ST Engineering Annual Report 2020

FINANCIAL REVIEW / ST ENG I NEER I NG 68 ECONOMIC VALUE ADDED (EVA) The Group’s FY2020 EVA attributable to shareholders of the Company of $286.4m was 10% or $30.6m lower than that of FY2019. The decrease in EVA was mainly attributable to lower Net Operating Profit after Taxation, partially offset by lower capital charge. EVA Statement 2020 $m 2019 $m Profit before tax 534.4 695.2 Adjust for: Interest expenses 57.4 50.5 Others 1.6 40.0 Adjusted profit before interest and tax 593.4 785.7 Cash operating taxes (Note 1) (62.3) (191.0) Net operating profit after taxation – (a) 531.1 594.7 Average capital employed (Note 2) 5,519.0 4,816.9 WACC (Note 3) (%) 4.5 5.6 Capital charge (248.4) (269.7) Adjustment to capital charge (Note 4) (11.2) (13.5) Adjusted capital charge – (b) (259.6) (283.2) EVA – [(a) – (b)] 271.5 311.5 Non-controlling interests' share of EVA 14.9 5.5 EVA attributable to shareholders of the Company 286.4 317.0 Note 1: The reported current tax is adjusted for the statutory tax impact of interest expense. Note 2: Monthly average equity plus interest bearing liablities and general provisions. Major Capital Components: ($m) Borrowings 2,491.2 Equity 2,750.5 Others 277.3 5,519.0 Note 3: The Weighted Average Cost of Capital is calclulated in accordance with ST Engineering Group EVA Policy as follows: (i) Cost of Equity using Capital Asset Pricing Model with market risk premium at 5.0% (ii) Risk-free rate of 0.91% (2019 @ 2.16%) based on yield-to-maturity of Singapore Gevernment 10-year Bonds; (iii) Ungeared beta at 0.72 (2019 @ 0.72) based on ST Engineering risk categorisation; and (iv) Cost of Debt at 2.10% (2019 @ 3.17%) using actual cost of the borrowings. Note 4: Adjustment on deferred capital charge on some acquisitions.