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Edited Transcript of S63.SI earnings conference call or presentation 23-Feb-18 3:00am GMT

Thomson Reuters StreetEvents

Full Year 2017 Singapore Technologies Engineering Ltd Earnings Presentation

Singapore Feb 26, 2018 (Thomson StreetEvents) -- Edited Transcript of Singapore Technologies Engineering Ltd earnings conference call or presentation Friday, February 23, 2018 at 3:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Cedric Foo

Singapore Technologies Engineering Ltd - CFO

* Lee Shiang Long

* Serh Ghee Lim

Singapore Technologies Engineering Ltd - President of Singapore Technologies Aerospace Ltd

* Sing Chan Ng

Singapore Technologies Engineering Ltd - President of Singapore Technologies Marine Ltd

* Sy Feng Chong

Singapore Technologies Engineering Ltd - President, CEO & Director

* Sylvia Lee

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Conference Call Participants

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* Janice Chua

DBS Bank Ltd., Research Division - Head of Research & Senior VP

* K. Ajith

UOB Kay Hian Research Pte Ltd - Director of Asia Transport Research

* Neel Sinha

Maybank Kim Eng Holdings Limited, Research Division - Head of Research for Singapore

* Patrick Yau

Citigroup Inc, Research Division - Director and Head of Singapore Equity Research

* Rachael Tan

UBS Investment Bank, Research Division - Associate Director and Research Analyst

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Presentation

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Sylvia Lee, [1]

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Good morning, ladies and gentlemen. Welcome to ST Engineering's Full Year 2017 Results Briefing. To begin today's briefing, Mr. Cedric Foo, Group CFO, will present the group's performance for the financial year ended 31st December 2017. Following that, we will invite our management team for a Q&A session.

Without further delay, I'll hand over to Cedric. Cedric, please.

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Cedric Foo, Singapore Technologies Engineering Ltd - CFO [2]

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Yes. Good morning, everyone, and also very good morning to those on the web. Welcome to ST Engineering Financial Year 2017 Results Discussion.

Yes. These are the agenda items that I will be covering. Firstly, the financial highlights for full year 2017 versus full year 2016 then followed by the President and CEO's message. I will leave it on the slide for you to read.

We have, in the appendices, comparison between 4Q 2017 versus 4Q 2016 as well as the 4 segment results: Aerospace, Electronics, Land and Marine.

For the financial highlights for the year ending 31st December 2017, revenue came in at SGD 6.6 billion, which is flat compared to 2016. EBIT, or earnings before interest and tax, came in very well at 17% higher, also due to the effect that there was an absence of the one-off charge for JHK, our China SV business back in 2016.

Other income was $38.7 million, lower due to lower wage credit, which we received in '16 more than we did in '17. Also, there was an absence in the gain of GJK, another China SV, where we recorded a gain in second quarter 2016. Finance cost was higher due to the lower gain from the investment disposal, which we did in 2016 but did not do in 2017.

There was also lower net interest income in 2017 due largely to lower fund under management. The profit before tax came in at 6% higher, $623.3 million. And this was largely due to higher profit before tax from our Aerospace, Electronics and Land, but offset by the weaker Marine sector.

Net profit, $511.9 million, a good 6% higher than last year in 2016. And this was also partly assisted by the fact that there was a U.S. tax reform, and the marginal tax rate was reduced from 35%, as all of you know, to 21%. And some of the intangible as well as deferred tax losses that was carried in our U.S. subsidiary books were revalued at the lower tax rate, and therefore, we had about a $20 million gain as a group from these tax effects.

The other highlight is on the other aspects other than the core revenue and P&L statements. Our order book was very strong 2017 at $13.2 billion. About $3.8 billion will be delivered this year in 2018. So if you compare the $13.2 billion to end 2016, that number was $11.6 billion. So it was a very healthy growth in order books.

Commercial and defense split by revenue stayed at 65% and 35%, respectively. EBITDA, representative of our cash flow, a very strong $770.3 million versus 2016 of $718 million.

We've talked about EBIT already. Cash and cash equivalents, including funds under management, stood at $1.3 billion; and compared to end 2016, it was $1.4 billion then. EVA, economic value add, a measure of our NOPAT versus the capital that we employ. In 2017, it increased to $321.6 million compared to $252.4 million in 2016.

The next slide covers our group revenue. Aerospace came in higher. All 3 business groups in Aerospace did well -- sorry, Aerospace came in higher. CERO and EMS came in higher, but AMM was slightly lower. In Electronics business, all 3 business groups came in well. In the Land Systems, there were lower project deliveries from auto and M&W, which is munition and weapons. And also there was the absence of revenue contribution from China SVs.

In the Marine sector, the sector is weak. It remains weak, and the revenue was lower, largely lower from U.S. operations. Others, which is mainly Miltope, was higher, 13% higher, and that was because of better performance from Miltope. So as a group, group revenue, $6.6 billion, somewhat flat compared to 2016.

In terms of breakdown by location of customers. We saw larger contribution from Europe, colored in purple, and this is largely due to Aero's EFW business and slightly lower contribution from the U.S.

Group PBT by sector. Aerospace recorded $317.8 million of PBT, and this is 17.5% higher compared to 2016. Electronics -- sorry, 6% higher compared to 2016. Electronics was $212.3 million, which is 2% higher compared to 2016. Land Systems PBT came in at $85 million, which was 119% higher, and this was largely due to the absence of the one-off impact from China SVs in 2016. The Marine sector revenue came in lower, largely due to lower revenues from U.S. operations. Others came in higher, and this is also mainly due to Miltope's better performance.

The next slide is PBT margin, which is in line with the PBT slide earlier on, largely unchanged for Aerospace and Electronics. Land Systems is higher because of the absence of the China SV effects in 2017. Marine was 4%, which is lower, also due largely to U.S. operations.

The next slide is group net profit by sector. Aerospace came in 4% higher at $244.1 million; Electronics, 2% higher at $178.8 million; Land Systems came in higher at $87.4 million; Marine, lower, at $27 million; and Others at $25.4 million loss. And as a group, group net profit, $511.9 million, which is 6% better than 2016. And of course, net profit is also assisted by the U.S. tax reform that I talked about earlier.

The next 4 slides focuses on the sector one at a time. Aerospace, as discussed, revenue was up. PBT was also up. The Electronics revenue was up. PBT was also up. So these 2 sectors remain very strong.

In Land Systems, gross revenue was down. PBT was up, and this largely because of the China SV situation in 2016. They caused a loss, but not in 2017. Marine was down, again, largely due to the U.S. operations. Revenue was down, and PBT was also down.

Next slide talks about our cash flow. From operating activities, $764 million compared to $759 million, strong operating cash flow. Financing activity of $390 million, and we didn't -- that, we also accounted for final and interim dividends that were paid and also some proceeds from bank loans.

Balance sheet, our net assets was higher in 2017 compared to 2016. It stood at $2.52 billion compared to $2.44 billion. Overall, a very healthy balance sheet. The net debt-to-equity is almost flat or 0.1.

Finally, let me leave you with the message from the President and CEO, Vincent Chong. And I think I will just leave you to read it. And then we will then take questions. Thank you.

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Sylvia Lee, [3]

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Thank you, Cedric. Can I invite the management team on stage for the Q&A session, please?

Let me do a quick introduction of the team. From your left, Mr. Lim Serh Ghee, President of ST Aerospace; Mr. Ng Sing Chan, President of ST Marine; Mr. Vincent Chong, President and CEO of ST Engineering; Mr. Ravinder Singh, President of ST Electronics; Dr. Lee Shiang Long, President of ST Kinetics. And you've met Cedric.

With that, I'll hand over to Mr. Vincent Chong. Vincent, please.

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [4]

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A very good morning all of you. Thank you for joining us both in person and for those who joined us via webcast. So a very good morning to you.

As Cedric has presented, the group closed 2017 with a revenue of $6.62 billion, in line with our expectation. But pleased to report that profits were better than our forecast with both PBT and net profit at 6% higher compared to 2016.

We're pleased to have achieved these results in a year when global business recovery was not uniform across the industries that we participate in. We're proposing a final dividend of $0.10 per share together with a $0.05 interim dividend per share paid in August 2017. Shareholders will receive a total dividend of $0.15 per share for 2017, subject, of course, to shareholders' approval at our Annual General Meeting. This translates to a dividend yield of 4.6%, reinforcing our commitment to generate returns for our shareholders.

I'd like to highlight that Aerospace sector's 2017 revenue of $2.54 billion is its highest so far. The sector did well in fourth quarter of last year, outperforming fourth quarter 2016 in both its revenue and PBT.

Our Electronics sector recorded full year revenue and PBT of $2.11 billion and $212 million, respectively, continuing its steady growth momentum.

We've mentioned before that the Land Systems sector is going through changes. Apart from its defense business, which has been steady with opportunities for growth, the management has been focusing on building and acquiring new capabilities and technologies in the areas of autonomous vehicles, for example, as well as robotics.

In 2017, while the revenue was down 11% to $1.24 billion, its profits recovered and improved largely due to the absence of the impairment charges made in 2016 for its subsidiaries in China.

The Marine sector revenue and PBT did not recover in 2017 due mainly to the still weak industry conditions as well as our U.S. operations. In fourth quarter, we incurred more man hours than expected on the ConRo vessels as we work towards delivering the first-in-class vessel with higher standards, including more intensive regulatory reviews not originally anticipated.

While we're disappointed with the financial impact, we are learning from this project as we build capability in the LNG-powered vessel segment. And I want to stress that our Marine sector has accomplished many shipbuilding successes in the U.S., including patrol vessels, seismic vessels, oceanographic vessels and many more niche vessels with high engineering content.

The first ConRo vessel has completed its initial sea trials, and we are working closely with our customer, targeting to deliver the first vessel in March and the second vessel in the middle of this year.

Our other U.S. shipbuilding programs are on track, both the ATB barge -- tugs for Bouchard and Q-LNG and the vehicle passenger ferry projects are progressing well.

On another note, we benefited from the U.S. tax reforms, as Cedric mentioned just now, with positive impact of over $20 million, largely coming from the Land Systems sector.

In 2017, we announced total contract value of $5.1 billion, excluding those secured at the Land Systems and Marine sectors, and this is slightly more than what we accomplished in 2016 of about $5.04 billion.

We ended the year with a strong order book of 12.2 -- $13.2 billion or about 14% higher than 2016, reflecting the confidence which our -- that our customers have in us. We did well across the group with key contracts such as the production and supply of the next-generation armored fighting vehicle for the SAF or Singapore Armed Forces. Delivery of the vehicle will begin in 2019.

Four more A330-300 passenger-to-freighter conversions from DHL Express were secured for more aircraft contract, bringing total form order to 8 aircraft with another 10 aircraft options in the pipeline.

2017 was a busy year for the group. In addition to winning new contracts and building our order book, we pursued growth on many fronts. Let me just recap.

First of all, we are strengthening our core business, and we continue to do so, and we have been stressing to you in every quarter that we continue to focus on our core businesses across the 4 sectors. And we took a disciplined approach in streamlining noncore business that no longer add value to the group, and that effort continues.

We are building new growth levers, mainly defense exports and Smart City solutions. On defense, in addition to the U.S. Marine Corps program or Terrex 2 program for the ACV 1 -- ACV program in the U.S., we've announced our teaming up with SAIC to bid for the U.S. Army's Mobile Protected Firepower program.

On Smart City, we have been leveraging group synergies and capabilities to capture wider global opportunities, building on our domain expertise and track records for deeper overseas expansion. We're also adopting innovation and acquiring new technologies in a faster pace, including through the setup of our open laboratory, Corporate Venture Capital unit and M&A to acquire technologies.

Now although still at their early stages, these initiatives have already contributed to our core technological and engineering capabilities. The Black Computer, an industry-first hardware-based cybersecurity solution, was a prime example of the value our corporate venture unit brought when the stake we invested in Janus Technologies led to the collaboration that launched these new products. So we are quite pleased with the progress that we have made with our Corporate Venture unit.

Our acquisition of Aethon added a new robotics capability in the group in the area of autonomous mobile robots. In the short time since we acquired the business, we announced the tie-up with StarHub in Singapore to help transform the local hospitality, laundry supply chain, automating material movements in local hotels through the use of our robots. These TUGs will be deployed in 3 hotels in first half of 2018. It was an earlier version of the analyst slides that we published today. That said 4, but the minor update is 3 these hotels. And the pipeline is actually quite positive as we start to grow this business, as you recall, I mentioned that this autonomous mobile robot has already been deployed in 140 hospitals in the U.S. So this is certainly a very proven solution.

We continue to embrace collaboration, tapping on industry partners, institutes of higher learning, technology partners across business sectors continue to add value to us in strengthening our capabilities whether they are for cybersecurity, air-traffic management and maritime operations or to set industry standards in autonomous vehicle protocol for Singapore. We continue to make progress there.

We continue to invest across business cycles as in the case of our Marine rig repair asset in the U.S., the acquisition of the Marine rig repair asset in the U.S. I mean, the assets which are located in a prime location in the Gulf of Mexico in the U.S. with close proximity to our VT Halter Marine's Pascagoula yard enable us to leverage resources and drive greater synergies in the ship repair business. In the short time since we acquired the assets, we have secured new projects in the last quarter.

We have completed several decommissioning projects, and we have also acquired some new pipelines for rig repair in the few months that we have operated these new assets.

As we announced last year, we also acquired SPTel to enhance our capabilities in ICT solutions for government and enterprise customers in Singapore. We were equally investor in capacity expansion to capture future growth and is in the setup of new facility for composite panel production in Kodersdorf, Saxony, Germany for our Aerospace sector. And this capacity expansion is key in helping us to meet the needs of increasing Airbus production rates -- aircraft production rates in the years ahead.

Now these key thrusts for growth will continue through 2018 and beyond. In addition, we have several initiatives that we're focusing on for 2018.

First, in the areas of building adjacencies and exploring new business areas is one effort that we are focusing this year. As we strengthen our core business and expand our defense and Smart City business, we are also exploring new adjacencies, for example, in health and medical technology.

To ensure that we got the right level of focus for this effort, we are evaluating the setup of a new business team outside of our 4 business sectors to help us develop such new enterprises and ventures. In addition, such a team could help manage the go-to-market phase of innovative solutions from our Innosparks Open Lab, which we see value in developing further, especially if they fall outside the scope of our existing business lines.

As we speak, Innosparks has quite a few projects in incubation now. 5, in fact, 3 internal teams and 2 external teams. So this team could help incubate and accelerate technologies from these teams to idea to market within 18 months. And as we move forward, we expect this project pipeline to increase. And therefore, it's important we have the right team structure in place to scale up successful innovations through forming a new team to do so.

We're also going to be engaging more digitalization as we pursue this digitalization more aggressively beyond exploiting it just as an efficiency improvement tool within the group as in smart MRO and smart shipyard, but also as an enabler for new business growth in the new economy. Of course, we'll share more with you as time goes by.

Next, we are going to market as one ST Engineering more so than before as we position the group for growth as a progressive global technology defense and engineering powerhouse. And we'll move away from a portfolio of brands to a more unified approach. All our corporate brands will be harmonized globally with ST Engineering as the master brand.

In addition to building a stronger brand equity, the leverage of a master brand is an important strategy as innovating and creating new products and solutions. So from June this year, we will start to phase out the use of brands such as ST Aerospace, ST Electronics, Kinetics and Marine, and we'll all move to one ST Engineering master brand.

I need your cooperation in this area. I certainly do. To align your reports with our brand harmonization by continuing to use the sector descriptors for our sectors, but yet at the same time, recognizing that we are going to go-to-market as one ST Engineering master brand. We'll share more with you middle of this year.

On our core business, we will continue to drive growth and invest across business cycles, drawing up on the strengths of each sector to offer our customers around the world smart innovations and technologies, including defense and Smart City solutions, encompassing, among others, cybersecurity, public security services, urban transportation as well as robotics.

Going forward, we expect that our performance will strengthen over the next few years with growth coming from the Aerospace sector as its passenger-to-freighter conversion programs for A330 and A320 PTF program gain momentum; and also from the more expensive Smart City offering, emanating from Electronics and Land Systems sectors in Singapore and overseas.

Our recent announcement at the Singapore Airshow reflects market interest in our passenger-to-freighter conversion programs for all our new platforms. Vallair has signed a 10-aircraft A321 passenger-to-freighter conversion. This is -- the first aircraft will be inducted in the last quarter of this year and scheduled for delivery towards the second half of next year, by the end of next year.

The Guangdong Aerocity Holding Co. has signed a letter of intent for a potential order of 10 A320 passenger-to-freighter conversions.

Industry conditions, on the other hand, for Marine sector are likely to remain weak in 2018, but we'll continue to focus on strengthening our operational efficiency. With the strong cash flow generated from operations and $1.3 billion of cash and cash equivalents, including funds under management, we are committed to maximizing cash flow, maintaining capital discipline and improving value and returns for our shareholders.

And I look forward to sharing more business insights with you at our coming Investor Day on the 22nd of March. I hope you can find time to attend. Apart from the panel members that you see here, you'll also get to interact with many of our business leaders who will also be present, giving us the opportunity to share a little bit more with you on our growth plans in the years ahead.

So on that note, I'm going to open the floor for questions. Thank you.

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Questions and Answers

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [1]

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Yes, Ajith? Do you have a mic?

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K. Ajith, UOB Kay Hian Research Pte Ltd - Director of Asia Transport Research [2]

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This is Ajith from UOB Kay Hian. Vincent, you mentioned about the health and medical technology. Is this going to be a totally new business segment? And will you see some sort of -- apart from the 4 business units, will this be a separate stand-alone unit? And it's a wide description in terms of health and medical technology. Perhaps you could just give us a glimpse in terms of what areas you'll be focusing on. So that's my first question. Second question is to Serh Ghee. In terms of the Aerospace side for 4Q, I noticed that CERO has -- PBT from CERO has actually almost doubled, and 3Q was up about 70-odd percent. Is this because of return of engine shop visits? So that was second question. On the Marine side, I might have missed what Vincent has mentioned. But were there any provisions in 4Q for shipbuilding sites for ConRo? Would that explain the 97%, 98% decrease year-on-year? That's pretty much it. Lastly, to Cedric. In terms of the U.S. tax adjustment, I assume this is a reduction in deferred tax liabilities. And was it primarily at the Land Systems and I think from the Aerospace side?

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [3]

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Okay. So I'll take the first question first, and then we'll defer to my colleagues on questions 2, 3 and 4. So with aging population around the world, not just here in Singapore, we believe that medical health -- health care medical technology will be a growth -- or continue to be a growth area for us. And we're looking at adjacencies, particularly in the area of, for example, hospital operational efficiency improvements, which really plays to our strength as a group. We've spent some months evaluating this internally, and we have concluded that this is an area that we want to put more resources to develop. Today, we have some parts of the organization, of our business, that are involved in -- somewhat in the health tech business. For example, if (inaudible) improves hospital efficiency, operational efficiency. But the whole hospital value chain is more than that, and we believe that this is an area that we can grow. As we start, we are likely to embark on a metrics organization. As I said, we are exploring the setup of the team. But if we were to set up, it's likely going to be first a metrics organization, leveraging on resources around -- across the group to be led by a small, full-time team to look at opportunities around the value chain. And we'll see how this business develops over time, how the organization should be structured to grow this business. And obviously, situation is dynamic, and we'll update more with you as time goes by. But it's more important to really maybe scale back a little bit. Health and medical technology is one of the areas that we've identified. But if we are looking at adjacencies that are beyond the business sectors we are involved in today, then we need to have a dedicated team to really look at it on a dedicated basis. And that's what we are thinking of at this time, yes? So that goes beyond medical technology. We are looking at other growth levers that will be interesting to the group. I hope that answers your question. So I'll defer to Serh Ghee on the second question on Aerospace.

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Serh Ghee Lim, Singapore Technologies Engineering Ltd - President of Singapore Technologies Aerospace Ltd [4]

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The higher PBT in 4Q -- you're referring to 4Q, right, in CERO. This is due to sales mix as well as lower provision of stock obsolescence in accordance with our policy. But you are also correct to say that the shop visit has actually picked up. We actually see a significant increase in engine shop visit.

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K. Ajith, UOB Kay Hian Research Pte Ltd - Director of Asia Transport Research [5]

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4Q?

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Serh Ghee Lim, Singapore Technologies Engineering Ltd - President of Singapore Technologies Aerospace Ltd [6]

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Yes. And it seems that is picking up also in January.

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K. Ajith, UOB Kay Hian Research Pte Ltd - Director of Asia Transport Research [7]

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(inaudible)

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Serh Ghee Lim, Singapore Technologies Engineering Ltd - President of Singapore Technologies Aerospace Ltd [8]

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Yes. We only bring the CFM family.

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Sing Chan Ng, Singapore Technologies Engineering Ltd - President of Singapore Technologies Marine Ltd [9]

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Ajith, the results in 4Q '17 are impacted by the additional cost that we have incurred in 4Q for executing the 2 Crowley ConRo program as well as provisions as the program shifts to the right.

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [10]

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And we have also obviously made the necessary adjustments for ConRo 2 learning from what we have experienced for ConRo 1. So that's reflected also in the fourth quarter results, okay?

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Cedric Foo, Singapore Technologies Engineering Ltd - CFO [11]

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On the U.S. tax reform, yes, the -- for the group, the impact is a SGD 20 million positive. It was contributed from various sectors, but largely from the Land Systems. I mean, predominantly from Land Systems. So the other 3 sectors have small negative or small positive.

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K. Ajith, UOB Kay Hian Research Pte Ltd - Director of Asia Transport Research [12]

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Just want to ask one final question. On Miltope, when can you expect Miltope to [bounce back]?

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [13]

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Okay. So actually, the company has improved in its performance, both in terms of top line and bottom line. In the last second half of the year, they were just marginally, very marginally negative. In fact, there was a quarter that they were positive. So we are watching this space, and we are giving it more attention than before. So we hope that the results will continue to improve over time, yes. We have 2 new projects that we are working to accomplish, but we are really focused on that. Yes, Neel?

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Neel Sinha, Maybank Kim Eng Holdings Limited, Research Division - Head of Research for Singapore [14]

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I've got a few minor questions on Marine. So the group allowance for doubtful debts was about $16-odd million, right? And descriptive is it was lower year-on-year because of Land Systems last year, but offset by them. So how much was the increase in Marine doubtful debts, ballpark? So when we try and strip out, call, ex doubtful debts, we get -- we know the detail for Land Systems last year. That would be very helpful. The second question is on the Shipbuilding side, was it profitable at EBITDA level, Sing Chan? The PBT is negative, but I'm trying to understand whether the core operations -- is it just a question of fixed overhead, and you need to scale up the order book? Or the core operations need more cost rationalization, et cetera? And the other questions I have are actually on the KPMG report, which was interesting. Could you give us some color on what the 2 CGUs are, where the growth estimates exceeded historical performance and the auditors needed to have a look at? What are the CGUs that the auditors mentioned where there is risk of impairment? I'm guessing it might be Land Systems and Marine. And what is roughly the carrying cost of the ROPAX in your balance sheet now?

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [15]

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Okay. Let me answer the second question. So obviously, Halter, it's one of the CGUs that we are looking at obviously, but we have a good turnaround plan, and we are quite confident that we have what it takes to turn this business around. The other one would be, of course, Miltope that we look at the financial results. So as I say, we see improvements. But this is just prudent financial measures that we actually test them for impairment every quarter. So this is a very deliberate effort, okay? Yes, Cedric?

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Cedric Foo, Singapore Technologies Engineering Ltd - CFO [16]

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Yes. I think if you want to talk about the KPMG report on the impairment testing. So 2 of the units that were tested included Miltope as well as Halter. So management, obviously, conducts such test itself every quarter. And the value in use, which is basically the present value of the cash flows generated by these 2 units, are still quite a bit higher than the carrying value for both cases. What KPMG does is it further stress test it. So in other words, if the cash flow forecasts were in a pessimistic case, for example, rather than in the base case, what would be the value in use. And even after the stress testing, there is a headroom. In other words, there's a higher value in use compared to the carrying value in both instances. So therefore, there's no impairment for either of them.

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Neel Sinha, Maybank Kim Eng Holdings Limited, Research Division - Head of Research for Singapore [17]

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So between those 2 units, I would guess that the larger impairment that should have happened would be in Miltope. Because if memory serves me correct, Marine doesn't carry much goodwill on the balance sheet.

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Cedric Foo, Singapore Technologies Engineering Ltd - CFO [18]

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It's not just...

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Neel Sinha, Maybank Kim Eng Holdings Limited, Research Division - Head of Research for Singapore [19]

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Electronics has a lot more goodwill effect.

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Cedric Foo, Singapore Technologies Engineering Ltd - CFO [20]

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No. In fact, the Halter's -- the Miltope's headroom, in other words, its value in use, present value or future cash flow versus carrying value, which has both goodwill and nongoodwill elements, is much higher. So it's conversed to what your belief is. So the one for -- the headroom for Halter Marine is actually smaller, yes. But we don't want to go into the specifics.

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [21]

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But both have sufficient headroom at this time.

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Cedric Foo, Singapore Technologies Engineering Ltd - CFO [22]

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Both, sufficient headroom, yes.

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Sing Chan Ng, Singapore Technologies Engineering Ltd - President of Singapore Technologies Marine Ltd [23]

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So I think we have answered a couple of questions. One is the debt provisions. So 2016, 2017 is about $10 million variant. And then whether the Shipbuilding segment is profitable, if you strip out the performance of the 2 Crowley ConRos, it is.

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [24]

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Yes. But of course, we continue to recover -- to try to recover the debt that is owing to us even as we speak. Yes, Patrick. And let me -- also let me just finish this. We mentioned that our exposure to the oil and gas sector today is actually not material. So I just want to continue to stress that.

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Patrick Yau, Citigroup Inc, Research Division - Director and Head of Singapore Equity Research [25]

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Patrick here from Citi. A question on the taxation side. The U.S. has actually been introducing over the last 2 months or so. So most companies in the U.S. actually are reporting write-downs because of the changes in the tax rules. For us at ST, it's actually a gain. So help me understand that a little bit, question 1. Question 2 is on the future streams of profitability that you made, derived from the U.S. So given these new tax rules, I mean, how much of a lift can we expect, right, from your future profit streams given the new rules that are going to be introduced?

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [26]

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Yes. Let me answer the first -- second question, and I'll let Cedric answer the second -- your first question. Actually, not all corporations have a write-down. There are some U.S. corporations that have also write a gain because of that. But I'll let Cedric explain to you the situation for us. So our business in the U.S. by customer location is more than 20% of our group revenue. I think that gives you an indication of the kind of magnitude in terms of the contribution to our group. Of course, we continue to try to develop new growth businesses, including in the U.S. So it's not an immaterial contributor to our group performance. I'll maybe leave it as that, and you'll have to see that, the materiality, in that light. Yes. Cedric?

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Cedric Foo, Singapore Technologies Engineering Ltd - CFO [27]

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So most of our U.S. units are profitable historically. So what happened is that when they are profitable, the capital allowances that is used for tax purposes were accelerated as allowed by the tax laws. So what it means is that those units have used more capital allowance compared to accounting depreciation. So on the balance sheet, you will carry a deferred tax liability. So it's a liability. And in order to size up what is this liability, we had used, of course, 35% of the net operating loss carryforward. But because the tax rate has now reduced to 21%, so you have a lower percentage of liability, and therefore, write-back to P&L. So basically, this is how it has happened. In one of Land System unit in the U.S., there was also goodwill. And historically, in the past, goodwill were allowed to be amortized. So the same effect of amortization of goodwill has occurred in that particular unit. And then the accounting rules changed. They were not allowed to be amortized. So the DTL, deferred tax liability, of debt in particular unit was also carried on the books and revalued down from 35% to 21%.

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [28]

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We certainly welcome this reduction in corporate tax rate in the U.S. We will benefit from it in the years ahead because of the contribution that it gives us to the group. Yes, please.

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Unidentified Participant, [29]

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[Kintar] from [U. K. Newspaper]. I have 2 -- sorry, 3 questions. The first question is about Aerospace. Can you explain a bit more about the reasons for profit decline in AMM business group and how will you address that? And the second question is about corporate venture capital. What kind of new investments do you expect for this year? And third question is the -- about health care and medical business that you mentioned earlier. Do you plan to develop medical devices or more focus on operational system? And when will you start that?

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [30]

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Okay. I'll let Serh Ghee answer the first question.

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Serh Ghee Lim, Singapore Technologies Engineering Ltd - President of Singapore Technologies Aerospace Ltd [31]

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The drop in the AMM PBT is largely due to the completion of a certain program. I think all of you know that we have completed the 757 for FedEx. And the other reason is also a lower grant income.

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Unidentified Participant, [32]

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How do you address that?

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Serh Ghee Lim, Singapore Technologies Engineering Ltd - President of Singapore Technologies Aerospace Ltd [33]

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Sorry?

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Unidentified Participant, [34]

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How could you have overcome that (inaudible)?

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Serh Ghee Lim, Singapore Technologies Engineering Ltd - President of Singapore Technologies Aerospace Ltd [35]

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Oh, well, we are actually starting to invest for the future. The -- so we -- the 330, the 320 program as what Vincent has actually mentioned earlier in his opening speech. Okay. We do see a lot of inquiries coming in, especially after we got our STC in November and delivering the first DHL aircraft to them. And this year, we would deliver 3 more aircraft, and we are confident that this will be a good program.

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [36]

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Okay. So let me take the question on corporate venture unit. So let's just recap the purpose of this corporate venture unit. This is for us to generally take a minority stake in promising start-ups in return for access to technologies and intellectual properties that we can co-create together with the company that we have stakes in. Janus Technologies is one example. That's a hardware cybersecurity company. We also said that corporate venture unit will focus on generally the Smart City type business verticals, robotics, cybersecurity, public security and data analytics and so forth. So as we speak, there's a pipeline of prospects that we are quite pleased with. They are in area of data analytics, hardware or rather cybersecurity for vehicles, cybersecurity for operational -- operations technology. So these are what we are focusing on. So more to come. We are quite pleased with the pipeline of opportunities that we have. There are a few that are nearer-term prospects. Of course, we will share more with you. But again, the objective is to take the minority stakes in these very promising start-ups in return for access to intellectual properties that we can co-create new products and solutions. And the reason for us doing this is maybe we will just take a step back. In today's landscape, technological landscape, things are moving at a very fast pace. So the traditional model where we were more focused on developing solutions in-house has to be adjusted to be complemented by a couple of other initiatives. For example, corporate venture unit, where we reach out and work with promising start-ups to complement the technologies that we have developed in-house. So that's one. The other one is we should also be looking at -- we are also looking -- are also working with promising start-ups through our incubator, Innosparks. We're starting in Singapore. We know nothing is going to -- if we get success then we may expand it elsewhere beyond the shores of Singapore. To incubate the start-ups, who not only need financial resources, but what they do need is the engineering knowhow to convert and translate the ideas into actual solutions. The last-mile engineering piece is where we play or bring to the table, plus the distribution, global distribution network that ST Engineering has. They can then help these start-ups expand to the global market. Likewise, for those companies that we invested or will invest for the corporate venture unit, this is another positive attribute that we bring to the table. We have a global distribution network that can help these start-ups to succeed. Over and above these 2 points and for the Innosparks incubator, we can also take minority stakes in those start-ups that eventually become successful through our corporate venture units. So this is a very holistic way of tapping on the external environment to complement our own technologies. Now this is one leg. The other part is that we have corporate laboratories with the universities to co-develop solutions, and we have 2 corporate laboratories under 2 separate programs, but the total value of close to $100 million in the area of robotics in collaboration with NTU. We have a corporate laboratory for robotics. And then we also have a corporate laboratory for cybersecurity with SUTD, all because in the current environment, given the speed at which technological advances are taking place, we are modifying and adjusting our approach to make sure that our products and solutions continue to be state-of-the-art, cutting edge and ahead of our competitors. So that's really the full story for corporate venture unit. Now for health tech and medical technology, would we consider medical devices? Yes, but it depends on what kind of medical devices. So we got to really evaluate each on its own. And operational systems could be how we help hospitals address their pain points, right, in terms of efficiency all the way from the time that patients register to the time that they get checked out or they checked out -- check out from the hospital. It could be logistics using our autonomous robotic solutions plus other solutions to help hospitals lower the cost of operations. And in the end, such benefit should translate to lower health care costs, which is an important consideration for us getting into this business. We'll share more with you in time to come, but this is just one area that we are looking at in the nearer term that we're going to focus our efforts on. But we'll certainly share more with you in time to come. Okay?

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Unidentified Participant, [37]

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So when do you expect to start the medical and health care business?

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [38]

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So we have been spending the last many months understanding the landscape. So we have done some studies. We have an advisory panel that we form with experts in their respective areas, including retired senior executives from major health care firms on our advisory panel to help us understand and be more focused on the areas that we can participate in. We won't give you a time line, but I think we are quite clear what are the areas that we can start to take a deeper dive. And as I said, we are evaluating the formation of a team to look at this. Okay. Yes. Thank you. Yes?

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Unidentified Analyst, [39]

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[Tupin] from CIMB. Just 2 housekeeping questions from me. First one, there was a loss in the other segment in fourth quarter. So just wondering whether you can just elaborate on that. And on the Aerospace industry, the PBT margin was better year-on-year. But I think with the PFT program on hand, just wondering whether there will be a slight dip in margin for 2018.

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [40]

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Okay. So maybe I'll let Serh Ghee answer the second question on Aerospace before we go back to Cedric for the first.

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Serh Ghee Lim, Singapore Technologies Engineering Ltd - President of Singapore Technologies Aerospace Ltd [41]

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We will continue to strengthen our core and also grow our core. When I say strengthen our core is that we -- strengthening, embracing our technology, okay, to improve our operation in 3 fronts. The first front is digitization and data analytics. the second front is automation. The last one is the entity of manufacturing. Through this, you have to improve our internal efficiency. Our aspiration obviously is to improve our PBT margin if -- not to maintain it. So I hope I answer your question.

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Unidentified Analyst, [42]

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Can you point to the slide where you were talking about the loss in the fourth quarter? Is it a group of others?

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Serh Ghee Lim, Singapore Technologies Engineering Ltd - President of Singapore Technologies Aerospace Ltd [43]

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If I narrow it to the other segment for 4Q '17, there was a loss, if I'm not wrong, but there was a slight profit in 3Q '17.

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [44]

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Yes. I think let's look at the full year, it's a lower loss versus 2016, and we say one of the main reason is because improved performance from Miltope. So that's really the -- how we explain 2017 versus 2016. Yes? Yes, Janice.

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Janice Chua, DBS Bank Ltd., Research Division - Head of Research & Senior VP [45]

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Janice from DBS. I have a question for Marine sector. Can you give us more info on the U.S. yard operation, the external losses of Halter Marine? What is the current order book and the outlook? And what is the strategy to turn it around? And then for Land System, can I have more color on the 3-door double-deck bus bid for LTA? What is the potential of this contract?

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Sing Chan Ng, Singapore Technologies Engineering Ltd - President of Singapore Technologies Marine Ltd [46]

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Well, as far as numbers are concerned, what the absolute losses are from the 2 projects, I suppose we can only go as far as what we have presented. And I think more important is what we're going to do going forward. As Vincent mentioned, the work, the regulatory requirements, they were more than what we expected when we contracted the job in 2013. So we've learned from that. We're going to use that knowledge to enhance the way we approach contracts. We're going to use the knowledge that we gain and apply on the new products that we are rolling out in anticipation of the needs of the future. On the turnaround, we've got 3 tracks. So we've got what we call the HR, the people strategy. There, we have a team. We have a plan. We have, of course, the operational efficiency track. We're putting additional resources in that area. Also, bringing or taking the resources from Singapore to U.S. Last but not least, of course, is the strategy. If you look at the pipeline of work in the U.S., it's actually not so pessimistic. As you know, U.S. is going to increase defense spending. U.S. has a philosophy of maintaining what they call industrial base, and we are in the so-called medium, large business segment. So we hope to be able to benefit from such a program. But obviously, we've got to do it right. And hence, we say -- looking at operational efficiency, improving our design and engineering expertise, making our risk management approach towards contracting more robust, integrating the business units in the Marine sector. So namely, rig repair, Shiprepair, Shipbuilding across all the activities in Singapore. Plus, of course, the one go-to-market as one ST strategy. So the U.S., obviously, will be an important part of the whole exercises. So that's what we intend to do going forward.

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [47]

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Yes. So as Sing Chan earlier mentioned in an earlier question, I think the results for our Shipbuilding business is largely driven by the 2 ConRo projects. The regulatory requirements were more stringent than what we originally anticipated, but we expect and we target for the vessel to be delivered by the end of March. So that's on track. Of course, we also made the learnings, documented the learnings and recognized those learnings in the provisions in fourth quarter even for our second vessel. So that's kind of from a financial result standpoint, but we will obviously keep you posted. We are putting a lot of effort to turn around Halter, as Sing Chan mentioned, including high-grading the team that we have in Halter, including sharing more best practices, achieving more synergies between the different yards. We are confident that we -- with all our commitment, we will be able to turn it around.

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Sing Chan Ng, Singapore Technologies Engineering Ltd - President of Singapore Technologies Marine Ltd [48]

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Maybe to add a little bit more comfort, I think Vincent also mentioned the contracts after Crowley ConRo contracts. They are progressing, as expected, well.

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [49]

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Okay. I have a -- no. There's a second question on Land System, on the 3-door bus.

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Lee Shiang Long, [50]

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On the 3-door bus. I think the 3-door bus is a requirement by the LTA to facilitate the passenger flow. And they came to us because they see us as a capable engineering partner, and we are glad that we take on this project. And we deliver single-deck 3-door as well as double-deck 3 doors for them to put on trial. And eventually, it will lead to the deployment.

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [51]

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We have a few questions that came in from the offsite participant. So there's one for Aerospace, and there are 2 for me. So may I ask this one from [Long].

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Serh Ghee Lim, Singapore Technologies Engineering Ltd - President of Singapore Technologies Aerospace Ltd [52]

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What is the mix of commercial and defense business in the Aerospace sector? Our commercial portfolio, by revenue, has been consistently around 70% or more.

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [53]

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All right. So I assume that answer it because the question asked -- the person who asked the question is not in the room. But I assume that, that response suffice. The 2 questions here are for me. One, based on the contracts that we're delivering in 2018, what's the revenue growth and profitability outlook for each of the 4 segments? And then how do we provide guidance quantitatively? So as of early last year, we've mentioned that we are -- we no longer provide prospect statement by the 4 verticals in quantitative terms. We have also decided that this year, for the group, we'll just give you our longer-term outlook for the business, which we are very confident that it will grow. And we mentioned that the growth drivers for us, Aerospace continues to be very, very strong with a passenger-to-freighter conversion projects -- program coming on stream when -- with launch customers secured for the major aircraft type. We're very confident of continued growth in Aerospace. For Smart City, we are making a push to more Smart City projects expansion outside of Singapore and developing new solutions, and that cuts across both Electronics and the Land sector business. Land sector business will be in the area of Autonomous bus and robotics. Our Kinetics team or Land System team has already set up a robotics business group to give a big push in the area of robotics. But in the near term, we do see that Marine sector will continue to be challenged. So we expect the industry conditions to continue to be weak in 2018 for our Marine sector. And of course, as the year pass, we will give you more insights on the kind of business conditions that we are operating under and to give you more clarity on how our business sectors are doing, each of them.

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Cedric Foo, Singapore Technologies Engineering Ltd - CFO [54]

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I have a question from [Lei Ping] over the web and to [see] income. Question is, would you be able to share the CapEx plan for the next 2 or 3 years? So in 2016, just going back first, our CapEx is about $250 million and 2017 is also quite consistent, about $270 million. So as Vincent has described, the group has many capabilities, and it is pursuing Smart Cities as well as defense exports as core strategies. So of course, on top of regular maintenance CapEx and some of the capacity expansion that we are anticipating like in Pensacola and so forth, we will be looking out for value-accretive M&A in these 2 sectors, but of course doing so in a very judicious way, looking for markets that are attractive, looking for areas where we have a right to play, where we have core competency to make it a success. And of course, it must be scalable enough and fit our strategy. So it is difficult to clean down what those numbers are, but suffice to say that our balance sheet is strong and we have capacity to do so. But we'll do so very judiciously.

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [55]

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Yes. So let me just build on that. So what Cedric talked about, accretive acquisition, those are beyond what we are investing using the corporate venture unit because those are generally for capability building. So yes, we will grow our business, combination of our own effort organic growth plus if there are good acquisition opportunities, we will certainly progress them. But as Cedric mentioned, we'll be very judicious about it. In fact, in 2017, we spent a considerable amount of time to evaluate what are the growth levers for the group. And that involved my management team, our strategy team, and we are quite clear what our growth plans are. And I mentioned defense export as being one of them, and then Smart City solutions and expansion outside of Singapore is another one. And Aerospace core business continues to chug along very well. For Marine, we continue to pursue operational efficiencies. So we're quite clear in terms of our growth plans, and of course, we'll share more insights with you on 22nd of March and give you a little bit more deep dive in each of those growth sectors. So I hope you will join us that day.

There's a question for -- on our order book. Order book grew to $13.2 billion. Is the growth driven by Aerospace? Now order book growth is strong across 4 -- 3 sectors. Marine is kind of somewhat near-term weak industry conditions. This impact fell, too. But we had a -- Land Systems' order book momentum was quite positive in 2017, which is a strong contributor to our order book growth in -- at the end of -- in 2017. Okay. Yes, Patrick. Oh, yes, Rachael.

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Rachael Tan, UBS Investment Bank, Research Division - Associate Director and Research Analyst [56]

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This is Rachael from UBS. I have a couple of questions for Vincent, Serh Ghee and Sing Chan, but I'll start with Serh Ghee first. Could you provide an update on your aircraft leasing business? Also, could I check which segment the Airbus P2F program costs were recorded under? Was it AMM or EMS?

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Serh Ghee Lim, Singapore Technologies Engineering Ltd - President of Singapore Technologies Aerospace Ltd [57]

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The -- currently, we have 5 aircraft in our portfolio, and we are in active discussion to chase out a couple more this year. As for the P2F, the nonrecurring cost is tucked in EMS.

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Rachael Tan, UBS Investment Bank, Research Division - Associate Director and Research Analyst [58]

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Okay. So I'm guessing the weakness in the AMM margins for this quarter was related to sales mix rather than...

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Serh Ghee Lim, Singapore Technologies Engineering Ltd - President of Singapore Technologies Aerospace Ltd [59]

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Yes. Yes. As I've -- I think I mentioned earlier on, we completed our 757 program in 2016. 2016, if my memory don't fail me, we redelivered 11 757; whereas in 2017, we did not redeliver any.

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Rachael Tan, UBS Investment Bank, Research Division - Associate Director and Research Analyst [60]

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Okay. Next question is to Sing Chan. For the Shiprepair segment, how does your outstanding order book compare against 1 year ago?

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Sing Chan Ng, Singapore Technologies Engineering Ltd - President of Singapore Technologies Marine Ltd [61]

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As far as Shiprepair is concerned, we've got 2 segments. One is defense, nondefense. So I'll talk about the nondefense first. Although you see a decline, but the stemming is actually healthy. So in other words, you look at number of ships that we repair in a year. '17 versus '16, the numbers have not changed. Now as far as order book is concerned, typically, we get a stemming of up to 3 months. You don't -- you -- of course, maybe you'd like to see a situation of whether stemming is a year like what we saw in 2009, 2010, 2011. No, 3 months. So as far as the defense segment is concerned, again, as far as local defense, obviously, we have long-term contracts with our strategic partner, with our strategic customer. So if you look at it, too, you'd know that obviously the order book for the defense is more than nondefense. Now -- so year-on-year, does the situation change? No.

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Rachael Tan, UBS Investment Bank, Research Division - Associate Director and Research Analyst [62]

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Okay. Then in terms of the business contribution of defense versus commercial, could you provide a rough breakdown?

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Sing Chan Ng, Singapore Technologies Engineering Ltd - President of Singapore Technologies Marine Ltd [63]

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You saw the macro numbers? 65%, 35%.

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [64]

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We generally don't go down into the sector level for good reasons, but it is a material contributor to now our Marine business.

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Sing Chan Ng, Singapore Technologies Engineering Ltd - President of Singapore Technologies Marine Ltd [65]

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Yes. It depends, all right? It fluctuates from -- over the years. So it's not really meaningful. It's just the macroeconomic factors. So you look at 2010, 2011, 2012, it's a period of time whereby defense order book goes up. Nondefense also go up. And then if you look at the years before that, we got commercial having a higher percentage -- or nondefense having a higher percentage than defense. But today because of the macroeconomic factors, when it comes to nondefense, you can probably conclude that the defense segment in terms of percentage is higher than nondefense.

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Rachael Tan, UBS Investment Bank, Research Division - Associate Director and Research Analyst [66]

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Okay. And then final question to Vincent or Shiang Long actually. In terms of the Land Systems order book, I know that the mean contract to MINDEF will begin in 2019. In terms of the outstanding order book that you have, should we expect most of it to be skewed beyond this year?

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Lee Shiang Long, [67]

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They will be skewed. They vary for this year as well. And so the new one will be from '19 onwards, but there are existing order that will be delivered this year.

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Unidentified Analyst, [68]

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Sorry, Vincent. It's just I'll try this question with you. If I look at 2016, 2017, you had in both years, right, like a $30 million to $40 million charge, one for Land Systems and another one for Marine. So I'm going to go back from this briefing thinking that, for 2018, the sky is all clear in terms of all these onetime charges. So is that the right thinking I should be leaving the room with?

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [69]

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Well, we continue to improve our business fundamentals. So focus on, I think, on growth is very strong. We are strengthening our core businesses, and we are growing in new levers. But at the same time, I mentioned that we'll continue to look at what are the businesses that we need to rationalize, and it is continuing to be the case. But all this, I would consider that 2016 and 2017 situation from Marine and Kinetics to be one-off, in my view. So nobody can give any assurance going forward what kind of business environment will proceed. But our growth story continues to be very, very strong. So that's what I can assure you, yes. These are -- the specialty vehicle business is something that we have to do. And for Marine, we mentioned that this is -- these are all because of the 2 ConRo vessels. And this horizon, I can -- safe to say that, this horizon, there's no other significant matter that we are looking at.

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Unidentified Analyst, [70]

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Just lastly for me. You mentioned that there'll be deployments in 3 hotels for the TUGs. How many deployments do you need to get to before you would deem the TUG acquisition as a big payoff?

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [71]

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I mentioned that we expect this to grow into a business that has more than $100 million in revenues in the next 3, 4 years, and that continues to be our objective. In fact, we want to go beyond that, but I'll let Shiang Long respond in more detail.

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Lee Shiang Long, [72]

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Yes. So the TUG actually, when we got the company is a market essence to the U.S., and that is where we are intensifying our marketing effort and also the -- enduring and the product development for the U.S. market, just for a start. Beyond that, we are -- because we have the global marketing and distribution channel as ST Engineering, so therefore, we are using our strength to complement that and to give it a greater impact within a shorter period of time. So that is what we are doing. And I also want to say, we're also setting up a robotic business group at -- in ST Kinetics. So that will give us a strategy and a portfolio mapping forward. And TUG, actually, will be one of the key product that we are offering, and that will not be restated at the product level. We are going through the system and division level. So eventually, we see a good, positive growth path. And we are confident that with our engineering base that we have over the years in mechanical and also mechatronic, we are in good position to accelerate the growth.

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [73]

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Yes, Neel?

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Neel Sinha, Maybank Kim Eng Holdings Limited, Research Division - Head of Research for Singapore [74]

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Sing Chan, I think one of my earlier questions slipped between the cracks.

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Sing Chan Ng, Singapore Technologies Engineering Ltd - President of Singapore Technologies Marine Ltd [75]

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ROPAX.

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Neel Sinha, Maybank Kim Eng Holdings Limited, Research Division - Head of Research for Singapore [76]

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ROPAX. Carrying value, roughly.

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Sing Chan Ng, Singapore Technologies Engineering Ltd - President of Singapore Technologies Marine Ltd [77]

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So you're not sleeping, obviously. Neither am I. We do impairment test every quarter. So we look at the prospects. We look at the potential rates, the selling prices and all that, and we do a discounted cash flow based on WACC and all that. So for 4Q, we did the same thing. So the conclusion is that there is no need for any impairment at all. So in other words, we think that we can fetch a higher market value than the current carrying value in our books.

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [78]

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And it's gainfully being chartered today.

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Sing Chan Ng, Singapore Technologies Engineering Ltd - President of Singapore Technologies Marine Ltd [79]

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Yes.

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Neel Sinha, Maybank Kim Eng Holdings Limited, Research Division - Head of Research for Singapore [80]

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That expires in a year or something, right, 2018, 2019?

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Sing Chan Ng, Singapore Technologies Engineering Ltd - President of Singapore Technologies Marine Ltd [81]

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Ship has been chartered...

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [82]

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Since last year.

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Sing Chan Ng, Singapore Technologies Engineering Ltd - President of Singapore Technologies Marine Ltd [83]

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The last 4 years, and we just signed one. Not an extension, but a new charter for 24 months.

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Neel Sinha, Maybank Kim Eng Holdings Limited, Research Division - Head of Research for Singapore [84]

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Okay. Serh Ghee, I just had a follow-up question. Actually, it's not a follow-up. It's a -- for the launch customer for the aircraft seats, just wanted to get a sense, is it just really seats? Or is it something bigger in terms of revamping cabin interiors? And what would the pipeline look like? Airlines don't normally just start with 2 planes, right? They want to -- looking consistent across their fleet.

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Serh Ghee Lim, Singapore Technologies Engineering Ltd - President of Singapore Technologies Aerospace Ltd [85]

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The launch customer is a start-up in Cambodia. So they are starting out with -- when we were in discussion, 2 aircraft and the contract is for 2 aircraft. Right now, they are looking for more. I mean, to answer you, I mean, for airline, you're correct in this scale. So cautiously optimistic that equally 2 more.

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Neel Sinha, Maybank Kim Eng Holdings Limited, Research Division - Head of Research for Singapore [86]

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And it's just seats? Or it's a broader interiors refresh?

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Serh Ghee Lim, Singapore Technologies Engineering Ltd - President of Singapore Technologies Aerospace Ltd [87]

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We are also doing the harsh labor, so to speak. That means we take out the old seats, and we put the new seats in Singapore. It's not just selling them the seats.

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [88]

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There are a couple of questions that came in from our offsite audience on Aerospace, yes.

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Serh Ghee Lim, Singapore Technologies Engineering Ltd - President of Singapore Technologies Aerospace Ltd [89]

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There's a question from Lorraine Tan, Morningstar. Is the decline U.S.-based revenue related to the completion of the FedEx P2F projects or other factors? As I've mentioned, I think she's correct that it's largely due to the completion of the P2F projects that lead to the decline in the U.S.-based revenue. But I must say that this -- the P2F revenue comprised of a few value stream. It's not just the modification. It's also the kits, conversion kits. Despite the completion of the program, we -- in terms of man hours for -- I mean, we actually backfilled with the maintenance work. But as the maintenance work, the material part of it is typically about 10%, 15%, quite different from the conversion, which is a much larger piece. So although the revenue has come out, our capacity are actually well utilized in U.S.

What was the client did spend for this sector? Well, I guess, as a whole group, we typically, we say that it's about 2% to 3%.

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [90]

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Self-funded between 2% to 3%. Total R&D, including collaboration and all that, generally in the region of close to 5% -- 4% plus, 5%. Yes, as a group.

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Serh Ghee Lim, Singapore Technologies Engineering Ltd - President of Singapore Technologies Aerospace Ltd [91]

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The last question, what was the gross margin for each business? Well, we don't go and give a breakdown on the -- sometimes, it's a little bit meaningless to just go down to each business segment by gross margin.

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Sy Feng Chong, Singapore Technologies Engineering Ltd - President, CEO & Director [92]

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Going back to R&D, sometimes it's also hard to quantify because part of it is operating expense, part of it is capital projects that go for a few years. So this is just a rough estimate for you. I think it's more important to make sure -- for us to make sure that our R&D spending is giving us the impact that we're looking for. It's not all about the dollar value, but it's what kind of value are you getting from the investment that you've put in. And we are quite judicious in how we ensure that, okay, given that we are really a technology, defense and Engineering company, yes.

Any other questions? Anything from the offsite participants? Or if not, thank you all for being here this morning. We have lunch catered outside as usual. But on that note, I thank you very much for your attention and questions this morning. Thank you.