Singapore Tech Eng Ltd

Good morning. Welcome to SC Engineering's full year 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 from the analysts. Without further ado, may I invite Cedric to give his presentation, please.

Yeah, thank you. First of all, welcome to the SD Engineering's full year 2025 results briefing. Good morning to all participants, whether you're in person here or via the webcast. Slide 2. Before I begin, I would like to bring your attention to slide number 2, 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 herein. Slide 3. This is our agenda for today. I am very pleased to present our 25 full-year results, covering the following topics. Group Highlights. business segment discussions, portfolio management, productivity, contract wins and audiobook, debt, dividends and outlook. Group highlights. Slide number five. In the second half of 2025, we continued to streamline our portfolio with four significant divestments. We also recorded non-cash impairments relating to our SECCOM business. These actions, with their one-off effects, affected our reported financial statements and distorted the group's underlying base operating performance. To enable our stakeholders to better assess the financial performance underlying our continuing businesses, we will be using the term BOP, or Base Operating Performance, throughout this presentation. Some of you call it by other names like clean or underlying, but it means the same thing, or non-GAAP. On a BOP basis, we delivered an excellent set of results for 2025. Here are some highlights. Revenue reached $12.3 billion. BOP net profit surged to $851 million. This translates to year-on-year growth rates of 9% and 21% respectively. We also achieved contract wins of $18.7 billion, which is 49% higher year-on-year. lifting our order book to $33.2 billion, or 16% higher year-on-year. During the year, we recognised one-off non-cash impairment of $689 million, partially offset by divestment gains of $301 million. These figures were reflected in the reported P&L statements. Importantly, the group generated strong cash flow, $1.7 billion from operations, and about $700 million from divestments. These cash resources enabled us to firstly, return value to shareholders via the special dividend as recommended by the board. Secondly, pay down debt to $4.8 billion. And thirdly, reinvest in our growth. Informatively, our return on equity for 2025 is 28 plus percent. Slide 6. This slide shows the reported P&L, and I will not dwell too much because of the distortions from one-offs. At the revenue level, unchanged from base operating performance, with second half 25 revenue up 12% on the left, and full year 25 up 9% on your right. Reported EBITDA, EBIT, PBT and net profit are lower year-on-year, primarily due to one-off items recorded during the year, such as impairment losses and divestment gains. And these impairment losses do hit many lines of the P&L, except revenue. Nevertheless, we are pleased to report a positive second-half 25 net profit after taking in all the one-off effects of two-half 25 as we have guided. Slide seven. Now, this slide shows base operating performance or BOP. On a BOP basis, 2025 was a very strong year, which reflected the strength and resilience of our underlying businesses. For the second half of 2025, which is on the other left, the group achieved very strong growth. 12% growth in revenue, 9% growth in EBITDA, 16% growth in EBIT, 21% growth in PBT, and 22% growth in net profit. For second half 2025 growth over first half, which is not shown here, which is a half on half, second half 2025 versus first half 2025, net profit was $448 million or 11% higher than first half 2025 of $403 million. This represents good trajectory going into 2026. In other words, the second half have higher and better numbers than first half. For the full year 2025, the group also performed very well. 9% growth in revenue, which crossed the $12 billion mark for the first time, 10% growth in EBITDA, 16% growth in EBIT, 20% growth in PBT, and 21% growth in net profit. As the year-on-year revenue growth rate for second half 2025 was 12%, as you can see in the slide, and higher than the 9% growth for the full year 2025, as you can see on your right. The operating momentum is indeed very strong. Slide number eight, revenue by segment. On the left, the pie chart shows the revenue breakdown by segment for 2025. 40% was contributed by Commercial Aerospace, CA in short. 43% was contributed by Defence and Public Security, DPS in short. And 16% was contributed by Urban Solutions and SECCOM or USS. DPS as a segment includes both local and international customers. It also covers commercial domains including public security, safety, critical infrastructure and others. Hence, DPS as a segment has a revenue of $5.3 billion in 2025 on the left. It's different from the revenue derived from defence products and solutions, which is in the middle of the chart of $3.8 billion. So in other words, the $3.8 billion is a subset of the $5.3 billion. Revenue by type in the centre shows revenue for the past two years. Commercial revenue increased from $7.8 billion to $8.6 billion. Defence revenue increased from $3.5 billion to $3.8 billion. On the right-hand side, revenue by customer location, the table shows revenue By customer location, Asia contributed 55%, it went up. US down 19%, partly because of Liboy, MAE and lower PTF in the US. Europe 20% and others 6%. Slide number nine. This slide shows the year-on-year increase in group revenue by segment. In 2025, our revenue grew from $11.3 to $12.3 billion, an increase of 9% contributed by all segments. If not for the weaker US dollar, average rate in 2025 versus 2024, the group revenue would have grown more than 9%. It would have grown by 10% year-on-year. Now, from another perspective, on a rebase basis, if we exclude Leiboy Revenue, which was divested in September last year, from both the 2025 Leiboy Revenue and 2024 Leiboy Revenue, we just rebase everything, our underlying continuing businesses would have grown by 11% instead of 9%. Slide number 10, this slide shows BOP EBIT. EBIT grew 16% year-on-year on a BOP basis, driven by effective execution, business growth, and cost savings across the group. After accounting for one-off items during the year, reported EBIT is lower. These items relate to portfolio actions taken in 2025. On a re-based BOP basis, If we exclude EBIT of Leiboy and our share of CitiCap, both these companies were divested. For both years, 25 and 24, the underlying businesses grew 18% year-on-year. Slide 11, net profit. On a BOP basis, net profit grew 21% year-on-year to $851 million. On a rebased BOP basis, again, excluding the net profit from Leiboy and share of CityCap, the underlying businesses grew 24% year-on-year, almost a quarter. Next, we move on to discuss business segment. Slide 13. For CA, revenue grew 14% to $5 billion. I think Jeff is very proud of hitting that 5. Very close. but really almost there. This growth was contributed by stronger sales from Engines, MRO, and Nacelles. In terms of contract wins, CA secured $5.8 billion, and this on your right, of new contracts in 2025, of which $1.7 billion was secured in the fourth quarter alone. You will notice that the contract wins exceed the revenue drawdown from the order book, which is a good sign. Slide 14, commercial aerospace EBIT. On a BOP basis, EBIT for CA grew 22%, very strong, to $487 million, outpacing the revenue growth we talked about of 14%. So revenue grew 14%, but BOP EBIT, 22%. So clearly, this is driven by higher margins. On a reported basis, EBIT for CA was $542 million. This is the last bar on the chart, and that includes the divestment gain on Starco of $56 million. Next, DPS, slide 15. For DPS, revenue grew 8% to $5.3 billion. On a rebase basis, revenue grew 11%. The growth was contributed by all sub-segments. In terms of contract wins, DPS secured 9.1 billion new contracts, a very large number, in 2025, of which 2.5 billion were signed in the fourth quarter of 2025, reflecting continued demand from both domestic and international customers. Again, I want to highlight the contract wins of $9.1 billion, far exceeds the revenue drawdown from order book for this period of $5.3 billion. So very, very healthy, more than replacement rate. The Qatar MRO contract, which we just announced this morning, to maintain different fleets of land platforms for the Qatar Emery land forces is a very significant win for us. Why? In addition to the contract value of $470 million, this contract demonstrates the trust and confidence placed in us to maintain the operational readiness of critical land assets of an international military organisation. So from that perspective, it is a breakthrough, and we hope this will lead to even more successes. And such MRL revenues are also recurring in nature, which is helpful. Notably, our international defence contract wins have also doubled year on year, underscoring the growing contribution from overseas markets. We continue to work on many international defence projects, and there are many irons in the fire. We target to double international defence contract wins in 2026, year on year. We hope to do better than that. Slide 16, Defence and Public Security EBIT. On a BOP basis, EBIT for DPS grew 14% year-on-year to $725 million, outpacing revenue growth again. This is driven by strong business growth and higher margins. Commercial aerospace, higher margins. DPS, higher margins. Two of our largest segments. On a rebased BOP basis, if we exclude the EBIT of Liboy and share of CityCap, the underlying segment EBIT grew 18% year-on-year. On a reported basis, EBIT for DPS was $919 million, including the divestment gains for Liboy and CityCap, net of impairment loss in Jet Talk. Now the third segment, slide 17, USS, Urban Solutions and SETCOM. For USS, revenue grew 4% to $2 billion. The growth was contributed by URS, which is our URS mobility, road, rail, and trans core, partially offset by SETCOM. URS performance was supported by steady project deliveries across railroad and smart mobility solutions. This pace of delivery for smart mobility will accelerate in the coming years. Why? Because it's underpinned by a $5 billion audiobook, already secure, already in the bag, for real and tolling contracts in Taiwan, Thailand, and the US. And these deliveries will pan out in the coming few years. This $5 billion figure excludes the New Jersey Turnpike Authority Back Office Service Contract, with a value of up to US $1.7 billion, including options. Lee Chew will talk to this a little later, but we basically have been executing to this contract and collecting revenue already. But we did not recognise it because we want to see how it develops in the coming months, and we will continue to assess it. In terms of contract wins, USS secured $3.9 billion of new contracts in 2025, of which $0.5 billion was secured in the fourth quarter alone. Again, the contract win, similar to the other two segments, far exceeds the revenue drawdown from audiobook, 3.9 versus 2. And this provides very clear visibility to revenue growth in the coming years. Slide 18. On a BOP basis, USS EBIT declined by $8 million to $32 million, mainly due to higher losses in the SECCOM business. This was partially offset by continued growth in Urban Solutions, which is well positioned to grow because of a solid multi-year order book, as we discussed earlier. On a reported basis, EBIT for USS was minus 556 million due to iDirect impairment loss net of divestment gain of SPTEL. Slide 19. We have been providing you update on SECCOM and we will do likewise in this briefing. Allow me to walk you through the transformation progress within the iDirect group and provide an outlook for SECCOM in 2026. First, on the left of your slide, there is good revenue momentum into first quarter 26 at the minimum. On the commercial and government markets, we are expecting a stronger first quarter 2026, underpinned by secured orders across multiple commercial and defence customers. These orders, including customers in Saudi Arabia and Europe, will deliver year-on-year revenue growth in 1Q2026 compared to 1Q2025. Intuition, which is our multi-orbit platform, is gaining good traction, for example, with customers like Verizon and AI Telecom of Mexico signing up to this program. Separately, iDirect Government was qualified by the government to participate in the USMDA SHIELD contract, strengthening our position in the government segment. So on the left, on the revenue side, the outlook looks good. We are targeting for stronger year-on-year growth, not just in first quarter, which we have good visibility, but also in the first half, of 2026 year-on-year and the second half of 2026 year-on-year. We will keep you posted as the year progresses. Second, on the right-hand side, that's the cost outlook. Actions relating to about $43 million of annualised savings were successfully completed in 4Q25 and 1Q26. And these are beyond what we briefed you in earlier years. where there was rationalisation occurring in iDirect. So these are recent actions taken in 4Q25 and 1Q26, producing $43 million of annualised savings that are already flowing into the bottom line. Now the second set of actions relating to the remaining $20 million are on track. the items have been identified, we are executing towards it, and we expect to complete it by second quarter 2026. Therefore, we can expect an annualised total cash savings of 43 plus 20, which is $63 million, to accrue in full, commencing from third quarter of this year. So on an annualised basis from third quarter of this year and this second quarter next year, we should see a flow down of $63 million of cash savings. Our priority is to continue focus to support customers and to turn around the business while we evaluate the best path forward for our second business including strategic actions. Nonetheless, revenue and cost savings is no regret and remain a top priority for iDirect. Next, slide number 10. Slide 21, sorry. For financial year 2025, we completed several strategic divestments, Liboy, CDCAP, SPTEL, and Starco, which collectively generated net cash proceeds of $705 million. These divestments strengthened our cash position for the year. While these divested units will no longer contribute to group EBIT in 2026 after their divestment, the year-on-year reduction in this EBIT is expected to be fully offset by interest and tax expense savings, as the cash proceeds will apply towards reducing debt. If we apply some of this towards reinvestment, and we can repeat our return on equity of 28.7%, I think you will have even more equity for EBIT going forward. Slide 22, Productivity. Our OPEX over-revenue growth has been trending well over the years. Scale effects, continuous improvement, procurement savings and so forth. In 2025, we achieved a new low of OPEX over-revenue ratio of 10.2%. As our revenue grows, we continue to experience scale and network effects. Together with productivity gains and cost savings, this helped to mitigate inflation effects in certain areas and help us improve margins as we have shown. Slide 24, contract wins and audiobook. Slide 25. We secured 18.7 billion of new contracts, a new record. The group ended the year with a robust audiobook balance of 33.2 billion, Another record. Wicker US dollar and SING dollar as at end of 2025 compared to end of 2024 resulted in a 0.5 billion downward adjustment to the order book. So had the exchange rate been constant, 2024 and 2025, our order book will look more like 33.7 billion. From this, about 9.9 billion is expected to be delivered in 2026. Now, some of you will recall that Last year, in 2025, it was $8.8 billion to be recorded in the next year, so this number is creeping up quite fast. Slide 26. This slide highlights some of our major wins in 4Q25. And in this period, the group secured $4.7 billion worth of new contracts, 1.7 from CA, 2.5 from DPS, 0.5 from USS. This brings the total contract value for the year, $25 to $18.7 billion. Next, debt management. The company did gear up. to seek growth. And some of the major acquisitions we did was MRAS, which is performing very well today, Transcor and so forth. And because cost of debt is always lower than cost of equity, I think it makes sense to gear up to make sensible, accretive acquisitions. But since then, We have been performing well operationally, generating the cash flows that I talked about. And hence, our debt level has been dropping from $6.5 billion in 2022 to $6.1 billion, to $5.8 billion, to $4.8 billion. And additionally, the credit metric Rating agencies like to use debt to EBITDA has been dropping from 5.2 in 2022 to 4.2, 3.6, 2.7. Hence, our credit rating remains very strong, AAA stable by Moody's and AA plus by S&P. Next, slide 30, dividends. For 2025, the Board has recommended a final tax exam cash dividend of $0.06 per ordinary shares, as well as a special dividend of $0.05 per share for the financial year ended December 25. Payment of the final dividend is subject to shareholder approval at the upcoming 2026 AGM. The ex-dividend date to be eligible for final dividend is 28 April 2026. If approved, shareholders will receive their dividend on 13 May 2026. For the first three quarters of 2025, we have already paid out three interim dividends of $0.04 each, totalling $0.12. This brings the total dividend for 2025 to $0.23 if you add the final dividend. And as previously shared, the 2026 total dividend shall be determined by the sum of two elements. Firstly, 18 cents per share, which is our ordinary dividend as a base, and you add to that one-third year-on-year incremental net profit, which we have communicated at investor days, but using the 2025 BOP net profit of 851 as a base, And then on a per share basis, adding that to 18 cents will be the dividend guidance that we are giving for 2026. And all the net profit parameters will exclude one of the effects of major divestments and impairments. I think that truly reflect the underlying performance and how we will share the underlying performance with shareholders. Finally, slide 32 is the message from our Group CEO and President. In 2025, the Group delivered an excellent set of underlying performance, reflecting the strength and resilience of our businesses. We continue to streamline our portfolio through several divestments, recycling capital and enhancing our focus on our core businesses. Looking ahead, supported by strong growth momentum and a robust audiobook, the group is very well positioned to deliver on our strategic objectives and 2029 targets. This marks the end of my presentation. Thank you very much 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, 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.