Singapore Tech Eng Ltd

Good morning. Welcome to SC Engineering's first half 2025 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 session for the analysts. Without further ado, may I invite Cedric to give his presentation, please?

Yeah, thank you. Welcome to SD Engineering's first half 2025 results briefing. A very good morning to everyone here in person, many familiar faces, as well as those joining us via webcast. Slide two. 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. Slide three. This is our agenda for today. First, group highlights, group business discussions for each of the three segments, contract wins and all the books, debt management, portfolio management, dividends and outlook. Slide number four, group highlights. I am pleased to report a strong set of first-half 2025 results. The Group achieved 7% year-on-year growth in revenue to $5.9 billion, 15% year-on-year growth in EBIT, breaking the digit 6 to $602 million. 20% year-on-year growth in profit before tax to $500 million, again breaking the digit five, and 20% year-on-year growth in net profit to $403 million, breaking the four-figure. The good performance was due to the successful execution of our order book, better margin mix, and concerted efforts by everyone here in managing our cost. Slide six. From left to right, this slide shows the revenue breakdown by segment, by product type, and by location of customers. On the left, the pie chart shows revenue by segment. In first half 25, CA contributed 40%, that's commercial aerospace. DPS, 45%, defense and public security. And USS, 16%, urban solutions and SECOM. In the center of the slide, the bar chart shows revenue by product type. Commercial revenue increased from $3.9 billion in first half 24 to $4.1 billion in first half 25. Defense revenue increased from $1.6 billion in first half 24 to $1.8 billion in first half 25. Very healthy growth. DPS segment includes commercial domains, such as public security and safety, critical information infrastructure and others. It also includes both local and international businesses. Hence, DPS segment revenue of $2.6 billion in the left of the pie chart is higher than defence revenue, which is by product type, of $1.8 billion in the centre bar chart. Defence revenue, as shown in the centre, is defined as defence products, solutions and services rendered for national defence. They include work performed to maintain, protect, train and support these products and solutions. On the right-hand side, the table shows revenue breakdown by customer location. Asia contributed 54%, the US 20%, Europe 20% and others 6%. Slide 7. Group revenue grew at 7% year-on-year to $5.9 billion. This is contributed by all segments. As several of our entities have US dollars as their functional currency, accounting-wise, their revenue is translated into Singapore dollars upon group consolidation. The average US dollar to Singapore dollar rate for the first half of 2025 is 2.5% weaker than the first half of 2024. Hence, after adjusting for this FX translation impact, revenue growth year on year would have been 8% on a constant currency basis. Slide 8. EBIT grew a strong 15% year-on-year to $602 million due to higher revenue, translating to better EBIT, as well as better margin makes of our solutions and products delivered, and cost savings. This is representative of our continuing operations, notwithstanding, as some of you have noted, that the higher other income in first half 2025 versus first half 2024 this other income line was higher by $38 million. This one-off other income were recorded in both commercial aero and DPS segments and were offset by one-off loss from the impairment of the Mobile Alabama commercial aerospace site and some other smaller areas. The effects of one-offs, both plus and minus, offset each other, resulting in a neutral effect on the group's and segment's bottom lines. So in other words, the group EBIT and segment's EBIT are representative of continuing operations. Slide 9. Net profit improved very strongly by 20% year-on-year to $403 million. This was contributed by stronger EBIT and lower finance costs. Slide 10. On tariffs, including the recent intention to impose US tariffs on chips, our preliminary assessment is that the impact is immaterial at the group level. However, we will continue to monitor this closely as the tariff situation is evolving. We have classified the tariff impact into three broad categories. First order impact refers to tariff payable by our businesses for purchases from primary suppliers overseas. For example, our businesses in the US buying from, say, China or the EU. Such first-order impacts are largely confined to commercial aerospace segment, whilst impacts on USS and TPS segments are much smaller. Against our initial assessment in May 2025, there was limited first-order impact. For engine MRO, about $34 million of revenue was deferred over two and a half months when tariff exists, in second quarter 2025. This is less than the $40 million per month revenue deferral that we previously estimated. And all this relates to the engine MRO shop, which is in China, Xiamen, importing engine parts from the US into China. So those were originally subject to tariff. The tariff has since been reduced. Second order impact refers to tariffs paid by our secondary suppliers, which is basically suppliers of our suppliers. We have no plans to absorb such tariffs unless they can be passed through to the customers. In any case, versus other competitors, we are not competitively disadvantaged. Thirdly, other global impact includes possible recession and inflation risks triggered by tariffs. Hence, we are monitoring this situation closely. For now, our truck business, Hackney, reported that orders are affected as customers adopted a wait-and-see posture. Nevertheless, our diverse business portfolio, including defence and public security, is more resilient to economic downturn, as defence is not directly correlated to economic cycles. The terrorist situation is evolving and unfolding. Hence, we will continue to monitor this space closely. We are also actively adopting key mitigating actions as appropriate, such as renegotiating customer agreements, diversifying supplier network, activating alternative service delivery sites, and stockpiling inventory where applicable. Next, I'll move on to business discussions. Slide 11. Slide 12. CA segment revenue grew 5% year-on-year to $2.3 billion. That's the chart on your left. Excluding aircraft sales, which is shaded in dot chat gray, of $7 million in first half 24, and US dollar, SING dollar, FX translation impact, which I explained earlier, of $35 million, revenue growth year-on-year would have been 7%. This growth is contributed due to stronger sales from engine MRO and nacelles. It is offset by lower PTF revenue due to a lack of PEX aircraft fixed stock, as we have discussed previously, arising from extended use of existing PEX aircraft. EBIT for CA improved 18% year-on-year to $223 million. This is a strong increase due to higher revenue, better margin mix, and cost savings. Slide 13, DPS. Its revenue grew 12% to $2.6 billion. This growth was contributed by all sub-segments of DPS. EBIT for GPS increased strongly as well by 13%, one tree, to $367 million. This is contributed by higher revenue and cost savings. Slide 14, moving on to USS. Revenue grew to $921 million. This was largely flat year on year at 0.3%. Adjusting for FX translation impact that we discussed, revenue growth year-on-year would have been plus 2%. This growth was contributed by URS and partially offset by SECCOM, which continues to be challenging, as I will elaborate in my next slide. EBIT for USS increased from $9 million to $12 million, contributed by better margin-next and cost savings in URS. Slide 15, SECCOM. We continue to drive the performance of this particular line of business while positioning for the future in an evolving industry landscape. Vertically integrated non-geo satellite operators such as Starlink continue to disrupt the market. Intuition, which is the platform name that we gave, Its general availability release is on track for end September 25 to deliver features such as standards, cloud, multi-orbit and virtualization. At the recent Singapore Asia Tech X Conference, iDirect, which is our SECCOM entity in the US, demonstrated various capabilities such as satellite switching between Jio and Shio. Shio is the helical kind of orbit around the poles. And AI and analytics for network monitoring and dynamic bandwidth management. So these were features sought by customers, and we are actively working to deliver them. So intuition has been gaining traction, but notwithstanding, customer transition to newer ground equipment platforms have taken slightly longer than we expected. We will continue to invest in intuition capabilities, watch this space, and all hands on deck to turn this around. Let's move on to the group's work audiobook. Slide 17. Our contract wins totaled $9.1 billion for first half 2025, with $4.7 billion for the second quarter. This was contributed again by all segments, DPS $4.2 billion, CA $2.8 billion, and USS $2.2 billion. Our order book of $31.2 billion, as at 30 June 2025, remains robust. $5 billion of this order book is expected to be delivered in the remaining half of the year. Again, excluding the FX impact, which also would impact order book, because some of our orders are in US dollars, order delivery in second half would have been $5.2 billion instead of the $5 billion you see on the right-hand side. Underlying revenue delivery continues to be robust. As the year is not yet over, there is also in-quarter revenue on top of the $5 billion or $5.2 billion to be delivered, as well as growth prospects that are actively being pursued right now. So I hasten to draw a conclusion about second-half revenue just from these figures alone. Slide 18 covers new contract wins for second quarter 2025. In second quarter 2025, the group secured 4.7 billion of new contracts, with commercial aerospace recording 1.5 billion, DPS 1.5 billion, and USS 1.7 billion, a very strong 1.7 billion. All segments secured very healthy level of new contracts. Moving on, let's review the group's debt management. The bar chart on the right shows the debt level at the end of each year, and as of 30th June 25. As of 31st December 22, our total borrowings were $6.5 billion, the first bar chart, and that's debt applied for the acquisition of Transcorp. Our borrowings have since progressively reduced from $6.5 billion as at end 2022, all the way down to $6.1 billion, $5.8 billion, to $5.5 billion as at 30 June 2025. The cumulative debt reduction between December 2022 and June 2025 is 16%. We have also announced the signing of SPA, Sears and Purchase Agreements, for the divestment of Liboy and SPTEL. These announcements were in June and July this year. And these M&As obviously are subject to regulatory approvals and customary closing conditions. But once these conditions are satisfied, and assuming that we apply the NAP Sears proceeds, our debt level will drop further by $450 million. EBITDA for the first half of 2025 increased 11% to $871 million. The line chart on the right, the black line chart, shows the gross debt to EBITDA ratio. This is a popular ratio used by rating agencies to assess the strength of the operations, which is represented by EBITDA, versus the amount of debt that a company carries. This ratio has been reducing year on year since 2022 and was 3.2x as at end June 2025. It's all the way down from 5.2 in December 2022. This achievement was a result of our strong operating cash flows over the years and also our EBITDA growth. We have also been actively recycling capital and managing networking capital. Now, draw your attention to the left again. The fixed and floating interest rate ratio as of 30 June 2025 continued to remain balanced at 71% fixed, 29% floating. We expect the weighted average borrowing cost for the full year of 2025 to be in the mid-3%. Our credit rating remains very strong, a AAA stable by Moody's and AA plus stable by S&P. Next, portfolio management. Slide 22. Our portfolio will be further streamlined with the divestment of Liboy and SPTEL. This is part of the group's ongoing portfolio rationalisation effort. to ensure that capital and resources are efficiently allocated, and also to drive growth and value, so as focus on our core businesses. The SPAs for Liboy and SPTEL were signed in June and July. These are subject to regulatory approvals and customary closing conditions. These transactions are expected to close in the fourth quarter of 2025. When approved and upon closing of these transactions, the group will generate net proceeds of approximately S$450 million. And assuming these proceeds are channeled to repaying borrowings, the net annual interest savings will be S$15 million. Nevertheless, if good opportunities presents, the proceeds or some parts of it can be reinvested in businesses to support further growth. The net investment gain is expected to be about S$180 million. Of course, these are one time. The EV EBITDA multiples for the transactions are 9.3 times for Liboy and 21.4 times for SPTEL. On a pro forma full year 2024 basis, the annual revenue and EBIT for Liboy, which is wholly owned, is $326 million and $37 million respectively. the revenue of SPTEL, which is a joint venture, is not consolidated into the group. So there's no revenue loss as such post the sale of SPTEL. Our share of SPTEL's performance is a net loss of 2 million for 2024. So we avoid that loss. So these data are produced for the benefit of analysts creating their models. Next, dividends. We are pleased to announce that a second quarter interim tax exempt cash dividend of $0.04 per ordinary share has been approved by the Board for the quarter ended 30 June 2025. The record date is 25 August 2025, and shareholders can expect payment on 5 September 2025. So on top of the first quarter 2025 interim dividend of also $0.04, the total dividends announced and paid so far for first half 2025 will be $0.08. Next outlook, slide 26. This is the Group President and CEO's message, and let me just read it out for you. We delivered a robust set of results in first half 25. In executing our growth strategy, we continue to be agile in navigating the evolving global landscape. Our recent divestments are in line with our portfolio rationalisation strategy to exit non-core businesses and to recycle capital. We remain steadfast in strengthening our core businesses. Our strong order book continues to provide revenue visibility for the Group. So this marks the end of my presentation, and we now invite Vincent and the other EXCO members to I think Desine and Vincent will give some remarks before Q&A. Thank you.

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, Mervyn Tan, 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 the floor over to Vincent to deliver his remarks. Vincent, please.