ST Engineering Annual Report 2020

CORPORATE OVERVI EW PERFORMANCE REVI EW SUSTAINABI L ITY CORPORATE GOVERNANCE F INANCIAL REPORT For the latter two factors, ST Engineering has ready access to short term funding through a U.S. Commercial Paper Programme which we established in 2019. We also have a Multicurrency Medium Term Note Programme (MTN) programme from which we issued US$750m five-year bonds in April 2020 at a very competitive coupon rate of 1.5%. Against the backdrop of the COVID-19 pandemic, ST Engineering is still rated AAA by both Standard & Poor's and Moody’s. Our balance sheet has sufficient capacity to support growth either organically or through M&As where the target company provides a good strategic fit, adds value and presents high execution certainty. Beyond managing working capital like payables, receivables and inventory turn times, portfolio management allows for capital to be allocated to identified and promising business lines. Those in unattractive sectors that are difficult to scale are candidates for divestment. We have, over the years and across countries, divested businesses that are non-core. Such portfolio management efforts must continue as the macro-economic, geopolitical and technological forces continue to shape the environment and prospects of the businesses that we operate in. A notable capital recycling initiative in 2020 was the successful execution of an Aircraft Engine Asset- Backed Securitisation project. This project effectively raised US$270m (about S$370m) for TEAM, our JV company with Marubeni. Notwithstanding the securitisation, our Aerospace business retains the asset manager role and continues to create value for lessors through our innovative asset management solutions. "Portfolio management efforts must continue as the macro-economic, geopolitical and technological forces continue to shape the environment and prospects of the businesses that we operate in." Q/ How do you measure the financial performance of the three new segments* of the new organisation? Investors should first assess the Group's strategic vector and determine if it makes sense, whether the Company is tracking it, and if it does what it says it would do. Also, investors should continue to look at the performance of the Group as a whole. Earnings Per Share, Return on Capital Employed and Economic Value Added remain relevant. In addition, investors should pay heed to our businesses in high-growth emerging areas like smart mobility, satellite communications and cloud-managed services. These areas would constitute a larger and meaningful part of the whole and command higher multiples when executed successfully. We are of the view that Earnings before Interest and Tax (EBIT) is a key metric to measure the financial performance of business segments. Items such as interest and taxes are stewarded centrally at the Group level and are therefore excluded from the business segment performance metrics. 29 ANNUAL REPORT 2 0 20 / * The three segments under the new financial reporting framework are: 1. Commercial Aerospace 2. Urban Solutions & Satellite Communications 3. Defence & Public Security