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ANNUAL REPORT 2015 engineering your future engineering your future At ST Engineering, knowing what matters in tomorrow’s world requires a clear vision. As a global, multi sector business operating in a complex and fast paced environment, incisiveness and focus are vital. This involves knowing what our customers really need and how we can innovate to deliver the best solutions. With foresight, we envision tomorrow’s demands and engineer the future today. INTEGRITY vision VALUE CREATION Be a global defence and engineering group. COMPASSION mission Bring value to our customers and partners by delivering total integrated quality solutions and support. COURAGE COMMITMENT values CONTENTS 02 Financial Highlights 26 Operating and Financial Review 91 Corporate Governance 04 Letter to Shareholders 56 Investor Relations 108 Financial Report 10 A Personal Note from the CEO 58 Awards 273 Shareholding Statistics 12 Board of Directors 60 Corporate Information IBC Contact Information 18 Senior Management 61 Risk & Sustainability SINGAPORE TECHNOLOGIES ENGINEERING LTD Financial Highlights REVENUE REVENUE BREAKDOWN EARNINGS Per SHARE By Customer Type 17.05 ¢ 2014: 17.06¢ 36% $ b Defence 6.34 DIVIDEND Per SHARE 2014: $6.54b 64% ¢ Commercial 15.0 2014: 15.0¢ Net PROFit By Location of Customers retURN ON EQUitY 9% % Others 24.8 2014: 24.9% $ m 24% % USA 62 529.0 Asia OperATING CASH FLOW 2014: $532.0m 5% Europe $0.47 b 2014: $0.62b By Location of Business Entity ORDer BOOK 1% Others $ b 24% 11.7 USA 2014: $12.5b 1% 74% Europe Asia RETURN ON SALES 8.4 % 2014: 8.2% 2 ANNUAL REPORT 2015 Aerospace Electronics Land Systems Marine Others REVENUE BY sectOR 2015 $6.34b 33% 27% 22% 15% 3% 2014 $6.54b 32% 24% 21% 21% 2% ebitDA BY sectOR 2015 $697.6 m 42% 31% 12% 15% 2014 $725.5m -2% 44% 29% 11% 18% Net prOFit BY sectOR 2015 $529.0m 43% 31% 10% 16% 2014 $532.0m 42% 29% 9% 20% 3 SINGAPORE TECHNOLOGIES ENGINEERING LTD Letter to Shareholders DEAR SHAREHOLDers In 2015, ST Engineering again navigated comparable to the $6.54b for 2014. to $0.96b and $88.3m, due to weaker an uneven global business environment. Profit before tax (PBT) was $630.3m, shipbuilding performance from both On one hand, the US economy returned a decline of 3% against the year its Singapore and US operations. The to sustained growth while on the other, before. Our net profit attributable financial and operational review of the Eurozone stayed economically to shareholders at $529.0m was these business sectors can be read stagnant with business sentiment comparable to the $532.0m for our starting from page 26. adversely impacted by various events 2014 financial year. such as the Greek debt crisis. Closer Group revenue in 2015 continued to to home in Asia, the slowing China Comparing 2015 against 2014 at our show a healthy diversification across economy dampened business sentiment business sectors, revenue and PBT for business sectors, geographical regions and created headwinds across many the Aerospace sector was flat at $2.09b and customer-type. The spread of economic sectors. We also faced an and $290.6m respectively. Revenue for Group revenue by Sector was 33% environment where low crude oil and the Electronics sector was higher by from the Aerospace sector, 27% from industrial commodity prices resulted 8% at $1.71b and PBT increased 4% to the Electronics sector, 22% from in a global inflation level that was $191.0m. At the Land Systems sector, the Land Systems sector and 15% too low to stimulate the multiplier revenue remained flat at $1.40b but from the Marine sector. In terms of effect required for business activity, it posted 16% higher PBT of $65.0m geographic distribution, 74% of Group investment and GDP growth. mainly due to lower allowance for revenue accrued from business units inventory obsolescence and lower in Asia (including Singapore), while our Given many headwinds we faced, goodwill impairment. The Marine sector businesses in the US generated 24% ST Engineering closed 2015 with a was impacted at the revenue and PBT of revenue. Revenue split between revenue of $6.34b which is broadly levels, down 29% and 28% respectively commercial and defence remained steady at 64%: 36%. Left: Mr Kwa Chong Seng, Chairman Right: Mr Tan Pheng Hock, President & CEO 4 ANNUAL REPORT 2015 Our capital expenditure for this The combination of our financial Corporation, our partner for the year was $293m (2014: $240m). A strength and governance puts us in programme, has received a “stop significant amount was invested into a position to work in the long-term work” order from the USMC. The the Aerospace sector to commence its interests of our shareholders. We stop work can be up to 100 days aircraft leasing business and to support can take concentrated and strategic as the Government Accountability its growing portfolio of the engine investment positions in technologies Office looks into the protest. The leasing business. and capabilities when opportunities programme schedule will restart arise with no strain on our cash position when the order is rescinded. To be We continued with our programme of or the need to seek additional funding shortlisted for this highly contested share buybacks where we repurchased from our shareholders. We also have programme means that our about 27.6 million shares over the the resilience to weather any shocks innovation, our engineering capability course of year, out of our authorised that may occur suddenly as often and the products we develop are limit of 62.4 million shares or 2% of happen in a volatile world. recognised by First World advanced the total number of issued equity as military forces. at date of the 2015 EGM. We are Making a Mark Globally • We engineered a breakthrough Your Board of Directors proposes a Over the course of 2015, we created protective mask, the AIR+ Smart Final Dividend of 10 cents per share new solutions and products, served Mask. This innovative protective for this year, consisting of an Ordinary new customers and won contracts mask with a powered micro Dividend of 5 cents per share, and a in new markets even while facing ventilator is a global first. We Special Dividend of 5 cents per share. economic and business headwinds. designed and then launched this Together with the Interim Dividend of We would like to spotlight three product in early 2015 to address 5 cents per share paid in September developments which are to us symbolic gaps in existing mask design. 2015, the total dividend for the full year of the innovation that will define our The Air+ Smart Mask, certified to will be 15 cents per share representing path in the years ahead as a global meet both EU and N95 standards, a total payout to our shareholders of engineering group: protects people of all ages including $467.7m. The dividend yield for 2015 children and the elderly from is slightly higher at 4.68% compared to • We designed and built Singapore’s airborne contaminants given the 4.08% for 2014. first commercial earth observation annual transboundary haze that satellite, the TeLEOS-1. This satellite affects Singapore, Indonesia and We Built Strong Fundamentals was launched in mid-December 2015 Malaysia. Engineers at our Advanced and now orbits 550km above us in Engineering Centre applied creativity, ST Engineering maintained its strong a Near Equatorial Orbit for remote problem solving skills, and out-of-the- fundamentals. Our order book at year- sensing applications. After a six- box thinking to develop this product end was $11.7b compared to the order month period of in-orbit testing, which is now marketed overseas. For backlog we had at end-2014 of $12.5b. TeLEOS-1 will be able to contribute bringing an innovation to life through We expect to realise $3.8b of this order to highly responsive applications advanced engineering ingenuity, our book into revenue in 2016. Our cash and in maritime security and safety, AIR+ Smart Mask was named Design cash equivalents at 31 December 2015 humanitarian aid, disaster relief and of the Year in 2015 President’s Design including funds under management environmental activity verification. Award Singapore. was $1.4b and our net cash position The launch of TeLEOS-1 is yet was $252m (2014: $1.7b and $686m another mark of our innovation, an These three examples have one respectively). The lower net cash achievement in pushing new frontiers common factor – the ethos of our position arose mainly from utilisation in space technology and engineering. engineers who say “we can do better of cash for share buyback, additional than what defines the status quo”. investment in bonds to enhance yield, • Our cutting-edge 8x8 wheeled and acquisition of property, plant and armoured vehicle, Terrex 2 is one At ST Engineering, it is this spirit of equipment. of two vehicles selected by the innovation that will sustain us into the United States Marine Corps (USMC) decades ahead. We have a disciplined Order book, cash and our balance for the next phase of evaluation process carried out by a management sheet strength are one part of the for their Amphibious Combat team who plans for the future and fundamentals that underpin our Vehicle 1.1 programme. Following invests our resources regardless of business operations. Equally important the announcement of the selection, where we may be in a business cycle. is a strong governance framework to one of the competitors protested We approach this on two levels: give us the checks and balances needed the USMC’s decision, as allowed to manoeuvre the complexities of for in the US tender process.