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

Good morning. Welcome to ST Engineering's First Half 2025 Results Briefing. We will begin with the presentation by our Group CFO, Cedric Foo; our Group President and CEO, Vincent Chong will then give his remarks. After that, we will end today's session with a Q&A session for the analysts. Without further ado, may I invite Cedric to give his presentation, please.

Yes. Thank you. Welcome to ST Engineering's First Half 2025 Results Briefing. A very good morning to everyone here in person, many familiar faces as well as those joining us via webcast. Slide 2. Before I begin, I would like to bring your attention to Slide #2, which states, amongst others, that the Group's actual performance, outcomes and results in the future may differ materially from those expressed in forward-looking statements. Slide 3. This is our agenda for today. First, group highlights, group business discussions for each of the three segments, contract wins and order books, debt management, portfolio management, dividends and outlook. Slide #4, Group highlights. I'm pleased to report a strong set of First Half 2025 results. The group achieved 7% year-on-year growth in revenue to $5.9 billion, 15% year-on-year growth in EBIT, breaking the digit 6 to $602 million. 20% year-on-year growth in profit before tax to $500 million, again, breaking the digit 5 and 20% year-on-year growth in net profit to $403 million, breaking the 4 figure. The good performance was due to the successful execution of our order book and better margin mix and concerted efforts by everyone here in managing our cost. Slide 6. From left to right, this slide shows the revenue breakdown by segment, by product type and by location of customers. On the left, the pie chart shows revenue by segment. In first half '25, CA contributed 40%, this Commercial Aerospace. DPS, 45% Defense and Public Security; and USS 16%, Urban Solutions and Satcom. In the center of the slide, the bar chart shows revenue by product type. Commercial revenue increased from $3.9 billion in first half '24 to $4.1 billion in first half '25. Defense revenue increased from $1.6 billion in first half '24 to $1.8 billion in first half '25, a very healthy growth. DPS segment includes commercial domains such as Public Security and Safety, Critical Information Infrastructure and others. It also includes both local and international businesses. Hence, DPS segment revenue of $2.6 billion in the left of the pie chart is higher than defense revenue, which is by product type of $1.8 billion in the center bar chart. Defense revenue, as shown in the center, is defined as defense products, solutions and services rendered for national defense. They include work performed to maintain, protect, train and support these products and solutions. On the right-hand side, the table shows revenue breakdown by customer location. Asia contributed 54%; the U.S., 20%; Europe, 20%; and others 6%. Slide 7. Group revenue grew at 7% year-on-year to $5.9 billion. This is contributed by all segments. As several of our entities have U.S. dollar as their functional currency, accounting-wise, their revenue is translated into Singapore dollars upon group consolidation. The average U.S. dollar to Singapore dollar rate for the first half of '25 is 2.5% weaker than first half of 2024. Hence, after adjusting for this FX translation impact, revenue growth year-on-year would have been 8% on a constant currency basis. Slide 8. EBIT grew a strong 15% year-on-year to $602 million due to higher revenue, translating to better EBIT as well as better margin mix of our solutions and products delivered and cost savings. This is representative of our continuing operations, notwithstanding, as some of you have noted, that the higher other income in first half 2025 versus first half 2024. This other income line was higher by $38 million. This one-off other income were recorded in both Commercial Aero and DPS segments and were offset by one-off loss from the impairment of the Mobile, Alabama commercial aerospace site and some other smaller areas. The effects of one-offs, both plus and minus, offset each other, resulting in a neutral effect on the group's and segment's bottom lines. So in other words, the group EBIT and segment's EBIT are representative of continuing operations. Slide 9. Net profit improved very strongly by 20% year-on-year to $403 million. This was contributed by stronger EBIT and lower finance costs. Slide 10. On tariffs, including the recent intention to impose U.S. tariffs on chips, our preliminary assessment is that the impact is immaterial at the group level. However, we will continue to monitor this closely as the tariff situation is evolving. We have classified the tariff impact into three broad categories. First order impact refers to tariff payable by our businesses for purchases from primary suppliers overseas. For example, our businesses in the U.S. buying from, say, China or the EU. Such first order impacts are largely confined to commercial aerospace segment, whilst impacts on USS and TPS segments are much smaller. Against our initial assessment in May 2025, there was limited first order impact for Engine MRO, about $34 million of revenue was deferred over 2.5 months when tariff exists in the second quarter '25. This is less than the $40 million per month revenue deferral that we previously estimated. And all this relates to the Engine MRO shop, which is in China, Xiamen, importing engine parts from the U.S. into China. So those were originally subject to tariff. The tariff has since been reduced. Second order impact refers to tariffs paid by our secondary suppliers, which is basically suppliers of our suppliers. We have no plans to absorb such tariffs unless they can be passed through to customers. In any case, versus other competitors, we are not competitively disadvantaged. Thirdly, other global impact includes possible recession and inflation risks triggered by tariffs. Hence, we are monitoring this situation closely. For now, our truck business, Hackney, reported that orders are affected as customers adopted a wait-and-see posture. Nevertheless, our diverse business portfolio, including defense and public security is more resilient to economic downturn as defense is not directly correlated to economic cycles. The tariff situation is evolving and unfolding. Hence, we will continue to monitor this space closely. We are also actively adopting key mitigating actions as appropriate, such as renegotiating customer agreements, diversifying supplier network, activating alternative service delivery sites and stockpiling inventory where... Next, I'll move on to business discussions, Slide 11, Slide 12. CA segment revenue grew 5% year-on-year to $2.3 billion. That's the chart on your left. Excluding aircraft sales, which is shaded in checked grey of $7 million in first half '24 and U.S. dollar- Sing dollar FX translation impact, which I explained earlier of $35 million, revenue growth year-on-year would have been 7%. This growth is contributed due to stronger sales from Engine MRO and Nacelles. It is offset by lower PTF revenue due to a lack of [ PIS ] aircraft fixed stock as we have discussed previously, arising from extended use of existing [ PIS ] aircraft. EBIT for CA improved 18%, 1-8% year-on-year to $223 million. This is a strong increase due to higher revenue, better margin mix and cost savings. Slide 13, DPS. Its revenue grew 12% to $2.6 billion. This growth was contributed by all subsegments of DPS. EBIT for DPS increased strongly as well by 13%, 1-3 to $367 million. This is contributed by higher revenue and cost savings. Slide 14, moving on to USS. Revenue grew to $921 million. This was largely flat year-on-year at 0.3%. Adjusting for FX translation impact that we discussed, revenue growth year-on-year would have been plus 2%. This growth was contributed by URS and partially offset by Satcom, which continues to be challenging, as I will elaborate in my next slide. EBIT for USS increased from $9 million to $12 million, contributed by better margin mix and cost savings in URS. Slide 15, Satcom. We continue to drive the performance of this particular line of business while positioning for the future in an evolving industry landscape. Vertically integrated non-GEO satellite operators such as Starlink continue to disrupt the market. Intuition, which is the platform name that we gave, its general availability release is on track for end September '25 to deliver features such as standards, cloud, multi-orbit and virtualisation. At the recent Singapore Asia Tech X Conference, iDirect, which is our Satcom entity in the U.S., demonstrated various capabilities such as satellite switching between GEO and HEO. HEO is the elliptical kind of orbit around the [ pulse ], AI and analytics for network monitoring and dynamic bandwidth management. So these were features sought by customers, and we are actively working to deliver them. So INTUITION has been gaining traction, but notwithstanding. Customer transition to newer ground equipment platforms have taken slightly longer than we expected. We will continue to invest in INTUITION capabilities, watch this space and all hands on deck to turn this around. Let's move on to the group's order book. Slide 17. Our contract wins totaled $9.1 billion for first half 2025 with $4.7 billion for the second quarter. This was contributed again by all segments, DPS, $4.2 billion, CA, $2.8 billion and USS $2.2 billion. Our order book of $31.2 billion as at 30th June '25 remains robust. $5 billion of this order book is expected to be delivered in the remaining half of the year. Again, excluding the FX impact, which also would impact order book because some of our orders are in U.S. dollars, order delivery in the second half would have been $5.2 billion instead of the $5 billion you see on the right-hand side. Underlying revenue delivery continues to be robust as the year is not yet over, there's also in-quarter revenue on top of the $5 billion or $5.2 billion to be delivered as well as growth prospects that are actively being pursued right now. So I hasten to draw a conclusion about second half revenue from just from these figures alone. Slide 18. Covers new contract wins for second quarter 2025. In second quarter 2025, the group secured $4.7 billion of new contracts with commercial aerospace recording $1.5 billion, DPS $1.5 billion and USS $1.7 billion, a very strong $1.7 billion. All segments secured a very healthy level of new contracts. Moving on, let's review the group's debt management. The bar chart on the right shows the debt level at the end of this year and as of 30th June '25. As of 31st December '22, our total borrowings were $6.5 billion, the first bar chart, and that's debt applied for the acquisition of TransCore. Our borrowings have since progressively reduced from $6.5 billion as at end 2022, all the way down to $6.1 billion, $5.8 billion to $5.5 billion as at 30th June 2025. The cumulative debt reduction between December '22 and June '25 is 16%. We have also announced the signing of SPA, shares and purchase agreements for the divestment of LeeBoy and SPTel. This announcements were in June and July this year. And these M&As obviously are subject to regulatory approvals and customary closing conditions. But once these conditions are satisfied and assuming that we apply the net sales proceeds, our debt level will drop further by $450 million. EBITDA for the first half of 2025 increased 11% to $871 million. The line chart on the right, the black line chart shows the gross debt-to-EBITDA ratio. This is a popular ratio used by rating agencies to assess the strength of the operations, which is represented by EBITDA versus the amount of debt that the company carries. This ratio has been reducing year-on-year since 2022 and was 3.2x as at end June 2025. It's all the way down from 5.2 in December 2022. This achievement was a result of our strong operating cash flows over the years and also our EBITDA growth. We have also been actively recycling capital and managing net working capital. Now I draw your attention to the left again. The fixed and floating interest rate ratio as of 30th June '25 continued to remain balanced at 71% fixed, 29% floating. We expect the weighted average borrowing cost for the full year of 2025 to be in the mid -3%. Our credit rating remains very strong, at AAA stable by Moody's and AA+ stable by S&P. Next, portfolio management. Slide 22. Our portfolio will be further streamlined with the divestment of LeeBoy and SPTel. This is part of the group's ongoing portfolio rationalization effort to ensure that capital and resources are efficiently allocated and also to drive growth and value as well as focus on our core businesses. The SPAs for LeeBoy and SPTel were signed in June and July. These are subject to regulatory approvals and customary closing conditions. These transactions are expected to close in the fourth quarter of '25. When approved and upon closing of these transactions, the group will generate net proceeds of approximately SGD 450 million. And assuming these proceeds are channeled to repaying borrowings, the net annual interest savings will be $15 million. Nevertheless, if good opportunities present, the proceeds of some parts of it can be reinvested in businesses to support further growth. The net investment gain is expected to be about $180 million. Of course, these are onetime. The EV/EBITDA multiples for the transactions are 9.3x for LeeBoy and 21.4x for SPTel. On a pro forma full year 2024 basis, the annual revenue and EBIT for LeeBoy, which is wholly owned, is $326 million and $37 million, respectively. The revenue of SPTel, which is a joint venture is not consolidated into the group. So there's no revenue loss as such post the sale of SPTel. Our share of SPTel's performance is a net loss of $2 million for 2024. So we avoid the loss. So these data are produced for the benefit of analysts creating their models. Next, dividends. We are pleased to announce that the second quarter interim tax-exempt cash dividend of $0.04 per ordinary share has been approved by the Board for the quarter ended 30th June 2025. The record date is 25th of August 2025, and shareholders can expect payment on 5th of September 2025. So on top of the first quarter 2025 interim dividend of also $0.04, the total dividends announced and paid so far for first half 2025 will be $0.08. Next outlook, Slide 26. This is the Group President and CEO's message, and let me just read it out for you. We delivered a robust set of results in first half '25. In executing our growth strategy, we continue to be agile in navigating the evolving global landscape. Our recent divestments are in line with our portfolio rationalization strategy to exit noncore businesses and to recycle capital. We remain steadfast in strengthening our core businesses. Our strong order book continues to provide revenue visibility for the group. So this marks the end of my presentation. And we will now invite Vincent and the other expo members to take their seat, and Vincent will give some remarks before Q&A. Thank you.

Thank you, Cedric. May I now invite our panelists up on stage, please? The panelists this morning are Vincent Chong, Group President and CEO; Cedric Foo, Group CFO; Mervyn Tan, Group Chief Operating Officer, Technology and Innovation and President, Defense and Public Security; Tan Lee Chew, Group Chief Commercial Officer, Market Development and President, Smart City and Digital Solutions; and Jeffrey Lam, Group Chief Operating Officer, Operations Excellence and President of Commercial Aerospace. I will now hand the floor over to Vincent to deliver his remarks. Vincent, please.

Good morning, everyone, here at ST Engineering Hub and those who join us online, virtually, welcome to our First Half 2025 financial results briefing. Before that -- before I start, I'd like to just introduce to you, Mervyn Tan, who just joined us recently as the Group Chief Operating Officer for Technology and Innovation and President of Defense and Public Security, succeeding Ravinder Singh, who retired recently. Mervyn is also a member of our Group Executive Committee. Mervyn joined us from Vertex Holdings, where he was Managing Director, Investments focusing on start-ups and deep tech domains. But before that, he spent over 3 decades with the Ministry of Defense and Singapore Armed Forces holding various senior leadership roles as described in our official announcement. So Mervyn brings with him deep domain expertise, especially in the defense technology domains. So now let's turn to the group's first half 2025 performance. You have heard the details from Cedric, so I'll just keep my remarks to the key takeaways to allow more time for our Q&A session. I'm sure you have many questions. As the headline numbers show, we have delivered a robust set of results compared to the same period last year. Group revenue was up 7%, EBIT rose 15%, just to recap, while PBT and net profit each grew 20%. Group revenue would have grown 8%, if not for translational impact of a weaker U.S. dollar versus Singapore dollar in the first half versus same period last year, while the corresponding impact on net profit was negligible. Revenue growth was contributed largely by Commercial Aerospace and Defense and Public Security segments, as you heard from Cedric. Group EBIT and net profit outpaced revenue growth, driven largely by margin improvements across all three segments as well as cost savings. As we mentioned before, we have a very disciplined process to reduce costs while we pursue growth. Underlying profits continue to perform well. As the year progresses, our focus remains on delivering strong, sustainable earnings over time, in line with our 5-year targets. I know earlier on, Cedric talked a little bit about the other income this half, which was about $38 million higher than the same period last year. And these were recorded. Basically, these are one-off incomes that were recorded in both Commercial Aerospace and DPS segments, and they were offset by corresponding one-off losses from, for example, the impairment of Mobile, Alabama, commercial aerospace sites where we said we're going to -- we have rationalized the capacity away and some other more minor items. And these one-off effects offset each other, resulting in a neutral effect on the group and segment bottom lines for both DPS and Commercial Aerospace. Hence, the group EBIT and the segment EBIT are representative of our continuing operations basically. So nothing more than that. So the fundamentals remain very strong. These are all one-off effects. In his presentation, Cedric highlighted the continuing transformation journey in Satcom. The team continues to work on turning the business around, including preparing for the general release of our next-generation platform in INTUITION at the end of September, while remaining focused on addressing the near-term challenges. On international defense business, which later on, I'll invite Mervyn to share some information on insights on, we are deepening market engagement, especially with our land and naval platforms, which are gaining traction as credible solutions to evolving operational needs as reflected by the growing interest from prospective partners and end customers. We will hear from Mervyn later on in the Q&A session. On new contracts, we secured a robust $9.1 billion of new order wins in the first half, comprising $4.7 billion in the second quarter, amongst the highest quarter and $4.4 billion in the first quarter. But as I said, new order wins will ebb and flow through the quarters. So I don't think we need to pay to particular -- too much attention to any quarter. Suffice to say that our new order win momentum in the past years will give you confidence that we are on the right track, continues to win new contracts. And that points to our strong underlying demand from our customers and the industries that we operate in and our good business fundamentals. Now the ebb and flow of new orders is largely because of timing of opportunities, timing of projects, but we certainly will keep you posted in our quarterly brief. Now these new orders -- order wins have contributed to a stronger order book, which is now, again, broken new record at $31.2 billion at the end of June. If not for ForEx, the number would have been at $31.6 billion. We know that we have a weaker U.S. dollars. We have about $5 billion expected to be delivered from our order book in the remaining months of the year, and that provides us with very healthy revenue visibility going forward. As Cedric mentioned, if not for ForEx effects, the number would have been $5.2 billion to be delivered for the rest of the year instead of $5.0 billion. In addition to the order book delivery, as you all know, which accounts for the bulk of our revenue, a portion also comes from short-cycle work or for example, product sales and ship repair work completed within the 3-month window, while not captured in headline order book. These revenue streams continue to contribute meaningfully to our overall performance. So the $5 billion are what we expect to be delivered from our order book, but we also have in-quarter or intra-quarter revenues that contribute meaningfully to us. I want to maybe -- at this time, I'm sure there are some questions in the mind before I switch on to the next -- switch to the next topic on our divestments. A question on what's the momentum of our revenue in the second half in the years ahead. I would just say, and this is a message that is quite consistent, we expect group underlying results momentum to continue in alignment with our 5-year plan or 5-year targets as we disclosed at the Investor Day. The strong first half results give us a strong foundation upon which we'll build on for the rest of the year. However, the year is not yet over, we will update in our quarterly results briefing. Well, in the meantime, I'll share with you a few maybe highlights for each of our three segments. Commercial Aerospace strong performance came from -- mainly from Engine MRO and Nacelles manufacturing, partly offset by passenger to freighter conversion. It's too early to tell for the rest of the year, but we will continue to grow faster than industry, that we are quite confident of. In DPS, we had very strong half-on-half or year-on-year performance, first half '25 versus first half of '24, we grew 12%. Now sequential quarter depends on project timing. In the first quarter, where we recorded 18% revenue uplift, we already told you that it depends on project timing. So let's not look at quarter-by-quarter. First half is a very strong 12% revenue, I think, which is representative of the strong fundamentals. And the order book is very strong and the international defense arena is showing really good progress. For Urban Solutions and Satcom, our revenue is second half weighted. We're encouraged by the sequential quarter-on-quarter growth. And EBIT and so forth, I think it's too early to tell for the rest of the year, but at least in the first half, we recorded higher EBIT than the same period last year. So maybe just some insights before I switch on to the next topic on the two business units, which we have divested. Those two divestments or these two divestments are in line with our portfolio rationalization strategy. In each case, we exited the businesses where they no longer align with our growth strategy and where greater value could be realized under different ownership. So it's a case where the businesses are worth more to others than to us, to the buyers than to us and that these businesses in the base case are no longer strategic to them. This disciplined approach that we take for portfolio review and streamlining allows us to reallocate capital to areas with stronger return potential and long-term value creation. I'm sure you have questions, are there any more in the pipeline? You ask me all the time. But I'll say that the portfolio review and streamlining our ongoing efforts as even before these two divestments which in the last many years, we have shut down or divested 16 different businesses, as we mentioned in our previous presentations. We can only share and we will only share information on divestments when they actually happen at the appropriate juncture because -- but the nature of such discussions and reviews are always very sensitive when we need to protect confidential information. So overall, we had a very strong first half, which gave us a good start to build on for the rest of the year, as I mentioned just now. As we head into the second half, our focus remains unchanged, execute well, stay agile as we navigate the evolving global landscape and keep our pursuit of sustainable quality long-term growth. Now finally, our Board of Directors has approved a second interim dividend or second quarter interim dividend of $0.04 a share, which shareholders will receive on 5th September 2025, so sometime next month. I also anticipate a question whether portfolio rationalization gains will be part of the consideration in our dividend. And so maybe let me just take time to address that before you have those doubts. As you know, our proposed dividend payout for 2025 when we announced it, I think, sometime during our Investor Day. Our proposed dividend payment for '25 is $0.18, subject to shareholder approval. We have no plans to change it, okay, at this point. Our Investor Day financial targets exclude all gains and loss from M&A and divestments. So therefore, it follows logically that dividend treatment will be similar, subject to Board and shareholder approval, of course. So maybe just have that for your information for now. So on that note, we will open the floor to questions, if you have any.

Yes, Rachael. Maybe Rachael and then Rahul.

This is Rachael from UBS. Congratulations on the good set of results. I have three questions. So the first one is on your intra-quarter revenue and net profit growth. It was actually quite sizable for this particular quarter. Is -- should this be something that is indicative of future quarters as well? And could you elaborate on the nature of these revenues. Shall I ask my next question or we go about...

Yes, yes, go ahead

Okay. My second question is on margins. You attributed better CA and USS EBIT to margin mix. Could you elaborate on this in terms of product scale, and what led to better margins? And my final question is on the Defense business. Welcome Mervyn. You mentioned that you had signed strategic partnerships with multiple companies, one of which was Babcock, not referring to any company in particular, but could you elaborate on how these partnerships are manifesting and the types of value that ST Engineering brings?

Okay. Thank you, Rachael. There are three questions. The first one is intra-quarter revenue and profit growth strong, yes? Are they indicative for future quarters? And then you have a second one, which is margin better CA margins. I'll let Jeff answer that. And then DPS, Mervyn is already to share with you the opportunities that we have in the pipeline. So intra-quarter, as I mentioned just now, the momentum continues. I think the strong underlying fundamentals continue. We are certainly on track to achieve our 5-year plan targets at least based on what we can see. The first half results are very strong. And that, I think, gives us more confidence that we are on the right track. We won't go into quarter-by-quarter because as I said, there are always ebb and flows in terms of margin. But if you look at the overall trend, our revenue went up 7%. If not for the effects of ForEx, we would have been 8%, which is quite in line with our 5-year plan CAGR of that we articulated those of you would did your math would already be familiar. And then we also expected our profit to outpace revenue growth, and we are accomplishing both the revenue growth momentum as well as bottom line or net profit growing faster than revenue growth. So we are certainly on the right track. And maybe we can discuss more if you have more detailed questions by each of the segments. Let's start with perhaps Jeff, to answer your question on the, okay, the factors contributing to better margins for CA.

So actually, Vincent did allude to the contribution, the revenue contribution for CA. The growth came from the Engine MRO business and Nacelles business, right? So in addition, of course, we have been focused on addressing operational challenges across the network, plus our continuing focus on productivity. So in the end, it's a combination of product mix focused on addressing operational challenges. And continuous improvement projects that enable us to achieve the outcome. Yes. Then for the other two segments, Rachael, just to recap, I also mentioned that our Defense and Public Security segment had very strong first half. For revenue, 12% is really very robust and healthy and very strong. First quarter is 18%, we already said that, it was really driven by project timing. We don't expect that kind of momentum, but the same kind of level of revenue increase, but the underlying business is very healthy and very strong. So we expect, of course, to continue our growth journey for DPS. And I said earlier on that for USS, it will be second half weighted, and we'll share more as the year unfolds at the quarterly briefing. Maybe we invite Linch -- sorry, Mervyn to talk about DPS strategic partnerships for our international defense business.

Yes, so that's the problem with doing this for the first time. You don't know where the buttons are. But thank you very much, Rachael, for your question. I first want to say that my remarks are say in the context of a very strong first half for DPS, a 12% growth year-on-year in terms of revenue and a very strong value tied to new wins of $4.2 billion. And in this context of that very strong achievement, I would say that our international defense business is a meaningful contribution to this strong achievements. And the reason why we are able to achieve well both locally as well in terms of our overseas pursuits is because of the strong partnerships that we have established with our partners across the world, right? And you mentioned Babcock, but Babcock is just one of the many partners that we have established that teaming as well as MoU relationship with, because we believe that our competitive advantage is built on these partnerships that we have established, right?. These local partners understand the customer better. They understand the market that we have ambitions to go into, and they are typically ready to work with us, because they recognize the strength, the fundamentals in our technology. The competitive advantage that we have that a remark that I set on my 30 years of experience in the defense ecosystem is that unlike other competitors, we are quite ready to localize our capabilities and to manufacture locally. So beyond the capabilities that we bring to these customers, I think many of the governments and the militaries that sort of work with us are also quite glad that we are able to contribute to the local economy, because of our willingness to localize our capabilities there. We are also ready to share our technologies with them. And you saw that when we did the establishment with the KPE in Kazakhstan, Kazakhstan where we are manufacturing our amphibious 8x8 Terrex vehicles, right? And we derive our revenue through a licensing agreement from these partnerships that we have established. Just to give you a sense of what's to come in the near future. We have teaming relationships with partners in pursuit of several platform potential opportunities in Europe as well as the Middle East and in platforms, I'm referring to our 8x8 Terrex platform, the new ones, as well as our Bronco platform. We think that the momentum in terms of munition sales, and we're talking about 40 mm and 155 mm that we saw contributed to our first half revenue, we are confident that, that will continue into the second half, because there's simply a demand for such products in the market, especially in the Middle East as well as in Europe, as you can understand the reason why. We are also looking at potentially growing our shipbuilding business outside Singapore, especially in the Middle East, you'll be aware that we are building a fleet of ships based on our fearless class OPV Hov structure for a Middle Eastern customer, and we're looking to do more with another Middle Eastern customer and something that we are fairly optimistic that we will be able to achieve in the near term. In the area of International business, we are also looking at new satellite bus built for a Middle Eastern customer. On the MRO front, we are looking at potential new military aircraft MRO services, built on what we have established previously, especially in the Middle Eastern North American market. Yes, North African market. So on the whole, I would say that we are quite optimistic that our good performance in the first half of 2025 will follow-through into the second half and hopefully into the medium term. We are fairly confident that what we saw as an increase in defense investment by partners, especially in Europe is something that we assess to be structural in nature, and it is unlikely to wane whether the wars or peace prevail and war stop in the medium term. Even last month, during the NATO summit, we saw the commitment of the allies to increase their defense spending as a percentage of the GDP to 5%. So that's something that in my 30 years I've never seen before, and I assess that to be a structural change, something that is unlikely to wane, whether some of these conflicts continue or not. But to be clear, clearly, we hope that peace will prevail. So I will end my remarks there regarding the international defense business opportunities. Thank you for your question.

Well, thank you, Mervyn. I hope you have gleaned more insights as you -- from what Mervyn said, it's quite clear that we have quite a few irons in the fire. We will hopefully provide more updates as they become actual projects. But certainly, a lot of work has been put in, and we are actively participating in competitions and opportunities. So I think we're in a good place for international defense business. Rachael, thank you. Can we go to Rahul, and then after that Siew Khee.

Rahul Bhatia from HSBC. Three questions, please, one for each division. Starting from USS. Could you explain where we are in terms of INTUITION? Have we started taking preorders? What is the customer feedback? And what are we expecting in terms of trajectory related to INTUITION for the next 2, 3, 5 years based on how the technologies are moving globally at such a fast pace. Second, on Commercial Aerospace. I mean we just started a new hangar in China. Could you talk about the utilization levels? How do we think about that hanger. Finally, on defense, Mervyn. Thanks for all the feedback that you just shared, based on your experience side, if you put yourself in the shoes of Singapore defense, how would they react to that given ST Engineering is going a lot more international doing partner shifting, sharing the technology? How do they think about all this?

Well, they are very supportive. I'll let Mervyn, because Mervyn is working in them. In fact, it's very good for the ecosystem if we have continued success -- when we have continued success in the international defense, because is a very virtuous cycle. Getting scale gives you more capabilities to invest more in R&D to make your product even better, better scale, more cost competitiveness. So I think it's all around support in various domains, but Mervyn can give insight. So I'm very appreciative of all the support that we're being given by our principles in MINDEF. And we talk about hanger capacity -- new capacity in China and utilization rate before we will do it a reverse, before we talk about INTUITION, the amount of preorders and trajectory expected in the next 2, 3 years. Maybe we can continue with Mervyn because he just fresh off the discussion on the international defense.

Thank you very much, Rahul, for your question. It wasn't that long ago when I was wearing the shoes of the Singapore defense. Yes. So thank you for your question. I would say that, as Vincent highlighted, the defense establishment in Singapore is very supportive of our efforts to sort of bring our products overseas. I would describe this as a state of enlightened self-interest, right? Because as Vincent highlighted, number one, that's the opportunity to share the overhead cost if they scale. So Singapore is a small country, right? And the amount of defense products that can be bought, is bought locally small. But if we are able to extend our products overseas and to bring them out of Singapore shores, then you can imagine that we achieved that scale and then the nonrecurring engineering and fixed cost can be shared. And therefore, the local customers will actually enjoy a reduction in terms of the cost per unit. So that's quite apparent. Number 2 is that many of these products that we sell overseas may see operational action. Clearly, in Singapore, we prefer not to have to see our products used in hanger, but overseas, there's an opportunity for our products to be used in operations. And many of this capabilities if use overseas, actually bring in useful lessons where we can bring back to the Singapore local defense ecosystem to improve the products, to serve our local needs, right? And third, many people speak about supply chain resilience today. And therefore, if our products are sold overseas, actually, there's more opportunities for us. For example, I spoke earlier about how we may be producing some of this equipment and products overseas in order to benefit the customers there, what we call localizing our production house. And if you are more than just Singapore as a source of some of these defense products, actually, you increase the supply chain resilience of our defense in Singapore. So on those three counts, number one, a reduction in fixed costs -- have the reduction in unit cost because the fixed cost is shared. Number two, the gathering of operational experience to improve the capabilities that we bring to our defense ecosystem in Singapore; and number three, the enhancement in that supply chain resilience, which has come to the fore in more recent times as a critical consideration where we do defense acquisition in Singapore. I think on those three fronts, there's this enlightened self-interest. And therefore, I would say that our local defense ecosystem in Singapore is very supportive of us bringing our capabilities and selling them overseas. I hope that answers your question.

Well, it's really complementary to each other. So we are very glad that we have been really putting our efforts, addressing both the Singapore defense as well as international defense. If you notice or recall, in our Investor Day presentation material, we actually sell it out as Singapore and international, and how they are actually quite complementary with each other. All right, thank you, Rahul, for you question. And then maybe the last one, you will get on USS INTUITION. I will let Lee Chew address the question, yes.

Thank you, Rahul, for the question. So let me just say that for INTUITION, first of all, Cedric, also reiterated a year that we are on track to deliver, more importantly, the features that the customers are demanding. And we look at those features in the area of standards, in the area of multi-orbit virtualisation and cloud native features. So as we develop the general release product, we have also been engaged with many strategic customers on workshops to define and refine some of these features. So suffice to say, in answer to your question with regards to how much traction that is getting. We are getting a lot of feedback to build into the product features itself. And whether we're responding to many RFPs globally, the conversion or rather the decision-making process is slower than we expect, because there's a lot of, I think, strategizing in terms of how they would address their customers of the future. You will recall that we also introduced INTUITION UnBound, which is a consumption-based model for satellite operators in the first quarter of this year. So our customers are not just looking at the feature set, but they're also looking at maybe transforming their business model as they approach the demands of the customer. We have, through the course of this year, made announcements and press releases on customers who have adopted what we call future ready or journey enabled remote and modems. Some of these examples that we related earlier were for Arabsat, for example, for Satria, for BarSat Energy. And this shows the confidence of our existing customers as well as new customers in the journey that we are taking them to this next-generation platform. For this quarter, we also announced that we have a partnership and a contract in Saudi Arabia. And that is encouraging for us, because now we open up even more opportunities as we look at the Middle East region. So INTUITION, again, we talked about why it is important as a next-generation product. We said that customers and satellite operators are no longer just looking at throughput of ground segment equipment. They are going to have to pivot to a scenario whereby bandwidth allocation is dynamic and ground segment equipment can operate in multi-orbit scenarios. And that's what we are targeting our platform to deliver. And we have always had a very strong equity in the market in terms of aviation as well as in the mobility space, so Maritime and Aviation. So we continue to build on that strength. We continue to build on the long-standing relationships that we have with the customer and help them evolve through this transformation and transition. I can't say how that's going to spin over the next few years. But I would say that the features that we are seeing in INTUITION is setting ourselves up ready for dual constellations that will be launched in 2026 and 2027. So if you look at the ITU kind of time line and plans, you will see that many constellations from more than 50 operators are planned in the out years. And we hope that by focusing on the quality product and the flexibility of what operators can do with INTUITION. That is going to take them in a ready state to the next phase of constellation launches.

The [indiscernible], one more, yes.

Yes. So a really quick one. Our -- we did just open a new hanger in China on Monday. And that added additional capacity, overall across the network, our hanger utilization is well over 80%. Siew Khee? Thank you, Rahul.

I'll just do one by one, or you want me to read out all?

Read all.

Read all, okay. I think we mentioned that we have various cost savings in various departments, the different segments, what kind of cost savings are we talking about? That's my first question. And also, is there any cost savings that are significant that you will see will improve your EBIT margin as you close out Mobile, Alabama in CA, is my second one. And my third one is, I'm not sure, because you mentioned that USS will be second half weighted. But earlier on, when you presented, you also say that it's too early to tell for second half, but just want to achieve get a sense whether we -- what other things like where we of? Are we still looking at second half weighted for USS, that's next question. And finally, we welcome [indiscernible] you mentioned that you are looking at MRO for military aircraft in Middle East and North Africa. And just wanted to check that. Have we gone there before and whether this is something new that we're looking at, and just how, how does it actually -- I know that you're actually starting to actually do more work in Middle East, but this is something that is a big step up.

Okay. So can you repeat the last question, So I can get the...

MRO, military aircraft in new market.

Okay. Yes. That's -- yes, that's a new domain that we're looking at. So we'll let Mervyn answer that. So let me just clarify. So a few things you asked cost savings, we will tell you that it's more than $100 million of cost savings, both from a procurement as well as continuous improvement for first half only. Remember, in our 5-year plan, we said that we expected to save $1 billion over the next few -- next 5 years. So on average $200 million. So in first half, we have achieved more than $100 million, when you combine the procurement and continuous productivity savings. So we are well on track. And I think that there are really -- there's more potential for even more savings. That's why if you look at our unit operating expense, if you use OpEx divided by revenue, we -- in the first half, we are 10.3%, which is an all-time low, even lower than last year. So I think we are in a good place. So now you have three other questions on the Mobile, Alabama question. I'll let Jeff talk about and then, then I can talk a little bit about USS, because you asked me for my specific comment and then Lee Chew can complement that. And then followed by at the end, Mervyn sharing more insights on the MRO in Middle East. So let -- maybe let me just finish the USS one first before I go to. I said it will be second half weighted for revenue. Yes, it will be second half weighted. It's by how much. I think that on the year is not over. So therefore, we will give an update at the next quarterly review. Nothing to be too excited about. So it's just a matter of fact. I say the same for Commercial Aerospace. We say that fundamentals are strong. The momentum is strong. The year is not over. We expect to be doing better than the industry, as I told you growth rate. So I think there's nothing exceptional in my comments on USS as far as the second half weightedness is concerned. Okay. Any comments, Lee Chew?

Maybe I'll just add that in the first half, TransCore as well as our Urban Solutions business have performed well. We also talk about the challenges in Satcom. So the near-term challenges will continue to address as we go into the second half. And Vincent put it well. In totality, as we look at the USS segment, it continues to be second half weighted.

I want to go back to the part of cost savings before I move on to Jeff. Remember, we said in the next 5 years, we expect $1 billion of savings from continuous improvement, productivity basically and procurement so that we can offset the effects of inflation, which is what we are effectively doing right now. We are certainly well on track. Jeff, thanks.

Okay. So specific to Mobile, Alabama, we did a capacity rationalization is currently in progress to be completed before year-end. And obviously, then we will size capacity to the workload rate. Yes, when we exit a site, we would save on rental, we would reduce the workforce we need, because we actually don't have work at a site anymore. So all these will be actually cost savings. At the same time, obviously, we also wouldn't have the workload, right? So essentially, rationalization would size our capacity to the workload rate to match revenues and costs.

All right. So thanks, Jeff, and we will go through Mervyn.

Okay. Siew, thank you for your question. Actually, doing MRO for Middle East, North African countries, not new to us. We have several contracts in the past. I wouldn't want to name the countries because we have -- we are subjected to a nondisclosure agreement for some of these countries. But I would want to broaden the opportunities to say that beyond just aircraft, we are also looking at MRO opportunities in ship maintenance as well as in vehicle maintenance. And in fact, even as we speak, we are pursuing some opportunities to do more land vehicle, MRO in the Middle East. We also have shipped MROs that we are doing in Singapore for ships that are passing by, for both commercial as well as military ships. And in fact, we serve not just RSN ships, but military ships from the U.S. Navy, auxiliary ships when they passed by our region do perform some of the MRO and ship repair activities here as well. Our interest in MRO stems from our strengths in supporting the equipment that by supporting the equipment of the SAF. I think we have built a strong foundation in terms of our technical competencies, that's one. We are competent in terms of the workshop design, something that is desired by some of these customers overseas. And number three, I think most importantly, I think we have a very systematic best provisioning system that appeals to customers. We want to make sure that you're just acquiring some of these platforms, right? They also want to make sure that the serviceability rates of this platforms are kept high. So in the term of these three competencies, technical competency, workshop design as well as our past provisioning process I think we have a competitive advantage where we started to offer MRO support to some of these countries overseas. So we are targeting primarily the Middle East countries right now where we feel that the opportunities are there for such a capability to be brought in country.

So at a strategic level, when we looked at the group strategy, at one time, we were sitting on a net cash balance sheet, we say we have to grow, because not growing [indiscernible] right? The competitor growth, so you're regressing. And growth come with many benefits. When you gear up your balance sheet, actually, your cost of debt is lower the cost of equity, you get better with cost of capital. But more importantly, growth from a procurement standpoint, gives you a lot of leverage with the suppliers and consolidating those procurement at the group level also helps us create the leverage. So we have a more strategic discussion with suppliers. So instead of using x number of suppliers, if we swing down the 5 suppliers for a particular work, you can look at each other's strengths and weaknesses. For example, they may prefer to do hub and spoke shipment pattern. And that is cheaper for them and cheaper for us, so you can create win-win solutions. Yes. And as the volume grows, those win win solutions increases. And as we increase -- as we said in the Investor Day, we're going to increase our revenue from $11 billion to $17 billion or more. There's a 15% increase in revenue. And of course, cost of goods will increase, but not by the same proportion just by the virtue of scale. Also with scale, we can invest in software work processes, where you don't have the scale, the IT system looks too expenses, right? We can also set up offshore competency centers like we have done, right? So instead of banging our head at one time when employment situation is very tight in Singapore, I mean now we can have talented people at lower cost price and very highly productive, very energetic and very motivated just to add. Lastly, AI. AI offers a tremendous opportunity for us to improve our processes, Agentic AI look at our task differently, how we quote. And therefore, I'm very excited about cost and productivity opportunities going ahead.

That's a very good summary, Cedric, thank you. Maybe we can move to the online, and then we come back to room. We do have Luis from Citibank. You have some questions, Luis.

Yes. Vincent, we will move to Citi. Luis, the line is open for you.

Most of my questions have been answered. Just two questions for me. Just on DPS. Just wondering if you can give us a flavor for which DPS subsegments are the higher-margin ones. So for instance, is digital systems and cybersecurity, which is growing the fastest, a high-margin business, so if that continues to grow margins expand. Second question is housekeeping one. As you mentioned, the other income is actually normalized because all the one-offs cancel each other. So for, is it fair to say that for the second half, that other income level is probably the same, we'll see in the second half because its just normal.

There's nothing extraordinary that we can foresee in the second half at least based on what we know at this time. So first half, they do neutralize or they did neutralize each other. If there's anything second half, we'll let you know, but for now, we don't anticipate. We can't see any -- that we are able to discuss. There's nothing in the horizon. Anything that is material, we don't have any. For margins, we don't talk about margin at the subsegment level. Suffice to say, if you look at the DPS margin, it has been very steady and very consistent over the years. And we expect the margin to be still robust at the -- based on the track record. Luis, so I hope. I think in terms of margin, but yes, we can't really talk about margins at the -- EBIT margin at the subsegment level.

We now open the line to Roy from UOB.

Actually, most of the questions of might also be answered. I just want to drill down a little bit more to clarify the -- sorry, sorry, the other income of [ $47 million. ] I understand you mentioned that at the segment level, the one-off gains and losses is more or less offset each other. But because we always see the other income as the one-off gains. So it might clarify in accounting those one-off losses, for example, like the impairment loss of Alabama. Is it under other operating expenses?

Can you continue with your... Roy, do you have any other questions, or is this the only one?

This is the only one, the rest already answered.

Okay, good, very good. So I'll let Cedric take on that question.

Yes. I think largely correct. The one-off pluses in the other income and the delta between first half '25 and '24 is what $38 million. So there are -- some of the pluses are in DPS. And some of the minuses are carried in like provisions for several small multiple contracts in cost of goods sales and so forth. So they are not really line by line within the other income, but we stacked it up, and we found that both at the group and the segment level, they washed out. The more -- the ones that you're more familiar with, you are more familiar with like the Mobile rationalization. But when you stack them all together, there's really nothing that we can -- yes, so there is wash, so for us. And at the segment level that both segments, DPS and Commercial Aerospace, this is where -- these are the two where the one-off items were residing in. Both at the segment level and at the group level, they are a wash. So there's nothing much that we think that will be obvious, that will be interesting for as far as you are concerned.

Okay. So we can come back to the room, and then after that, we can go back online.

Vincent, we just got one more Shekhar on the line.

Shekhar, okay. So we will finish all the online questions, then we come in the room.

Shekhar?

I have two questions. The first one is, there was a mention of there's net cash inflows from the divestment, the net cost savings on the interest expense. You said some of this could be reinvested. What are the specific reinvestment priorities on these proceeds? Second is, remember the tariff impact on the Engine MRO deferment of revenue of $34 million lower than what was expected. How should we look at this deferment over the longer term? And what is the ST Engineering's plan to mitigate such exposure on tariff-related disruption, specifically with this business.

The second question is the deferral of $34 million of revenue. Are you in referring to that?

Yes, referring to that. So I am trying to understand how should we look at this over the longer term. And what is ST Engineering's plan to mitigate just this kind of exposure in the future?

Well, so as Cedric presented. And I think not this time, last quarter as well. We have quite a few mitigating steps that we have put in place. I can let Cedric recap later on the tariffs, what steps we are taking. So actually, the revenue deferral is not revenue canceled. It's just sometimes when you have such uncertainties, your customer may want to wait for a while. We were expecting $40 million a month of revenue deferral for commercial aerospace, if you recall, at the last quarterly results or market update. As it turn out, we only saw a deferral of about $34 million over 2.5 months, so it's not in one month, but over 2.5 months, compared to $40 million a month that we originally thought that we could get to. So actually, the deferral is a very small fraction of what we thought could have been the worst case for commercial aerospace, but there's also a lot of mitigating steps that we have taken. That's we mentioned, but we -- Cedric can recap them. The aerospace team has also done a lot of work to work with customers to make sure that the revenues continue, so we can also talk a little bit about that, Jeff, if you would like. So that's nothing that we -- but we are not immune to tariff. Just that the impact is not material. We'll continue to navigate. We'll continue to take the mitigating steps, including stocking up with space, going out to alternative suppliers, if we -- which we have, past-through additional costs to our customers. Those are the steps that we have been taking or reallocate work to locations within our network that are not subject to tariffs. So far, we have been quite effective in our endeavor. So we'll continue to navigate that very carefully, okay? I think I've already covered all the mitigating expense. Yes, let me just add a little bit on tariff and give some color. Obviously, if we are exporting steel or aluminum or copper or pharmaceutical in the U.S. we will be hit, well not in those business, right? In fact, our Singapore, we're exporting very little into U.S. at all, right? Most of our U.S. businesses produces revenues within the U.S. and they source within the U.S. So that's the context. The only area where we get caught somehow so far is our engine shop in Xiamen, which is in China, and engine parts come from the U.S. and the Chinese want to impose tariff on engine parts in the beginning, right?. And as you said, the state in China will collect the tariffs, but the Chinese airlines were rendering their engines for shop visit in China, we have to pay the tariff. So it's actually the right pocket within the Chinese system. But eventually, what happened is the Chinese has exempted those parts from tariffs, right? But in the meanwhile, while these tariffs exist, we refuse to accept it, the tariffs, and therefore, we deferred some of the revenue, and those deferrals were less than we had expected. So that's the background of the tariff situation. For non-Chinese airlines, you can go and visit the Xiamen facility, because you are not really an input, because, you're going in and then you're flying out. So all we need is to just post a bank guarantee. And then as long as the aircraft go in and come out, or the engines go in and come out, the guarantee is not drawn, yes. So I think those are much better. For Airframe, I think the tariffs are small and most of the Chinese airlines are prepared to absorb them and some of them have set a certain limit, which is adequate. So you put it in a nutshell, we're not in those businesses that are very tariff sensitive. And most of our U.S. business are producing revenues and does the sourcing within the U.S. So the only one is the Chinese one for Commercial Aerospace, which I have just described. So in that sense, the first order, second order impacts are not that high. Of course, if tariffs result in saturation, well, that's all, everybody is affected. So we're not immune. So Jeff, any more insights on the commercial?

Yes. I think conceptually, tariffs -- we -- the purpose -- when we do get tariffs hit, our objective is to work with customers so that they carry the tariffs, like there's no way that we are going to pay for the tariffs for the customer, right? So then the question is, are the customers willing to pay, right? And then with regards to competition, if we are hit by tariffs, then it is likely that our competitors are also hit by similar tariffs. So in a way, it doesn't make us less competitive, right? We are still on a level playing field. Then the challenge is, of course, working with customers in a timely manner to affect that they will pay for the tariffs. And of course, in China, we had a situation where we had to stop work for a while, while we worked with the customers and see how the tariff situation worked out. But eventually, that was mostly ironed out, and then the objectives in the coming months is to catch up on the work that was deferred at the time, right? So overall full year, we are not expecting any significant impact to our top line arising from the tariff activities.

So Shekhar, I hope that answers your question. So we are -- the impact, yes, we have, but it's not material. We took many mitigating steps to reduce the effects. But we are monitoring the evolving situation because every other day is news coming out. So we just have to keep watch as of now, well, we don't see the impact as material, and we are not negative -- we are not competitively disadvantaged against our competition. And that's a very important point. okay? So we'll keep watch. And Shekhar, you have another question on what do we do with the cash that we get back. We have many options. We can pay down debt to reduce interest expense or we can reinvest in growth projects. So that gives us a lot of flexibility. So I mean, that's a part of recycling capital. So nothing more to say beyond that. When the opportunities come, we already said, first, any acquisition must fit our strategy, businesses where we have a strategic focus on and that they must be value accretive and they must give us good returns, sufficient returns. So over the business cycle, of course, over the long term. So those fundamentals have not changed. All right. Thank you Shekhar, for your question. Now I have 2 other questions in the room, Karen and then from JPMorgan, we will go first. And then after that, Douglas from the Edge. And then after that, we will take a pause and adjourn. Thank you.

Yes. So may I ask a few questions, actually three in total, if it's okay. First of all, our first half order across all the key segments apparently is picking up pace. DPS, in particular, I think is catching my attention. It's up 61% year-on-year. I do think a large part of that should be driven by international defense segment. May we know what roughly is the percentage, whether there are any key highlights, particularly Mervyn is here, very nice seeing you. And then Mervyn, can you share with us what are you going to do differently compared to Ravi in terms of the focus for international defense markets, right?. And then I remember, Vincent, during the road show, I was with you in Hong Kong. You mentioned a lot of these international defense projects are short duration. So in terms of order to delivery cycle, can we expect to be a faster pace as compared to the traditional defense projects, which have been working either in Singapore home market or outside Singapore. Lastly, but not least, can I ask Vincent, you've been I think with ST Engineering I think, 7 or 8 years. We clearly have seen rationalization like you mentioned in terms of divestiture, in terms of sharpening focus on a few key segments. Now I think can you probably just share with us what you're looking at as the next step? I think probably most of the growth initiative now super clear, I think to investors like me.

Thank you, Karen. First of all, for flying in all the way from Hong Kong to see us and attend this meeting. It's very good to see you in person, too. So welcome, and I was prepared to give you a lot more time three questions even that you came in. Okay. I think for international defense, I'll let Mervyn talk about it. Well, usually, it depends on what kind of projects they are. The delivery time can take a few years. If you are talking about, say, major naval platforms or major land platforms, it can take several years. But it really depends if this ammunition is going to be very short cycle. So I'll let Mervyn share more with you on -- and of course, you have a quite appointed question to him in terms of his style and what he's going to do differently. I'll let him decide how to answer that. As far as the group strategy is concerned, we have been very clear. If you wind back the clock to 2018, when we did our first Investor Day, we said that we want to strengthen our core businesses and then grow in new growth areas, especially in international defense. At that time, we call it defense export, but really it's international defense as well as smart city. And in 2021, when we had our second Investor Day, we actually said the same thing. This time, we overlay with sustainability-linked businesses. And also, we showed you a segment of our business in the digital domain, which we have done very well and we continue to do pretty well. Then in 2025, March this year, we had our third Investor Day, and the theme is also the same. Why? Because the strategy has yielded results -- good results. And we have shown a good track record to our investors. The clarity of our strategy, I think, continues to be high, and we will continue that path. And we also say we will rationalize our portfolio on an ongoing basis, and we have been doing so. We will reallocate capital. So suffice to say, those will not change. Now key for us is keep scaling up, achieving our 5-year plan, we expect our revenue to be $17 billion, excluding any M&A and divestments. We are still on track, notwithstanding the divestments that we have made, but then we also grew the business. We also took out costs. So it's not always about growth, but how do you streamline your operations to capture cost savings. So in bad times, and you know that business goes in cycles, in bad times and lean times and leaner times, we will be much more resilient. As we have proven ourselves during COVID. Notwithstanding the fact that 40% of our revenues were Commercial Aerospace related, we were really quite resilient in our underlying results. So those will continue. So you will hear more, but our strategy remains unchanged. And you will see, I think, continued growth over the long term. We want to be a yield cum growth stock. That's why we came out with a new dividend policy where we say a 1/3 of our incremental profit will be given out as additional or incremental dividend because the dividend payout is important to our shareholders. We appreciate that. But 2/3 will be used to grow the business. So we are going to continue that journey. Karen, I hope I answered your third question. Then we will talk about the defense piece. There are a couple of questions in there. Mervyn, all yours.

Well, thank you very much, Karen, and thank you very much for flying all the way here just to join us today. Really appreciate that. On the question about the cycle, right, and how long it takes. Well, I would say that from my experience, defense projects and contracts are notorious for a few reasons. Number one, they can be very lumpy, meaning that it can be quite large in size. But at the same time, whilst they are large in size, the timing can be unpredictable, right? Because in between such lumpiness, you can't really predict when you come in. And as mentioned by Vincent, it really depends on the product, because we have such a wide range of products from munitions to platforms and in between, you have digital solutions, including AI-enabled analytics to cyber solutions, both hardware as well as software. So it's quite difficult to put a finger to how long that sales cycle is because it's so very, very diverse. And the gestation time for some can be very long. It can take years like what Vincent mentioned about shipbuilding from the time when the user rationalize what they need in terms of requirements to the time that they put up the request for information in the market to an RFP to tender and then tender evaluation can sometimes take months or even years and eventually getting to contract. And post contract, the process of delivery is not straightforward. There's also operationalization, there's equipment acceptance, et cetera. So it's a difficult question, Karen. And we really can't put a finger to it. It really depends on the product type. And really in terms -- and sometimes it can be very political as well. The timing of revenue recognition is also determined by the customer. So to be able to quite accurately predict the translation of new wins into when the revenue can be recognized is a difficult task. And you ask all the defense companies around the world, I don't think they will be able to give you a better answer than mine. So I'll give it as that. On my views, after having spent the last 2-plus months here, I would say that actually, my confidence in ST Engineering has increased quite significantly after what I've seen for 2 reasons. Number one, I think as a technology company, you have to have strong technologies. And I must say that the foundations in terms of our technology competencies is very strong. And I think that is quite key for us to be able to address the needs of our customers, both local as well as overseas. So I think we have strong technologies here built on very strong fundamentals. That's number one. But having strong fundamental technologies does not allow you to be able to get your products to the market unless you have strong networks. And from my observation, I think our networks and our relationships with customers, both local as well as overseas is very strong. And that speaks to my point earlier about our strategy to leverage on our partners overseas in order to get to the market where our partners are more familiar with, where they can sort of value add to us in terms of the nuances of how to go to market in some of these places and added to with our technologies that we bring, I think we have a strong winning formula. So in combination, both strong technologies together with a robust network, I think, give us a lot of confidence that we will be able to address the needs of our customers, both local as well as international. On how I would do things differently from my predecessor, I think he has built a very strong foundation here. I think there is good traction with the market. I think customers are very satisfied with the products and the services that we bring to them. So I would say that, that strong foundation gives me great confidence and optimism in terms of our ability to do even more. right? We have been pushing our unique products like our Bronco 8x8 systems on the land systems front. We have been pushing opportunities on shipbuilding. Those are on the product end. But as I mentioned earlier, we go beyond just products. We're also looking at the kind of services that we can provide post acquisition by the customer, services in terms of MRO support that I spoke about earlier. And we are even thinking about the aftermarket opportunities, because we see that many of the customers, potential customers in Europe and Middle East, they have a large fleet of legacy platforms. And it is quite expensive and time-consuming because they need the capabilities fast for us to replace them with new platforms. So we have come up with technologies that will allow us to quickly digitalize and electrify some of these platforms. And this comes in the form of our products such as our defense platform electronics, we are even looking at hybrid electric drive in order to support the electrification of these products for new missions that requires more energy, right? And I think we have some initial traction with some customers in Europe, and we hope to be able to do more on that front. Coupled with that is our plan to sort of localize and to share our technology locally in order to benefit the local communities that are there. So on those three fronts, right, new and exciting products, aftersales support and addressing new markets, especially addressing their legacy platforms that they have, which they find challenging to replace overnight. I think on those three fronts are where I think there are opportunities that we can sort of exploit in order to grow our business. Of course, that's built on the foundation of our strong technology as well as a very robust network. Thank you for your question.

Karen, I hope we've addressed your question. So we will go to the last question from Douglas, but those who have further questions, we'll be pleased to address them after we have adjourned, because we are 1.5 hours into the session unless you have very pressing ones, we will maybe take a pause after Douglas, and then we'll take the rest as they come. Douglas?

I'll make it quick. The first is with regards to the securitization of Aviation Asset Management. I think previously, it's been mentioned that there's a 2029 target of $3.5 billion AUM. So are things currently on track with that? And then secondly, just some color on the continued changes -- continued challenges of the Satcom business is facing?

What's the second question?

The challenges that Satcom continues to face. Some color on that.

Okay. I will have Lee Chew answer the second question. But as Aviation Asset Management, Jeff?

It's okay. So we did set out some targets for achieving certain AUM. And yes, we are well on track. Today, we are at $2.4 billion. So we are certainly well on track to achieving, hopefully exceeding the targets we have set for ourselves. The ongoing work around securitization working with investment partners in the market is very active, right? So we have, over the years, done a number of sales and securitization. We did share earlier this year that we would go out with Aviation fund structure, which is currently in progress, and we expect that to enable us to access the investment market in a bigger way and in a more institutional way. And we expect that, that step to be progressing well through year-end, right? And of course, we continue to look for opportunities to build our portfolio even as we plan to transition to the aviation fund structure.

Lee Chew?

Yes, so Douglas, thanks for your question on Satcom. Let's give some colors in terms of continued challenges. They are, as we see it, multifold just because of the fact that the industry and the landscape is also evolving. We know that there has been a lot of consolidation amongst the satellite operators. In fact, only recently, the acquisition between SES and Intelsat was closed in July. So that's a big, I guess, consolidation effort that's happening. In the past, we've seen Eutelsat and OneWeb. We've also seen Viasat and Inmarsat. So with any of these consolidation, clearly, a lot of restructuring efforts would be ongoing. And this might manifest itself in different ways in terms of the -- perhaps the strategy in the go forward, which I mentioned earlier, as they contemplate their competition, which, in this case, would be the LEO satellite operators like Starlink like [indiscernible] because that in itself is a disruption. Obviously, the whole global landscape, the whole global economic outlook, that industry in satellite communications is also not immune to. So there are a lot of uncertainties that delay the decision-making process of enterprises and of customers. In terms of how they spend, when they spend. I talk about the dual constellations. Obviously, we have seen through some of these filings when these constellations will launch. Potential challenge for us might be the delay of some of these activities or a move to the right portion of the business is also in defense. So defense MilSatcom. And with everything that is happening, it might also change priorities and focus on when customers would buy, and how they would purchase this platform. So this would be some of the challenges that we are navigating through. And yes, so we continue to stay steadfast, and we believe that if we bring the customer through the journey of getting them to an end state whereby it's no longer important, whether it is a GEO satellite, a LEO satellite, a Mil satellite that is serving their needs, but a set of ground segment equipment that will allow them that flexibility to scale and added on top of that, why did we talk about intrusion and bond? If we added on top of that, the flexibility of how customers but want to buy. And if we are able to then help them structure the business model that way, then we are maybe changing the playing field of how we want to look at the satellite communications market. So hopefully, that helps.

Thank you, Lee Chew. So maybe at this point, we will adjourn the meeting, for those of you who have questions, we'll be happy to take them off-line. I just want to summarize, we had a very strong first half 2025. For USS, I mean, this is contributed by all 3 segments. But USS, notwithstanding the near-term challenges that we are facing for Satcom, the team is working very hard to turn the business around. The Urban Solutions piece, including TransCore is actually going very well. In the last market update in May, we talked about the major mobility businesses or major mobility projects where we secured more than $5 billion of new wins from 2021 to 2025, and we expect the revenue momentum to actually kick up a notch. We said that 2024, these major projects gave us revenue of $200 million. By 2028, we expect that to double. By 2030, it should be triple. And these are all excluding the New Jersey NJTA back office project, which has started. We got -- the project is already ongoing. We have not recognized the order book, because it's still being challenged in the court over the court process, but the work has started. So meanwhile, revenue has already started. But the order book or the new orders that I've just mentioned that more than $5 billion, we said $5.2 billion exclude the New Jersey back office project. So we are in a very good space in so far as Urban Solutions and TransCore is concerned. For Commercial Aerospace, we had a very strong start in the first half, notwithstanding the challenges that tariff could cause on some parts of our business in China. But I think given that and the very strong EBIT performance, we are really off to a very good start. And as I said, we will outperform the industry in terms of growth. We will update more in the coming quarters. Finally, DPS. You heard Mervyn talk about the international defense business. It's actually quite exciting. We have a good pipeline of opportunities being worked upon. And hopefully, as they come to fruition, we can share more with you. But certainly, we are building our business in defense and public security on a very strong foundation. So on that positive note, we will adjourn the meeting. Thank you very much for those of you who join us online and especially those who travel all the way to join us today. A very good afternoon, and then we'll talk to you soon. Thank you.