LETTER TO SHAREHOLDERS Southeast Asia, leveraging our strong track record built over the years in providing a strong suite of transportation solutions in these cities. Beyond TransCore, our Smart Mobility business has been winning contracts for landmark projects around the world. Headlining our wins in 2022 was the contract for the new Kaohsiung MRT Yellow Line in Taiwan, where we will provide turnkey rail services and serve as overall project management and systems integration lead as part of a consortium with Siemens Mobility and Stadler Rail. These developments bring us closer to becoming a market leader in Smart Mobility and will help us to build up our position in the Smart City space. Airbus P2F conversion business takes off. According to IATA, 2022 was one of the strongest years for the air cargo industry. Unsurprisingly then, it was a big year for our Airbus P2F conversion business. At the programme level, we also turned gross profit margin positive in the last quarter of 2022, a significant milestone. We completed our family of Airbus converted freighters solution suite when we redelivered our first freighter based on our A320P2F programme in July 2022. Other platforms within the family — the A330-300P2F, A330-200P2F and A321P2F — were redelivered in 2017, 2018 and 2020 respectively. Conversion slots for our A320/321P2F and A330P2F are fully booked through 2026. Freighter conversion is our core competency, and we have invested in the Airbus P2F conversion capability and business well before COVID-19 expecting it to be profitable over the long run. While pent-up demand from the COVID pandemic may eventually subside, fundamental demand is still strong as freighter capacity planning by freighter airlines is long-term in nature, riding over multiple economic cycles. This is also the reason we have increased our conversion capacity across our global network by adding Shanghai and Mobile, Alabama to our conversion sites in San Antonio, Texas; Dresden, and Singapore. To meet strong demand, we are collaborating with Turkish Technic and Ameco as third-party conversion houses to provide conversion services for our A330P2F programme. At the time of writing this letter, we announced our intent to collaborate with Sichuan Haite Hi-Tech for it to carry out conversions for our A321P2F programme. These developments augur well for our Commercial Aerospace business, which is well on its way to achieving our 2026 target of more than $700m of annual revenue from the freighter conversion business. Disciplined portfolio management continues. After a thorough review, we divested our U.S. Marine business, following years of challenges and losses in operating the shipbuilding and ship/rig repair businesses despite significant efforts to turn them around. The divestment enabled us to avoid future losses, while enabling management to focus on growth businesses. In late 2022, we also decided to wind up our Autonomous (AV) Bus unit that was started in late 2015. We still firmly believe that autonomous buses are closer to being commercialised compared to other types of autonomous vehicles. The business needs are evident and the path to reaching the required levels of performance are also better known and more attainable. While we have made considerable technological progress, there are still technical and operational milestones to be reached. As the financial resources needed for this continuing effort are significant, after careful evaluation, we decided to withdraw from further AV bus development. Our robust order book, a leading indicator of growth, points to stronger business activities… 06 ST ENGINEERING ANNUAL REPORT 2022
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