Positive revenue growth for ST Engineering but net profit impacted by one-off charges - 2018 Annual Report
Singapore Technologies Engineering Limited (ST Engineering)
Source: ST Engineering
ST Engineering is a technology, defense and engineering group specializing in the aerospace, electronics, land systems and marine sectors. Headquartered in Singapore, the company holds a strong global presence spread across more than 20 countries and 40 cities worldwide.
FY 2018 Financial Highlights:
Source: ST Engineering FY 2018 Presentation Slides
- ST Engineering reported a 3% year-on-year increase in FY 2018 revenue to SGD 6,698 million.
- Profit before tax grew 1% to SGD 620.7 million compared to the prior year, but net profit (profit attributable to shareholders) dropped 2% to SGD 494.2 million.
- However, if one-off charges of SGD 37 million were excluded, profit before tax would have been 7% higher at SGD 657.3 million. The one-off charges included those for portfolio rationalization, transaction costs related to the acquisition of General Electric’s aircraft part maker, MRA Systems (MRAS), as well as the early redemption of the Multicurrency Medium Term Notes program (MTN).
- Further, if prior year’s one-off favorable US tax adjustment of SGD 20 million was not included, net profit would have been 9% up year-on-year at SGD 526.8 million.
Source: ST Engineering FY 2018 Annual Report
ST Engineering faced a challenging FY 2018 impacted mainly by one-off charges. Nevertheless, its Aerospace, Electronics and Marine sectors managed to produce resilient results. Meanwhile, its Land Systems and Others sectors suffered a decline in net profits.
Performance Drivers (Positive Factors)
- Aerospace Sector
FY 2018 revenue for ST Engineering’s Aerospace sector increased 4% year-on-year to SGD 2,647 million, on the back of higher contributions from the Aircraft Maintenance & Modification (AMM) and Component/Engine Repair and Overhaul (CERO) sub-sectors. The Aerospace sector registered higher gross profits and a net gain on divestments – which were offset by the transaction costs related to the acquisition of MRAS, higher operating expenses, as well as higher tax expenses. As a result, overall net profit stayed flat at SGD 244.6 million.
- Electronics Sector
The company’s Electronics sector saw revenue rise by 7% year-on-year to SGD 2,143 million in FY 2018, mainly due to better revenue growth from its Large-Scale Systems Group (LSG) and Communication & Sensor Systems Group (CSG) sub-sectors. On the flip side, the Software Systems Group (SSG) sub-sector experienced lower revenues. Higher revenues and lower operating expenses resulted in a 10% increase in net profits for the Electronics sector to SGD 186.5 million.
- Marine Sector
Revenue declined by 10% year-on-year to SGD 574 million for ST Engineering’s Marine sector in FY 2018, attributable to lower revenue recognition from its US business. The Shipbuilding and Shiprepair sub-sectors suffered a decrease in revenues, partially offset by improved revenues by the Engineering sub-sector. Nevertheless, the Marine sector’s net profit surged by 67% to SGD 45.2 million, on the back of better performance of its Singapore operations, as well as lower operating expenses.
Performance Drivers (Negative Factors)
- Land Systems Sector
ST Engineering’s Land Systems sector’s FY 2018 revenue rose by 3% year-on-year to SGD 1,282 million, resulting from higher contributions from its Automotive and Services, Trading and Others (S&T) sub-sector. On the other hand, its Munitions & Weapon (M&W) sub-sector saw lower revenues.
However, net profit for the Land Systems sector fell 39% to SGD 52.9 million. This was mainly due to the divestment impact of its road construction business in India, full impairment charges for its road construction business and automotive MRO business in Brazil, as well as the absence of last year’s favorable US tax adjustments.
The Others sector recorded a SGD 42 million decrease in FY 2018 revenue to SGD 52 million, while net loss widened by SGD 9.6 million to SGD 35 million. This sector was primarily impacted by lower sales and losses in subsidiary Miltope, a developer of rugged computers, as well as one-time costs incurred for early redemption of the SGD 500 million notes issued under the MTN program.
Source: ST Engineering Annual Report 2018