Singapore Tech Eng Ltd

Good morning. Welcome to ST Engineering's full year 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 end today's session with a Q&A for the analysts. Without further ado, may I invite Cedric to give his presentation, please.

Thank you. Welcome to ST Engineering's full year 2024 results briefing. A very good morning to everyone here, in person, as well as those joining us via webcast. Slide two, please. Before I begin, I would like to bring your attention to slide number two. which states, amongst others, that the Group's actual performance, outcomes and results in the future may differ materially from those expressed in forward-looking statements. This is our agenda for today. I will be covering Group Highlights, Business Discussions, Productivity, Debt Profile, Contract Wins and Order Book, Investing for the Future, Dividends and Outlook. Slide four, please. First, let's take a look at group highlights. Slide five. I'm pleased to report a very strong set of second half 2024 and full year 2024 results. First, on the left, for second half 2024, the group achieved a solid year-on-year growth. 10% growth in revenue, 11% growth in EBITDA, 18% growth in EBIT, 26% growth in PBT, and 20% growth in net profit. For the full year 2024, the group also performed very well. On a year-on-year basis, 12% growth in revenue, which crossed the $11 billion mark, 11% growth in EBITDA, and as you know, EBITDA is a good proxy for operating cash flow, growing to $1.6 billion, 18% growth in EBIT to $1.1 billion, which exceeded the $1 billion mark, 23% growth in PBT to $863 million, and 20% growth in net profit to $702 million. The above good performance was due to our concerted efforts all across the group in successfully executing on our order book. order book as at end 2024 came in at $28.5 billion, with about $8.8 billion to be delivered in 2025. Slide six, please. This slide shows revenue by segment, revenue by type, and revenue by location of customers. First, from the left, the pie chart shows revenue breakdown by segment. 39% was contributed by Commercial Aerospace, or CA in short, 44% contributed by Defence and Public Security, DPS in short, and 17% contributed by Urban Solutions and SECCOM, USS. DPS as a segment includes both local and international customers. It also covers commercial domains, not just defence domains, including public security and safety, critical information infrastructure, and others. Hence, the DPS segment revenue in the pie chart, which was $4.9 billion in 2024, is different from the revenue derived from pure defence products and solutions, as shown in the middle, which is 3.5 billion. So I just want to clarify that 3.5 is a subset of the 4.9, or pure defence is a subset of DPS, which has more than defence. Revenue by type, in the centre of the slide, the bar chart shows revenue by type of products and solutions over the past three years. They have all been growing. Commercial type increased from 7.1 billion in 2023 to 7.8 billion in 2024. Defence revenue grew a very robust 15% from 3 billion in 2023 to $3.5 billion in 2024, reflecting the opportunities arising from ongoing conflicts and geopolitical tensions around the world. Revenue by customer location, on the right of the slide, Asia contributed 51%, US 23%, Europe 19%, and others 7%. Slide 7, please. This slide shows the year-on-year increase in group revenue by segment. As you can see, all segments contributed to the growth, and our revenue grew from $10.1 to $11.3 billion as a group, a 12% increase contributed by all segments. Slide 8, this waterfall chart shows a strong EBIT growth of 18%. from $915 million in 2023 to $1.1 billion in 2024, driven by business growth and cost savings. Slide 9 shows a significant net profit growth of 20% year-on-year, which crossed the $700 million mark for the first time. Next, I will move on to cover business discussions by segment. Slide 11. For commercial aerospace, revenue grew 12% to $4.4 billion. Excluding aircraft sales in both 23 and 24, revenue growth would have been 15%. This growth is contributed by stronger sales from engine MRO, nacelles, PTF and composite panel. Although the base revenue for commercial aerospace is now much higher at $4.4 billion, the second half-24 growth rate, I might as well point out to you, year-on-year, was not as high as the first half-24 growth rate year-on-year. And this isn't a surprise, as Jeff has anticipated and spoken to you before. Nevertheless, we remain confident in the growth trajectory for the CA business. We will share more at Investor Day, 18th of March, and we do expect our growth rate in the mid-term going forward to be stronger than industry growth rates, given our very strong competitive position. EBIT for commercial aerospace improved 19% to $400 million due to stronger revenue and good product mix. Aircraft OEM have been unable to produce new aircraft fast enough to meet demand from airlines. Hence, existing aircraft fleet remain in service for longer. This resulted in a lack of PTF packs aircraft feedstock, impacting our PTF business volume. Nevertheless, we can and we are optimising our hanger capacity since the capacity is fungible by increasing airframe MRO revenue to offset the lower PTF revenue. We are also looking at optimising our CA facility network around the world for greater efficiency. In terms of contract wins, CA secured $4.7 billion of new contracts in 2024, of which $1.8 billion of new contracts were signed in the fourth quarter. Next, slide 12 on DPS. DPS revenue grew 16% to $4.9 billion. This strong growth was contributed by all sub-segments. Digital business comprising cloud, AI analytics and cyber achieved a revenue of $645 million. On a BOP basis, base operating performance, that is, by excluding one-off US marine post-sale completion gain of $16 million, which you will remember, EBIT for DPS increased 15% to $636 million, which is more in line with revenue growth of 16%. DPS secured $5.3 billion of new contracts in 2024, of which $1.7 billion came in fourth quarter. Slide 13, moving on to USS segment. Revenue grew 1% to close to $2 billion. This growth was contributed by URS and partially offset by SICOM. EBIT for USS improved from $10 million to $40 million. attributed to higher revenue, the absence of satisfied divestment loss, and lower SECCOM severance costs. USS secured $2.6 billion of new contracts in 2024, of which $0.7 billion was for the fourth quarter. During the quarter, Transcore recorded its first tolling solution win in Southeast Asia. We have been talking about cross-selling and synergies from this very big acquisition of ours. So we are very heartened indeed that this tolling contract win is extensive. It will cover numerous expressways and lanes. It is a result of our US tolling technology, which exists at Transcore level when we bought it, been sold into Asia, where the rest of the group has a very strong customer network. The size of the synergy here is also meaningful, and we expect to do more of such cross-selling synergistic wins. Slide 14. Whilst challenges in the SECCOM sub-segment remains, Its transformation continues. We are encouraged by early signs of recovery, but we're not out of the woods yet. Revenue for fourth quarter 24 was 12% higher year on year. Operational EBIT turned marginally positive in fourth quarter 24. So this is an encouraging early sign. SETCOM recorded key wins such as the Indonesia's SETRIAL-1 satellite network and Brazil's energy connectivity project in collaboration with ISET, just to name a few. Now I've completed the business discussions, let me now move on to productivity. Slide 16, our OPEX over revenue ratio has been trending well over the years. In 2024, we achieved the lowest OPEX over revenue ratio of 10.6% in recent years. As the group grows, we are experiencing scale and network effects, which have been translating to productivity gains, cost savings, and better margins. Such savings have enabled us to mitigate inflation and improve margins. Slide 17, debt profile. Our borrowings as at 31st December 24th reduced by 5% year on year from $6.1 billion to $5.8 billion. And this is despite a 3% stronger US dollar to SING dollar exchange rate, impacting the revaluation of US dollar loans back to SING dollars. If we work on a constant FX basis against N23 FX level, our borrowings as N24 would have been even lower at 5.7 billion. EBITDA increased 11% year on year to 1.6 billion. Again, very strong cash flow. Gross debt to EBITDA leverage ratio correspondingly reduced from 4.2 times in 2023 to 3.6 times in 2024. due to the twin effect of a reduction in debt, the numerator, and the increase in EBITDA, the denominator. Fixed versus floating rate interest rate ratio stood at 69 to 31% as at end 24. The group weighted average borrowing cost for 2024 was at a competitive level of 3.6%, as previously guided to be mid threes. Now looking ahead, we expect this weighted average borrowing cost to remain at mid 3% in 2025, assuming two small rate cuts in 2025. Our credit ratings remain very strong with AAA stable by Moody's and AA plus stable by S&P. I think even without the two red cards, we will still be around mid-trees, because the impact will not be that significant. Next, contract wins and order book. Slide 20 highlights some of our major wins in fourth quarter 2024. In this period, the group secured $4.3 billion worth of new contracts, with $1.8 billion from CA, $1.7 billion from DPS, $0.7 billion from USS. This brings the total new contract value for the year 2024 to $12.6 billion. Slide 21. The group ended the year with a robust order book of $28.5 billion, another new record. About $8.8 billion of the order book is expected to be delivered in 2025. This strong order book provides visibility for future revenue in the coming periods. Slide 22, investing for the future. Slide 23, actually. Even as we perform well in 2024, we continue to focus on the future, to invest in line with our strategy and to optimise our portfolio. Our investment in the future covers three main areas, capacity and capability building, two, geographical market expansion, and three, operation efficiency. Firstly, for capacity and capability building, this includes the new airframe MRO capacity such as Changi Creek in Singapore, Eto'o, and Pensacola in Florida. Gal Yat, also in Singapore, for our marine business, the fourth data center in Bunle, AI and cyber capability building, an area we are very focused on, and to develop and roll out SECCOM's next generation intuition platform. Secondly, for market expansion, this includes 155mm ammunition export to Europe, partnership for in-country production of 8x8 armoured vehicle in Kazakhstan. This is a milestone for us, as it is a significant land platform programme. Smart city platform in Lusail City, Qatar, and as I described earlier, the first trans-core tolling solution in Southeast Asia. Thirdly, for operations improvement, we are doing the following. Harnessing AI for internal productivity, continuing to seek procurement savings by leveraging scale, and also across international business units of ours. We've also formed a Vietnam Competency Centre. It has about 200 people now, one year or so into the programme, and this headcount is expected to increase. Additionally, our Vietnamese colleagues are also taking on higher value-added work, and we can do this productively and as well with cost arbitrage, vis-à-vis Singapore or elsewhere. Slide 24, dividends. We are pleased to announce that a final tax exam cash dividend of $0.05 per ordinary share has been recommended by the Board for the financial year ended 31 December 2024. We are increasing our dividend per share by $0.01 per share. Payment of the final dividend is subject to the approval of shareholders of the company at the upcoming AGM on 24 April. The record date 30 April, and if so approved, shareholders will receive the dividend payment on 15 May. For the first three quarters of 2024, we have paid three interim dividends of $0.04 each for the financial year, and if we add that to the $0.05 final dividend, this will make a total of $0.12 per share. sorry, of the interim dividends of $0.12, this will make a total of $0.17 per share. So let me say it again. For the first three quarters of 2024, we have paid three interim dividends of $0.04 each. Four times three, making a total of $0.12 interim dividends in total. Hence, the total dividend for the year ended 31st December 2024 will be $0.17 per share if you add the $0.05 final dividend to the $0.12 interim dividends. Slide 26. Next, let's move on to the outlook. I'll just read out the Group President's and CEO's message. We delivered a very strong set of results in 2024, despite an uncertain and challenging environment. We are confident that our strong fundamentals will continue to position us well, even as we confront a fast-changing landscape. We have a robust order book and a competitive market position which will underpin our continuing revenue growth and performance. So this brings me to end my presentation. Thank you very much for your attention.

Thank you, Cedric. May I now invite our panelists up on stage, please. The panelists this morning are Vincent Chong, Group President and CEO, Cedric Foo, Group CFO, Ravinder Singh, Group Chief Operating Officer, 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 Lam, Group Chief Operating Officer, Operations Excellence and President of Commercial Aerospace. I will now hand the floor over to Vincent to deliver his remarks. Vincent, please.