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

Good morning, ladies and gentlemen. Welcome to ST Engineering's Full Year 2021 Results Briefing. We will begin today's briefing with a presentation by our Group CFO, Mr. Cedric Foo. Following that, we will invite our management for a Q&A session. Without further delay, I'll hand over to Cedric. Cedric, please?

Thank you, Sue. Good morning, ladies and gentlemen, and a very warm welcome to ST Engineering Financial Year 2021 Results briefing. First, let me draw your attention to the disclaimer statement on the screen, please refer to Slide #3 for a the agenda. Group highlights. Slide 5. In financial year 2021, amidst the challenges of the ongoing pandemic, the group recorded a good set of results. Group revenue was $7.7 billion or 7.5% higher year-on-year. Group earnings before interest and tax, or EBIT, was $674 million or 13% higher year-on-year. Our profit before tax, PBT, stood at $638 million, which was 19% higher year-on-year. Last year, we ended the year with a net profit of $571 million, which was 9% higher year-on-year. Now to the left screen for second half 2021, the group posted strong double-digit year-on-year growth in both revenue and EBIT of 13% and a PBT increase of 20%. Net profit growth of 4% was lower than the PBT growth due to the unfavorable tax effect of a significant reduction of $137 million in government support in 2021 second half, which was mostly not taxable. Slide #6. Here, we discuss the revenue growth by segment. The group recorded an increase of 7.5% in revenue for 2021 year-on-year. This increase was contributed by all segments, namely Commercial Aerospace, Urban Solutions and Satcom, USS; and Defense and Public Security, DPS. The increase for Commercial Aerospace was noteworthy because 1Q 2020 was a strong quarter before the impact of COVID hits us. Slide 7. As mentioned, 1Q 2020 was before COVID impact. It produced a strong $781 million in revenue from which 1Q 2021 was measured against. So hence, quarter 1 2021 was lower than quarter 1 2020. However, thereafter, year-on-year growth was strong at 20% to 27% across second quarter, third quarter and fourth quarter of 2021, even as the pandemic persisted. We are continuing to see recovery in commercial aerospace and also strong demand for the passenger-to-freighter conversion. Slide 8 please. Here, we show group revenue breakdown through 3 lenses: first, by segment. The left, DPS contributed 53%, Commercial Aerospace 32%, and USS 15%. Secondly, by Defense and Commercial products and services, not to be confused with clusters. Commercial revenue increased from $4.6 billion in 2020 to $4.8 billion in 2021, and Defense revenue grew from $2.6 billion to $2.9 billion over the same period. Thirdly, revenue by customer locations. Asia constituted 58%, the U.S. 20%; Europe 16% and others 6%. Slide 9, please. The chart on the left shows the increase in group EBIT from $596 million in 2020 to $674 million in 2021, which is an increase of 13% year-on-year. This was a result of better underlying performance from all segments, which more than offset reduction in government support of $149 million. This is in line with our earlier guidance for cost savings and partial business recovery offset the reduction in government support even as we reinvest for the future. In the chart to the right, excluding government support for both years, 2020 and excluding for 2021 as well, group EBIT in 2021 improved sharply by 93% year-on-year, reflecting a strong underlying performance improvement amidst continuing pandemic challenges. Slide 10. Net profit. The strong increase in EBIT brought our net profit for 2021 to $571 million or 9% higher than 2020. This net profit growth of 9% was lower than the EBIT growth of 13% due to the unfavorable tax effect of a significant reduction in nontaxable government support in 2021. So in other words, in 2020, we received higher government support, which are nontaxable. In 2021, we received much lower government support, which are -- we are, therefore, does not have the same favorable tax impact on net profit. This is partially offset by lower finance costs by [ 11%.] Slide 11, please. The impact of government support by segments. In financial year 2021, all segments registered higher EBIT, excluding government support. The left, Commercial Aerospace, had an increase of $99 million in EBIT, excluding government support, which was a minor increase in this particular case. USS had an increase of $16 million, the green bar in the middle, EBIT despite lower government support of $14 million, the red bar, and $8 million of one-off M&A transaction expenses for the TransCore acquisition. This segment was also impacted by global semiconductor chip shortage. DPS had an increase of $119 million in EBIT, up on your right, the green bar, notwithstanding lower government support of $137 million. So it was a good offset against the lower government support. Slide 12, please. In 2020, the group received about $350 million of COVID-related government support. In 2021, the level of government support dropped by about $150 million to about $200 million. But the combined effect of cost savings initiatives that the group undertook, partial business recovery more than offset the reduction in government support. This was the guidance we gave earlier, and we are happy to report that we have met that guidance. Order book. The group ended the year with a robust order book balance of $19.3 billion. This is significantly higher than $15.4 billion as at the end of 2020. The increase in order book was on the back strong new contract wins of $11.7 billion in 2021 alone, which was higher than $8.2 billion in 2020 and $9.5 billion in 2019, the latter being a pre-pandemic year. So at $19.3 billion, where the order book stood in December 2021, was much higher than the $15.3 billion in December '19, which was prepandemic. About $6.6 billion of this $19.3 billion of order book is expected to be delivered in 2020. This strong order book provides us visibility for pipeline revenue in the coming periods. So in the past, for total new contract wins, we had excluded the value of several new contracts for customer confidentiality reasons. Now in this new format, the value of new contracts refer to total value of all new contracts secured. We don't exclude contracts for customer reasons anymore. This is also in response to analyst request for greater transparency, so we hope it will be helpful to you. But we were also careful to save that customer confidentiality by not detailing the nature of this contract that we have now included. Slide 25, or 4Q 2021 new contract wins by segment, the new format. Please see Slide 25 for that information. Slide 14, balance sheet and credit rating remains strong even after the TransCore M&A announcement. Credit rating from Moody's is AAA, outlook negative; and that from S&P is AAA, credit watch negative. We have diverse funding sources from our USD 3 billion of commercial program paper for short-term borrowings and SGD 5 billion MTN program, which provides us sufficient debt capacity on the TransCore acquisition. Slide 15. The group ended the year with total assets of $10.5 billion, which was higher than December 2020 of $10 billion. This increase was largely due to higher business activity. Slide 16, cash flow. Net cash from operating activities was strong in 2021 at $1.114 billion, in line with our EBITDA of $1.1 billion. Net cash from operating activities for 2020 was higher at $1.5 billion, due largely to higher customer advances received in that year. The group's net cash flow used in investing activities went up from $295 million to $414 million on the back of increased business activity as well as higher investments by our aviation asset management unit in '21. In financial year 2021, the group recorded a cash outflow from financing activities of $615 million, lower as compared to 2020, primarily due to higher repayment of borrowings in [ 2020. ] The plan for our AMM business is to securitize this asset and engine assets once the critical mass is reached. So I was discussing the higher investments by AMM. This will then lighten our balance sheet who are enabling asset management fees as well as more MRO and PTF income. Slide 17. The Board has recommended a final dividend of $0.10 per ordinary share, subject to shareholders' approval at the upcoming AGM on 21st April. So approved, the final dividend will be paid to the shareholders on 10th May. Including the $0.05, the ordinary share interim dividend paid on 31st October last year, the total dividend for the year ended 31st December 2021 will be $0.15 per share. Final dividend can be adequately funded by past year's retained earnings, including 2021, which stood at the end of 2021 of $0.50 per share, which is the past year retained earnings. Next, Slide 18. Yesterday, the Board approved a dividend policy to declare dividends every quarter, instead of twice a year previously. For financial year 2022, the plan and intent here is for dividends to be paid 4x a year at $0.04 per share each time, resulting in the total dividends paid payable of $0.16 per share. This is compared to $0.15 per share paid or payable for financial year 2021. The dividend for financial year 2022 are currently scheduled in June '22, September '22, December '22 and May '23, as and when the Board declares an interim dividend for each of the first 3 quarters for financial year 2022, ST Engineering will announce the relevant record date and payment date on SGXNet. Final dividend payable in May 2023 is subject to shareholders' approval at the ST Engineering AGM to be held in April 2023. Record date and payment date for which will be announced in conjunction with the release of the group's full year's result for financial year 2022. This change from declining dividends semiannually to quarterly. We will provide shareholders with more frequent income strips. Notwithstanding this new dividend frequency policy, the group continues to focus on and has sufficient financial capacity to seek growth pursuant to our strategy as communicated at our Investor Day in November last year, and as we have demonstrated through various acquisitions and organic growth in the past 2 years. Next, let me just read out the [ all important ] outlook. 2021, we delivered a good set of results as all business segments registered growth despite persisting pandemic challenges. This reflects the underlying strength of our businesses and our people. Proposed TransCore acquisition demonstrates our readiness to seize growth opportunities to be much stronger post-pandemic. We can look to the future with confidence as our order book of $19.3 billion is very robust. We expect the delivery of our strong order book of various business initiatives and further business recovery to position us well for 2022 business. Moreover, our focus on the effective execution of our long-term strategy, and our commitment to invest across the business cycle, will put us in good stead to achieve our 2026 targets as communicated at our Investor Day. Finally, let me make a summary of the highlights that we have gone through. First, revenue growth was steady at 7.5%, amid challenging COVID environment. Aerospace sector is not completely out of the woods yet. EBIT grew by 13%, and excluding government support, EBIT grew 93%, demonstrating the strong underlying performance. Cost savings and partial business recovery more than offset the reduction in government support in 2021 of $149 million. Net profit improved 9%. Order book was robust at $19.3 billion, which lends confidence for the future. For 2022 onwards, the Board has approved a dividend frequency policy to declare dividends every quarter. And for financial year 2022, we plan to pay $0.04 per share for each. Delivery of strong order book, business initiatives and further business recovery will position the group well for 2022 business performance. Focus on effective execution of long-term strategy and commitment to invest across business cycles and the group in good stead. We achieved 2026 targets as communicated at our last Investor Day. Thank you very much.

Thank you, Cedric. [Operator Instructions] For today at the panel, we have Mr. Vincent Chong, Group President and CEO; Mr. Cedric Foo, our Group CFO; Mr. Ravinder Singh, Group COO of Technology and Innovation and President of Defense and Public Security; Ms. Tan Lee Chew, President of Commercial. We have also invited presidents of our different business segments to join us in the hall today for the Q&A session. We have anticipated more questions to come for the Commercial Aerospace business segment, and hence, have invited Mr. Jeffrey Lam, President of the Commercial Aerospace, to join the Group Executive Committee at the panel today. I will now hand the mic over to Vincent to deliver his remarks before we invite the first question. Vincent, please?

A very good morning, and thank you for joining our results briefing for full year financial year 2021. And for those who have dialed in, thank you for joining us as well. Now 2021 was another year with extraordinary circumstances as we own -- with continued pandemic challenges across our operating landscape as well as global chip shortages. On another front, there was also lower year-on-year government support received especially for the job support scheme. Against this backdrop, we are pleased that ST Engineering ended 2021 with growth in revenue and profits over the prior year, supported by strong underlying performance. The group posted a 10.5% increase in revenue with contributions from all 3 segments, namely Commercial Aerospace, Urban Solutions and Satcom, as well as Defense and Public Security. In line with our guidance on expected lower year-on-year government support and its greater impact on the second half of 2021, the actual reduction in government support in 2021 was 145 -- $149 million, with $137 million of the reduction impacting the second half of 2021. Group EBIT grew 13% over the prior year. Excluding government support, the group EBIT for 2021 improved by a strong 93% year-on-year, as Cedric mentioned earlier on. And the combination of cost savings, net of reinvestments in growth areas and partial business recovery more than offset the reduction in government support. And as Cedric mentioned, we did meet our cost saving targets. In fact, we marginally exceeded it. For the full year 2021, group PBT and group net profit grew 19% and 9%, respectively, compared to 2020. Net profit growth was lower than PBT growth due to the unfavorable tax effect of lower nontaxable government grants received in 2021 compared to 2020. So this is a set of a -- balanced set of results, lifted by stronger underlying performance of our business segments and their resilience and continued pandemic challenges -- amidst the pandemic challenges. Now such performance was a result of the group's continued structural cost and operational efficiency capture. Our operating expenses for 2021 were 4% lower than 2020 and were 5% lower than 2019 level. Our unit operating expenses per unit revenue in 2021 declined by more than 10% compared to 2020 and was 3% lower than 2019 level. On another positive note, while 2021 was the first year of operation for our new organization, we had already benefited from how we are structured to accelerate the development of deeper domain expertise to enhance the performance of our businesses. We're now ever more focused on creating ST Engineering to be a sharper and more agile organization that is highly attuned and responsive to evolving customer needs. Now let's turn to our business segments and then let's take a look at their respective performance. For Commercial Aerospace, we continue to write the recovery of the aviation industry, registering strong year-on-year revenue growth in the second, third and fourth quarter of 2021. Sequentially across 2021, the segment also posted quarterly revenue growth, as Cedric has also shown in his presentation earlier on. This segment ended the year with 6% higher revenue compared to 2020, which had a strong first quarter before the impact of COVID-19 started to be felt. This EBIT grew 125% as a result of higher revenue and cost savings initiatives. On Urban Solutions and Satcom, its revenue grew 8%, contributed by higher Smart City project deliveries, partially offset by the impact of global chip shortages on Smart City project and Satcom product deliveries. We also announced the proposed acquisition of TransCore to accelerate our growth in the Smart City domain. We expect the transaction to close by the end of first quarter 2020. The impact of TransCore related M&A transaction expenses, chip shortages and lower government support resulted in an 18% drop in EBIT for USS, even though we saw higher revenue contribution and incurred lower operating expenses. EBIT would have improved by about $20 million, had it not been for the impact of global chip shortages for USS. On Defense and Public Security, its revenue grew 8%, with contribution from all its subsegments of digital systems and fiber, and Aerospace, Land Systems and Marine. Relative to the other 2 segments, this segment was most impacted by the drop of government support with $137 million reduction. The segment, however, managed to substantially offset the drop in government support with contribution from higher revenue and cost savings and registered a 4% lower EBIT year-on-year as a result. Now let me just move on to the group's second half performance over the same period the year before. Now notwithstanding the continued pandemic challenges and the persistent global chip shortages into the second half of the year, group revenue in the second half of 2021 was 13% stronger than the same period the year before, as all 3 segments posted higher revenue. Group EBIT was 13% stronger while PBT and net profit increased 20% and 4%, respectively. Now this is despite the greater reduction in government support in the second half, which I called out earlier. Net profit did not grow as much as PBT due to higher tax as a result of unfavorable tax effects from significantly lower nontaxable government support compared to second half of 2020 Cedric also mentioned in his presentation. Let's turn to the business segment's second half results against the same period in 2020. Revenue for Commercial Aerospace was 25% higher year-on-year. EBIT improved sharply to $79 million from $6 million, driven by cost savings and partial business recovery, which more than offset the reduction in government support. Revenue for Urban Solutions and Satcom grew 5% compared to the same period a year ago, contributed by higher Smart City project deliveries, partially offset by impact of global semiconductor chip shortages. EBIT dropped as a result of lower government support, TransCore related M&A transaction expenses and semiconductor chip shortages. In addition to being impacted by the global chip shortages, our Satcom business continued to be impacted by the pandemic with lower demand for Satcom solutions in this aviation and maritime cruise customer segments. Revenue for Defense & Public Security grew 8% year-on-year in the second half, contributed by its subsegments. EBIT remained largely the same as contributions from higher revenue and cost savings initiatives offset the lower government support. Complementing our results, we achieved strong contract wins and a record order book. Cedric has pointed out the change in our disclosure of total contract values. Reflecting this new approach, we secured $3.2 billion of new contracts for fourth quarter of 2021, of which about $1 billion was from commercial aerospace, $0.4 billion from USS and $1.8 billion from Defense and Public Security. This brings the total new contract value for 2021 to $11.7 billion. From comparison under this new approach, the new contract values for 2020 and 2019 were $8.2 billion and $9.5 billion, respectively. This shows that our businesses won more contracts in 2021 compared to pre-COVID 2019, pointing to a strong business recovery momentum that we are very heartened by. We ended 2021 with a robust order book of $19.3 billion, of which we expect to deliver about $6.6 billion in 2022. We are paying close attention to the business environment as the pandemic continues to evolve. But nevertheless, we expect the delivery of our strong order book, our various business initiatives and further business recovery to position us well for 2022 business performance. This is an important starting point as 2022 is the first execution year and foundation for our next phase of growth. At our Investor Day in November, we presented our midterm plan to achieve sustainable growth built around these strategic areas. Firstly, write the recovery in Commercial Aerospace, drive growth in Smart City, expand our International Defense business and, of course, strengthen our core businesses at the same time. We have set specific financial targets by 2026. We expect revenue for our Commercial Aerospace business to be more than $3.5 billion annually. Our Smart City businesses to more than double to $3.5 billion in revenue. And in addition, we are driving growth in digital businesses, and we expect our cloud AI analytics and cyber businesses to triple to more than $500 million by 2026. Along with other core businesses, we expect to drive total group revenue to more than $11 billion by 2026, growing at a CAGR of 2 to 3x global GDP growth rates with net profits growing in tandem with revenue. We will continue to invest in our Commercial Aerospace segment to position ourselves to thrive when recovery gets underway. This includes initiatives that we recently announced: the opening of new freighter conversion sites, expanding capabilities such as for LEAP-1B engine to full MRO services by end of 2023. That's our target. And leveraging digital technology and analytics in making maintenance services more efficient and cost-effective for operations. While the pandemic and global chip shortages are likely to persist into 2022, our Smart City business will continue to tap on the momentum of 2021 to grow scale with existing customers and penetrate new markets. The key focus, of course, will be on closing the proposed TransCore acquisition, and when completed, its transition into the group thereafter. Our Defense business made good progress internationally in 2021 for its land and marine subsegments, leveraging strategic partnerships such as with Oshkosh Defense for the CATV program. This go-to-market approach will continue to support our International Defense business as we tap on local defense champions for our target markets to deliver differentiated defense solutions that will help enhance the operational readiness of our customers. We'll continue to be mindful of the short-term pressure to deliver results, but yet at the same time, stay focused on executing our long-term strategy for business success, globally. We will continue to make a disciplined approach or to take a disciplined approach to cost management without dampening the momentum to strive for growth. This means investing across the business cycles to put us in good state to achieve our 2026 targets as communicated on our Investor Day and as well as to meet the expectations of all shareholders on our value creation. Before I open the floor for Q&A, I would like to touch on dividends. Our Board of Directors has proposed a final dividend of $0.10 per share, as Cedric also mentioned earlier on. When approved by the shareholders at the Annual General Meeting in April this year, total dividend declared for full year 2021 will be $0.15 per share. Recognizing that returning value to shareholders is an important management objective, the group has been distributing profits to shareholders by paying dividend based on sustainable business results. In keeping to our commitment to continue returning value to our shareholders, our Board of Directors has approved the dividend policy to declare dividends every quarter instead of twice a year previously. Cedric has already touched on the details. This change from declaring dividends semiannually to quarterly will provide shareholders with more frequent income streams. Notwithstanding the new dividend policy, we continue to have the financial strength and flexibility to invest in growth initiatives aligned to our strategic goals to achieve our 2026 targets as communicated at our Investor Day in November '21, and as also demonstrated in the last few years by our growth initiatives that we have shared, including the results that we have achieved. We will now open the floor for Q&A, and we welcome your questions.

Thank you, Vincent. [Operator Instructions] I invite the first question from the floor, please. We have a journalist that is waiting online, that's [ Kate Gate ] from Business Time.

I have several questions. Maybe I'll let out of them. So given that there is some impact from the shortage of semiconductor chips on the business, going forward, what kind of impact does ST Engineering see? And also [ has it ] diversified its sources of supply? Second question is will you be making any CapEx investment this year? Then third question is a group of questions. What does the impact, if any, of interest rate hike, supply chain disruption and inflation on ST Engineering businesses? The last question is the ST Engineering raised its headcount recently or intends to hiring -- i mean, hire more this year or next year.

Thank you very much for your questions. I will invite some of my colleagues to talk about the effects, the questions that you have. Yes, in terms of impact from semiconductor chips shortage around the world, it impacted certain of our business domains. But at the group level, the impact is not material, as we mentioned. So we continue to manage the supply chain disruptions by diversifying our supply sources, but also in some instances, adjusting our product design to make sure that we are a little bit more resilient in future when it comes to chip shortage. We expect the situation to continue into 2022, but we are taking many steps to alleviate the concerns. But as I mentioned, the impact at the group level is really not material. It does impact some of our business segments specifically. But at the group level, it's quite not substantial. And obviously, we will continue to invest in CapEx. And as I mentioned in my remarks, and I've been articulating this point quite regularly, that we have to continue to invest across the business cycles. So even at the height of the pandemic challenges in 2020, we continue to invest for the long-term growth of our business, even though we had to continue to streamline our cost structure and capture operational efficiencies. But we will continue to invest for the long-term future, leveraging on our very strong balance sheet, which Cedric mentioned. So we are in a good position, a position of strength to write through short-term aberrations and challenges in the market, but at the same time, invest for our future. I will let Cedric talk about interest rate hikes and inflation momentarily. Are we hiring more? Yes, in certain growth areas. To achieve our growth targets, we will be hiring. And recently, Jeff talked about recruiting more people into our commercial aerospace business as we grow the business. I will invite Jeff to talk a little bit about that. But maybe let me just invite Cedric to talk about interest rate hikes.

Thank you. Thank you for the question. The company has an interest rate hedging policy, and that policy costs for about half of our loans, fixed going forward rather than floating. So I'm pleased to report that this policy has been followed. And in fact, our fixed ratio to floating is more like 2:1. The next question about interest rate concern, the acquisition of TransCore where we have a substantial size of borrowings. We have also employed treasury locks away from -- in the last few months, in anticipation the hike in interest rate. So suffice to say that the outcome so far has been quite satisfactory. We locked in [indiscernible] prior to the recent hike. At the perfect time, we'll make an announcement.

The aerospace industry is seeing a revival. And one of the key challenges we are facing is the availability of labor. And with regards to 2 aspects, one is the mobility of the labor. Factored by COVID, we're seeing that it's difficult to move labor across borders in order to be able to optimize our operations. Secondly, in terms of skill level, we need to continue to invest in the skill -- building the skills of these additions in employees to support us. So with the recovery and the growth, we are definitely going to be hiring across the world in various trades in engineering and technical trades. And this will be one of the key challenges facing the aerospace industry in 2022.

I would also like to invite Ravi to talk about our hiring in the digital space, which is also a growth area for us. Ravi, please.

Good morning. Again, thank you for the question. So across Defense and Public Security, we will also be hiring to support the expected growth in the coming year. But basically on the -- in the digital business, as we mentioned in the Investor Day, we are building our digital business in cloud, AI and cyber. So in these areas, we will continue to hire, and we also will continue to train and equip our people to support our businesses and to grow the cloud, the AI and the cyber business. Demand is strong. In fact, in the last year, demand is very strong for these digital businesses. And we expect the demand to grow, especially with the migration into cloud, need for more AI [ analytics ] and data analytics solution. And certainly, cyber is one of the areas we've seen tremendous growth since the COVID pandemic, and we expect that growth to continue, and we will certainly be hiring and training more people to allow us to tap on to the business opportunities that we expect to see in the coming year.

I figure -- I trust that we have addressed your questions, but do you have any follow-up questions or clarifications?

Yes, can you provide the hiring numbers across the businesses?

We don't go into the specific hiring, but we do disclose our total employee count in our annual report collectively because the situation is not uneven, right? In the growth sector, in the growth domains, we have to continue to hire and increase our resources. But then in other areas, we have to keep optimizing our resources. So I don't think it's across the board. But for growth areas, we are certainly adding more resources to make sure that we have the ability to capture the growth, the targets that we have set for ourselves.

May I invite questions from the room, please, if there is any? Rahul, please?

I'm Rahul Bhatia from HSBC. I have a couple of questions. First, could you talk about your expectations for 2022? I mean, the order book is to be recognized at $6.6 billion, which points to a very strong revenue growth in '22 versus '21. And if you think about cost, there are $200 million of JSS, which will not be there in 2022. So do you expect this gap to be reduced only by revenue recovery or there are more cost-saving opportunities as well? Second question is on Smart City revenue. We have set a target of more than $3 billion, right, for 2026? Can you help us understand where do we stand in -- on a comparable basis at the end of 2021 and how much it was in 2020?

Let's touch on the second question first on Smart City. We are on track to achieve our targets. 2021, we ended the year with about $1.8 billion of Smart City revenues. It's pretty good traction. 2020 recorded a growth over 2019 as well for Smart City. So we are on track to achieve our 2026 target. But of course, we're still some years ago. We will keep all of you posted at the reasonable junctures. Indeed, there will be reduction -- significant reduction in government grants. It's not just JSS, but government grants around the world of almost 200 million -- about $200 million. We expect our target and our plan is to offset the effects of lower government grants by continued cost savings initiatives as well as continued business recovery across all our domains.

[indiscernible] can you help us with the -- what was the exact [indiscernible] in 2020?

Yes. So we have -- because of the changes in our business portfolio, there may be some slight changes. So we -- I don't think it's meaningful to express that number because in 2020, it's under a different organization structure as you [indiscernible] may recall.

Vincent, may I maybe reference that to the USS business because a large part of what we do in USS reflects our vision and our strategy for Smart City. And if you look at the set of results that we've just announced for the full year as well as for the second half, you would see that Urban Solutions have recorded a 17% growth. And as we look at the Investor Day, commitment to drive that $3.5 billion at the end of that 5-year period, we talked about double-digit growth. And so you can see that the trajectory of where we are headed, exiting 2021 and going into 2022, positions us well towards that target. So hopefully, that helps.

[indiscernible]

Sorry?

Any comment on 2020 revenue outlook?

No, we don't give revenue forecast. But as you can see, the recovery traction seems to be there. But of course, we have to continue the monitoring the situation and adjust our push along the way. We expect $6.6 billion of revenue coming from our order book in 2022, as we mentioned earlier.

[indiscernible], do we have a question?

It's Stuart from Macquarie. I have 2 questions. The first question is an easy one. Can we just get an update on your TransCore acquisition, at least have you secured all the necessary approvals? The second question is more for Jeffrey, and it touches on Aerospace. I think on Slide 7, you had a pretty good recovery in your Aerospace revenue on -- in the fourth quarter. And I'm just looking at your segment, those on the MRO and aerostructure. It seems like it was more on the aerostructure side, though there was also an improvement in the MRO. So I'm trying to understand what was driving the improvement on the aerostructures. Was it more of PTF or was it some other parts of the business? And then on MRO, how do you see it improving? What are your clients saying about doing maintenance as you step into FY '22 and demand picks up?

First, on TransCore acquisition, we expect to secure all required regulatory approval by end of first quarter. So there's still no change in our outlook at this time. So certainly, when we have more substantial update, we will share with the group. And I'll let Jeff talk about.

Okay. Thank you for your interest in Aerospace. Indeed, we saw a good recovery in the fourth quarter, which is our expectation as the market continues to recover. We believe we are in the threshold of stronger recovery, particularly in Asia, okay? So the PTF workload obviously contributed significantly in 2020 and will continue to grow. On the MRO side, we actually are experiencing a slow recovery. And what is happening is the MRO business is actually synergizing with the PTF business and supporting the PTF conversion activities. So the revenue you see obviously for PTF, actually, some of it is contributed by MRO activity. So really, we are seeing strong workload in the airframe shops where the PTF work is happening, and the hangar utilization rates are increasing to the extent that we are now in 2 projects to build additional hangars, as you may know, in Pensacola and in San Antonio. And we are reviewing additional capacity in other parts of the world as well.

Just as a follow-up on your aerostructures front. I noticed that -- I mean you mentioned it was strong PTF. In terms of the delta between first half and second half revenue, would you say it's more the PTF? Or would you say other parts of the business, like say, EFW or MRAS is driving it?

Actually, we're seeing across-the-board improvement across aerostructures, across the PTF work as well as across MRO. We're seeing across-the-board improvement. However, there is relatively more improvement in the PTF work. And then, obviously, the aerostructures work is also gradually improving. Based on the delivery forecast of the aircraft OEMs, right? And then the MRO work is also gradually improving. We hope to see MRO work improve at a stronger pace in the coming months.

Actually, if I may, on the MRO front, last week at the -- was it last week? I think last week at the airshow, we did make a couple of announcements just to signal and indicate that we're very encouraged by the customers also looking at the aviation industry in a much more positive note. So Vincent mentioned earlier about the engines and what we are doing in terms of setting up quick turn services for the LEAP 1B. So that's one good indicator for us. And also on the component NBH, we have extended contracts for example, with Jeju Air, and we're looking at contracts with the group of China Airlines. So these are encouraging signs for us, but obviously not out of the woods, so a lot of work to be done, yes.

Sorry, just one last follow-up. You talked about earlier about challenges in securing labor for as protecting you on the MRO. Given what you're seeing pricing-wise as well as your challenges in securing labor, at what point do you see all these normalizing that you'll be able to achieve the same sort of margins you saw pre-COVID?

I think there is a shift in the labor market for aerospace. And this is consensus and global that there was a departure and the departure of skilled aerospace workforce from the industry during COVID, and there is weaker interest in people to join the industry. So what we are doing is we're working with schools. We are working with governments and cities to build the training programs. We are reviewing our compensation levels. And we're also, therefore, reviewing our contracts with customers because with labor wage inflation, ultimately, these costs have to be covered. And so our intention is that the industry will be able to achieve a certain stability, hopefully, in the coming year. And therefore, we -- our intention is to preserve our margins by ensuring that we continue to stay competitive with the market and to be able to work with customers on all of these inflation that's happening in the labor market.

Thank you, Jeff. We have Lorraine Tan from Morningstar waiting online. Do we have some questions from the room, please? Siew Khee from CIMB.

Can I just go one by one? Sorry because can't see with my laptop here. So I just wanted to just check on margins because I think now you actually give us EBIT margin by segment. So I just wanted to just focus on the 3 lines that you have provided. When we look at half-on-half, Commercial Aerospace is actually lower half-on-half, like the first, the second half. And how is this actually compared to 2019 based on what you have actually disclosed? Should I just read through the questions, sir? Okay. Then for Defense margin also especially -- just slightly decline. Just wanted to ask you whether if there's anything that we should look out for. I'm just comparing half on half year. And finally, did you say -- Vincent, you mentioned something about impact of chip shortage in the Urban Solutions. Was it $20 million that you mentioned? Okay. Should I read all my questions or just focus on margin first?

Go ahead.

Okay. And then just on Defence & Public Security revenue. Is there anything that you can actually help us understand within the DPS, the 3 lines for Land System, the delivery wise? This year, what should we be looking forward? Because I know that revenue is quite steady this year. But what should we be looking forward in 2022 or beyond? And then still on DPS, can you just also share some color on digital system and cybersecurity? What's in here and what's the outlook? And Marine, also, are you seeing any margin pressure in the environmental projects or anything in shipbuilding? Going to Aerospace. The contract momentum is very strong in 4Q with $1 billion. Is this -- and then of course, 3Q also quite strong. Is this the run rate that we should be expecting, given that recovery, you have actually mentioned that the recovery is actually stronger than expected?

Siew Khee, can you repeat the question?

The Aerospace one, your run rate of your order win. Because 3Q and 4Q, it has been pretty strong for Commercial Aerospace. So is that what we should be actually hoping that you can actually sustain given the strong recovery that you have seen so far?

Yes, go ahead. Ravi, can you...

Why don't I start?

Yes.

So Siew Khee, thank you for your question. So you have a couple of questions. So first, on the margin on the half-to-half comparison, which is also on Slide 39. I think if you also know the slower government support by $79 million, so I think overall, actually, the EBIT for the Defence & Public Security businesses actually strengthened because we're actually trending more profit to make up for the drop in -- on JSS. And then I'll take the [ portion ] to also go into the segments, as you mentioned. So first of all, for land, as you know, we have long-term contracts, and production for some of the major programs is ongoing. And that's why we see quite steady growth. In the U.S. market, there are some challenges for our specialty retail business because of the shortage of chips have delayed the availability of chassis. But we actually have a record order books for Hackney and [indiscernible] because of this. So in a way, as soon as the supply chain corrects itself, then there are opportunities. Good thing is that there's demand. So for Land Systems overall, I think there's demand, unless there are major disruptions to the supply chain, we expect to continue. In the area of digital system and cyber, you can see the revenue growth for the year. And also in terms of opportunity, as I mentioned also previously, in cyber, we have good -- actually, we have good demand. And there is a lot of demand for digital solutions in cloud as well as in data analytics and AI. And so one of the issues for us is actually building up and ramping up the specialty skill sets we need in terms of manpower. So actually, this is a real opportunity for digital systems and cyber to be able to get all the expertise we need, especially in cloud, training them in the skill sets for the various hyperscalers and then going out there and seizing and delivering the revenue. I'll just mention quickly, you didn't ask about defense aerospace, but maybe I'll just mention. Defense aerospace continue to have good opportunities. So you see the revenue increase and working with the various customers to deliver the MRO. And I think that has been steady, and I think something that we continue to look forward to. You asked about Marine. So I think Marine, of course, is -- see Marine is a cyclical business. And of course, we want to continue to make sure that we maintain margins. And through the cycle, depending on the -- of course, on the competition and the opportunities. And we have significant projects even in the U.S. So that also helps the business as we go through the cycle.

Okay. We got jeff to address the aerospace related.

Okay. Okay. So Siew Khee, you noted the comparison between second half and first half '21 and then second half '21 versus -- first half '21 versus first half '20. Yes. Okay, so basically, if you remember in 2020, we had 4 very strong months pre-COVID, okay? So if you compare the first half financials with -- versus 2020, you see that actually 2020 first half was very, very strong due to the first 4 months of strong performance pre-COVID okay? And then in the second half of '21 versus first half of '21, you also realize that we are ramping up additional production lines for passenger to freighter conversion with additional investments, with more training, with additional tooling. So the effort is very massive. And then managing the supply chain challenges across the world with increased logistics costs, with raw materials cost and mobility, the logistics, mobility challenges, really, we are continuing to see major challenges. We also shared that we have small impairments that we took in accordance with the policy, that we have a group policy on impairments on inventory, stock obsolescence. So all in all, you see a net result that actually second half and first half were pretty flat, okay. Hope that answers your questions. Thank you.

The margin side before we go into the orders. So is what we should -- are you still ramping up in terms of investment, which you are, I think.

Yes. Yes.

So we should actually be expecting this kind of efforts to actually continue? And also did you mention how much was the impairment just now?

Okay. Yes. Okay, we -- all right. The -- we have a small impairment, but the ramp-up, the margins, we expect as the scale of the business improves, that whenever a business like this, we have a lot of fixed costs, right? So when you have a scale synergy, we should expect margins to improve. So that is fully the expectation for 2022, okay? And then the contract momentum you mentioned regarding PTF. We had a very strong wave of contract orders for PTF work in the last 12 to 18 months. We expect the demand to actually stabilize and achieve a more sustainable level. So yes, we expect the orders to continue to keep coming in. At the same time, we think that to keep it sustainable, we probably won't be going at this blistering pace. Yes. Thank you.

Okay, Siew Khee. Thank you for your questions. So we have a question -- a few questions from online participants. So we will take them -- yes, one by one. Okay. Yes. First, let me just address this question around more longer-term trends results. The question is, while revenue has grown, especially noticeable in 2019, is profit growing in tandem? This doesn't seem to be the case, so why? So let me just maybe recap a few things that we have done. In the last few years, we have been restructuring our business and, in some cases, streamlining our portfolio; and in some cases, streamlining our asset structure. Some of these are -- have -- had negative impact. So we had to go through that phase while keeping our results, top line, bottom line on balance [ skill ]. In fact, we made good progress, as the question also acknowledged, in 2019, where we recorded 5-year record profit and revenue at that time. And then came 2020, COVID hit us very, very hard. As you know, 40% of our businesses are directly impacted by COVID because it's aviation related. In fact, I would say -- argue that it's more than 40% because we also have had businesses that had to go through supply chain disruptions, manpower disruptions that most many companies also had to deal with. So underlying the top line and bottom line impact. A lot of work that we had to go do behind the scenes, including investing for future growth. If we don't, then when the business recovery comes up, we will not be able to fully capture. For example, we reinvested a lot of our savings back into growth sectors, for example, aerospace and digital, even amidst the crisis, instead of just keeping all the savings to the bottom line. This, I think, it's the right approach to make sure that we're able to return value to shareholders over the long term. Then there's also a specific question that our 5-year plan growth sets a target of $11 billion of revenue by 2026. Do we expect the -- what do we expect as the net profit margin in the next 5 years? And as we mentioned in our Investor Day, and we've kind of shared that in our slides, we said that net profit is expected to grow in tandem with revenue. And hopefully, we can exceed that because as revenue goes up, we will be able to see economies of scale. But then again, we have to reinvest in the business to capture even more growth. So as we balance short-term and long-term objectives, we always have to make those judgment calls and invest across the cycle, while at the same time, returning value to our shareholders as evident also in the way that we have announced our dividend policy. There's a question on executive compensation. We have a very deliberate -- a very detailed write-up on how we compensate senior executives in our annual report. That philosophy has not changed, is pay for performance, but we also do a lot of industry benchmarking. And you would see that -- I'll give you an example. In 2020, our senior executive compensation was significantly reduced even though relative to our peers in the market, our results were actually quite balanced, all things considered, especially those who are directly impacted by the COVID situation, because we want to show solidarity with our shareholders, our employees. So we do that on an ongoing basis. So just be rest assured. And are there provisions? There is -- there are miles clawback provisions in our compensation formula. And compensation is also based on a set of KPIs, balanced set of KPIs, that stretch across various domains. So I encourage you to take a look at our annual report where we actually give a pretty detailed description of each of the components in executive compensation. I hope that we addressed that question. I will ask Cedric to address this next question on TransCore acquisition. Given the ongoing -- the specific question is this, given the ongoing TransCore acquisition and its associated debt exposure, can we advise on the impact of upcoming interest rate hikes on company revenue and net profit margin for the next 5 years? I think in some ways, Cedric addressed that question in the [ slide form ], but maybe I'll ask Cedric to address the specific one here.

Thank you for the question. As I said to a similar question just now, the company has a policy to have a certain percentage of fixed interest rate for all our loans. So right now, as I said, we have somewhere around 2/3, 1/3 in terms of fixed interest rate and 1/3 floating. And this is a policy that has been implemented over the years. So it's not debt. We just fixed our loan last month or last week. It's a policy that we have abided by. In terms of the TransCore acquisition, I have also added just now that we will use U.S. commercial paper to bridge financing. And we have announced that we have increased the size of the U.S. commercial paper to USD 3 billion. and this will be adequate for the USD 2.78 billion -- $2.68 billion payable for TransCore. Then at the opportune time, we will bridge this U.S. commercial paper short-term loan with a MTN program, with bond issue. When you issue a bond, basically, the buyers of the bond will look at benchmark interest rate and added on to it a credit spread, reflecting the company's credit standing. Therefore, we recognize that the probability of TransCore closing is high. And therefore, we need to prepare for what we were seeing as rising interest rate. And therefore, we have bought treasury locks to locked in benchmark interest rate, whether it's 5 years or 10 years, but those 10-year, 5-year treasury benchmark rates, we have locked in some parts of it, a good part of it in the last few months. And therefore, these key locks are in the money, so to speak. So it will ameliorate or mitigate the impact of interest rate rise increases when we issue our bonds. Specifically how much rate -- what rate we locked it in, we'll announce when the time is right.

There is here a question. And in the end, I will wrap up by talking about our strategy. Let me just maybe call out the online question came from [ Xiao Li ], our shareholder. So thank you, [ Xiao Li ], for your question. I'll ask Ravi to maybe take the question on Marine business. Maybe Ravi, you can take the question.

Thank you for the questions. Maybe, first, let me read the question. From 2013 to 2020, the Marine business revenue declined from SGD 1.239 million -- SGD 1.239 billion to SGD 710 million. Profit declined from $105 million to $28.3 million. The decline has been ongoing and consistent not attributed to the pandemic. We would like to understand what actions have been taken to address this decline. What is the plan moving forward for this business? So first of all, I think as we have said in the past, the Marine business is cyclical business. And I think more than a decade ago when the oil price collapsed, the commercial shipbuilding business was affected. And we see this around the world, and we also see this in Singapore where the industry is very challenged and [ less lot ] consolidation. So we -- so of course, our Marine business is also subject to the same challenges. But despite the challenges, if you look at how Marine has done last year from a revenue point of view, we did much better, $103 million more revenue. For our Marine business, really, I think -- we have, in fact, a few different streams of business, which, in a way, help us to take on the challenges of the marine industry. I think, first of all, we do naval shipbuilding in MRO, both in Singapore and the U.S., and that has also helped us over the years. And you heard earlier the -- not just the Polar Security Cutter win, but also Marine has won a PV project in UAE that was -- that's announced last quarter in this results. Secondly, our Marine business also does commercial shipbuilding and ship repair. And we also do naval MRO. So collectively, there is quite a few streams of business. And moving forward, I think our Environmental business is one area that we are focusing on, and we've restarted a couple of projects. And I guess, in the longer term, we expect that ship owners and ship operators will want more green ships. So there will be opportunities for our Marine business to take up some of the [ opportunities ] conversions or newbuilds to support this requirement. So overall, I would say that our Marine business has done well despite the cyclical challenge in shipbuilding and ship repair, but also that where we are anchored, there are opportunities, and we continue to be trim and nimble. And if we can take on the opportunities that present themselves in the years to come, I think our Marine business will continue to contribute to ST Engineering.

If I may, just to finish up the questions from [ Xiao Li ]. If you will -- you will be familiar with our efforts to streamline our portfolio, reorganize our company and also implementing a lot of cost efficiency steps. In 2018, that was the first time that we talked about our 5-year plan and our strategy for the group that we were actually tracking quite well until 2019, where we had really good results. And then COVID hit. And if you compare us with, say, our peers that are directly impacted by COVID, you see that our set of results are actually quite balanced. And we must say that in many ways, we have done reasonably well versus our peers in terms of top line as well as bottom line. And as you also saw, despite the ongoing challenges, our order book continues to be very robust, and these are -- this is what I call a leading indicator of the revenue in years ahead. And we are confident that we are well positioned to capture growth. And we are investing -- reinvesting in the business to capture that growth. We are also confident in the ability to do so. And therefore, we have also adjusted our dividend policy, while, at the same time, capturing growth using our very strong balance sheet. I want to kind of give you the assurance that, in 2021, again, we refresh our 5-year plan. It's a reasonably robust one. And we also reorganized ourselves to better capture the opportunities. Even though 2020 was a very difficult COVID year, we went ahead and did our reorganization, the largest restructuring reorganization that we had in the history of this company. So that while we take on near-term challenges, we always look forward and look ahead to position ourselves to capture the opportunities that lie ahead of us. And of course, we could take a stance of not investing, but that would not be in the interest -- long-term interest of our shareholders. In fact, if you think about our Aerospace business, we did not invest in passenger to freighter conversion only because of the pandemic, right? We invested in it long ago because we had positive outlook about the freighter -- the freight revenues of the industry. And therefore, we invested in the A320, 21 and A330 platforms for passenger to freighter conversion quite a few years ago. In fact, almost 10 years ago in -- of 2013, then [ building fruits ]. And this is the kind of long-term business cycle that we have to deal with, so that we can to be positioned well for the future despite the short-term aberrations like right now, like the COVID-19 challenges are pretty significant, but we have the wherewithal and the strength to take it on. [ Xiao Li ], I hope we have addressed your question, but thank you very much for your very thoughtful questions.

Jason, please.

Jason?

This is Jason from DBS. So I just have a few questions to add on. So I just wanted to clarify one point on government support. Can I check if ST Engineering will be receiving any government support at all in 2022? Of course, I understand that, at least in Singapore, the CAS will still be providing some support in the first quarter of this year. The second question is great to see that the group was awarded the second Polar Security Cutter contract. But could you maybe provide us an update on the first unit, how it's been going? And the third question is, could you maybe share your thoughts on the key positives and key negatives of the recent Singapore budget? And the last question is Airbus has pretty ambitious production plans for the A320neo. I just want to check if MRAS currently has adequate capacity to accommodate an imminent ramp-up in A320neo production.

I would maybe address your first question. For government support, we expect most of that $200 million to go away this year. As I mentioned just now, we -- our plan is to offset that through cost efficiency steps as well as business -- continued business recovery. But of course, it's something that we have to work very hard. It's not a walk in the park, but we will continue to chip at it as we have done in the last few years, even in the face of the most difficult challenges for us during the pandemic. I will invite Ravi to talk about the progress of the first PSC. And then you did ask about the first and second -- your third question was, can you -- government budget positives and not so positive. I think the theme for us in sustainability, making sure that the enterprises are focused in carbon pricing changes is there for us. As enterprises, we see that as an enterprise, we see that as an opportunity. As we articulated in our Investor Day, we are going to increase our sustainability linked business to $3 billion by 2026. Using our technology and innovation to help cities reduce their carbon footprint, and at the same time, create business opportunities for ourselves. So we see that it's an inevitable trend but something that we can build on and leverage upon. So I think broadly, that's something that we will work towards, yes.

Maybe just to add a little bit on the government budget side and its impact on us as a company. As Vincent highlighted, it is indeed an opportunity. Carbon pricing will be here and increasing it to reflect realistic values, something that we can't postpone any further. But in many parts of our business, especially, let's say, if you look at street -- smart street lighting, we are helping our customers replace [indiscernible] box with LED. That itself is saving energy. And we can have intelligence built into them for them to alternate the light or use less energy when the ambient lighting is brighter, or even switch it all together off if there's no pedestrians. In our Aerospace business, we clean engines, which help reduce carbon emissions. In the PTF business, we really repurposed and give a new lease of life to what is otherwise an ages-old passenger aircraft to become a full functioning freighter aircraft, which is in huge demand. So there are so many areas that we are doing for our customers and, of course, for ourselves in terms of sustainability. So we welcome those measures.

May I invite Ravi to talk about the Polar Security Cutter? I will invite Jeff to talk about A320neo and whether MRAS has the capacity to ramp up.

Okay. So you read in the news of Airbus, very ambitious plans to actually grow capacity deliveries to actually higher than pre-COVID. So -- and they actually shared a number above 70 per month. Indeed, that is what Airbus has said to be achieved in the coming years. In the short term, we will have no problem with the ramp-up, last year, achieving 45 per month. By end of this year, we'll be exceeding 50 a month. And we do need to add some soft -- both soft and hard capacity, soft capacity in terms of additional manpower, thus, the hiring of new head count, and some hard capacity around equipment. In terms of major infrastructure, we don't have any issue accommodating a significant ramp-up in capacity. So I think we are positioned to meet the demands of the market. A lot of industry analysts don't think Airbus could achieve those numbers. But if indeed they do, we will be very happy to support Airbus.

Listen, thanks for the question on PSC. So PSC 1 is now in the design and engineering phase. PSC 1 delivery is now slated to be 2025. So we are nearing production readiness and the target is to begin production at the end of second quarter this year. So that's how the program is progressing.

Okay. Panelists, we have Lorraine Tan from Morningstar waiting online.

Can you hear me this time?

Yes, very well.

Okay. I have a couple of questions. Maybe just additional questions on the margins. Just trying to reconcile mainly because of the change in segmentals, I guess, and there's a little bit more history now. And just looking at the DPS segment was quite fairly stable. But regarding the outlook for, let's say, Commercial Aerospace and USS segments. In the previous aerospace segmentals, the operating margin, this would be the reported operating margin before associate contributions, let's say. I think that's fairly stable at around 10%. I'm just curious, over the past pre-pandemic for the 5 -- 2015, 2019, let's say, so the outlook, I guess, my question is for Commercial Aerospace. As you ramp up -- as MRO comes back, what can we anticipate in terms of the margins coming back? Would it come back to that sort of level? Or is there room for additional margin gains because of the fact that you have more PTF business as well and there are some synergies? So I guess that's one -- that's my first question. On the USS side, I'm just curious whether you are seeing signs, given that there's also chip shortages that is impacting and also because of the marine element on Satcom. Having said that, I'm just wondering whether -- if there are any products or services that you're seeing more competition from, would it be fair to say there are some elements within the USS segment that is a little bit more competitive compared to, let's say, your other business segments? I guess that's my main question.

On the Commercial Aerospace, we'll leave Jeff to talk about the margin expectation. But keep in mind that in the commercial space, maybe before we get into the details, we are not right now at the bottom of the market, right? As we know, commercial aviation, marine, the maritime sector significantly impacted. And yet at the same time, we're investing, incurring cost to invest to position well for the future. But yet, at the same time, we have to keep our near-term results on even keel and return value to our shareholders at the same time. So all these are demands that sometimes requires a lot of judgment call. So I invite Jeff to talk a little bit about the Aerospace margin. And then I'll ask Lee Chew to talk about USS, which are the parts that are more competitive if we have any.

Yes. Thank you for asking us a question which we also challenge ourselves to confront every day. Really, if you look at previously, the aerospace sector, we have restructured early this year. So what you're seeing in the past versus what you see now is actually slightly different because defense aerospace has been restructured with the larger defense and public security organization. So it doesn't necessarily absolutely translate across. Secondly, we -- obviously, the market is very dynamic. And with COVID and the recovery and the state of the industry, we're seeing obviously a lot of hungrier competition right? So as you know, margins is really a function of many, many things, including how you deploy your resources, the cost of the resources, the competitive nature of the market. So it's hard to say exactly where we end up. But suffice to say, we will be fighting very hard to compete for the work, to get the workload, as you can see from the order books that we have been able to secure in 2021. And then Vincent has talked a lot about the investments. You are seeing a lot of significant investments in product, in footprint, in programs today more so than ever before. We talked about the passenger to freighter conversion lines. And this year, we are going to deliver more than double the number of aircraft we delivered last year and adding more lines before the end of the year. In unmanned systems, you see us deploying and piloting various applications in shorter ship delivery, in surveillance, in inspection applications. In aircraft leasing, you're seeing us ramping up our portfolio size with various partners for engines, for pax aircraft as well as for freighter aircraft. And you visited us during the air show, you also saw that we were investing heavily in cabin interiors with our expandable toilet, for example, and all the hangars across the world, additional aircraft models like the 737 MAX. So we are furiously and very actively investing in all of these new capabilities across the footprint, across various customer types, like freighter, passenger, leasing, lessor companies so that we can be ready to support them as the market recovers. So I hope that gives you a good picture of really -- our intention is to recover the kind of margins we saw in the past and contingent on all of these factors that we can dynamically work in the market. Thank you.

And of course, I will invite Lee Chew to talk a little bit about the USS segment. But certainly, this is an important and growth segment for us in the smart city domain and Satcom connectivity with the, I think, ever increasing demand for uninterrupted connectivity. We see a lot of opportunities in the Satcom space, which we believe will, over time, convert to 5G, and that presents a lot of opportunities for us despite the short-term challenges that we are seeing in the market. We also need to have the perspective of the future prospects in this particular segment. I'll let Lee Chew talk a little bit more about your specific question.

Yes. Thanks, Vincent, and thank you for the question. So I just want to echo Vincent's comment and say that there are a lot of opportunities that we are seeing as customers, organizations and administrations look at the need to have a strong digital backbone as they -- or backbone and infrastructure as we look at responding to returning back into an economy recovery situation. So if you look at ST Engineering and solutions that we offer in USS, it includes an integration of disparate IT, OT systems. But it also looks at how we are going to focus the centralization of data to create more insights for customers as they deal with urbanization, sustainability and creating that connectedness that Vincent talked about. Maybe I -- let me start off by commenting on the chip shortage and how we are responding to that because that was called out earlier. Obviously, we are not exempt from the whole challenge that the market is seeing. Vincent mentioned the satellite communications business. So in our supply of ground segment products, for example, we have had to take a step back and look at the modems as well as line cards that we provide and how do we create resilience in supply chain for that. We have actually made some decisions as we look at these product lines to derisk in terms of component dependency on some of the chip supply. Some of those decisions that we made, you would see us kind of benefiting from that because the whole cycle of re-spinning some of these products ranges between 6 to 12 months. So the decisions that we made in 2021 will see us turning the corner around that dependency for chip supply, although the whole situation, we expect to recover only towards the end of 2022 and into 2023. The good news about that is we are laser-focused on making sure that we stay competitive and that we have a strong market position as we stack ourselves against who we are up against. And if you look at the latest NSR report, you would see that in the satellite communications market, we continue to take leading position in the maritime space, in the aerospace, although those 2 markets are depressed at the moment. So when that market picks up, we will definitely ride that wave to come back. And then the integration between our acquisition of Newtec and iDirect in the satellite communications business has also given us new opportunities in the enterprise space as well as the cellular backhaul. So as we look at the headwinds that we're up against and the decisions that we've made to try to pivot and derisk ourselves from some of these supply chain issues, you would see that platform improving for us in terms of a margin profile. And of course, from a deal perspective, I think we announced the opportunity last quarter about the Kaohsiung rail services project, where we have taken on the turnkey position there. Going into these projects as an end-to-end service provider also provides us the opportunity to look at doing these projects in a much more effective as well as value-creating way. And that, coupled with the cost disciplines that we mentioned earlier, will get us on the right track to improving our margin profile for USS.

Lorraine, I hope that addressed your questions.

Yes. Sorry, I do have one follow-up. Regarding the associate or joint venture profit for -- in Commercial Aerospace, can I just ask which businesses goes where?

We do have a number of joint ventures with various partners across the world, include -- where we actually don't consolidate. That includes our [ engine ] joint venture in Shanghai; two, our joint venture in Singapore for engine component repair; and various others. So it's a combination of several joint ventures. We operate over 13 joint ventures.

Right. And that profitability will continue, I expect.

Yes, we work with our partners to position our businesses even as a minority partner to ensure that we are positioned to recover and to maintain is our profitability.

Is there any further questions from either the participants in person here with us or those online? Well, if not, thank you very much for your active participation, and we look forward to more engagement with you throughout the year. So on that note, we will put the Q&A session and today's results briefing to an end. Thank you very much for your attention and your participation. Thank you.

Thank you.

Thank you.