per ordinary shares has been approved by the Board of Directors for the quarter ended 30 June 2024. Record date will be 23 August 2024 and payment date 5 September 2024. Finally, outlook. This is the Group President and CEO's outlook message. Just read it out for you. We posted strong revenue and profit growth in the first half of 2024. Despite continuing challenges in the operating environment, we see opportunities in aerospace, smart city, defence and public security industry domains. Given these opportunities, and supported by a robust audiobook, we remain confident in achieving long-term sustainable growth. This marks the end of my presentation. Thank you for your attention.

Thank you, Cedric. May I now invite our panellists up on stage, please? The panellists this morning are Vincent Chong, Group President and CEO, Cedric Foo, Group CFO, Ravinder Singh, Group Chief Operating Officer, Technology and Innovation, and President Defence and Public Security. Tan Lee Chew, Group Chief Commercial Officer, Market Development and President, Smart City and Digital Solutions. And Jeffrey Lam, Group Chief Operating Officer, Operations Excellence and President of Commercial Aerospace. I will now hand over the floor over to Vincent to deliver his remarks. Vincent, please.