Half Year 2026 Singapore Technologies Engineering Ltd Earnings Call

Speaker #1: Transitioned by our group CFO, Cedric Fu. Our group president and CEO, Vincent Chong, will then give his remarks. Following that, we will open the floor for a Q&A session for the analysts.

Speaker #1: Without further ado, may I invite Cedric to give his presentation, please.

Speaker #2: Yeah, good morning. Welcome to ST Engineering's first half 2026 market update. Also, a warm welcome to those joining us via the webcast. Slide 2.

Speaker #2: Before I begin, I would like to draw your attention to slide number 2, which states, among others, that the group's actual performance outcomes and results in the future may differ materially from those expressed in forward-looking statements as a result of risks, uncertainties, and assumptions.

Speaker #2: Slide 3. For our agenda today, I'll be covering group highlights, business segment discussions, contract wins, and order books, as well as dividends and outlook.

Speaker #2: Thereafter, Vincent will make some key remarks before the Q&A. Slide 4. First, let's start with group highlights. On slide number 5. I'm very pleased to report a very robust set of first half 2026 results.

Speaker #2: For this period, the group delivered very strong revenue growth at 11% year-on-year, in addition it recorded even stronger earnings growth year-on-year. EBIT at 23%, PBT at 30%, and net profit at 27%.

Speaker #2: Our disciplined execution and scale effects are clearly manifested in these numbers. Net profit for the first half of 2026, as you can see on the slide, was $512 million.

Speaker #2: And this is with a 500 handle. This is the highest half-year profit in our history. I record not so long ago in 2023, some 3 years ago, the entire full-year profit for 2023 was with a $500 handle, about $500 million.

Speaker #2: And now at halftime, we are already 500-plus million. Slide 6. From left to right, it shows the revenue breakdown by segment, by type, and by location of customers.

Speaker #2: First, by segment. On the pie chart, CA contributed 41%, DPS 43%, and USS 16%. Now, DPS spans both local and international customers. As well as commercial domains such as critical info, infrastructure, and not just defense domains.

Speaker #2: Hence, the DPS segment revenue of $2.8 billion, you can see on the bar chart, sorry, on the pie chart, differs from the defense revenue of $2 billion on the bar chart in the middle.

Speaker #2: Now, in the center, we show revenue by type. Commercial revenue rose from $4.1 billion to $4.6 billion. Or 11% year-on-year. Defense revenue from $1.8 billion to $2 billion or 12% year-on-year.

Speaker #2: On the right-hand side, we show revenue breakdown by customer location. Asia contributed 55%, US 14%, Europe 23%, and others 8%. Revenue to customers in Europe increased while those of US reduced largely as a result of the divestment of LIBOR in September last year.

Speaker #2: But importantly, the overall group revenue increased 11%, as I have described. Slide 7. This 11% revenue growth is contributed by all segments, excluding LIBOR; it would be 14%.

Speaker #2: Excluding both LIBOR and the weakening US dollar, for which many of our revenue are denominated, group revenue would have grown by 15.5%. Close to 16%.

Speaker #2: So a very healthy underlying revenue growth. Slide 8. EBIT. EBIT grew by a very strong 23% year-on-year to $738 million. On a rebase basis, excluding LIBOR and our share of CD cap, both of which were divested last year, EBIT grew 27%.

Speaker #2: EliteMust test for underlying performance is cash flow. Here, our operating cash strongly at 26%. From $761 million first half 2025 to $960 million first half 2026.

Speaker #2: And this underscores the strength of our core business. So the accounting numbers are very straightforward. EBIT rose 27%. Our dwell into what are the drivers of that growth.

Speaker #2: But the cash also grew 26%. Slide number 9. Net profit. Net profit improved from $403 million in first half 2025 to $512 million in first half 2026.

Speaker #2: An impressive 27% year-on-year improvement. Now, this is enabled by one stronger product and margin mix, two higher productivity, we have aimed to secure about $200 million a year in productivity.

Speaker #2: We have already secured more than $150 million in a half year. And lower finance costs, as we generated more cash flow, as I described, we are able to pay down debt and reduce interest costs.

Speaker #2: We are indeed very encouraged by our growth momentum. And our confident of finishing the year strongly. By that, we meant strongly in terms of earnings, not just top line.

Speaker #2: DPS is targeting a similar growth momentum as they did in first half 2025. CA expects continued strong earnings growth rate. And USS will have a stronger second half.

Speaker #2: So all segments are poised to finish the year strongly. Slide 10. Let's move on to business segment discussions. 11. Commercial aerospace revenue grew 15%, 2.7 billion dollars.

Speaker #2: And this is at halftime, 2.7 billion dollars. This was driven by stronger engine MRO, nacelles, and spare sales. CA EBIT grew by a very strong 29% to $288 million.

Speaker #2: On the back of higher revenue, better product mix, and cost savings. Slide 12. Next on DPS. DPS revenue grew 7% year-on-year on a reported basis.

Speaker #2: However, on a rebase basis, which is the underlying growth, DPS revenue grew 14%, 14% year-on-year to 2.8 billion. This is largely because LIBOR was divested in September last year, and hence, for the whole first half of 2026, we do not enjoy any LIBOR revenue.

Speaker #2: Digital business spending cloud AI analytics and cyber achieved 27% revenue growth. Year-on-year. From $367 million to $468 million. In first half 2026. $468 million.

Speaker #2: Just for the digital business aspect. This shows an increased momentum given that in 2025, digital business revenue grew 15% year-on-year. And now 27%, if you compare first half 2026 to first half 2025.

Speaker #2: We are about one year ahead of schedule, and we'll achieve our targeted 2029 annual revenue for digital business of more than $1.3 billion not in 2029, but in 2028 or earlier.

Speaker #2: International defense wins amounted to $1.2 billion for first half 2026. Compared to more than $600 million for the full year of 2025. So by this year end, since we have achieved $1.2 billion in first half 2026, we will be well above 2X of the full year 2025 wins which is more than $600.

Speaker #2: So last year, we are more than $600. First half, we are already $1.2 billion. We have half a year to go. And hence, you know, we were well exceed two times 2025 wins.

Speaker #2: On a reported and rebase basis, DPS EBIT rose 10% and 16% respectively to $404 million. Ahead of its revenue growth. Slide 13. Moving on to USS segment.

Speaker #2: Revenue grew 15% to $1.1 billion. And this is contributed by both URS and SATCOM. USS EBIT improved from a low base of $12 million to $46 million.

Speaker #2: And boosted by stronger revenue across both businesses. SATCOM cost reduction initiatives, which we have explained previously, were completed by end of the first half of this year, with $63 million of annualized cost savings.

Speaker #2: And these are starting to accrue. I will cover SATCOM in greater detail in the next slide. Slide 14. So I direct improve its financial performance in first half 2026.

Speaker #2: Revenue grew 18% year-on-year, increasing from $117 to $138 million. Cost savings initiatives as I mentioned earlier, $63 million on an annualized basis, were completed in first half 2026 as planned.

Speaker #2: This puts I direct on track to becoming EBIT positive. I directs intuition portfolio of products and services continues to gain traction with customers. We secured strategic wins in Asia and Europe, supporting mission-critical operations for government and defense contractors, while our new software-defined modem is gaining good adoption with US and international government and defense customers.

Speaker #2: This new software-defined modem is a key differentiator, which enables multi-wayform, multi-orbit operations, on a single-edged platform. Protecting customer investments as mission requirements and networks evolved.

Speaker #2: Intuition foresight, which is a trade name, for this single pane of glass that I direct have introduced, have increased traction with customers. It does so by delivering AI-driven intelligence that helps customers simplify their network operations.

Speaker #2: So it is a network management system through a single pane of glass so that they can have a hybrid modems and they can manage their network through intuition foresight.

Speaker #2: This allowed them to scale their networks and also do so more efficiently. So as a result of both our cost initiative and product initiatives, and customer traction, we target for SATCOM subsegment to be EBIT positive in 4Q26 and in the year 2027 as well.

Speaker #2: Slide 15. This next section is about contract win and order book. Our contract wins totaled $7.6 billion for one half 2026. This was contributed by DPS $3.6 billion, CA $2.9 billion, and USS $1.2 billion.

Speaker #2: Our order book stood at a robust $35.7 billion as an end June 2026. Now, we have included the NJTA easy pass contract this quarter, but of this $35.7 billion of order book, $5.7 billion is expected to be delivered over the remainder of the year.

Speaker #2: Based on the current sales pipeline, and barring exceptional events, we expect contract wins for Q3 2026 and two half 2026 to be strong. Slide 17.

Speaker #2: This slide details our new contract wins for second quarter 2026. In the quarter, the group secured new contracts worth $1.2 billion for CA, $1.2 billion for DPS, and $0.5 billion for USS.

Speaker #2: As I said, the NJTA easy pass service contracts was awarded to Transcor and included here it was awarded in September 2024, but we have not included it at that time, due to some ongoing legal appeal by the incumbent service provider who lost the contract.

Speaker #2: It was now it has been recognized in the order book now, more than a year after the customer affirmed that the contract remains awarded to Transcor.

Speaker #2: And this was in April 2025. And also, the commencement of the contract, there was already a notice to proceed and contract and revenue has been accruing since May 2025.

Speaker #2: This contract also includes options for two further one-year extensions, value at US $0.4 billion or SING $0.5 billion, which have not yet been included in the group's order book according to our policy.

Speaker #2: Because the option is for the customer to exercise. But the base amount has been included in our order book. Slide 18. 19. The board has declared a higher interim dividend of $0.05 per ordinary share for the quarter ended 30th June 2026.

Speaker #2: Which is a sign of our confidence for a strong 2026 financial performance and dividends. The record date for the second quarter interim dividend is on 24th August 2026, and payment will be on 4th September 2026.

Speaker #2: Additionally, the board has planned to pay out a dividend of $0.05 per ordinary share for the third quarter ended 30th September 2026. So we used to pay $0.18, if you remember, as a base dividend in 2025.

Speaker #2: So it was like $0.446. This year, first quarter was $0.04, second quarter we have now declared $0.05. So it's higher. Third quarter, the board planned to declare $0.05.

Speaker #2: And then for the final dividend, we will use our dividend policy to compute. And this is how it worked. For the total dividend of 2026, it will be based on $0.18 as a base, which is last year's ordinary dividend, and about one-third of the year-on-year incremental net profit.

Speaker #2: Per share. So the base will be 2025 BOP net profit of $851 million. And then depending on how much is the net profit in 2026, we'll use that number minus $851, and that difference we'll take one-third to be paid out as dividend.

Speaker #2: And of course, if we have already paid three interim dividend, then the balance will be paid in the fourth quarter. Okay, the final dividend will be proposed in February 2027, subject to shareholders' approval.

Speaker #2: Slide 20. Last but not least, this is the group CEO's message, and let me read it out to you. The group achieved strong revenue and earnings growth for the first half.

Speaker #2: Our earnings growth rate outpaced in fact well outpaced the revenue growth rate. The robust performance was underpinned by the strength of our businesses and disciplined execution.

Speaker #2: We are encouraged by our growth momentum and are confident of finishing the year strongly. At the same time, our strengthening order book and robust pipeline of opportunities stand us in good state to drive continued revenue growth.

Speaker #2: Slide 21. A summary. We delivered a strong set of results for first half 2026. Both revenue and earnings year-on-year growth rate was strong. In fact, earnings growth rate outpaced revenue growth rate.

Speaker #2: Order book continues to strengthen to $35.7 billion, and this will provide revenue visibility. Based on the current sales pipeline, we expect contract wins for three Q2026 and two half 2026 to be strong.

Speaker #2: We are confident of finishing the year strongly. Our midterm 2029 goals remain well on track. Interim dividend $0.05 per share was declared for second quarter 2026, and is also planned for third quarter 2026.

Speaker #2: This marks the end of my presentation. Thank you so much for your attention. I will now hand over to Vincent for his key remarks.

Speaker #2: And can we invite the ex-floor members to the stage? Thank you.

Speaker #1: Thank you, Vincent. Thank you, Cedric. The panelists this morning are Vincent Chong, group president and CEO; Jeffrey Lam, group deputy CEO; Cedric Fu, group CFO; Mervyn Tan, group chief operating officer, technology and innovation; and president of defense and public security, Anthony Chiu, group chief commercial officer; market development and president Smart City and Digital Solutions.

Speaker #1: I will now hand it over to Vincent to deliver his remarks. Vincent, please.

Speaker #3: Okay, good morning. Everyone, here at SD Engineering Hub, and for those who join us online, thank you very much for joining us. This morning.

Speaker #3: Now, Cedric has covered the key financial numbers, so I won't repeat them. Now, behind the strong first half 2026 results, there are a few things about how we grew that matter more than the headline figures.

Speaker #3: And I plan to focus on those points in the next few minutes. First, as Cedric mentioned, first half 2026 was the strongest first half results that we have experienced on record.

Speaker #3: Also, with a higher quality of growth. And that, I think that's an important point. The robust results were driven by our strong underlying performance and cost savings across all three segments.

Speaker #3: And more importantly, this is not a one-off high, but a reflection of the higher quality more durable earnings base that we will continue to build.

Speaker #3: As we grow and expand our scale, we are becoming more efficient. So more of our revenue growth flows through to the bottom line now.

Speaker #3: If you recall, in 2025, we had a full year unit opex, which defined as the total operating expense divided by total revenue. We had 10.2%, which was at the record low.

Speaker #3: And in first half of this year, the unit operating expense expressed as opex over revenue went down to 9.1%. Really a show of the continuous improvements that we have made productivity gains as well as procurement savings.

Speaker #3: And in many ways, also supported by efficiency in our processes, in many cases enabled by AI. So that's what gives us confidence in the quality and not just quantity of our are confident of finishing the year strongly, as Cedric mentioned.

Speaker #3: So just to recap, for second half of 2026, our DPS segment is targeting a similar growth momentum as first half 2026. Commercial aerospace segment is targeting a continued strong growth rate in second half, and our USS segment will have a stronger first half second half, I meant, compared to first half of 2026.

Speaker #3: Now, second, the demand behind our business is structural in nature. As I've mentioned on many occasions, in the commercial aerospace segment, air travel keeps growing while new aircraft demand continues to outstripped supply.

Speaker #3: So aircraft fleets fly longer, driving demand for our airframe and engine aftermarket services. The growing fleets also support strong demand for our nacelle and composite floor panel businesses.

Speaker #3: In defense and public security segment, governments are investing more in security and resilience, and that's playing directly to our strengths. Our digital business spending cloud AI analytics and cyber is growing well ahead of plan because we are positioned where the demand is heading.

Speaker #3: In fact, based on the trajectory we're seeing and as Cedric already said, our digital business is tracking about a year ahead of our 2029 revenue target of more than $1.3 billion by then.

Speaker #3: And the pace of urbanization continues to drive investments in smart mobility and critical infrastructure. Where we are seeing good momentum across our rail and road mobility businesses, and these are multi-year tailwinds, and our USS segment is well positioned across all of them.

Speaker #3: Earlier on, I mentioned AI. Now, AI runs through our businesses in two ways. Two main ways. We are a developer of AI-enabled solutions. With it built into the products we deliver.

Speaker #3: For example, across defense, cybersecurity, and smart mobility, and beyond. We are also a user of AI, applying it across our own operations, making them more efficient resulting in lower cost in our operation.

Speaker #3: And AI is not new to us. It is core to how we compete and how we grow, and you would recall that we have been sharing more details about our digital business, including AI analytics since 2021, investor day conference.

Speaker #3: Third, we execute with discipline. We are thoughtful about the commitments we make, and we are consistently delivering on them. The discipline behind all of it is that we continue to drive sustainable and profitable growth.

Speaker #3: And such discipline runs across the group. And you will see that coming through in our very strong track record. In the years past. Fourth, on contract wins, looking beyond the last quarter, we encourage you to look beyond the last quarter.

Speaker #3: Second quarter of 2026, new order wins was lighter than previous quarter because contract awards are lumpy by nature. We have been talking about this point very consistently.

Speaker #3: As the timing of contract awards moves with customer funding and procurement timing, and variability between quarters, it's quite normal. So we don't get too focused on any quarter, be it up quarter or down quarter.

Speaker #3: And we look at long-term trends, which remains intact. As we move through the third quarter, opportunities that we have been pursuing are already converting into contract awards, recent announcement examples include the Taoyuan Brown Line project in Taiwan for mobility rail, and the 40 ammunition contract in the UK.

Speaker #3: In international defense, we secured $1.2 billion of wins in the first half, about twice the total wins achieved for the whole of last year, as we in line with our target.

Speaker #3: With additional opportunities progressing through the pipeline, our the in first quarter this year, if you recall, we shared the pipeline of opportunities that we have for international defense, and we said that the pipeline size was $11 billion over the next 18 to 24 months.

Speaker #3: As of first quarter, and that pipeline remains intact. In fact, we expect the pipeline to come through in the next 15 to 20 months because three months ago, it was 18 to 24 months.

Speaker #3: Now the timeline is in the next 15 to 20 months. So basically, it has not changed. So we remain very confident that the opportunities are there for us to capture.

Speaker #3: Now, these developments reinforce our confidence that underlying demand remains healthy and that our pipeline continues to be robust. And even if the timing of awards does not always align neatly with a particular reporting quarter, many of our the opportunities in our pipeline remain active.

Speaker #3: In fact, we expect our contract wins for full year 2026 to be similarly robust as full year 2025, with potential upsides. But of course, the market will develop as they do, but basically, based on what we know of today, we expect the full year 2026 contract wins to be as robust as even be upsides.

Speaker #3: Okay. Now, barring unforeseen events, we expect order wins in Q3, third quarter, and the second half of this year to be strong as Cedric already mentioned.

Speaker #3: Now, that brings me to our final point. In terms of the attributes that are working in our favor, our growth outlook is grounded in the strength and resilience of our business and in what we are building and delivering.

Speaker #3: The external environment we all know will remain challenging, but our confidence rests on the strength of our portfolio. The durability of demand across the markets that we serve and our proven ability and track record in delivering long-term profitable growth.

Speaker #3: Now, this is backed by our very strong order book, equal to nearly three years of our financial year 2025 revenue, giving us clear visibility on revenue and earnings in the coming years.

Speaker #3: Taken together, these positive factors put us in a strong position as we enter the second half of the year, and support our expectation of finishing 2026 strongly.

Speaker #3: Finally, the group's performance continues to be underpinned by strong and consistent cash generation. Which allows us to reinvest for growth while delivering sustainable dividends to shareholders.

Speaker #3: The higher interim dividend for second quarter '26, which Cedric just walked you through, and our intention to continue growing dividends in tandem with profit growth reflects that commitment.

Speaker #3: We remain on track to achieve the growth trajectory we set out at our investor day for 2029, and in the long-term growth of the group.

Speaker #3: Maybe just give you a quick update on where we are on our five-year plan. We are tracking our five-year targets very well. Commercial aerospace revenue and group net profit are more than one year ahead of plan.

Speaker #3: So we achieve them in more than one year ahead of plan, at least one year ahead of the 2029 plan, with the rest tracking well, including the digital business, which we are already ahead of plan by about a year.

Speaker #3: And we also expect the next few years for net profit to continue to outpace revenue by up to 5 percentage points higher than revenue CAGR, because I want to address this proactively, some may think, are we upfront loading the net profit growth, which has outpaced revenue growth in the last couple of years?

Speaker #3: Are we upfront loading it such that the weighted average is still up to 5 percentage points? The answer is no, we are not upfront loading it.

Speaker #3: We had two strong years and first half of this year is very strong, but we the remaining time spent until 2029, we expect net profit to continue to outpace revenue by up to 5 percentage points per hour five-year plan, and hopefully we can do even better than that.

Speaker #3: So on that note, we will take your questions, and we will first open the floor to those who are here with us at SD Engineering Hub, and then we will switch over to those who join us virtually.

Speaker #3: Thank you.

Speaker #1: Thank you, Vincent. Our analysts and media online, please raise your hand. Please click the raise your hand icon, and we will place you in the queue.

Speaker #1: For members and participants here, please do remember to state your name and the organization you're from before you ask your question. We have the first question, please.

Speaker #2: Richard.

Speaker #4: Hi, good morning. This is Rachel from UBS. Congratulations on the strong first half set of results. I have a couple of questions. One for Lucio, one for Jeffrey, one for Mervin, and one for Cedric.

Speaker #4: Sorry, Vincent, you don't have a question. So first question will be to Cedric. So last year you said last year you delivered orders of close to 19 billion.

Speaker #4: So when I guess this is also for Vincent. So when you say that the order wins are expected to be as robust as 2025, can I confirm that you expect your order wins to be something along the lines of like 20 billion or plus plus?

Speaker #2: Well, I mean, as robust as '25 means at that level. That we displayed in 2025 was which was a very healthy level, as you already mentioned, it was 18.7 billion dollars, I think.

Speaker #2: We expect the full year new contract wins to be circa in that region. Yeah. So we didn't give other figures. So circa which will be very strong potential.

Speaker #2: And there are potential upsides, as I mentioned. But we will see how the year pans out, because we are still not near the end of the year yet.

Speaker #2: So maybe in third quarter when we finish the third quarter, we have a market update at that time. We will give you another update on our outlook for the rest of the year.

Speaker #4: Okay, thanks. I was just trying my luck. Okay. And I guess to Jeffrey, I know that Cedric mentioned in his second sentence that there was a skill effect as well as a strong operating leverage.

Speaker #4: Maybe could you elaborate on how you achieve these productivity gains? And were they concentrated in a single segment? To Mervin, could you update us on where you are in terms of your international defense business?

Speaker #4: Also, outside of IBD, where are you seeing the biggest demand? And finally, for Lucio, for USS, we saw this huge swing in profitability and EBIT basis.

Speaker #4: So how much of this were you attribute to the SETCOM segment? And the next sorry, yeah, how much of this were you attribute to the SETCOM segment?

Speaker #4: And could you elaborate a bit more on how the EBIT will run in will trend towards profitability? That means what do you expect will drive your EBIT on SETCOM from a loss to a break even or even profit in '27?

Speaker #4: Thanks.

Speaker #2: Okay, thanks for the very comprehensive set of questions. But first, before I hand over to Jeff, productivity gains were achieved across the group. Not just limited to commercial aerospace, as you also heard just in SETCOM alone, we have achieved or we have captured annualized savings of 63 million dollars as of the end of first half of quarter.

Speaker #2: So going forward, those will come through. But productivity gains apply across the group, but we can let Jeff talk about the effects for commercial aerospace.

Speaker #2: And then after that, we'll have Mervin talk about international defense business, where we are, and where are the where's the biggest demand outside of international defense.

Speaker #2: There are a lot going well for us, including the digital business, as we mentioned. Especially with the growth in AI, AI analytics, which is very encouraging.

Speaker #2: And then finally, Lucio will give you share her insights on USS, URS, as well as urban solutions, as well as SETCOM, which are both doing well.

Speaker #2: Okay. So maybe Jeff will start with you.

Speaker #3: Well, we are very fortunate to operate with a backdrop of steady long-term growth in the aviation industry. And so we have been continually investing both in capability and capacity.

Speaker #3: So if you look at our very diverse geographic footprint and capabilities today, and you see how we are adding on new capabilities, for example, in the 350, A350, 320neo capabilities, across engines, airframe, and components, that gives us a lot of scale synergy and product synergy that we can increase and improve productivity on.

Speaker #3: At the same time, if you look at our capacity growth, as we speak, we continue to build new capacity in engine overhaul. In Singapore, new airframe maintenance capacity in Singapore in China, and in the US.

Speaker #3: So we're not slowing down in terms of how we're building capability and capacity, across the network. In addition, with the productivity focus that we have, that Vincent spoke about, and how we are implementing increasing AI enabled equipment and also tooling up our workforce, we do expect to continue to grow with the market growth.

Speaker #3: Thank you.

Speaker #2: So to add on to Jeff's point, across the group, our procurement and productivity savings in first half alone is well above 150 million dollars.

Speaker #2: If you recall, every year we target 200 million dollars. And I've mentioned that year on year, year after year, we continue to outperform that target.

Speaker #2: And first half this year is more than 150 million dollars. I'm just being a bit conservative. Actually, it's well above 150 million dollars in savings alone.

Speaker #2: Which help us to be more efficient and more competitive in the way we go about competing for new businesses. Which is an important attribute for us to win in the marketplace.

Speaker #2: Our costs must be competitive. We must continue to look at lean operations, making sure that our processes are efficient and productive. All right, thanks, Jeff.

Speaker #2: Talk about Mervin, please.

Speaker #3: Oh, thank you very much for your question, Rachel. Well, I will start the comments on the international defense front, right? And I'll start by referring you back to the first quarter, where we highlighted the slide, which Vincent mentioned, where we showed you a pipeline of approximately US 11 billion dollars of opportunities now in the next 15 to 20 months.

Speaker #3: And I'd like to reiterate that those opportunities continue to be intact and in fact, I cannot go into the details, but some of those opportunities we are in quite intense negotiation right now.

Speaker #3: So we are quite confident that some of these pipeline eventually will turn into new wins for us. But I just want to pivot from there to talk about the other opportunities that we see in the international market, not least our counter drone business, which saw us entering into a very exciting new market for us on the international front, where we see strong demand.

Speaker #3: Especially given recent conflicts that we saw in the Middle East, where air defense, counter drone capabilities come to the fore. And as we highlighted previously, we have won several international contracts on that front in the Asia Pacific region.

Speaker #3: We offer quite a range of the capabilities on that front, ranging from detection capabilities, command and control capabilities, and stitching and ending with, of course, interventions, both kinetic as well as non-kinetic response.

Speaker #3: And we find that this is a market that is likely to scale in the future, given the challenges that sovereign nations face on that front.

Speaker #3: And I think a lot of the defense budget will go into that space. So now that we have had a foothold into that interesting market, we are fairly optimistic that this will gain momentum in the near future.

Speaker #3: Pivoting from counter drone, I'd like to talk about our munitions business. Especially on the 155 and 40 front, we have seen repeat customers for our 40 as well as new customers.

Speaker #3: The UK is one of the examples that we just won in the July. And then Czech Republic also is a repeat customer that was also reported in the July timeframe.

Speaker #3: And I can't share too much details right now, but potentially there will continue to be even more and more significant munitions sales in the near future, which goes back to the point that Cedric as well as Vincent made that we are confident about our third quarter as well as fourth quarter for this year.

Speaker #3: A big part of it is driven by opportunities on the munitions front. I hope I responded well to your question on international defense. And now I want to pivot to discussing opportunities beyond international defense.

Speaker #3: We see huge demand as Vincent highlighted earlier on the digital solutions business. And a big part of that comes from the demand from our AI analytics as well as cybersecurity needs of customers, as well as on our data center and GPU infrastructure business.

Speaker #3: And when we talk about the demand, not just in the government front, but also commercial, not just local, but also on the international front.

Speaker #3: As more companies and governments push towards greater digitalization, as well as having greater demand for AI-infused solutions, I think we are well positioned as Vincent highlighted that this is a growth area and we are quite glad that we have started our investments into building the capabilities and capacity for this space much earlier before the demand picked up.

Speaker #3: And therefore, we are now able to ride the tailwind of some of these demands that are coming in. I also like to highlight that we also go beyond the defense business in Singapore.

Speaker #3: There's strong demand from the public security and safety sector as well. Governments, including the home team, there's huge demand for our products and you have seen some of those reports of our wins over the last few months on that front.

Speaker #3: But a big part of it is really the demand for more digitalization of the solutions and as I said earlier, well positioned to capitalize on this new wave of demand that is coming in.

Speaker #3: So those are the areas beyond international defense that we are quite confident of being able to ride that wave that is there. Thank you.

Speaker #1: So Rachel, on the US front, we did improve funding on year for first half.

Speaker #4: Contributed both by URS, Urban Solutions, as well as SECCOM. Having said that, the question around SECCOM, let me just give some perspective there. We have been updating that since the beginning of the year with initiated a series of activities to manage costs and you heard from Cedric earlier that the plan to have analyzed savings of 63 million was completed at the end of first half.

Speaker #4: Obviously, the positive impact of the cost initiatives, which we implemented from Q1, also was felt in the first half set of results. The lower depreciation and amortization expense that arose from our impairment of iDirect in September of 2025 also accounted for the improvement that you saw in a year on year compared there.

Speaker #4: The other question around how do we look at that momentum and how do we continue to build towards a positive EBIT in 2027, the analyzed savings that we talk about from the cost initiatives will support that target as we go into as we execute the remaining of second half and as we go into 2027.

Speaker #4: We are also seeing good momentum. In the adoption of intuition, we have been releasing some announcements pertaining to defense and government contracts, which Cedric also alluded to.

Speaker #4: It might not be that well known, but we do have a very strong track record in our satellite communications capabilities as it relates to EU nations and NATO member states.

Speaker #4: So 20 of the 27 EU nations actually are served by FE Engineering iDirect comms solution. And 24 of the 32 NATO member states use the communication, the secure communications devices from iDirect as well.

Speaker #4: So we saw that in Q2, the continued investment to enhance secure and resilient comms capabilities is front and center for Europe as well as for Asia.

Speaker #4: We look at our robust pipeline and that obviously also underscores our confidence as we look at turning around not just EBIT from cost, but also growth in revenue.

Speaker #4: So more and more we are seeing customers resonating with the standards-based the interoperability secure comms that we are putting forward. But even on the commercial side, they are seeing the resilience that comes with multiple waveforms that we support, multiple orbits, that our technology and platform supports.

Speaker #3: Okay. Thank you, Rachel, for your questions. Yes. Okay, we'll get a second question. And I will make sure everyone has time and then to ask your questions.

Speaker #3: We'll answer a second question and we go online and we'll come back to the physical meeting arena if it's okay with you guys. Please.

Speaker #4: Yeah. Thank you so much. Congrats on the results. This is Meg from CGS. So I have three questions. One on commercial aerospace. Thank you, Jeffrey, for the color on the productivity savings.

Speaker #4: But we also hear from you on the product mix changes as well in first half, how has this mix changed? And how do you see that progressing into the second half?

Speaker #4: And then my second question on the order wins. So again, just following up on the previous question. So if we assuming even if we are flat year on year, so that implies about 11 billion order wins into the second half or a roughly 5 billion ish win per quarter.

Speaker #4: Is that the right way to think? Understand there could be lumpiness, but is that the right way to think about it? And which segments are you just trying to understand where is this confidence year on year?

Speaker #4: Because I think we were previously at a 4.5, 4.9 rate, and now to going above 5. Where is the confidence coming in from? And thirdly, on USS, so given that we've achieved the 63 million annualized run rate, so and we've gotten the EBIT at about 46 million for first half.

Speaker #4: So is it fair to say that the second half could be stronger on the back of completion of these cost savings? Thank you.

Speaker #3: Yes. Well, I think we can answer in the reverse order. We'll get Rachel to talk about the savings. And we already said that second half for USS will be stronger than first half.

Speaker #3: We'll give let Rachel give more colors. A color on that. And then we will save Jeff for the last in terms of product mix and how they look at commercial aerospace going to second half.

Speaker #3: Now, order wins we didn't say flat year on year. We say it will be as robust as 2025 and there may even be a potential upsize depending on the timing of some of the programs.

Speaker #3: Where is the confidence coming from? The confidence stems from the fact that we are in three growth structurally growing segments. That has long-term good growth traction, be it in defense and public security, commercial aerospace, or urban solutions and SECOM, as I said in my opening remarks.

Speaker #3: These are structural demand that will that underpin our confidence. And And our track record in securing growth, delivering growth, profitable growth, give us even more confidence that the years ahead will continue to be very positive.

Speaker #3: And if you just look at our track record in terms of new order wins, order book despite the quarterly apps and flows, our trending in the right direction.

Speaker #3: In the northeast direction, when it comes to order book and new order wins northeast, and when it comes to cost is going in the southeast direction, OPEX over revenue.

Speaker #3: And that's these are signs of businesses business that is very well run and well executed. And it's not over one year, but over many years, over business cycles even during the toughest time of COVID pandemic we deliver resilient results.

Speaker #3: Because of the discipline that we apply in execution, in investments, making sure that it gives us good returns from our investments. And also making sure that we do continuous improvements, efficiency, productivity.

Speaker #3: And we have also been very candid to the market when we see headwinds and challenges, we talk about it. And we see upsides, we also share with you.

Speaker #3: Keep in mind that business cycles will keep coming in and out, but our resolve and our focus on delivering sustainable growth remains unchanged. And we'll stand us in good state in the years ahead.

Speaker #3: So it's a more elaborate answer than what you're expecting probably. But keep in mind that we remain very confident that the order wins will continue to be robust.

Speaker #3: Not just second half, but also going into 2027. Because of the universe of opportunities that we are addressing as a group across three segments.

Speaker #3: All three segments. Yes. Maybe we can just hand over to Jeff to talk about commercial aerospace.

Speaker #5: I'll be short and sweet. We have many multiple product and market segments. I would say all segments are holding steady with some segments actually doing very well.

Speaker #5: If you look at the engine MRO market where the CFM56 engine has not peaked in short visits, expecting to peak in 2028. And with the LEAP engine ramping up very quickly, you can see a huge amount of growth in that area.

Speaker #5: And our nacelle deliveries are steadily following the OEM deliveries which continue to grow. Despite continuing supply chain challenges, it's continuing to grow. And addressing some of these challenges head on.

Speaker #5: So these are two key drivers of our product growth market. Yeah. Thank you.

Speaker #3: Meg, I hope we've addressed your questions for now. Thank you. Maybe we'll take a question online. Yes.

Speaker #4: Louis from City has a question. Louis, you may unmute your.

Speaker #6: Hi, good morning. Thanks for hosting the call and congrats on the results. Just two questions from me. EBIT margins for the half, once more quite strong and strengthening.

Speaker #6: Just wanted to get a sense of whether you expect EBIT margins for the group to continue to improve? And if so, which divisions would be leading the improvement?

Speaker #6: Second question is more of a housekeeping one. As Cedric mentioned, the DPS International wins are more than doubling this year from last year. Could you give us the level of win or the international order wins last year?

Speaker #3: So Louis, just to confirm, you wanted to know how much was the order win for international defense in 2025?

Speaker #6: Correct. Yes. The one that's going to more than double. For first half, it's 1.2 billion, I saw. But just wondering what level it's doubling to this year.

Speaker #3: For this year of 2025, we secured more than 600 million dollars worth of international defense wins. And I think earlier this year, we said that we target to double that for 2026.

Speaker #3: As of midpoint of 2026, we have.

Speaker #6: Oh, are they double?

Speaker #3: That win. And we expect in the next two quarters, more upsides to come. As we mentioned, I hope that addressed your question on the international defense wins.

Speaker #3: And as Melvin and I both mentioned, the pipeline remains robust and intact. And we are going after every opportunity that's addressable by us. And then EBIT margin, will it continue to strengthen?

Speaker #3: If you think about the what I've mentioned earlier, that we think we are confident that net profit will growth CAGR will continue to outpace revenue growth CAGR.

Speaker #3: So from that standpoint, margins will continue to strengthen. And it's going to be generally so because our three segments are all targeting for stronger performance in the five years.

Speaker #3: That we plan from through 2029. Of course, at the right time, we'll publish another set of five-year plan. But for now, the current five-year plan talks about 2029 targets.

Speaker #3: And we expect margins to continue to strengthen. For the various reasons that we talk about, we have more scale. Our margin and project mix that we can see is going to support that.

Speaker #3: And we also have productivity savings. That we expect to come our way. We expect our cash flow to be strong. And which also drives reduced lower interest costs, which we talk about.

Speaker #3: And we also had another point where we say, hey, in the five-year horizon, we expect the amortization of intangible assets to continue to come lower.

Speaker #3: In that five-year range. So hopefully that answers your question on EBIT margin. Profile.

Speaker #6: Yes, it does.

Speaker #3: Louis. Thank you.

Speaker #6: Yes, it does. Thanks a lot, Vincent.

Speaker #3: Thank you.

Speaker #4: We also have a question from Roy. UOB Keihin. Roy, you may unmute yourself.

Speaker #7: Thank you for the opportunity. Congrats on the very strong results. I have two questions. Yeah. Sorry. Yeah, two questions. First, I think one question was not answered just now was regarding the color for the USS second half outlook.

Speaker #7: I understand the revenue growth is guided to be higher. Potentially, these are from both urban solutions and the SICOM business. So could you please elaborate where for the urban solutions, growth, where does it come from?

Speaker #7: Yeah, that's the first question. The second question is for Jeffrey. Could you please remind us regarding your capacity, expansion, growth rate in the next few years?

Speaker #7: And the current utilization in terms of the booking of the hunger slots and also the engine workshop slots? Yeah. So these are the two questions.

Speaker #7: Thank you very much.

Speaker #3: Okay. So I'll let Jeff answer the question. But for USS, we talk about second half, it's expecting we are expecting second half to be stronger.

Speaker #3: As you asked about URS, I think some quarters ago, we talk about our major projects for mobility. That will kick into full gear. And that's one contributing factor for our URS business to be gaining strength in the next few years.

Speaker #3: But I'll let maybe start let you start the discussion going. Yes, let you, please.

Speaker #4: Yeah. Okay. So let me just comment on the USS second half performance. I know Vincent has said that. Maybe Roy wanted to hear it from me.

Speaker #4: Second half USS is expected to be stronger than the first half, both in revenue as well as in EBIT. And we did say in the slides that we are targeting Q4 EBIT to be positive for SICOM.

Speaker #4: So in totality, as we look at USS, it's typically second half weighted. And that is supporting the claims and also our confidence that we will deliver both on the EBIT and revenue front a stronger second half versus what you are seeing in this first half results.

Speaker #4: The question around what is shoring up the URS revenue. So I would say that we are delivering against a very strong order book, which we talked about last quarter as well.

Speaker #4: I think last quarter, we said that our order book is 4 point more than 4.5 times of our 2025 revenue. And obviously, at that time, it excluded the NJTA into the order book itself.

Speaker #4: And part of our focus in urban solutions is ensuring that we execute well for the contracts that we have won from the customers. And in the urban solutions portfolio, as you know, it comprises of mobility, smart mobility, both road and rail, it also has the smart utilities and infrastructure.

Speaker #4: We have projects globally ranging from the Middle East to the US to Asia and our confidence in delivering a stronger second half comes from the fact that we are executing to each of these projects diligently.

Speaker #4: We announced a $840 million win with the Taoyuan Brown Line project. We also said that work will commence in Q4. So we know that as we continue to win these new orders, and as we execute the projects in line with the customers' timeline, these will give us visibility to our strength in the revenue that will convert.

Speaker #4: So hopefully that answers your question, Roy.

Speaker #6: Yeah. Thank you.

Speaker #3: Thank you. Thank you. Well, we come back to the thanks, Roy, for your questions. May we come back to the location, SD Engineering Hub, and we maybe invite Lorraine to ask her questions.

Speaker #3: Lorraine, please.

Speaker #7: I think it was very solid question for Jeff.

Speaker #3: Yeah, utilization. Oh, utilization. Roy saw the utilization question. Across the MRO network, we are achieving close to 90% utilization today. And if I look at the capacity expansion, over the next 18 months, I would estimate we are targeting around close to 20% capacity expansion across the MRO network.

Speaker #3: Thank you. Okay. Lorraine, yes.

Speaker #7: All right. Yeah. So with the Lorraine Tan from Morningstar, with the operating cash flow looking better, I'm just wondering whether the group is looking at how they will allocate any excess cash going forward.

Speaker #7: Are there opportunities for bolts on acquisitions or other such acquisitions? Are there perhaps gaps that would help make securing the $11 billion pipeline more achievable or more specific?

Speaker #7: Just wondering if you can provide a little bit more on that.

Speaker #3: Yeah. We will maybe I'll let Cedric talk about it, but how to put it? We have a very strong balance sheet and we have very good access to capital when we need them, when the opportunities come.

Speaker #3: There's no limit or no constraint today in our ability to capture the opportunities that are out there, including the pipeline of international defense opportunities.

Speaker #3: The $11 billion US dollars that you mentioned, there's no constraint today. But of course, a very strong operating cash flow gives us much more flexibility.

Speaker #3: I'll invite Cedric to help us to share more on this topic.

Speaker #5: Yeah. I mean, as I said, when we have excess cash, first order of business is fulfill our dividend promise. Right? So we have a very clear dividend policy.

Speaker #5: We allocate that to that. Then what remains is, can I pay down my debt or can I reinvest for growth? Now, this is a question where if you have a very fixed target, you kind of deny yourself an opportunity to consider growth.

Speaker #5: Right? So every growth opportunity has different attributes. Yeah. Even if it's an M&A, is it valued correctly? Is it a strategic fit? Do we have a right to play?

Speaker #5: How short-term is the payback? Cultural issues. There's so many things to be considered. So I would say that we are always open to opportunities, not just to reinvest, but also to divest as we have done 20 businesses in the last few years.

Speaker #5: So that we get into higher quality revenue, higher quality earnings. As Vincent described, right, where we have a right to play and right to scale.

Speaker #5: I think that's our perhaps have been our focus. As Vincent said also, we have access to short-term capital. We have a US commercial paper program, which is very competitive, very liquid.

Speaker #5: In fact, we are only one the only industrial company in Singapore that has a US dollar commercial paper program. We also have a lot of access to long-term fund.

Speaker #5: We are rated AAA. For our bond issue, AAA. I don't think you can I think we have very good access to very competitive financing.

Speaker #5: So that definitely is not a constraint. Even if we use up the cash, we still have access for further growth if we choose to do so.

Speaker #5: Yeah. But every growth opportunity must be done with discipline. Very careful and clear, clarity of strategic thought. And also into areas where we see growth and we have a right to play.

Speaker #5: I think fortunately, just to chime in on some of the questions that were asked, we are in the right sectors. AI, something we have done in terms of machine learning for many, many years, especially in the defense business.

Speaker #5: Modern defense, man, unman, teaming, we have demonstrated that at our air show and recently with one, two international counter drone facilities. And in terms of urbanization, as you have seen in Taiwan, we are one so many contracts thanks to Li Qiu and team.

Speaker #5: International defense, strong tailwinds. Commercial aerospace is structurally growing. Both from an OEM production rate as well as MRO because aircraft are used for longer.

Speaker #5: So our engines. So there are a lot of tailwinds here. And hence our confidence to give you the numbers we have in the five-year plan.

Speaker #5: And now we're telling you many areas are ahead of that five-year plan.

Speaker #3: And the five-year plan excludes M&A, and when the right opportunities come our way, we do have the ability to capture them through acquisition if needed.

Speaker #3: So we are constantly looking at acquisition opportunities. But we must make sure that the acquisition opportunities are in line with our strategy and that they give us the required returns or if they meet certain strategic objectives, then if they all meet the attributes or deliver those attributes, then we will certainly have the capacity to go after them or capture them.

Speaker #3: So Lorraine, I hope we've addressed your questions or do you have further questions at this time? It's fine. Okay. Maybe we get do you have questions, Jason?

Speaker #3: No? Yeah. And then after that, we go to Paul.

Speaker #7: Okay. Okay. Sure. Yeah. Thanks. Just have three short questions. So first one is for Jeffrey. Wanted to get a bit more color on commercial aerospace margins.

Speaker #7: So I understand that you've really covered productivity and the product mix. But there's been little there's been no mention at all on pricing. Maybe if you could share how pricing has been trending over the past few quarters and if it has actually contributed to margin expansion.

Speaker #7: Second question is for Li Qiu. Thank you for sharing the milestones that is required for the STATCOM business to turn a positive EBIT. But wanted to get a sense of as you look at the business over the medium term, what kind of EBIT margin do you think can be sustainable given that the commercial landscape still remains relatively challenging to say the least?

Speaker #7: Yeah. And last question is for Mervyn. So I mean, could you maybe share some of the key lessons that you have taken from the recent US-Iran conflict?

Speaker #7: How do they differ from other recent conflicts? And maybe have this developments changed your views on which capabilities will be the most relevant? And if traditional platforms could slowly become slightly less relevant?

Speaker #7: Thank you.

Speaker #5: Okay. Well, it's an interesting question. I'll let Mervyn address. But we are well positioned with the portfolio of products that we have in the defense space.

Speaker #5: That we can say. Then we maybe we start with commercial aerospace on margin and then the effects of pricing. And then followed by Li Qiu.

Speaker #5: On the STATCOM, the question regarding STATCOM EBIT margin. Jeff?

Speaker #7: So commercial aerospace, we operate in a very competitive global market. So our contracts are with major airlines and lessors. And we compete directly with sizable global players.

Speaker #7: So the market pricing continues to be highly competitive. In a situation of bid to win or bid to lose, bid and lose, so I would say that in terms of margin expansion, it's driven primarily by product mix.

Speaker #7: And of course, Vincent has mentioned a lot about our scale efficiency as well as our productivity initiatives. All this contribute to our margin expansion.

Speaker #7: And if you recall, we were working towards a double-digit EBIT margin for commercial aerospace. And in the first half of this year, we've actually achieved that thanks to the support of our customers.

Speaker #7: And we endeavor to continue to address and to grow our ability to be profitable. Thank you.

Speaker #3: Okay. Thank you, Jeff. We go to Li Qiu, please.

Speaker #2: Yeah, Jason. So I think beyond taking the business profitable, which is obviously top of mind, we as an organization will need to stay agile to continue to drive up profitability.

Speaker #2: And the reason why I say that is if you follow the path that we have taken, not just from a technology standpoint in rolling out intuition both at the core, at the edge, the software-defined modems, the foresight, which is a fingerpin of glass for both network and service management, we've also gone out to market to say we will be offering as a service.

Speaker #2: So intuition unbound is a new business model that we have introduced to the market. And we believe that that business model will open up markets that have not typically or traditionally been our STATCOM customers.

Speaker #2: So it's not an easy answer it's not an easy question to answer. Because we need to see how the market will continue to evolve.

Speaker #2: As our customers, our satellite operators, regional as well as international, works their strategy of competing with the vertically integrated providers but we do know that the strategy of having standard space, the strategy of having a platform that is multi-orbit, modems that will not lock in customers because they only need one hardware now, and it's not dependent on what kind of waveforms they need to operate in their environment, those are elements of our strategy that would give us inroads not just into the existing install base that we are servicing but also potentially new customer base.

Speaker #2: So with scale, profitability will also improve and come. So I guess maybe I will say that we're working all the different pipes we believe that that is the right path to get us to not just profitable business but to a improved profitability.

Speaker #2: And we'll update you as we progress.

Speaker #3: All right. Thanks, Li Qiu. Mervyn?

Speaker #7: Thank you very much, Jason, for your question. On the issue of key lessons of the Iran conflict, what capabilities are you think more relevant these days?

Speaker #7: I think the one that strikes quite clearly to most observers of the Iran war is that the air defense capability, especially the counter-drone space, probably is top of mind.

Speaker #7: If I go beyond the Iran conflict to also look at the Ukraine war, the use of drones and drone warfare as an offensive weapon redefines air power.

Speaker #7: In terms of being able to deliver capabilities from the sky that are a lot more cost-effective and quite asymmetry in terms of asymmetric in terms of the targets that they are, impacting and influencing the outcomes on the battlefield.

Speaker #7: So I spoke about the counter-drone capability that we've built and which we have entered into a new market. So I think we're well positioned because of the new demand that come from observations of the Iran war where air defense capability is no longer are defined by expensive ground-based air defense solutions, missiles, etc.

Speaker #7: against traditional air power threats. But rather, much more lighter and more flexible counter-drone solutions that can be offered by primes like ourselves as well as startups.

Speaker #7: That's why we're also working with startups and looking at how we can integrate some of their capabilities in the full suite of offerings that will form part of our counter-drone package that we will be able to market to our customers.

Speaker #7: And so far, we have got successes on that front. On the drone warfare bit, the offensive bit, you will also know that we have started to go beyond just the medium-sized drones to much smaller drones that can be operated by the soldier, either battlefield, our techs as well as ATOS series of small drones that already see some local use is also something that we are promoting for overseas customers as well.

Speaker #7: So I would say that the drone warfare is one of the very obvious key lessons from the capability standpoint that stem up from the recent conflict in Iran and Ukraine.

Speaker #7: The other is actually in the digital space, right? The warfare on the battlefield these days, I think it's a lot more complex compared to the past.

Speaker #7: And therefore, having that situational awareness of what's going on and being able to make the right decisions on command and controlling your forces on the ground is also an important aspect of what we see as a lesson learned from the Iran conflict.

Speaker #7: And again, I think our business in SD Engineering is well positioned to write the tailwind from this demand. Our AI-enabled insights from our command and control solutions that we provide to our customers allow for the data analytics that is not possible in the past so that some of these insights that can be that come up from the analytics will allow our commanders on the ground to make better decisions.

Speaker #7: Decisions that they couldn't have been able to make without their AI-enabled capabilities to enable cognitive abilities of our commands commanders beyond that was traditionally a humanly possible.

Speaker #7: Situational awareness using satellites is another area that we've see as important and that goes to our satellite business, especially Earth observation satellites, as well as Li Qiu's business in terms of satellite communications connectivity.

Speaker #7: No point being able to do the observation but not being able to communicate to your forces at the edge to act on those situational awareness and knowledge.

Speaker #7: So I would imagine that the space arena is becoming more and more critical both and that's a tailwind for us in terms of our ability to build more Earth observation satellites as well as satellite communication connectivity.

Speaker #7: The hubs and modems that will allow for the information to be passed down to the forces at the edge. There is a tendency to think of armor capabilities as being less relevant in the future.

Speaker #7: But from what you see in Ukraine, the both sides continue to use armored forces in order to move troops around. So we our own observation is that armor continues to be relevant, especially armored fighting vehicles that is able to carry troops on the ground because ultimately, it is the forces on the ground that will cover the area that you win.

Speaker #7: And you want to be able to move these forces in a protected manner quickly across the battlefield and armored fighting vehicles are the way to do so whether it's tracked or wheeled and which is the reason why we do see quite a significant amount of demand for our armored fighting vehicle solutions both in the Europe as well as in the Middle East.

Speaker #7: Another area I would like to talk about not so much a capability per se, but rather the recognition that in order to fight a war of extended length, especially the accretion warfare that you're seeing in Ukraine, relies a lot on your ability to have your own indigenous supply chain because a lot of that capability in order to sustain a long a prolonged war requires you to build that industrial capability within your own sovereign nation so that you don't have to depend on others and that's something that we saw in Ukraine and that's something that you also see in Iran warfare especially when demand for air defense capabilities are depleted at a rapid rate in for the countries that are being attacked.

Speaker #7: So we do see that as an opportunity as well because a lot of the Middle East as well as Eastern European countries where the industrial defense space is not as mature that's where they are looking at building up their local capabilities.

Speaker #7: And we are well positioned to be able to leverage that new demand that comes from them because we are always our strategy when we look at international customer is that we like to partner the local industry so that we are able to sort of share some of our technology so that they can also build up some of the indigenous capability which is desired now and a key lesson learned from the recent conflict where your supply chain resilience is core and that positions us well because our strategy is really to work with the local partners to build up their capability create good jobs for their people which is of political interest to their leaders on top of building capabilities and selling that capabilities that we have in Singapore.

Speaker #7: So I would say that the lessons that we see in recent conflicts all give us that confidence that we are putting our emphasis in the right areas especially in our strategy towards reaching out on the international defense market front.

Speaker #7: I hope I answered your question.

Speaker #5: Thank you.

Speaker #1: Okay. Thank you. Maybe we go to Paul now.

Speaker #3: Sorry, maybe to stand so long. Just two accounting questions. There was a bit of swing in the translation losses first half last year and first half this year.

Speaker #3: Maybe can troubleshoot just a bit of explanation. And also the decline in amortization was it related to just I direct? Thanks.

Speaker #1: Okay. We can Cedric. Cedric.

Speaker #5: As I pointed out, US dollar did weaken if you look at the average weight in 26 versus first half 26 versus 25. And therefore, at the revenue level, when you translate US dollar to sing, you have a smaller sing dollar.

Speaker #5: So it does affect us. In fact, at the group level, if you take into weakening US dollar into account, our growth is actually higher than 11 or 14 percent.

Speaker #5: It's more than 15.5 percent. So there's some effect on that. But in terms of hedging, in terms of cash flow hedges, we have always have a very good hedging policy to look at whether we are net long or short a certain currency.

Speaker #5: So in US dollar, for example, we are net long US dollars. So we will sell US dollar forward. So that will have much less impact on our EBIT because we protect our margin by doing it this way.

Speaker #5: In a wedged manner actually. So that's one. So I would say the currency impact is not great, but it does have some minor impact on the top line for us.

Speaker #5: Because of a weakening US dollar. Then on the amortization, yes, I direct is one of them with some impact. But of course, as you have Capex, in the past, you would also have amortization.

Speaker #5: That's involved. Anything that is capitalized. So that basically, I think Capex wise, we are looking somewhere in the order for the full year of 26, something like 500, 600 million, which will include right of use assets, which are basically leases, but now classified as on the balance sheet as asset.

Speaker #5: So those will also be those are the ballpark numbers. Of have unforeseen investment opportunities like what Lauren asked just now. And we will do so with great discipline and with great IRR.

Speaker #5: So even if it go up, it should be a good thing.

Speaker #3: Thanks. Just a quick follow up. So that the translation loss to gain, that's flows through the P&L, right?

Speaker #5: There are two impact, right? I mean, one is that as I said, the revenue side it does hit, but we don't hedge that. But on the net long net short side, in terms of your revenue and cost mismatch, right, in a particular currency, so for example, we collect more US dollar than we spend US dollar.

Speaker #5: Then we are long US dollar. So if we don't hedge this by buying it forward as a fixed rate, then our margins will be affected.

Speaker #5: So that we hedge. But even if we hedge, we don't hedge 100 percent and forever enough the length of the contract. We hedge in a wedge manner.

Speaker #5: So in the first six months, we'll try to be hedged about 80 to 100 percent. In the next six months, we'll try to be hedged 60 to 80 percent and so forth.

Speaker #5: So there's some parts that are still not hedged and therefore there will be some impact on the EBIT as well, but you'll be much minimized compared to a non-hedged position.

Speaker #5: I hope I answered it. Thank you.

Speaker #1: Okay. Thank you, Paul. Any other questions? Yes, questions too. A quick follow up on order book and margin. Another one for international defense. Firstly, for the order book, can we have a breakdown of order book by segments so that we can assess the order duration and capacity tightness for each segment?

Speaker #1: And second question is for commercial aerospace MRO. The margin for engine, can we understand the margin for engine is higher than airframe so that that may our expansion on the capacity for engine MRO could drive the margin expansion further?

Speaker #1: And thirdly, for international defense segments, what's our key competitiveness? Yeah, we understand that we have partnership with local partners to do local production. Beside that, what measure we plan to do to penetrate more new markets like hire more international background people to penetrate new markets or we have more ample capacity compared with those European or Middle Eastern competitors or our key product like the Bronco or Tarex is more competitive with our product our competitors products.

Speaker #1: Thank you.

Speaker #5: Well, so thanks, Herbert for first of all, for attending our earnings review. For the first time, welcome. So thanks for your questions. We don't you have three sections on order book by segments.

Speaker #5: And then you have margin on engine MRO versus airframe MRO and then international defense. Our key competitiveness. Now, I'll let Mervin talk about this because we do have a very unique differentiating attributes when it comes to international defense.

Speaker #5: Mervin talk a little bit about it. We partner with strong local partners. That's a very important attribute. We do local production in partnership with the local partner.

Speaker #5: Where possible to create the job opportunities and retaining the industrial capabilities. We also share intellectual properties, which are important aspect of having self-reliance and resilience for the country that we work with.

Speaker #5: So I'll let Mervin talk a little bit more. Now, order book we do not disclose by segment, but suffice to say that all three segments have robust order book the one time that we give more example actually in the first quarter of this year we said that USS order book is more than four and a half times 2025 revenue.

Speaker #5: So book to bill is more than four and a half times. And if you add the NJTA contract of 1.7 billion dollars that we added to the order book in end of second quarter, plus the brown line for Taiwan of 840 million dollars that we secure in third quarter, not yet in our order book, you can see that the order book for USS alone is already very robust.

Speaker #5: So we kind of like you can do the calculation and math on what that order book is. But we do not disclose by segment at this time.

Speaker #5: Suffice to say all three are at a very robust level. So with that, I will hand over to Jeff to talk about the MRO margin situation for agency.

Speaker #4: Well, it's difficult question only because we have different product mix different geography, different contract type. So my straight answer is the margins are similar.

Speaker #4: Yeah.

Speaker #1: Okay.

Speaker #6: Well, thank you very much.

Speaker #1: Thank you, Herbert, for your question. And welcome first time here, right? Yeah. I don't know where to start because I think in terms of key competitive advantage, we have quite a fair bit, right?

Speaker #1: I spoke about partnering the local partners that are there. And all those advantages in terms of being able to provide good jobs, being able to leverage on their networks, being able to help them in their ambition towards being supply chain resilient.

Speaker #1: Those are factors that are important considerations for international defense sales. But on top of that, actually some of these markets where the where they have a less mature industrial defense base, is where also we find a cheaper labor and a lower cost in terms of some of the materials that we need for our manufacturing because they are closer to source, right?

Speaker #1: So cost effectiveness is probably one of our key competitive advantage. The other is in terms of performance of our platforms and solutions. I always like to highlight our Bronco solution that you mentioned, Herbert, right?

Speaker #1: And it is actually one of the most capable platforms, track vehicle that can provide that combat service support requirements for many militaries. And if you look at the literature, there's really not many competitors out there.

Speaker #1: In terms of the kind of performance that can be provided by our Bronco platform, I can count in less than one hand the kind of competitors that we have on that front, which is the reason why we there's a lot of demand and interest in the Bronco platform that we're offering.

Speaker #1: Even on the maritime arena, in terms of performance, one of the key characteristic of our products is the fact that we are able to man quite a significant capability in the water with a very small number of crew.

Speaker #1: And a big part of that is the special design that we have incorporating a lot of technology into our solution because in Singapore, we have a very small population.

Speaker #1: So in terms of the number of sailors, airmen as well as soldiers, we have a much smaller numbers compared to a European countries and in the Middle East, for example.

Speaker #1: And some of the Eastern European countries like Estonia, Lithuania, they also don't have a large population. And some of the Middle Eastern countries like Qatar, for example, they don't have a lot a big local population too, right?

Speaker #1: So some of that design that is a lot more ergonomic, which we leverage a lot of technology in order to reduce the crewing requirements actually appeals to some of these customers that have similar constraints like us in terms of manpower resource.

Speaker #1: So I spoke about cost. I spoke about performance. Finally, I want to talk about capacity. Right. Because of the war that you see in Europe, in Ukraine, actually a lot of the countries that supported Ukraine are trying to replenish their own defense capacity to levels that were before the Ukraine war.

Speaker #1: I would say into levels that were even higher than before the Ukraine war because they're realization is that post World War II, they have enjoyed that peace dividend and have reduced in terms of their investment in defense.

Speaker #1: But those have gone up significantly. So many of these countries are trying to replenish themselves to levels even higher than before the Ukraine war.

Speaker #1: And many of them are using their own local industry in order to provide that resupply of leveling up of numbers to levels higher than even by the Ukraine war.

Speaker #1: And that creates an opportunity for us, which is the reason why in many of the competition that we see, one of the value proposition for us is that we are able to meet their demand schedule at a much faster pace.

Speaker #1: Why? Because a lot of the other traditional competitors they have capacity constraints because they are replenishing their own country to levels higher than before.

Speaker #1: At the same time, there's quite a lot of orders that they have received because there's overall increase in defense spending and overall demand. And that creates opportunity for us to add a new proposition, which is that we are able to meet the demand schedule of the customer.

Speaker #1: So whether in terms of cost, whether in terms of performance, whether in terms of capacity, I will say all three are part of our competitive advantage.

Speaker #1: The final one is really the post sales support that we provide. The very fact that we are able to win the MRO in Qatar and MRO is maintenance repair and overhaul services, is really a post sales capability that we provide to our customers, right?

Speaker #1: And that requires quite a significant amount of a bit of engineering competencies, our design in terms of spares provisioning, our design in terms of the technical workshop, our ability to help to manage and make sure that even after we sell you the platform, the availability as well as a serviceability of the platforms continue to be very strong even after years of operations.

Speaker #1: And that also is a strength of ours. And together with the other three attributes that I mentioned earlier, put us in a good position to be able to have that strong pipeline hopefully to convert into wins in the near future.

Speaker #1: Thank you.

Speaker #2: Yeah. So overall, thank you, Marvin. Overarchingly, Singapore also has a very strong brand name. Trusted brand name. We have a legacy or heritage of six decades of strategic partnership with the Singapore Armed Forces.

Speaker #2: That gives us good brand awareness and good brand strength as we address the international market. Thanks, of course, to our very important customers, at the Singapore military, Singapore Armed Forces and the military of the Ministry of Defense.

Speaker #2: So all that work together, that make us very competitive in the international arena for defense competition. Okay. Or rather defense product competition, the defense projects.

Speaker #2: Maybe we let we ask one have one final question. In the room, before we adjourn the meeting, any other questions? At this time? I know there are no more questions online as I understand.

Speaker #2: Okay. Go ahead.

Speaker #4: I want to squeeze in one. I think generally you give one slide on the overall capital management, which I didn't see in this slide deck.

Speaker #4: If you can just quickly highlight on your capital management, especially with your growth targets that you have.

Speaker #2: Okay. Please go ahead.

Speaker #4: Yeah. The because of our strong cash flow, our total debt has come down. We are now as our end first half 2006, we are at about 4.7 billion.

Speaker #4: And our weighted average financing cost is about 3.45%, 3.4, 3.5%. So which is very healthy debt tower is all quite well spread out. And as I said, we have very good access to short-term funds in terms of the US commercial paper.

Speaker #4: And the bond market because we are rated AAA. Yeah. So in good hands, basically. There was an MTN that was due in May this year.

Speaker #4: Because of the interest rate environment, we decided to defer that. But on the other hand, because of we have access to US commercial paper, a very large program size, we can use it to breach it.

Speaker #4: In fact, at lower cost. But of course, it's a shorter tenure alone, but it's at a lower cost than if we had compared to if we had issued the bond at that point in time.

Speaker #5: Do you see the debt level I mean, the overall the debt matrix gearing, et cetera, to be at this level or do you think it can go down further?

Speaker #4: Yeah. Again, it depends on I mean, dividend, we were fatefully backed it up. It depends on investment opportunity, right? So if we do invest, then of course, we are not shy to tap on the facility.

Speaker #4: But just to state that right now, we are not looking at anything large investment in the likes of Transcor and things like that. That's not on our desk right now.

Speaker #4: But we it behooves us to always look at good investment opportunities. Because we want this trajectory to go well beyond 29, 39, 49, right?

Speaker #4: There's also why we invest in R&D. Conscientiously. So it depends on that. But barring that, then of course, our strong cash flow will allow us to reduce that.

Speaker #4: So you can see improved metrics going forward, especially our debt over EBITDA has improved if you can look at it over the years, significantly.

Speaker #4: Yeah.

Speaker #2: Yes. And of course, our strong balance sheet and cash flow gives us a lot of flexibility. Reinvesting cash in the business gives us good returns.

Speaker #2: And just last year alone at the base operating performance level, our return on capital employed is 11%, very strong. So if there are good growth opportunities for us to invest our cash, we will have the ability to do so.

Speaker #2: Or if the best disposition is to pay down that, we will also do so. But it gives us a lot of flexibility after paying dividend to our shareholders.

Speaker #2: So that is a commitment.

Speaker #4: Yeah. And access to cash.

Speaker #2: Access to debt, actually, in some cases, not in excessive way, will reduce a weighted average cost of capital. And therefore, generate even higher economic value add.

Speaker #2: So and avoids and this leverage provider always is not in excess, helps your return on equity. And last year, our ROE is something like 28%.

Speaker #2: And we believe this year will be higher than that. 28.7% return on equity.

Speaker #4: Okay. Okay. Well, on that note, we will now adjourn the meeting. I want to thank all of you for being here and thanks thank you for your active participation in today's results briefing.

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