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Dear Shareholders,
2003 began as another tough year globally. The war in Iraq and the invisible
war, Severe Acute Respiratory Syndrome (SARS), hit Asia hard and severely
affected regional economies.
As the year proceeded, the outlook for the world economy gradually improved.
Business sentiment turned positive, although macroeconomic uncertainties
kept international markets volatile.
As a growing global entity, ST Engg is not immune to the gyrations of the
international economy. One thing came through clearly this year - our business
is resilient, and this stems from the diversification of our operations
across a good spread of industries and geographies. Despite the twin challenges
of Iraq and SARS, we managed to maintain our profitability. Our robust
business process, international customer base, networks and operations,
and most importantly, the commitment of our people, enabled us to keep
an even keel through turbulent waters.
Throughout the year, we continued to review our Group’s businesses.
We acquired and invested in more companies, expanded our capacity and rationalised
some operations. We kept a tight rein on costs and implemented additional
measures, including wage cuts for senior staff, to ensure we remained competitive
in the international market. |
For the year,
the Group recorded an 8% improvement in turnover to S$2.82b
and comparable profit before tax (PBT) of S$412.7m. Profit
after tax (PAT) was 2% lower at S$325.6m because of higher
tax expense. Our market capitalisation ended the year
at S$5.89b, compared to S$4.76b at the close of 2002.
Our Aerospace, Electronics and Marine sectors maintained a steady
order book through the year. The Aerospace and Electronics sectors
were successful in winning new customers and contracts, and the Marine
sector’s US operations performed according to plan. The Land
Systems sector continued to transform itself in line with the changing
needs of the global defence industry. |
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The Group’s
international thrust in 2003 focused on building new growth
areas and capabilities, seeking new markets and in particular,
increasing our presence in markets like China and the US. While
there will always be short term financial impact from new ventures,
investment in these areas is necessary to enable the Group
to secure medium to long term growth.
Our commercial businesses increased their overall contributions as we continued
to build growth through new opportunities and new markets, in our goal
to become a global enterprise. |
PBT margins for the Group remained strong at 15%. Economic value added
for 2003 was S$240.9m, an increase of 27%. At the operating level, cash
from operating activities improved by S$252m from improvements in working
capital.
The Aerospace sector recorded a 5% growth in turnover to S$1.09b and a
6% increase in PBT to S$225.2m. This was due to cost reductions as well
as improved performance in US operations during the year.
The Electronics sector improved both its turnover and PBT by 7% and 8%
to S$614m and S$61.4m respectively. This performance reflects its success
in securing new contracts, both in Singapore and overseas.
The Marine sector achieved a 38% increase in turnover to S$387m, with the
inclusion of revenues from its US operations. However, PBT dropped by 14%
to S$35.2m primarily due to startup losses at its US operations, though
overall US performance was better than expected.
The Land Systems sector posted a 1% increase in turnover to S$717m, while
the PBT of S$96.4m was comparable to the previous year. Operating profits
remained strong but PAT was lower due to the absence of tax writebacks
and tax benefits as compared to 2002.
In line with the Group’s aim to maintain a consistent dividend policy,
the Board is recommending a total gross dividend of 11.3 cents, comprising
an ordinary tax exempt dividend of 35% and a special tax exempt dividend
of 78%. Discounting the one off special dividend in 2002, this final dividend
of 113% represents 100% of net earnings and a dividend yield of 6.1%.
Innovation
The SARS epidemic was a worrisome period for everyone. In the international
battle against this scourge, we are proud to highlight the role of ST Elect’s
engineers who raced against time to adapt military surveillance technology
in thermal imaging into equipment for temperature screening of large numbers
of people at airports and other public places. Adoption of this technology
started in Singapore and quickly spread across the globe, from Canada to
the Middle East and North Asia. Named by TIME magazine as one of the Coolest
Inventions in 2003, ST Elect’s Infrared Fever Scanning System (IFss)
is the first purpose built, non contact and mass temperature screening
system in the world. It is a fine example of how we can quickly and innovatively
adapt our advanced technology, whether in the defence or commercial sphere.
ST Aero, through innovative packaging of its services, was able to meet
the needs of low cost carriers like AirAsia and Biman Bangladesh Airlines
for total aviation support. ST Aero’s early involvement with its
customers to define requirements and share ideas enabled it to capture
a new area of business growth.
Increasingly, the Group will exploit dual use technology to strengthen
our capabilities and develop a broader product and sales base.
The key is to constantly innovate. We cannot cling to ways which may have
served us well in the past but which are no longer relevant. Once upon
a time, the saying was, “If it ain’t broke, don’t fix
it." Then it became, “If it ain’t broke, fix it now before
it does break." The saying now goes, “If it ain’t broke,
break it before your competitors do." We must continually improve
ourselves and achieve greater heights.
New Areas of Growth
We continued to broaden our geographical footprint in 2003, primarily in
the key markets of China and the US.
We announced the formation of two joint ventures in China for the Aerospace
and Land Systems sectors. ST Aero entered into a joint venture with China
Eastern Airlines, one of China’s three airline groups, to set up
a commercial aircraft maintenance, repair and overhaul (MRO) facility in
Shanghai. The joint venture company will be managed and operated under
ST Aero’s global network of MRO facilities, and leverage on ST Aero’s
total aviation support capabilities and global customer base. Another joint
venture was set up in Beijing to engage in China’s growing construction
market. Known as Beijing Zhonghuan Kinetics Heavy Vehicles, it will focus
on the design and manufacture of heavy commercial and industrial vehicles.
Both joint ventures are awaiting regulatory approvals and are expected
to be operational in 2004.
In the US, we acquired Miltope, a leading manufacturer of rugged computer
equipment for military applications and computer related products for the
commercial aerospace market. Miltope has a good strategic fit with ST Engg’s
businesses and will extend our reach in the US, giving us access to the
growing defence market and the commercial business network of Miltope.
During the year, we made inroads into other new overseas markets by securing
modest orders for our exports which we hope to build on in future. Some
of our products and systems are also undergoing evaluation and trials in
European countries, a step forward towards entry into these markets. |
We also made a modest
entry into the Central Asia market by signing an agreement to
assist a state owned company develop into an industrial entity
in the engineering sector.
Divestment
In 2003, we continued to rationalise our businesses. In reviewing our US
Aerospace MRO facilities and the business outlook of each facility, we
made the difficult decision to close down DalFort Aerospace in Texas in
October after we were unable to overcome its limitations as a narrow-body
facility. Subsequently in December, we sold the lease on DalFort Aerospace
facility to Virginia Aerospace at a total consideration of US$6.5m. We
remain committed to growing our MRO business in the US through our two
main facilities in Mobile, where we are adding two new hangars, and in
San Antonio.
Business Excellence
Following the success of the Six Sigma programme in ST Kinetics, we extended
the business leadership and performance system to the entire Group. Like
Kaizen, this flexible system will help us inculcate in our workforce a
determination to pursue excellence using every tool at our disposal and
to constantly innovate and reinvent the way we do things. We continued
to invest heavily in staff training and development throughout the year.
Awards
ST Engg was awarded the Singapore Innovation Award 2003 – Innovative
Organisation of the Year by the Singapore Innovation Council. This is testimony
to our culture of innovation which is pivotal to the Group’s development
of new capabilities and intellectual property.
We continued to set industry standards in corporate transparency and governance
by winning two key awards this year. We became the first company ever to
be awarded the SIAS Transparency Excellence Award by the Securities Investors’ Association
(Singapore). This honour comes from winning the SIAS Golden Circle Award
for transparency across all categories for three consecutive years. We
also won a Best Managed Boards award from The Singapore Institute of Directors,
which recognises initiatives by company boards towards good corporate governance.
These awards reflect ST Engg’s deep commitment to build and uphold
best practices in corporate governance. |
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Going
Forward
In the domestic market, we will maintain our focus in developing capabilities
to stay relevant to MINDEF, and support and partner them as they transform
and evolve.
As we expand beyond the shores of Singapore to boost our growth, we will
capitalise on our financial strength and brand name. These attributes put
us in a unique position to acquire, collaborate and partner companies internationally.
Our efforts to enter new markets are starting to bear fruit as we secure
and build on modest orders in some of these markets. We will continue to
commit resources to grow our export markets and our international operations
and networks.
We will continue to seek acquisition opportunities in the US, China and
other parts of the world, and invest in technologies that will spearhead
the development of new products and systems, and further integrate our
global enterprise.
We are optimistic about the outlook for three of our sectors – Aerospace,
Electronics and Marine – where current growth prospects are positive.
The Land Systems sector will need more time to address structural changes
and to reinvent capabilities through investments in research and development.
We would like to record our deep appreciation to our Directors – Lieutenant-General
Lim Chuan Poh and Mr Philip Tan Yuen Fah – who retired this year
from our Board. Their contributions will certainly be missed. We are happy
to welcome Mr Koh Beng Seng, Major-General Ng Yat Chung, Dr Tan Kim Siew
and Brigadier-General Bernard Tan Kok Kiang to our Board. They bring new
ideas and fresh perspectives which will help the Board to guide the Group
going forward.
To our shareholders, customers, partners and suppliers, our thanks for
your support and sharing.
And to our staff, for making it all happen. We admire your energy and passion
in going the distance. |
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PETER SEAH LIM HUAT
Chairman
28 January 2004 |
TAN PHENG
HOCK
President and CEO |
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