Singapore Technologies Engineering Ltd (S63) Earnings Call Transcript

[Audio Gap] on left to right, it shows the revenue breakdown by segment, by type and by location of customers. First, by segment on the pie chart. CA contributed 41%, DPS, 43% and USS 16%. Now DPS spans both local and international customers as well as commercial domains such as critical in infrastructure and not just defense domains. Hence, the DPS segment revenue of $2.8 billion, you can see on the bar chart, sorry, on the pie chart, differs from the Defense revenue of $2 billion on the bar chart in the middle. Now in the center, we show revenue by type. Commercial revenue rose from $4.1 billion to $4.6 billion or 11% year-on-year. Defense revenue from $1.8 billion to $2 billion or 12% year-on-year. On the right-hand side, we show revenue breakdown by customer location. Asia contributed 55%, U.S. 14%, Europe, 23% and Others 8%. Revenue to customers in Europe increased were those of U.S. reduced largely as a result of the divestment of LeeBoy in September last year. But importantly, the overall group revenue increased 11%, as I have described. Slide 7. This 11% revenue growth is contributed by all segments. Excluding LeeBoy, it would be 14%. Excluding both LeeBoy and the weakening U.S. dollar, for which many of our revenue are denominated, group revenue would have grown by 15.5%, close to 16%. So a very healthy underlying revenue growth. Slide 8. EBIT. EBIT grew by a very strong 23% year-on-year to $738 million. On a rebased basis, excluding LeeBoy and our share of Citycab, both of which were divested last year. EBIT grew 27%. [indiscernible] test for underlying performance is cash flow. Here, our operating cash flow grew very strongly at 26% from $761 million, first half '25 to $960 million first half '26. And this underscores the strength of our core business. So the accounting numbers are very straightforward. EBIT rose 27%, I would drag into what are the drivers of that growth, but the cash also grew 26%. Slide #9, net profit. Net profit improved from $403 million in first half '25 to $512 million in first half '26. An impressive 27% year-on-year improvement. Now this is enabled by one, stronger product and margin mix; two, higher productivity. We have aimed to secure about $200 million a year in productivity. We have already secured more than $150 million in the half year. And lower finance costs as we generated more cash flow, as I described, we are able to pay down debt and reduce interest costs. We are indeed very encouraged by our growth momentum and are confident of finishing the year strongly. By that, remained strongly in terms of earnings, not just top line. DPS is targeting a similar growth momentum as they did in first half '25. CA expects continued strong earnings growth rate and USS will have a stronger second half. So offset all segments are poised to finish the year strongly. Slide 10, let's move on to business segment discussions. Commercial Aerospace revenue grew 15%, $2.7 billion, and this is at halftime, $2.7 billion. This was driven by stronger engine MRO, the sales and spare sales. CA EBIT grew by a very strong 29% to $288 million on the back of higher revenue, better product mix and cost savings. Slide 12. Next on DPS. DPS revenue grew 7% year-on-year on a reported basis. However, on a rebased basis, which is the underlying growth, DPS revenue grew 14%, 14% year-on-year to $2.8 billion. This is largely because LeeBoy was divested in September last year. And hence, for the full first half of '26 we do not enjoy any LeeBoy revenue. Digital business, spanning cloud, AI analytics and cyber achieved 27% revenue growth year-on-year from $367 million to $468 million in first half '26, $468 million, just for the digital business aspect. This shows an increased momentum given that in 2025, Digital business revenue grew 15% year-on-year and now 27% if you compare first half '26 to first half '25. We are about 1 year ahead of schedule, and we'll achieve our targeted 2029 annual revenue for digital business of more than $1.3 billion, not in '29, but in '28 or earlier. International defense wins amounted to $1.2 billion for first half '26 compared to more than $600 million for the full year of 2025. So by this year-end, since we have achieved $1.2 billion in first half '26, we will be well above 2x of the full year 2025 wins, which is more than 600. So last year, we are more than 600 million. First half, we are already $1.2 billion. We have half a year to go, and hence, we will exceed 2x 2025 wins. On a reported and rebased basis, DPS EBIT rose 10% and 16%, respectively to $404 million, ahead of its revenue growth. Slide 13, moving on to USS segment. Revenue grew 15% to $1.1 billion, and this is contributed by both URS and Satcom. USS EBIT improved from a low base of $12 million to $46 million and boosted by stronger revenue across both businesses. Satcom cost reduction initiatives, which we have explained previously, were completed by end of the first half of this year with $63 million of annualized cost savings, and these are starting to accrue. I will cover Satcom in greater detail in the next slide. Slide 14. The iDirect improved its financial performance in first half 2026. Revenue grew 18% year-on-year, increasing from $117 million to $138 million. Cost savings initiatives, as I mentioned earlier, $63 million on an annualized basis were completed in first half 2026 as planned. This puts iDirect on track to becoming EBIT positive. IDirect intuition portfolio of products and services continues to gain traction with customers. We secured strategic wins in Asia and Europe, supporting mission-critical operations for government and defense contractors. While our new software-defined modem is gaining good adoption with U.S. and international government and defense customers. This new software-defined modem is a key differentiator, which enables multi-way form multi-orbit operations on a single edge platform. Protecting customer investments, as mission requirements and networks evolved. INTUITION [ Foresight ], which is a trade name for this single pane of glass that there have introduced, have increased traction with customers. It does so by delivering AI driven intelligence that helps customers simplify their network operations. So it is a network management system through a single pane of glass so that they can have a hybrid more dams and they can manage their network through intrusion for site. This allows them to scale their networks and also do so more efficiently. So as a result of both our cost initiatives and product initiatives and customer traction, we target for Satcom subsegment to be EBIT positive in 4Q '26 and in the year 2027 as well. Slide 15. This next section is about contract win and order book. Our contract wins totaled $7.6 billion for 1 half '26. This was contributed by DPS, $3.6 billion, CA $2.9 billion and USS $1.2 billion. Our order book stood at a robust $35.7 billion as at end June 2026. Now we have included the NJTA E-ZPass contract this quarter. But of this $35.7 billion of order book, $5.7 billion is expected to be delivered over the remainder of the year. Based on the current sales pipeline and barring exceptional events, we expect contract wins for Q3 '26 and 2 half '26 to be strong. Slide 17. This slide details our new contract wins for second quarter '26. In the quarter, the group secured new contracts worth $1.2 billion for CA, $1.2 billion for DPS and $0.5 billion for USS. As I said, the NJTA E-ZPass service contract was awarded to TransCore and included here, it was awarded in September 24, but we have not included at that time. due to some ongoing legal appeal the incumbent service provider who lost the contract. It was not -- it has been recognized in the order book now more than a year after the customer affirm that the contract remains awarded to TransCore and this was in April '25. And also the commencement of the contract, there was already a notice to proceed and contract and revenue has been accruing since May '25. This contract also includes options for 2 further 1-year extensions, valued at USD 0.4 billion or [ SGD 0.5 ] billion, which have not yet been included in the group's order book according to our policy because the option is for the customer to exercise. But the base amount has been included in our order book. Slide 18 -- 19. the Board has declared a higher interim dividend of $0.05 per ordinary share for the quarter ended 30th June 2026, which is a sign of our confidence for a strong 2026 financial performance and dividends. The record date for the second quarter interim dividend is on August 2026, and payment will be on 4rth September 2026. Additionally, the Board has planned to pay out a dividend of $0.05 per ordinary share for the third quarter ended 30th September 2026. So we used to pay $0.18, if you remember, as a base dividend in 2025. So it was like [ $446 ]. This year, first quarter was 4. Second quarter, we have now declared 5. So it's higher. Third quarter the board plan to declare 5 and then for the final dividend, we will use our dividend policy to compute, and this is how it worked. For a total dividend on '26, it will be based on $0.18 as a base which is last year's ordinary dividend and about 1/3 of the year-on-year incremental net profit per share. So the base will be 2025 BOP net profit of $851 million. And then depending on how much is the net profit in 2026, we use that number minus $851 million. And that difference we will take 1/3 to be paid out as dividend. And of course, if we have already paid 3 interim dividend, the balance will be paid in the fourth quarter. Okay. The final dividend will be proposed in February '27, subject to shareholders' approval. Slide 20. Last but not least, this is the group CEO's message, and let me read it out to you. The group achieved strong revenue and earnings growth for the first half. Our earnings growth rate outpaced, in fact, well outpaced the revenue growth rate. The robust performance was underpinned by the strength of our businesses and disciplined execution. We are encouraged by our growth momentum and are confident of finishing the year strongly. At the same time, our strengthening order book and robust pipeline of opportunities, stand us in good state to drive continued revenue growth. Slide 21, a summary. We delivered a strong set of results for first half '26. Both revenue and earnings year-on-year growth rate was strong. In fact, earnings growth rate outpaced revenue growth rate. Order book continues to strengthen to $35.7 billion and this will provide revenue visibility. Based on the current sales pipeline, we expect contract wins for 3Q '26 and 2 half '26 to be strong. We are confident of finishing the year strongly. Our midterm 2029 goals remains well on track. Interim dividend $0.05 per share was declared for second quarter '26 and is also planned for third quarter '26. This marks the end of my presentation. Thank you so much for your attention. I will now hand over to Vincent for his key remarks. And can we invite the exco-members to the stage. Thank you.

Thank you, Cedric. The panelists this morning are Vincent Chong, Group President and CEO; Jeffrey Lam, Group Deputy CEO; Cedric Foo, Group CFO; Mervyn Tan, Group Chief Operating Officer, Technology and Innovation and President of Defense and Public Securities; and Tan Lee Chew, Group Chief Commercial Officer, Market Development and President, Smart City and Digital Solutions. I will now hand it over to Vincent to deliver his remarks. Vincent, please.

Okay. Good morning, everyone, here at ST Engineering hub. And for those who join us online, thank you very much for joining us this morning. Now Cedric has covered the key financial numbers, so I won't repeat them. Now behind the strong first half 2026 results, there are a few things about how we grew that matter more than the headline figures. And I plan to focus on those points in the next few minutes. First, as Cedric mentioned, First half 2026 was the strongest first half results that we have seen -- we have experienced on record, also with a higher quality of growth. And I think that's an important point. The robust results were driven by our strong underlying performance and cost savings across all 3 segments. And more importantly, this is not a one-off high but a reflection of the higher quality, more durable earnings base that we will continue to build. As we grow and expand our scale, we are becoming more efficient. So more of our revenue growth flows through to the bottom line. Now if you recall, in 2025, we had a full year unit OpEx, which defined as the total operating expense divided by total revenue. We had 10.2%, which was at a record low. And in first half of this year, the unit operating expense expressed as OpEx over revenue went down to 9.1%. Really a show of the continuous improvements that we have made productivity gains as well as procurement savings and in many ways, also supported by efficiency in our processes, in many cases, enabled by AI. So that's what gives us confidence in the quality and not just quantity of our growth. We are confident of finishing the year strongly, as Cedric mentioned. So just to recap, for second half of 2026 our DPS segment is targeting a similar growth momentum as first half '26. Commercial Aerospace segment is targeting a continued strong growth rate in second half. And our USS segment will have a stronger first half -- second half, I meant compared to first half of 2026. Now second, the demand behind our business is structural in nature. As I've mentioned on many occasions, in the Commercial Aerospace segment, air travel keeps growing, while new aircraft demand continues to outstrip supply. So aircraft fleets fly longer, driving demand for our airframe and engine aftermarket services. The growing fleets also support strong demand for our nacelle and composite floor panel businesses. In Defense & Public Security segment, Governments are investing more in security and resilience and that's playing directly to our strengths. Our digital business spanning cloud, AI analytics and cyber is growing well ahead of plan because we are positioned where the demand is heading. In fact, based on the trajectory we're saying -- seeing and as Cedric already said, our Digital business is tracking about a year ahead of our 2029 revenue target of more than $1.3 billion by then. And the pace of urbanization continues to drive investments in smart mobility and critical infrastructure, where we are seeing good momentum across our rail and road mobility businesses, and these are multiyear tailwinds and our USS segment is well positioned across all of them. Earlier on, I mentioned AI. Now AI runs through our businesses in 2 ways, 2 main ways. We are a developer of AI-enabled solutions with it built into the products we deliver. For example, across defense, cybersecurity and Smart Mobility and beyond. We are also a user of AI, applying it across our own operations, making them more efficient, resulting in lower cost in our operation. And AI is not new to us. It is core to how we compete and how we grow. And you would recall that we have been sharing more details about our digital business, including AI analytics since 2021 Investor Day conference. Third, we execute with discipline. We are thoughtful about the commitments we make, and we are consistently delivering on them. The discipline behind all of it is that we continue to drive sustainable and profitable growth. And such discipline runs across the group, and you will see that come through in our very strong track record in the years past. Fourth, on contract wins, looking beyond the last quarter, and we encourage you to look beyond the last quarter, Second quarter of 2026, new order wins was lighter than previous quarter because contract awards are lumpy by nature. We have been talking about this point very consistently. As the timing of contract awards moves with customer funding and procurement timing and variability between quarters is quite normal. So we don't get to focus on any quarter, be it up quarter or down quarter, and we look at long-term trends, which remains intact. As we move through the third quarter, opportunities that we have been pursuing are already converting into contract awards. Recent announcement examples include the [ Toon Brown Line ] project in Taiwan for Mobility Rail and 40 mm ammunition contract in the U.K. In international Defense, we secured $1.2 billion of wins in the first half about twice the total wins achieved for the whole of last year as we -- in line with our target with additional opportunities progressing through the pipeline. Our -- in first quarter this year, if you recall, we shared the pipeline of opportunities that we have for International Defense, and we said that the pipeline size was USD 11 billion over the next 18 to 24 months as of first quarter. And that pipeline remains intact. In fact, we expect the pipeline to come through in the next 15 to 20 months because 3 months ago, it was 18 to 24 months. Now the time line is in the next 15 to 20 months. So basically, it's not changed. So we remain very confident that the opportunities are there for us to capture. Now these developments -- it reinforced our confidence that underlying demand remains healthy and that our pipeline continues to be robust. And even if the timing of awards does not always align neatly with a particular reporting quarter. Many of our -- the opportunities in our pipeline remain active. In fact, we expect our contract wins for full year 2026 to be similarly robust as full year 2025 with potential upsides. But of course, the market will develop as they do. But basically, based on what we know of today, we expect the full year 2026 contract wins to be as robust as '25. And potentially, there may even be upside, okay? Now barring unforeseen events, we expect order wins in 3Q, third quarter and the second half of this year to be strong, as Cedric already mentioned. Now that brings me to our final point in terms of the attributes that are working in our favor. Our growth outlook is grounded in the strength and resilience of our business and in what we are building and delivering. The external environment, we all know will remain challenging, but our confidence rests on the strength of our portfolio, the durability of demand across the markets that we serve and our proven ability and track record in delivering long-term profitable growth. Now this is backed by our very strong order book equal to nearly 3 years of our financial year 2025 revenue, giving us clear visibility on revenue and earnings in the coming years. Taken together, these positive factors put us in a strong position as we enter the second half of the year and support our expectation of finishing 2026 strongly. Finally, the group's performance continues to be underpinned by strong and consistent cash generation, which allows us to reinvest for growth while delivering sustainable dividends to shareholders. The higher interim dividend for second quarter 26, which Cedric just walked you through, and our intention to continue growing dividends in tandem with profit growth reflects that commitment. We remain on track to achieve the growth trajectory we set out at our Investor Day for 2029. And in the long-term growth of the group, maybe does give you a quick update on where we are on our 5-year plan. We are tracking our 5-year targets very well. Commercial Aerospace revenue and group net profit more than 1 year ahead of plan. So we achieved them more than 1 year ahead of plan, at least 1 year ahead of the 2029 plan, with the rest tracking well, including the digital business, which we are already ahead of plan by about a year. And we also expect the next few years for net profit to continue to outpace revenue by up to 5 percentage points higher than revenue CAGR because I want to address this proactively. Some may think are we upfront loading the net profit growth, which has outpaced revenue growth in the last couple of years, we front-loading it such that the weighted average is still up to 5 percentage points. The answer is no, we are not upfront loading it. We had 2 strong years and first half of this year is very strong, but we -- remaining time spent until 2029, we expect net profit to continue to outpace revenue by up to 5 percentage points per our 5-year plan. And hopefully, we can do even better than that. So on that note, we will take your questions, and we will first open the floor to those who are here with us at ST Engineering hub, and then we will switch over to those who join us virtually. Thank you.

Thank you, Vincent. Our analysts and media online, please raise you hand -- please click the raise your hand icon and we will place you in the queue. For members and participants here, please do remember to state your name and the organization you are from before you ask your question. We have the first question, please.

This is Rachel from UBS. Congratulations on the strong first half sale results. I have a couple of questions. One for Lee Chew, one for Jeffrey, one for Mervyn and one for Cedric. Sorry, Vincent, you don't have a question. So first question would be to Cedric. So last year, you said -- last year, you delivered orders of close to $19 billion. So when -- I guess it's also for Vincent. So when you say that the order wins are expected to be as robust as 2025, can I confirm that you expect your order wins to be something along the lines of like $20 billion or plus?

Well, I mean, as robust as '25 means at that level that we displayed in 2025, which was a very healthy level, as you already mentioned, it was $18.7 billion, I think. We expect the full year new contract wins to be circa in that region. Yes, so we didn't give other figures. So [indiscernible] which will be very strong and there are potential upsides, as I mentioned. But we will see how the year pans out because we are still not near the end of the year yet. So maybe in third quarter, when we finished the third quarter, we have a market update at that time. We will give you another update on our outlook for the rest of the year.

I was just trying my luck. Okay. And I guess to Jeffrey, I know that Cedric mentioned in his second sentence that there was a scale effect as well as a strong operating leverage. Maybe could you elaborate on how you achieve these productivity gains? And were they concentrated in a single segment? To Mervyn, could you update us on where you are in terms of your international defense business? Also, outside of IBD, where are you seeing the biggest demand? And finally, for Lee Chew. For USS, we saw this huge swing in profitability and EBIT basis. So how much of this would you attribute to the Satcom segment? And the Nick, sorry, yes, how much of this would you attribute to the Satcom segment? And could you elaborate a bit more on how the -- how the EBIT will run -- will trend towards profitability. That means what do you expect will drive your EBIT on Satcom from a loss to a breakeven or even profit in '27?

Okay. Thanks for the very comprehensive set of questions. But first, before I hand over to Jeff, productivity gains were achieved across the group not just limited to Commercial Aerospace. As you also heard, just in Satcom alone, we have achieved or we have captured annualized savings of $63 million as of the end of first half [indiscernible] going arsogoing forward, those will come through. But productivity gains apply across the group, but we can let Jeff talk about the effects for our commercial aerospace. And then -- after that, we will have Mervyn talk about international defense business where we are and what's the biggest demand outside of international defense. There are a lot going well for us. including the digital business, as we mentioned, especially with the growth in AI, AI analytics, which is very encouraging. And then finally, Lee Chew will give you share insights on USS, URS as well as urban solutions as well as Satcom, which are both doing well. Okay. So maybe Jeff will start with you.

Well, we are very fortunate to operate with a backdrop of steady long-term growth in the [indiscernible] vision industry. And so we have been continually investing both in capability and capacity. So if you look at our very diverse geographic footprint and capabilities today. And you see how we are adding on new capabilities. For example, in the 350, A350, 320 new capabilities across engines, airframe and components. That gives us a lot of scale synergy and product synergy that we can increase and improve productivity on. At the same time, if you look at our capacity growth, as we speak, we continue to build new capacity in engine overhaul in Singapore, new airframe maintenance capacity in Singapore, in China and in the U.S. So we're not slowing down in terms of how we're building capability and capacity across the network. In addition, with the productivity focus that we have that Vincent spoke about and how we are implementing increasing AI enable equipment and also tooling up our workforce we do expect to continue to grow with the market growth.

So to add on to Jeff's point, across the group, our procurement and productivity savings in first half alone is well above $150 million. If you recall, every year, we target $200 million. And I've mentioned that year-on-year, year after year, we continue to outperform that target. And the first half of this year is more than $150 million. I'm just being a bit conservative, actually, it's well above $150 million in savings alone which help us to be more efficient and more competitive in the way we go out competing for new businesses, which is an important attribute for us to win in the marketplace. Our costs must be competitive. We must continue to look at lean operations, making sure that our processes are efficient and productive. Thanks, Jeff. Mervyn, please.

Thank you very much for your question, Rachel. Well, I will start the comments on the international defense front, right? And I start by referring you back to the first quarter where we highlighted the slide, which Vincent mentioned, where we showed you a pipeline of approximately USD 11 billion of opportunities now in the next 15 to 20 months. And I would like to reiterate that those opportunities continue to be intact. And in fact, I cannot go into the details, but some of those opportunities, we are in a quite intense negotiation right now. So we are quite confident that some of this pipeline eventually will turn into new wins for us. But I just want to pivot from there to talk about the other opportunities that we see in the international market. not least our counter drone business, which saw us entering into a very exciting new market for us on the international front, where we see strong demand especially given recent conflicts that we saw in the Middle East where Air Defense, counter-drone capabilities come to the [indiscernible]. And as we highlighted previously, we have won several international contracts on that front in the Asia Pacific region. We offer quite a range of the capabilities on that front ranging from detection capabilities, command and control capabilities and stitching and ending with, of course, interventions, both kinetic as well as nongenetic response. And we find that this is a market that is likely to scale in the future, given the challenges that sovereign nations face on that front. And I think a lot of the defense budget will go into that space. So now that we have had a foothold into that interesting market we are very optimistic that this will gain momentum in the near future. People think from counter-drone. I'd like to talk about our [ munitions ] business especially on the 155 mm and 40 mm front, we have seen repeat customers for our 40 mm, as well as new customers. The U.K. is one of the examples that we just won in the July -- and then Czech Republic also is a repeat customer that was also reported in the July time frame. And I can't share too much details right now, but potentially, there will continue to be even more and more significant munitions sales in the near future, which goes back to the point that Cedric as well as Vincent made that we are confident about our third quarter as well as fourth quarter for this year. A big part of it is driven by opportunities on the nation's front. I hope I responded well to your question on international defense. And now I want to pivot to discussing opportunities beyond international defense. We see huge demand, as Vincent highlighted earlier on the digital solutions business. And a big part of that comes from the demand from our AI analytics as well as cybersecurity needs of customers as well as on our data center and GPU infrastructure business. And when we talk about the demand, not just on the government front, but also commercial, not just local but also on the international front. As more companies and governments push towards greater digitalization as well as having greater demand for AI infused solutions, I think we are well positioned as Vincent highlighted that this is a growth area, and we are quite glad that we have started our investments into building the capabilities and capacity for this space much earlier before the demand picked up. And therefore, we are now able to write the tailwind of some of these demands that are coming in. Also I'd like to highlight that we also go beyond the Defense business in Singapore. There's strong demand from the public security and safety sector as well. Governments, including the home team, there's huge demand for our products. And you will have seen some of those reports of our wins over the last few months on that front. But a big part of it is really the demand for more digitalization of the solutions. And as I said earlier, we are well positioned to capitalize on this new wave of demand that is coming in. So those are the areas beyond international defense that we are quite confident of being able to write that wave that is there. Thank you.

So [indiscernible] the USS EBIT improving that we [indiscernible] contributed both by URS, Urban Solutions as well as Satcom. Having said that, the question around Satcom, let me just give some perspective there. We have been updating that since the beginning of the year, we've initiated a series of activities to manage costs. And you heard from Cedric earlier that the plan to have annualized savings of $63 million was completed at the end of first half. Obviously, the positive impact of the cost initiatives, which we implemented from Q1 also was felt in the first half set of results. The lower depreciation and amortization expense that arose from our impairment of iDirect in September of 2025 also accounted for the improvement that you saw in a year-on-year compare there. The other question around how do we look at that momentum and how do we continue to build towards a positive EBIT in 2027. The annualized savings that we talk about from the cost initiatives will support that target as we go into -- as we execute the remaining of second half and as we go into 2027. We are also seeing good momentum in the adoption of INTUITION. We have been releasing some announcements pertaining to defense and common contracts, which Cedric also alluded to, it might not be that well known, but we do have a very strong track record in our satellite communications capabilities as it relates to EU nations and NATO member states. So 20 of the 27 EU nations actually are served by ST Engineering iDirect comps solution and 24 of the 32 NATO member states use the communication -- the secure communications devices from iDirect as well. So we saw that in Q2, the continued investment to enhance secure and resilient comps capabilities is front and center for Europe as well as for Asia. We look at our robust pipeline and that obviously also underscores our confidence as we look at turning around not just EBIT from cost, but also growth in revenue. So more and more, we are seeing customers resonating with standard space, the interoperability, secure comps that we are putting forward. But even on the commercial side, they are seeing the resilience that comes with multiple waveforms that we support multiple orbits that our technology and platform supports.

Thank you, Rachel, for your questions, yes. Okay, we'll get a second question, and I will make sure everyone has time and then to ask your questions. We'll answer a second question, then we'll go online and we'll come back to the fiscal meeting arena, if it's okay with you guys. Please.

Thank you so much. Congrats on the results. This is Meg from CGS. So I have 3 questions. One on Commercial Aerospace. Thank you, Jeffrey, for the color on the productivity savings. But we also hear from you on the product mix changes as well in first half how has this mix changed? And how do you see that progressing into the second half? And then my second question on the order wins. So again, just following up on the previous question. So if we -- assuming even if we are flat year-on-year, so that implies about 11 billion order wins into the second half or a roughly $5 billion-ish win per quarter. Is that the right way to understand there could be lumpiness, but is that the right way to think about it? And which segments are you like -- just trying to understand where is this confidence year-on-year like because I think we were previously at 4.5, 4.9 rate and now to going above 5, where is the confidence coming in from? And thirdly, on USS. So given that we've achieved the $63 million annualized run rate, and we've gotten the EBIT at about $46 million for first half. So is it fair to say that the second half could be stronger on the back of completion of these cost savings?

Yes. Well, I think we can answer in the reverse order. We get Lee Chew to talk about the savings. And we already said that second half for USS will be stronger than first half. I'll give -- let Lee Chew give more color on that. And then we will save Jeff for the last in terms of product mix and how they look at Commercial Aerospace going to the second half. Now other wins -- we didn't say flat year-on-year. We say it will be as robust as 2025, and there may even be a potential upside on the timing of some of the programs. Where is the confidence coming from? The confidence stems from the fact that we are in 3 growth structurally growing segments that has long-term good growth traction, be it in Defense and Public Security, Commercial Aerospace or Urban Solutions and Satcom. As I said in my opening remarks, these are structural demand that will -- that underpins our confidence and our track record in securing growth, delivering growth, profitable growth gives us even more confidence that the years ahead will continue to be very positive. And if you just look at our track record in terms of new order wins, order book despite the quarterly ebbs and flows are trending in the right direction. In the northeast direction when it comes to order book and new order wins, northeast. And when it comes to cost, it's going in the southeast direction OpEx over revenue and that's -- these are signs of businesses -- business that is very well run and well executed. And it's not over 1 year, but over many years, over business cycles, even during the toughest time of COVID pandemic we deliver resilient results because of the discipline that we apply in execution, investments, making sure that it gives us good returns from our investments and also making sure that we do continuous improvements, efficiency, productivity, and we have also been very candid to the market when we see headwinds and challenges we talk about it. And we see [indiscernible] we also share with you. Keep in mind that business cycles will keep coming in and out, but our resolve and our focus on delivering sustainable growth remains unchanged. And we'll stand us in good state in the years ahead. So it's a more elaborate answer than what you're expecting probably. But keep in mind that we remain very confident that the order wins will continue to be robust not just second half, but also going into 2027 because of the universe of opportunities that we are addressing as a group across 3 segments, all 3 segments. Yes. Maybe I can just hand over to Jeff to talk about [indiscernible].

I'll be short and sweet. We have many multiple products and market segments. I would say all segments are holding steady with some segments actually doing very well. If you look at the engine MRO market where the [ CFM56 ] engine has not peaked in shop visits, expecting to peak in 2028. And with the LEAP engine ramping up very quickly, you can see a huge amount of growth in that area. And our [ nacelle ] deliveries, steadily following the OEM deliveries, which continued to grow despite continuing supply chain challenges, it's continuing to grow and addressing some of these challenges head on. So these are 2 key drivers of our product growth market.

Meg, I hope we've addressed your questions for now. Maybe we'll take a question online. Yes.

Luis from Citi has a question.

Just 2 questions from me. EBIT margins for the half, once more quite strong and strengthening. Just wanted to get a sense of whether you expect EBIT margins for the group to continue to improve? And if so, which divisions would be leading the improvement? Second question is more of a housekeeping one. As Cedric mentioned that DPS International wins are more than doubling this year from last year. Could you give us a level of -- or the international order wins last year?

So Luis, just to confirm, you wanted to know how much was the order win for international defense in 2025?

Correct. Yes. When that's going to more than double. For first half, it's $1.2 billion, but just wondering what level it's doubling to this year.

For the full year of 2025, we secured more than $600 million worth of international defense wins. And I think earlier this year, we said that we target to double that for 2026 as of midpoint of '26 we already doubled and we expect in the next 2 quarters, more upsides to come as we mentioned. I hope that address your question on the international defense wins. And as I -- as Mervyn and I both mentioned, the pipeline remains robust and intact. And we are going after every opportunity that is addressable by us. And then EBIT margin will continue to strengthen. If you think about the -- what I've mentioned earlier, that we think we are confident that net profit -- a growth CAGR will continue to outpace revenue growth CAGR. So from that standpoint, margins will continue to strengthen and it's going to be generally so because our 3 segments are all targeting for stronger performance in the 5 years that we planned from through 2029. Of course, at the right time, we'll published another set of 5-year plan. But for now, the current 5-year plan talked about our 2029 targets. And we expect margins to continue to strengthen. For the various reasons that we talked about, we have more scale, our margin and project mix that we can see is going to support that. And we also have productivity savings that we expect to come our way. We expect our cash flow to be strong and which also drives reduced lower interest costs, which we talk about. And we also had another point where we say in the 5-year horizon, we expect the amortization of intangible assets to continue to come lower in that 5-year range. So hopefully, that answers your question on EBIT margin profile Luis.

We also have a question from [ Roy ] [indiscernible].

Congrats on the very strong results. I have 2 questions. Yes. Sorry, yes, 2 questions. First, I think one question was not answered just now was regarding the color for the USS second half outlook. I understand the revenue growth is guided to be higher, potentially, these are from both Urban Solutions and the Satcom business. So could you please elaborate where -- for the Urban Solutions growth, where does it come from? That's the first question. The second question is for Jeffrey. Could you please remind us regarding your capacity expansion growth rate in the next few years and the current utilization in terms of the booking of the [ hunger ] slots and also the engine workshops lots, yes? So these are the 2 questions.

Okay. So I'll let Jeff answer the question. But for USS, we talked about second half expecting -- we are expecting second half to be stronger. As you asked about URS, I think some quarters ago, we talked about our major projects for mobility that will kick into full gear and that's one contributing factor for our URS business to be gaining strength in the next few years. But I'll let maybe start -- Lee Chew start the discussion going, yes. Lee Chew, please.

Yes. Okay. Let me just comment on the USS second half performance. I know Vincent has said that, maybe Roy wanted to hear it from me. Second half is expected to be stronger than the first half, both in revenue as well as in EBIT. And we did say in the slides that we are targeting Q4 EBIT to be positive for Satcom. So in totality, as we look at USS, it's typically second half weighted and that is supporting the claims and also our confidence that we will deliver both on the EBIT and revenue front, a stronger second half versus what you are seeing in this first half results. The question around what is shoring up the URS revenue. So I would say that we are delivering against a very strong order book, which we talked about last quarter as well. I think last quarter, we said that our order book is more than 4.5x of our 2025 revenue. And obviously, at that time, it excluded the NJTA into the order book itself. And part of our focus in Urban Solutions is ensuring that we execute well for the contracts that we have on from the customers. And in the Urban Solutions portfolio, as you know, it comprises of Mobility, Smart Mobility, both road and rail. It also has the smart utilities and infrastructure. We have projects globally, ranging from the Middle East to the U.S. to Asia, and our confidence in delivering a stronger second half comes from the fact that we are executing to each of these projects diligently. We announced a $840 million win with the [ Taoyuan Brown Line ] project. We also said that work will commence in Q4. So we know that as we continue to win these new orders, and as we execute the projects in line with the customer's time line, these will give us visibility to our strength in the revenue that will convert. So hopefully, that answers your question, Roy.

Well, we come back to the -- thanks, Roy, for your questions. I mean we come back to the location, ST Engineering hub, and we maybe invite Lorraine to ask the questions. Lorraine, please?

I think was there still a question for Jeff.

Across the MRO network, we are achieving close to 90% utilization today. And if I look at the capacity expansion, over the next 18 months, I would estimate we are targeting around close to 20% capacity expansion across the MRO network.

Okay. Lorraine.

Yes. So with the -- Lorraine Tan from Morningstar. With the operating cash flow looking better I'm just wondering whether the group is looking at how they will allocate any excess cash going forward? Are there opportunities for bolt-on acquisitions or other such acquisitions? Are there [ HAPS ] gaps that would help make securing the $11 billion pipeline more achievable or more specific. Just wondering if you can provide a little bit more on that.