Singapore Technologies Engineering Ltd (S63) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to ST Engineering's First Half 2020 Results Briefing. We have with us today Mr. Vincent Chong, President and CEO of ST Engineering; Mr. Cedric Foo, CFO of ST Engineering; Mr. Lim Serh Ghee, President of Aerospace sector; Mr. Ravinder Singh, representing Electronics sector; Dr. Lee Shiang Long, President of Land Systems sector; Mr. Ng Sing Chan, representing Marine sector; and Mr. Jeffrey Lam, Deputy President of Aerospace sector. We will begin today's briefing with the proposition by our CFO. Mr. Jeffrey Lam will then share an update on our Aerospace business before we invite our management for our Q&A session. Without no delay, I'll hand over to Cedric. Cedric, please?

Ladies and gentlemen, let me start over again. A very good morning to each and every one of you. And welcome to the ST Engineering first half 2020 results briefing. Kindly refer to Slide #4. The group posted an even-keel set of results compared to the same period last year, it means the various impacts brought about by COVID-19 and then. We recorded a revenue of $3.57 billion, which is 2% higher year-on-year. Our EBIT for the period stood at 292 -- $299.2 million, which is 3% lower year-on-year. Our profit before tax stood at $286.4 million, which is 13% lower year-on-year. Finally, our net profit came in at $257.4 million, which is 4% lower year-on-year. Please refer to Slide #5. This slide shows the revenue and net profit movement between first half 2019 and first half 2020. First, I will discuss the left side of the slide and the revenue. In the first half 2019, the group recorded $3.51 billion of revenue. Our Aerospace and Electronics sectors, excluding acquisitions -- I will request everybody else to mute the mic, if you're not speaking. Thank you. Our Aerospace and Electronics sectors, excluding acquisitions, had a reduction in revenue of $291 million or 8 percentage points. These 2 sectors were most impacted by COVID-19. Our combined Land Systems and Marine sectors experienced an increase of revenue of $68 million or 2 percentage points. New growth, which included MRAS and Newtec acquisitions generated $284 million or 8 percentage points of revenue increase. Newtec has since been renamed iDirect Europe, and I shall use that term going forward. Hence, in first half 2020, the group recorded total revenue of $3.57 billion, which is 2% higher than first half 2019. I will now discuss the net profit, which is on the right-hand side of the slide. In the first half 2019, the group recorded a net profit of $269 million. This figure was dropped down by impairments and fair value changes of associates, which amounted to $24 million or 9 percentage points during the first half of this year. Additionally, our Shipbuilding business recorded a $10 million drop in net profit or 4 percentage points. The remaining net impact, including COVID-19 effects and aided by government support and our in-house cost reduction initiatives, generated $22 million or 8 percentage points. Hence, the net profit for first half 2020 stood at $257 million or 4% lower than first half 2019. Let me move on to Slide #6. In first half 2020, Aerospace constituted 41% of group revenue; electronics, 30%; Land Systems, 18%; and Marine, the remaining 11%. The breakdown of revenue in first half 2020 between Commercial and Defense was $2.4 billion and $1.2 billion, respectively. In terms of customer location, Asia constituted 51%; the U.S., 24%; Europe, 19%; and others, 6%. Let's move on to Slide #7. Amidst the pandemic in first half 2020, our Aerospace and Electronics sectors successfully secured $2.7 billion in new contracts. This value excludes contracts secured by the Land System and Marine sectors for customer confidentiality business. As a result of our new contracts, our order book as at June 2020 stood at $15.9 billion, a reach about $3.2 billion will be delivered as revenues in second half of 2020. Slide #8, please. This slide shows the breakdown of revenue by sectors. In our Aerospace sector, total revenue was $1.47 billion, up by 1 percentage point. This increase was a result of the full 6 months contribution compared to 2.5 months contribution by MRAS for first half 2020 and first half 2019, respectively, while we acquired MRAS in April of 2019. Now excluding the revenue contribution from MRAS, our aerospace revenue in first half 2020 would have dropped by 17%, and aviation, as you all know, is one of the hardest hit area due to COVID-19. Our Electronics sector recorded a revenue of $1.07 billion in first half 2020. This represented a 2% drop from first half 2019. This figure also included a full 6 months revenue from Newtec oblique iDirect Europe, which was acquired in October 2019. And therefore, its revenue performance was not shown in first half 2019, but was shown fully first half 2020. Excluding the revenue contribution from iDirect Europe, the Electronics sector revenue would have dropped by 7%. Next, Land Systems. This sector recorded a revenue of $644 million, which was 4% lower than first half 2019. Our Marine sector recorded a revenue of $385 million, which was 34% higher than first half 2019. In all, the group recorded a total revenue of $3.57 billion, which was 2% higher than the same period last year. Excluding the 2 acquisitions I talked about, the group's revenue in first half 2020 would have dropped by 6 -- by 7%. Slide #9, please. This slide shows the net profit breakdown. The Aerospace sector recorded a net profit of $105 million, which was 17% lower than first half 2019. This was a sector most affected by COVID-19 because its customers are in the affected aviation industry. The Aerospace sector also recorded some impairment of intangible assets and receivables as a result of the weaker outlook for future cash flows arising from COVID-19. Our Electronics sector recorded a profit of $87.6 million, which was 7% higher than first half 2019. Our Land Systems business recorded a profit of $41.8 million, which was 17% higher than first half 2019, due primarily to a strong defense business, which was partly offset by its commercial specialty vehicles business in the U.S. The Marine sector recorded a profit of $21.4 million in first half 2020, which was 19% below that of first half 2019. Its Shipbuilding business in the U.S. was weaker due to cost overruns on a couple of projects. One of which was priced at a trough of the Marine industry in 2018 to cover fixed costs. In summary, the group recorded a net profit of $257.4 million, which was 4% lower than the same period last year. And given the pandemic effects, it was a good set of eventual results. Please refer to Slide #10. As for net profit margins on the right side -- right-hand side, the Aerospace sector came in 2 percentage points below the same period last year. In the case of Electronics and Land Systems, they both came in 1 percentage point lower -- higher. Let me say that again. In the case of Electronics and Land Systems, they both came in 1 percentage point higher. In the case of Marine, the net profit margin was 6%, 3% lower than the same period last year due to the reasons I just described. Now let us move on to Slide #11, and let me highlight some of the major changes to the balance sheet. If you look at row number 4, our current liabilities as at 30th of June 2020 -- so it's row number 2, 4, 6, and 7 under current liabilities, it stood at $3.85 billion, down from $5.45 billion. This was a result of the group's successful bond issue in April this year. And part of this proceeds was used to repay our short-term U.S. commercial paper, thereby reducing current liabilities. At the same time, noncurrent liabilities, which stood at $3.09 billion as at end June 2020 compared to $1.58 billion as at end December 2019, this increase was largely due to the bond issue, which is noncurrent liabilities of USD 750 million, which was raised in April this year. Slide #12, please. Net cash from operating activities for first half 2020 was $1.02 billion compared to $423 million in first half 2019. This difference was a result of positive EBITDA in 2020 and also customer advances that we received in first half 2020. The group's net cash flow yield in investing activities was $151 million as at first half 2020 compared to $823 million in the same period last year, due mainly to the acquisition of MRAS. In the first half 2020, the group recorded a tax outflow from financing activities of $984 million compared to an inflow of $308 million in first half 2019, primarily due to the repayment of U.S. commercial papers and bank loans in first half 2020 compared to a drawdown of short-term bank loans in first half 2019 as bridge financing for the acquisition of MRAS. Kindly refer to Slide 13. The Board has approved an interim dividend of $0.05 per ordinary share. This dividend is payable on 2nd September this year. This interim dividend is consistent with past years' dividends. The retained earnings of $1.39 billion or the equivalent of $0.445 per share as at the end of 2019 went to show that the dividends that will be payable this year can be adequately funded out of all past years' retained earnings. Finally, Slide #15 on the CEO's message and outlook. Let me just read it out to you. We entered COVID-19 pandemic from a position of strength. Our technology and engineering foundation built up over the years, our strong balance sheet, our diverse business mix and robust order book helped us weather the impact of COVID-19 and help us maintain an even-keel to set of results for the first half. We are cognizant of the tailwind afforded us through the various government support schemes, especially the Singapore Government Job Support Scheme. We do not expect such support beyond this year, and we are working to position the group to come out on this pandemic stronger and more competitive. This means focusing on cost reduction, productivity and talent acquisition, organizing for growth and serving our customers better. We are also alert to opportunities that have emerged or been accentuated as a result of COVID-19. We are well positioned to benefit from areas like passenger-to-freighter conversion and smart city solutions, including safe access control management. Finally, we are maintaining our guidance for 2020 revenue to come in between 5% and 15% lower versus financial year 2019. Thank you so much for your attention. I will now pass on the presentation to Mr. Jeffrey Lam who will talk to our Aerospace sector. Thank you.

Good morning. Today, I'm going to bring you through a short update of what's been happening with the aviation industry. Just hang on a moment. Testing. Okay, good. Good morning. I would like to bring you through a short update of the Aerospace sector in response to what's been happening with the aviation industry. On the first chart, you can see year 2020 has been an unprecedented year for aviation. We have seen aviation traffic plunge precipitously in a way never seen before in a very short period of time. On the upper-left chart one, you can see the passenger traffic, the red line plunging to near 0 over a period of 1 to 2 months. Cargo traffic saw a big dip in the short term. Subsequently, we saw some recovery as airlines scrambled to put more aircraft cargo, aircraft assets in the air. On the second chart, upper right, you can see that airlines responded by reducing the in-service fleet. And the fleet across all the narrow-bodies, wide-bodies, regional commuter aircraft, we saw a reduction of fleet of close to 50%. Even the fleet that continued to be in service at the time was flying less, flying fewer passengers, and we're generating a lot less revenues for our airline customers. The chart, lower right. As a result, the OEMS, Boeing, Airbus and the others have had to respond by reducing the production rates of aircraft. In addition, as a result of capacity cuts, they've also had to announce reduction in workforce. You can see the dramatic implications for both these companies, including 15,000 and more job cuts across the workforce. And across Boeing and Airbus production rates, you could see reduction of between 20% to 50% reduction rates. And we see the OEMs continue to make minor adjustments to these production rates. So what does this mean to MRO? On the fourth chart lower right, you can see a forecast by Oliver Wyman that the 2020 MRO market has reduced by almost half from a high of over USD 80 billion annually to about USD 50 billion. And the recovery is expected to take several years. And at the moment, forecast continued to be made as to when we will see a steady sustained recovery in terms of our airline customers returning to flying. The downstream impact on the suppliers going in Airbus is evident. Systems, components and major suppliers have to reduce the production rates across all of these components and go onboard the aircraft. So closer to home, what does this mean for us? Next slide, please. In addition to some of the short-term measures we have undertaken, including workforce management, cost management, customer management, working with customers to reschedule their work, working with our workforce and with the union to ensure the safe hygiene practices, teaming arrangements, reduction of overtime to manage costs. And we've even had to take a hard look at some of our postretirement employees. We are looking forward to priorities, including addressing the cost structure for the long term so that we can remain competitive as well as how we can improve our operations to improve safety and to raise the quality of our work. This means aligning the supply and demand of our services and accelerating digitization and automation initiatives. Secondly, rationalization. We have had to review our businesses to see if, as a result of COVID-19, the impact that it's had on our businesses, whether they are businesses that have long-term sustained viability. And we do intend to make some moves on exiting some businesses that have less long-term liability. Thirdly, positioning for growth, extremely key area for us. We continue to work with our partners to discuss potential partnerships -- strategic partnerships within Singapore, outside Singapore. We believe also that COVID-19 crisis is a great opportunity to look for possible acquisitions, and this work continues to be very active. In addition, there is a renewed sustainability focus by the industry as evidence by the support package that France provided to Air France, for example, where there was an expectation for airlines to move to a more fuel-efficient aircraft to reduce carbon emission. So as a company, ST Engineering is also looking to do its part. We continue to review initiatives, including solar energy, waste reduction as well as carbon fiber recycling, for example. Hopefully, engaging China. This is a very key area of focus for us. China also has great aviation ambitions. So in terms of the capabilities we have across MRO and OEM new production, we are continuing to engage China and Chinese partners to see how we can play a role to support the rise of these Chinese aviation options. Fourthly, the freighter business, which is one of our key anchor businesses. We see a great opportunity to grow the PTF business as well as to strengthen the supply chain because we acquired kits to support the PTF conversion programs. In addition, we are looking to provide more options to our customers in terms of integrated leasing and MRO options so that they can have a one-stop comprehensive service provided by ST Engineering. Particularly in the freighter business, we see an opportunity because we expect that asset valuations will go down in the coming months and years as a result of oversupply, overcapacity of passenger aircraft, in particular. Next, please. As we look towards recovery, we feel very fortunate that we do have a diverse portfolio of business across multiple business segments and markets. For example, in addition to the commercial business that we are engaged in, we also have a good defense business supporting our defense customers. In addition to supporting passenger airlines, we also provide MRO services to cargo airlines. And during the COVID-19 crisis, cargo airlines are actually doing better. There is more demand for cargo aircraft to carry cargo tonnage. This is because passenger aircraft that has been grounded, no longer can offer the belly hold, which carries, in a typical situation, about half of the world's cargo tonnage. So as a result of the grounding of many of these passenger aircraft, we see a rise in demand for cargo aircraft to carry cargo. In fact, we've also seen a rise in cargo freight rates for our business. So a lot of this potential impact can go one way or the other. Thirdly, as a result of our entry into the OEM business in a bigger way through the acquisition of Middle River, we -- in addition to doing the MRO business, which has been our traditional anchor business, we are now -- have a sizable business segment in the OEM business. Fourthly, in addition to doing MRO, and here we are quite different from other typical MROs you find around the world, we have significant engineering capabilities where we can certify new products, sign off supplemental type certificates and do conversions and modification programs for our customers. Lastly, in addition to being headquartered in Singapore and having significant capacity in Singapore, we have significant capacity outside of Singapore across the U.S., Europe and Asia. In fact, today, more than half of our capacity resides outside Singapore. So to every crisis, there is an opportunity. And the silver lining, as we mentioned and as Cedric mentioned earlier as well, is the passenger to further conversion program. You can see chart 1 on your left. The increased demand for cargo aircraft as a result of the decrease in capacity offered by passenger aircraft. Second, chart center -- lower center. You can see the projections of the forecast of aircraft assets that will see price devaluation as a result of many retirements. The industry forecast a fivefold increase in aircraft retirement in the coming 12 months, attaining a retirement rate of about 2,000 aircraft. And so we expect aircraft to cost less, and this is going to provide better feedstock, lower cheaper feedstock into our passenger-to-freighter conversion programs. And as we speak, we continue to work with our suppliers to increase the kit material options through the supply chain as well as the ramp-up on capacity across our global network to take more of these conversion programs. Third, lower-right chart, you can see, we are also trying to offer solutions to support our customers to enable them to go back to flying safely. For example, clean cabin solutions including coating, hygiene coatings, including ionization of cabin air solutions, including seat separation and all of these solutions. We'll continue to work with customers and are looking to certify some of them before the end of the year. Finally, moving on to the next slide. We continue to invest in our efforts to innovate and to look for opportunities to improve our productivity to raise our quality as well as to improve the safety of our operations. And here, you can see, we have shared in the past our smart MRO initiatives around digitization, 5G initiatives, additive manufacturing as well as wireless tools. And here, one example, center upper right -- center upper is our short ship delivery system using our in-house developed drone. You may have heard that yesterday, we just completed a demonstration very successfully for foodpanda to deliver food within 5 minutes from Marina South Pier to an offshore ship to deliver food that is cooked, warm in Singapore to an offshore ship. And here, beyond delivering food, obviously, we're able to do all kinds of support to offshore ships, including delivering spare parts, documents, inspections, for example. We continue to work with customers as well as regulators to enable some of these technology developments to be applied in the Singapore environment and hopefully, globally. Upper right, you can see we also are working with the CAS through our aviation challenge to develop a mast used with an inspection device high on mast for an aircraft, something that would take our engineers and technicians a lot of time and risk their safety to climb high over the aircraft, inspect aircraft, for example, for lightning strike. Lower left, I talked about a number of safe cabin solutions by offering customers. Lower center, you can see our passenger with reduced mobility laboratory. If you have visited us at the air show recently in February, you may have seen how we are able to increase the footprint of a lavatory onboard an aircraft by 40% without actually requiring additional footprint. And this product and solution has been very well received by a number of customers, and we are working towards certifying this solution in the coming months. Last but not least, the lower right. In response to some of the -- some of what the airlines are doing to address COVID-19 crisis with the disappearance of the bellyhold passenger aircraft, some airlines have resulted to using passenger cabin to carry cargo. And here, we are offering our airline customers a solution where the passenger cabin can be empty of passenger seats, and we are developing these small, mobile cargo platforms to be -- to enable and facilitate the ease of loading cargo on to passenger cabin versus currently, some airlines are just strapping cargo onto aircraft passenger seats. And so these are some examples of the solutions we continue to work on to take opportunity from crisis and to see how we can continue to offer innovation and good product solutions to our customers to support them in this time of crisis. So we look forward to continuing to see how the airline industry will continue to recover. We are very hopeful that this is no more than a blip in aviation history, which has seen very steady growth over the last -- over 100 years and we are very confident that the aviation industry will one day recover and surpass what it was before COVID-19. Thank you very much.

Thank you, Jeffrey. I will now hand over to Vincent to deliver his remarks before we proceed for our Q&A session. Vincent, please?

Okay. Good morning, everybody. Well, thank you for joining our first half results briefing -- or first half year results briefing. Like many other corporations, we were -- or we are impacted by COVID-19 broadly in the areas of reduction in customer demand, supply chain challenges as well as workforce disruptions, especially for Aerospace and Electronics sectors, as I have mentioned in our first quarter update. Now, however, we managed to maintain even-keel for our first half year results, helped by mitigating factors, including having a diverse revenue stream -- or having diverse revenue streams in terms of business sectors, defense versus commercial, customer types and geographies, efficiency as well as cost reduction initiatives that we have been pursuing support from various governments stimulus packages and importantly, a robust order book, which Cedric had mentioned. Group revenue was up 2% year-on-year at $3.57 billion, including contributions from newly acquired MRAS as well as iDirect Europe or formally known as Newtec. Revenue would have been 7% lower year-on-year, if not for the impacts of these acquisitions, which we completed in April and October last year, respectively. Now this in turn impacted our profitability, which was also hit by impairments that we have to make to reflect the business impact of the pandemic. This includes provisions for doubtful trade receivables as well as change in fair market value of certain investments that we are holding under our corporate venture unit. However, our U.S. Shipbuilding business experienced project losses, which affected profit, as Cedric had explained earlier. Now notwithstanding the underlying strengths of our business in the various mitigating factors, net profit was 4% down versus last year same period. The Job Support Scheme in Singapore and internal cost-cutting initiatives did help to mitigate the negative impact. On Singapore JSS, we accrued about half of the 10-month subsidy in first half of 2020. Over and above the Singapore JSS, the group will also receive COVID-19-related support grants in certain other countries where we have locally incorporated businesses. And for full year 2020, the group expects to receive a combined COVID-19-related support grant of more than $300 million, of which less than half was received in the first half of 2020. So we expect a combined COVID-19-related grant support of more than $300 million for the full year 2020, and less than half of that was received in first half of 2020. On cost management and reduction, we responded very quickly by prioritizing or reprioritizing our spending. We'll pursue cost reduction and [ avoidance ] opportunities to mitigate slower business growth, lower business demand. In addition to cost reduction initiatives, we are also pursuing productivity and revenue capture opportunities to compensate for the likely absence of government COVID-related grants and support in 2021 or next year. Barring unforeseen circumstances, with partial recovery of demand in 2021 and mitigating factors or measures, which I've just described, we are targeting to offset the absence of COVID-related support in 2021. So let's now turn to our sector performance against last year same period from the waterfall chart that we presented earlier. The action additions of MRAS and iDirect Europe contributed to our revenue. If not for MRAS, Aerospace revenue would have been down 17% instead of 1% year-on-year growth. As a result of the impact of COVID-19 and the ongoing challenging aviation industry, we have to carry out asset impairment and provide for doubtful debts. Net profit for Aerospace was down 17% year-on-year, partly offset by JSS or Job Support Scheme in Singapore. Jeff Lam earlier gave an update on the situation of the aviation industry, which is largely in line with what we shared in May during our first quarter market update. In terms of challenges as well as opportunities, the industry is still facing significant uncertainty on potential pace and timing of the recovery in passenger traffic. Many believe that it will be years -- a few years before the industry can return to precrisis levels, with industry views pointing to a recovery to pre-COVID level sometime in 2023, 2024, having said that actual recovery where we will closely watch because the situation is certainly unfolding and unevolving still. While the pandemic has impacted passenger market traffic -- or passenger traffic, air cargo segment is strengthening, as Jeff mentioned earlier on. Now this has promoted airlines to face our idle passenger aircraft, thereby creating ample feedstock for greater conversion at residual values quite well below that while those aircraft would have patched back in February this year. So to this end, we are seeing heightened interest in our passenger-to-freighter conversions for A330 and A321 platforms. Meanwhile, we are working very hard to translate these requests or inquiries to orders in the coming weeks when we redeliver our first A321 converted freighter, which is a best-in-class volumetric freighter ID for express services. We are confident that market interest will be further peaked. Now this shows that there are some silver linings in the industry, and we are committed to making strategic investments for our long-term growth. As Jeff mentioned, we remain positive about the long-term -- longer-term growth prospects in the Aerospace sector, and we'll continue to selectively invest for sustainable growth. So for example, we have expanded [ our bank ] work through airline partners such as our JV -- our joint venture with Vietnam Airlines in the component repair business and are in the process of evaluating an air freight MRO JV with them. We're also investing in smart MRO to deliver our services more efficiently as in the case of our in-house developed DroScan. DroScan uses automation and smart analytics capabilities for aircraft inspection that was already passed on airline customers, including Air New Zealand in June. CAS also gave us the authorization for DroScan to be performed on Singapore registered aircraft. So that's a good development for us. Now let's move to Electronics. Revenue for the sector was 2% lower year-on-year, largely because of COVID-19, impacting project milestones and delivery schedules due to travel and movement restrictions. We post big countries we serve as well as supply chain disruptions. But Aerospace benefited from the revenue contributed by this newly acquired company for iDirect Europe, which helped offset this lower growth in the communication business as demand fell or ground infrastructure from some satcom customers, especially those in the aviation and maritime segments. If we exclude iDirect Europe, first half 2020 revenue for the sector would have dropped 7% year-on-year. Though revenue was down, net profit grew 7% year-on-year for Electronics, helped by government support and a relatively stronger performance in other business units. While COVID-19 is disruptive on many fronts, it has also created opportunities for new businesses, and we are seeing encouraging trends for our Smart City solutions. Some industries are adjusting their structures to meet newer needs, taking advantage of advanced technologies to bring about different service or business models in the new normal. We are seeing higher demand for secured digital solutions and safe access control management systems, for example. I will now touch on Land Systems. Despite a stronger defense business, its revenue was down 4% versus last year, due mainly to a slower commercial business with lower sales from U.S., specialty vehicle and many bus businesses. Its net profit was up 17% from the 36.5 -- I'm sorry, $35.6 million to $41.8 million, helped by government support and lower operating expenses. On defense opportunity, we have formed for a JV with IAI in Israel to market advanced label result systems as we have just recently announced. Focusing for now on the Blue Spear, an anti-ship missile system. So this is backed by a partnership that went back a few years working to jointly develop a missile system in light of a growing demand [ in ] partnership. Now turning to Marine. Its revenue was up 34% year-on-year, but net profit was down 19%, largely due to weaker U.S. Shipbuilding performance. This relates specifically or particularly to the Auxiliary Personnel Lighter project, or APL project, also refer to as the burning budgets that we are building for the U.S. Navy. We were awarded a contract for 2 units with options for 4 units a couple of years ago. As you know, 2 years ago, 2018 was the trough of the marine industry back then. And at that point, our objective was to be built under the current fix overheads and keep the operations going. The dip in 2018 was submitted on a big win margin, but with the aim to execute project safely, on time and on budget. Now while we are disappointed with the excessive cost of the project that in turn impacted the bottom line of the sector, we are working very hard to better manage our resource and risk, and regain trade controls, control our costs on the project. Over and above that, we are focused on delivering other existing contracts in the U.S., prepare the shipyard and its workforce to successfully construct the Polar Security Cutter, or PSC, which I'm glad to share that it is trading well. In Singapore, we expect work to pick up with the majority of our workforce returned back to work from August. As shared before, our yard operations were impacted by the quarantine of migrant workers resulting in project delays. We lost revenue as some ship owners have to direct their vessels for repair in other countries in the last few months in some instances. So that's really the situation for many. Now before I highlight new contracts and order book next -- in the next section, I want to end the discussion on the first half results by sharing that our Board of Directors has approved an interim dividend of $0.05 per share payable to shareholders on 2nd of September. Now let me iterate or reiterate what Cedric said earlier that we have not retained earnings to fund dividend as well as to reinvest in our business for growth. Using our cash is also important. It's sufficient to reinvest in our business for growth, while retained earnings is sufficient to fund dividend, keeping to our commitment to continue returning value to our shareholders despite near-term aberrations, and that's always in our position, as I have articulated in the past. Now on new contracts and order book. Notwithstanding a slowdown, Aerospace and Electronics sectors secured new projects of $586 million and $517 million, respectively, for the second quarter. While the respective total contract values are comparatively lower than previous quarters and understandably so under the current set of sentences, the new wins demonstrated the enduring strength of our business to still retain customer trust and confidence. So we do, however, anticipate a slowdown in the pace of new businesses in the near term, reflecting the disruptions the pandemic has on our operating environment. By having said that, our diverse portfolio and robust order book put us in good state to weather the crisis. The new wins in the second quarter, together with other contracts won but not disclosed after adjusting for revenue delivery and project solutions, bringing the group's order book at end of June to $50.9 billion. And we expect to deliver about $3.2 billion from this order book in the remaining months of 2020, meaning second half of 2020. Let me call out a few recent significant wins, which is not yet in our order book. In mid-July, LGA awarded 2 contracts worth close to $150 million to Electronics sector for the provision of the integrated supervisory control system and the communication systems for the Jurong regional line, for [indiscernible], a domain here in Singapore. This contract adds to -- adds on to other real projects that we have won in the region including an automatic fare collection system for Thailand's pink and yellow monorails and an integrated supervisory control system for China's new sea control Line 4. Amid uncertainties, our way forward is to position for success when the market improved, focusing on mitigating measures, which I described earlier and leveraging on our strong fundamentals, so that we are ready to scale up or pull back as necessary to respond nimbly to extend other keys. This means making stride in our strategy to deliver the long-term growth we promised. And this has to be supported by an organization that is designed to better capture growth, structure for resilience to best serve our customers for global success. Additionally, having a future-ready workforce is crucial to which we have been upskilling and reskilling our people, including in causes to level up the digital efficiencies in areas such as robotics, cybersecurity as well as AI. We're also participating in numerous government-funded programs under the skills feature. And most recently, we signed up for the SGUnited Traineeship Programme, offering over 330 traineeship positions across our business sectors. Lastly, we are maintaining our guidance for our full financial year 2020 revenue to come in between 5% and 15% lower compared to full year 2019 based on our assessment that it will take some time for the global economy. Therefore, the industry is reserving to recover to the pre-pandemic level. Before I open the floor for Q&A, I would like to recap our senior management changes as announced a couple of days ago. Now Jeff Lam will be taking over as President of Aerospace sector effective October 1. Yes, we're working closely with Serh Ghee to grow our Aerospace business, especially since becoming the Aerospace sector's Deputy President in middle of 2018. In this new role, Jeff will continue to drive the growth of the sector, focusing on enhancing its position as a global integrated aviation solution provider with original equipment manufacturing and aftermarket capabilities. Serh Ghee will step down as President of Aerospace sector to become Chief Operating Officer for the group. In this newly created role, he will drive operational and cost efficiencies across the group and promote further integration of the group's business sectors. He'll also oversee IT procurement asset and facilities management functions. And also, Jeff will join us at the panel for Q&A. At the same time, Eleana has decided to retire from her Chief Corporate Officer position. And we want to thank Eleana for her many contributions over the years, including her 10 years as CFO also our CCO. We wish her all the very best in her future endeavors. Now with this new appoints of Jeff and Serh Ghee, we have certainly strengthened our management bench to take the company forward to pursue growth. And in times where -- in this unusual set of circumstances, it's ever more important that we have dedicated attention given to driving more operational cost efficiencies across the group as far as promoting a further collaboration and integration in pursuit of our business growth opportunities, and Serh Ghee's experience will certainly be very helpful in his new role as a COO to drive progress and capture opportunities in these areas that we have just described. So on that note, we will start the Q&A session. And we'll hand over the facilitation to Lina, and we're ready to take your questions. Thank you.

Thank you, Vincent. This is Lina, Lina Poa, Head of IR. I will be facilitating the Q&A. For those of you who want to ask questions, let me recap what Dave said earlier. [Operator Instructions] Now let us see who's first on the queue. Do we have anyone? So Horng Han, you have asked -- you have raised your hand. So Horng Han, please go ahead and ask your question, Horng Han from CLSA.

I'm trying to understand the group revenue and the recurring profit trend. If we do strip out the job support scheme contribution, which I think is close to half of the over $300 million in 2020, the recurring profit will be significantly lower year-on-year in the first half. So what I'm trying to reconcile is the group financials because the group revenue is flat year-on-year, but recurring profit seems to be a lot lower. Does it mean the core margins in the first half has come under pressure? Would this be the current interpretation? Do correct me if you think I'm wrong.

Yes. Horng Han, let me try and take this question. First of all, I think the COVID-19 is really an unprecedented crisis of a lifetime. So basically, many governments around the world, they do see it when the demand is very low on lockdown, the medical problem, the future prices as well that they come forward to provide stimulus support, so that capacity and capability of companies actually don't -- will turn around after the pandemic goes away. We need things like that. So I would not want to see it and frame it in a way where the analysts just deduct all the Jobs Support Scheme and conclude that the underlying P&L is actually a lot weaker. That is because without the Jobs Support Scheme we can expect many other companies to take many other measures. The companies to take [Technical Difficulty]. So I think that's one point I want to make. The second point I want to make, which is to reiterate the point in the CEO statement, which basically stated that we are cognizant of the fact that such support may not be available next year. And we are really well underway in looking at cost reduction efforts, some of which will bear fruit in the next couple of quarters, some will bear fruit even more next year. And some of these cost reduction measures are in the hundreds of millions and many of them are quite intuitive. I mean, for example, we have cut salary, so that has been achieved, for especially senior management and Board. We have freezed bonus, and that is already in effect, and it will not unhappen. So this is really happening. We have curtailed travel because, practically, you can't travel today. Given travel alone is a couple of million dollars. And various other things like overtime with regard -- reduced as well as contract workers, some of them have been let off. So these true measures, if you bring them all together, will really help to compensate for the actions of [ company ] next year. So I do not want to premise in a way where the underlying profit is just only because of the government support scheme. There's a lot in-house cost reduction measures that we have taken and more to be taken.

So Horng Han, let me just build on what Cedric said. This is Vincent. Yes. Let's make sure that we get the points accurately. The figures accurately, so to speak, are interpreted. We said that we expect more than $300 million of -- worth of government support around the world, not just limited to Singapore, around the world where we operate, where we have local businesses, incorporated businesses, where we also benefit from the local government support. All in, we expect more than $300 million of support this year and less than half of that $300 million of support was received in first half of 2020. First point. Second point, we said that we have accrued about half of the 10-month Jobs Support Scheme subsidy in Singapore in our first half results. So that's separate. That's just Singapore portion. We have taken in about half of the JSS support in first half of 2020. Now let me just move on to reinforce Cedric's message. And then COVID-19 is an extraordinary event, and no company or group is immune or most of them, with very, very minor exceptions. So we've got to take measures to address the near-term challenges, but I think it's important for us to take a stock of our longer-term plans and not stop progressing those as well. And I've mentioned a few things. In the near term, we have to reduce costs, but not just that. We also want to pursue productivity as well as capture revenue opportunities brought about by COVID-19. And we have mentioned quite a few of them earlier on in the presentation, are for the ones-off offsetting or compensating for the likely absence of government COVID related grants and support next year in 2021. And I said, barring unforeseen circumstances, with partial recovery of demand in 2021 as well as the measures that I've just described, we are targeting to offset the absence of COVID related support in 2021, which is to the whole point about emerging, strong and resilient out of the COVID-19 this year. We have some financial support. Next year, we know we won't -- we don't think we're going to get, at least not this level of support. So we are working very hard to offset the absence of that financial support in 2021, as I mentioned. Okay.

Got it. Can I just follow-up on this? I mean, I understand the COVID impact is unprecedented. But if I look at the revenue line for STE, it's actually very respectable at the top line for a number of sectors like electronics, land systems, especially very good. But -- so you -- the profit decline is not due to a collapse or a drop in revenue. It seems like the profit decline is due to margin contracting. So I'm trying to understand what's the unexpected cost that was incurred in the first half across some of the sectors that result in this sort of a anomaly that we see in the first half itself? Simply because revenue was quite decent. It's not like a case where the company had to stop work. And then there was no revenue. As we can understand, there will be significant negative operating leverage. But looking at the revenue line, there should not be much negative operating leverage for some of the sectors.

Okay. Well, Horng Han, it's a good observation, but let me just recap what we said earlier on in the presentation. This is Vincent. First of all, the revenue top line is helped by the 2 acquisitions that we took in last year, that had only part year. It's not -- none -- no contribution in first half of 2019, right? So MRAS is part year contribution in first half, part contribution in first half of 2019 and Newtec or either Europe had none. So if you take out these 2 new entities that we acquired, our revenue compared to last year is 7% down. Now remember, we also have the cost base that come with the 2 acquisitions. At the same time, we also have impairments that we have made because of the COVID-19 situation. We've got to do stress testing, impairment testing, given the current circumstances. We did a prudent assessment, and we did some impairment. We had some doubtful receivables that we had to impair. Remember, we also said we have workforce disruption and supply chain disruptions that will incur higher costs. So that -- all those factors culminated in our profit situation. Of course, it's partly offset by the receipt of government grant, which I said less than half of that $300 million that we expect this year manifested itself in the first half of 2020. Okay.

Got it. Just 1 last question here. Can we understand how you breakdown your order book in second quarter between electronics and aerospace?

We don't really declare order book by sector, but the contract wins actually are quite healthy and robust.

Maybe we can talk a little bit about the contract business, both the electronics and aerospace.

Okay. Ravi will --Ravi?

This is Ravi. So first of all, if you look at the orders that we have secured for electronics is -- actually for the first half we are still quite fortunate, more than $1 billion. And many of these, of course, we've been working on it pre-COVID, right? So I think this was the result of the momentum that the teams have been undertaking. So in all our businesses, I would say that there are verticals that were affected, and I'll cover that, and there are verticals that we continue to maintain momentum. So as Vincent mentioned, our mobility business, our trade business has a good momentum. We continue to win significant contracts that are adding to our order book. In the other verticals like cybersecurity, actually, they have also done quite well in the first half as compared to last year. So that's good progress. On the Smart City side of the house, we continue to pursue contracts. And I think we've got a good set of orders. The challenge -- and, of course, I'll just mention in defense. Defense is one of our pillars, and we continue to secure good contracts, both for new programs as well as for our MRO work in the electronic sector. The 2 areas that we are affected significantly, one is satellite communication business. This is affected because the industry that we are strong in, which is the mobility segment or satellite communication. So commercial aerospace, crews and also sports events, that has actually been very significantly affected by the COVID-19. So we see a significant drop in terms of orders there, but we continue to be optimistic about our position in the industry after our Newtec acquisition. The other area that we are significantly affected is our IoT business, our Telematics and our Singapore-based IoT business. Although we had good orders, there has been a very steep decline in terms of 2 aspects. One, a lot of the tenders are being delayed simply because in terms of priorities, around the world, I think most governments are more focused on dealing with the COVID-19 issues and have delayed many of the tenders. And therefore, we have a drop in the order wins. At the same time, in terms of delivering on the orders that we had pick up, there's also a significant drop because COVID-19 has impacted workforce enclosure. So in the U.S., for example, we had a very significant contract, which we were not able to deliver because people were not going to work over the shutdown period. So that also impacted us. So if you look at electronics, I would say that there are verticals that we continue to do strong, continue to benefit from the orders we have had in the past. And there are areas that we are challenged. And we have to see in the next couple of months how some of these sectors are recovering. But on balance, electronics is quite diversified in terms of our opportunities. And so we are in a very strong position. And if the economy continues to recover, I think, electronic sector will be fine.

Shawn from JPMorgan.

Thank you very much for the presentation. So I have a few questions. I wanted to seek some clarification. So one is actually regarding the revenue guidance, 5% to 15%. So I understand that we are reaffirming the guidance. So I just wanted to understand what's the basis of this. Is this 5% to 15% pre-acquisition of MRAS, Newtec or is it post-acquisition of all those acquisitions made last year? So this is the first question. The second question I have is regarding cargo. I wanted to understand a bit more. Do you mind providing some guidance on the contribution for the cargo PTF to the aerospace portfolio? So I understand that we have obtained STC for Airbus, but sometimes there's some more difficulties in terms of the conversion time line as well. So do you mind sharing a little bit on that? And thirdly, in terms of -- I noticed the automotive segment saw a 5% revenue decline. This was in spite of the Hunter AFV ramp up. So wanted to ask for second half of 2020 do we expect to see a reversal in this trend as the Hunter AFV ramp up? And lastly, just a quick question on impairment. Do you mind share the impairment process that you currently take in terms of stress testing? And do we expect further impairment losses to be recorded in the second half of 2020?

Okay. Thank you, Shawn, for your questions. You have 4 questions. I will address your question -- this is Vincent Chong -- address your question on revenue forecast, outlook or guidance. And then I will let Jeff talk about cargo conversion time line. And then for automotive, I will let Shiang Long talk about it, whether -- give more insights on the profile. And then last but not least Cedric will talk to the impairment process and whether -- your question was whether we expect more of such in the second half of 2020. So on our revenue forecast, it is just a balanced set of assumptions based on what we already see this year. In first half of 2020, our revenues went up by 2% now. So our revenue forecast includes the acquisitions, okay, the impact of -- having a positive impact of acquisitions. However, you'll realize that COVID-19 impact is the hardest for the group in second quarter. Well, we don't break down the revenues between first and second quarter, but second quarter saw a harder revenue impact than first, which also means that the 2% increase in revenue we did get some support from our first quarter results. So in second half of this year, we have to take those input into consideration. And we came up with an outlook of 5% to 15% lower revenue compared to 2019. Now, of course, if in the coming months, we see any substantial change either -- in either direction we'll provide appropriate updates in due course. But we think the aperture of 5% to 15% lower revenue than 2019 is a pretty robust so-called revenue average based on what we already know and based on what we are currently seeing. Okay. So I will have Jeff walk you through the cargo, aircraft conversion time line and the related questions. Jeff?

Okay. Jeff speaking. Yes, very precedent question. We have delivered four A330s to DHL. We still have 2 currently in the works. We expect to deliver the first A321 before the end of the year. And as I mentioned earlier, we have 2 things that need to come together. One is the feedstock needs to be available. And then, secondly, we need the material kits supply chain to work itself through the COVID crisis. So we do expect that in the coming months and definitely next year we would be putting in place more capacity, more kits. And given the higher interest coming from various customers across the world, we expect to be able to put together a few lines of work across our network, so that we would be ramping up production of the conversion in a big way next year. Yes. So we do expect PTF conversion programs to play a significant role in terms of our business activity and in terms of recovery from COVID-19.

Dr. Lee now will take the question on automotive.

Shawn, thanks for the questions. This is Shiang Long. I think in terms of the automotive, you see there is a slight drop in the revenue. To give a little bit of color, while I'm not going to the specific detail, is that, for Hunter, we have successfully ramped up the production. So that is a correct observation by you. However, the commercial buses and as well as the overseas specialty vehicle -- the revenue has dropped. Last year -- compared to last year one half, we have delivered a substantive number of members to LTA that was because of the contract that we won earlier. And this year, while we still have some numbers of buses to deliver, but because of the supply chain and the COVID impact we have to ship it to the right. So the delivery will be few within this year. But for one half, you will see the impact. For LeeBoy and Hackney, you know there are significant impact of the U.S. economy, so we are continuing to monitor closely. But nonetheless, for one half, there are significant drop in the revenue. So that is why you see a slight drop in the overall revenue. To add a little bit of color on the PBT. The uplift is mainly due to the Hunter production and also due to our -- this -- some of the overseas ammunition sales that continue to deliver in one half. So you see that the commercial impact -- the impact is mitigated by the JSS. However, for the local Hunter ammunition production, we continue to have an uplift in that area.

I'll take the question on the impairment. This is Cedric. The impairment testing is a regular feature of accounting to produce a fair and true view of the status and state of the financial standing of the company in any financial period. So it is not new as a process. However, because of COVID-19, it has become increasingly difficult to forecast the future. And therefore, management has taken even more robust approach to look at impairment testing for the first half of 2020. So in summary, what we did was we look at each business segment, and we overlay with scenarios, which we obtain from reputable, the 10,000. And we use a probably weighted approach to determine what kind of forecast in terms of future cash flows each of this business unit would produce. And we also relooked at WACC, weighted average cost of capital, growth rates, margins as well as terminal growth rates and so forth. So I would just say that it is a very robust process this time because we need to take into account the difficulty in trying to forecast COVID. Of course, our auditor has reviewed it and concurred with the way we have done it. I would say that for this half, we did have quite a bit of impairment. As you can see from the slide in Page 5, there was $24 million of impairment. Whether or not there will be more impairment going forward, we will again conduct very rigorous testing at the end of next half. So it is difficult to speculate. But suffice to say that it will all depend on whether the COVID situation and its impact on businesses improves or deteriorates. Yes.

We'll go to the next -- Ajith, you are on the line. You're next, Ajith. Ajith from UOB, you are next on the line. Please unmute yourself. Then you can ask your questions. Let's move to Ray from Business Times. Ray, do you have a question for us?

Yes. Thanks for the briefing. So I have a couple of questions. First one is, I understand that you guys shared some of your longer-term plans for the aerospace sector. But in the short run, apart from just the greater interest in terms of the cargo aircraft conversion, what else are you looking at to do in the short run? And then also, just now you mentioned that you intend to make some moves on existing businesses in the aerospace sector that may not see through this COVID period. So could you share a bit more about that? And then how will this affect or change things in the company? And as well as for your workers, are you looking at any like layoffs or things like that?

Ray, can you repeat your second question because it's -- we want to make sure that...

No worries. Second -- okay. So second question, just now you mentioned that you guys are intending to make some moves on existing businesses with less long term viability, right, in the aerospace sector. So are you able to share more about that? And then what are the implications? Or how will it affect or change things within the company? And then on the worker side as well, are you looking at any layoffs and things like that?

I will ask Jeff to address your first 2 questions, but I'll take the last question on -- because it's applicable. I think it's a question that is across the group and not just aerospace, albeit the aerospace impact. Just to emphasize that at this point, our top priority is to ensure that our employees have a safe work environment amidst the pandemic, while implementing the necessary austerity measures to build up our reserves and resilience to ride out the storm. Our objective is to stay viable as a business and be ready for the market after. And I think that's what we are focusing on right now, making sure that our people's health and well-being are protected and that we have a safe working environment. And that continues to be our focal point at this point in time. So I would like Jeff to touch on first -- your first two questions, Ray, to give you some more insights on what we're doing here in aerospace.

Okay. Ray, Jeff speaking. Well, given the low level of activity that's going on in the aviation market with our customers, we are focused on doing our best to support them to get them back to flying, right. So other than some of the innovation projects that I mentioned that we continue to focus on, so that we can have medium to long-term competitiveness, we are actively working with customers on managing their workload rescheduling due to some lockdowns and quarantines. There are always challenges with movement of aircraft and equipment, assets and people to oversee some of this work. We are working with customers on the credit and the debt management. To some of our loyal customers, we work closely with them to extend credit, for example, so that they will be able to weather the storm better. In addition, some of our customers are looking at fleet adjustments coming out of the crisis. As you may have read, some airlines have already announced retirements of certain types of fleet. So these are the work that we actively work with customers on, in addition to some of the space cabin, hygiene cabin solutions that we work with them on. Okay. The second area, we did allude to the fact that we are reviewing some of our business areas to determine long-term viability. So for example, late last year, we also shared with you that we decided to exit the pilot training business. We continue to review other business areas. And in due time, when decisions are made, you will get to hear about them.

All right. Thank you, Jeff. Now Ray, this is Vincent speaking again. As you know, our business portfolio streamlining process has been ongoing for the last few years. Aerospace is not the only sector that we do that. We have been rationalizing our portfolio across the group, divesting businesses that do not fit our long-term strategy, taking a long-term view instead of reacting to short-term aberrations. We'll take the same approach here, albeit that COVID-19 had a pretty -- quite a steep impact on our business. We will take a long-term view of the business rather than just judging them based on the impact of COVID on them. And that's an ongoing exercise. That is not really specific to this current period of time. So we will continue to do that, keeping our long-term strategy in mind. So I hope that addresses your questions, Ray.

Let's now go back to Ajith at Kay Hian.

Yes. Sorry about that earlier on. Yes. I've got 2 questions. Firstly, I noticed there's an increase in contract liabilities in your balance sheet. So perhaps you could share in terms of which area are you seeing this increase in contract liabilities, which is certainly positive? Is it from aerospace or which divisions? And also, if you could share whether it's on commercial or from the military segment? So that's my first question. Second question is relating to aircraft -- or rather the sale of engines. I think in late last year you mentioned that you're planning to sell about 30-or-so aircraft engines. Can you share an update on that? Will that materialize this year? Lastly, I'd like to ask also whether or not STE is in the running to provide smart meters for PUB? Yes. These are my three quick questions.

Yes, Ajith, thank you for the questions. The first question is on contract liabilities. Yes, there is an increase in contract liability. And as Ravi pointed out it's a good thing [indiscernible] And this is largely cash advance from customers. We have -- we saw an increase in cash advance from customers in the first half of 2020. Second question can Jeff take it?

Yes. Okay. Yes. We did say that we were going to do the ABS for the engine business. The work is ongoing. The transaction has happened, but there is a subsequent work that's ongoing with regards to innovation. Today, we have innovated about half the number of engines that were planned for sale. Work is continuing to be done towards innovating the rest of the engines. And the many airlines have grounded the aircraft. So this has delayed some of this innovation work. But you will hear about the news later when -- if and when we do complete that.

Ravi?

There is a question whether we -- Ravi, this is Vincent speaking. We have a question, I think, with Ajith on whether we will participate in the smart meter project at PUB.

Ajith, this is Ravi. So just to clarify. So there are a number of smart meter projects being done. And there's a call for collaboration on the EMA side of the house as well as some on the PUB side of the house. So I'm not sure which one are you referring to. Can you clarify, so I can be more specific?

Yes. At least the 1 that I'm aware of is PUB.

Okay. All right. So in the case of the PUB smart meter. So anyway, in each one of these, we actually take a very good look at the smart meters themselves. As you're aware, we do the -- Telematics does the module for the communications, and we actually do build the smart meter. So what we do is we partner with different smart meter players, global players and participate in the various programs. For the PUB requirement, in particular, yes, we are participating, and we are working with different suppliers to see which is the best option that we can put together to serve the needs that have been defined.

Okay. If I may ask a follow-up question to -- again, regarding the contract liabilities. Could you elaborate whether it's on commercial or whether it's on military in terms -- or rather defense-related increase in that contract liabilities?

So we do not discuss details about customer's contract.

Next in line, yes, Siew Khee to ask the question please. Siew Khee?

Okay. I have 2 questions that I would just target to the respective management. So for Vincent, you mentioned that the partial recovery hoped in 2021 in cost reduction broadly offset some of the JSS benefits that we received this year. Can you just guide us through what's the sector that you see that will see recovery at the fastest speed and which are just the slowest? So that's for -- another question for Vincent is do you think -- in terms of sentiment from customers and also your operations, do you think this half would have been the worse already? Next would be for Cedric. The impairment on Slide 5, $24 million. Can you explain what is the $6 million intended as for other space? And also the trade receivable and contract assets impairment of about $12 million in aero led. How much is to each division? And also finally impairment to asset, $5 million, bad debt. For elect -- [ why is fair share ] PBT mark back there was a net profit? And how should we see this in second half? And also for aerospace, can you just -- what was true on the average capacity that you have seen across your hangers in first half, and what's the expectation in the second half? I think that would be quite helpful. And also, what's the capacity of production in terms of the [indiscernible] in MRAS now and your expectation that hit? Sorry, but just 1 -- just 2 more questions. Going back to Cedric. Maybe just walk through with us why is other profitable? Anything new here? And finally, for marine, revenue is quite strong year-on-year. Is it mainly from Singapore or U.S.? Same goes to ship repair. It's quite stable. Again, why?

Siew Khee, this is Vincent. Thank you for your questions. On your last question for Sing Chan, can you repeat it? Because the last part was -- didn't come very clearly.

For Sing Chan, the shipbuilding revenue was strong. Is it mainly because of Singapore or U.S.? Same goes with ship repair. It's been quite stable. Why is it so good?

So Sing Chan got that. So I will take your first question. In terms of rates of the recovery across the group. So let me just recap, right? We are targeting with partial recovery and the cost management steps and revenue capture initiatives, productivity capture opportunities. We try to -- we are targeting to offset the absence of job or rather government subsidies in 2021. So that one is exactly right. The sectors would recover at different pace. And some may not be directly proportional to how the global GDP rates will recover because the sector dynamics are rather different. So it is, at this time, very hard to say the exact recovery profile. We think that aerospace will take at least a couple of years, if not 3 years or 4, to get back to pre COVID level performance, but there are still opportunities that we can capture in terms of passenger-to-freighter conversions and some of the other initiatives that Jeff have mentioned that's available to us in the short term. So I would say that the recovery profile will be dispersed across the group. Aerospace, I think, the impact will be amongst the most pronounced. But even within aerospace, the extent of impact is also a bit different. For our airframe maintenance facilities because we have cargo airlines, which is now -- which are actually doing really good business, it mitigates the impact on our airframe MRO business. Now maybe a bit later I'll ask -- after this we'll ask Jeff to give you a little bit more impact. There are also a particular segment in our group -- across our group that are very resilient. For example, defense business continues to be a strong domain for us. So Siew Khee, to your question, it's going to be dependent on the sector. We think that aerospace -- I think the effects will be a bit more pronounced than as the total sector [Technical Difficulty]. But having said that, nobody actually knows the actual recovery profile would be because we do hear some positive news coming up from some -- in some countries where they have more domestic travel. And so we have to keep watching. We can't give you a certain recovery profile, but we keep watching. Now I will let Jeff talk about the average capacity, and then you have some questions around the retail manufacturing business. And then following that, we'll get Cedric to address your question on others category. And then, finally, we'll have Sing Chan address the ship and the marine related questions. Now Jeff?

Okay. Jeff speaking. Okay. We -- firstly, we have facilities across various geographies. And then we also have facilities undertaking some segments of work within aerospace, including aircraft maintenance, engine overhaul, component repair, aerospace production. So the kind of capacity utilization we see across the group varies very differently. We have capacity utilization ranging from say 25% to 90%. So if you ask me for a good average, I would say, we're definitely above 2/3 utilization today. And of course, at the beginning of the year, we were running at near 100% capacity. For many years, the industry has had very kind of under capacity in terms of labor, in terms of certain segments of the business like airframe maintenance was under capacity. So at this time, we see a major correction. And of course, we are working with our customers to ensure that we are there to support them when the flying comes back in a bigger way. Yes.

There is a question...

Sorry, on the -- your -- on nacelle production now and your expectation ahead.

Okay. We take guidance on nacelle production from our -- the OEMs, in particular, Airbus, Boeing, and the guidance has been stable in the previous month. And we expect it to be -- continue to be stable in the coming months. Any fine adjustments would be immaterial as we see it. So the supply chain that we work with -- there was another question around supply chain. The whole supply chain will fall in line in terms of production of parts from our vendors coming in to support our nacelle production. So we see a stable production rate based on the latest forecast from the OEMs.

I actually have 2 parts. The first part was on impairment. I suppose you were referring to our balance sheet paragraph 1A, where the allowance -- sorry, where the impairment loss on trade receivables and contract assets were larger for first half 2020 versus first half 2019. And the difference of $9 million are more or less equally shared between aero and electronics. And then in paragraph 1.2 on the same page, you were referring to some of the fair value change in associates. And this $5 million figure in first half 2020 is largely due to investments in STEV, our STE Ventures Fund. Then your -- the first part of your question, you're also talking about paragraph 14 of the deck where there is impairment loss of $6 million in aerospace and $2 million in Land Systems. I think this relates a lot to do with the intangibles, so some of which like pilot simulator, seats and all that, that Jeff also did mention. So these are the items on there. As for others, if you look at PBT, actually, others under PBT, which is Slide 18, for first half 2020 is minus $1.8 million. And for first half 2019 is minus $1 million. But if you look at PE -- net profit, then you see the first half 2020 becomes positive of $1.6 million. And that is because we have a shared service center that has successfully applied for tax incentive rate. And that rate is at 10% versus what we accrued at 17%, the normal corporate tax rate. So we have a write back with regards in 2020. So that's the reason behind that. But you're into very details.

It's one-off, right?

Yes. One-off. Yes.

So we'll hand over the mic to Sing Chan, please. Sing Chan.

Siew Khee, good to talk to you again. First question, higher shipbuilding revenue in one half 2020 compared to one half 2019. Yes. The bulk increase comes from the U.S. ops. Number two -- question #2 on ship repair, steady performance. You are right. We had a very strong 1Q 2020 for the ship repair business in Singapore. In 2Q, the performance was obviously impacted by the COVID-19 crisis. You all read about the lockdown of the migrant workers. So if not for this lockdown, I think our performance in one half 2020 for ship repair, especially in Singapore, would have been stronger. U.S. had a steady performance as far as ship repair and rig repair is concerned. We are less affected by the COVID-19 situation as workers continue to work in the shipyard. On the losses, as have been mentioned by Vincent and Cedric, both of them mentioned a main reason. But we all agree that we now look back and look at the wins that we have been able to achieve in 2019. I think it's probably the right strategy at that point of time. We bid at a price to win in order to keep -- to sustain the capability and keep the overheads. We all know that COVID-19 has also an impact on the POC, on the percentage of completion, as well as the -- of the ongoing program as well as the efficiency. For example, if you are at a stage of commissioning the vessels and there are travel restrictions from, let's say, the OEM in Europe to the U.S., this would result in a delay in the delivery of the ship. So even if it's categorized as a force majeure event, as we understand force majeure event, you may be -- it's not always the case -- allow a permission extension, but it sometimes -- you may not be allowed to pass on your additional costs. So COVID-19 -- the impact of COVID-19, resulting in additional cost on the current program. This is the reason why we have losses in the first half of 2020. My third response is really in response to the question from Siew Khee.

Thank you. Thank you, Sing Chan.

[indiscernible] in net loss? And how should we see this in second half? And also, how are you going to carry out those projects that require staff to travel?

Siew Khee, I'm glad you remembered the question.

Of course, I do.

Okay. So first, Siew Khee, on why the PBT loss became again a net profit. So 2 reasons, actually it's tax. There are 2 drivers. One is JSS not taxable. And the other is we have shared some tax credit for 1 of our companies. And so that adds up. So if we see the numbers, there's about $8 million difference in tax between last year and this year. And therefore, we have a net profit, although we have PBT loss. Then on your question for the rest of the year. So first of all, our order book and our order wins, we have a strong win. But as you know, we deliver this over multiple years. So some over a couple of years, some a bit longer. And so as far as the various businesses are concerned, I think, we have good momentum. The challenge, as I mentioned, is the IoT business and the satellite business. So for 2 -- these 2 business, we are monitoring very closely. And we -- it's not yet certain whether the satcom business requires -- I mean, there are many challenges in the industry. You can read about some of the bankruptcy filing of the satellite constellation owners for various reasons, either restructuring or there are new opportunities. So we continue to work with them and try to secure projects for the current and future constellation. But that's an area that's uncertain, and we have to see how the satcom industry recovers in the second half. But let me just say that beyond that, we think the industry still remains, I think, a good industry, and we have a good position in the industry. So over the long term, we expect, even after our acquisition, that we will be stronger, and we will generate a lot of value for the company. On the IoT business, similarly, there are some delays. We have yet to see both the pickup in the tenders. And at the same time, the delivery of the solutions that we have already been secured, it's still being delayed. So the second half, we think, will also be challenging. But the rest of our business, especially on defense and many of our Singapore-based businesses, we see that the contracts will continue to be delivered. And unless there is a second wave and another major disruption in terms of ability to complete that project, we expect it to be maintained at the rate where we are. Travel is an issue -- on your last point is an issue. And fortunately, for us, in some of our businesses like our mobility businesses, we have strong teams in many of the countries that we have won tenders. So we are able to deliver in those countries. But beyond that, travel has affected some of our projects because we are not able to meet the customer. They're not going to come here. And so some of the projects are being delayed. And we are looking very carefully at sending our people when it's allowed for those critical projects. So it is -- continues to remain a challenge, and we have to see how the COVID-19 situation impacts the local and the global business environment in the next couple of months.

We still have got 2 more person in the queue to ask questions, and we have also received some questions that's written in. And I believe that we have already answered some of the questions, for example, the question on the handler capacity by Jason. I think Jeff answered that. I think Patrick's question, Sing Chan answered that. So now we'll spend the next 10 minutes or so taking all your questions. We now move to Rahul of HSBC.

Can you hear me?

Rahul, yes. We can. Go ahead. Rahul, please go ahead and ask your question. You have to unmute your line.

Can you hear me?

Yes. We can. Go ahead please.

Yes. So I have 2 questions, one on Aerospace and another on Electronics division. So firstly, on Aerospace division. I was looking at Slide 21. So there, I see that AMM revenue has broadly remained flat while the component and equipment was down significantly. Could you talk about the divergence in revenue trend in these 2 subdivisions? So basically, I'm trying to understand the impact of these contracts in aerospace, right? Are they being delayed or they have been canceled? What happened here? The second question is on the new -- on winning the new Smart Cities projects, specifically the Rail Electronics projects in China, Thailand and India that you won in 1H '20. Could you talk about the competition in winning these tenders? And what are the competitive advantages STE have over the others?

Okay. Thank you. Jeff speaking. The very relevant observation, what we see in the industry is that the aircraft in service continues to need to be serviced. And while there is aircraft in service, they may not be fully utilized, okay? And then when you look at engines and components, because there's a significant number of engines and components being grounded -- aircraft being grounded, a lot of aircraft actually have spare engines, and we do have a huge inventory in components across the industry. So when there is a lower utilization of aircraft, what will happen is the airlines will conserve cash by drawing on their spares available either with them or within the market and, therefore, they will delay the significant MRO events such as engine shop visits. And when aircraft do not fly or fly less, the components on the aircraft will come off less because they are on condition. So as a result, you will see a more dramatic impact on engines and components. And we expect this to continue into next year, while the airframe maintenance business will do a little bit better than the engines and components. Thank you.

This is Ravi. So just to make sure I understand your question. Your question was, was the cost -- what was the competitive advantage we have been winning Smart City projects outside of Singapore? Is that right?

Yes. Yes. I was specifically pointing out to the Rail Electronics projects that you won in China, Thailand and India. So I'm kind of -- I just had -- sorry, sorry, sorry. Please go ahead.

Okay. Good. Thank you. So on the Rail Electronics, okay. So firstly, to succeed in this industry, this industry is relatively closed industry in terms of the number of international players. So the number of international players in the Rail Electronics business is limited to many of the large players. So to win -- or the competitive advantage that we need to win, there are actually 3 main areas. First is to have a good and reliable product with a good track record. So we have track record in Singapore and in many countries, including now, of course, India, in the Middle East, in Taiwan, in China, in Thailand. So having a good product with a good track record. Second is you have to be cost combative. So cost is a huge driver, both in terms of the product cost as well as the labor cost for the implementation. And this is the third point. Having very good partners, both globally and locally and also having good local teams. So we partner many of the big players in -- going in either as teams or consortiums for the various projects. And then in the implementation of the projects, we actually have local teams and strong teams are able to deliver. The real business is one where reliability is a very, very important factor. So around the world, the authorities are very conscious of the need for quality, cost and liability. And so far, we have had a very strong track record, wherever we have been selected to deploy our solutions. And our partners know that we offer them good solutions that will be able to be supported throughout the life of the system. So we will continue to focus on that and make sure that we remain relevant, but also cost-effective and have a good quality and performance record.

Thank you, Ravi. Rahul, do you have another question? If not, we'll move on to the next person.

Please go ahead.

So now we move to Gerald of Crédit Suisse.

I've got 2 questions. The first is with regards to your guidance for revenue for 2020. Since you already have $3.6 billion of revenue in the first half and also $3.2 billion of your order book that will be recognized in your second half. Within the guidance for a 5% to 15% decline from FY '19 will be a bit too conservative because that would effectively be assuming that there is very limited non-order book revenue in the second half of this year.

Yes. Gerald, this is Vincent. As I explained earlier on, our first half results were up 2% versus same time last year as contributed mainly really by the 2 acquisitions that were done as well as stronger performance in marine. But we also know that second quarter of this year is where -- it was when the COVID-19 impact a bit harder compared to first quarter. So when we look at our first half -- second half forecast, we have to take all that into consideration. Yes, you're right. The mathematics is that, yes, we have $3.57 billion of revenue in first half. We expect $3.2 billion to be recognized in the second half from the order book. And then the rest would be filled from, I think, a hot spot of contracts and projects that are not from the order book. It is too early to say what the actual outcome would be. Therefore, we give an aperture that is robust enough to cover the various scenarios that we have in mind. So it could be that we will -- we may update the forecast or the guidance as and when we have more information. As of now, because we think that the outcome will still fall within the bracket, whether it's going to be the lower half, the record higher, but we are not going to take a position yet until we have a little bit more clarity, but yes, the math that you have just done is correct. Okay.

Okay. Then my second question goes into the 2021 outlook. Given the various factors, including the mover of the government support, aerospace, which is late cycle and some of the opportunities that you see in other businesses. Net-net, do you think 2021 will be more challenging or less challenging compared to 2020?

Okay. So we think that 2021 industry environment in the sectors that we operate would generally be slightly less adverse -- or will be less adverse than this year. As I mentioned, we think that there will be partial recovery in demand from that standpoint, generally, a little bit more positive in 2021. But how this thing is going to pan out really also depends on the cost evolving situation. So we have to continue to monitor, but we're not staying still. I mentioned quite a few things that we are doing. In addition to cost reduction exercise, we also try to capture more productivity gains, going after new areas that either got presented by the COVID-19 crises or demand that became more intensive, accelerated by COVID-19, so that we are not always talking about costs, but we're also looking at revenue capture. And with partial recovery, we are certainly maintaining our target to capture and offset the absence of the government grants next year. So that's kind of the overall story. I hope I've answered your question, Gerald. That remains our outlook at this time and our certainly target and also talk about how we can look at how -- strategically, we can go after profitable revenues. They are in line with our strategic direction, which you are by now very familiar with. Okay. All right. Gerald? I hope I answered your questions.

Yes.

So we have 1 more in the queue, Daniel Lau. Daniel Lau, I think, is from the buy-side, Franklin Templeton. Daniel, can I invite you to ask your question?

Can you hear me now?

Yes. We can.

Great. Just 1 question. Most of the questions have been answered. I just wanted to understand the key ML movements for the first half on a quarterly basis? Because I think throughout the whole presentation, you did mention that -- and I kind of guess that it seems like most of the labor or supply chain disruptions really happened in the second quarter. And first quarter was definitely much stronger than second quarter. So on a profitability basis, for the first half, how much was made in the first quarter versus the second quarter? I just want to get a sense of that.

Thank you for the question. As you know, we have elected to announce half yearly results. And that's largely because our business is built upon longer-term capability, R&D, intellectuality and so forth. So we avoid going into quarterly movements. But suffice to say that in the second quarter, in Singapore at least, there were 2 [ sector bigger ] months. So that, I think, most do not believe that [ sector bigger ] month of the genre of April and May this year will repeat in the second half. So that in a way, I think it's comfort that the -- particularly, you've got situation in Singapore operations in the second quarter may not repeat. But it remains to be seen. I mean, Singaporeans are not cautious and safe distancing and all that. We may have another round of that. So -- but those are the factors behind how we have performed first half versus -- first quarter versus second quarter.

I think we will now move to some of the questions that have tried to increase the business, although I believe that we have answered most of your questions. There is a few -- there are a few questions by [ Chu Wei from Inquiry ]. You asked about the Land Systems PBT margin. You also asked about electronics, what grew the category. Ravi has answered that question. And so... [Audio Gap] So [ Chu Wei ], I believe we have answered most of the questions. Your question on electronic CSG growth, Ravi answered that. Your question on MRAS production line, Jeff have also answered that in the last few rounds of his answer. You also asked about aerospace survival ability, which we talk about all the opportunities. Maybe I'll hand over to Dr. Lee to answer your question on Land System PBT.

Lina, just to clarify. I think the last question from [ Chu Wei ] was already answered by Jeff, because the question is around which are the aerospace businesses that are basically potential candidates for streamlining. I think we answered that, too.

Okay. So Dr. Lee, over to you.

Thanks, [ Chu Wee ]. There are 2 questions on the Land Systems. So for the benefit of the rest, the first question was related to the revenue drop and the PBT margin uplift and the context of it and the texture of it. So I believe earlier on, I have already elaborated that in terms of the overall business for the automotive in terms of revenue and PBT. For the second question, there is this question on -- for Hunter AFV, is the production in a steady state or there is still a ramp to expect in the second half? So I will just explain a little bit more. For the first half, as I mentioned earlier, we have reached optimal production rate at the middle of this year, right. But for the first half, there are some disruption of the workforce and the supply chain. So therefore, the delivery was lower. And you can expect more delivery in the second half as we have mitigated some of the impact of the COVID and we have also worked with the authority and also in particular major trade industry to get some the local SME to be ready to support us. So that is one part. Same thing for the production. We are also getting ready for the member. So we also work with the major trade industry to mitigate the impact of the COVID circuit breaker on our SME. So we also expect a better delivery in the second half. Thank you.

Okay. Okay. Thank you. Daniel, I hope that answers your question. Let me just take the last few questions that have been submitted online. Many of those questions that are submitted online have already been answered in one form or another. So I'm going to answer a few other questions that I thought would require a little bit more clarification here. First question from [ Jason Sum ]. Thank you for your question. You have several. The first one is does the $300 million worth of financial support to be received in financial year 2020 include the Jobs Support Scheme in Singapore? The answer is yes.

It's more than $300 million.

It's more than $300 million, just to recap what I said. We expect more than $300 million of financial support to be received for the entire year, and less than half of this $300 million were received in the first half. So we expect the rest to be in second half, but it certainly includes Singapore JSS. Your second question revolves around hanger activities, which Jeff had already answered. There's a question on updates on the B-55 reengineering program in the U.S. for U.S. Air Force -- B-52 reengineering program update, and I'll let Jeff answer that later on. I'll answer your fourth question. Can you briefly share the quantum and pace of contract cancellations in first half 2020? Well, it's not material at the group level. If you recall, at the end of 2019, our order book was at $15.3 billion. So net of all the contract -- new contract wins and order book drawdown and cancellation, we ended up with an order book of $15.9 billion. So I hope that gives clarity. So at the group level, the quantum and pace of contract cancellation in the first half is not material. So we end up with a order book at a very robust $15.9 billion. So I'll let Jeff take the question on B-52 reengineering program before we call the Q&A session to a close. Thanks, Jeff.

Okay. Yes. Jeff speaking. The B-52 reengine program is a very interesting program, obviously, because it's a multiyear program, and it's also a sizable program. At the same time, it's -- there's a whole lot of competition. In fact, I can't count the number of dealers with my 2 hands. So the RFI process has started, but it is going to be a long process into next year, and they will have to select the engine first before they decide the nacelle. So we're going to see long and focused efforts. And because competition is extremely keen, we are going to put in our best, but we really can't tell what the outcome is going to be. I hope that answers your question. Thank you. Okay.

Thank you very much for your participation in today's Q&A -- this results briefing session. I want to just end by recapping that we are -- in first half of 2020, like many other operations, we're not immune to COVID-19 impact. So we were impacted. However, because of our strong fundamentals, we are able to mitigate and even keel -- mitigate to a large part and even keel our first half results. And of course, also partly due to the government support that we have -- grants that we have given, but our business fundamentals remains strong, and we remain focused on longer-term growth to create shareholder value. And at the appropriate time, obviously, we'll give you further updates. But I think that, all said, our first half results have really kept even keel because of the years of fundamentals that the group has built. And I would like to share some words of appreciation from our stakeholders, our customers, our partners, for their relentless support during this very, very difficult time as well as thanks to all our employees for walking the journey with us this year as we take on the challenges of an unprecedented pandemic outbreak that's happening on a global scale. So on that note, thank you very much for all your questions. And surely, there will be other opportunities for us to address your specific queries separately. If you have any pressing ones, we'll take them on outside of this Q&A forum. So on that note, thank you very much and have a good afternoon, and have a good weekend ahead.