ST-Engineering-Annual-Report-2018

EUROPE

UK DENMARK CANADA ireland

France GermanY

U.S.

israel Saudi Arabia Mexico UAE

THE AMERICAS

Brazil

ST Engineering is a global technology, Our Electronics sector specialises in defence and engineering group the design, development and delivery headquartered in Singapore. As leaders of of ICT products, solutions and services the aerospace, electronics, land systems and addressing the needs of Smart Cities for marine sectors, we leverage Industry 4.0 to Connectivity, Mobility and Security. create people-centric, multi-disciplinary smart engineering solutions. Our Land Systems sector delivers advanced and customised land systems, Our Aerospace sector offers a wide spectrum security solutions and their related of aircraft maintenance, engineering and through-life support for defence, homeland training services for both military and security and commercial applications. commercial aircraft operators. These services include airframe, component and engine Our Marine sector provides turnkey and maintenance, repair and overhaul, aircraft sustainable defence and commercial design engineering and parts manufacturing, solutions in the marine, offshore and aviation materials and asset management, environmental engineering industries. as well as pilot training. We serve customers in more than 100 countries from our global offices.

China

Taiwan Hong kong

Thailand

Middle EAST Malaysia Singapore ASIA & OceaniA

Myanmar

Australia

Corporate Overview Performance Financial Report

Financial Highlights 02 Financial Review 60 Directors’ Statement 126

Letter to Shareholders 04 Investor Relations 70 Independent Auditors’ Report 135

Board of Directors 14 Awards 72 Financial Statements 142

Additional Information on 20 World-Class Workforce 74 Consolidated Income Statement 144 Directors Seeking Re-election Consolidated Statement 145 Senior Management 28 of Comprehensive Income sustainability & Five-Year Plan Overview 30 Governance Consolidated Balance Sheet 146

Innovation Highlights 2018 34 Sustainability Report 76 Consolidated Statement 148 of Changes in Equity Community Outreach 92 Consolidated Statement of Cash Flows 152 Operating Review Corporate Governance 94 & Outlook Notes to the Financial Statements 154

Aerospace 36 Sectoral Financial Review 275

Electronics 42 Shareholding Statistics 291

Land Systems 48 SGX Listing Manual Requirements 293

Marine 54 Corporate Information 294 02 ST ENGINEERING Financial Highlights

Operating cash flow Revenue Breakdown $ 0.64b By Sectors -16% 2017: $0.76b 32% 9% electronics marine

order book $13.2b -1% 2017: $13.4b 39% 19% 1% Aerospace land systems Others

Earnings per share 15.85¢ By Customer type -2% 31% 2017: 16.13¢ Defence

Dividend per share 15.0¢ 2017: 15.0¢ 69% Commercial

Return on equity

By location of customers 22.0% -0.7% PTS 20% 7% 2017: 22.7% U.S. others

Return on sales 7.7% -0.4% 2017: 8.1% PTS 62% 11% Asia Europe

Comparative figures were restated on the adoption of Singapore Financial Reporting Standards (International) (SFRS(1)) with effect from 1 January 2018. annual report 2018 03

Aerospace Electronics Land Systems Marine Others Revenue BY SECTOR ($m)

2018 $6.70b 2,647 2,143 1,282 574 52

2017 $6.52b 2,535 2,011 1,244 637 94

profit before tax BY SECTOR ($m)

2018 $620.7m (36.6) 320.0 224.7 62.3 50.3

2017 $611.8m (14.3) 318.5 200.2 85.0 22.4

net profit BY SECTOR ($m)

2018 $494.2m (35.0) 244.6 186.5 52.9 45.2

2017 $502.6m (25.4) 244.8 168.8 87.4 27.0 04 ST ENGINEERING Letter to Shareholders

Kwa Chong Seng Chairman

Vincent Chong President & CEO

“ The year 2018 was busy and rewarding for us as we executed our strategy of building a foundation for growth and sustainable profitability. ” annual report 2018 05

Dear Shareholders

In 2018, discussions on Industry We ended 2018 with an order book of $13.2b, 4.0 intensified, as the world saw and experienced how providing the Group with a healthy pipeline technology was disrupting of revenue for the next few years. existing businesses and creating winners and losers. In addition, political developments such as the U.S.-China trade tensions of $20m recorded in 2017 was revenue respectively. Revenue and Brexit created much excluded as well. split between Commercial and uncertainty that also negatively Defence sales was 69%:31%. impacted economic growth At the business sector level, around the world. revenue for the Aerospace sector We ended 2018 with an order was 4% up y-o-y at $2.65b book of $13.2b, providing the Fortunately, as a technology, and Net Profit was flat y-o-y Group with a healthy pipeline defence and engineering group, at $244.6m due to the MRAS of revenue for the next few we are on the right side of acquisition-related expenses, years. We expect to recognise history. We strengthened our partially offset by net divestment $4.9b from the order book core segments and continued gains. Revenue for the Electronics as revenue in 2019. to drive changes to reap the sector grew 7% to $2.14b and Net benefits from disruption. Profit was up 10% to $186.5m. In 2018, we spent about $335m The year 2018 was busy and Net Profit for the Land Systems on capital expenditure, about rewarding for us as we executed sector dropped 39% y-o-y to 23% more than what we spent our strategy of building a $52.9m although its revenue in 2017. A significant portion of foundation for growth and grew 3% y-o-y to $1.28b due this expenditure was deployed sustainable profitability. to the absence of prior year’s for capacity expansion to favourable U.S. tax adjustment, support growth opportunities, Throughout the year, while we the divestment impact of its road such as our new composite were cautious about the short- construction business in India manufacturing plant and new term market outlook, our plans and full impairment charges for aircraft hangar in Germany were not unduly influenced by its road construction business for the Aerospace sector, and quarter-to-quarter results. and automotive MRO business a building extension in the west At the end of the financial year in Brazil. At the Marine sector, of Singapore for our Electronics 2018, we delivered a resilient set while revenue dropped 10% y-o-y sector. We also funded the of financial results, recording to $574m mainly due to lower purchase of two aircraft for a 3% year-on-year (y-o-y) revenue recognition from its U.S. our aircraft leasing business. growth in Group revenue to business, its Net Profit grew $6.70b. Compared to 2017, 67% to $45.2m mainly due Our cash and cash equivalent Profit before tax (PBT) grew to better performance of its balance stood at about $414m, 1% to $620.7m and Profit Singapore operations. after drawing down our cash Attributable to Shareholders for the early redemption of (Net Profit) dropped 2% to We continued to be well MTN. We remain committed $494.2m. Excluding the $37m diversified in our revenue to optimising cash flow, one-off charges incurred, the stream across business sector, maintaining capital discipline Group would have fared better geography and customer type. and improving value and returns. with a 7% y-o-y increase in Revenue mix of the business PBT. These one-off charges sectors comprised 39% for were incurred for portfolio Aerospace, 32% for Electronics, rationalisation, transaction cost 19% for Land Systems and 9% for of the proposed acquisition of Marine. Geographically, business MRA Systems (MRAS), and the units in Asia including Singapore early redemption of the MTN1. contributed 73% to Group Net Profit would have been revenue, while our business 1 US$500m Notes issued under the 9% higher y-o-y if the one-off units in the U.S. and Europe Multicurrency Medium Term Notes favourable U.S. tax adjustment generated 18% and 8% of Group (MTN) Programme. 06 ST ENGINEERING Letter to Shareholders

For our shareholders, your to have our net profits grow in terms of marketing, prototype Board of Directors has tandem with our revenue. development and redelivery to recommended a final dividend our customers. of 10.0 cents per share. We are now intensely focused Together with the interim on executing our plan and Shipbuilding and ship repair dividend of 5.0 cents per share in this annual letter, we will continue to be strategic to paid to you in August 2018, the expand on our strategy to give us. What sets us apart in both total dividend for the full year our shareholders a clearer idea the defence and commercial will be 15.0 cents per share. of the roadmap. The business segments is our unique edge: This represents a dividend developments and achievements we are just one of few shipyards yield of 4.4%, computed using of the four business sectors in the world with a full range of the average closing share price in 2018 are covered in the capabilities to support the entire of the last trading day of 2018 Operating Review and Outlook lifecycle of a ship, from ship and 2017. section on page 36 to 59. design, shipbuilding and system

FIVE YEAR PLAN: clear focus and strategy We are now intensely focused on

In March, we shared our five- executing our plan to grow and strengthen year plan (2018-2022): the set our core businesses as well as pursuing of goals we have put in place to help us achieve our longer- new opportunities especially in international term aspiration of becoming a defence business and smart city. global technology, defence and engineering powerhouse. Strengthening the Core. integration, to ship upgrades, Our focus and strategy are Strengthening our core is about repair and maintenance. In 2018, clear. As presented on page 30, building lines of business that are we focused on strengthening our plan consists of continuing globally competitive, whether the operations and profitability to grow and strengthen our in niche areas or in segments of our Marine sector and built core businesses as well as that have the potential scale and up our order book against pursuing new opportunities competence to be differentiated bottom-of-the-market industry especially in international internationally. conditions. We saw an improved defence business and smart performance in the sector. city. We will continue to invest Many of our businesses in the The recovery, both in terms of our resources to strengthen Aerospace sector are already financial performance and order our key assets and capabilities: well established. Our airframe book, reflects the strength, our people and culture; our MRO business continues to be competence and resilience of global marketing and customer the world leader; proven by our Marine business. network; our cutting-edge the fact we were once again technology and our many voted Overall MRO of the Year We are committed to growing innovations; and our financial at the Aviation 100 MRO Global our strategic lines of business and strength. Awards. Our core in airframe, we have been keeping a constant engines and components MRO lookout for acquisition targets We have also set specific services continues to perform, that can contribute profitable targets: by 2022, we aim to leading to further investments revenue streams and sharpen double our revenue from our to expand our capacities in China our competitive edge. In this Smart City businesses to over and the U.S.. We continue to regard, we are excited by our $2b; we want our core and be a leader in the Passenger- proposed acquisition of MRAS, other businesses to grow at a to-Freighter conversion an established manufacturer of compound annual growth rate business, having now achieved engine nacelle systems, which of two to three times annual the stringent programme is a high-value, high IP content global GDP growth rate; we are requirements and milestones business that complements our targeting to have two-thirds of for our A330 and A320/A321 Aerospace business. The addition our revenue growth come from conversions. Our conversion of MRAS into the fold will enable overseas markets; and we want programmes are tracking well in our Aerospace sector to move annual report 2018 07

further up the value chain To help our shareholders and investors better into the original equipment manufacturing business of understand our focus, differentiation and high-value components. This strengths in Smart City, we have framed our acquisition will be our largest, and is expected to be earnings solutions within three verticals: Smart Mobility, accretive for the Group and our Smart Security and Smart Environment. Aerospace sector from the first year of the transaction close.

Defence business: the Middle East, Latin America 2017. To get there, strategic Growing internationally and the UK. partnerships in select areas to pave way for the future. and markets will be key To succeed in the international We are focused on building blocks to improving defence business, we need to strengthening our niche defence our channels. On this front, transition from a Singapore- solutions backed by a portfolio at the Group level, we have based production model to of innovative products such as formed consortiums and one that is more collaborative our family of Infantry Fighting signed several Memorandums and closer to our customers. Vehicles, our Next Generation of Understanding (MOU), We will pursue options such as Armoured Fighting Vehicle including with Surbana Jurong the localisation of manufacturing platform, patrol vessels, 40mm and Changi Airport Planners or support operations in-country, munitions and weapon systems. and Engineers to participate in the setting up of more teaming We also have deep experience overseas airport development and joint venture agreements, and engineering capability to projects; with Keppel Urban licensing and technology design, build and integrate air, Solutions to design and transfer, as well as local land and naval platforms. execute Smart City Masterplans capability investments. in cities across Asia; and Smart City: Providing with JTC to design, develop The experiences from our urgently needed solutions and deploy an Open Digital participation in two large U.S. for municipal governments. Platform for the Singapore defence programmes, namely the To help our shareholders and Punggol Digital District. engineering and manufacturing investors better understand development programme for the our focus, differentiation and We have also intensified our U.S. Marine Corps ACV 1.1 and strengths in Smart City, we have Smart City expansion plans in the U.S. Army Mobile Protected framed our solutions within the U.S., Southeast Asia and Firepower programme, have three verticals: Smart Mobility, the Middle East, engaging furnished us with invaluable Smart Security and Smart government authorities and learning points and references Environment. These verticals decision makers, and we are for future competition. In the are underpinned by enabling actively looking at Smart City U.S. defence marine domain, we technologies and capabilities projects such as those targeted have secured contracts from the in cybersecurity, data analytics, at infrastructural upgrades. U.S. Navy for Auxiliary Personnel digital connectivity, Internet of Our offerings will range from Lighter Berthing Barges and a things, satellite communications, specific Smart City applications new Oceanographic Survey Ship. robotics and autonomous to more comprehensive We were also awarded a contract systems. Many of these end-to-end solutions. In by a foreign government for two business lines are not new to addition, we have branded our Logistics Support Vessels, to be ST Engineering as we now hold integrated Smart City solutions designed and constructed in our a track record of more than 500 suite as CitySense, aimed at U.S. shipyard. Smart City projects across 70 addressing the mega-trend of cities around the world. urbanisation and targeting city We will continue our efforts planners who need customised, to compete and win in future We have clear goals for our reliable and safe technology programmes in the largest Smart City business, targeting solutions that are weaved defence market in the world. to achieve $2b or more in seamlessly into urban planning Outside the U.S. market, the revenue by 2022 from the and development. other prospective markets include $1b revenue generated in 08 ST ENGINEERING Letter to Shareholders

We are on the right path to collaborations with our industry analytics and cybersecurity. achieving our Smart City partners such as Siemens, These centres will provide revenue target, backed by Cisco, IBM, Keppel and many group-wide support for our robust orders. Currently, the others to capture new growth efforts to further differentiate Electronics sector is the largest internationally or co-create our products and solutions. contributor to our suite of new solutions to deliver greater We are readying our Smart City solutions but in time value. On this front, our MOU for workforce as well. Our top to come the Land Systems a Strategic Growth Partnership 100 managers attended data sector will also contribute with the Singapore Economic analytics and cybersecurity with its enhanced capabilities Development Board will catalyse executive workshops, leading and offerings in robotics and growth opportunities as we to a mindset shift from the autonomous systems. jointly identify and develop top. We also put our engineers growth strategies to build through courses that are Building Global Success. globally competitive businesses targeted at further enhancing Today, business competition in selected industries for both their domain expertise in may stem from big and ST Engineering and Singapore, fast evolving areas such as established enterprises or from beginning with robotics, smart cybersecurity, robotics and start-ups with ingenious and mobility and health technology. data analytics. disruptive business models. Our five-year target to achieve two-thirds of our five-year To thrive globally in the longer-term, growth revenue from outside Singapore was set with this we need to stay innovative and nimble. knowledge. This calls for Our strategy is to strengthen collaborations increased focus and efforts to leverage group scale to better with our industry partners to capture new position us to make a greater growth internationally or co-create new impact on the world stage. solutions to deliver greater value. The adoption of ST Engineering as our masterbrand, moving away from a portfolio of To support our global growth We recognise that we cannot corporate brands, is a aspiration, we continue to build all our capabilities significant step taken to focus on our people. On internally, hence the need leverage group strength page 74, you will read about for increased collaboration for greater impact. Most of the significant progress we with external technology our corporate brands were made in 2018 as part of our partners and institutes of harmonised in June and the journey to build a global, higher learning to leverage change for our U.S. businesses future-ready and high- each other’s expertise. Our is expected to be completed in performing workforce. Corporate Venture Capital 2019. Going to market as one unit made four investments ST Engineering strengthens the Our lifeblood: in promising technology start- cross-selling of our integrated Technology and Innovation. ups with strong capabilities in solutions and facilitates deeper In our previous letters to you, data analytics, cybersecurity stakeholder engagement, we discussed our focus on for rail transportation and which is especially important technology and innovation autonomous vehicles, as when entering new markets or extensively and outlined how well as in transportation segments. A stronger corporate we have been gearing up to technology. Our Open brand also helps to attract and embrace Industry 4.0. The year Innovation Lab continues retain talent. 2018 was no different as we to be an innovation exchange continued our efforts to retool for our engineers to co-create To thrive globally in the the Group for the challenges and innovate ideas. longer-term, we need to stay ahead. We set up two Strategic innovative and nimble. Our Technology Centres to develop As we seek growth in strategy is to strengthen deep capabilities in data our strategic thrusts, we annual report 2018 09

will continue to hone our Corporate governance at Alternate Director in June. competitive strengths and the heart of our business Lim Chin Hu and Song Su-Min prioritise initiatives central to became independent non- our growth. When necessary, Good corporate governance executive Directors in July and we will make tough decisions continues to be at the heart September respectively. to streamline or rationalise of our businesses and this is a our business portfolio. In commitment shared by the We thank our former directors doing so, we can sharpen our Board, the management team for their invaluable contributions management focus, unlock and all employees. As in the and we look forward to working value and recycle capital to past, our Sustainability Report, with our new directors as strategic and growth businesses from page 76 sets out the they expand the breadth and which can yield us better Group’s environmental, social strength of our Board. returns. Our specialty vehicle and governance performance business in India as well as the for the year. Our appreciation pilot training business in the U.S. are examples of businesses We are pleased to report that We also want to take this which no longer fit into our as part of our continuous effort opportunity to show our future growth plans, hence to enhance our governance appreciation to our employees leading to their divestment. structure, a new Risk and who, in their own way and Assurance function overseeing collectively, have made Strengthening governance, risk management us a better and stronger management bench and compliance will be formed organisation. To our customers, with new positions in the second half of 2019. business partners and shareholders, we look forward In 2018, we created new Board renewal to your steadfast support as we management positions. We and rejuvenation continue our path of sustainable recruited a President of New growth and value creation. Ventures and Enterprise to As part of a continuous effort drive our advancement into to renew and rejuvenate the We firmly believe that new business areas such as board, several changes were ST Engineering’s best years health and medical technology. made. Olivia Lum Ooi Lin are ahead of us. We are poised We also created a Chief retired as an independent for sustained growth backed Digital Officer role to lead our non-executive Director in April. by the winning combination digitalisation efforts and to LG Lim Cheng Yeow Perry of our people, our strategy as support our increasing efforts resigned as a non-independent well as our proven strengths to drive a ‘think digital think non-executive Director — in technology and innovation. data’ culture. along with his Alternate Director, We would like to thank you for RADM Alan Goh Kim Hua — believing in us and for joining us In the U.S., General (Ret.) in May when he stepped down on this journey. John Coburn who helmed our as the Chief of Defence Force, headquarters there for 17 years Ministry of Defence. Neo Kian Sincerely, handed over his executive Hong resigned in August as a role to Tom Vecchiolla in non-independent non-executive December, while remaining Director when he stepped as non-executive Chairman down as Permanent Secretary of our U.S. Advisory Board. (Defence Development) in the Tom, who possesses a wealth Ministry of Defence. Dr Stanley Kwa Chong Seng of experience in the defence Lai Tze Chang resigned as an Chairman industry, with 17 years in the independent non-executive private sector and 24 years Director in late December. in the public and military sectors, will work along the LG Ong Su Kiat Melvyn was Management Committee appointed as a non-independent to achieve our U.S. growth non-executive Director, with Vincent Chong ambitions. COL Xu Youfeng as his President & CEO 10 ST ENGINEERING

致股东的信

各位股东：

2018 年，随着世界目睹并经历了科技 132

如何颠覆现有业务、如何创造赢家和我们以总价值高达亿元的订单额 4.0 2018 输家，对于工业的讨论进一步升温。完美的为年画上句号，保障了此外，中美贸易争端、英国退欧等政治发展带来的诸多不确定性也对世界经济集团未来几年的稳健收益。增长产生了负面影响。

MRO MTN 但身为一间科技、国防和工程集团，我们道路建设业务和车辆业务支付了用现金提早赎回了之后，我们的现金 4.14 不仅强化了核心业务，也不断的推动全部的减损费用, 其净利润同比下降及现金等价余额约为亿元。我们始终 39 5290 变革以便在这科技日新月异的时代中％至万元。在海事业务，虽然致力于现金流的最大化、维持资本管理 2018 获利。年对我们来说是忙碌而因为其美国业务的收益确认性下降而控制和提高价值与回报。 10 5.74 获益不浅的一年，这都归功于我们实施造成收入同比下降％至亿元,

的政策：为增长及可持续盈利奠定坚实但其净利润却因为新加坡业务的表现对于股东，董事会已建议派发每股 67 4520 10.0 2018 8 的基础。良好而增长了％至万元。分的末期股息。连同年月 5.0 支付的每股分的中期股息，全年的 15.0 2018 这一整年下来，虽然我们对短期市场的我们在各业务范围、地理位置和客户股息总额将为每股分。根据年 2017 前景持谨慎态度，但我们并未受到季度类型方面，继续保持了收入来源的和年最后交易日的平均收盘价 2018 39 4.4 业绩的过度影响。在财政年度末，多元化。宇航业务收入组合占％、来计算，股息收益率为％。 32 19 我们不负众望, 取得一整套稳定的财务电子业务占％、陆路系统占％、 3 67 9 业绩，集团收入同比增长％至亿元。海事业占％。在地理位置上，包括五年计划：明确的重点和战略 2017 PBT 与年相比，税前利润（）增长新加坡在内的亚洲业务部门对集团 1 6.2 73 ％至亿元，股东应占利润（净利润）收益贡献了％，而我们在美国和为了实现成为全球科技、国防与工程产业 2 4.94 下降％至亿元。如果不是因为欧洲的业务部门分别占集团收益的佼佼者的长远期望, 我们在三月份分享 3700 18 8 出现万元的一次性费用，本集团％和％。商业和国防业务销售了由我们持续从长远的观点评量营运及 7 69 31 会取得同比增长％的亮眼成绩。这些收入分成％：％。资本配置规划。

一次性费用是因为投资组合合理化， MRA Systems MRAS 132 (2018 2022) 拟议收购（）的我们以总价值高达亿元的订单额我们的五年计划 - 制定了 MTN 2018 30 交易成本以及提前赎回而产生的。完美的为年画上句号，保障了明确的目标和策略。如同在第页介绍 2017 2000 2019 如果也将年记录的万元的一集团未来几年的稳健收益。年，的，我们计划在增长并强化核心业务的 49 次性有利美国税收调整排除在外，那么我们预期将从订单中获得亿元同时也积极寻求新商机，特别是在国际国防 9 净利润将同比增长％。的收益。业务和智能城市这两个领域。我们将持续

投入资源来培养人才、强化企业文化及全球 2018 3.35 在业务方面，宇航业务的收入同比增长年，我们花费了大约亿元营销与客户网络、研发尖端科技并鼓励技术 4 26.5 2017 ％至亿元，净利润同比持平，用于资本支出，比年的支出多出创新、加强财务实力等关键资产与能力。 2.446 MRAS 23 为亿元，原因是收购的约％。这笔支出的很大一部分用于

相关费用被撤资收益部分抵消。电子扩大产能以支持增长机会，例如在我们设定的四大目标包括将智能 7 21.4 2022 业务的收入增长％至亿元，净利润宇航业务方面，我们在德国建立了城市业务的营收在年前翻番至 10 1.865 20 增长％至亿元。尽管陆路系统新复合材料制造工厂和新飞机库，在超过亿元、核心及其他业务领域的 3 12.8 业务收入同比增长了％至亿元，电子业务方面，我们对位于新加坡西部年复合增长率能达到全球国内生产总值

但由于今年并无上述前一年的一次性的办公楼展开了一次主要的扩建工程。年增长率的二至三倍、三分之二的集团

有利美国税收调整, 道路建设业务在我们还为我们的飞机租赁业务购买了总营收增长来自海外市场及净利能与

印度撤资所造成的影响, 以及为巴西的两架飞机。营收齐步增长。 annual report 2018 11

MRAS 我们非常专注于执行这项计划，并在此感到非常振奋。的加入将使我们团在智能城市业务领域的发展

通过这份报告书让股东对于计划的发展的宇航业务能够切入高价值组件的原始重点、辨识策略与市场优势，我们 2018 蓝图有更清楚的了解。有关我们设备制造领域，在价值链中更上一层楼。特别将智能城市的发展重点分为智能年在四个核心业务取得的进展及成绩，这是我们迄今为止最大的一笔收购案，移动、智能安全及智能环境三大垂直 36 59 请参阅第至页的“运营评鉴与可望在成交后的第一年就为本集团及行业。网络安全、数据分析、数据连接、

展望”以获取更多详情。宇航业务的营收带来增值效应。物联网、卫星通讯、机器及自主系统

方面的技术将遍布各个垂直行业的

要强化核心业务，我们必须打造具有国防业务：扩大国际业务为日后发展业务和平台。至今，我们已在全球 70 500 全球竞争力、高辨识度并有潜力扩大奠定基础。我们将持续提高本集团在个城市部署了超过项智能

商业规模的业务线。国防业务领域的竞争力。我们目前着重城市方案。于加强我们特有的国防全面方案和研发

在这方面，我们纯熟的宇航业务已享有创新产品组合，例如步兵作战车、新一代我们为智能城市业务定下了明确的 2018 40mm 2017 10 稳固的市场定位。我们在年再度装甲战车、巡逻艇、弹药和武装目标，计划将其营收从年的亿 Aviation 100 2022 20 获得全球飞机维修大奖的系统。我们对于设计、建造及整合海、元在年前翻番至亿元。为

年度整体维修服务商奖，奠定了我们机身陆、空平台，同样具备丰富的经验与达成这个目标，我们将在特定地区与

维修业务世界第一的名次。我们在机身、深厚的工程能力。我们也将会采取市场建立战略合作伙伴关系，作为

引擎和组件维修服务方面的核心业务各种备选方案扩大国际出口, 如寻求强化通路的重要手段。为此，我们

持续表现优异，这促使我们进一步在中国本地化生产或产能投资、缔结更多缔结联盟并签订了几个合作备忘录， Surbana Jurong Changi 及美国扩充产能。我们继续保持客货机合资协议、授权与技术转移等。包括与和 A330 Airport Planners and Engineers 改装业务的领导地位，如今已达成 A320/A321 ACV 1.1 和改装计划的严格要求及在参与竞标美国海军陆战队及合作参与外国机场发展项目，与 Mobile Protected Firepower Keppel Urban Solutions 里程碑。我们的客货机改装项目在营销、美国陆军一同设计、原型开发及交付给客户方面的目标均已这两项项目的过程中，我们吸取了许多规划与执行亚洲多个城市的智能城市 JTC 顺利达成。宝贵经验可供我们作为日后竞标的总蓝图，以及与合作设计、开发及

参考。我们成功地与美国海军签订了部署榜鹅数码园区的开放智能平台。

造船及船舶维修依然是本集团的核心两份合同，也赢得为一个海外政府

业务。我们是全球少数能为船东提供设计及建造两艘物流供应船的合同。我们还加紧推动在美国、东南亚及中

全面解决方案的船厂，包括船舶设计、这让我们更积极加入全球各大国防东与政府当局合作的智能城市拓展

建造、系统安装或合成、改装、升级和市场的竞争，并更有信心赢得胜利。计划，并积极寻求机会参与以基础

维修等服务。这独特优势使本集团在除了美国以外，其他潜在市场包括建设升级为目的的智能城市项目。

商业与国防业务领域取得突出的成就。中东、拉丁美洲及英国。我们提供的服务将从特定智能城市

强化海事业务的运营及盈利能力和应用到全方位的端对端解决方案。 2018 追加订单量是我们年的重点工作。智能城市：为市级政府提供迫切需要的此外，为因应都市化的大趋势，我们

海事业务的表现的确已获得改善，解决方案。为使股东们更容易了解本集还为集团旗下的整合式智能城市解决不论是财务绩效或订单量都已见好转，

显现出我们海事业务的实力、能力

及抗逆力。

我们致力于拓展我们的战略业务线，要强化核心业务，我们必须打造

并寻找对本集团营收获利及竞争力 MRAS 具有全球竞争力、高辨识度并有有益的收购标的。收购这项即高价值又富有知识产权的互补业务令我们潜力扩大商业规模的业务线。 12 ST ENGINEERING

致股东的信

CitySense 方案配套推出全新品牌。 ST Engineering

目标客群锁定需要可靠、安全并能与舍弃多品牌策略，以

都市计划和开发项目无缝衔接的定制作为集团主要品牌，是运用集团优势解决方案的城市规划人员。提高影响力的重要一步。我们继续往智能城市营收目标的道路上

前进。我们至今承接的订单包括了规模

较大的智能城市相关项目。目前，电子合作，物色一些行业例如机器技术、智能随着我们的增长策略转向战略进攻

业务仍占智能城市营收的最大比例，移动和保健科技等，制定增长策略以及模式，我们将持续强化我们的竞争

但尔后陆路系统业务也将凭藉其在进行发展。实力并优先实施对增长有利的

机器技术和自主系统领域的实力及计划。必要时，我们将做出精简或

新增产品带来营收贡献。致力于培养和训练人才仍是集团非常重梳理业务线的艰难决定。因为唯 74 视的一项要务。您可以在第页了解我有如此，我们才能强化业务重点、 2018 我们如今的商业竞争对手大有改变。们在年打造全球化高绩效未来并且使资金回流到能创造更高价值

除了大型的老牌企业，也有商业手法巧人才的道路上取得的重要进展。与回报率的战略增长领域。我们在

妙及拥有突破性商业模式的新创公司。印度的特种车辆业务以及在美国的

若要达成五年计划中三分之二营收增长在之前的致股东报告书中，我们已讨论飞行训练业务，都是因为不符合

来自海外市场的目标，我们更须凭借技术与创新对集团的重要性，并大略未来的增长计划而需要撤资的范例。 4.0 集团独有的跨业务工程科技、技术和讲述了我们要如何加速向工业转 2018 资源提高我们在国际市场的辨识度和型。在年，集团同样为了迎接挑战通过新职位强化管理团队

竞争力，扩展知名度。而努力更新调整。我们成立了两个 2018 战略科技中心，以强化我们在数据分析我们在年设立了新的管理职位。 ST Engineering 舍弃多品牌策略，以与网络安全方面的能力。这两个中心我们招聘了一位新业务与创业总裁

作为集团主要品牌，是运用集团优势将作为整个集团的后盾，协助我们进来拓展如医疗保健科技的业务领域。

提高影响力的重要一步。集团旗下一步加强产品与解决方案的辨识度。我们还设置了一位首席数码业务总监， 100 大部分的品牌都已在六月份完成整合，除此之外，本集团的名主管参加负责带领集团进行数字化转型， 2019 ‘ 美国业务的变革订于年完成。数据分析与网络安全研讨会，希望从上并为我们积极打造的数字及数据 ’ 以单一品牌进军市场，不仅能利用交叉而下带动员工思维的转变。我们还为思维文化。销售提高整合式解决方案的业绩，还能工程师安排课程，以进一步强化他们在 17 深化利害关系人的参与，这在我们进入网络安全、机器技术及数字化等快速掌管美国总部达年的退役将军 John Coburn 新市场或业务领域时尤其重要。更为发展领域的专业能力。已在十二月将职权交给 Tom Vecchiolla 强大的公司品牌也有助我们吸引及，但仍续任美国咨询 Tom 留住人才。我们体认到不能单凭内部强化能力，委员会的非执行董事长一职。拥有

我们还需要与外部的技术合作伙伴与丰富的国防工业从业经验，曾在私人公 17 为了在全球市场中创造长久的荣景，高等教育机构协同合作，以达到彼此司任职年，并在公共和军事部门工作 24 我们需要保持敏捷并持有不断创新的取长补短的互利成效。我们通过创业年，他将与管理委员会一同携手达成 Siemens 能力。我们的战略是与、基金投资于四间前景可期的科技新创我们在美国的增长目标。 Cisco IBM Keppel 、、等业界头公司公司。这四间公司分别具有数据分析、建立合作伙伴关系，以抓住世界各地的铁路运输网络安全、无人驾驶车及运输企业管治为我们业务发展的关键

新增长机会，或共创能缔造更高价值的科技方面的技术或能力。我们的开放

新解决方案。为此，我们与新加坡经济创新实验室也持续为工程师提供一个良好的企业管治架构仍然是集团永续

发展局签署了合作备忘录，双方将密切共同创造及发想创意的交流平台。发展的关键，同时也是董事会、管理 annual report 2018 13

ST Engineering 团队及所有员工必须共同遵守的约定。我们坚信更辉煌的

与往年一样，我们的可持续发展报告时代即将到来。我们将凭藉我们人才、 76 从第页起列明了本集团今年度的战略与科技创新实力，创造集团的

环境、社会和治理表现。可持续增长。感谢各位对我们的信任与这一路以来的陪伴。

为确保企业管治架构更加健全完善， 2019 我们即将在年下半年设置一个

风险审计新部门,专门负责监督公司此致, 治理、风险管理与法令遵循情况。

董事会更新与振兴

为了持续更新董事会的成员，我们

做了一些人事更动。林爱莲女士

已在四月份卸下独立非执行董事一职。柯宗盛

林清耀中将在在五月份卸下国防部主席

三军总长的职务后也连同其代任董事

吴钦华少将卸下非独立非执行董事

一职。梁建鸿先生在卸下国防部常任

秘书（国防发展）的职务后，同时在

八月份卸下非独立非执行董事一职。钟思峰

黎智昌博士在十二月底卸下独立总裁兼首席执行长非执行董事一职。

王赐吉中将在六月份被任命为非独立

非执行董事，并由许友丰上校担任

其代任董事。林振富与宋素绵分别

在七月及九月成为独立分执行董事。

我们在此向各位董事会的前任董事们致上最深的谢意，感谢他们的宝贵贡献，

并在此期许我们的新任董事能够为董事会带来新的气象。

致谢

我们也借此机会向我们的员工致谢，

感谢他们为集团的发展所做的贡献。在迈向可持续增长及价值创造的道路

上，我们希望客户、业务合作伙伴与

股东们能继续给予我们坚定的支持。 14 ST ENGINEERING

The names of the directors holding office at Board of the date of this report are set out here together Directors with details of their academic and professional qualifications, age, date of first appointment as Director, date of last re-election as Director, as well as other directorships and principal commitments.

Kwa Chong Seng Vincent Chong SY FENG Chairman President & CEO Non-Executive Independent Director Executive Director

Date of first appointment as a Director: Date of first appointment as a Director: 1 September 2012 1 October 2016

Date of appointment as Chairman: Due for re-election at the 2019 25 April 2013 AGM under article 100 of the Company’s Constitution Date of last re-election as a Director: 20 April 2018

Kwa Chong Seng, 72, is Chairman of Vincent Chong, 49, is the President & Chief ST Engineering. He has more than 40 years’ Executive Officer (CEO) of ST Engineering. experience in the petroleum industry having He joined ST Engineering Group in April 2014, served as Chairman and Managing Director first as President of Strategic Plans & Business of ExxonMobil Asia Pacific Pte. Ltd. before Development at the Aerospace sector and retiring in 2011. Chong Seng is currently the later as the Group’s Deputy CEO (Corporate Chairman of Singapore Exchange Limited* Development) before his appointment as and Deputy Chairman of the Public Service President & CEO of ST Engineering. Vincent Commission, Singapore. He also serves on the had a 20-year global career in the petroleum board of SeaTown Holdings Pte. Ltd. and is a industry holding a variety of technical, member of the Defence Science & Technology operations and senior management positions Agency (DSTA). Chong Seng is also the from refining & supply, product marketing, Chairman of the Advisory Committee of to strategic planning. He is a board member Dymon Asia Capital Ltd. He graduated from of JTC Corporation and also a member of the the former University of Singapore with a Ministry of Trade and Industry’s International Mechanical Engineering degree. Chong Seng Advisory Panel for Advanced Manufacturing & was awarded the Distinguished Engineering Engineering. Vincent graduated with Alumni Award by the National University of First Class Honours in Mechanical Engineering Singapore (NUS) in 1994 and is a Fellow of from NUS. He has also attended executive the Academy of Engineering Singapore. In leadership programmes at the Thunderbird 1999, he was conferred the Honorary Ningbo School of Global Management and the Citizenship. Chong Seng was awarded the Columbia Business School. Singapore Public Service Star in 2005 and the Singapore Public Service Star (Bar) in 2016.

* Listed on the SGX-ST annual report 2018 15

Quek See Tiat Lieutenant-General Ong Su kiat Melvyn Quek Gim Pew Non-executive independent Director Non-executive Director Non-executive Director

Date of first appointment as a Director: Date of first appointment as a Director: Date of first appointment as a Director: 1 July 2013 8 June 2018 15 August 2016

Date of last re-election as a Director: Due for re-election at the 2019 Date of last re-election as a Director: 21 April 2017 AGM under article 106 of the 21 April 2017 Company’s Constitution

Quek See Tiat, 64, is President LG Ong Su Kiat Melvyn, 43, Quek Gim Pew, 61, is the Chief of the Council for Estate is the Chief of Defence Force Defence Scientist of MINDEF. Agencies. Prior to this, he in Singapore’s Ministry of Prior to this, he was CEO of DSO was Chairman of the Building Defence (MINDEF). LG Ong National Laboratories (DSO). Gim and Construction Authority, joined the Singapore Armed Pew is the Chairman of ATREC Singapore until 31 March 2016. Forces (SAF) in 1994 and has Pte Ltd, Governing Board for the He retired as Deputy Chairman held a broad range of staff Centre for Quantum Technologies of PricewaterhouseCoopers command appointments in the and Temasek Defence Systems Singapore in 2012, after a career course of his military career. Institute Management Board (NUS). in the firm that spanned 31 years. He also served as the Deputy He is also a member of DSO, the See Tiat is a board member of CE of the Early Childhood Agency for Science, Technology Singapore Press Holdings Ltd*, Development Agency from & Research Board, SMRT Trains Temasek Foundation Connects 2013 to 2014. LG Ong is Ltd and DSTA. Gim Pew holds CLG Limited and the Monetary currently a board member of a Bachelor of Engineering Authority of Singapore. He was JTC Corporation. He holds a (First Class Honours) (Electrical conferred the Public Service Bachelor of Science (Economics) Engineering) from NUS and a Medal in 2009 and the Public (Honours) and a Master of Master of Science (Distinction) in Service Star in 2014. See Tiat Science (Development Studies) Electrical Engineering from the holds a Bachelor of Science from the London School of Naval Postgraduate School, USA. (Economics) (Honours) from the Economics and Political Science. He is a Fellow of The Academy of London School of Economics Engineering Singapore. and Political Science, and is a Fellow of the Institute of Chartered Accountants in England and Wales.

* Listed on the SGX-ST 16 ST ENGINEERING Board of Directors

Khoo Boon Hui DR Beh Swan Gin Non-Executive Independent Director Non-executive independent Director

Date of first appointment as a Director: Date of first appointment as a Director: 1 September 2010 1 September 2014

Date of last re-election as a Director: Date of last re-election as a Director: 21 April 2017 20 April 2018

Khoo Boon Hui, 64, is a Senior Fellow of the Dr Beh Swan Gin, 51, is Chairman of the Home Team Academy and the Civil Service Singapore Economic Development Board College. Prior to this, he was Senior Fellow (EDB). Prior to this, he was Permanent of the Ministry of Home Affairs (MHA) and Secretary of the Ministry of Law from 1 July Senior Advisor, MHA until 30 November 2012 to 30 November 2014. Dr Beh serves 2016 and 20 January 2016 respectively. as Chairman of EDBI Pte Ltd and EDB Boon Hui was appointed Commissioner of Investments Pte Ltd, and is also a Director the Singapore Police Force (SPF) in July of Ascendas-Singbridge Pte. Ltd., Enterprise 1997, and relinquished this post in January Singapore, Human Capital Leadership 2010 after serving 32 years in the SPF to Institute Pte Ltd and Temasek Foundation become Senior Deputy Secretary, MHA till Connects CLG Limited. He is a medical January 2015. He was also the President of doctor by training and graduated from NUS. INTERPOL from 2008 to 2012. Boon Hui In addition, Swan Gin is a Sloan Fellow with is currently Chairman of Singapore Island a Master of Science in Management from Country Club and a board member of Stanford University’s Graduate School of Singapore Health Services Pte Ltd, Ministry Business, and completed the Advanced of Health Holdings, the Casino Regulatory Management Program at the Harvard Authority, Certis CISCO, Ensign Infosecurity Business School in 2012. Pte Ltd and Temasek Foundation International CLG Limited. He is a Senior Advisory board member of Cognifyx Pte Ltd, a member of the Palo Alto Networks Public Sector Advisory Council and the Board Financial Crime Risk Committee of Standard Chartered Bank. Boon Hui is also a Commissioner of the Global Commission on the Stability of Cyberspace. He holds a Bachelor of Arts (Engineering Science & Economics) degree from Oxford University and a Master in Public Administration from the Harvard Kennedy School of Government. Boon Hui also attended the Advanced Management Program at the Wharton School. annual report 2018 17

Lim Sim Seng Lim Ah Doo LIM Chin Hu Non-executive independent Director Non-executive independent Director Non-executive independent Director

Date of first appointment as a Director: Date of first appointment as a Director: Date of first appointment as a Director: 15 May 2015 10 November 2015 16 July 2018

Due for re-election at the 2019 Due for re-election at the 2019 Due for re-election at the 2019 AGM under article 100 of the AGM under article 100 of the AGM under article 106 of the Company’s Constitution Company’s Constitution Company’s Constitution

Lim Sim Seng, 60, is currently the Lim Ah Doo, 69, was Lim Chin Hu, 60, has over Group Head of Consumer Banking formerly the President and 30 years of experience in the Group & Wealth Management subsequently the non- info-communications industry. of DBS and Chairman of DBS executive Vice Chairman of He was formerly CEO of Vickers Securities Holdings RGE Pte Ltd. Ah Doo’s past Frontline Technologies & British Pte Ltd. Sim Seng was a senior working experience includes Telecoms South East Asia. banker for 26 years with Citibank an 18-year banking career in Chin Hu held management before joining DBS in 2010 as Morgan Grenfell from 1977 to positions in Hewlett-Packard Country Head, DBS Singapore. 1995, during which he held Singapore and Managing With Citigroup/Citibank, he several key positions including Director of Sun Microsystems served Citigroup in various senior that of Chairman of Morgan Pte Ltd (now Oracle). He is a appointments in Kuala Lumpur, Grenfell (Asia) Limited. He Director of Kulicke & Soffa Inc#, Tokyo, New York, Saudi Arabia, is the Chairman of Olam Singapore Exchange Limited*, Singapore and Hong Kong. He International Limited* and also Citibank Singapore Limited, is the Chairman of Singapore an independent Director of Heliconia Capital Management Land Authority. Sim Seng is a GP Industries Ltd*, U Mobile Pte Ltd and Singapore Health Director of DBS Securities (Japan) Sdn Bhd, GDS Holdings Services Pte Ltd. Chin Hu holds Company Limited and Nikko Limited# and STT GDC Pte. a Bachelor of Science from Asset Management Co., Ltd. He Ltd. Ah Doo graduated with an La Trobe University, Melbourne, serves as the Singapore’s High honours degree in Engineering Australia and is a Fellow of the Commissioner (Non Resident) to from the Queen Mary Singapore Institute of Directors. the Federal Republic of Nigeria. College, University of London He was a Japanese Government and a Master in Business Monbusho scholar and graduated Administration from the with a Bachelor in Business Cranfield School of Management. Administration from Yokohama National University, Japan.

* Listed on the SGX-ST # Listed on the Nasdaq Stock Market 18 ST ENGINEERING Board of Directors

Song Su-Min COLonel Xu Youfeng

Non-executive independent Director alternate director to Lieutenant-general Ong Su Kiat Melvyn Date of first appointment as a Director: 16 September 2018 Date of appointment as an Alternate Director: 8 June 2018 Due for re-election at the 2019 AGM under article 106 of the Company’s Constitution

Song Su-Min, 45, is a Partner of Allen COL Xu Youfeng, 36, is Commander, and Gledhill LLP. Su-Min was admitted 7th Singapore Infantry Brigade of SAF. to the Singapore Bar in 1997 and the Bar Youfeng has held various command and of England and Wales, Middle Temple in staff positions in MINDEF since 2001. He 1996. She specialises in single and multi- was awarded the President’s cum SAF jurisdictional mergers and acquisitions, Overseas Scholarship. Youfeng holds domestic and international joint ventures a Master of Science with Distinction in and corporate restructuring, and advises Optics and Photonics, (Science) from the generally on corporate and commercial law. Imperial College of Science, Technology & Su-Min has substantial experience in Medicine, University of London, UK. advising private equity firms on their take-private transactions, and companies in their venture capital fund raisings. She is recognised as a noted practitioner in Corporate/M&A by Chambers Asia-Pacific and noted for her work in other publications such as The Legal 500 Asia Pacific and IFLR1000. Su-Min obtained her law degree from the University of Kent at Canterbury. annual report 2018 19

PAST Kwa Chong Seng Khoo Boon Hui DIRECTORSHIPS – APL (Bermuda) Ltd. – Quann World Pte Ltd IN THE LAST – APL Co. Pte Ltd – International Centre for THREE YEARS – APL Limited Sport Security – Automar (Bermuda) Ltd. – TechTrace Advisory Board (Switzerland) – Delta Topco Limited – The International Advisory Board – Neptune Orient Lines Limited of Policing: A Journal of Policy and – NOL Liner (Pte.) Ltd Practice (UK) – Olam International Limited* DR Beh Swan Gin Vincent Chong SY FENg – Esplanade Co. Ltd – Singapore Technologies – Human Capital Leadership Institute Dynamics Pte Ltd (now known as Agilead Limited) – ST Aerospace Resources – ST Engineering Electronics Ltd. Pte. Ltd. – ST Engineering Aerospace Ltd. Lim Sim Seng – ST Engineering Electronics Ltd. – ASEAN Finance Corporation Limited – ST Engineering Land Systems – ST Engineering Aerospace Ltd. Ltd. – ST Engineering Management Services Pte. Ltd. Lim Ah Doo – ST Engineering Marine Ltd. – Bracell Limited – SembCorp Marine Limited* Quek See Tiat – SM Investments Corporation – Building and Construction – ST Engineering Marine Ltd. Authority – Energy Market Authority Lim Chin Hu – Neptune Orient Lines Limited – Changi General Hospital Pte Ltd – Keppel DC REIT Lieutenant-General – Personal Data Protection Ong Su Kiat Melvyn Commission – ST Engineering – Telstra Corporation Limited@ Land Systems Ltd.

Quek Gim Pew – ST Electronics (Satellite Systems) Pte. Ltd. – Temasek Laboratories@ NUS Management Board – Temasek Laboratories@ NTU Management Board – Temasek Laboratories@ SUTD Management Board

* Listed on the SGX-ST @ Listed on the Australian Securities Exchange 20 ST ENGINEERING additional information on Directors seeking re-election

Vincent Chong Sy Feng Lim Sim Seng Lim Ah Doo LG Ong Su Kiat Melvyn Lim Chin Hu Song Su-Min

Date of Appointment 1 October 2016 15 May 2015 10 November 2015 8 June 2018 16 July 2018 16 September 2018

Date of last Re-appointment (if applicable) 21 April 2017 21 April 2016 21 April 2016 NA NA NA

Age 49 60 69 43 60 45

Country of principal residence Singapore Singapore Singapore Singapore Singapore Singapore

The Board’s comments on this appointment Vincent has 20 years of global Sim Seng has vast experience Ah Doo has vast experience Melvyn’s defence background Chin Hu has vast experience Su-Min’s legal background (including rationale, selection criteria, and business and management in banking and management. in finance, investment and will continue to benefit in business and management will continue to provide a the search and nomination process) experience. His leadership will His experience will continue to management. His experience ST Engineering in addressing and in nurturing technology specialised legal perspective to continue to benefit ST Engineering enhance board deliberations. will continue to enhance board the changing and challenging startups. His experience and board deliberations. and set the direction of growth for deliberations. needs of the defence business. knowledge will continue to help the ST Engineering Group. management steer towards the Company’s growth vision.

Whether appointment is executive, and if so, The position is executive in Non-executive Non-executive Non-executive Non-executive Non-executive the area of responsibility nature. Mr Chong oversees the business of the ST Engineering Group.

Job Title (e.g. Lead ID, AC Chairman, President & CEO and Independent Director Independent Director and Non-independent Director Independent Director Independent Director and AC Member etc.) Executive Director Member of Audit Committee Member of Audit Committee

Professional Qualifications First Class Honours in Mechanical Japanese Government Monbusho Honours degree in Engineering Master of Science, (Science) Bachelor of Science from La LLB (Honours) from the Engineering from the National scholar and graduated from the Queen Mary College, from the London School of Trobe University, Melbourne, University of Kent at Canterbury University of Singapore with a Bachelor in Business University of London Economics & Political Science, Australia Executive leadership programmes Administration from Yokohama Master in Business Administration University of London, UK Diploma in Electrical & at the Thunderbird School of National University, Japan from the Cranfield School of Electronics Engineering from Global Management and the Management Ngee Ann Polytechnic Columbia Business School

Working experience and occupation(s) President & CEO, ST Engineering Group Head, Consumer Banking Acting President, SAF Officer CEO, British Telecoms Partner, Allen & Gledhill LLP during the past 10 years (2016 – current) Group & Wealth Management, AAA Oils and Fats Pte Ltd (1994 – current) South East Asia (2008 – 2011) (2006 – current) President & CEO (Designate), DBS (2019 - current) (2007 – 2007) CEO, Frontline Technologies ST Engineering (2015 – 2016) Group Executive, Country Head, Corp. Ltd (2000 – 2008) DBS Singapore (2010 - 2018) and President, RGE Pte Ltd Dy CEO (Corporate (2003 – 2007) Development), ST Engineering Chairman/Board Director, (2014 – 2015) DBS Vickers Securities Holdings Pte Ltd (2010 – current) President, Strategic Plans & Business Development, President, CEO & Board Director, ST Aerospace (2014) Nikko Citi Holdings, Inc (2008 – 2009) Director, Asia Pacific Lubricants Sales, ExxonMobil Asia Pacific Country Officer, Pte Ltd (2013 – 2014) Citibank Hong Kong and Chairman, Citibank Hong Kong Downstream Senior Advisor, Limited (2007 – 2008) Corporate Strategic Planning, Exxon Mobil Corporation (2012 – 2013) Global Director, Marine Fuels, ExxonMobil Marine Limited (2009 – 2012) annual report 2018 21

Vincent Chong Sy Feng Lim Sim Seng Lim Ah Doo LG Ong Su Kiat Melvyn Lim Chin Hu Song Su-Min

Date of Appointment 1 October 2016 15 May 2015 10 November 2015 8 June 2018 16 July 2018 16 September 2018

Date of last Re-appointment (if applicable) 21 April 2017 21 April 2016 21 April 2016 NA NA NA

Age 49 60 69 43 60 45

Country of principal residence Singapore Singapore Singapore Singapore Singapore Singapore

Vincent Chong Sy Feng Lim Sim Seng Lim Ah Doo LG Ong Su Kiat Melvyn Lim Chin Hu Song Su-Min

Shareholding in ST Engineering and ST Engineering 35,600 shares in ST Engineering 60,000 shares in ST Engineering Nil 20,000 ordinary shares in Nil its subsidiaries - 1,568,084 shares ST Engineering held in trust - up to 1,287,580 by Citibank Nominees Performance Shares* - 77,867 unvested Restricted Shares** - 180,800 Restricted Shares**

* granted under the ST Engineering Performance Share Plan 2010 ** granted under the ST Engineering Restricted Share Plan 2010

Any relationship (including immediate No No No No No No family relationships) with any existing director, existing executive officer,T S Engineering and/or substantial shareholder of ST Engineering or of any of its principal subsidiaries

Conflict of interest (including any competing business) No No No No No No

Undertaking (in the format set out in Appendix 7.7) under Yes Yes Yes Yes Yes Yes Rule 720(1) has been submitted to ST Engineering

Other Principal Commitments Including Directorships Directorships Directorships Directorships Directorships Directorships Directorships – Past (for the last 5 years) Singapore Technologies ASEAN Finance Corporation Bracell Limited ST Engineering Telstra Limited Jurong International Holdings Dynamics Pte Ltd Limited SembCorp Marine Limited Land Systems Ltd. Keppel DC REIT Pte Ltd ST Aerospace Resources Pte. Ltd. ST Engineering Aerospace Ltd. SM Investments Corporation Changi General Hospital ST Engineering Aerospace Ltd. Asfinco Singapore Limited Other Principal Pte Ltd Other Principal ST Engineering Commitments ST Engineering Electronics Ltd. Marine Ltd. Commitments Please see ST Engineering Land Systems Ltd. Other Principal Other Principal Please see “Working Experience “Working Experience ST Engineering Management Commitments Other Principal and occupation(s) during Commitments Commitments and occupation(s) during Services Pte. Ltd. Please see the past 10 years” above Please see the past 10 years” above ST Engineering Marine Ltd. “Working Experience Please see “Working Experience and occupation(s) during “Working Experience and occupation(s) during the past 10 years” above and occupation(s) during the past 10 years” above Other Principal the past 10 years” above Commitments Please see “Working Experience and occupation(s) during the past 10 years” above annual report 2018 23

Vincent Chong Sy Feng Lim Sim Seng Lim Ah Doo LG Ong Su Kiat Melvyn Lim Chin Hu Song Su-Min

* granted under the ST Engineering Performance Share Plan 2010 ** granted under the ST Engineering Restricted Share Plan 2010

Conflict of interest (including any competing business) No No No No No No

Undertaking (in the format set out in Appendix 7.7) under Yes Yes Yes Yes Yes Yes Rule 720(1) has been submitted to ST Engineering

Vincent Chong Sy Feng Lim Sim Seng Lim Ah Doo LG Ong Su Kiat Melvyn Lim Chin Hu Song Su-Min

Other Principal Commitments Including Directorships Directorships Directorships Directorships Directorships Directorships Directorships – Present Experia Events Pte. Ltd. DBS Securities (Japan) GDS Holdings Limited Nil Citibank Singapore Limited Nil SP Telecommunications Pte Ltd Company Limited GP Industries Ltd Heliconia Capital Management ST Engineering Treasury Pte. Ltd. DBS Vickers Securities Holdings Olam International Limited Other Principal Pte Ltd Other Principal Pte Ltd Vision Technologies Systems Inc STT GDC Pte. Ltd. Commitments Kulicke & Soffa Inc Commitments Nikko Asset Management JTC Corporation – Singapore Exchange Limited Please see Co., Ltd U Mobile Sdn Bhd Board Member Singapore Health Services “Working Experience Other Principal Singapore Land Authority Virtus HoldCo Limited and occupation(s) during Commitments Please also see Pte Ltd “Working Experience the past 10 years” above JTC Corporation – Other Principal Other Principal and occupation(s) during Board Member/Member of Commitments the past 10 years” above Other Principal Development Committee Commitments Commitments Nil Please also see Federal Republic of Nigeria – Please also see “Working Experience High Commissioner “Working Experience and occupation(s) during Please also see and occupation(s) during the past 10 years” above “Working Experience the past 10 years” above and occupation(s) during the past 10 years” above

annual report 2018 25

Vincent Chong Sy Feng Lim Sim Seng Lim Ah Doo LG Ong Su Kiat Melvyn Lim Chin Hu Song Su-Min

26 ST ENGINEERING additional information on Directors seeking re-election

Vincent Chong Lim Sim Seng Lim Ah Doo LG Ong Su Kiat Lim Chin Hu Song Su-Min Sy Feng Melvyn Yes / No Yes / No Yes / No Yes / No Yes / No Yes / No

(a) Whether at any time during the last 10 years, an application or a petition under any bankruptcy law No No No No No No of any jurisdiction was filed against him or against a partnership of which he was a partner at the time when he was a partner or at any time within 2 years from the date he ceased to be a partner? (b) Whether at any time during the last 10 years, an application or a petition under any law of any No No No No No No jurisdiction was filed against an entity (not being a partnership) of which he was a director or an equivalent person or a key executive, at the time when he was a director or an equivalent person or a key executive of that entity or at any time within 2 years from the date he ceased to be a director or an equivalent person or a key executive of that entity, for the winding up of that entity or where that entity is the trustee of a business trust, that business trust, on the ground of insolvency? (c) Whether there is any unsatisfied judgment against him? No No No No No No (d) Whether he has ever been convicted of any offence, in Singapore or elsewhere, involving fraud No No No No No No or dishonesty which is punishable with imprisonment, or has been the subject of any criminal proceedings (including any pending criminal proceedings of which he is aware) for such purpose? (e) Whether he has ever been convicted of any offence, in Singapore or elsewhere, involving a breach No No No No No No of any law or regulatory requirement that relates to the securities or futures industry in Singapore or elsewhere, or been the subject of any criminal proceedings (including any pending criminal proceedings of which he is aware) for such breach? (f) Whether at any time during the last 10 years, judgment has been entered against him in any civil No No No No No No proceedings in Singapore or elsewhere involving a breach of any law or regulatory requirement that relates to the securities or futures industry in Singapore or elsewhere, or a finding of fraud, misrepresentation or dishonesty on his part, or he has been the subject of any civil proceedings (including any pending civil proceedings which he is aware of) involving an allegation of fraud, misrepresentation or dishonesty on his part? (g) Whether he has ever been convicted in Singapore or elsewhere of any offence in connection with No No No No No No the formation or management of any entity or business trust? (h) Whether he has ever been disqualified from acting as a director or an equivalent person of any No No No No No No entity (including the trustee of a business trust), or from taking part directly or indirectly in the management of any entity or business trust? (i) Whether he has ever been the subject of any order, judgment or ruling of any court, tribunal No No No No No No or governmental body, permanently or temporarily enjoining him from engaging in any type of business practice or activity? (j) Whether he has ever, to his knowledge, been concerned with the management or conduct, in Singapore or elsewhere, of the affairs of: (i) any corporation which has been investigated for a breach of any law or regulatory No No Yes 1 No No No requirement governing corporations in Singapore or elsewhere; or (ii) any entity (not being a corporation) which has been investigated for a breach of any law or No No Yes 1 No No No regulatory requirement governing such entities in Singapore or elsewhere; or (iii) any business trust which has been investigated for a breach of any law or regulatory No No Yes 1 No No No requirement governing business trusts in Singapore or elsewhere; or (iv) any entity or business trust which has been investigated for a breach of any law or regulatory No No Yes 1 No No No requirement that relates to the securities or futures industry in Singapore or elsewhere, in connection with any matter occurring or arising during that period when he was so concerned with the entity or business trust? (k) Whether he has been the subject of any current or past investigation or disciplinary proceedings, No No No No No No or has been reprimanded or issued any warning, by the Monetary Authority of Singapore or any other regulatory authority, exchange, professional body or government agency, whether in Singapore or elsewhere?

annual report 2018 27

Vincent Chong Lim Sim Seng Lim Ah Doo LG Ong Su Kiat Lim Chin Hu Song Su-Min Sy Feng Melvyn Yes / No Yes / No Yes / No Yes / No Yes / No Yes / No

1 PT Indosat: Mr Lim was non-executive independent Commissioner of PT Indosat Tbk (“PT Indosat”) from December 2002 to August 2008, and Chairman of Audit Committee from June 2004 to June 2008. In November 2007, PT Indosat along with 6 other Indonesian telecommunications companies were investigated by Indonesia’s anti-competition, KKPU, on allegations of price-fixing of charges for short text messages and breach of Antimonopoly Law of Indonesia. PT Indosat and 8 other companies were also investigated by KKPU of concern of breaches of Article 27(a) of the Antimonopoly law of Indonesia. There was no finding of breach of law by PT Indosat at the time Mr Lim left PT Indosat.

Asian Agri: Mr Lim was president of RGM International Pte Ltd (“RGMI”) from October 2003 to June 2007 and non-executive vice chairman of RGMI from June 2007 to November 2008. Mr Lim was also acting president of AAA Oils and Fats Pte Ltd (“AAA”) from June 2007 to November 2007 and non-executive deputy chairman of AAA from November 2007 to November 2008. RGMI provides strategy services and support to a global group of independent companies (the “RGM Group”) operating in the resources development sector. Each business group within the RGM group operates independently with its own holding company and directors responsible for the operation of that business group. Asian Agri is a member of the RGM group and AAA is a member of Asian Agri. Certain Indonesian companies of Asian Agri operating in Indonesia were investigated by the tax authorities of Indonesia in November 2006 for alleged non-payment of certain tax. The tax authorities of Indonesia had not confirmed any findings of breach of law at the time when Mr Lim left the RGM Group in November 2008. Mr Lim was not a member of the board nor was he concerned with the management of the companies under investigation. 28 ST ENGINEERING Senior Management

holds a Second Class Upper Honours degree in Mechanical Engineering from the National University of Singapore (NUS). He obtained his Master of Science in Aerospace Engineering from the University of Michigan and attended the Program for Management Development at Harvard Business School.

Vincent Chong SY feng Dr Lee Shiang Long

Vincent Chong Sy Feng, Dr Lee Shiang Long, 53, is President & CEO of was appointed President ST Engineering and a Director of the Land Systems sector in of the ST Engineering Board. April 2017. Previously, he was (Vincent’s profile is on page 14) President, Defence Business of Land Systems and Deputy Chief Technology Officer, ST Engineering. Prior to joining ST Engineering, Dr Lee was Ravinder Singh Executive Director of the Institute for Infocomm Research Ravinder Singh, 54, was (I2R), where he was tasked to appointed President of the coordinate efforts throughout Electronics sector in January A*STAR for Services and Digital 2017 and is concurrently the Economy for Singapore RIE President, Defence Business 2020 (Research, Innovation and of ST Engineering since July Enterprise). He led I2R to re-focus 2017. Prior to this, Ravinder was on A*STAR mission for a greater President of the Land Systems social and economic impact, sector from March 2015 to aligned to Singapore’s Smart April 2017. He joined the Nation initiative launched in Lim Serh Ghee Electronics sector in August 2014 early 2014. Prior to I2R, Dr Lee as Deputy President, Corporate served in the SAF for 23 years. Lim Serh Ghee, 59, was and Market Development. In his His last appointment was Head appointed President of the earlier career, Ravinder served of Joint Communications and Aerospace sector in December as the Chief of Army, Singapore Information Systems Department, 2014. Prior to this, he was Armed Forces (SAF) and the and Chief Information Officer. Chief Operating Officer from Deputy Secretary (Technology), Dr Lee holds a Master in Business 2010 and President, Defence Ministry of Defence, Singapore. Administration from Cambridge Business. Serh Ghee also served He graduated with a Bachelor University and PhD in Mechanical as Executive Vice President of Arts in Engineering Science Engineering from the Nanyang of Aircraft Maintenance & (First Class Honours) and a Technological University, Modification (AMM), a business Master of Arts in Engineering Singapore (NTU), as well as a segment of Aerospace. Science, both from the University Master Degree in Science (IT) He began his career with of Oxford, UK. Ravinder also from NUS. the Aerospace sector as a attained a Master of Science in mechanical engineer in 1984 Management from Massachusetts and has held many senior Institute of Technology, USA, and management appointments attended the Wharton Advanced within the sector. Serh Ghee Management Program. annual report 2018 29

U.S. subsidiary, VT Systems, in cap companies, and was also December 2001. Following his Chairman of JTC Corporation relinquishment as CEO of and SPRING Singapore. He VT Systems, he remained as holds a Bachelor of Science in Director of VT Systems and Engineering (Naval Architecture became non-executive Chairman and Marine Engineering) from of VT Systems Advisory Board the University of Michigan, with effect from 1 December Ann Arbor, USA and received 2018. He joined the Group after his Master of Science (Ocean an illustrious 39-year career Systems Management) from with the U.S. Department of the Massachusetts Institute of Defense, where he commanded Technology, Cambridge, USA. at all levels, including as Cedric also attended Executive Ng Sing Chan Commanding General of the Programmes at Harvard and U.S. Army Materiel Command Kellogg Business Schools. Ng Sing Chan, 58, was appointed with an annual budget of President of the Marine sector $39.2 billion. Gen (Ret.) Coburn in May 2010. Prior to this, Sing is the recipient of many medals, Chan was Deputy President and and is a notable author and President, Defence Business of the speaker. He is a graduate of Marine sector. He joined the Marine the U.S. Army Command and sector in 1987 as an engineer. Sing Staff College, and the Industrial Chan left in 1991 and later became College of the Armed Forces. the Deputy General Manager of He holds a Juris Doctor degree Pan-United Shipyard Pte Ltd. He from the University of Missouri, subsequently took on the positions a PhD from Eastern Michigan of President of Changshu Xinghua University, as well as many Changjiang Dev Co and Executive other degrees. He is licensed to Director of Pan-United Marine Ltd practice law before the Supreme (now known as DDW-PaxOcean Courts of Michigan and Kentucky, Shipyard Pte. Ltd.). Sing Chan the United States Army Court of Eleana Tan Ai Ching re-joined the Group in March Criminal Appeals, the District of 2008 as Executive Vice President, Columbia Court of Appeals, and Eleana Tan Ai Ching, 56, Special Projects, ST Engineering the Supreme Court of the was appointed Chief and moved to Marine as Deputy United States. Corporate Officer of President in April 2009. Sing ST Engineering in July 2017 Chan holds a Master of Business when she relinquished her role Administration (Finance & Banking) as the Chief Financial Officer, from NTU, and a Masters in a position she had held since Engineering from the University March 2008. She was previously of Hamburg, Germany. Managing Director, Finance, Temasek Holdings (Private) Limited (Temasek). Prior to that, Eleana was Director of Finance at Singapore Technologies Pte Ltd (STPL) from August 2003 until December 2004, when STPL was restructured, and its assets transferred to Temasek. Prior to 2003, she had held various key finance positions in the ST Engineering Group over Cedric Foo Chee Keng a period of 13 years and last held the position of Group Financial Cedric Foo Chee Keng, 58, was Controller of ST Engineering. appointed Chief Financial Officer Eleana holds a Bachelor of of ST Engineering in July 2017. Accountancy (Honours) from General (Ret.) Prior to this, Cedric was Advisor NUS and attended the Harvard John G Coburn (Corporate Development) of the Business School’s Advanced Group since October 2016. He Management Program in General (Ret.) John G Coburn, had previously served as Chief 2013. She is a member of the 77, was appointed Executive Financial Officer and in senior Institute of Singapore Chartered Chairman of ST Engineering’s management roles in large- Accountants. 30 ST ENGINEERING We Aspire to be a Global Technology, Defence &

A E Engineering Powerhouse R O S P A C In 2018, we shared our five-year plan which comprises a E set of goals developed collectively by our team of business leaders across the Group. We will strengthen our core businesses through continuous investments in key assets and capabilities and pursue opportunities in international defence business and smart city.

S m a Core and other r businesses CAGR Smart City revenue of t

2X – 3X $1b C global GDP growth i to more than t rate over the next e y 5 years double by l 2022 e c

c 2022 s targets

Net profits Two-thirds to grow of revenue in tandem growth with revenues to be from global markets

E int C er FEN national DE

E IN R A M annual report 2018 31

A E R O Building on our position of S P A strength for the next stage of growth C E

Strong fundamentals to support value creation AAA balance sheet

Well-positioned to enhance portfolio value

Solid track record in smart city solutions e Implemented more than l e

r o 500 n smart city projects i

s across 70 cities worldwide

Proven export successes in defence capabilities

Armoured Weapons Total naval vehicles & munitions solutions

e t s y s A future-ready and high-performing workforce d n a l 16,000 of 22,000 employees are in engineering & technical roles 32 ST ENGINEERING

r a t e d d e f i n t e g e n c e

We develop build-to-design technologies, drive digitalisation

purposefully with our Mobility, integrated battlefield Security and Environment solutions management for the Smart Cities of tomorrow. System

We also introduce digital "soldiers" to meet tomorrow’s battlefield by creating operational and warfare Manned- advantages for global armed forces unmanned with our portfolio of competitive teaming platforms, smart munitions and Next-Generation soldier systems. Armoured Fighting Vehicle Building Smart and Secure Cities Globally

+ A naly tics & Art ificial Intellig tics ence + Robo + Digital Connectivity

Smart environment + Smart Street Lights + Smart Utilities + waste and Water Management annual report 2018 33

r a t e d d e f i n t e g e n c e

Collaborative sensing and combat engagement

Mounted & dismounted operations

Weaponised Unmanned Aerial Vehicle Weaponised Unmanned Ground Vehicle

mothership concept

Precision Fire

+ A naly tics & Art ificial Intellig tics ence + Robo + Digital Connectivity

Smart security Smart mobility + Aviation & Maritime Security + Smart Metro Control Centre + Autonomous Vehicles + Key Installation Security + Command, Control & + Passenger + Cybersecurity Solutions Communications System information System + Drone Network Solutions + Platform Screen Door + integrated Land + Automatic Fare Transport Operation Centre Collection System + integrated Traffic Management and Security Systems 34 ST ENGINEERING

Innovation: Creating a Smart Future

Technology and innovation is in our DNA, which underpins what we do as a global technology, defence and engineering group.

From creating sustainable innovations that push the boundaries of R&D, to disruptive technologies that redefine ways of thinking and doing, we are constantly reinventing and innovating.

Our innovation approach, integrated with Autonomous Mini-Bus deep, multidisciplinary engineering expertise and capabilities, enables us to continuously create game-changing solutions in domains such as smart cities, robotics, data analytics, STROBO Barrier-Free Automatic cybersecurity and autonomous solutions. Security Fare Collection System Robot Through strategic collaborations, we leverage collective genius from the global technology ecosystem, deepening and broadening our capabilities and strengths to enable new possibilities that shape a better future.

People remain our strength in this innovation journey. Our global workforce, two-thirds of which comprises engineering and technical talents, is what differentiates us and is our key to a smarter future.

Leveraging Strengths and Forming Partnerships Within the Technology Ecosystem

Strategic Technology Digital Office Corporate and Research Labs Corporate Centres (STCs) Venture Capital The Digital Office Our collaborations with Our STCs deepen synergises and academic and research We invest in promising our capabilities in accelerates the Group’s institutions help to accelerate technology start-ups data analytics and digitalisation efforts, the research, development with strong capabilities cybersecurity, delivering enabling us to deliver and commercialisation of in data analytics, more powerful products enhanced customer new technologies and cybersecurity and and solutions that add value and capture new solutions, conferring our transportation value to our business. opportunities in the customers a competitive edge. technology. digital economy. annual report 2018 35

Innovation Highlights 2018

Smart DroNet Street Lighting

Folo-Fleet

Autonomous Mini-Bus Airbitat Oasis Smart Bus Stop

NERVA Ship Management System

STROBO Suite

4 5 1 7 6 2 3 8 9

1. The autonomous mobility-on-demand trial 6. Airbitat Oasis Smart Bus Stop is capable in Sentosa leverages technology to improve of using water to cool air to as low as 24°C urban mobility in Singapore. and removing harmful airborne particles such 2. The STROBO Security Robot uses artificial as PM2.5. intelligence and machine perception to pick up 7. The WISX Smart Street Lighting equipped anomalies in the environment and effectively with on-demand, intelligent light control detect intruders. and predictive analytic capabilities helps Open Innovation Lab 3. our barrier-free hands-free Automatic Fare municipals realise up to 40% energy and Collection System for rail systems, delivering maintenance cost savings. Apart from being an optimised operational efficiency and seamless 8. The STROBO family of autonomous material commuting. handling equipment for warehouse, airport, innovation exchange for 4. DroNet harnesses an integrated network of seaport and manufacturing industries. our engineers, our Open drones to enhance the way we live and work 9. NERVA Ship Management and Sensemaking Innovation Lab supports in an urban setting. System (SMS2) is a class-certified integrated 5. Folo Fleet is a semi-autonomous smart mobility alarm, monitoring and control system for entrepreneurs and start- 2 device convoy system which allows a single ship operators. SMS allows intelligent ups with resources and operator to manage multiple transporters at the Hull, Mechanical and Electrical (HM&E) expertise to fast track their same time, maximising productivity and enabling management and control of the ship systems effortless operations. and uses AI for predictive diagnostics and innovations to market. condition-based monitoring. 36 ST ENGINEERING Operating Review & Outlook

Despite intensifying competition, we maintained our strong industry leadership position. We continued to strengthen our core business in MRO services, invest in new growth areas and build up our capabilities in areas such as data analytics to enhance our service offerings. annual report 2018 37

Aircraft Maintenance & Modification (AMM)

Against the backdrop of a buoyant aviation industry, our AMM business continued to secure a number of contracts for both light and heavy maintenance during the year, which included a five- global network by delivering to year exclusive MD-11 heavy the satisfaction of our customers, maintenance support contract time and again. During the year, from Lufthansa Cargo and a we expanded our capacity in the contract to support a major U.S. with a new airframe facility. North American airline’s A321s Our excellence was once again for the first time. The same recognised when we were named North American airline also Overall MRO of the Year for the awarded a contract for an second year running at the 2018 in-seat power supply, overhead Aviation 100 MRO Global Awards. bin and galley modification 2018 review programme for their entire fleet While MRO remains core to of 48 A320s. Our Aerospace sector performed our aerospace business, we well in 2018, with the tempo continued to invest in adjacencies With international and domestic remaining upbeat throughout and new growth areas that air travel on the rise, we also the year. Our hangars and could add value to our MRO continued to expand our repair shops saw a steady work and give us a competitive capacity in anticipation of stream of maintenance work edge through the ownership of strong demand for airframe for aircraft airframe, engines intellectual property. maintenance in our key markets. and components. In June, we officially opened a new airframe MRO facility Although competition continued in Pensacola, Florida, U.S.. We to intensify with new and gathered more momentum potential entrants eyeing a share in capacity building when of the Maintenance, Repair and Industry we signed a Memorandum of Overhaul (MRO) pie, we set recognition Understanding (MOU) with the ourselves apart with our wide City of Pensacola in October Awards included Overall to pursue the development MRO of the Year, won for the second year running. of a 655,000 sq ft airframe MRO complex next to our newly opened hangar. Upon Secured new completion, we will have an contracts annual capacity of 2.1 million worth a total labour hours in Pensacola. of $2.06b Our VIP completions business, A number of these AERIA Luxury Interiors (AERIA), contracts were multi- year agreements signed continued to grow in strength. with repeat customers. AERIA secured a Boeing Business Jet project, its third since the business started in 2012. AERIA also reached a new milestone when it secured a 38 ST ENGINEERING Operating Review & Outlook

maintenance support contract for its first Airbus Corporate Jet (ACJ) customer. The project allows AERIA to showcase its capability and technical knowledge in Airbus platforms to potential ACJ customers.

Apart from VIP completions, other aircraft interior modification contracts secured during the year included one from Air Canada to perform interior reconfiguration on part of the airline’s A330-300 fleet.

Component/Engine Repair The new airframe MRO facility in Pensacola, Florida, U.S.. & Overhaul (CERO)

In 2018, our component repair and overhaul facilities delivered requirements and the region’s scope from Japan’s Solaseed 42,908 components and 163 increasing demand for aircraft Air to service their fleets of landing gears, while our engine MRO services. Boeing 737-800s. repair and overhaul businesses completed 167 engines and In addition to the MOU, we With a steady growth in 9,883 EcoPower® engine washes. also entered into a 14-year narrowbody engine shop visits, component Maintenance-By- our engine work maintained The robust economy and a the-Hour (MBH™) contract with strong momentum in 2018. burgeoning middle class in Vietnam Airlines to support the Our facilities in Singapore and Asia have created an ideal airline’s entire fleet of A321ceos Xiamen, China enjoyed high environment for the growth and A321neos, including other levels of utilisation through the of the aviation industry. A321s that will enter its fleet, year due to an upward trend for Riding on this, we signed an starting from mid-2018. CFM56-5B and -7B shop visits. MOU with Vietnam Airlines in April to set up a joint venture We further grew our support In anticipation of the continuous (JV) to provide component for operators in Asia when we high demand, we have ramped MRO solutions. The JV, to secured our first multi-year up our manpower to increase be headquartered at Noi Bai component MBH™ contract our capacity by 50%. International Airport in Hanoi, from Japan Airlines and an will cater to Vietnam Airlines’ MBH™ contract with expanded While Time and Material service packages remain popular, operators are increasingly exploring Power-by-the-hour programmes and entering into long-term contracts to lock in capacity for their Expanded our projected maintenance needs of MRO network CFM56-7B and -5B engines. with a new facility in the U.S. Engineering & Materials Services (EMS) The new facility increases our capacity to serve the North American market Even as we strengthen our and our global clientele. core business in MRO services, annual report 2018 39

we are also investing in new Secured a launch growth areas that synergise contract for A321P2F with our engineering and MRO Vallair placed 10 firm orders, while capabilities to sharpen our an LOI for a potential order of competitive edge. At the same 10 units A320 P2F was signed time, we continue to build with Guangdong Aerocity. on our engineering expertise and aircraft assets to provide innovative solutions such as (we redelivered our first A330- which are on lease to operators. freighter conversions and 300P2F at the end of 2017). We will continue to grow our unmanned aerial systems. portfolio of mid-life aircraft Cabin Interiors and assets that best align with our Passenger-to-Freighter Manufacturing technical capabilities and service Conversions (P2F) Our ergonomically-designed offerings so as to complement With air cargo forecasted to aircraft seats, SPACElite, our core MRO and P2F aircraft grow at 4% CAGR over the received international conversion businesses. next 20 years, freighter recognition when it won the conversion is one growth area 2018 Japan Good Design Unmanned Solutions we will continue to focus on. Award. While this business is We rolled out the first DroNet By 2022, we expect to book an still nascent, we have set up system application, which annual revenue of more than management and quality control utilises an integrated network of $400m from this business. systems, and built capacity to autonomous drones to complete deliver 5,000 seats annually. a range of tasks including During the year, we secured infrastructure inspection, assets a launch contract for our In Europe, we expanded our management and public security new A321P2F programme capacity in composite panel in an urban environment, for when Vallair ordered 10 P2F manufacturing with the opening customers to do on-site trials conversions from us. The of a second plant in Kodersdorf, at the end of 2018. first aircraft was inducted in Saxony, Germany. With the November, and is scheduled for global commercial and cargo We are also lending our industry redelivery by the end of 2019. aircraft fleet expected to grow experience to the Civil Aviation strongly over the next 10 years, Authority of Singapore (CAAS) In August, we redelivered our the increased capacity will help to help shape regulatory first converted A330-200 meet the rising demand for frameworks for Beyond freighter to EgyptAir Cargo. aircraft floor panels and cargo Visual Line of Sight (BVLOS) This redelivery marks the compartment linings. Unmanned Aircraft System successful inauguration of our (UAS) operations in Singapore’s entire A330P2F family which Aircraft Leasing urban environment. In addition, comprises the -200P2F and We expanded our fleet to a we will collaborate with CAAS the larger -300P2F variant total of six aircraft in 2018, all of to develop new concepts,

MOU signing with Vietnam Airlines for the setting up of a component Celebrating the order for 10 A321 converted MRO joint venture at the Vietnam-Singapore Business Forum 2018. freighters with launch customer, Vallair. 40 ST ENGINEERING Operating Review & Outlook

procedures and technologies 2019, led by growing commercial Scaling up our that enable BVLOS UAS aircraft production and strong aerospace capabilities operations in Singapore. defence spending. The proposed MRAS acquisition allows us to scale up our aerospace New Growth Area in According to Deloitte, the capabilities by moving into Nacelle Manufacturing commercial aircraft order the OEM business of making During the year, we backlog is at its peak of more high-value nacelle systems. proposed to acquire MRA than 14,000, with about Systems (MRAS), an engine 38,000 aircraft expected to nacelle original equipment be produced globally over manufacturer (OEM) based the next 20 years. in Baltimore, Maryland, U.S.. MRAS’ proprietary designs and With the global aerospace expertise in manufacturing industry projected to continue nacelle systems will allow us its robust growth, we are to move into the OEM confident of the long-term business of high-value nacelle prospects of the industry and components and replacement we will continue to invest in parts, thereby scaling up our core and adjacent businesses to aerospace capabilities. capture growth opportunities. At the same time, we are mindful MRAS’ design, engineering of the increasingly competitive One of the ways we do this is and manufacturing know-how landscape and we continue to by investing in technologies to in advanced composite sharpen our competitive edge create better value propositions. structures can also create by enhancing our capabilities These include digitisation and synergies with the Group's and our suite of solutions. data analytics which assist in composite manufacturing optimal maintenance planning capabilities. The transaction is Strengthening our for customers; automation to expected to close by end of the Core with Technology ensure quick turnaround times first quarter in 2019. To repeatedly deliver high and consistent quality repair/ standards and value-added overhaul for customers; and services to our customers, Industry Outlook additive manufacturing to The industry is expected to we continuously strengthen create virtual warehouses continue its growth trajectory in our core capabilities. for customers.

During the year, we fully digitised our engine MRO facility Acquiring a nacelle manufacturing company will enable us to scale in Singapore. Looking ahead, up our capabilities and move into the OEM business. we will continue to deploy the paperless system and aim to achieve digitalisation across our global network of facilities. We continue to introduce robotics into our operations to increase productivity and will soon introduce an unmanned solution for aircraft inspection using drones.

On the additive manufacturing front, we have been conducting trials for interested airline customers to create a virtual warehouse for cabin parts. To date, we have been granted annual report 2018 41

certification by the European Aviation Once the acquisition of MRAS Safety Agency for certain parts is completed, we will focus on Key Focus and we are working towards similar integrating the new subsidiary and in 2019 certification with other authorities to enhancing our solution offerings expand our inventory list. with our new nacelle capability. At the same time, we will continue to Investing in Growth Areas look out for opportunities in the As we strengthen our core MRO OEM space that can further add business, we continue to invest in value to our aerospace business. adjacent businesses and new growth 1. areas that can add value to our Forming Strategic Partnerships Strengthen core MRO work and sharpen our While OEMs and airlines have been capabilities and competitive edge. Aircraft leasing getting more involved in the MRO continue to enhance and freighter conversions are two aftermarket, they are still, to a large services through growth areas that we continue extent our partners and customers Industry 4.0 SMART to focus on. As we ramp up our rather than our competitors. We MRO initiatives. conversion activities to fulfil will continue to pursue strategic contracts secured in 2018, we will partnerships that lead to win-win increase capacity in accordance with situations. One example is when we the scheduling needs of our clients. divested a 5% stake in ST Aerospace (Guangzhou) Aviation Services Looking ahead, we are exploring Company, a JV with the Guangdong value-added solutions to add to Airport Authority, to Japan Airlines our freighter conversion offerings. in early 2018 to further strengthen With increasing global demand for our partnership. 2. Focus on integrating air freight and a growing shortage MRAS into the Group of air crew, we believe unmanned Given Japan Airlines’ strong upon the completion freighters can be a viable solution reputation in quality and standards of acquisition. and will provide tangible benefits for its services and the demands such as lower operational costs. placed on MRO service providers, We are currently studying this the strengthened partnership will concept diligently with our facilitate cross-learning and enable partner. the JV to enhance its standing in safety and quality, and be better Moving Upstream into OEM Space positioned for growth. Being an MRO service provider with strong engineering capabilities As for our planned component 3. Continue to invest in accords us the advantage of moving MRO JV with Vietnam Airlines, we growth areas such as into growth areas that require design expect to set it up in the first half freighter conversions and engineering expertise, for of 2019. In the meantime, we have and aircraft leasing. instance freighter conversions. set up a component inventory base in Vietnam to service the MBH™ Apart from organic expansions, contract for Vietnam Airlines. we have been looking to acquire new businesses in the OEM space that can capture synergies with our MRO business and engineering capabilities.

As the global aviation industry continues on its growth trajectory, moving upstream into the business of nacelle design and manufacturing will allow us to benefit directly as an OEM. 42 ST ENGINEERING Operating Review & Outlook

Driven by our passion and pursuit of engineering excellence to create value for our customers, we introduced innovative, cutting-edge products and capabilities such as our barrier- free, hands-free Automatic Fare Collection system. annual report 2018 43

Smart Connectivity that delivers enhanced in flight Weathering the past year’s connectivity for commercial global market, we extended aviation, an emerging high- our satellite communications growth market. global reach into Africa and Latin America, enabling Our proven solutions in smart cost efficiencies for satellite sensors and Internet of Things operators, as well as reliable (IoT) networks for urban city 2018 Review and affordable connectivity management through the for consumers. application of advanced analytics Against a backdrop of continued to gain traction. constant technological Delivering the latest Contracts secured included transformation that is developments in high proof-of-concept trials to deploy impacting businesses throughput satellite capacity smart lamp posts in Kowloon and cities worldwide, we to the market, we were chosen East, Hong Kong’s Smart City continued to capitalise on as the ground infrastructure Pilot Area and in Singapore, as our core competencies in provider for Inmarsat’s well as enabling near real-time technology and engineering fifth Global Xpress high-speed, management of urban water to enable our customers to broadband communications resources and smart street maintain a competitive edge satellite. lighting in cities in Canada, Israel, in a complex market. New Zealand, the UK and On the new technology front, the U.S.. With a focus on spurring the we were part of a global next wave of international SaT5G Consortium-led live We launched Singapore’s first business growth, we actively test of the seamless integration pay-per-use IoT-as-a-Service pursued the growing market of satellite technology with platform in collaboration with needs of Smart Cities for 5G networks, a significant SP Telecom and SP Group, Connectivity, Mobility milestone expected to transform providing opportunities for and Security. the global communications enterprises and IoT partners to industry, making truly global move into the IoT space faster and connectivity closer to reality. more cost efficiently. Enterprise users and IoT partners are now As part of the long-term able to leverage a secure network, growth strategy of our satellite thousands of SP Telecom hubs communications business, we across the country, and a multi- established a new joint venture edge computing IoT platform to named Jet-Talk in the UK. bring services faster and closer to Through this joint venture, we their customers. are developing a state-of-the- art satellite antenna system Reinforcing our commitment to deliver value to customers through incorporating data analytics Innovation for capabilities into our product and solutions, we invested in our customers Azendian, a Singapore-based data Rail Enterprise Asset analytics company. The investment Management System and iDirect enhanced our smart data analytics Velocity were launched to capabilities and enabled the help smoothen our customers’ business transformations. development of suites of AI tools with machine learning capabilities. 44 ST ENGINEERING Operating Review & Outlook

Smart Mobility Kembangan, Redhill and Tiong Capitalising on our experience Bahru MRT stations in Singapore of delivering over 100 rail from June to November, enabling electronics solutions to 45 cities passengers with disabilities, the worldwide, we continued to elderly and parents with children expand our global reach and in strollers to easily enter and increase our market share with exit MRT stations without contracts secured for Mass Rapid tapping their fare cards. Transit (MRT) lines in Bangkok, Guangzhou, Jakarta, New Taipei To better support the growing City, Taoyuan and Wuhan. demand for metro rail, intelligent transportation and intelligent In Singapore, we are the trusted building management projects partner of choice for local in Chongqing and other parts transport customers, supplying of China, we established a Our smart lamp post leverages our comprehensive smart rail subsidiary in the Liangjiang sophisticated technologies such as electronics solutions for the New Area, Chongqing, that will artificial intelligence-based video analytics systems to “smarten up” Thomson-East Coast Line, the enhance our expansion efforts global cities. North-South Corridor, the North- in the region. South and East-West MRT lines, as well as a Rail Enterprise Asset Smart Security commercial drones; a Crisis and Management System for the We won new public safety Incident Response Trainer to Downtown Line which could and security contracts from enable command and planning potentially extend to the entire global customers, furthering that hones decision-making MRT network. our credentials in protecting skills in different scenarios and more than 100 critical national in the strategic deployment of Our barrier-free hands-free infrastructure and high-value forces; as well as an Automated Automatic Fare Collection assets from intrusions and Biometric and Behavioural (AFC) system was launched attacks. These included a Surveillance System equipped as the newest addition to our radar surveillance system with video analytics capabilities. comprehensive rail electronics for Brazil’s Itapu Hydroelectric solutions. Adopting long-range Dam, the world’s second To ensure navigation safety in radio-frequency identification, largest hydropower plant. The Singapore’s port waters and facial recognition and U.S.-based National Safe Skies the Singapore Strait, we formed stereoscopic people-counting Alliance has completed testing a consortium with Kongsberg camera technologies, the new and evaluating our award- Norcontrol to develop a Next AFC system takes less than a winning AgilFence Perimeter Generation Vessel Traffic second for speedy commuter Intrusion Detection System. Management System. The verification at the fare gates. system will have new decision- In 2018, we supplied our support tools such as analysis of A version of our hands-free customers with an Integrated vessels routes, traffic hotspots AFC was adopted as part Counter Drone System that prediction and detection of of a public trial at Bedok, detects, classifies and tracks potential collision situations that will provide accurate and comprehensive maritime situational awareness.

Invested in To help our customers protect data analytics and secure their systems against and cybersecurity sophisticated cyberattacks, we have invested in breakthrough Enabling our customers to cyber technologies that enjoy expanded access to breakthrough technologies complement and strengthen that support their digital our existing cybersecurity transformation. capabilities. Our investment in annual report 2018 45

Powering ahead with global growth momentum Established a subsidiary Radiflow, a leading provider infrastructures that deliver in Chongqing, China, and of industrial cybersecurity essential services such as captured new global markets solutions for critical energy, aviation, maritime and such as Abu Dhabi, Brazil, infrastructure based in Israel, land transport. Colombia, Dubai, Hong Kong, Jakarta and Kuwait for our has provided us with access leading-edge products. to Radiflow’s detection and Since 2011, our in-house prevention tools which were specialised cybersecurity used to develop the region’s professionals have been first end-to-end cybersecurity helping our customers fend off solution aimed at the rail cyberthreats at the frontline, transport industry. successfully keeping their networks safe and secure. We also strengthened our For our achievements in existing suite of cybersecurity cybersecurity, we secured products and solutions to help an (ISC)2 Asia-Pacific our customers in the Critical Information Security Leadership Information Infrastructure Achievements (ISLA®) (CII) sectors shore up their Managerial Professional award, defences. These included our the only Singaporean honoree scenarios such as dealing with new Advanced Cybersecurity out of 17 other international small vessels. The simulator has Command and Control Centre, cybersecurity experts to receive resulted in enhanced training designed to help CII sectors this prestigious accolade by effectiveness and shortened defend against multi-tiered the industry. training by more than 50%. cyberattacks through its cutting-edge capabilities Armed with real-time For land defence, our Vehicle in artificial intelligence and knowledge of the cyberthreat Integrated Communications Industrial Control Systems landscape, we have sought to System 2–United States secured anomaly detection. deliver innovative products and certification of compliance technology, threat intelligence to the U.S. Army’s Vehicular We unveiled DiGISAFE and leading expertise to Integration for C4ISR/EW DiskCrypt M10, the world’s help our customers prepare Interoperability (VICTORY) thinnest two-factor for, respond to and prevent standard. The VICTORY authentication (2FA) encrypted cyberbreaches. Significant standard enables C4ISR data storage equipped with orders we had delivered in the components installed in military sophisticated cyberdefence past year included an advanced vehicles to interoperate across features such as real-time Cybersecurity Operations a common message format, hardware encryption and 2FA Centre to enhance the security enhancing mission effectiveness with smart card protection. capabilities of the maritime and and soldier survivability. The DiskCrypt M10 was awarded port operations sector as well as the CES 2019 Innovation a Security Operations Centre for Industry Review Awards Honoree in recognition Sri Lanka’s Bank of Ceylon. and Outlook of its outstanding design and engineering. In the area of naval defence, we 2019 will continue to be a year have developed two 360-degree of rapid technological changes. Recognising that technology Littoral Mission Vessel (LMV) Disruptive technologies such alone is insufficient to combat simulators that enable ship as artificial intelligence, cloud- today’s cyberattackers, we have crew training in bridge watch- based computing and new partnered with the Singapore keeping, engineering and naval developments in IoT are rapidly University of Technology warfare for the Republic of maturing from game-changing and Design (SUTD) to co- Singapore Navy's new LMV ideas to foundational tools for develop new cybersecurity Simulation Centre. It is the business. In the coming year, courses. These courses help first ship simulator that adopts we can expect to see these to develop hands-on skilled Virtual Reality technology, technologies drive the way expertise in securing operational offering increased depth businesses are conducted at technology networks of critical perception for challenging forward-thinking organisations. 46 ST ENGINEERING Operating Review & Outlook

Boosted by our core market, as we expect to to our customers, helping them technological expertise and continue delivering innovative, embrace predictive analytics our culture of innovation, we cost-effective satellite solutions and automate decision-making. are poised to capture new and products that create value opportunities and markets by for our customers in more than Smart Security: leveraging these new technology 100 countries worldwide. Public Safety & Security breakthroughs. Given this, we will Globalisation and technology be on solid ground to take on the Smart Connectivity: IoT have transformed the landscape challenges in the next decade. As IoT technology and service of crime, effectively lowering providers and adopters the barriers for criminal Smart Connectivity: Satellite continue to grapple with syndicates, terrorist groups The change in bandwidth nascent technologies, the lack and radicalised individuals to economics driving industry of standards and complex identify targets of value and consolidations, the fast-growing integration requirements, carry out attacks. Governments, market of aviation connectivity, there is evidence that IoT security agencies and critical the increase in smaller satellites, providers are leveraging new facility owners face an urgent the use of low-earth orbit technologies and updating their need to modernise their public satellite constellations as well as go-to-market business models safety and security infrastructure new use cases for 5G and IoT are to equip adopters with the tools to effectively protect citizens, some key industry developments to implement and derive the organisations and critical that are presenting opportunities benefits of IoT solutions. infrastructure from harm. for our satellite business. Many of these industry trends We have leveraged In the face of these looming are enabling the delivery of our expertise in info- threats, we introduced innovative a lot more data at relatively communications, software solutions such as anti-piracy lower cost. This has resulted technologies and cybersecurity capabilities, counter-drones and in a significant increase in the as well as our strong network intrusion detection products, as utilisation of satellite products of partners to deliver an IoT well as security solutions for the and services as new markets and platform that simplifies the protection of key installations, opportunities open up. complexities, manages the especially in the aviation as well as connectivity and streamlines the maritime sectors. Implemented This bodes well for us as a leader the development and in over 15 cities around the world, in the satellite-based internet deployment processes. We our comprehensive Public Safety protocol communications will continue to deliver value & Security solutions provide a holistic approach in deterrence, detection and response, and we will continue to deliver enhanced solutions that counter security threats effectively.

Smart Security: Cybersecurity As cyberattacks become more frequent and severe, and expand beyond IT networks, we can expect governments and enterprises to ramp up their focus on protecting their IT infrastructure and data from such attacks. There is also an increasing focus on Operational Technology (OT) cybersecurity to support industrial control systems of critical infrastructures at the core of essential services Our award-winning perimeter intrusion detection system, AgilFence PIDS, protects such as transport networks high-value assets against intrusions and attacks. annual report 2018 47

Key Focus in 2019

1. Penetrate into new and growing Smart City markets

Equipped with machine learning capabilities and IoT cloud-based technology, our Next Generation Vessel Operations Control Centre enables real-time monitoring of ships and sea conditions.

2. Strengthen core competencies and and power plants. Global cities renewal planning capabilities end-to-end capabilities will continue to focus on the through advanced data analytics build up of indigenous cybersecurity and business intelligence. capabilities and a sovereign talent pool in order to counter the Our experience in enterprise evolving nature and sophistication asset management systems of cyberthreats. and continuous development of innovative solutions and platforms These present major opportunities through digitalisation, bolstered 3. for us, as we develop even more by our deep domain knowledge in Continue to embed robust cybersecurity solutions, integrating complex rail systems, put data analytics, artificial incorporating the latest frontier us in a strong position to help rail intelligence and technologies, and train more than regulators and operators surmount cybersecurity into our 2,000 cyber professionals over their current challenges. products and solutions. the next three years to plug the cybersecurity manpower gap faced Smart Mobility: Road by local critical sectors. Urbanisation continues to create demand for new transportation Smart Mobility: Rail management solutions to alleviate The rail electronics industry is faced congestion in cities. Intelligent with the need to leverage innovative solutions in areas such as urban technologies through digitalisation to traffic, public transport and car park drive efficiency, support complex rail management are designed to help operations and enhance commuting improve the flow of people, goods experience. At the same time, rail and services in cities around the operators are increasingly challenged world. We have built up extensive by ageing infrastructure and systems experience and networks in this that affect the overall availability and space and are well positioned reliability of rail services. This has to play a significant role in the led to a growing demand for data- implementation of innovative centric asset management platforms transportation management systems that enhance rail maintenance and in the Smart Cities of the future. 48 ST ENGINEERING Operating Review & Outlook

The Land Systems sector is focused on strengthening its core capabilities, leveraging technology to add value and deliver innovative solutions to its customers. annual report 2018 49

The NGAFV platform which was submitted for the MPF programme performed well and successfully completed the rigorous tests by the U.S. Army.

2018 REVIEW The sector also worked with highly flexible, can be global partners to strengthen configured to carry combat During the year, the Land its value proposition for loads for a variety of combat Systems sector achieved international defence. We signed support and logistical many successes in its defence, a cooperation agreement with functions. It is also designed for commercial and robotics Hirtenberger Defence Systems peacekeeping roles in conflict businesses. (HDS) in the UK to offer a areas and other paramilitary comprehensive 120mm mortar roles. Leveraging our strong Defence Business solution combining our 120mm and proven expertise in the Our participation in two large Super Rapid Advanced Mortar design and development of U.S. defence programmes – System (SRAMS) weapon system armoured mobility platforms, the U.S. Marine Corps (USMC) with HDS’ mortar fire control we will manufacture 10 variants Amphibious Combat Vehicle system and 120mm mortar of the Belrex Protected Vehicle Phase 1, Increment 1 (ACV1.1) ammunition. The result is a in Singapore. and the U.S. Army's Mobile superior weapon system with Protected Firepower - was outstanding performance In addition, we showcased our a significant achievement. and reliability. comprehensive suite of systems Having our Terrex 2 and Next and solutions at major defence Generation Armoured Fighting We announced a marketing and technology exhibitions as Vehicle (NGAFV) successfully partnership with Paramount part of our global marketing complete rigorous testing by to bring the Belrex Protected outreach, including Singapore the USMC and the U.S. Army Vehicle to the global market. Airshow 2018, Eurosatory respectively is a validation of The vehicle, designed to be in Paris, the 2018 Annual the maturity of our defence engineering capabilities and the experience gained was invaluable.

Our participation in these closely-watched programmes NGAFV has thrown a global spotlight During the year, work began to on our Terrex and NGAFV, establish a production line for and has given us confidence the NGAFV. as we pursue other global opportunities. 50 ST ENGINEERING Operating Review & Outlook

Meeting and Exposition of the Association of the U.S. Army (AUSA) in Washington, DC, and Defence Vehicle Dynamics 2018 in the UK.

Strengthening local defence capabilities continues to be key to the Group, with a greater focus on using technology to The Belrex Protected Vehicle family of 10 variants that were designed and developed develop innovative solutions in Singapore. while achieving greater efficiencies for our customers, such as the use of robotics Unmanned Guided Vehicles that facial recognition capabilities, and incorporating augmented/ are safe, efficient and ideal for the security robot patrolled virtual reality into our training routine and repetitive material both indoor and outdoor solutions. During the year, handling tasks. In addition to the areas of Suntec City Mall, and we began work to establish a pallet truck, pallet stacker, tow complemented the summit’s production line for the NGAFV. tractor and forklift, customers tight security measures. Delivery of the vehicles will can look forward to adding begin in 2019. the Very Narrow Aisle lifter to We continued to make their new fleet. The successful headway in the healthcare and As a leading provider of development of the STROBO hospitality segments. One of our 40mm solutions, we continue suite of products is an indication customers, Reading Healthcare, to expand our product range of our engineering capabilities. was awarded the 2018 Spotlight with innovations like the 40mm Award by the Association for Counter Unmanned Aerial Leveraging the sector’s Healthcare Foodservice for System and the 40mm Door artificial intelligence and their innovative deployment Breaching rounds. robotics autonomous of TUG® robots to improve capabilities, the STROBO costs, efficiency and patients’ Robotics and Security Robot made its satisfaction. The TUG® robots Autonomous Vehicles debut during the 33rd helped to deliver meals to a new Underlining our growing focus ASEAN summit at Suntec building located at the far end on robotics and autonomous Singapore Convention of a 46-acre main campus, and systems, we set up the Robotics Centre in November. With its expanded the delivery routes to and Autonomous Systems 360-degree surveillance and twice the number of beds. Business (RASB) to drive innovation and growth, optimise resource allocation and grow our presence in the target segments of transportation, hospitality, healthcare and logistics.

We launched STROBO, a new suite of logistics automation systems for complete turnkey solutions that can be customised to the needs of STROBO Security warehousing, manufacturing, Robot sea and airport operations. The The STROBO Security Robot STROBO range includes a family leverages our AI and robotic of fully Autonomous Material autonomous capabilities Handling Equipment and to detect anomalies in the environment. annual report 2018 51

We also made strides in and was progressively extended Singapore where we secured to a 2km route linking the several proof-of-concept Palawan and Siloso beaches. projects for local hospitals. The trial involved the testing of Other ongoing projects included operational systems and safety the implementation of the protocols in preparation for the autonomous transportation of public trial in 2019. linen and automated tracking of linen inventory by the TUG® In building a robust AV robots for three hotel pilot users platform, we invested in and - Capri By Frasers Changi City, partnered SafeRide, a specialist Four Points by Sheraton and in automotive cybersecurity, Grand Copthorne Waterfront. to provide a comprehensive cybersecurity suite to safeguard The autonomous mini-bus is undergoing In anticipation of customers’ the integrity and security of on-road tests to prepare for the public trial in Sentosa. needs, we developed and the AV systems. SafeRide’s launched the T4, a cost-effective vSentry will complement our smaller and faster TUG® in-house cybersecurity Autonomous Mobile Robot capabilities to offer anomaly six months to collect information (AMR). The open platform of the detection and cyberthreat on bus operations under various T4 allows flexibility to mount prevention for connected traffic and weather conditions. payloads below 120kg. The T4 is and autonomous vehicles. The data collected will be used to targeted for delivery in the first calibrate the perception algorithm half of 2019. We also formed a partnership for the actual autonomous with San Francisco-based buses. In 2019, the autonomous The year also marked a transportation platform buses, which are 12m long with milestone in the development provider RideOS to develop a maximum speeds of 60km/h, will of autonomous vehicles (AVs) collaborative framework for an be deployed on feeder bus routes for us as we began on-road on-demand mobility system to over 42 months in three phases. testing of our autonomous manage a city’s transportation shuttles on Sentosa, a resort system end-to-end. RideOS’ Commercial Business island in Singapore. The trial software includes real-time AV and Specialty Vehicles began on a 1km stretch of routing, estimated time of arrival With our strong track record in service road at Tanjong Beach, calculations, dispatch services, delivering quality vehicles, we supply positioning, multi- were awarded a contract by LTA rider trip planning and fleet to deliver 111 two-door double- management dashboards. deck MAN buses. The buses meet the latest Euro 6 diesel standards Combined with our in-house and are part of LTA’s efforts AV platform capabilities, these to replace Singapore’s ageing collaborations will bring us bus fleet with cleaner and more closer to operationalising efficient buses. The buses will be autonomous platforms safely in delivered progressively from 2019, Singapore’s urban, mixed traffic with the final bus to be delivered environment. in 2020. MAN buses form about one quarter of the entire We also took a step forward in public city bus fleet currently in preparing for road trials of the Singapore, with us as the sole 40-seater autonomous buses distributor. We also delivered for Singapore’s Land Transport various improvements to the Authority (LTA). An SBS Transit buses, such as the Advanced training bus, fitted with sensors Driver Assistance System to alert The latest TUG®, T4, can and cameras, was deployed bus drivers of persons or objects mount up to 120kg payloads. on various routes for over in their blind spots. 52 ST ENGINEERING Operating Review & Outlook

In addition, we responded INDUSTRY OUTLOOK to LTA’s efforts to electrify Singapore’s bus fleet and was Defence one of three contenders to be The evolving geopolitical awarded the first-ever contract environment, shifts in economic to supply electric buses for trial conditions and increasing in the second quarter of 2020. operational demands are Besides buses, we registered driving changes in priorities the delivery of our 1,000th MAN for defence spending in many truck during the year. countries. While terrorists and insurgents remain a Acknowledging our expertise threat, the focus on rebuilding in MRO, advanced testing conventional warfighting and diagnostics expertise in capabilities has re-emerged, specialty vehicle platforms, with increasing reinvestment Bombardier Transportation in fighting platforms as well appointed us as its Singapore as command and control, Extend market Service Centre. This is a first for communications, computers, reach with the us, and an important milestone intelligence, surveillance and launch of STROBO in building reliable in-country reconnaissance. and TUG® support for Singapore's rail transport operators. Our Increasingly, many armed With STROBO and TUG®, we complementary capabilities in forces around the world now have a suite of automation solutions for the warehousing, robotics, condition monitoring are looking at how they logistics, healthcare and and predictive maintenance also can systematically harness hospitality industries. offer possibilities for innovative innovation to meet operational engineering applications to challenges and rationalise force improve the efficiency and sizing, shaping and resourcing. players rebalance portfolios reliability of rail operations. and merge in order to increase One notable product launched The U.S. and Europe remain their capabilities and enhance in 2018 was the world’s first important export markets. For their competitive positions. unmanned rail tunnel inspection its fiscal year 2019, the U.S. has This move is driven by an vehicle, a modular and announced a budget of more increased demand for cross- transportable platform which than US$700b to invest in and border development of common can detect and locate tunnel accelerate the modernisation defence platforms to share cracks more than 0.3mm of key capabilities to develop development costs and in length. the U.S. military into a more enhance interoperability. capable, lethal and ready Our U.S. operations turned in Joint Force. Furthermore, non traditional positive performances in 2018, players outside the defence notwithstanding the challenging In May, the European Union industry, particularly IT environment in the U.S. resulting (EU) announced that it has companies, are challenging from various tariffs. allocated €500m in 2019 and defence companies in the 2020 to the European Defence technology and cybersecurity As part of our ongoing review Industrial Development domains. These include and portfolio rationalisation of Programme to foster the services and products related ongoing businesses so as to pan-EU development of to manufacturing engineering, focus resources on strategic defence systems, technologies service lifecycle management growth areas, we divested our and equipment needed to and sourcing. Increased specialty vehicles business in address common defence competition could also be India in 2018. and security challenges. the impetus for defence and technology players like us to As a result, consolidation in the leverage digital technologies for defence industry is expected Industry 4.0 for their solutions to continue as large defence and products. annual report 2018 53

We remain driven to meet our trials, we expect to support the customers’ needs and continue testing of conversions of mid-life Key Focus to offer our strong portfolio of diesel buses to all-electric systems. in 2019 armoured platforms, weapons and ammunition for defence programmes In rail engineering, we expect to and counter terrorism as well as continue developing key capabilities humanitarian assistance and disaster for comprehensive rail systems and relief efforts. Our new solutions component maintenance to support already incorporate advanced rail transport operations. technologies that are necessary for tomorrow's digital battlefield such as Internationally, trade tensions 1. Pursue and deliver robotics, manned-unmanned teaming, between U.S., Asia and Europe a proven suite to enable and empower the individual may lead to higher tariffs and more of platforms and warfighter. We are also incorporating trade uncertainties. On the other weapon systems to robotics and digital technologies hand, strong economic growth and local and overseas such as 3D printing and data analytics, necessary investments in a broad defence acquisition into the design and manufacturing segment of U.S. infrastructure will programmes. processes. drive market growth for the medium term for our U.S. specialty vehicle Commercial companies. In the longer term, Public trials for the autonomous infrastructure demands of Smart shuttle service on Sentosa Island in Cities will add new opportunities Singapore will begin in mid-2019. for growth in the road construction Besides demonstrating its on- business segment. demand capabilities, the three-month 2. Incorporate trial will provide valuable data and robotics and digital feedback from the on-the-ground technologies into implementation to refine solutions the design of our for future deployment. In a separate portfolio to meet trial, we expect the 40-seater customers’ future autonomous buses to acquire AV needs. road-worthiness qualification and commence demonstrations on Jurong Island, Singapore.

Our Robotics business will continue our customer-centric approach in the design and development of our solutions, addressing both the existing 3. Grow and expand pain points and the future needs Robotics and of its target customer segments. Autonomous Systems We will work towards building up business, and build our STROBO track record in target track record in industry segments – warehousing, target segments. manufacturing, seaports and airports, through participation in key urban logistics projects. In the increasingly competitive AMR space, we will continue to develop high-value variants of the leading TUG® family of AMRs.

Orders for city buses secured in 2018 will be delivered in 2019 till 2020. In addition to electric bus operational 54 ST ENGINEERING Operating Review & Outlook

Despite strong headwinds, the Marine arm is well-positioned to pursue growth as a niche player with strong and deep engineering capabilities in large scale projects. annual report 2018 55

We have commenced development of the CoSCRUB, environmental engineering projects. which is a combined scrubber for SOx and NOx that complies with Our Roll-on/Roll-off passenger- IMO emission standards. freight vessel took up a new assignment in September. The vessel now serves the Gdańsk- 2018 Review decision support. We have Nynäshamn line under the name commenced development of the of M/F Nova Star and cruises The year 2018 has been a CoSCRUB which is a combined along the Baltic and North Sea. combination of challenges and NOx and SOx abatement opportunities for our Marine solution which complies We participated actively in business. Capacity overhang with International Maritime prominent trade exhibitions continues to weigh down Organisation’s (IMO’s) new including the Singapore Airshow, the shipbuilding market; and emission requirements. SMM in Hamburg, Germany, and the downside risks to global Offshore South East Asia (OSEA) growth have heightened as a Over the years, we have in Singapore. We demonstrated result of trade tensions. Our progressively invested in efforts industry thought leadership focus on niche markets and to digitise our yard for optimal with speaking engagements products paid dividends when operational efficiency and at international conferences we clinched several shipbuilding productivity. We added a robotic including Warships and OPV contracts in 2H2018. gantry welding, machine for Latin America and the Dynamic block welding, thereby reducing Positioning Asia Conference. We maintained our investments manhours per tonne for our steel These platforms gave our in R&D to pursue innovation work. We adopted a product business leaders the opportunity and technologies as our key lifecycle management software to engage with customers, differentiator. During the as a single, digital depository business partners and trade year, the American Bureau of information and processes visitors to understand their of Shipping (ABS) awarded throughout the shipbuilding needs in depth, and exchange the Certificate of Design lifecycle, enabling seamless ideas on market trends and Assessment to our in-house information sharing essential developments. NERVA Ship Management for informed decision-making. System (NERVA SMS). We We will continue on this journey Shipbuilding incorporated sensemaking towards building a smart digital systems into our SMS (NERVA yard to be best placed to take We celebrated several project SMS2) to make our systems advantage of the upswing in the successes with customers on board vessels smarter. We market when the industry turns. including the Republic of also expanded the application Singapore Navy (RSN), the of NERVA SMS2 to water We are focused on project Singapore Civil Defence Force and wastewater treatment execution and delivering on (SCDF), Crowley Maritime plants, where operators can our promises. We achieved Corporation (Crowley), leverage condition-based significant milestones in ongoing the Virginia Department monitoring data analytics and shipbuilding programmes. of Transportation (VDOT), machine-learning techniques We continued to diversify our Bouchard Transportation for predictive diagnostics and ship repair business, adding (Bouchard) and Quality Liquefied more superyacht repairs to our Natural Gas Transport (Q-LNG). portfolio. Our rig repair business, though young, gained good We laid the keel of the eighth traction in terms of customer Littoral Mission Vessel (LMV), enquiries and we completed and launched the sixth and several rig decommissioning seventh LMVs, named Fortitude projects and rig repair, upgrades and Dauntless respectively, for and maintenance works RSN during the year. Together during the year. We also made with the RSN and the Defence good progress in existing Science & Technology Agency, 56 ST ENGINEERING Operating Review & Outlook

we designed and constructed eight 80m Independence-class LMVs that are versatile and capable of multi-missions to meet the increasing demands of seaward defence. We are on track for programme completion in 2020.

Our Singapore yard and its consortium partner, Penguin International, designed and commenced construction of three vessels – the Heavy Fire Vessel, the Heavy Rescue Vessel

and the Marine Rescue Vessel Singapore’s Minister for Defence Ng Eng Hen (centre) visited Marine’s showcase for the SCDF in 2017. When at Singapore Airshow 2018. completed, the Heavy Fire Vessel will be the first firefighting vessel Jacksonville, Florida and San May. We are on track to deliver designed and built in Singapore Juan, Puerto Rico. The ConRos this LNG ATB to Q-LNG in and the world’s first firefighting have been lauded as shining 2020 before it is deployed to vessel (by vessel size) classified examples of the technological support Shell Trading (U.S.) to Fi-Fi IIII by ABS for its innovation that will drive the Company’s LNG fuel transport outstanding firefighting future of the maritime industry. to various ports in Florida and capacity and capability. the Caribbean. Construction of Our shipyard in the U.S. Evening Breeze, an ABS-class In the U.S., our shipyard also launched Powhatan, a tug for Bouchard, plus another successfully delivered El Coqui 499-passenger/70-vehicle ferry ATB Tug, are underway and and Taino, which are among from its Pascagoula facility in remain on schedule for delivery the world’s first Combination Mississippi in the second half of in 2019 and 2020 respectively. Container Roll-on/Roll-off 2018. Powhatan is an addition (ConRo) ships powered by to the Jamestown-Scotland We ended the year on a high liquefied natural gas (LNG), Ferry fleet managed by the note, with a series of defence to Crowley in July and December VDOT, which is the only 24-hour, and commercial newbuild orders. respectively. These two state-run ferry in Virginia. The U.S.-flagged, Commitment- U.S. team also laid the keel for In Singapore, we were awarded class ConRos are expected to America’s firstLNG Articulated a contract for the design, transport up to 300 refrigerated Tug and Barge (ATB) unit in construction and maintenance containers and a mix of about 400 cars and larger vehicles in the enclosed and weather- tight Ro/Ro decks between

We launched the sixth and

seventh LMV, The LMV Dauntless at the launch Fortitude and Dauntless event in August. respectively, for RSN in 2018. annual report 2018 57

We won a contract for of Fast Patrol Boats for the research vessels, support the engineering design, Singapore Police Coast Guard. vessels, dredgers, tankers and procurement and Construction of the Boats is livestock carriers in Singapore construction expected to commence in and the U.S.. mid-2019. of a 145MW floating power barge that will be used as a power generating facility. Our expansion into superyacht The U.S. Department of the repairs has also yielded Navy awarded VT Halter Marine encouraging results. We several contracts, including one completed five superyachts Solutions Group’s Q5000 well to design and construct two with a few more in the pipeline. intervention semi-submersible, Auxilliary Personnel Lighter which includes an underwater Small (APL(S)) APL-67 Class One year post-acquisition, inspection in lieu of dry-docking Berthing Barges, with the option our rig repair business in the (UWILD) regulatory survey and of another four, and another for U.S. reported good progress maintenance support for the the engineering and procurement in terms of project execution rig’s equipment. service to support the new T-AGS and business opportunities. We 67 Oceanographic Survey Ship increased marketing efforts to Environmental for Naval Sea Systems Command. publicise our key competencies. engineering We were also awarded a contract These active engagements to design and construct two allowed us to build upon our The Group has identified Smart Logistics Support Vessels for relationships with prominent City as a growth lever and a foreign government. drillers and operators such as the Marine sector participates Rowan Companies, Helix Energy through our expertise in On the commercial front, Solutions, Enterprise Offshore delivering large scale sustainable we were awarded a contract Drilling and Diamond Offshore solutions. We want to be a for engineering design, Company, which opened doors prominent contributor to procurement and construction to opportunities including first the water, wastewater and of a 145MW floating power rights for tender bids. solid waste management barge by Seaboard Corporation industries and we have been subsidiary Transcontinental Notably, we concluded a turnkey working to build our record Capital Corporation (Bermuda) engineering, fabrication and of accomplishments in these Ltd., an Independent Power installation project for the POSH disciplines across Asia. Producer with operations Xanadu accommodation semi- in the Dominican Republic. submersible, upgraded its walk- We were awarded a contract In addition, we announced to-work gangway pedestal and in 2012 to design, build and order wins from Bouchard and tower staircase, and installed a operate a Pneumatic Waste Q-LNG. These contract wins new safety system and refuelling Collection System (PWCS) in amidst a challenging market modules on the helideck. the Tianjin Eco-City on a design, speak volumes of the trust and build, operate, own and transfer confidence that our customers We also performed maintenance model. In 2018, we reached a have in our capabilities. services for the Helix Energy new milestone as we entered

Ship, rig and related repairs

Competition for repair, conversion and upgrade works intensified as price competition remained stiff. That said, we specialised in dredgers, livestock carriers and tankers repair works and continued to receive healthy levels of enquiries for these vessel types. We completed a wide range of repair and upgrade We designed and constructed Powhatan, a 499-passenger/70-vehicle works for bunker tankers, ferry operated by the VDOT. 58 ST ENGINEERING Operating Review & Outlook

the operations and maintenance phase of the project.

Construction of the Jurong Island Desalination Plant (JIDP) in Singapore kicked off in August. The Marine sector formed an Engineering, Procurement and Construction consortium with Tuas Power and the consortium set up a 40:60 joint venture to undertake the subsequent operations and maintenance Construction work on the JIDP, Singapore's fifth desalination plant, commenced in August 2018. The facility is expected to be operational from 2020. aspects of the plant for a concession period of 25 years from 2020. In November, the Shipbuilding Building upon our experience sector was awarded a contract Gearing up for a better outlook, and historical success in High to provide mechanical and we will look to delivering Speed Aluminium Vessels, electrical systems for the JIDP. existing shipbuilding contracts we are expanding our focus and winning new ones in the to target both defence and Industry Outlook 2019 commercial and defence areas commercial opportunities globally to drive growth in 2019. of such vessels. With the Overall, the marine industry is However, vessel overcapacity increasing global demand for cautiously optimistic that 2019 coupled with a continued lack of Crew Transfer Vessels, High could bring about improved financing for ship owners could Speed Passenger and RoPax market conditions. In the U.S. jeopardise this effort. Ferries, and the continuing Gulf of Mexico, oil production is demand for fast military expected to rise which hopefully After the successful delivery and paramilitary craft, we will translate into more rigs and of the second ConRo, Taino in are expanding our product offshore support vessels being December 2018, to be followed portfolio to offer customisable utilised. by the SCDF's Heavy Fire Vessel market leading solutions. in 2019, we will continue to The year will also see disruptions focus on marketing customised For the defence segment, that will arise from new and niche vessels such as wind we are seeing an increase in environmental regulations farm support vessels, fishery demand for in-shore and affecting the maritime industry vessels, dredgers, clean fuel off-shore patrol vessels and such as the 2020 IMO fuel vessels and superyachts. will continue to focus on the sulphur regulation. patrol vessel market in 2019. The demand for LNG/LPG- This is largely driven by the powered vessels will continue need for heighten maritime to increase with the impending security to maintain sea lines IMO 2020 fuel sulphur of communication. regulation. We will continue to capitalise on our experience Recognising the potential and expertise acquired from and the growing interest in the design and construction of autonomous vessels, we have the two dual-fuelled ConRos as built up capabilities to provide well as the 4,000 cbm LNG ATB unmanned maritime solutions Bunkering Barge programme in for commercial and naval the U.S. to market and secure applications. From design more orders in this segment. and build to conversion of In Singapore, we are designing existing manned vessels into and building a 145MW Power autonomous vessels, we are Barge that utilises clean LNG to able to provide a full suite of POSH Xanadu is an accommodation rig deployed in the Gulf of Mexico produce power for consumption solutions to fulfil the different to support Chevron’s Big Foot project. in the Dominican Republic. needs of our customers. annual report 2018 59

Ship Repair and Design to provide one-stop engine repair and As for defence shipbuilding, we will maintenance services. Key Focus remain steadfast in delivering cutting- in 2019 edge high-tech naval platforms Environmental Engineering that offer great versatility for navies As Singapore transforms itself into a and coast guards. These include smart nation, our focus will continue to unmanned vessels, fast patrol boats, be on water and wastewater treatment, patrol vessels, landing platform docks and waste-to-energy projects. In the for humanitarian assistance as well near future, we want to be known as a as multi-role combat vessels. We prominent Design-Build-Own-Operate pledge to provide continuous quality (DBOO), Engineering, Procurement & 1. Leverage our unique refit services and long-term lifecycle Construction (EPC) and Operations & position as one of the support services to the navies. Maintenance (O&M) player in sea water few shipyards in the desalination, NEWater and solid waste world with a complete For ship repair in Singapore, we are treatment. Having taken a first step through-life cycle seeing more enquiries from tanker with the DBOO of the JIDP, we support programme, operators in addition to the dredging will continue building on our track and integrate and offshore sectors. There is also an record in these disciplines towards technology in our increase in tender for marine structure projects of even grander scale in and solutions to value-add work, structural modules for jack-ups outside Singapore. to our customers. and living quarters for offshore. For conversion, we are focused on small/ Spearheading the Future of the medium LNG carriers, powerships and Maritime Industry exploration vessels to feed growing In 2019 and beyond, we expect market demand. demand for LNG-powered vessels to be higher as the maritime The repairing of tank barges and industry adopts new technologies to extension programme on navy ensure compliance with regulations 2. Continue to focus on vessels will be a focal area in the U.S.. to promote a more sustainable growing our expertise In rig repair, we will continue to be marine environment. Backed by our in constructing highly- influenced by fluctuating oil prices engineering expertise and knowledge customised vessels. but the current focus will be on in constructing niche vessels, we see upgrading rig drillers with passive opportunities abound. With a solid heave compensators to support track record having just delivered the drilling activities in Gulf of Mexico. two ConRos, El Coqui and Taino, as We are in a good position to benefit well as the Ropax Nova Star, we are from the recovery should the trend confident this new trend bodes well translate into asset reactivations, for us. conversions and upgrades. 3. Continue to hone our We will continue to explore other expertise in specialised We will continue to leverage our opportunities downstream of the gas conversions of energy unique position and key competitive value chain and stay highly focused on and wind farm support advantage as one of the few taking our capabilities in developing vessels, repair and shipyards in the world with a smart autonomous vessels to the next maintenance of super complete through-life cycle support level. Autonomous operations will and mega yachts, programme, from ship design and gain momentum as one of the key upgrading of heavy building, to ship repair, upgrade, technologies and major technological construction vessels maintenance and integration. We advancements influencing and shaping and lengthening of have a product and solution division the future of maritime operations. livestock carriers. that delivers ship management We strive towards improving solutions and sensemaking system, operational efficiency, performance, using technologies in data analytics and navigation safety to drive down and artificial intelligence. In addition, operation costs for our customers. we also have a specialised team and This will affirm our position as a global facilities equipped with comprehensive leader in providing innovative and engine overhaul and testing services sustainable total solutions. 60 ST ENGINEERING Financial Review

RESILIENT FINANCIAL RESULTS The most significant investment transaction for the Group during the year was the proposed The Group delivered a resilient set of acquisition of MRAS. The acquisition will allow us results and maintained the momentum for to scale up our aerospace capabilities by moving new contracts. Excluding one-off charges into the OEM business of high-value engine mainly incurred to rationalise our portfolio, nacelle systems. The acquisition was subject to the underlying operating performance of regulatory approvals as at end of 2018. our business sectors remained strong. The Group ended the year with a strong order The Group recorded a 3% year-on-year book of $13.2b. (y-o-y) increase in revenue to $6.70b for FY2018. Profit before tax P( BT) grew 1% The Board proposes to pay shareholders a final to $620.7m compared to the prior year, dividend of 10.0 cents per share. Together with and Profit attributable to shareholders the interim dividend of 5.0 cents per share paid (Net Profit) dropped 2% y-o-y to $494.2m. in August 2018, total dividend for FY2018 is Excluding one-off charges1 of $37m before 15.0 cents per share. tax, PBT would have been 7% higher y-o-y at $657.3m, and Net Profit would have FINANCIAL POSITION been 9% up y-o-y at $526.8m if prior year’s one-off favourable U.S. tax adjustment of As at 31 December 2018, the Group’s total $20m was excluded as well. assets decreased $451m or 6% to $7,573m. The decrease in total assets was due mainly to the Economic Value Added (EVA) for the MTN redemption, partially offset by the increase Group grew by 1% to $306.0m for FY2018. in trade receivables and contract assets for the Group’s on-going operations and projects.

T OTAL ASSETS DEPLOYMENT ($m)

2018 Property, Plant & Equipment Intangibles & Other Assets Inventories & Work-in-Progress 2017 Trade Receivables, Contract Assets, Deposits & Prepayments Bank Balances and Other Liquid 0 3,000 6,000 9,000 Funds & Funds under Management

T OTAL ASSETS BY GEOGRAPHY

64% 19% 15% 2%

2018 2018 2017 2017 Asia U.S. Europe 68% 19% 11% 2% Others

1 One-off charges elatedr to portfolio rationalisation, transaction cost of the proposed MRA Systems acquisition and the redemption of US$500m 4.80% Notes. In respect of portfolio rationalisation, the Group incurred divestment losses in our pilot training school in the U.S. and road construction business in India, full impairment charges for the road construction business and automotive MRO business in Brazil, partially offset by divestment gains of a 5% stake in a joint venture with Guangdong Airport Authority in China and a joint venture with Airbus Helicopters in Singapore. Comparative figures were restated on the adoption of Singapore FinancialR eporting Standards (International) (SFRS(1)) with effect from 1 January 2018. annual report 2018 61

The average capital employed in FY2018 was $4,051m, a decrease of $386m from $4,437m in FY2017. The reduction came from lower borrowings after the MTN redemption during the year.

CAPITAL EMPLOYED ($m)

2018 Borrowings Equity

2017 Others* * Others include adjustments for foreign currency translation, 0 1,000 2,000 3,000 4,000 5,000 present value of leases, etc.

CAPITAL EXPENDITURE

In FY2018, the Group invested $335m manufacturing plant and new aircraft hangar (2017: $273m) in capital expenditure, of in Germany for the Aerospace sector, and a which about 93% or $311m was deployed building expansion in west of Singapore for our for capacity expansion to support growth Electronics sector. We also funded the purchase opportunities, such as our new composite of two aircraft for our aircraft leasing business.

CAPITAL EXPENDITURE BY SECTOR

66% 16% 11% 3% 4%

2018 2017 2018 Aerospace 2017 Electronics Land Systems Marine 45% 22% 11% 16% 6% Others

CAPITAL EXPENDITURE BY GEOGRAPHY

48% 42% 9% 1%

2018 2018 2017 2017 Asia U.S. Europe 23% 48% 27% 2% Others 62 ST ENGINEERING Financial Review

TREASURY MANAGEMENT need arises, the Group continues to be able to tap into financing with competitive terms. ST Engineering operates internationally and is exposed to financial risks, comprising Banking Facilities foreign exchange, liquidity, interest rate The Group has banking facilities of and credit risks. The Group recognises that approximately $16.0b (2017: $15.4b) as prudent management of financial risks is at 31 December 2018 to support business important and has established treasury operations in the areas of trade finance, policies and guidelines to mitigate them. hedging and credit. The treasury policies and guidelines are revised to reflect changes in the operating As at 31 December 2018, the Group has environment. utilised $3.8b or 24% of its total available facilities (2017: $3.9b or 25%) with Treasury activities are actively managed $12.2b or 76% (2017: $11.5b or 75%) through the Group’s wholly owned treasury remaining available. entity, ST Engineering Treasury Pte. Ltd. to ensure effective management of Foreign Exchange the Group’s liquidity and financial risk The Group has receivables and payables exposures. During the year, the Group denominated in foreign currencies. Where implemented an electronic trading platform possible, the Group offsets currency and a treasury management system with exposures across its business units before straight through processing coupled with hedging remaining currency exposures in an in-house bank model. the market via foreign exchange forward contracts. The main currencies transacted On 16 July 2018, the Group completed its in 2018 for the Group were USD and EUR. early redemption of US$0.5b 4.80% Notes due 2019 guaranteed by ST Engineering During the year, the Group engaged in and issued under its US$1.2b Multicurrency approximately $2.5b (2017: $1.5b) Medium Term Note (MTN) Programme. The equivalent of foreign exchange transactions. Group’s capital employed was immediately As at 31 December 2018, $1.1b (2017: $0.9b) reduced as a result of the early redemption remained as outstanding foreign exchange of these Notes. To fund future growth as the transactions.

BANKING FACILITIES ($b)

Available 2018

UTILISED 2018

Available 2017

UTILISED Trade Finance 2017 Foreign Exchange Interest Rates Swaps & Cross-Currency Swaps 0 4 8 12 16 Loans annual report 2018 63

Liquidity Borrowings The Group’s cash and cash equivalents, With the early redemption of the including funds under management, outstanding Notes, the Group’s stood at $0.4b as at 31 December 2018 borrowings were reduced to $0.5b (2017: $1.3b). The decrease was mainly as at 31 December 2018 (2017: $1.1b), attributed to the early redemption of comprising short-term and long-term outstanding Notes issued under the loans from banks, lease obligations and Multicurrency MTN Programme. other loans. These debt obligations were taken out to support the Group’s Funds under management, which had been operations and included the following invested in SGD and USD fixed income currencies and proportion of debt: instruments, were liquidated in 2018 to 64% in USD, 16% in SGD, 16% in EUR partially fund the above redemption. and 4% in RMB.

BORROWING PROFILE BY MATURITY ($m)

2018

44% 62% < 1 year 2017 1 to < 2 year 2 to < 3 years 0 200 400 600 800 1,000 1,200 > = 3 years

BORROWING PROFILE BY CURRENCY ($m)

2018

64% 85% USD 2017 SGD EUR 0 200 400 600 800 1,000 1,200 RMB

BORROWING PROFILE BY FIXED AND FLOATING RATES ($m)

2018

44% 73%

2017

Fixed Rate 0 200 400 600 800 1,000 1,200 Floating Rate 64 ST ENGINEERING Financial Review

DEBT RATIOS cash flows

Interest Cover Ratios Operating Activities The Group’s interest cover ratio decreased to The Group generated net cash of $639m 13.7 times in FY2018 (2017: 14.2 times). The lower from its operating activities as compared to interest cover was due to higher interest expense $764m in FY2017. The decrease in net cash even though higher PBT were recorded in FY2018. from operating activities was due to increase in trade receivables and contract assets for the Group’s on going operations and INTEREST COVER projects, partially offset by higher operating profits generated in FY2018 and higher 605 617 trade payables. 14.2X 13.7X Investing Activities Net cash used in investing activities of $65m 44.9 in FY2018 arose mainly from the Group’s 42.6 investment in property, plant and equipment by Aerospace ($221m), Electronics ($54m), Land Systems ($37m), Marine ($10m) sectors and Others ($14m), and additions PBT before Associates / to intangible assets ($115m), partially Joint Ventures offset by proceeds from sale of investments and Interest Expense ($m) ($375 million). Interest Expense ($m) Financing Activities Interest 2017 2018 Cover (x) Net cash used in financing activities of $1.16b in FY2018 was mainly attributable to the MTN redemption ($681m) and payment of FY2017 final dividend and FY2018 interim Net Debt/Equity Rate dividend ($468m). Net debt/equity ratio increased from 0.1 times to 0.2 times in 2018 from lower net cash from The Group ended the year with cash and operating activities, higher investment in property, cash equivalents (CCE) of $414m, a decrease plant and equipment and additions of $583m from FY2017. to intangible assets.

CASH FLOWs ($m) 2018 2017 2016

Net Debt ($m) 413 146 59 Operating Activities

Equity ($m) 2,535 2,496 2,428 639 Net Debt/Equity Ratio 0.2 0.1 0.0 764

Investing Activities

(65) (246)

Financial Activities

(1,161) 2018 (390) 2017 annual report 2018 65

TAX TOTAL SHAREHOLDER RETURN

The Group’s effective tax rate for 2018 is The Group ended the year with $414m 17%. This is similar to the Group’s effective of cash and cash equivalents post-MTN redemption. tax rate for FY2017 of 17% after excluding ST Engineering paid an interim dividend of 5.0 cents the impact from the re-measurement per share to shareholders in August 2018 and will of deferred tax balances due to the U.S. recommend a final dividend of 10.0 cents per share tax reform. to shareholders at the forthcoming Annual General Meeting. The total dividend per share (DPS) for SIGNIFICANT ACCOUNTING POLICIES FY2018 is 15.0 cents. Based on the average share price of $3.375, the DPS of 15.0 cents translates to The Group’s financial statements are a dividend yield of 4.4%. prepared in accordance with Singapore Financial Reporting Standards ST Engineering’s share price at the end of 2018 was (International) (SFRS(I)). These are the $3.49, a 7.1% increase as compared to the prior year. Group’s first financial statements prepared Over the same period, the corresponding benchmark in accordance with SFRS(I) and SFRS(I) 1 Straits Times Index (STI) declined by 9.8%. With a First-time Adoption of Singapore Financial dividend yield of 4.4%, shares of ST Engineering Reporting Standards (International) has generated a total positive shareholder return of 11.5%. been applied. In preparing the opening SFRS(I) balance sheet, the Group has adjusted amounts reported previously TOTAL SHAREHOLDER RETURN (%) in the financial statements prepared in accordance with previous FRS. 12.1 Dividend Yield 11.5 An explanation of how the transition from Capital Gain 4.8 4.4 previous FRS to SFRS(I) and the adoption of SFRS(I) 9 and SFRS(I) 15 have affected 7.3 5.5 the Group’s balance sheet, income 4.6 4.7 7.1 statement and cash flows is set out under 4.1 Notes to the Financial Statements, Note G2. 0.9

The Group has applied the same accounting policies and methods of computation in the preparation of the financial statements’ opening SFRS(I) balance sheet as at (11.5) 1 January 2017 for the purposes of transition (14.1) (6.8) to SFRS(I) for the current reporting period. (10.0) The significant accounting policies are presented at the end of each Notes to the 2014 2015 2016 2017 2018 Financial Statements (pages 154 to 274).

66 ST ENGINEERING Financial Review

ECONOMIC VALUE ADDED (EVA)

The Group’s FY2018 EVA attributable to shareholders of $306.0m was 1% or $2.2m higher than that achieved in FY2017. The increase in EVA was mainly attributable to lower capital charge, partially offset by lower net operating profit after tax (NOPAT).

EVA Statement 2018 2017 $m $m

Net profit before tax 571.7 562.5 Adjust for: Share of results of associates and joint ventures, net of tax 49.1 49.3 Interest expense 54.5 53.2 Others 2.6 8.2 Adjusted profit before interest and tax 677.9 673.2 Cash operating taxes (Note 1) (127.0) (110.8) Net operating profit after taxation - (a) 550.9 562.4

Average capital employed (Note 2) 4,051.0 4,436.5 WACC (Note 3) (%) 5.7 5.7 Capital charge (230.9) (252.9) Adjustment to capital charge (Note 4) (11.6) (2.6) Adjusted capital charge - (b) (242.5) (255.5)

EVA - [(a) - (b)] 308.4 306.9 Non-controlling interests’ share of EVA (2.4) (3.1) EVA attributable to shareholders 306.0 303.8

Note 1: the reported current tax is adjusted for the statutory tax impact of interest expense.

Note 2: Monthly average equity plus interest bearing liabilities, timing provision and present value of operating leases.

Major Capital Components:

Borrowings 1,079.2 Equity 2,615.4 Others 356.4 4,051.0

Note 3: The Weighted Average Cost of Capital is calculated in accordance to ST Engineering Group EVA Policy as follows: i) Cost of Equity using Capital Asset Pricing Model with market risk premium at 5.0%; ii) Risk-free rate of 2.02% (2017 @ 2.35%) based on yield-to-maturity of Singapore Government 10 years Bonds; iii) Ungeared beta at 0.71 (2017 @ 0.71) based on ST Engineering risk categorisation; and iv) Cost of debt at 3.66% (2017 @ 3.37%) using actual cost of debt of the borrowings in US, Europe, China and Singapore.

Note 4: adjustment on deferred capital charge on some acquisitions. annual report 2018 67

VALUE ADDED

The Group’s total value added for FY2018 of $2,936m was 3% higher as compared to that of FY2017.

Value Added Statement 2018 2017 2016 2015 2014 $m % $m % $m % $m % $m %

Value added from: Revenue earned 6,697.9 6,521.1 6,683.7 6,335.0 6,539.4 Bought in materials and services (3,857.1) (3,778.4) (3,942.3) (3,792.5) (4,022.0) 2,840.8 2,742.7 2,741.4 2,542.5 2,517.4

Other income 35.0 38.7 67.8 55.4 40.2 Finance income 22.3 38.7 33.7 56.2 43.5 Finance costs (exclude interest expense) (11.0) (15.0) (3.3) (10.1) (7.3) Share of results of associates and joint ventures, net of tax 49.1 49.3 63.8 58.3 57.2 Total value added 2,936.2 2,854.4 2,903.4 2,702.3 2,651.0

Distribution of total value added To employees in wages, salaries and benefits 2,001.2 68 1,945.1 68 1,941.0 67 1,807.7 67 1,739.2 66 To government in taxes and levies 126.7 4 107.1 4 119.2 4 118.4 4 136.5 5 To providers of capital on: • Interest paid on borrowings 44.9 2 42.6 1 42.4 1 39.7 2 37.9 1 • Dividends to shareholders 468.0 16 467.6 16 465.9 16 497.6 18 498.8 19 2,640.8 2,562.4 2,568.5 2,463.4 2,412.4

Balance retained in business Depreciation and amortisation 244.0 217.0 247.3 187.3 170.5 Retained profits 28.2 35.1 58.9 36.3 48.2 Non-controlling interests 22.2 23.5 8.3 2.6 5.0 294.4 10 275.6 10 314.5 11 226.2 8 223.7 8

Non-production costs 1.0 16.4 1 20.4 1 12.7 1 14.9 1

Total distribution 2,936.2 100 2,854.4 100 2,903.4 100 2,702.3 100 2,651.0 100

Value added per employee ($) 137,092 132,771 132,131 120,704 116,935 Value added per $ of employment costs ($) 1.46 1.46 1.49 1.49 1.52 Value added per $ of gross property, plant and equipment ($) 0.76 0.76 0.81 0.78 0.83 Value added per $ of revenue ($) 0.44 0.44 0.43 0.43 0.41 68 ST ENGINEERING Financial Review

5-Year Key Financial Data 2018 2017 2016 2015 2014 Income Statement ($m) Revenue 6,698 6,521 6,684 6,335 6,539 Profit EBITDA 814.3 759.8 718.4 697.6 725.5 EBIT 570.3 542.8 471.1 510.3 555.0 PBT 620.7 611.8 590.6 630.3 650.7 Net Profit 494.2 502.6 484.5 529.0 532.0

Balance Sheet ($m) Property, plant and equipment 1,743 1,719 1,670 1,709 1,578 Intangible and other assets 1,716 1,675 1,570 1,370 1,311 Inventories and work-in-progress 1,184 1,082 1,898 1,943 1,802 Trade receivables, contract assets, 2,516 2,199 1,824 1,694 1,916 deposits and prepayment Bank balances and other liquid funds 414 1,349 1,403 1,453 1,712 and funds under management

Current liabilities 3,851 3,587 3,801 3,720 3,716 Non-current liabilities 1,187 1,941 2,120 2,188 2,339

Share capital 896 896 896 896 889 Treasury shares (9) (23) (44) (67) (6) Capital and other reserves 46 52 57 48 24 Retained earnings 1,313 1,290 1,274 1,255 1,225 Non-controlling interests 288 281 262 129 132

Financial Indicators Earnings per share (cents) 15.85 16.13 15.60 17.05 17.06 Net assets value per share (cents) 72.00 71.09 70.20 68.74 68.38 Return on sales (%) 7.7 8.1 7.4 8.4 8.2 Return on equity (%) 22.0 22.7 22.2 24.8 24.9 Return on total assets (%) 6.8 6.6 5.9 6.5 6.5 Return on capital employed (%) 13.6 12.7 12.0 14.6 14.0

Dividend Gross dividend per share (cents) 15.0 15.0 15.0 15.0 15.0 Dividend yield (%) 4.44 4.62 4.81 4.68 4.08 Dividend cover 1.06 1.07 1.04 1.13 1.14

Productivity Data Average staff strength (numbers) 21,418 21,499 21,974 22,388 22,671 Revenue per employee ($) 312,724 303,319 304,166 282,965 288,449 Net profit per employee ($) 23,076 23,379 22,049 23,630 23,464 Employment costs ($m) 2,007.7 1,951.6 1,947.5 1,813.7 1,745.8 Employment costs per $ of revenue ($) 0.30 0.30 0.29 0.29 0.27

Economic Value Added ($m) 306.0 303.8 252.4 355.1 344.5 Economic Value Added spread (%) 7.6 6.9 5.5 8.7 8.4 Economic Value Added per employee ($) 14,285 14,130 11,488 15,861 15,197

Figures from FY2014 to FY2016 were prepared in accordance with the previous FRS and were not restated on adoption of SFRS(I). annual report 2018 69

Revenue ($b) Profit before tax ($m) Net Profit ($m)

Group $6.70b $620.7m $494.2m

2018 6.70 2018 620.7 2018 494.2 2017 6.52 2017 611.8 2017 502.6 2016 6.68 2016 590.6 2016 484.5 2015 6.34 2015 630.3 2015 529.0 2014 6.54 2014 650.7 2014 532.0

Aerospace $2.65b $320.0m $244.6m

2018 2.65 2018 320.0 2018 244.6 2017 2.54 2017 318.5 2017 244.8 2016 2.48 2016 300.3 2016 234.4 2015 2.09 2015 290.6 2015 226.7 2014 2.06 2014 283.0 2014 220.1

Electronics $2.14b $224.7m $186.5m

2018 2.14 2018 224.7 2018 186.5 2017 2.01 2017 200.2 2017 168.8 2016 1.89 2016 207.8 2016 174.5 2015 1.71 2015 191.0 2015 163.0 2014 1.58 2014 184.0 2014 152.1

Land systems $1.28b $62.3m $52.9m

2018 1.28 2018 62.3 2018 52.9 2017 1.24 2017 85.0 2017 87.4 2016 1.39 2016 38.8 2016 25.5 2015 1.47 2015 73.3 2015 62.6 2014 1.46 2014 57.8 2014 51.5

Marine $0.57b $50.3m $45.2m

2018 0.57 2018 50.3 2018 45.2 2017 0.64 2017 22.4 2017 27.0 2016 0.84 2016 75.1 2016 67.8 2015 0.96 2015 88.3 2015 85.7 2014 1.34 2014 122.8 2014 108.1 70 ST ENGINEERING INVESTOR RELATIONs

W e are committed to regular, clear and open communications with the investing community.

As we pursue our aspiration to Regular Access become a global engineering, to Management defence and technology powerhouse, it is vital for During 2018, the management the investing community to and IR team participated in understand our longer term plans investor conferences and for informed decision-making. roadshows in Europe, Hong Kong, Japan, Singapore and the U.S.. Transparency and We hosted sell-side analysts Timely Disclosures and institutional investors at More than 50 institutional investors and sell-side analysts visited us at Singapore our facilities and trade shows Airshow 2018. Our website is a repository for in Singapore, held post-results corporate information, SGX lunches, one-on-one and group announcements, news releases, meetings with them to discuss quarterly results reports, annual the Group’s business strategies, opportunities and challenges. reports, investor events, stock live webcasts including taking and dividend information. part in the Q&A sessions online. At every quarter when we Investors can subscribe to email An archive of the quarterly results announce our financial results, alerts to receive latest updates webcast, together with the sell-side analysts and media are on the Group or reach out to presentation material, are made invited to our results briefings. the Investor Relations (IR) team available on our dedicated IR Institutional investors and the through the ‘Contact Us’ page website on the same day of our public can also participate via or email [email protected]. results release.

In March, we held an Investor Day conference to share our growth targets and five-year plan (2018 -2022). Our management and business leaders interacted with over 60 analysts and institutional investors through business presentations, solutions showcase and a Q&A session at this event. To ensure that retail investors are also apprised of the Group’s growth plan, our President & CEO delivered a similar presentation at our 21st Annual General Meeting held in April.

We are committed to maintaining a multi-channel IR programme to promote two-way communications with the investing community, and will always explore more ways to enhance our communications Management shares the Group’s five-year plan to strengthen our core businesses while to build stronger trust and growing International Defence and Smart City businesses on our Investor Day. confidence in us. annual report 2018 71

SHAREholding by type 2018 Investor Relations Calendar

Q1 50.7% • Singapore Airshow 2018 Temasek • annual management lunch Holdings with sell-side analysts • FY2017 results briefing with live webcast

• post-results investor lunch 29.6% • ST Engineering Investor Day INSTITUTIONAL

19.7% Q2 Retail • 21st Annual General Meeting & Others* • 1Q2018 results briefing with live webcast • DBAccess Asia Conference 2018 (Singapore) • investors visit at the Aerospace facility • SGX-DBS Singapore Corporate Day SHAREholding by GEOGRAPHY (New York) • non-deal roadshow in Canada and the U.S. • investors visit at the Electronics facility • Citi ASEAN Conference 2018 (Singapore) 68% SINGAPORE Q3 • non-deal roadshow in London • 2Q2018 results briefing 11% with live webcast Others* • non-deal roadshow in Hong Kong • post-results investor lunch 10% North • Macquarie ASEAN Conference 2018 America (Singapore) 8% • non-deal roadshow in Japan Europe & UK

3% ASIA Q4 (excluding • 3Q2018 results briefing Singapore) with live webcast • post-results investor lunch

• Morgan Stanley Asia Pacific * Others include unidentified holdings and holdings Summit 2018 (Singapore) below analysis threshold 72 ST ENGINEERING As ward

(Left) Eleana Tan, Chief Corporate Officer, receiving the Most Transparent Company Award on behalf of ST Engineering at SIAS 19th Investors’ Choice Awards.

(Right) Aerospace President Lim Serh Ghee receiving Industry Leader of the Year 2018 award at the Aviation 100 MRO Global Awards.

Business Excellence Investor Relations

Most Transparent MRO Management of Best in Sector Company Award the Year 2018 at (Industrials category) (Winner for Multi-Industries the Aviation 100 MRO at the IR Magazine South East category) at the 19th Global Awards Asia Awards 2018 Investors’ Choice Awards By Airline Economics By IR Magazine By Securities Investors Association (Singapore) IES Prestigious Engineering Achievements Industry Leader of Awards 2018 the Year 2018 at By Institution of People the Aviation 100 MRO Engineers Singapore Global Awards IoT-enabled on-demand NS Advocate Award By Airline Economics lighting for the Smart Nation (Large Companies) By MINDEF Overall MRO of the Year 2018 at (ISC)2 Asia-Pacific Information the Aviation 100 MRO Security Leadership Global Awards Achievements (ISLA®) By Airline Economics Managerial Professional Award By The International Information System Security Certification Consortium annual report 2018 73

The team for VENUS Unmanned Surface Vessel, an innovation that performs mine- countermeasure and maritime security measures with reduced manpower and cost, receiving the Defence Technology Prize 2018 (Research & Development) award.

Product Quality Corporate Citizenship

ASEAN Energy Award BCA Green Mark Community Chest (Special Submission Platinum Award SHARE Award 2018 Category) (Non-Building Category) By Community Chest By ASEAN Centre for Energy By Building and 19 of the Group’s business units Construction Authority received Community Chest Best Selling N95 Mask at Awards in the Platinum, Watsons Singapore Health, Install Awards for Education Gold, Silver, Bronze and Wellbeing and Beauty Project of the Year Achiever categories. Awards 2018 By Installation By Watsons Singapore Star of Commendation Award AIR+ Smart Mask CES 2019 Innovation By Singapore Industrial and Awards Honoree Services Employees’ Union Good Design Award 2018 By Consumer By Japan Institute of Technology Association Design Promotion DigiSAFE DiskCrypt M10 Aircraft seats

Defence Workplace Safety & Health

NS Mark Award (Gold) Safety & Security Watch 20th Annual Safety By MINDEF Group Outstanding Award Convention Cluster Award 2018 By Land Transport By Singapore Police Force Authority Total Defence Award By MINDEF Safety & Security National WSH Defence Technology Prize Watch Group Outstanding Supervisor Award (R&D) Award Cluster Award 2018 By WSH Council By MINDEF By Singapore Civil VENUS Unmanned Defence Force Surface Vessel ASMI WSH Innovation Award WSH Awards By Association of Performance 2018 Singapore Marine By WSH Council, Industries Ministry of Manpower 74 ST ENGINEERING

World-class workforce In 2018, we launched new initiatives in three focal areas to further shape our workforce and support a world-class and high-performance organisation.

Enhancing capability Being at the forefront 1 and capacity for growth 2 of people practices

Launched our refreshed Launched a new Performance Leadership Dimensions and suite Scorecard to foster enterprise of Leadership Development collaboration and realign Programmes, anchored in our business focus on growth leadership dimensions, strategic efforts and operational priorities and core values excellence

Reviewed and implemented Redesigned our Total our refreshed Talent Rewards Framework to Management Framework align with our new business including Structured Rotation aspirations and strengthen and Succession Planning global competitiveness

Initiated a Technical Career Initiated Strategic Workforce Pathway to deepen our Planning for Cybersecurity and technological and engineering Robotics businesses to identify, expertise, provide a structured attract and retain talents framework for skills upgrade needed to deliver our and facilitate career growth five-year plan opportunities annual report 2018 75

2019 Targets

Strengthening a passionate 3 and engaged workforce

Implement a Global Leaders Development Programme to support our globalisation thrust Refreshed and launched our new Employee Performance Management Programme

Review and enhance our suite of learning programmes, including e-learning and Launched a series of initiatives to microlearning modules address issues identified in the 2017 to promote self-development Employee Engagement Survey, with and a lifelong learning culture specific focus on empowerment and collaboration 76 ST ENGINEERING RISK & SUSTAINABILITY HIGHLIGHTS

REPORT AT A GLANCE BOARD STATEMENT

− A summary of our Our sustainability strategy involves multiple stakeholder sustainability efforts for considerations that balance today’s needs with longer the year 2018, including an term developments. The Board provides oversight overview of our initiatives through the Risk and Sustainability Committee (RSC), and performance is reported where material Environmental, Social and Governance in this section and should be (ESG) topics are reviewed. The RSC meets quarterly read in conjunction with the with the management to review and discuss the Group’s information published in the risk and sustainability performance. The responsibility Sustainability section of our for implementing all sustainability efforts rests with the website at www.stengg.com; President & CEO of ST Engineering and the Management Committee. − Unless otherwise stated, data and activities relate to our We have built a successful track record in technology, Singapore operations only. defence and engineering upon good business Information on sustainability fundamentals, a commitment to performance with efforts relating to our integrity and zero tolerance for fraud and dishonest operations in the U.S. is conduct. We conduct our business in a responsible reported on pages 90 to 91; manner by ensuring that our products not only meet technical specifications and prevailing industry standards, − Our management approach but are also reliable over their life cycles and are safe to covering corporate produce, operate and maintain. This year, we enhanced governance, enterprise risk our Whistle-Blowing channel, standardising it for local management system and and overseas stakeholders. materiality is captured in ‘Our Management Approach Safer Workplace to Sustainability’ listed on Maintaining a safe working environment is paramount the Sustainability section and remains a focus area in our sustainability efforts. of our website; Regrettably, we reported a workplace fatality this year. In spite of this, a zero workplace fatality remains our − Our 2018 Sustainability aim, and ever more so. The eight safety cardinal rules Report is prepared in we rolled out this year as part of our safety campaign accordance to the Global reinforce our collective commitment towards that aim. Reporting Initiative (GRI) Standards: Core Option. Cleaner Future It is guided by the SGX As a global technology, defence and engineering Reporting Guide as well as group, we are well-positioned to bring technology and the LBG framework; innovation together to create solutions that help to further our environmental conservation efforts. This year, − The GRI Content Index is also we remain on target in our journey towards reducing available on our website. water, energy use and Greenhouse Gas (GHG) emission.

We conduct our business in a responsible manner by ensuring that our products not only meet technical specifications and prevailing industry standards, but are also reliable over their life cycles and are safe to produce, operate and maintain. ANNUAL REPORT 2018 77

ENTERPRISE RISK MANAGEMENT (ERM) FRAMEWORK KEY BUSINESS RISKS

The Group adopts an ERM The Group is committed to Growth & Competition framework to identify key managing these risks well as – Product and technology business risks that act as barriers part of its long-term sustainability. obsolescence to achieving its business goals The RSC oversees management – Mergers and acquisitions in the short, medium and long in the identification of risks term. This includes risks arising as well as the implementation Ethics & Governance from changes and trends on the of risk management policies – Cyber risk ESG front. and strategies. – Bribery and corruption – Regulatory compliance The ERM framework provides Further details on the Group’s discipline for the Group to risk governance, including the Operations identify, assess, control and responsibilities of the Board, Audit – Contract compliance monitor risks. It sets out a Committee and RSC, can be found – Business disruption consistent definition of risks in the Corporate Governance – Product liability and safety and risk tolerance limits to Report from page 94 to 124. ensure that business units have Human Capital a common understanding when A detailed description of our risks – Talent management and identifying and assessing risks. is available on our website. succession planning – Occupational health and safety

Financial – Credit – Foreign exchange

ANTI-BRIBERY AND CORRUPTION (ABC) ANTI-BRIBERY AND CORRUPTION TRAINING IN SINGAPORE The Group has zero tolerance As part of our compliance and for fraud and corrupt practices. ethics training programme, all Number of % of employees During the year, we reviewed employees are required to undergo employees trained trained and updated our policies and mandatory training on the Code 52 11,000 procedures to ensure that key annually. Relevant employees are 50 compliance principles from our also required to complete the 10,000 Code of Business Conduct and ABC training course once every 9,000 Ethics (Code) are embedded into two years. 40 our processes. Reflective of our 8,000 7,683 global workforce, the Code is To strengthen our Whistle-Blowing 7,000 translated into six languages and System, we have added reporting 30 readily available on our intranet. hotlines managed by an external 6,000 23 23 independent party to our existing 5,000 We also carried out a “refresh reporting channels. These hotlines, 20 4,000 3,512 3,531 and remind” exercise on published on our website, cater our Code. A handbook was to both our local and overseas 3,000 disseminated to all employees, stakeholders. This implementation 2,000 10 and senior management is part of our ongoing efforts to reiterated key principles of encourage and facilitate disclosures 1,000 the Code through video of possible improprieties or 0 0 messages that are available noncompliance in confidence. 2016 2017 2018 on our intranet. This sets the tone and underscores our More information on our Whistle- Number of % of employees employees commitment to honest and Blowing channels are available trained trained ethical business conduct. on our website. 78 ST ENGINEERING RISK & SUSTAINABILITY HIGHLIGHTS

OUR SUSTAINABILITY PERFORMANCE

WHAT WE DID IN 2018 WHAT WE WILL DO IN 2019

World-Class Workforce

Strengthened our Launched action Implement a Review and goal setting process plans in response Global Leaders enhance our and enhanced to 2017 Employee Development suite of learning our performance Engagement Survey. Programme to programmes to management support our promote a self- framework. globalisation thrust. development and lifelong learning culture.

Safe & Conducive Workplace

Updated Critical workplace Continue Identify initiatives procedures to safety and health to improve to improve mental enhance our areas like fall our safety well-being of our overall level of prevention, traffic performance. employees as part preparedness in management, of total workplace the event of a industrial machines safety and health. terrorist attack. and hand tools were included in cross audits.

Protecting Our Environment

Raised the GHG Improved water Explore Expand emission intensity consumption opportunities to solar panel reduction target to intensity by improve waste installations to 36% on a business- 1.5% year-on-year. management. other facilities. as-usual basis by 2030, with 2010 as the base year. ANNUAL REPORT 2018 79

OUR SUSTAINABILITY PERFORMANCE

WHAT WE DID IN 2018 WHAT WE WILL DO IN 2019

Responsible Sourcing

Developed a Established the Formalise the Roll out the Strategic Vendor Vendor Code Strategic Vendor Vendor Code Relationship of Conduct. Relationship of Conduct. Management Management programme to process. evaluate and prioritise our vendors.

Responsible Corporate Citizenship

Partnered TOUCH Increased the Group’s Review community Formalise Community for its participation rate outreach focus framework to Meals-on-Wheels and contribution to themes. promote staff food delivery SHARE Community volunteerism. programme during Chest’s programme the ST Engineering in Singapore. Volunteer Week.

Global Operations: The U.S.

Enhanced Continued Extend health Continue with the ethics with initiatives and safety initiatives to and training to reduce our reporting raise awareness programme. GHG footprint. regime to U.S. of the Group’s operations. sustainability agenda. 80 ST ENGINEERING RISK & SUSTAINABILITY HIGHLIGHTS

PRODUCTIVITY HIGHLIGHTS The pursuit of higher efficiencies and effectiveness is inherent in our day-to-day operations. In 2018, we made strides to enhance our operational performance.

The Shared Service Centre for seven functions comprising Finance, Human Resource, Information Technology, Procurement, Estate and Facilities Management, Corporate Communications and Legal progressed into its second year of implementation. Improvements included a faster turnaround travel and Embracing Industry 4.0 to Enhance expense claims management system and Productivity a more user friendly email system. We One of our Lean initiatives in 2018 was to also embarked on a project to simplify our transform a manufacturing workshop in legal structure and governance framework the Land Systems sector by incorporating with the aim of further streamlining our Industry 4.0 concepts. organisational resources. Technicians at the manufacturing workshop At the operating level, the sectors used would initiate requests for WIP jobs on continuous improvements tools such as their handheld devices and robots would be Kaizen and Value Stream Mapping to deployed to deliver requested components improve their work processes. We revisited to requestors. our productivity framework and enhanced our approach to manage and monitor Production managers would also be able productivity projects. to view operation status on such handheld devices, and informed decisions could be made on-the-go. To encourage our employees to be more collaborative and innovative in their Through the use of logistics robots and day-to-day work, productivity projects smart systems, manual touchpoints can that saw great teamwork and yielded be reduced and real-time information significant savings were recognised at our necessary for informed decision-making annual Team Excellence Convention. are readily available.

Productivity is an important cornerstone The initiative targets to achieve at least of our work as we strive towards a 20% reduction in manpower and sustainable growth by continuously manufacturing lead time. improving our systems and processes.

WHAT WE WILL • Implement an electronic • Roll out e-learning DO IN 2019 Compliance Statutory modules for continuous Monitoring System to track improvement tools. renewal of permits and licences. ANNUAL REPORT 2018 81

SAFE & RELIABLE PRODUCTS HIGHLIGHTS In 2018, all operations certified to ISO 9001 Quality Management System successfully converted to the latest ISO 9001:2015 standard. At the same time, we adopted a common Quality Policy Statement as part of an overall quality framework review.

We continued to be recognised on the international stage at the 36th International System Safety Conference in Arizona, U.S. where we shared a paper on “Challenges and Benefits of Implementing Hazard Traceability in an Application Lifecycle Management Tool”. We were also invited to speak at several external Annual System Safety Seminar system safety seminars and remained a key Debuted in 2012, our annual System supporter of the Singapore Chapter of the Safety Seminar is a platform for International System Safety Society. our business sectors to share and learn about practices, trends and We introduced the System Safety Community of developments in the science of Practitioners in 2018 for like-minded practitioners system safety. to share their experiences and lessons learnt. The 7th edition of the Seminar held on 23 November 2018 examined industry-specific topics such as the QUALITY POLICY implementation of hazard traceability in lifecycle management, operations ST Engineering is committed to the risk assessment for unmanned aircraft timely delivery and responsive support of systems and planning of safety products that remain safe and reliable for assurance efforts for autonomous their intended use, and the provision of land systems. services that meet regulatory standards and satisfy our customers’ requirements. The annual Seminar is an important meeting point for the exchange of ideas, and to challenge the way We shall build a quality culture embraced we think and practise system safety by our employees and business partners, to produce safer and more reliable where we are accountable for the quality products for our customers. of our work.

We shall continually sustain and enhance our quality management system to improve the quality of our products and services, maintain appropriate controls and conduct periodic reviews of set goals.

WHAT WE WILL • Streamline and digitise key • Introduce Quality Community DO IN 2019 quality process workflow of Practitioners for cross-sharing for greater efficiency. of experience amongst our quality practitioners. 82 ST ENGINEERING RISK & SUSTAINABILITY HIGHLIGHTS

WORLD-CLASS WORKFORCE overall goals, we reviewed culture remain a top priority in and improved our talent our strategy. During the year, we The 2017 Employee management framework, also initiated a Technical Career Engagement Survey called compensation plans and Pathway review and Strategic our attention to two focus Performance Scorecards. We Workforce Planning for our areas — empowerment and continued to pursue initiatives employees. Our commercial collaboration. The results were to promote learning aimed viability and ability to remain shared with our employees at deepening our employees’ competitive goes beyond and specific action plans competencies and broadening attracting and retaining talent. were developed through their skillsets. We strive to build a strong sense various brownbag sessions of purpose and belonging across and workshops. As we forge ahead in our our global operations while quest to strengthen our core at the same time strengthen To better align our culture and businesses and pursue growth our people’s capacities and mindset towards the Group’s opportunities, people and capabilities for overall growth.

EMPLOYEES BY GEOGRAPHY

70% 18% 8% 4%

Singapore Americas Europe Asia Pacific (excluding Singapore)

EMPLOYEES BY SECTORS

39% 29% 22% 6% 4%

Aerospace Electronics Land Systems Marine Others

EMPLOYEES BY QUALIFICATIONS

38% 20% 19% 19% 4%

Degree or equivalent Trade Certificates Diploma or equivalent ‘O’ or ‘A’ Levels or equivalent Below ‘O’ Levels or equivalent

Note: These statistics are calculated based on the Group’s headcount of 21,418. ANNUAL REPORT 2018 83

WORKFORCE PROFILE FOR SINGAPORE OPERATIONS HIGHLIGHTS

Employees 79% 21% Male Female

Supervised Workers* 95% 5% Male Female

* Supervised workers refer to workers hired through local Levelling up Digital Proficiencies contractors. They are on short-term contracts, work in the In 2018, we partnered with NUS School Group’s facilities and are supervised by ST Engineering. of Continuing & Lifelong Education (SCALE) to promote continuing education and training within ST Engineering. 160 mid-level managers AVERAGE TRAINING HOURS PER EMPLOYEE and engineers tapped on the NUS “All-You-Can-Learn” (AYCL) programme to bolster their digital skills in data analytics. Besides modules such as 30.2HRS “Data Analytics Begins With Me” and “Data Analytics & Visualisation”, the AYCL programme offers Cybersecurity, 33.0HRS 20.1HRS Internet of Things, Artificial Intelligence, Male Female Science, Engineering, Computing and Business courses. In this partnership, the Group is also exploring the feasibility of developing a Corporate Training TURNOVER RATE Academy to offer joint programmes in and outside of Singapore.

Separately, more than 360 engineers 9.6% and technicians had the opportunity to level up their digital proficiencies through the Digital Transformation and Robotics Course facilitated by LEGO 9.1% 11.3% Mindstorms Education kits. Male Female

WHAT WE WILL • Implement a Global Leaders • Review and enhance DO IN 2019 Development Programme our suite of learning to support our globalisation programmes to promote thrust. self-development and a lifelong learning culture. 84 ST ENGINEERING RISK & SUSTAINABILITY HIGHLIGHTS

SAFE & CONDUCIVE WORKPLACE HIGHLIGHTS Workplace safety and health (WSH) is a core aspect of our sustainability journey and is a deep-rooted Promoting Safety Innovations characteristic within the modus operandi of Across our operations, we continue to our business. develop innovative solutions to enhance WSH. At the 2018 ST Engineering EHS We believe that safety starts from the top. The visible Convention Award, we recognised and and active participation of senior management at commended participating teams that safety walkabouts sets the tone for our commitment demonstrated the spirit of continuous towards fostering a positive WSH culture. improvement and commitment to WSH. Our engineers improved the way doubler The Environment, Health and Safety (EHS) plates were replaced on dredger vessels Committee governs our WSH management strategy. in our shipyards by doing away with Members meet at least quarterly to monitor our EHS the need for confined space entries and Management System performance and to review and reducing crane lifting, falling objects and update our EHS strategies. height hazards. The improved process also increased efficiency and productivity, This year, as part of the national SG Secure initiative, by substantially reducing the manhours we reviewed and updated existing security and needed in such projects. The team’s effort business continuity procedures to incorporate both was awarded Gold at the Convention. preventive and mitigating measures to enhance Another Gold Award project is the our overall level of preparedness in the event of a “SMART” Robotic Grinding System, terrorist attack. a system that improved the safety and health of our engineers at the fan We rolled out eight safety cardinal rules on WSH containment case repair workshop. to raise awareness amongst our office and shopfloor This project reduces the risk of colleagues, as we stepped up our WSH efforts in a musculoskeletal injuries through the campaign to improve our safety indicators. replacement of labour-intensive work with a robotic arm. As an added safety We also launched an electronic workplace incident feature, dust particles are absorbed at reporting system. The new system enables us to the point of contact with the grinding track and monitor all injuries, so that corrective and head, reducing the amount being preventive measures can be taken promptly. released into the air. Our engineers were also commended OUR 2018 PERFORMANCE for their innovation in improving the ease of transporting and handling heavy While 2018 saw an improvement in our Accident equipment using a specially designed Frequency Rate (AFR) from 0.8 in 2017 to 0.4, trolley with a three-dimensional axis jig we regret to report that there was one work-related in our aircraft conversion programmes. fatality at our Tuas facility. The fatality happened This improvement removes the need for onboard an oil tanker during a valve dismantling man-lifting, mitigating potential physical operation. As a result of the fatality case, our Accident injuries to staff and also reduces the Severity Rate increased from 19.3 to 151.1 in 2018. number of men required for the work.

EIGHT SAFETY CARDINAL RULES

Do not smoke outside Use fall prevention Enter confined spaces Dispose and discard Operate vehicles Operate equipment only Carry out lifting Use approved designated areas. and protection only if trained and waste materials in only if trained if trained and authorised. operations only appliances and Keep clear of fire devices when authorised. Comply accordance with and authorised. Comply with safety if trained and equipment with safety protection systems working at with confined space requirements. Comply with operation requirements. authorised. Comply mark. Do not overload and equipment. heights. entry and emergency safety operation “Lockout Tagout” with safe lifting plan. electrical circuits. procedures. requirements. before performing any maintenance task. ANNUAL REPORT 2018 85

ACCIDENT FREQUENCY RATE ACCIDENT SEVERITY RATE

Number of accidents per Number of man-days lost per million manhours worked million manhours worked

2.0 200.0

168.5 1.6 151.1 1.5 1.5 1.5 150.0

1.0 100.0 86 0.8 0.8

60 61

0.5 0.4 50.0

19.3

ST Engineering 0.0 0.0 National average 2016 2017 2018 2016 2017 2018

OCCUPATIONAL HEALTH PERFORMANCE INDICATORS

* 108 100% 100% 0 0 Number of Percentage of at-risk Percentage of at-risk Number of Number of occupational staff who attended staff who attended Occupational Disease Advanced health activities the Audiometric the Respiratory cases (excluding Noise Induced organised. Examination. Protection Training. Noise Induced Deafness cases. Deafness cases).

* Errata: The number of Advanced Noise Induced Deafness cases the Group witnessed in FY2018 is zero, not “one” as indicated in the printed FY2018 Annual Report.

WHAT WE WILL • Continue to improve our • Identify initiatives to improve DO IN 2019 safety performance. mental well-being of our employees as part of total workplace safety and health. 86 ST ENGINEERING RISK & SUSTAINABILITY HIGHLIGHTS

PROTECTING OUR ENVIRONMENT HIGHLIGHTS Critical to the sustainability of our business is the ability to successfully forge a symbiotic relationship with the environment. To do so, we have been actively working on a set of robust targets to reduce our environmental footprint, whilst making certain that these targets are stepped up where possible.

In 2018, we revised our GHG emission intensity reduction target to 36% on a business-as-usual basis by 2030 with 2010 as the base year. Our new target is aligned with Singapore’s Intended Nationally Determined Going Green with Solar: One Rooftop Contribution (INDC) commitment. at a Time The sun delivers more energy to Earth in As part of our long-term commitment towards an hour than we consume in the course renewable energy solutions, we continue to of a year. Sufficient sunlight hits the Earth seek opportunities in solar energy, replacing to power an economy and businesses lights and ageing air compressors with energy indefinitely. This free source of energy is efficient alternatives. available to us and at ST Engineering, we have taken prudent steps to pave our way We also initiated a study to evaluate energy towards clean energy. saving potential in our data centres. This is achieved by measuring temperature patterns Since 2014, we have harnessed solar and deriving optimum operational indicators. energy to reduce our dependence Additionally, we identified ways to improve on fuels and help us reduce our overall energy consumption involved in the carbon footprint. use of air-cooling carts. We now have solar energy systems In the area of water consumption, we achieved installed on 17 roofs across our facilities our goal of water intensity improvement of at Jalan Boon Lay, Changi and Seletar 1.5% from 2017 by replacing existing taps in Singapore. These systems, when fully with water efficient alternatives, and constant operational, are forecasted to account monitoring of water consumption patterns for for 9.2% of our annual electricity early detection of leakages. consumption and consequently reducing our GHG emissions by 4,400 tonnes of We ensure that our GHG inventory is Carbon Dioxide Equivalent (tCO e). audited by an external accredited agency in 2 accordance with the standards specified in ISO 14064-1:2006. ANNUAL REPORT 2018 87

ENERGY CONSUMPTION AND INTENSITY

GJ/’000 m GJ/$m 194 1.20 200 170 1.00 146 150 0.80

0.60 100 0.46 0.46 0.42 0.40 50 0.20 Direct 0.30 0.24 0.20 0.0 0 Indirect 2016 2017 2018 Intensity

GHG EMISSION AND INTENSITY* * GHG intensity figures are computed based on Scope 1 & 2 emissions normalised using tCO e/’000 tCO e/$m 2 2 revenue from Asia, where Singapore is a significant 150 25.0 contributor. 19.2 120 16.7 20.0 15.8 Notes: Energy consumption and GHG 90 15.0 emissions figures for 2017 were 8.4 adjusted as a result of audits and 8.6 11.0 60 10.0 restated accordingly. 49.6 47.8 45.1 Scope 1 Scope 1: Direct GHG emissions 30 5.0 Scope 2 from sources owned 26.2 20.3 21.7 or controlled by 0 0 Scope 3 Singapore entities. 2016 2017 2018 Intensity Scope 2: Indirect GHG emissions (Audited) (Audited) (Unaudited) from the generation of purchased electricity consumed by Singapore entities. WATER CONSUMPTION AND INTENSITY Scope 3: Indirect GHG emissions from business travels by air carried out by ’ooom3 ’ooom3 /$m Singapore entities.

1000 0.18 0.20 0.17 0.16

750 0.15

500 0.10

250 708 671 660 0.05 Water 0 0 consumption 2016 2017 2018 Intensity

WHAT WE WILL • Explore opportunities • Expand solar DO IN 2019 to improve waste panel installations management. to other facilities. 88 ST ENGINEERING RISK & SUSTAINABILITY HIGHLIGHTS

RESPONSIBLE SOURCING setting out the basic behaviours and practices that we require from our Every year, we continuously vendors. Having these standards in improve the way we design, place helps us chart a better path deliver and produce. We are forward in our ongoing development increasingly compelled to source of a responsible supply chain. responsibly and create mutual benefits with credible vendors. Strategic Vendor Relationship As a result, we strengthened Management our commitment to responsible Enhancing our Strategic Vendor sourcing by formalising our Relationship Programme helped us Total Purchase Value responsible sourcing programme. manage strategic vendors better. By segmenting our vendors, we Principles and Standards were able to better determine their $3.23b In 2018, we took a major step sustainability profiles and identify forward and set the tone and strategic vendors. This not only standards for our procurement allows us to have a balanced practices. We formulated and consideration of ESG factors in our rolled out our Global Procurement procurement process but also boosts Policy. We also developed the the resilience of our supply chain. Vendor Code of Conduct,

DISTRIBUTION OF PURCHASES BY BUSINESS SECTORS

40% 31% 20% 9%

Aerospace Electronics Land Systems Marine

DISTRIBUTION OF PURCHASES BY GEOGRAPHICAL LOCATIONS

57% 17% 15% 10% 1% Singapore Americas Europe Asia (excluding Singapore) Africa & Middle East

WHAT WE WILL • Formalise the Strategic • Roll out the Vendor DO IN 2019 Vendor Relationship Code of Conduct. Management process. ANNUAL REPORT 2018 89

RESPONSIBLE CORPORATE To increase our participation rate cause of Project Silver Screen, CITIZENSHIP and contributions to SHARE, a nation-wide initiative by Community Chest’s monthly Singapore’s Ministry of Health A strong believer in giving giving programme, we introduced and Temasek Foundation Cares, back to the communities an online sign-up process and to bring functional screening to that we operate in, we focus extended our outreach to our seniors aged 60 and above. The on making our communities employees through roadshows functional screening includes more resilient and inclusive by and emails to encourage sustained checks on seniors’ vision, hearing engaging and investing our giving. We received a total of 19 and oral health, and subsidies for time and resources in them. awards at the Community Chest functional aids such as hearing For the 19th consecutive year, Awards this year, in recognition aids, spectacles and dentures. With we supported the President’s of our high participation rate and this commitment, we champion for Challenge, contributing a total significant contribution to the better affordability and accessibility of $258,000 in 2018. In total, SHARE programme. of healthcare, and help the elderly we have contributed more than to take good care of their health for $7.5m to this cause. Community Grants an improved quality of life. The NTUC Education and Training Fund uplifts working Singaporeans Community Engagement through training and education We reaffirmed our commitment by providing subsidies for skills to engage and support our upgrading and re-skilling. With a community this year through commitment of $1m over four years TOUCH Community Services’ beginning in 2018, we support Meals-on-Wheels programme, programmes and initiatives that where 330 of our colleagues are aligned to our focus area of dedicated over 1,200 manhours Community enriching lives through education. to deliver 1,500 food packages Contributions in Ang Mo Kio, Bukit Batok, We have also committed to Jurong and Toa Payoh areas donating $1m over five years across Singapore during the $2.67m beginning in 2018 towards the ST Engineering Volunteer Week.

OUR CONTRIBUTION*

86% 10% 3% 1%

Cash Time Management costs In-Kind

ISSUES ADDRESSED*

33% 24% 19% 13% 8% 3% Education Economic development Social causes Environment Health Others

* LBG framework was applied to measure community contributions and issues addressed.

WHAT WE WILL • Review community outreach • Formalise framework to DO IN 2019 focus themes. promote staff volunteerism. 90 ST ENGINEERING RISK & SUSTAINABILITY HIGHLIGHTS

GLOBAL OPERATIONS: ENERGY CONSUMPTION AND INTENSITY THE U.S. GJ/’000 GJ/US$m 425 In 2018, we continued working towards achieving 376 500 364 400 our environmental target of 15% reduction in GHG intensity. We implemented 400 LED lightings to reduce 225 300 energy consumption and 196 179 invested in electric vehicles 300

for daily travel between 200 facilities to reduce GHG emissions and energy 200 consumption. 185 175 189 100 We enhanced the 100 compliance training Direct programme. All employees 0 0 Indirect underwent the mandatory 2016 2017 2018 Intensity training on the Group’s Global Code of Conduct and Ethics. In addition, key personnel completed training on Anti-Bribery GHG EMISSION AND INTENSITY* and Corruption. tCO2e tCO2e/US$m Our people and companies 100 50 have contributed significantly 45.6 to their communities through both personal 40.5 41.2 time commitment and 80 40 cash donations. Examples include: VT MAE assisting in a week-long series of events, 60 30 contributing more than $85,000 to benefit 31.5 40 20 St. Jude’s Children’s Hospital; 28.8 VT Miltope participated in 24.7

a Breast Cancer Walk to raise 20 10 money for Breast Cancer 19.9 Scope 1 Research, contributions Scope 2 11.2 11.0 to local high schools, 0 0 Intensity Big Brothers Big Sisters, 2016 2017 2018 and animal shelters. Note: * GHG intensity figures are computed based on Scope 1 & 2 emissions normalised using revenue from U.S. operations.

Scope 1 : Direct GHG emissions from sources owned or controlled by U.S. entities. Scope 2: Indirect GHG emissions from generation of purchased electricity consumed by U.S. entities. Scope 3: Indirect GHG emissions from business travels by air carried out by U.S. entities. However, this has been excluded due to its insignificant contribution to overall emission. ANNUAL REPORT 2018 91

WORKFORCE PROFILE TURNOVER RATE FOR EMPLOYEES

Employees Turnover Rate 25.6% 22.2% 84% 16% Male Female Male Female 25.1%

Supervised Workers* 89% 11% Male Female AVERAGE TRAINING HOURS PER EMPLOYEE

* Supervised workers refer to workers Training Hours per Employee hired through local contractors. They are on short-term contracts, work in the Group’s facilities and are 29.5HRS 17.7 HRS supervised by VT Systems. 27.5 HRS Male Female

OUR CONTRIBUTIONS

82% 9% 8% 1%

Cash Time Management costs In-Kind

ISSUES ADDRESSED

64% 16% 10% 9% 1% Community Health Contributions Others* Education Social causes US$0.2m Economic development

* Others include arts & culture, environment and emergency relief.

WHAT WE WILL • Extend health and • Continue with initiatives DO IN 2019 safety reporting regime to raise awareness of the to U.S. operations. Group’s sustainability agenda. 92 ST ENGINEERING COMMUNITY OUTREACH

ST Engineering takes pride in being a responsible corporate citizen dedicated to supporting and engaging the communities we operate in. We actively promote a sustainable giving culture within the Group by taking on corporate giving initiatives, and empowering our employees from the ground up in volunteerism. We are committed to contributing in a holistic way to focus on enriching lives through education and touching lives through engineering.

2018 HIGHLIGHTS

Benefited over • Partnered key organisations like National Council of Social Services, Community 140 Chest and supported large-scale social service organisations and movements including President’s charities in the areas of children & Challenge on a long-term basis. family services, eldercare, disabilities through the Group’s corporate giving initiatives and employee-led • Championed community outreach volunteering activities. activities for the less fortunate in various ways, from packing and delivering “Fu Dai” (festive packs); preparing heartwarming meals with Willing Hearts’ Soup Kitchen; Over and organising regular Blood Donation Drives to donating warm clothings and 6,300 blankets, toys and gifts to the needy. manhours contributed by more than • Empowered youths from Metta School, 3,100 Assumption Pathway School in Singapore; colleagues who dedicated their time, BC Rain High School in Alabama, U.S., resources and expertise to give back in line with our focus on enriching lives to the community through education.

• Brought smiles and laughter to the beneficiaries at Thye Hua Kwan, Jia Ying Community Services, Christalite Methodist 1,300 Home, Orange Valley Nursing Home, and hours volunteered by SWAMI Home through food deliveries and our colleagues for the annual ST Engineering interactive activities. Volunteer Week • Donated generously to support worthy social causes such as Assumption Pathway School’s development programmes and Project Silver Screen, a functional screening programme for the elderly. ANNUAL REPORT 2018 93

PARTNERED KEY ORGANISATIONS 1

CHAMPIONED COMMUNITY OUTREACH ACTIVITIES BROUGHT SMILE AND LAUGHTER

EMPOWERED YOUTHS

1 2 1. All ready to deliver heartwarming and nutritious food 6. Making use of our technical expertise to repair packages to home-bound elderly across Singapore in and maintain tables and benches in the Christalist 3 4 support of the TOUCH Community Services’ Meals-on- Methodist Home. 5 6 7 Wheels programme. 7. Serving meals to the residents at Thye Hua Kwan 9 10 8 2. Packing “Fu Dai” filled with grocery items for distribution Moral Welfare Home . to the needy for a fulfilling Chinese New Year. 8. U.S. colleagues working on various cleaning needs 3. U.S. colleagues bringing warmth to The Friendship at the Embry Rucker Homeless Shelter and Herndon House, a local homeless shelter, through a donation of Neighbourhood Resource Centre. blankets, hats, scarves, coats, gloves and warm clothing. 9. Students from Assumption Pathway School putting 4. Environmental patrol and clean-up along the waterways their skills to good use during their Industrial of Kallang to Marina Bay area in Singapore. Attachment Programme. 5. Packing food packages for timely delivery to the 10. Coaching students from Metta School on job doorsteps of home-bound elderly. interview skills. 94 ST ENGINEERING CORPORATE GOVERNANCE

Good corporate governance the approved delegation of appointment setting out his is the foundation for long- authority framework; statutory obligations and term value creation of the duties and responsibilities as Group. This Report sets out • appointment of the President a director. He is also given ST Engineering’s corporate & Chief Executive Officer the terms of reference for the governance processes, (CEO), Board succession respective Board committees. practices and activities in 2018 and appointments on Board An induction programme is with specific reference to the committees; organised for a new director guidelines of the Singapore on the strategic direction and Code of Corporate Governance • appointment of key performance of the Group 2012 (the Code). management personnel and as well as his duties and succession planning as an obligations under the statutory The Board is pleased to ongoing process; compliance and corporate report that the Company has governance framework. complied in all material aspects • review of the risk management with the principles, guidelines framework and sustainability Facility visits are also arranged and recommendations set out performance through its for new directors to enable in the Code. Our Summary of Risk and Sustainability them to develop a good Disclosures is enclosed Committee (RSC). Our Risk understanding of the Group’s on pages 115 to 124 of this and Sustainability Highlights business, operations and the Annual Report. are set out in page 76; and respective key managements. The Board is routinely updated BOARD MATTERS • approval of the unaudited on the relevant laws, SGX quarterly, half-yearly and full- continuing listing obligations Board’s Conduct of its Affairs year audited results prior to and accounting standards (Principle 1) their release. requiring compliance, and their implications for the Group, so The Board is accountable to In the discharge of its functions, as to enable each director to shareholders for overseeing the Board is supported by six properly discharge his duties the effective management of Board committees to which as a Board member and Board the Company. To this end, the it delegates specific areas of committee member. Board relies on the integrity, responsibilities for review and commitment, skills and due decision making. Depending on their diligence of its management, its skillsets and background, external advisors and auditors. The President & CEO, directors are sponsored for In addition to its statutory Vincent Chong, is relevant courses, conferences responsibilities, the Board accountable to the Board. and seminars to better equip reserves the following key He is supported by the them to fulfil their governance matters for its decision: Management Committee, role and to comply with which consists of the Chief directors’ obligations. Where • setting the Group’s strategic Financial Officer (CFO), the there are statutory and objectives and ensuring that Chief Corporate Officer (CCO) regulatory changes that affect decisions made are consistent and the Presidents of the the obligations of directors, with these objectives; four business sectors. the Company will update the Board and, where the • approval of annual budgets, On onboarding a Board changes are substantive, major funding proposals, member, a formal letter is organise briefings by investment and divestment sent to a director upon his external legal counsel. proposals in accordance with ANNUAL REPORT 2018 95

Board members receive monthly announcement of the Group’s by teleconference or video consolidated management quarterly results. Special Board conference. Decisions of the reports on the financial meetings may be convened Board and Board committees performance of each business as and when necessary to may also be obtained via sector, capital commitments and consider corporate actions circulation. At the end of significant operational highlights requiring the Board’s guidance every Board meeting, the to keep the Board apprised or approval. Chairman allocates time for of business investments and its non-executive directors to performance updates. To facilitate the Board’s meet without the presence decision-making process, of management. Directors’ The Board convenes scheduled the Company’s Constitution attendance at Board and meetings on a quarterly provides for directors to Board committee meetings is basis to coincide with the participate in Board meetings tabulated below.

Executive Resource and Compensation Nominating Audit Committee Committee Committee Current Board of Directors Board (AC) (ERCC) (NC) Held* Attended Held*11 Attended 11 Held* Attended Held* Attended

Name of Director Kwa Chong Seng 5 5 4 4 1 1 Vincent Chong Sy Feng 5 5 Quek See Tiat 5 5 5 5 LG Ong Su Kiat Melvyn1 3 2 Quek Gim Pew 5 4 Khoo Boon Hui 5 5 5 5 Dr Beh Swan Gin 5 4 Lim Sim Seng 5 5 4 4 1 1 Lim Ah Doo 5 5 5 3 Lim Chin Hu2 2 2 Song Su-Min3 1 1 COL Xu Youfeng4 3 2

Retired Directors

Name of Director LG Lim Cheng Yeow Perry5 1 1 Neo Kian Hong6 3 2 Dr Stanley Lai Tze Chang7 5 2 5 2 4 2 1 0 Olivia Lum Ooi Lin8 1 0 RADM Alan Goh Kim Hua9 1 1 96 ST ENGINEERING CORPORATE GOVERNANCE

Research, Strategy & Finance Development and Risk and Sustainability Committee Technology Committee Committee Current Board of Directors (SFC) (RD&T) (RSC) Held* Attended Held* Attended Held* 11 Attended 11

Name of Director Kwa Chong Seng 4 4 Vincent Chong Sy Feng 4 4 4 4 5 5 Quek See Tiat LG Ong Su Kiat Melvyn1 2 1 Quek Gim Pew 4 4 Khoo Boon Hui 5 5 Dr Beh Swan Gin 2 2 Lim Sim Seng 2 2 Lim Ah Doo 3 3 Lim Chin Hu2 1 1 Song Su-Min3 COL Xu Youfeng4

Non Board Members Quek Poh Huat10 2 2 Bill Chua Teck Huat 5 5 Christopher Lau Loke Sam 5 5

Retired Directors

Name of Director LG Lim Cheng Yeow Perry5 2 0 Neo Kian Hong6 1 0 Dr Stanley Lai Tze Chang7 4 1 3 0 Olivia Lum Ooi Lin8 2 0 RADM Alan Goh Kim Hua9

* Reflects the number of meetings held during the time the director held office 1 Appointed Director and member of RSC on 8 June 2018 2 Appointed Director and member of RD&T on 16 July 2018 and member of ERCC and NC on 1 December 2018 3 Appointed Director on 16 September 2018 and member of AC and RSC on 31 December 2018 4 Appointed as Alternate Director to LG Melvyn Ong on 8 June 2018 5 Resigned as Director on 1 May 2018 6 Resigned as Director on 1 August 2018 7 Appointed member of RSC on 20 April 2018 and resigned as Director on 31 December 2018 8 Retired as Director at AGM on 20 April 2018 9 Ceased as Alternate Director to LG Perry Lim on 1 May 2018 10 Ceased as Co-opted SFC member on 15 August 2018 11 Includes the joint AC and RSC meeting held on 21 February 2018 ANNUAL REPORT 2018 97

Board Composition and • LG Ong Su Kiat Melvyn the Board an independent Guidance was appointed as a non- perspective based on his/ (Principle 2) independent non-executive her training and professional Director and member of the expertise to enable the Board The Board comprises RSC on 8 June 2018. He is to make balanced and well 11 Directors and an Alternate the Chief of Defence Force considered decisions. Director. COL Xu Youfeng is in the Ministry of Defence, Alternate Director to LG Melvyn Singapore. The Board has eight Ong. LG Ong, in his position independent Directors who as Chief of Defence Force, • Lim Chin Hu was appointed as represent more than 70% of may be called away on duty an independent non-executive the Board. The Code requires at times and may not be able Director and member of the independent directors to to attend all Board meetings. the Research, Development comprise at least half of the COL Xu is fully apprised of all and Technology Committee Board. The independence of Board matters, receives notices (RDTC) on 16 July 2018. He each director is determined to attend Board meetings and was also appointed as a upon appointment and reviewed Board papers as well as Board member of the NC and the annually by the NC. resolutions by circulation. As Executive Resource and Alternate Director, he is in a Compensation Committee The NC has affirmed that position to act on behalf of (ERCC) on 1 December 2018. the independent Directors LG Ong in the latter’s absence. are Kwa Chong Seng, Khoo • Song Su-Min was appointed as Boon Hui, Quek See Tiat, The Board, through the an independent non-executive Dr Beh Swan Gin, Lim Sim Seng, Nominating Committee Director on 16 September 2018 Lim Ah Doo, Lim Chin Hu (NC), reviews the size and and became a member of the and Song Su-Min. Although composition of the Board Audit Committee (AC) and Dr Stanley Lai had stepped taking into consideration the RSC on 31 December 2018. down on 31 December 2018, for skillsets, background and She is a Partner at Allen & the full FY2018 reporting period, independence of directors. Gledhill LLP. he was considered independent The Board also recognises that by the NC. The Board agrees diversity is not limited merely During the year, Olivia Lum with the NC’s assessment. to gender or any personal retired at the 21st AGM on attributes and believes that 20 April 2018. The Board bade In keeping with the momentum having experienced directors farewell to LG Perry Lim and of our board succession plan, with an independent mindset Neo Kian Hong who stepped Mr Khoo Boon Hui, who was is important for the Board down on 1 May 2018 and appointed as independent to be effective. The current 1 August 2018 respectively. non-executive director on board is sized to take into The Board also bade farewell 1 September 2010, has indicated account the global scale of to Dr Stanley Lai who stepped that he will step down from the Group’s businesses and down on 31 December 2018 the Board on 17 April 2019. ST Engineering’s key role in after having served 9 years supporting Singapore’s as independent Director The Board has, at all times, defence technology eco- on the Board. exercised independent system. The Board will continue judgment to make decisions, to review its composition The Board consists of members using its collective wisdom and and size to facilitate effective with established track record experience to act in the best decision-making. in defence, business, finance, interests of the Company. Any banking, technology, legal director who has an interest During the year, the Board and management. Each non- that may conflict with a subject welcomed the following executive director brings to under discussion by the Board, new Directors: 98 ST ENGINEERING CORPORATE GOVERNANCE

declares his/her interest Kwa Chong Seng joined the He has been delegated authority and either recuses himself/ Board on 1 September 2012. to make decisions within certain herself from the information He was appointed Chairman on financial limits authorised by and discussion of the subject 25 April 2013. Mr Kwa is the the Board. He is supported in matter or abstains from retired Chairman and Managing his work by the Management decision-making. Director of ExxonMobil Asia Committee. Pacific Pte Ltd. Other than The Board held a total of five serving as a non-executive Board Membership & meetings during the year to Director on the Board of Evaluation of Performance consider, among other things, SeaTown Holdings Pte Ltd, (Principles 4 and 5) the approval and release of the a wholly-owned subsidiary FY2017, 1Q2018, 2Q2018 and of Temasek Holdings Supporting the Board are the 3Q2018 results. (Private) Limited, he does following Board committees: not hold any other position The Board and the Strategy in Temasek Holdings. The NC • Audit Committee & Finance Committee (SFC) has determined that he is an reviewed the Group’s growth independent Director. • Executive Resource and and strategy plans to ensure Compensation Committee that the work of the Group is The Chairman is responsible for aligned with its charter and leading the Board and ensuring • Nominating Committee corporate objectives taking into the effective functioning of account the opportunities and the Board to act in the best • Strategy & Finance Committee challenges in the environment interests of the Company and in which we operate. its shareholders. The Chairman • Research, Development and facilitates the relationship Technology Committee Chairman and between the Board, President Chief Executive Officer & CEO and management, • Risk and Sustainability (Principle 3) engaging them in open Committee dialogue over various matters, The Chairman’s and President & including strategic issues, NOMINATING COMMITTEE CEO’s roles and responsibilities sustainability, risks and business are kept separate in order to planning processes. He ensures The NC is responsible for maintain effective oversight. that discussions at the Board reviewing the composition The recommendation in the level are conducted objectively of the Board and identifying Code for a lead independent and professionally where all suitable candidates to the Board, director is not applicable views are heard and key issues in particular, candidates with as the Chairman and the are debated in a fair and open the appropriate qualifications, President & CEO are separate manner. The Chairman also skillsets and experience who individuals and are not related. ensures that adequate time are able to discharge their No individual or small group is provided for discussion responsibilities as directors. of individuals dominates of strategic issues and key Shortlisted candidates are the Board’s decision making concerns at Board meetings. recommended to the Board process. The President & He represents the views of the for approval. The NC is also CEO and senior management Board to the shareholders. responsible for reviewing and regularly consult with individual determining the independence of Board members and seek the Vincent Chong who is an non-executive directors annually, advice of members of the executive Director, and the conducting board performance Board committees through President & CEO, is accountable evaluation, succession planning meetings, telephone calls as to the Board for the conduct for President & CEO and director well as by email. and performance of the Group. training and development. ANNUAL REPORT 2018 99

The NC comprises three committee meeting agendas to ensure Board continuity. non-executive independent and papers submitted by the At each Annual General Directors. Kwa Chong Seng is management. The review was Meeting (AGM), one-third the Chairman of the NC. He internally undertaken with of the directors with those abstains from voting when it each director being asked to longest in office since his/her comes to a determination of complete a questionnaire. Their last re-election have to retire. his independence. The other feedback was collated and Effectively, this results in all members are Dr Stanley Lai shared with the Board. The directors having to retire at (until 31 December 2018), review indicated that the Board least once every three years Lim Sim Seng and Lim Chin Hu. continues to function effectively. or even earlier, in compliance The NC also took on board the with SGX Listing Rule 720(5). The NC held one meeting in feedback of the Board members A retiring director may submit 2018 while other decisions were on areas for improvement. himself/herself for re-election. obtained by circulation. The Under this provision, Vincent NC is continually engaged in The NC also noted the list Chong, Lim Sim Seng and Lim the board renewal process of of other directorships held Ah Doo will retire at the 2019 ST Engineering, having regard by our Directors taking into AGM. LG Melvyn Ong, Lim to the skills, experience and consideration their principal Chin Hu and Song Su-Min, who industry expertise needed for commitments. The NC is are newly appointed, will hold a balanced board composition satisfied that each of the office until the forthcoming to, among other things, oversee Directors is able to devote time AGM of the Company. The governance and risks within to carry out his/her duties as retiring Directors, being the Group’s business. When director in the Company. eligible, have offered the need for a new director is themselves for re-election. In identified, potential candidates The Board has considered and accordance with SGX Listing are identified from various agreed not to set guidelines Rule 720(6), the information sources. The NC will assess a for a maximum directorship relating to the retiring Directors shortlist according to the type that a director can hold. seeking re-election is found of expertise needed. The NC Annually, an incumbent director at pages 20 to 27. will also assess a candidate’s is asked to affirm that he/she character, independence and has adequate time to devote to With the exception of Vincent experience to ensure that his/her Board responsibilities. Chong, each of the retiring he/she has the requisite ST Engineering Board members non-executive Directors has standard of competence to are selected on the basis of confirmed that he/she does carry out his/her duties as a their ability to contribute to the not have any relationship with director of a listed company. Board through their relevant his/her fellow Directors nor skillsets, experience, calibre with the Company and its During the year, the NC and willingness to devote time. substantial shareholders. reviewed and affirmed the In addition, each director is independence of the Company’s required to provide an annual The Board, acting on the independent Directors. affirmation of commitment to recommendation of the his/her Board responsibilities. NC, proposes that each of The NC conducted a collective With these considerations, the the retiring Directors, be assessment of the Board to Board is of the view that setting re-elected at the Company’s gauge the effectiveness of a maximum number of board forthcoming AGM. the Board’s performance, representations for our Directors the adequacy of the blend is not needed. Save as disclosed for of skillsets and experience Vincent Chong, the remaining of the Board, and the quality The NC is also responsible for 10 Directors are non-executive and timeliness of board and renewal and succession plans Directors. 100 ST ENGINEERING CORPORATE GOVERNANCE

The composition of the Board and Board committees as at 31 December 2018 is tabulated below:

Strategy & Finance Research, Committee Executive Development (SFC) Resource and and Risk and Audit (revamped Compensation Nominating Technology Sustainability Committee from Budget Committee Committee Committee Committee (AC) and Finance (ERCC) (NC) (RD&T) (RSC) (established on Committee on (established on (established on (established on (established on 15/1/1998) 11/5/2017) 6/12/1997) 4/12/2002) 1/8/2003) 7/12/1998)

BOARD MEMBERS Kwa Chong Seng C C C Vincent Chong Sy Feng M M M Quek See Tiat C LG Ong Su Kiat Melvyn1 M Quek Gim Pew C Khoo Boon Hui M C Dr Beh Swan Gin M Lim Sim Seng M M M Lim Ah Doo M M Lim Chin Hu2 M M M Song Su-Min3 M M COL Xu Youfeng4

NON BOARD MEMBERS Bill Chua Teck Huat CM Christopher Lau Loke Sam CM

Denotes: C – Chairman M – Member CM – Co-opted Member

1 Appointed Director and member of RSC on 8 June 2018 2 Appointed Director and member of RD&T on 16 July 2018 and member of ERCC and NC on 1 December 2018 3 Appointed Director on 16 September 2018 and member of AC and RSC on 31 December 2018 4 Appointed as Alternate Director to LG Melvyn Ong on 8 June 2018 ANNUAL REPORT 2018 101

Access to Information of the Company Secretary The ERCC performs the (Principle 6) is a matter for the Board as following duties and a whole to decide. responsibilities: The management furnishes Board members with monthly REMUNERATION MATTERS Executive Remuneration management reports, General Framework providing updates on key Procedures for Developing operational activities and Remuneration policies • Reviews and recommends financial analysis. The Board (Principle 7) to the Board the Group’s also has unrestricted access Level and Mix of Remuneration general framework for to the President & CEO, the (Principle 8) determining executive CFO, CCO, management and Disclosure on Remuneration remuneration including the Company Secretary as (Principle 9) the remuneration of the well as the internal and President & CEO, top external auditors and the ROLE OF EXECUTIVE five key management risk management team. RESOURCE AND executives of the Group and The Board may also seek COMPENSATION COMMITTEE other senior management independent professional executives (collectively advice, if necessary, at the The ERCC performs the referred to as “Senior Company’s expense. role of the remuneration Management Executives”). committee. The ERCC Board papers are sent to comprises Kwa Chong Seng Executive Director and Senior directors at least three days as Chairman, Dr Stanley Lai Management Executives prior to meetings in order for (until 31 December 2018), directors to be adequately Lim Sim Seng and Lim Chin Hu. • Reviews and recommends prepared for the meetings. The members of the ERCC to the Board the entire have held senior positions specific remuneration The Company Secretary in large organisations and package and service attends all Board, AC and are experienced in the area contract terms for the NC meetings and ensures of executive remuneration President & CEO, who is that board procedures are policies and trends. All ERCC also the executive Director. followed. The Company members are non-executive Secretary facilitates independent directors. • Considers, reviews, approves communication between the and/or varies (if necessary) Board, its committees and The ERCC met four times the entire specific management and advises during the year. All decisions at remuneration packages the Board on governance any meeting of the ERCC are and service contract terms matters including their timely decided by a majority of votes for the Senior Management disclosure obligations. She of the ERCC members present Executives of the Group. also assists with the induction and voting (the decision of For FY2018, the Board of new directors as well as the the ERCC shall at all times reviewed and approved co-ordination of continuing exclude the vote, approval the specific remuneration training for board members to or recommendation of any packages and service keep the Board up-to-date on member who has a conflict of contract terms for the key corporate governance matters. interest in the subject matter management executives. The appointment and removal under consideration). 102 ST ENGINEERING CORPORATE GOVERNANCE

Non-executive Director EXECUTIVE REMUNERATION The individual PTB payouts for Remuneration STRUCTURE the President & CEO and key management executives are • Reviews and recommends to Remuneration for the Senior determined by the ERCC based the Board the remuneration Management Executives on the Group’s, Company’s and framework (including comprises a fixed compensation, individual performance at the directors’ fees) for non- variable cash-based incentives, end of the financial year. executive directors. share-based incentives and market-related benefits. EVA-based Incentive Scheme Equity-based Plans A. Fixed Compensation: The EVA-based Incentive Scheme • Approves the design of (EBIS) was established with equity-based plans and The fixed compensation the objective of motivating and reviews and administers comprises the base salary rewarding employees to create such plans. and compulsory employer’s sustainable shareholder value Central Provident Fund (CPF) achieved by growing profits, Executive and contributions. deploying capital efficiently and Leadership Development managing the risk profile and B. Variable Cash-based risk horizon of the business. A • Oversees the development Incentives: portion of the variable cash- of management with the based incentives of the Senior aim of a continual build up The variable cash-based Management Executives is tied to of talent and renewal of incentives include the the EVA achieved by the Group in strong and sound leadership Performance Target Bonus (PTB) the financial year. to ensure the continued and EVA-based Incentive Scheme. success of the Group and Under the plan, a portion of EBIS its businesses. Performance Target Bonus bonus declared for the financial year will be paid out annually • Approves appointments The PTB is a cash-based while the remaining portions to Senior Management incentive for Senior Management will be deferred in an EVA bank. Executive positions Executives which is linked to Amounts in the EVA bank are within the Group and the achievement of annual at risk because negative EVA reviews succession plans performance targets that will result in a clawback of EVA for key positions within will vary depending on their accumulated. This mechanism the Group. job requirements. encourages the Senior Management Executives to work For financial year 2018, Individual performance for sustained EVA generation Aon Hewitt Singapore Pte objectives are set at the and to adopt strategies that Ltd (Aon) was engaged as beginning of each financial year. are aligned with the long-term remuneration consultant The objectives are aligned to interests of the Group. (Remuneration Consultant) the overall strategic, financial to provide professional advice and operational goals of the In addition, the Group has a on board and executive Group and Company. These clawback facility with respect remuneration matters. Aon objectives are cascaded down to to the EVA bank in the event of and its principal consultant a select group of key executives a restatement of the financial are independent and are not creating alignment between results of the Group subsequent related to the Group or any the performance of the Group, to an earlier misstatement, and of its directors. Company and the individual. provisions for the forfeiture of the remaining EVA bank ANNUAL REPORT 2018 103

balance on termination due to grant shares on an annual The Group has exceeded misconduct or fraud resulting in basis, conditional on meeting the predetermined target any financial loss to the Group. targets set for a three-year performance level for PSP performance period. With effect awards granted based on Based on the ERCC’s from financial year 2018, the the performance period from assessment, the Group has performance measures used in financial years 2016 to 2018. partially met the predetermined PSP grants under PSP2010 are: targets in financial year 2018. RSP2010 The resulting annual EVA • Absolute Total Shareholder declared under EBIS was Return (TSR) against Cost of The RSP2010 was established adjusted accordingly. Equity hurdles (i.e. measure of with the objective of retaining absolute Wealth Added); and and motivating managers and C. Share-based Incentives: above to strive for sustained • Earnings Per Share (EPS) long term growth of the Shares which were granted in Growth against pre- Group. It also aims to foster financial year 2018 were based determined EPS a share ownership culture on the Singapore Technologies Growth targets over the among employees within the Engineering Performance performance period. Group and to better align Share Plan 2010 (PSP2010) and employees’ incentives with the Singapore Technologies A minimum threshold shareholders’ interests. Engineering Restricted Share performance is required Plan 2010 (RSP2010) approved for any performance shares Pursuant to the RSP2010, and adopted by shareholders to be released to the recipients the ERCC has decided to of the Company at the at the end of the performance grant shares on an annual Extraordinary General Meeting period. The actual number basis subjected to individual held on 21 April 2010. Yearly of performance shares performance. With effect from share grants under the PSP2010 released will depend on the 2018, the RSP share grants and RSP2010 do not exceed achievement of predetermined under RSP2010 will be time- the internal annual limit of 1% targets over the performance based and released equally of the total number of issued period, capped at 170% of over four consecutive years. shares of the Company, set by the shares granted. the ERCC. The Group has clawback The release of the final policies for the unvested Details of the share plans and PSP shares is conditional shares under RSP2010 in grants are given in the Share on satisfactory individual the event of exceptional Plans section of the Directors’ performance of the recipient circumstances of restatement Statement from pages 126 at the end of the performance of the financial results of the to 134. period. Group subsequent to an earlier misstatement, PSP2010 The Group has clawback or of misconduct or fraud policies for the unvested resulting in any financial loss The PSP2010 was established shares under PSP2010 in to the Group. with the objective of motivating the event of exceptional Senior Management Executives circumstances of restatement D. Market-related Benefits: to strive for sustained growth of the financial results of the and performance of the Group. Group subsequent to an earlier The benefits provided are misstatement, or of misconduct comparable with local Pursuant to the PSP2010, or fraud resulting in any market practices. the ERCC has decided to financial loss to the Group. 104 ST ENGINEERING CORPORATE GOVERNANCE

The Code requires a company and post-employment benefits strives for sustainable growth to disclose the names and granted to directors, President and value creation. remuneration of the CEO and at & CEO and Key Management least the top five key management Executives other than in The recommended changes personnel (who are not also accordance with the standard include an increase in private directors or the CEO). Details of contractual agreement. sector Directors’ Board Basic the remuneration package for the Retainer fee from $72,000 to President & CEO are provided There were no employees who $75,000 and an increase in in the Summary Remuneration were immediate family members Board/Committee meeting Table for directors on pages 106 of a director or the President & fees from $2,000/$1,000 to to 107. Details of the remuneration CEO and whose remuneration $5,000/$2,500. The Board also packages for the Key Management exceeded S$50,000 during the recommends that the all-in Executives are provided in the financial year 2018, except for Active Chairman fee be Summary Remuneration Table Quek Gim Chuah (VP Quality, increased from $600,000 to for Key Management Executives Aerospace sector), who is $750,000 per annum. on page 108. the brother of Quek Gim Pew, Director of the Company. For services rendered in financial In performing the duties as year 2018, eligible NEDs will required under its Terms of NON-EXECUTIVE DIRECTOR receive 70% of the total directors’ Reference, the ERCC ensures REMUNERATION fees in cash and 30% of the that remuneration paid to the total directors’ fees in the form Senior Management Executives Non-executive directors (NEDs) of restricted shares which are strongly linked to the have remuneration packages are governed by the terms of achievement of business and consisting of directors’ fees RSP2010, subject to shareholders’ individual performance targets. and attendance fees, which approval at its AGM in April 2019. The performance targets as are approved in arrears by determined by the ERCC are set shareholders for services As the restricted shares are at realistic yet stretched levels rendered in the previous year. granted in lieu of directors’ each year to motivate a high The Directors’ Remuneration remuneration in cash, the shares degree of business performance Framework comprises a basic will be granted outright as fully with emphasis on both short and retainer, attendance and paid shares with no performance long-term quantifiable objectives. additional fees for serving on conditions attached and no Pay-for-Performance Alignment Board committees. vesting periods imposed. To study was conducted periodically encourage the alignment of by the Remuneration Consultant The ERCC, in consultation with interests of the NEDs with the and reviewed by the ERCC for Aon, conducted a review of interests of shareholders, the sufficient evidence indicating Pay- the Directors’ Remuneration share grant has a moratorium for-Performance alignment for the Framework in 2018. The on selling. Each eligible NED Group in terms of both absolute review took into account a is required to hold shares in and relative performance. variety of factors, including the Group worth the lower of: prevailing market practices (a) the total number of shares Under the Code, the compensation and referencing directors’ in the Group granted to such system shall take into account fees against comparable NED as payment of the shares’ the risk policies of the Group, be benchmarks, as well as the component of the NEDs’ fees for symmetric with risk outcomes roles and responsibilities of financial year 2011 and onwards; and be sensitive to the time the Board and Board or (b) the number of shares of horizon of risks. The ERCC will committees. Following the equivalent value to the prevailing undertake periodic reviews of the review, a revised directors’ annual basic retainer fee for a compensation-related risks. remuneration structure was director of the Group. An NED developed in order to ensure can sell all his/her shares in the During financial year 2018, there a competitive level of director’s Group a year after the end of his/ were no termination, retirement remuneration as the Group her Board tenure. ANNUAL REPORT 2018 105

The computation of NEDs’ remuneration is based on the following rates.

From Private Sector ($) 2018

Chairman Fee (all-in) 750,000 Board Basic Retainer Fee Director 75,000 Additional/Committee Fees Audit Committee: - Chairman 52,000 - Member 29,000 ERCC, SFC, RDTC and RSC: - Chairman 35,000 - Member 18,000 Other Committees (including NC): - Chairman 29,000 - Member 14,000 Attendance Fees Per Board Meeting 5,000 Per Board Committee Meeting 2,500

The Chairman fee is a fixed fee covering Board basic retainer, Board Committee and meeting attendance fees. The fee is paid in a combination of cash (70%) and shares (30%). The shares granted, as part of the fee, are fully-paid with no performance conditions attached and no vesting period imposed. However, the shares will have to be held for at least two years from the date of grant, and the two-year moratorium will apply even in the event of retirement.

The NEDs’ remuneration payable in respect of financial year 2018 is proposed to be $1,772,607 (FY2017: $1,547,391). Details of the directors’ remuneration are provided in the Summary Remuneration Table for Directors on pages 106 to 107.

Fees for directors who hold public sector appointments follow the Directorship & Consultancy Appointments Council (DCAC)’s guidelines as set out below.

Public Sector NED fees ($) 2018

Chairman 45,000 Deputy Chairman/Chairman Executive Committee/ 33,750 Chairman Audit Committee Member Executive Committee/Member Audit Committee/Chairman of 22,500 Other Board Committee(s) Director/Other Committee Member 11,250

NEDs who hold public sector appointments will not be eligible for the shares component of the NEDs’ remuneration. 100% of their remuneration in cash is payable to DCAC, where applicable. 106 ST ENGINEERING CORPORATE GOVERNANCE

SUMMARY REMUNERATION TABLE FOR DIRECTORS FOR THE YEAR ENDED 31 DECEMBER 2018 (GROUP):

Payable by the Company

Directors’ Total Fees*5 Variable Cash-based Share-based Executive Director Salary*1 Incentives*2 Benefits*3 Incentives*4 Cash-based Share-based Total $ $ $ $ $ $ $

Vincent Chong Sy Feng 973,239 1,671,313 127,750 1,830,585 – – 4,602,887

Directors’ Total Fees*5 Variable Non-Executive Cash-based Share-based Directors Salary*1 Incentives*2 Benefits*3 Incentives*4 Cash-based Share-based Total $ $ $ $ $ $ $

Kwa Chong Seng – – – – 525,000 225,000 750,000 Quek See Tiat – – – – 115,150 49,350 164,500 LG Lim Cheng Yeow Perry – – – – 3,699 (a)(d) – 3,699 LG Ong Su Kiat Melvyn – – – – 6,380 (b)(d) – 6,380 Neo Kian Hong – – – – 6,534 (c)(d) – 6,534 Quek Gim Pew – – – – 22,500 (d) – 22,500 Dr Stanley Lai Tze Chang – – – – 176,080 (e) – 176,080 Khoo Boon Hui – – – – 189,000 – 189,000 Olivia Lum Ooi Lin – – – – 27,772 (f) – 27,772 Dr Beh Swan Gin – – – – 11,250 (d) – 11,250 Lim Sim Seng – – – – 117,250 50,250 167,500 Lim Ah Doo – – – – 113,400 48,600 162,000 Lim Chin Hu – – – – 40,795 (g) 17,483 58,278 Song Su-Min – – – – 18,980 (h) 8,133 27,114 COL Xu Youfeng (Alternate to LG Ong Su Kiat Melvyn) – – – – – – – Total – – – – 1,373,790 398,816 1,772,607 ANNUAL REPORT 2018 107

Payable by Subsidiaries

Directors’ Total Fees*5 Variable Cash-based Share-based Executive Director Salary*1 Incentives*2 Benefits*3 Incentives*4 Cash-based Share-based Total $ $ $ $ $ $ $

Vincent Chong Sy Feng – – – – 30,000 (i) – 30,000

Directors’ Total Fees*5 Variable Non-Executive Cash-based Share-based Directors Salary*1 Incentives*2 Benefits*3 Incentives*4 Cash-based Share-based Total $ $ $ $ $ $ $

LG Ong Su Kiat Melvyn – – – – 4,844 (d) – 4,844 Quek Gim Pew – – – – 12,500 (d) – 12,500 Dr Stanley Lai Tze Chang – – – – 45,000 – 45,000 Dr Beh Swan Gin – – – – 27,944 (d) – 27,944 Lim Sim Seng – – – – 46,573 – 46,573 Lim Ah Doo – – – – 47,178 – 47,178 Lim Chin Hu – – – – 23,362 – 23,362 Total – – – – 207,401 – 207,401

*1 Salary includes base salary and employer CPF for the financial year ended 31 December 2018. *2 Variable Cash-based Incentives include Performance Target Bonus & EVA-based incentive declared for the financial year ended 31 December 2018. *3 Benefits provided for employees are comparable with local market practices. These include medical, dental, insurances, transport, etc. *4 Share-based incentives consist of PSP and RSP shares granted for financial year ended 31 December 2018. *5 The directors’ cash fees and share grants will only be paid/granted upon approval by the shareholders at the forthcoming AGM of the Group.

(a) Pro-rated. LG Perry Lim resigned as Director on 1 May 2018 (b) Pro-rated. LG Melvyn Ong was appointed Director on 8 June 2018 (c) Pro-rated. Neo Kian Hong resigned as Director on 1 August 2018 (d) Fees for public sector directors are payable to a government agency, the DCAC (e) Resigned as Director on 31 December 2018 (f) Pro-rated. Retired at AGM on 20 April 2018 (g) Pro-rated. Lim Chin Hu was appointed Director on 16 July 2018 (h) Pro-rated. Song Su-Min was appointed Director on 16 September 2018 (i) Fees are payable to Singapore Technologies Engineering Ltd

The following information relates to remuneration of directors of ST Engineering:

Number of Directors in Remuneration Bands 2018 2017

$500,000 and above 2 2 $250,000 to $499,999 0 0 Below $250,000 13 13 Total 15 15 108 ST ENGINEERING CORPORATE GOVERNANCE

SUMMARY REMUNERATION TABLE FOR KEY MANAGEMENT EXECUTIVES FOR THE YEAR ENDED 31 DECEMBER 2018 (GROUP):

Variable Cash-based Share-based Remuneration Salary*1 Incentives*2 Benefits*3 Incentives*4 Total % % % % %

Between $2,250,000 and $2,500,000 Lim Serh Ghee 27 40 3 30 100 Ravinder Singh s/o Harchand Singh 28 39 3 30 100 Between $1,750,000 and $2,000,000 Foo Chee Keng Cedric 36 32 5 27 100 Between $1,250,000 and $1,500,000 Ng Sing Chan 45 27 6 22 100 Dr Lee Shiang Long 35 31 4 30 100

Total for Key Management Executives $9,245,782

ACCOUNTABILITY AND AUDIT regulations or accounting firms of the KPMG network standards are introduced, affiliated with KPMG International Accountability external professionals will be Cooperative, a Swiss entity. (Principle 10) invited to brief our Directors. Some of our overseas associates and joint ventures engage other The Board is responsible for The appointment of auditors is auditing firms, but the number of providing a balanced assessment subject to approval at each AGM. such entities is not significant. of the Group’s performance, In making its recommendations position and prospects. In to shareholders on the In compliance with SGX presenting the annual financial appointment and re-appointment requirements, an audit statements and quarterly of auditors, the Board relies on engagement partner may only results announcements to the review and recommendations be in charge of an audit for up shareholders promptly, it is the of the AC. The AC’s assessment to five consecutive years. KPMG aim of the Board to provide the of the external auditor is LLP, which was first appointed shareholders with a detailed based on factors such as the in 2010 has been meeting this analysis, explanation and performance and independence requirement. The current audit assessment of the Group’s of the auditor. KPMG LLP in engagement partner took over performance, position, risk review Singapore audits Singapore ST Engineering’s audit in and prospects. The Board also incorporated subsidiaries that February 2017. The Company takes adequate steps to ensure are not exempt from audit under has complied with Rules 712 and compliance with legislative the Singapore Companies Act. 715 of the SGX Listing Manual in and regulatory requirements, Subsidiaries incorporated in relation to the engagement of including compliance with the countries outside Singapore that its auditors. continuing listing obligations require an audit in their local under the SGX Listing Manual. jurisdictions are largely audited Directors and key senior As and when new rules and by other independent member executives of the Group are ANNUAL REPORT 2018 109

prohibited from dealing in of internal investigations into chaired by the AC Chairman. ST Engineering shares two matters where it is alerted In accordance with this weeks before the announcement of any suspected fraud or framework, a Whistle-Blowing of ST Engineering’s first quarter, irregularity or failure of internal dashboard reporting is second quarter, third quarter, and controls or infringement of any presented to the AC at its full year results up to the date of law likely to have a material quarterly meetings. As the announcement of the results. impact on the Group’s operating ST Engineering has become a Directors are discouraged results. It can investigate any global company with presence from trading on short term matter within its terms of in many countries, it is aware of considerations. Additionally, reference and with the full the need to apply international all directors of the Group and cooperation of management. corporate governance standards employees are reminded not wherever it operates. It takes a to trade in situations where the The AC’s key terms of reference serious view of all reports insider trading laws and rules include the following: of violations received and would prohibit trading. may commission investigations • undertaking the statutory and as appropriate. The directors’ interests in shares regulatory functions of an AC of ST Engineering and its related as are prescribed by law from The AC comprises Quek See companies during the year are time to time; Tiat as Chairman, Dr Stanley found on pages 127 to 133 of this Lai (until 31 December 2018), Annual Report. • reviewing the reports of the Khoo Boon Hui, Lim Ah Doo and external and internal auditors Song Su-Min. All the members Audit Committee to provide a further layer of of the AC are independent (Principle 12) assurance of the integrity, Directors and majority, confidentiality and availability including the AC Chairman, The AC is supported in its of critical information; have the relevant accounting work by the Risk and Audit or financial management Committees (RACs) of the four • reviewing interested expertise or experience. None business sectors. The respective person transactions; of the AC members were chairmen of the RACs are invited previous partners or Directors to attend the AC meetings of • evaluating the work of the of the Company’s existing ST Engineering so as to have external auditors to determine external audit firm within the a clear understanding of their independence and previous 12 months prior to policies made at the holding recommending to the Board their appointment to the AC, company level and to share any their reappointment and and none of the AC members feedback or raise any issue that compensation on an annual have any financial interest in the the Sectors’ RACs may have. basis; and Company’s existing audit firm. During the year, an exercise to streamline the four business • reviewing the level of non- The AC held five meetings sectors’ and subsidiaries’ audit services. during the year including a Boards was carried out. In joint meeting with the RSC August 2018, the RACs were The Company has in place a to review the significant risks restructured to form the Risk Whistle-Blowing framework, and related key controls. and Audit Advisory Committees where staff may, in confidence The AC met once with the which will continue the work of and without fear of retaliation, external and internal auditors, the RACs but without oversight raise concerns of incidents without management, during on financial performance. of possible wrongdoing or the year to gather feedback breach of applicable laws, on management’s level of The AC has full authority to regulations or policies to the cooperation and other matters commission and review findings Whistle-Blowing Committee that warrant the AC’s attention. 110 ST ENGINEERING CORPORATE GOVERNANCE

During the year, the AC reviewed the financial statements of the Group before the announcement of the Group’s quarterly, half-yearly and full-year results. Amongst the matters discussed, the following significant matters impact the financial statements, and were reviewed by the AC in relation to their materiality and appropriateness in approach, methodology and assessment. These matters were also discussed with management and the external auditors:

Significant matters How the AC reviewed these matters

Impairment of non-financial The AC reviewed the reasonableness of cash flow forecasts, the assets, including goodwill long-term growth rate and discount rate used in the valuation model and other intangible assets in goodwill impairment assessment. It also reviewed the stress testing of the valuation and its sensitivity to changes in key assumptions used in the valuation model.

Revenue recognition The AC reviewed the various controls that were designed and applied by the Group in the recognition of revenue and profit from long-term contracts to ensure that the estimates used in determining the amount of revenue and costs recognised were appropriate.

Impairment of property, The AC assessed the sale and charter scenarios, cash flow forecasts, plant and equipment – long-term growth rate and discount rate that were used in the valuation Roll-on/Roll-off Passenger model for the valuation of property, plant and equipment relating ferry (“ROPAX”) to ROPAX.

The AC concluded that transactions and the issues Risk Management and management’s accounting raised in IA reports. It also Internal Control treatment and estimates were considered the reappointment (Principle 11) appropriate for the above of the external auditors as well Internal Audit significant matters. All the as their remuneration. (Principle 13) key audit matters (KAMs) that were raised by the external The AC also reviewed the The AC oversees and appraises auditors for the financial year level of non-audit services the quality of the IA function. ended 31 December 2018 have performed by its external The Board, through the AC been addressed by the AC auditors. For the full year 2018, and RSC, is responsible and discussed in the above $7.9m was paid to the external for oversight of the risk commentary. The KAMs in the auditors for audit and non- management responsibilities, audit report for the financial audit services of the Group, of sustainability, internal controls year ended 31 December 2018 which $2.4m or 31% were for and governance processes can be found on pages 135 to 138 non-audit services. The AC was delegated to management. of this Annual Report. satisfied that the non-audit services performed by the IA supports the AC in During the year, the AC auditors did not compromise reviewing the adequacy of considered and approved the their independence. the Group’s internal control 2018 Audit Plan and the 2018 systems. Internal Audit (IA) Plan. In The AC is routinely updated addition, the AC reviewed the on the proposed and ST Engineering IA is staffed adequacy of internal control impending changes in with individuals with the procedures including IT security accounting standards and their relevant qualifications and issues, Interested Person implications for the Group. experience and comprises a ANNUAL REPORT 2018 111

team of 25 staff members, in accordance with the LG Melvyn Ong, Dr Stanley including the Head, Internal respective terms of reference Lai (until 31 December 2018), Auditor, who reports to of the committees to facilitate Song Su-Min and Vincent the AC functionally and constructive sharing of the Chong. Christopher Lau to the President & CEO common issues that may need and Bill Chua are co-opted administratively. to be addressed by both members of the RSC given these committees. During their experience as RAC ST Engineering IA is a member the joint committee meeting, Chairmen. of the Singapore Chapter members were updated on of the Institute of Internal the key risks and the risk a) Risk Governance Auditors (IIA) and adopts management process. the International Standards The RSC assists the Board for the Professional Practice IA continues to work with in its risk governance of Internal Auditing (the IIA management to align responsibility. RSC’s role Standards) laid down in the companies to the Group’s is one of oversight of the International Professional internal control environment responsibilities delegated to Practices Framework issued and compliance standards management to ensure that by the IIA. ST Engineering IA in order to strengthen the there is a system of controls continues to meet or self-regulating checks and in place for identifying and exceed the IIA standards balances. Control issues, if any, managing risks in order to in all key aspects. are discussed at AC meetings. safeguard stakeholders’ IA made periodic visits to interests and the Company’s IA plans its internal audit overseas subsidiaries to assets. The RSC also oversees schedules in consultation review their operations to the Group’s sustainability with, but independently of, ensure compliance with the issues and reporting. management. The IA Plan internal controls framework. is submitted to the AC for IA is assisted in its work by an The RSC is supported by the approval at the beginning of external accounting firm which Risk and Sustainability Team each year. is not the external auditors (RST), headed by Head, Risk of the Company to ensure and Sustainability, working The AC is satisfied that the IA independence of the internal with the Sector Chief Risk is independent, effective and audit role. In accordance with Officers from each of the adequately resourced. its plan, surprise audits were following Sectors: conducted in the course of All IA reports are submitted the year on selected areas 1) Aerospace to the AC for deliberation including treasury activities. 2) Electronics with copies of these reports 3) Land Systems extended to the relevant IA continued with its system 4) Marine senior management, for of rating a company at the prompt corrective actions, as end of an internal audit for the The Head of RST reports to recommended. Furthermore, purpose of differentiating the the Chairman of the RSC IA’s summary of findings, high risk issues which require and ST Engineering’s recommendations and updates immediate attention. President & CEO. The on management actions taken RST provides leadership are discussed at the quarterly Risk and Sustainability in the implementation of AC meetings. Committee a Group-wide Enterprise Risk Management (ERM) During the year, a joint RSC The RSC, chaired by Khoo framework that allows risks and AC meeting was held Boon Hui, comprises to be identified, assessed, 112 ST ENGINEERING CORPORATE GOVERNANCE

monitored and managed by the training is updated to the RSC at 3) new risk incidents business managers. periodic intervals. 4) major risk exposures 5) risk management actions The annual risk work plan is c) Risk Review Process taken on previously approved by the RSC. identified risks Under the ERM framework, a risk In the respective Terms of dashboard of the top 15 business The RSC continues to monitor Reference of the RSC and AC, risks (comprising the key inherent the implementation of risk the members of the RSC and risks that may impact the management policies and the AC will meet at least once business objectives) is developed procedures and receives a year to discuss significant and maintained by each of the updates to the risk registers risks and audit issues of the significant business units, rolling maintained by the respective Group. The RSC held a total up into a summary dashboard for sectors. Major reviews include of five meetings during the each of the four business sectors compliance with major laws and year including a joint meeting – Aerospace, Electronics, Land regulations, as well as business with AC. Systems and Marine. Once the disruption risks and their top business risks are identified, continuity plans. There is at least a member measures will then be taken on the RSC who is also a to develop and implement risk In addition, during the year the member of the AC to facilitate preventive and mitigation actions RSC reviewed with management communication and access of (collectively known as “controls”) the incident notification information between the two and risk monitoring processes. framework and cyber risk committees. The business managers are management framework. required to periodically review b) Risk Aware Culture and the effectiveness of the controls d) Risk Management Self Training implemented, and initiate Assurance Process necessary changes as the risk Embedding the right culture profile changes. The Risk Management Self throughout the organisation Assurance is a process whereby is important for effective Quarterly, the Presidents and the business risk owners, risk management. The RSC the Sector Chief Risk Officers together with the respective recognises good culture fosters review, with the RSC, their control owners, evaluate openness that will enable respective dashboard of and assess the operational management and staff to material business risks. At the effectiveness of the controls escalate concerns in a timely meetings, the Presidents and established to manage the key manner without fear, as well Sector Chief Risk Officers would risks that are reported in the as promote better judgment, discuss the risk management Sector Risk Dashboards. which provides greater comfort action plans and measures to the Board and management. to address these risks. At the On the basis of this self same time, the Presidents assessment, annually, the RSC As part of the risk awareness and Sector Chief Risk Officers will receive from the respective and communication would also highlight the Sector Presidents and Sector programme, annual risk following for discussion: Group Financial Controllers, management training plans written assurances on the covering various risk topics 1) emerging trends and issues adequacy and effectiveness of are developed and in each business sector the system of risk management implemented by the respective 2) new risk or changes to and controls to manage the sectors, and the status of the existing risk profile significant risks. ANNUAL REPORT 2018 113

For more information on the by management and various During the year, the SFC held Company’s risk management Board Committees, the Board four meetings of which one framework, please refer to the is satisfied that the Group’s meeting was to discuss the ST Engineering website www. framework of internal controls Group’s long-term strategy stengg.com for details. (including financial, operational, and initiatives, as well as compliance and information the drivers, constraints, System of Internal Control and technology controls) as well opportunities and challenges Risk Management as the risk management for each of the business areas. systems are adequate and The SFC also reviewed the The Board receives, at regular effective as at 31 December 2019 Budget and five-year intervals, updates from the 2018. The AC concurs with the plan prior to submission to Board Committees on the key Board on the adequacy and the Board for approval as well business risks, the material effectiveness of the internal as approve tender proposals controls to manage these risks, controls and risk management which are above established and the internal audit reports systems established and contract value limit. on the operational effectiveness maintained by the Group as of the material controls. at 31 December 2018. SHAREHOLDER RIGHTS AND RESPONSIBILITIES The Board has received The Board is satisfied that assurance from the Group’s problems are identified on Shareholder Rights President & CEO and CFO a timely basis and follow up (Principle 14) on the effectiveness of the actions are taken promptly to Communication with Company’s risk management minimise lapses. The Board, Shareholders and internal control systems, through the Board Committees, (Principle 15) that the financial records have is supported in these areas Conduct of Shareholder been properly maintained and by the Internal Audit and Risk Meetings that the financial statements Management teams of the (Principle 16) give a true and fair view of Company. In this regard, the the Company’s operations Board also notes that no system At all times, ST Engineering and finances. can provide absolute assurance is committed to disclosing against the occurrence of material information in a timely, The Board is satisfied with the material errors, poor judgment transparent and accurate risk management process in in decision making, human error, manner in accordance with place, and, in its opinion, that fraud or other irregularities. the Code. the effectiveness and adequacy of the material controls to Strategy & Finance Committee All disclosures submitted manage the key risks have been to the Singapore Exchange appropriately reviewed through The SFC comprises Kwa Securities Trading Limited the management self assurance Chong Seng as Chairman, (“SGX-ST”) through SGXNET process, as well as reasonable Dr Beh Swan Gin, Lim Sim are made available on the independent assurance provided Seng, Lim Ah Doo and Vincent Group’s corporate website at by the Company’s IA Function. Chong. The SFC’s role includes www.stengg.com. guiding management in the Based on the internal controls development and execution The Investor Relations and risk management process of the Group’s strategies as team and designated senior established and maintained well as to consider and approve spokespersons establish and by the Group, work performed tender proposals which are maintain regular dialogue by the internal and external above established contract with shareholders, media, auditors, and reviews performed value limit. analysts and the investment 114 ST ENGINEERING CORPORATE GOVERNANCE

community through analyst and with a sustainable dividend For transparency in the voting media briefings, facility visits, as return and has historically, process, ST Engineering has, well as investor roadshows and been declaring interim and since 2010, adopted the use conferences. These platforms final dividends. of electronic poll voting for all provide opportunities to present the resolutions put to vote at our business and investment At general meetings of its AGMs and Extraordinary case, as well as enable us to shareholders, we facilitate the General Meetings (EGMs). solicit and understand views of opportunity for shareholders This is a fair and transparent our stakeholders. to participate effectively. way of voting based on the Board members are present principle of one share one While we provide reasonable at these meetings where vote. The electronic process access to shareholders, media, shareholders can seek on how to vote is explained analysts and the investment clarification or question the at the AGMs and EGMs. The community to help them Board on issues pertaining Company also appoints an develop informed opinions of to the resolutions proposed independent external party as the Group, we do not respond before they are voted on. scrutineer for the electronic or comment on rumours, The external auditors are also poll voting. Prior to the AGMs market speculation, or forward present to assist the directors and EGMs, the scrutineer will projections of financial figures. in answering questions on review the proxies and the In situations where the rumours audit related matters. A copy electronic poll voting system, or speculative news reports of the AGM minutes is made and be present at the proxy are materially incorrect or available on the Group’s verification process, to ensure misleading, the Group may issue corporate website at www. that the proxy and poll voting a clarification or confirmation stengg.com. information is compiled statement through SGXNET. correctly. The scrutineer At the AGM in April 2018, the attends the AGM to ensure The Group observes a “blackout President & CEO, delivered that the polling process is period” of two weeks prior a presentation at the start properly carried out. Votes to the announcement of of the meeting, to update cast, for or against and the quarterly results. During this shareholders on the Group’s respective percentages, on period, we do not comment business performance and each resolution are tallied on industry outlook, the Group’s provide an overview of the and displayed ‘live’ on-screen business performance and focus areas for the next to shareholders immediately financial results, neither do growth phase. after the voting. Each we participate in any investor proposal is put to the vote meetings or conferences or To ensure authenticity of as a separate resolution at proactively engage the shareholder identity and general meetings. We do not financial media. due to other related security “bundle” resolutions, unless the issues, the Company currently resolutions are interdependent On dividend, the Company does not allow voting in and linked so as to form one aims to provide shareholders absentia by mail, email or fax. significant proposal. ANNUAL REPORT 2018 115

CODE OF CORPORATE GOVERNANCE 2012

SUMMARY OF DISCLOSURES Page Reference Principle and in ST Engineering Guidelines Description Annual Report 2018 Guideline 1.1 Board’s Role Page 94

Guideline 1.2 All directors must objectively discharge their duties and Page 94 responsibilities at all times as fiduciaries in the interests of the company

Guideline 1.3 Delegation of authority, by the Board to any board Page 94 committee, to make decisions on certain board matters

Guideline 1.4 The number of meetings of the Board and board Pages 95 - 96 committees held in the year, as well as the attendance of every board member at these meetings

Guideline 1.5 The type of material transactions that require board Page 94 approval under guidelines

Guideline 1.6 The induction, orientation and training provided to new and Page 94 existing directors

Guideline 2.1 There should be a strong and independent element on the Page 97 Board, with independent directors making up at least one- third of the Board.

Guideline 2.2 Independent directors should make up at least half of the Pages 97 - 98 Board where the Chairman of the Board and the CEO is the same person or are immediate family members, or the Chairman is part of the management team or the Chairman is not an independent director. 116 ST ENGINEERING CORPORATE GOVERNANCE

Page Reference Principle and in ST Engineering Guidelines Description Annual Report 2018 Guideline 2.3 The Board should identify in the company’s Annual Report Page 97 each director it considers to be independent. Where the Board considers a director to be independent in spite of the existence of a relationship as stated in the Code that would otherwise deem a director not to be independent, the nature of the director’s relationship and the reasons for considering him as independent should be disclosed

Guideline 2.4 Where the Board considers an independent director, NA who has served on the Board for more than nine years from the date of his first appointment, to be independent, the reasons for considering him as independent should be disclosed

Guideline 2.5 The Board should examine its size and, with a view to Page 97 determining the impact of the number upon effectiveness, decide on what it considers an appropriate size for the Board, which facilitates effective decision making.

Guideline 2.6 The Board and its board committees should comprise Page 97 directors who as a group provide an appropriate balance and diversity of skills, experience, gender and knowledge of the company.

Guideline 2.7 Role of non-executive directors Page 94

Guideline 2.8 To facilitate a more effective check on Management, Page 95 non-executive directors are encouraged to meet regularly without the presence of Management.

Guideline 3.1 Relationship between the Chairman and the CEO where Page 98 they are immediate family members

Guideline 3.2 Role of Chairman of the Board Page 98

Guideline 3.3 Appointment of a lead independent director Page 98 ANNUAL REPORT 2018 117

Page Reference Principle and in ST Engineering Guidelines Description Annual Report 2018 Guideline 3.4 Periodic meeting of independent directors without the NA presence of other directors and lead independent director to provide feedback to the Chairman after such meetings.

Guideline 4.1 Names of the members of the NC and the key terms of Pages 98 - 99 reference of the NC, explaining its role and the authority delegated to it by the Board

Guideline 4.2 NC should make recommendations to the Board on Pages 98 - 99 relevant matters relating to the process for the selection, appointment and re-appointment of directors include composition and progressive renewal of the Board and each director’s competencies, commitment, contribution and performance. All directors should be required to submit themselves for re-nomination and re-appointment at regular intervals and at least once every three years.

Guideline 4.3 The NC is charged with the responsibility of Pages 98 - 99 determining annually, and as and when circumstances require, if a director is independent, bearing in mind the circumstances set forth in Guidelines 2.3 and 2.4 and any other salient factors.

Guideline 4.4 The maximum number of listed company board Page 99 representations which directors may hold should be disclosed

Guideline 4.5 Appointment of alternate directors. Page 97

Guideline 4.6 Process for the selection, appointment and re-appointment Pages 98 - 99 of new directors to the Board, including the search and nomination process

Guideline 4.7 Key information regarding directors, including which Page 97 directors are executive, non-executive or considered by the See also pages 14 - 18 NC to be independent 118 ST ENGINEERING CORPORATE GOVERNANCE

Page Reference Principle and in ST Engineering Guidelines Description Annual Report 2018 Guideline 5.1 The Board should state in the company’s Annual Report Page 99 how assessment of the Board, its board committees and each director has been conducted. If an external facilitator has been used, the Board should disclose in the company’s Annual Report whether the external facilitator has any other connection with the company or any of its directors. This assessment process should be disclosed in the company’s Annual Report

Guidelines 5.2 Evaluation of the Board and individual directors Page 99 and 5.3

Guidelines 6.1 Board should have separate and independent access Page 101 to 6.3 to Management and company secretary. Directors are entitled to request from Management and should be provided with such additional information as needed to make informed decisions.

Guideline 6.4 The appointment and the removal of the company secretary Page 101 should be a matter for the Board as a whole.

Guideline 6.5 Procedure for directors, either individually or as a Page 101 group, in the furtherance of their duties, to take independent professional advice, if necessary, and at the company’s expense.

Guideline 7.1 Names of the members of the RC and the key terms of Pages 101 - 102 reference of the RC, explaining its role and the authority delegated to it by the Board

Guideline 7.2 RC should review and recommend to the Board a general Pages 101 - 105 framework of remuneration for the Board and key management personnel.

Guideline 7.3 Names and firms of the remuneration consultants (if any) Page 102 should be disclosed in the annual remuneration report, including a statement on whether the remuneration consultants have any relationships with the company ANNUAL REPORT 2018 119

Page Reference Principle and in ST Engineering Guidelines Description Annual Report 2018 Guideline 7.4 RC should review the company’s obligations arising in the Page 104 event of termination of the executive directors’ and key management personnel’s contracts of service, to ensure that such contracts of service contain fair and reasonable termination clauses which are not overly generous

Principle 8 The level and structure of remuneration should be aligned Pages 102 - 105 Guidelines 8.1 with the long-term interest and risk policies of the company, to 8.4 and should be appropriate to attract, retain and motivate the directors and key management personnel

Principle 9 Clear disclosure of remuneration policies, level and mix of Pages 102 - 105 remuneration, and procedure for setting remuneration

Guideline 9.1 Remuneration of directors, the CEO and at least the top Pages 106 - 108 five key management personnel (who are not also directors or the CEO) of the company. The annual remuneration report should include the aggregate amount of any termination, retirement and post-employment benefits that may be granted to directors, the CEO and the top five key management personnel (who are not directors or the CEO)

Guideline 9.2 Fully disclose the remuneration of each individual director Pages 106 - 107 and the CEO on a named basis. There will be a breakdown (in percentage or dollar terms) of each director’s and the CEO’s remuneration earned through base/fixed salary, variable or performance-related income/bonuses, benefits in kind, stock options granted, share-based incentives and awards, and their long-term incentives

Guideline 9.3 Name and disclose the remuneration of at least the top Page 108 five key management personnel (who are not directors or the CEO) in bands of S$250,000. There will be a breakdown (in percentage or dollar terms) of each key management personnel’s remuneration earned through base/fixed salary, variable or performance-related income/ bonuses, benefits in kind, stock options granted, share- based incentives and awards, and other long-term incentives. In addition, the company should disclose in aggregate the total remuneration paid to the top five key management personnel (who are not directors or the CEO). As best practice, companies are also encouraged to fully disclose the remuneration of the said top five key management personnel 120 ST ENGINEERING CORPORATE GOVERNANCE

Page Reference Principle and in ST Engineering Guidelines Description Annual Report 2018 Guideline 9.4 Details of the remuneration of employees who are Page 104 immediate family members of a director or the CEO, and whose remuneration exceeds S$50,000 during the year. This will be done on a named basis with clear indication of the employee’s relationship with the relevant director or the CEO. Disclosure of remuneration should be in incremental bands of S$50,000

Guideline 9.5 Details and important terms of employee share schemes Pages 102 - 104

Guideline 9.6 For greater transparency, companies should disclose more Pages 102 - 104 information on the link between remuneration paid to the executive directors and key management personnel, and performance. The annual remuneration report should set out a description of performance conditions to which entitlement to short-term and long-term incentive schemes are subject, an explanation on why such performance conditions were chosen, and a statement of whether such performance conditions are met.

Principle 10 The Board should present a balanced and understandable Page 108 Guidelines 10.1 assessment of the company’s performance, position to 10.3 and prospects

Guideline 11.1 The Board should determine the company’s levels of risk Pages 111 - 113 tolerance and risk policies, and oversee Management in the design, implementation and monitoring of the risk management and internal control systems.

Guideline 11.2 The Board should, at least annually, review the adequacy Page 113 and effectiveness of the company’s risk management and internal control systems, including financial, operational, compliance and information technology controls. Such review can be carried out internally or with the assistance of any competent third parties. ANNUAL REPORT 2018 121

Page Reference Principle and in ST Engineering Guidelines Description Annual Report 2018 Guideline 11.3 The Board should comment on the adequacy and Page 113 effectiveness of the internal controls, including financial, operational, compliance and information technology controls, and risk management systems.

The commentary should include information needed by stakeholders to make an informed assessment of the company’s internal control and risk management systems.

The Board should also comment on whether it has Page 113 received assurance from the CEO and the CFO: (a) that the financial records have been properly maintained and the financial statements give true and fair view of the company’s operations and finances; and (b) regarding the effectiveness of the company’s risk management and internal control systems.

Guideline 11.4 The Board may establish a separate board risk committee or Pages 111 - 113 otherwise assess appropriate means to assist it in carrying out its responsibility of overseeing the company’s risk management framework and policies.

Guideline 12.1 Names of the members of the AC and the key terms of Pages 109 - 110 reference of the AC, explaining its role and the authority delegated to it by the Board

Guideline 12.2 Members of the AC should be appropriately qualified to Page 109 discharge their responsibilities. At least two members, including the AC Chairman, should have recent and relevant accounting or related financial management expertise or experience, as the Board interprets such qualification in its business judgement.

Guideline 12.3 The AC should have explicit authority to investigate any Page 109 matter within its terms of reference, full access to and cooperation by Management and full discretion to invite any director or executive officer to attend its meetings, and reasonable resources to enable it to discharge its functions properly.

Guideline 12.4 Duties of AC Page 109 122 ST ENGINEERING CORPORATE GOVERNANCE

Page Reference Principle and in ST Engineering Guidelines Description Annual Report 2018 Guideline 12.5 The AC should meet (a) with the external auditors, and Page 109 (b) with the internal auditors, in each case without the presence of Management, at least annually.

Guideline 12.6 Aggregate amount of fees paid to the external auditors for Page 110 that financial year, and breakdown of fees paid in total for audit and non-audit services respectively, or an appropriate negative statement

Guideline 12.7 The existence of a whistle-blowing policy should be Page 109 disclosed in the company’s Annual Report

Guideline 12.8 Summary of the AC’s activities and measures taken to keep Pages 109 - 111 abreast of changes to accounting standards and issues which have a direct impact on financial statements

Guideline 12.9 A former partner or director of the company’s existing Page 109 auditing firm or auditing corporation should not act as a member of the company’s AC: (a) within a period of 12 months commencing on the date of his ceasing to be a partner of the auditing firm or director of the auditing corporation; and in any case (b) for as long as he has any financial interest in the auditing firm or auditing corporation.

Guideline 13.1 Internal Auditor’s (IA) primary line of reporting should Page 111 be to the AC Chairman although the IA would also report administratively to the CEO.

The AC approves the hiring, removal, evaluation and compensation of the head of the IA function, or the accounting/auditing firm or corporation to which the IA function is outsourced. The IA should have unfettered access to all the company’s documents, records, properties and personnel, including access to the AC.

Guideline 13.2 The AC should ensure that the IA function is adequately Pages 110 - 111 resourced and has appropriate standing within the company

Guideline 13.3 The IA function should be staffed with persons with the Pages 110 - 111 relevant qualifications and experience ANNUAL REPORT 2018 123

Page Reference Principle and in ST Engineering Guidelines Description Annual Report 2018 Guideline 13.4 The IA should carry out its function according to the Page 111 standards set by nationally or internationally recognised professional bodies including the Standards for the Professional Practice of Internal Auditing set by The Institute of Internal Auditors

Guideline 13.5 The AC should, at least annually, review the adequacy and Page 111 effectiveness of the IA function

Guideline 14.1 Companies should facilitate the exercise of ownership rights Page 114 by all shareholders

Guideline 14.2 Companies should ensure that shareholders have the Pages 113 - 114 opportunity to participate effectively in and vote at general meetings of shareholders. Shareholders should be informed of the rules, including voting procedures, that govern general meetings of shareholders

Guideline 15.1 Companies should devise an effective investor relations Pages 113 - 114 policy to regularly convey pertinent information to shareholders

Guideline 15.2 Companies should disclose information on a timely basis Page 113 through SGXNET and other information channels, including a well-maintained and updated corporate website. Where there is inadvertent disclosure made to a select group, companies should make the same disclosure publicly to all others as promptly as possible.

Guideline 15.3 The Board should establish and maintain regular dialogue Pages 113 - 114 with shareholders, to gather views or inputs, and address shareholders’ concern.

Guideline 15.4 The steps the Board has taken to solicit and understand Pages 113 - 114 the views of the shareholders e.g. through analyst briefings, investor roadshows or Investors’ Day briefings

Guideline 15.5 Where dividends are not paid, companies should disclose NA their reasons. 124 ST ENGINEERING CORPORATE GOVERNANCE

Page Reference Principle and in ST Engineering Guidelines Description Annual Report 2018 Guideline 16.1 Shareholders should have the opportunity to participate Page 114 effectively in and to vote at general meetings of shareholders. Companies should make the appropriate provisions in their Articles of Association (or other constitutive documents) to allow for absentia voting at general meetings of shareholders.

Guideline 16.2 There should be separate resolutions at general meetings on Page 114 each substantially separate issue.

Guideline 16.3 All directors should attend general meetings of Page 114 shareholders. In particular, the Chairman of the Board and the respective Chairman of the AC, NC and RC should be present and available to address shareholders’ queries at these meetings. The external auditors should also be present to address shareholders’ queries about the conduct of audit and the preparation and content of the auditors’ report.

Guideline 16.5 Companies should put all resolutions to vote by poll and Page 114 make an announcement of the detailed results showing the number of votes cast for and against each resolution and the respective percentages. Companies are encouraged to employ electronic polling. Directors’ Statement 126

Independent Auditors’ Report 135

Financial Statements 142

Consolidated Income Statement 144

Consolidated Statement 145 of Comprehensive Income

Consolidated Balance Sheet 146

Consolidated Statement 148 of Changes in Equity

Consolidated Statement of Cash Flows 152

Notes to the Financial Statements 154

Sectoral Financial Review 275

Shareholding Statistics 291

SGX Listing Manual Requirements 293 126 ST ENGINEERING directors’ statement

31 DECEMBER 2018 (CURRENCY – SINGAPORE DOLLARS unless otherwise stated)

We are pleased to submit this annual report to the members of the Company together with the audited financial statements of the Group and of the Company for the financial year ended 31 December 2018.

In our opinion:

(a) the financial statements set out on pages 142 to 274 are drawn up so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2018, and changes in equity, financial performance and cash flows of the Group for the year ended on that date in accordance with the provisions of the Singapore Companies Act, Chapter 50 and Singapore Financial Reporting Standards (International); and

(b) at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.

The Board of Directors has, on the date of this statement, authorised these financial statements for issue.

Directors

The directors of the Company in office at the date of this statement are as follows:

Kwa Chong Seng (Chairman) Vincent Chong Sy Feng Quek See Tiat LG Ong Su Kiat Melvyn (Appointed on 8 June 2018) Quek Gim Pew Khoo Boon Hui Dr Beh Swan Gin Lim Sim Seng Lim Ah Doo Lim Chin Hu (Appointed on 16 July 2018) Song Su-Min (Appointed on 16 September 2018) COL Xu Youfeng (Appointed alternate Director to LG Ong Su Kiat Melvyn on 8 June 2018)

Arrangements to enable directors to acquire shares or debentures

Except for the Singapore Technologies Engineering Performance Share Plan 2010 (PSP2010) and Singapore Technologies Engineering Restricted Share Plan 2010 (RSP2010) (collectively the ST Engineering Share Plans), neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose objects are, or one of whose objects is, to enable the directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate. annual report 2018 127 directors’ statement

31 DECEMBER 2018 (CURRENCY – SINGAPORE DOLLARS unless otherwise stated)

Directors’ interests

Except as disclosed in this statement, no director who held office at the end of the financial year had interests in shares, debentures, warrants, share options or awards of the Company or of related corporations either at the beginning of the financial year or date of appointment if later, or at the end of the financial year.

According to the register kept by the Company for the purposes of Section 164 of the Singapore Companies Act, Chapter 50, particulars of interests of directors who held office at the end of the financial year in shares, debentures, warrants, share options and awards in the Company and its related corporations were as follows:

Holdings in the name of the director, spouse or infant children 1 January 2018 or date of appointment if later 31 December 2018

The Company

Ordinary Shares

Kwa Chong Seng 975,600 *1 1,027,300 *1 Vincent Chong Sy Feng 1,467,089 1,568,084 Quek See Tiat 34,200 45,400 Khoo Boon Hui 21,700 34,800 Lim Sim Seng 18,100 *2 35,600 *2 Lim Ah Doo 42,600 60,000 Lim Chin Hu 20,000 *2 20,000 *2

Conditional Award of Shares under PSP2010 for performance period 2015 to 2017

Vincent Chong Sy Feng (126,000 shares) 0 to 214,200 #1 – #2

Conditional Award of Shares under PSP2010 for performance period 2016 to 2018

Vincent Chong Sy Feng (70,000 shares) 0 to 119,000 #1 0 to 119,000 #1

Conditional Award of Shares under PSP2010 for performance period 2017 to 2019

Vincent Chong Sy Feng (258,800 shares) 0 to 439,960 #1 0 to 439,960 #1

Conditional Award of Shares under PSP2010 for performance period 2018 to 2020

Vincent Chong Sy Feng (428,600 shares) – 0 to 728,620 #1 128 ST ENGINEERING directors’ statement

31 DECEMBER 2018 (CURRENCY – SINGAPORE DOLLARS unless otherwise stated)

Directors’ interests (continued)

Holdings in the name of the director, spouse or infant children 1 January 2018 or date of appointment if later 31 December 2018

The Company

Unvested shares under RSP2010 arising from release of Conditional Award for performance period 1 January 2015 to 31 December 2015

Vincent Chong Sy Feng (64,676 shares) 32,338 #3 16,169 #3

Conditional Award of Shares under RSP2010 for performance period 1 January 2017 to 31 December 2017

Vincent Chong Sy Feng (72,800 shares) 0 to 109,200 #4 – #5

Unvested shares under RSP2010 arising from release of Conditional Award for performance period 1 January 2017 to 31 December 2017

Vincent Chong Sy Feng (82,264 shares) – 61,698 #3

Conditional Award of Shares under RSP2010 for performance period 1 January 2018 to 31 December 2018

Vincent Chong Sy Feng (180,800 shares) – 180,800 #4

Related Corporations

Ascendas Funds Management (S) Limited Unit holdings in Ascendas Real Estate Investment Trust

Quek See Tiat 34,000 34,000

Ascendas Hospitality Fund Management Pte. Ltd. Unit holdings in Ascendas Hospitality Trust

Lim Chin Hu 198,000 *2 198,000 *2 annual report 2018 129 directors’ statement

31 DECEMBER 2018 (CURRENCY – SINGAPORE DOLLARS unless otherwise stated)

Directors’ interests (continued)

Holdings in the name of the director, spouse or infant children 1 January 2018 or date of appointment if later 31 December 2018

Related Corporations

Astrea IV Pte. Ltd. Class A-1 4.35% Secured Fixed Rate Bonds

Khoo Boon Hui – $73,000

Mapletree Industrial Trust Management Ltd. Unit holdings in Mapletree Industrial Trust

Lim Chin Hu 121 121

Mapletree Logistics Trust Management Ltd. Unit holdings in Mapletree Logistics Trust

Lim Ah Doo 185,000 185,000

Mapletree North Asia Commercial Trust Management Ltd. (formerly known as Mapletree Greater China Commercial Trust Management Ltd.) Unit holdings in Mapletree North Asia Commercial Trust

Khoo Boon Hui 300,000 300,000

Olam International Limited Ordinary Shares

Kwa Chong Seng 609,279 *3 609,279 *3

Combined S$350m 5.5% Perpetual Capital Securities

Lim Chin Hu $250,000 *2 $250,000 *2

Singapore Telecommunications Limited Ordinary Shares

Kwa Chong Seng 26,466 26,466 Quek See Tiat 680 680 Quek Gim Pew 3,120 3,120 Khoo Boon Hui 3,087 3,087 Song Su-Min 190 190 130 ST ENGINEERING directors’ statement

31 DECEMBER 2018 (CURRENCY – SINGAPORE DOLLARS unless otherwise stated)

Directors’ interests (continued)

Holdings in the name of the director, spouse or infant children 1 January 2018 or date of appointment if later 31 December 2018

Related Corporations

StarHub Ltd Ordinary Shares

Quek See Tiat 5,000 5,000 Song Su-Min 140,600 140,600

Temasek Financial (I) Limited T2028 USD 10-year Temasek Bond 3.625% coupon due August 2028

Lim Chin Hu – US$250,000

Temasek Financial (IV) Private Limited T2023 SGD Temasek Bond S$500m 2.70% coupon due October 2023

Quek See Tiat – $7,000 Quek Gim Pew – $14,000

*1 Includes interest in 300,000 shares in Singapore Technologies Engineering Ltd, held in trust by a trustee company on behalf of the director. *2 Held in trust by a trustee company on behalf of the director. *3 Includes interest in 189,279 shares in Olam International Limited, held in trust by a trustee company on behalf of the director. #1 A minimum threshold performance over a 3-year period is required for any performance shares to be released and the actual number of performance shares to be released is capped at 170% of the conditional award. #2 For this period, Mr Vincent Chong Sy Feng was awarded 64,260 shares upon partial achievement of targets set. The balance of the conditional award covering the period from 2015 to 2017 has thus lapsed. #3 Balance of unvested restricted shares to be released according to the stipulated vesting periods. #4 A minimum threshold performance over a 1-year period is required for any restricted shares to be released. A specified number of restricted shares to be released will depend on the extent of achievement of all performance conditions and will be delivered in phases according to the stipulated vesting periods. #5 For this period, Mr Vincent Chong Sy Feng was awarded 82,264 shares upon partial achievement of targets set. The balance of the conditional award covering the period from 1 January 2017 to 31 December 2017 has thus lapsed.

There was no change in any of above-mentioned directors’ interest in the Company between the end of the financial year and 21 January 2019. annual report 2018 131 directors’ statement

31 DECEMBER 2018 (CURRENCY – SINGAPORE DOLLARS unless otherwise stated)

Share Plans

The Executive Resource and Compensation Committee (ERCC) is responsible for administering the ST Engineering Share Plans.

The ERCC members are Mr Kwa Chong Seng (Chairman), Dr Stanley Lai (until 31 December 2018), Mr Lim Sim Seng and Mr Lim Chin Hu.

As at 31 December 2018, no participants have been granted options and/or have received shares under the ST Engineering Share Plans which, in aggregate, represent 5% or more of the total number of new shares available under the ST Engineering Share Plans.

The aggregate number of new shares issued pursuant to the RSP2010 and PSP2010 did not exceed 8% of the issued share capital of the Company.

Except as disclosed below, there were no shares awarded by the Company to any person to take up unissued shares of the Company.

(a) PSP2010 (PSP)

The PSP is established with the objective of motivating Senior Management Executives to strive for sustained long-term growth and performance in ST Engineering and its subsidiaries (ST Engineering Group). Awards of performance shares are granted conditional on performance targets set based on the ST Engineering Group corporate objectives.

Pursuant to the PSP, the ERCC has decided to grant awards on an annual basis, conditional on targets set for a performance period, currently prescribed to be a 3-year performance period. The performance shares will only be released to the recipient at the end of the performance qualifying period. A specified number of performance shares shall be released by the ERCC to the recipient and the actual number of performance shares will depend on the achievement of set targets over the respective performance period. A minimum threshold performance is required for any performance share to be released and the actual number of performance shares to be released is capped at 170% of the conditional award.

The performance measures used in PSP grants are Absolute Total Shareholder Return (TSR) against Cost of Equity hurdles (i.e. measure of absolute Wealth Added); and Earnings Per Share (EPS) Growth against pre-determined targets. In addition to the PSP performance targets being met, final award for PSP is conditional upon satisfactory performance of the recipient. 132 ST ENGINEERING directors’ statement

31 DECEMBER 2018 (CURRENCY – SINGAPORE DOLLARS unless otherwise stated)

Share Plans (continued)

(a) PSP2010 (PSP) (continued)

The awards granted under the PSP2010 are as follows: Aggregate Aggregate Conditional conditional Aggregate conditional awards Awards awards awards awards not granted released granted since released since released as during the during the commencement commencement at end of financial financial to end of to end of financial year under year under financial year financial year year under Participant review review under review under review review

PSP2010

Director of the Company

Vincent Chong Sy Feng 0 to 728,620 64,260 0 to 1,501,780 64,260 0 to 1,287,580

Group Executives (including Vincent Chong Sy Feng) 0 to 2,931,718 842,788 0 to 21,777,323 3,917,831 0 to 8,190,657

(b) RSP2010 (RSP)

The RSP is established with the objective of motivating managers and above to strive for sustained long-term growth of ST Engineering Group. It also aims to foster a share ownership culture among employees within the ST Engineering Group and to better align employees’ incentive with shareholders’ interest.

Pursuant to the RSP, the ERCC has decided to grant time-based shares on an annual basis, and released equally to the recipient over four consecutive years.

Since 2011, the awards granted under the ST Engineering RSP2010 to the Non-Executive Directors (other than those from the public sector) are outright shares with no performance and vesting conditions but with a Moratorium on selling. These shares will form up to 30% of their total compensation with the remaining 70% payable in cash. annual report 2018 133 directors’ statement

31 DECEMBER 2018 (CURRENCY – SINGAPORE DOLLARS unless otherwise stated)

Share Plans (continued)

(b) RSP2010 (RSP) (continued)

The awards granted under the RSP2010 are as follows:

Conditional Aggregate Aggregate Aggregate Aggregate awards/ conditional awards awards conditional awards Awards awards/awards released since not awards not granted released granted since commencement released released as during the during the commencement to end of as at at end of financial financial to end of financial end of financial year under year under financial year year under financial year under Participant review review under review review year review

RSP2010

Directors of the Company

Kwa Chong Seng 51,700 51,700 227,300 227,300 – – Vincent Chong Sy Feng 180,800 36,735 0 to 1,805,751 1,473,824 77,867 180,800 Quek See Tiat 11,200 11,200 45,400 45,400 – – Khoo Boon Hui 13,100 13,100 34,800 34,800 – – Lim Sim Seng 17,500 17,500 35,600 35,600 – – Lim Ah Doo 17,400 17,400 30,000 30,000 – –

Non-Executive Directors of the Company and its subsidiaries (including current and former directors) 160,700 160,700 1,203,100 1,203,100 – –

Group Executives (including Vincent Chong Sy Feng) 6,546,545 4,389,487 0 to 64,683,701 25,077,339 6,402,463 6,098,824 134 ST ENGINEERING directors’ statement

31 DECEMBER 2018 (CURRENCY – SINGAPORE DOLLARS unless otherwise stated)

Audit Committee

The Audit Committee comprises four independent non-executive directors, one of whom is also the Chairman of the Committee. The members of the Audit Committee at the date of this report are as follows:

Quek See Tiat (Chairman) Khoo Boon Hui Lim Ah Doo Song Su-Min

The Audit Committee carried out its functions in accordance with Section 201B of the Singapore Companies Act, Chapter 50, the SGX Listing Manual and the Code of Corporate Governance.

The Audit Committee met during the year to review the scope of the internal audit functions and the scope of work of the statutory auditors, and the results arising therefrom, including their evaluation of the system of internal controls. The Audit Committee also reviewed the assistance given by the Company’s officers to the auditors. The consolidated financial statements of the Group and the financial statements of the Company were reviewed by the Audit Committee prior to their submission to the directors of the Company for adoption.

In addition, the Audit Committee has reviewed the requirements for approval and disclosure of interested person transactions, reviewed the procedures set up by the Group and the Company to identify and report and where necessary, seek approval for interested person transactions and, with the assistance of the internal auditors, reviewed interested person transactions.

The Audit Committee has full access to management and is given the resources required for it to discharge its functions. It has full authority and the discretion to invite any director or executive officer to attend its meetings. The Audit Committee also recommends the appointment of the external auditors and reviews the level of audit and non-audit fees.

The Audit Committee has recommended to the Board of Directors that the auditors, KPMG LLP, be nominated for re-appointment as auditors at the forthcoming Annual General Meeting of the Company.

The Company has complied with Rules 712 and 715 of the SGX Listing Manual in relation to the engagement of its auditors.

Auditors

The Auditors, KPMG LLP, have indicated their willingness to accept re-appointment.

On behalf of the Board of Directors

Kwa Chong Seng Vincent Chong Sy Feng Director Director

Singapore 20 February 2019 annual report 2018 135 Independent auditors’ report

Members of the Company Singapore Technologies Engineering Ltd

Report on the financial statements

Opinion

We have audited the accompanying financial statements of Singapore Technologies Engineering Ltd (the Company) and its subsidiaries (the Group), which comprise the balance sheets of the Group and the Company as at 31 December 2018, the consolidated statement of changes in equity, the consolidated income statement, the consolidated statement of comprehensive income and the consolidated statement of cash flows of the Group for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 142 to 274.

In our opinion, the accompanying consolidated financial statements of the Group and the balance sheet of the Company are properly drawn up in accordance with the provisions of the Singapore Companies Act, Chapter 50 (the Act) and Singapore Financial Reporting Standards (International) (SFRS(I)s) so as to give a true and fair view of the financial position of the Group and Company as at 31 December 2018, and changes in equity, financial performance and cash flows of the Group for the year ended on that date.

Basis for opinion

We conducted our audit in accordance with Singapore Standards on Auditing (SSAs). Our responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’ section of our report. We are independent of the Group in accordance with the Accounting and Corporate Regulatory Authority (ACRA) Code of Professional Conduct and Ethics for Public Accountants and Accounting Entities (ACRA Code) together with the ethical requirements that are relevant to our audit of the financial statements in Singapore, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ACRA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 136 ST ENGINEERING Independent auditors’ report

Members of the Company Singapore Technologies Engineering Ltd

THE KEY AUDIT MATTER HOW WAS THE MATTER ADDRESSED IN OUR AUDIT

Impairment of non-financial assets, including goodwill and other intangible assets

Goodwill, intangible assets form 15% of the Group’s Our procedures included, among others: total assets. • We evaluated the identification of CGUs within the The Group uses the discounted cash flow (DCF) Group against the requirements of the accounting technique to determine the recoverable amounts of standards. each cash-generating unit (CGU). • We reviewed the basis and methodology adopted There is a risk of impairment of certain CGUs in the to arrive at the recoverable amounts of the CGUs. United States which are operating in challenging business environment. This increases the level of • We assessed the key assumptions used in the judgement and estimation uncertainties within cash flow projections, namely sales growth management’s cash flow forecast. rates, earnings before interest, depreciation and amortisation (EBIDA) growth rates, discount rates, terminal growth rates by comparing the Group’s assumptions to externally derived data where available.

• We reviewed the historical accuracy of the Group’s estimates in the previous periods, identified and analysed changes in the assumptions from prior periods, focusing particularly on those CGUs operating in challenging business environment.

• We have also assessed the adequacy of related disclosures in Note C2 to the financial statements.

Findings:

We found that the assumptions and resulting estimates used in the DCF projections for all the CGUs were within acceptable range.

There were two CGUs in the United States with growth estimates that exceeded historical performance as it includes potential growth opportunities the CGUs are pursuing. In these instances, we have re-computed the recoverable amount using reduced growth estimates and we agree with management that no impairment charge is required for these CGUs.

Overall, the results of our evaluation of the Group’s impairment charge are consistent with management’s assessment.

We found the Group’s disclosure provides sufficient details on the sensitivity of the impairment assessment to variations in key assumptions. annual report 2018 137 Independent auditors’ report

Members of the Company Singapore Technologies Engineering Ltd

THE KEY AUDIT MATTER HOW WAS THE MATTER ADDRESSED IN OUR AUDIT

Impairment of property, plant and equipment – Roll-on/Roll-off Passenger ferry (ROPAX)

The carrying amount of a ROPAX vessel, which Our procedures included, amongst others: is chartered out on a short term operating lease, representing a significant balance within the boats and • We assessed the factors relevant to the likelihood barges class of property, plant and equipment may of the outcome of each scenario. exceed its recoverable amount. • We considered another possible leasing scenario ST Engineering Marine (STEML) was awarded a that could happen and computed the recoverable contract to design and build the ROPAX vessel in 2007. amount after incorporating the additional scenario The contract was subsequently terminated in 2011, and compared it to the carrying amount of the resulting in STEML taking title of the vessel. Since the ROPAX. repossession of the vessel, management has tried to realise the value of the vessel through sale and • We evaluated the key assumptions used in the charter. Limited market demand for such a vessel led review, particularly charter rates by comparing to to difficulties in selling or chartering the vessel out the rates used in existing lease arrangement and on a long-term basis, resulting in write downs of the externally derived data where available. carrying value of the ROPAX between 2011 and 2013, to reflect its net realisable value. Since then, the ROPAX • We compared the discount rate used by has been put to use through short term chartering management to our calculations based on market arrangements. The vessel is currently under a two-year data. charter, with an option for the lessee to purchase the vessel in the first year of lease. Findings:

The Group evaluated the recoverable amount of The results of our evaluation of the valuation of the the ROPAX using the DCF technique across three ROPAX are consistent with management’s assessment scenarios where the ROPAX is chartered or disposed, that no further impairment charge is required. weighted based on likelihood of outcomes to derive at Nonetheless, uncertainties remain over the probability a recoverable amount for the ROPAX. of securing longer term chartering arrangements or selling the vessel that may change the estimated There are inherent uncertainties involved in estimating recoverable amount. the recoverable amount of the ROPAX as it is dependent on the current economic conditions and whether the carrying amount can be realised through future sale or other chartering arrangements. 138 ST ENGINEERING Independent auditors’ report

Members of the Company Singapore Technologies Engineering Ltd

THE KEY AUDIT MATTER HOW WAS THE MATTER ADDRESSED IN OUR AUDIT

Revenue recognition

In accordance with SFRS(I) 15 Revenue from Contracts Our procedures included, amongst others: with Customers, the analysis of whether the contracts comprise one or more performance obligations, • We reviewed the contractual terms and work status determination of whether variable consideration are of the customer contracts and verified that revenue allocated to one or more performance obligations, and is recognised according to the stage of completion whether the performance obligations are satisfied over of each performance obligation. time or at a point in time are areas requiring critical judgement and estimates by the Group. • We tested the controls designed and applied by the Group to ensure that the estimates used in The Group’s three largest revenue streams are derived assessing revenue and costs are appropriate. The from the sale of goods, rendering of services and long- controls tested include, amongst others, controls term contract revenues. over the preparation and authorisation of project evaluation, approval of revenue calculated and Some of these revenue streams have contracts that project budgets, and accuracy and completeness are accounted for based on the stage of completion over manpower and labour rates computed. of performance obligations of each individual contract. The amount of revenue and profit recognised is • We selected a sample of contracts for testing based dependent on management’s assessment on the stage on a number of qualitative and quantitative factors, of completion of each performance obligation and such as contracts with significant deterioration in the forecast cost profile of each long-term contract. margin, those contracts with variations, claims and As long-term contracts can extend over multiple years, other factors which indicated that a greater level of changes in conditions and circumstances over time judgement is required in the estimates developed can result in changes in the nature or extent of project for current and forecast contract performance. cost incurred. • For each selected contract, we assessed the Judgement is applied in determining each performance appropriateness of estimates used in the forecasts obligation within a contract and in forecasting the and whether the estimates showed any evidence of costs to be incurred, the overall margins of these management bias. performance obligations and assessment of the stage of completion of each performance obligation. Such • We evaluated the revenue recognition policies estimates are inherently judgemental. of the Group for the different revenue streams to ensure revenue is recognised appropriately.

Findings:

We found the basis over identification of performance obligations and the revenue recognised based on the stage of completion of each performance obligation to be fair. annual report 2018 139 Independent auditors’ report

Members of the Company Singapore Technologies Engineering Ltd

Other information

Management is responsible for the other information contained in the annual report. Other information is defined as all information in the annual report other than the financial statements and our auditors’ report thereon.

We have obtained all other information prior to the date of this auditors’ report except for Shareholding Statistics which is expected to be made available to us after that date.

Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information that we obtained prior to the date of this auditors’ report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

When we read Shareholding Statistics, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance and take appropriate actions in accordance with SSAs.

Responsibilities of management and directors for the financial statements

Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the provisions of the Act and SFRS(I)s, and for devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair financial statements and to maintain accountability of assets.

In preparing the financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

The directors’ responsibilities include overseeing the Group’s financial reporting process.

Auditors’ responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. 140 ST ENGINEERING Independent auditors’ report

Members of the Company Singapore Technologies Engineering Ltd

As part of an audit in accordance with SSAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls.

• Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal controls.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless the law or regulations preclude public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. annual report 2018 141 Independent auditors’ report

Members of the Company Singapore Technologies Engineering Ltd

Report on other legal and regulatory requirements

In our opinion, the accounting and other records required by the Act to be kept by the Company and by those subsidiary corporations incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.

The engagement partner on the audit resulting in this independent auditors’ report is Quek Shu Ping.

KPMG LLP Public Accountants and Chartered Accountants

Singapore 20 February 2019 142 ST ENGINEERING Financial Statements

Introduction

This is the financial statements of Singapore Technologies Engineering Ltd (the Company) and its subsidiaries (collectively referred to as the Group) for the year ended 31 December 2018.

Over the past year, we have reviewed the content and structure of the financial report for opportunities to make them less complex and more relevant to users. This included:

• a thorough review of content to eliminate immaterial disclosures that may undermine the usefulness of the financial report by obscuring important information; and

• reorganisation of the notes to the financial statements into sections to assist users in understanding the Group’s performance.

The purpose of these changes is to provide users with a clearer understanding of what drives financial performance and financial position of the Group and linkage to the Group’s strategy, whilst still complying with the provisions of the Singapore Companies Act and Singapore Financial Reporting Standards (International).

What’s new in this report

Change in structure

Note to the financial statements are split into 7 distinct sections to enable a better understanding of how the Group has performed.

We have included an introduction at the start of each section to explain its purpose and content. Accounting policies, estimates and critical accounting judgements applied to the preparation of the financial statements have been moved to where the related accounting balance or financial statement matter is discussed and we have refined wording of the policies to allow them to be easily understood by users of this report.

Information is only being included in the financial report to the extent it is considered material and relevant to the understanding of the financial statements. A disclosure is considered material and relevant if:

• dollar amount is significant in value • dollar amount is significant by nature • financial results cannot be understood without specific disclosure • critical to allow user to understand significant changes in group businesses annual report 2018 143 Contents

Consolidated Income Statement for the year ended 31 December 2018 144 Consolidated Statement of Comprehensive Income for the year ended 31 December 2018 145 Consolidated Balance Sheet as at 31 December 2018 146 Consolidated Statement of Changes in Equity for the year ended 31 December 2018 148 Consolidated Statement of Cash Flows for the year ended 31 December 2018 152

Notes to the financial statements

A I About this report 154-155 D I Employee benefits 222-227

D1 Economic Value Added (EVA)-based 222 B I Business performance 156-172 Incentive Scheme D2 Personnel expenses 223 D3 Employee benefits 223 B1 Segment information 156 D4 Share-based payment arrangements 226 B2 Revenue 160 B3 Profit from operations 165 E I cAPital structure and B4 Other income, net 166 228-241 financing B5 Earnings per share 167 B6 Taxation 168 E1 Capital management 228 E2 Finance costs, net 229 C I Operating assets and 173-221 E3 Investments 231 liabilities E4 Borrowings 232 E5 Commitments and 237 C1 Property, plant and equipment 174 contingent liabilities C2 Intangible assets 182 E6 Share capital 238 C3 Amounts due from related parties 189 E7 Treasury shares 239 C4 Inventories 189 E8 Capital reserves 239 C5 Trade receivables 190 E9 Other reserves 240 C6 Advances and other receivables 191 E10 Dividends 241 C7 Bank balances and other liquid funds 191 C8 Trade payables and accruals 192 C9 Amounts due to related parties 192 F I Group structure 242-262 C10 Provisions 193 C11 Deferred income 194 F1 Subsidiaries 242 C12 Contract balances 195 F2 Acquisition and disposal of controlling 244 C13 Financial risk management 196 interests in subsidiaries in 2018/2017 objectives and policies F3 Non-controlling interests 246 C14 Classification and fair value of 204 in subsidiaries financial instruments F4 Associates and joint ventures 248 C15 Derivative financial instruments 215 F5 Related party information 259 F6 Parent entity disclosures 260

G I Others 263-274

G1 New standards and interpretations 263 not adopted G2 Explanation of transition to SFRS(I) and 264 adoption of new standards 144 ST ENGINEERING Consolidated Income Statement

for the year ended 31 December 2018 (Currency - Singapore dollars)

Group Note 2018 2017 $’000 $’000

Revenue B2 6,697,928 6,521,063 Cost of sales (5,292,389) (5,208,278) Gross profit 1,405,539 1,312,785

Distribution and selling expenses (200,180) (169,488) Administrative expenses (509,874) (474,045) Other operating expenses (125,227) (126,404) Profit from operations B3 570,258 542,848

Other income 55,391 39,944 Other expenses (20,405) (1,278) Other income, net B4 34,986 38,666

Finance income 22,357 38,650 Finance costs (55,909) (57,682) Finance costs, net E2 (33,552) (19,032)

Share of results of associates and joint ventures, net of tax 49,056 49,332 Profit before taxation 620,748 611,814

Taxation B6 (104,326) (85,721) Profit for the year 516,422 526,093

Attributable to: Shareholders of the Company 494,241 502,632 Non-controlling interests F3 22,181 23,461 516,422 526,093

Earnings per share (cents) B5 Basic 15.85 16.13 Diluted 15.76 16.05

The accompanying notes are an integral part of the ﬁnancial statements. annual report 2018 145 Consolidated Statement of Comprehensive Income for the year ended 31 December 2018 (Currency - Singapore dollars)

Group Note 2018 2017 $’000 $’000

Profit for the year 516,422 526,093

Other comprehensive income Items that will not be reclassified subsequently to profit or loss: Defined benefit plan remeasurements 201 (6,109) Equity investments at fair value through other comprehensive income (FVOCI) – net change in fair value 80 – 281 (6,109)

Items that are or may be reclassified subsequently to profit or loss: Net fair value changes on available-for-sale financial assets – 8,670 Debt investments at FVOCI – reclassified to income statement (2,343) – Net fair value changes of cash flow hedges reclassified to income statement 2 1,598 Effective portion of changes in fair value of cash flow hedges (35,110) 54,514 Share of net fair value changes on cash flow hedges of joint ventures 505 (127) Foreign currency translation differences 302 (47,326) Share of foreign currency translation differences of associates and joint ventures (213) (11,102) Reserves released on disposal of subsidiaries 13,714 2,161 (23,143) 8,388

Other comprehensive (loss)/income for the year, net of tax (22,862) 2,279

Total comprehensive income for the year, net of tax 493,560 528,372

Total comprehensive income attributable to: Shareholders of the Company 482,888 492,980 Non-controlling interests F3 10,672 35,392 493,560 528,372

The accompanying notes are an integral part of the ﬁnancial statements. 146 ST ENGINEERING Consolidated Balance Sheet

as at 31 December 2018 (Currency - Singapore dollars)

1 January Group Note 2018 2017 2017 $’000 $’000 $’000

ASSETS

Non-current assets Property, plant and equipment C1 1,742,742 1,719,396 1,670,132 Associates and joint ventures F4 455,703 448,387 405,530 Investments E3 16,392 360,346 322,051 Intangible assets C2 1,151,238 1,087,412 1,019,585 Long-term trade receivables 1,172 – 1,894 Deferred tax assets B6 72,136 74,028 92,528 Amounts due from related parties C3 4,806 4,806 4,806 Advances and other receivables C6 20,074 20,406 2,534 Derivative financial instruments C15 11,483 33,082 32,967 Employee benefits D3 – 243 151 3,475,746 3,748,106 3,552,178 Current assets Contract assets C12 1,070,396 939,073 968,608 Inventories C4 1,183,510 1,082,356 1,067,365 Trade receivables C5 1,137,816 940,725 1,063,514 Amounts due from related parties C3 35,392 28,271 24,618 Advances and other receivables C6 253,961 286,524 336,306 Short-term investments E3 422 357 188,890 Bank balances and other liquid funds C7 415,780 999,003 904,890 4,097,277 4,276,309 4,554,191

Total assets 7,573,023 8,024,415 8,106,369

EQUITY AND LIABILITIES

Current liabilities Contract liabilities C12 1,324,093 1,258,247 1,369,532 Deposits from customers 4,219 5,809 10,990 Trade payables and accruals C8 1,829,758 1,599,739 1,734,763 Amounts due to related parties C9 85,445 104,042 28,390 Provisions C10 212,935 260,146 280,766 Provision for taxation 163,232 134,686 131,317 Borrowings E4 225,416 221,642 87,427 Deferred income C11 3,761 630 – Employee benefits D3 2,401 2,491 1,916 3,851,260 3,587,432 3,645,101

Net current assets 246,017 688,877 909,090

The accompanying notes are an integral part of the ﬁnancial statements. annual report 2018 147 Consolidated Balance Sheet as at 31 December 2018 (Currency - Singapore dollars)

1 January Group Note 2018 2017 2017 $’000 $’000 $’000

Non-current liabilities Contract liabilities C12 495,453 521,787 505,492 Trade payables and accruals C8 80,345 131,843 137,763 Amounts due to related parties C9 – 17 17 Deferred tax liabilities B6 170,726 205,200 216,592 Borrowings E4 270,363 894,422 992,848 Deferred income C11 42,405 69,156 75,445 Employee benefits D3 108,016 102,669 85,200 Derivative financial instruments C15 19,842 15,553 19,435 1,187,150 1,940,647 2,032,792

Total liabilities 5,038,410 5,528,079 5,677,893

Net assets 2,534,613 2,496,336 2,428,476

Share capital and reserves Share capital E6 895,926 895,926 895,926 Treasury shares E7 (9,030) (22,870) (44,081) Capital reserves E8 118,174 119,782 113,184 Other reserves E9 (72,054) (67,480) (56,666) Retained earnings 1,313,361 1,289,653 1,258,179 Equity attributable to owners of the Company 2,246,377 2,215,011 2,166,542 Non-controlling interests F3 288,236 281,325 261,934 2,534,613 2,496,336 2,428,476

Total equity and liabilities 7,573,023 8,024,415 8,106,369

The accompanying notes are an integral part of the ﬁnancial statements. 148 ST ENGINEERING Consolidated statement of changes in equity

for the year ended 31 december 2018 (Currency - Singapore dollars)

Share Treasury Capital Other Retained Non-controlling Total Group Note capital shares reserves reserves earnings Total interests equity $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

At 1 January 2017 G2 895,926 (44,081) 113,184 (56,666) 1,258,179 2,166,542 261,934 2,428,476

Total comprehensive income for the year Profit for the year – – – – 502,632 502,632 23,461 526,093

Other comprehensive income Net fair value changes on available-for-sale financial assets – – – 8,670 – 8,670 – 8,670 Net fair value changes on cash flow hedges reclassified to income statement – – – 1,598 – 1,598 – 1,598 Effective portion of changes in fair value of cash flow hedges – – – 40,521 – 40,521 13,993 54,514 Share of net fair value changes on cash flow hedges of joint ventures – – – (127) – (127) – (127) Foreign currency translation differences – – – (47,929) – (47,929) 603 (47,326) Share of foreign currency translation differences of associates and joint ventures – – – (11,102) – (11,102) – (11,102) Reserves released on disposal of subsidiaries – – – 2,144 – 2,144 17 2,161 Defined benefit plan remeasurements – – – – (3,427) (3,427) (2,682) (6,109)

Other comprehensive income for the year, net of tax – – – (6,225) (3,427) (9,652) 11,931 2,279

Total comprehensive income for the year, net of tax – – – (6,225) 499,205 492,980 35,392 528,372

Transactions with owners of the Company, recognised directly in equity Contributions by and distributions to owners of the Company Capital contribution by non-controlling interests – – – – – – 397 397 Return of capital to non-controlling interests – – – – – – (43) (43) Cost of share-based payment – – – 14,509 – 14,509 52 14,561 Purchase of treasury shares E7 – (15,748) – – – (15,748) – (15,748) Treasury shares reissued pursuant to share plans – 36,959 6,598 (18,599) – 24,958 (42) 24,916 Dividends paid E10 – – – – (467,641) (467,641) – (467,641) Dividends paid to non-controlling interests – – – – – – (16,615) (16,615) Total contributions by and distributions to owners of the Company – 21,211 6,598 (4,090) (467,641) (443,922) (16,251) (460,173)

Changes in ownership interests in subsidiaries Acquisition of non-controlling interests in a subsidiary without a change in control – – – (589) – (589) 250 (339) Total transactions with owners of the Company – 21,211 6,598 (4,679) (467,641) (444,511) (16,001) (460,512) Transfer from retained earnings to statutory reserve – – – 90 (90) – – – At 31 December 2017 G2 895,926 (22,870) 119,782 (67,480) 1,289,653 2,215,011 281,325 2,496,336

The accompanying notes are an integral part of the ﬁnancial statements. annual report 2018 149 Consolidated statement of changes in equity