View - ST Engineering
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View - ST Engineering
& ANNUAL REPORT 2014 ST ENGINEERING / ABOVE & BEYOND VISION BE A GLOBAL DEFENCE AND ENGINEERING GROUP. MISSION BRING VALUE TO OUR CUSTOMERS AND PARTNERS BY DELIVERING TOTAL INTEGRATED QUALITY SOLUTIONS AND SUPPORT. CORE VALUES INTEGRITY, VALUE CREATION, COURAGE, COMMITMENT AND COMPASSION 01 01 ANNUAL ANNUAL REPORT REPORT 2014 2014 & At ST Engineering, we rise above and beyond the ordinary in everything that we do. Our engineering expertise is what sets us apart and underpins our relentless push for innovation. We create solutions that excite the market and raise the bar to new highs. We consistently think beyond the obvious, to generate smarter ideas that break new ground. We listen to our customers and strive to help them achieve not just their immediate but also their greater goals. Simply put, we aim higher, to benefit not just our company’s future, but your future too. Above and beyond – that is the only way we go. CONTENTS 8 10 16 Financial Highlights Letter To Shareholders Board Of Directors 22 24 60 Senior Management Operating And Financial Review Investor Relations 62 64 65 Awards Corporate Information Sustainability Report 106 123 Corporate Governance Financial Report 02 ST ENGINEERING / ABOVE & BEYOND 03 CHRIS CHUA ANNUAL REPORT 2014 DARREN LIM JOAN WONG Assistant Principal Engineer ST AEROSPACE Assistant Principal Engineer ST ELECTRONICS Senior Engineer ST KINETICS “ The Terrex is a remarkable vehicle. We are part of an interdisciplinary team that gave the vehicle integrated weapon, communications and UAV systems. ” ABOVE & BEYOND WE DON’T SELL PRODUCTS, WE DEVELOP SOLUTIONS. We are engineers and we solve problems. Our customers depend on ST Engineering’s exceptional engineering expertise to bridge their capability gaps. Thanks to our multi-sector capabilities, we offer integrated, innovative, and highly customised solutions. Coupled with our ability to think and operate globally, we reward our customers with richer and more insightful answers to their demands. 04 ST ENGINEERING / ABOVE & BEYOND 05 2014 GLADCHUN ELVIN TAN ANNUAL REPORTGLENN Engineer ST ELECTRONICS Principal Engineer VT iDirect “ Space is fascinating. It stretches the imagination to the extreme and spurs us to push boundaries with innovative solutions in satellite systems and satellite communications. ” ABOVE & BEYOND WHERE OTHERS SEE FRONTIERS, WE SEE OPPORTUNITIES. Over the years, we have continually deepened our presence in existing markets and sought new ones. On the engineering front, we ceaselessly nurture our capabilities and develop innovative solutions through extensive R&D and collaboration with global partners. 06 ST ENGINEERING / ABOVE & BEYOND 07 ANNUAL REPORT 2014 NG ZHENXIAN Assistant Principal Engineer ST KINETICS “ While my daily work finds me designing automation controls for weapon systems, I recently had a chance to apply my engineering skills to preserving the Tembusu Tree at the Botanic Gardens. ” ABOVE & BEYOND WE PUT PEOPLE AND OUR PLANET FIRST. We believe that our commitment to strong corporate governance, staff development, ethical conduct and community building can reap sustainable value for our shareholders, employees and customers. Above all, we strive to rise above and beyond the expectations of our workforce, and to build a better planet and future for us all. 08 ST ENGINEERING / ABOVE & BEYOND FINANCIAL HIGHLIGHTS REVENUE NET PROFIT $6.54b $532m - 1.0% - 8.0% REVENUE BREAKDOWN Defence USA 39% Asia BY CUSTOMER TYPE 76% 23% 58% BY LOCATION OF BUSINESS ENTITY BY LOCATION OF CUSTOMERS 5% 61% Commercial 14% Asia 22% Europe Others USA 1% Others Europe 1% EARNINGS PER SHARE DIVIDEND PER SHARE RETURN ON EQUITY 17.06¢ 15¢ 24.9% - 9.0% - 2.5% pts OPERATING CASH FLOW ORDER BOOK RETURN ON SALES $624m $12.5b 8.2% - 33.0% - 0.7% pts 09 ANNUAL REPORT 2014 32 REVENUE % BY SECTOR % 24 % 21 1 % 2 $6.63B 3% 2% $6.54B 31 % % 25 % 22 % 9 1 2014 2013 EBITDA % 18 % BY SECTOR 42 % 24 16 % 29 % 19 % $815.2M -1 % $725.5M -2 % 11 % 44 % 2014 2013 NET PROFIT 42 % BY SECTOR % % % % 16 20 23 $532.0M 19 % -3 % 9% 29 45 % 2014 Aerospace $580.8M 2013 Electronics Land Systems Marine Others 10 ST ENGINEERING / ABOVE & BEYOND LETTER TO SHAREHOLDERS In 2014, our results were impacted by the business environment in Europe, the weakness in our Specialty Vehicles business in China as well as poor performance of our shipbuilding operations in the US. Revenue for the year was $6.54b, compared to $6.63b reported for FY2013. Profit before tax (PBT) was reduced by 11% to $650.7m, and net profit attributable to shareholders was 8% lower at $532.0m. Kwa Chong Seng Chairman Tan Pheng Hock President & CEO “ Simply put, our job as leaders of ST Engineering has one constant – that is, to rise above the circumstances and volatility of the global marketplace and be an outperformer over the long term. ” DEAR SHAREHOLDERS, As we close 2014 and face a new year, ST Engineering will have been serving its customers and generating long-term wealth for investors for 17 years. Our business operations, which were once almost wholly circumscribed within the shores of Singapore, are now global in extent. Through this 17-year journey, the thresholds of our customers’ expectations, the complexity of technology, the speed of change, as well as the degree of market volatility have risen significantly. Effectively, the challenges facing business organisations today are continuous – each year differing only in the nature of the opportunities seen and the uncertainties faced. A business environment in permanent flux is what we see as the ‘new normal’ which managers everywhere will have to deal with. Simply put, our job as leaders of ST Engineering has one constant – that is, to rise above the circumstances and volatility of the global marketplace and be an outperformer over the long term. The level and consistency of the results we deliver for our investors Above and Beyond the long term norms of the industries we are in, along with the manner in which we govern our business, and how we operate, will be the measure of our competence. At the business sector level, only Marine saw improvements in revenue with an 8% increase. The Aerospace, Electronics, and Land Systems sectors came in with lower revenues of between 1% and 5%. At the PBT line, the Electronics sector did well with 8% improvement, while the other sectors recorded falls in PBT: -11% Aerospace, -50% Land Systems and -16% Marine. Revenue mix contribution to the Group remained largely the same as FY2013, with 32% from the Aerospace sector, 24% from the Electronics sector, 21% from the Land Systems sector and 21% from the Marine sector. The division of revenue between our Commercial and Defence sales also remained stable at 61%:39%. By geography of our entities, our US businesses contributed 22% to Group revenue, Europe remained small at 1% while Asia accounted for 76% of Group revenue. Your Board of Directors proposes a Final Dividend of 11 cents per share, consisting of an Ordinary Dividend of 4 cents per share, and a Special Dividend of 7 cents per share. Together with the Interim Dividend of 4 cents per share paid in September 2014, the 11 ANNUAL REPORT 2014 total dividend for the full year will amount to 15 cents per share or a total of $468.2m. This translates to a higher dividend yield of 4.08% for the year compared to 3.86% in 2013. We carried out a share buyback, repurchasing 13.48m shares, out of our authorised limit of 62.3m (2%) of the total number of issued shares as of end February 2015. The repurchasing of shares helps neutralise the impact of dilution from future employee share incentive plans and at the same time provides shareholders with the opportunity to realise cash by selling their shares. Through the year, our business sectors had to overcome divergent business conditions across numerous markets. There were specific factors that led to the numbers before you. In Europe, we faced a weak economy and air transport market which required us to restructure our Aerospace operations in that part of the world. In the US, our Marine yards had cost overruns on two new build projects caused by non-systemic design and supply chain support issues. In China, the slowing economy, particularly in the infrastructure construction sector impacted our construction equipment business. fundamentals underpinning each of our business operations are also solid and strong. We continue to take a long term view in our business decisions, while building on our engineering expertise and competencies. We Made Tough Decisions Europe disappointed us with an expected recovery that did not materialise and the weak Eurozone impacted the Aerospace sector. We therefore had to take decisive action to rationalise our operations there. We took steps to close our landing gear shops in Oslo, Norway and Madrid, Spain and relocated our landing gear overhaul expertise to Singapore. What we see now is a leaner European operation - a facility in Stockholm, Sweden to build on our aerostructure and mechanical component repair capabilities, and a facility in Copenhagen, Denmark to focus on materials management. At the Land Systems sector, we divested our 50% stake in our construction equipment business in Beijing, China to our Our Fundamentals Remain Strong The Group’s strengths can be seen in several areas – we have a strong balance sheet, a solid cash and cash equivalent position – including funds under management – of $1.7b, a net cash position of $686m and a healthy order book of $12.5b for FY2014 (order book: $13.2b at end 2013). Shareholders can take heart that the local partner as part of ongoing review to streamline our Specialty Vehicles business. We Pursue New Opportunities In August 2014, our Electronics sector opened the ST Electronics Satellite Systems Centre, a focal point in building the high value-add satellite industry in Singapore. In the larger scheme of things, this Centre represents our aspirations to go into space and exploit the economic opportunities that space presents. The Electronics sector also made inroads into the healthcare sector, with the launch of an integrated hospital management system that will enable hospitals to manage their resources more effectively and achieve greater operating efficiencies, leading to improved service quality to their patients. We Continued To Invest For Growth Our greenfield airframe facility in Guangzhou, China started operation in early 2014 and had already completed heavy 15.0¢ 4.08% TOTAL DIVIDEND PER SHARE DIVIDEND YIELD “ Shareholders can take heart that the fundamentals underpinning each of our business operations are also solid and strong. We continue to take a long term view in our business decisions, while building on our engineering expertise and competencies. ” 12 ST ENGINEERING / ABOVE & BEYOND LETTER TO SHAREHOLDERS maintenance checks for Chinese and international air carriers. Like all other facilities in the ST Aerospace network, it leverages the strength of its network to offer an integrated aviation solution to its customers. In the US, we are setting up an aircraft maintenance, repair and overhaul (MRO) facility at the Pensacola International Airport in Florida. When this starts operation in late-2016, it will operate as a satellite repair station to our facility in Mobile, Alabama giving us economies of scale and shared resources. Equally important is that the satellite facility provides our customers additional choice in terms of MRO facility location. Several other investments were undertaken by us in the year to expand capacities and capabilities, resulting in a capital expenditure of $240m (FY2013: $326m) at the Group level. Funds were deployed to purchase aircraft component rotables to support contracts secured; the relocation of our China facility for the construction equipment business; as well as the building of data centres in Singapore as part of our Electronics sector’s growth in this area, and enhancement works to the dry dock facility for the US shiprepair business. We Go Where Our Customers Are Our Electronics sector, which has already carried out rail projects in Brazil, set up a subsidiary there to be closer to where the opportunities lie as the country invests in transportation infrastructure. Our success as a leading provider of urban intelligent transport and metro rail solutions will lend credibility as we extend our suite of offerings to the Brazilian market. At the Land Systems sector, the automotive MRO services business we acquired in the second half of 2013, based in Brasilia, is on track in pursuing local defence projects. One such example is the modernisation programme for the Brazilian Army’s Urutu 6x6 Armoured Personnel Carriers. We Build On Our Strengths Our Aerospace sector’s VIP completion business, known as AERIA is now an approved Boeing Business Jet completion centre, and a member of Airbus Corporate Jet service centre. In 2014, it secured numerous contracts, most notably a nose-to-tail cabin completion contract for a wide-body VIP aircraft, and a green aircraft completion project for a VIP 737 BBJ. This is good progress for an operation that started only two years ago. The Electronics sector continued to win rail electronics projects in and outside of Singapore, as well as deploy its solutions and systems in the areas of communications, platform screen doors and passenger information systems globally. The Land Systems sector strengthened its market leading position in 40mm ammunition, with its partnership with General Dynamics-Ordnance and Tactical Systems for the US market. We Move Up The Value Chain To face the challenge of competition from lower cost yards in Malaysia and China for smaller Platform Supply Vessels, our Marine sector shifted its focus to the higher-value specialised offshore vessels such as the large Anchor Handling Tug Supply Vessels, Dive Support Vessels, Seismic Support Vessels and Deepwater Support Construction Vessels. In the US, we completed and launched the largest vessel ever to be built in Pascagoula – the MV Marjorie C – a 692-feet long container and Roll-On/Roll-Off car truck carrier, which is the second vessel we built for owner Pasha Hawaii. At the same yard, we started construction of the first of two LNG-powered combination Container Roll-On/Roll-Off vessel for Crowley Maritime Corporation. The vessel, with a cargo capacity of about 2,400 TEUs and additional space for nearly 400 vehicles, will set a new standard in shipping by featuring the latest systems technology for maximum safety, reliability, and powered by environmental-friendly LNG. We Are Engineers While we speak of continuously shifting business conditions, we are clear how we want to respond – with innovation and creativity. ST Engineering was honoured to be the only company in Singapore to be listed in Forbes’ 2014 list of The World’s Most Innovative Companies. This premium can only be made a reality through people. Fundamentally, ST Engineering’s future will be shaped by our people. Our engineers and technologists are the source of all the innovation and creativity. It is in recognition of this that you will see in this year’s Annual Report that we feature some of our young talents who will be tomorrow’s leaders for our Group. Read their stories on the technical brainpower we are developing. We Are Committed To Governance Corporate governance, with its checks and balances is an area we do not compromise on and 13 ANNUAL REPORT 2014 we take a zero tolerance approach to all forms of corruption including fraud and bribery. We regularly review our system of processes to safeguard against corruption, as well as to protect the integrity of the Group. We recognise that no system can fully insulate us from being affected by poor judgement in decision-making, human error, fraud or other irregularities. This is why we take a serious view of any breaches of the ST Engineering Code of Business Conduct & Ethics. We Are Aligned To Global Sustainability While ST Engineering has been reporting on our sustainability initiatives since 2003, this year we are issuing our inaugural sustainability report prepared in accordance with the Global Reporting Initiative guidelines. In adopting the most globally recognised sustainability reporting guidelines, we are acknowledging that to be a truly global company, we must be accountable to global standards. We Reach Out To Those In Need In terms of community outreach, we want to focus our giving to support the needs of persons with disabilities, an area in Singapore that is underserved. We are supporting and sponsoring iLAT@Enabling Village, a project run by SG Enable that is scheduled to open in the third quarter of 2015. This will be a one-stop consultancy and education space within the Enabling Village that will showcase how assistive and information technologies (AT/IT) can help meet the needs of persons with disabilities and their caregivers. As an engineering group, we believe that we can contribute our engineering skillsets to AT/ IT to help make a difference in the lives of this community. Board and Management Renewal During the year, we welcomed three non-executive directors to our Board - MG (NS) Ng Chee Khern, Ms Olivia Lum and Dr Beh Swan Gin. Olivia and Swan Gin are independent Directors. We look forward to working with them and benefitting from their leadership and industry perspectives. Following Mr Chang Cheow Teck’s resignation as President of ST Aerospace, we appointed Mr Lim Serh Ghee, formerly Chief Operating Officer and President, Defence Business of ST Aerospace to be President of this business. To build up cross-sector synergy and integration across ST Engineering, we have appointed Mr Lee Fook Sun to the newly-created position of Deputy CEO of the Group, in addition to his roles as President of ST Electronics and President of the Group’s Defence Business. At the same time, Mr Vincent Chong, previously President of Strategic Plans & Business Development of ST Aerospace, has taken on the role of Deputy CEO (Corporate Development) of the Group, overseeing the departments and functions at the Corporate Office of ST Engineering. In March 2015, as this letter was being written, another leadership change for the Group took place at ST Kinetics. Mr Ravinder Singh, previously Deputy President of Corporate and Market Development of ST Electronics, took over as President of ST Kinetics from Mr Sew Chee Jhuen. Mr Sew, who held that role since 2006 has since taken on a new position at the Corporate Office of ST Engineering as President for Special Projects. This has been a year of change and fresh thinking for ST Engineering. The future is exciting. We aim to make a mark for ourselves globally by thinking out of the ordinary, reshaping ourselves and working for the betterment of those around us. The pace will have no let up. We will have to be bold and take calibrated risks but the rewards will be great. We thank all our 23,000 employees around the world who are working hard with us on this journey. We also thank our customers, business partners and shareholders for their support through the year. We will continue to apply all our talents and energy to do better for our customers, shareholders and all our stakeholders. Sincerely, Kwa Chong Seng Chairman 6 March 2015 Tan Pheng Hock President & CEO 14 ST ENGINEERING / ABOVE & BEYOND 15 ANNUAL REPORT 2014 16 ST ENGINEERING / ABOVE & BEYOND BOARD OF DIRECTORS PROFILES OF DIRECTORS The names of the directors holding office at the date of this report are set out below together with details of their academic and professional qualifications, age, date of first appointment as Director, date of last re-election as Director, as well as other directorships and principal commitments. MR KWA CHONG SENG (Chairman) MR TAN PHENG HOCK Mr Kwa Chong Seng, 68, was appointed an independent nonexecutive Director on 1 September 2012. He was appointed Chairman on 25 April 2013. Mr Kwa was last re-elected Director on 24 April 2013. He retired as Chairman & Managing Director of ExxonMobil Asia Pacific Pte. Ltd. in October 2011. A mechanical engineer by training, Mr Kwa joined Esso Singapore in 1969 and had held various roles in Logistics, Marketing, Supply, Trading and Investment Planning. He also spent several years in Exxon offices in the US and Hong Kong. Mr Kwa is currently the Chairman of Neptune Orient Lines Limited* and several of its key subsidiaries. He is also Chairman of Fullerton Fund Management Company Ltd, Deputy Chairman of Olam International Limited* and the Public Service Commission, Singapore, and is on the boards of Singapore Exchange Limited*, SeaTown Holdings Pte. Ltd., Delta Topco Limited and the Defence Science & Technology Agency (DSTA). Mr Kwa graduated from the former University of Singapore with a Mechanical Engineering degree. He was awarded the Distinguished Engineering Alumni Award by the National University of Singapore (NUS) in 1994 and is a Fellow of the Academy of Engineering Singapore. In 1999, Mr Kwa was conferred the Honorary Ningbo Citizenship. He was awarded the Singapore Public Service Star in 2005. Mr Tan Pheng Hock, 57, is the President & CEO of ST Engineering and an executive Director. He was appointed Director on 1 May 2001 and was last re-elected Director on 24 April 2014. Mr Tan is Chairman of the Singapore Workforce Development Agency, Deputy Chairman of the Singapore Quality Award Governing Council, a board member of the Singapore Economic Development Board and a Fellow of the Singapore Institute of Directors. He was named Outstanding CEO of the Year at the Singapore Business Awards in 2014 as well as Asia Business Leader of the Year at the 12th CNBC Asia Business Leaders Awards in 2013. He was conferred the esteemed Honorary Fellowship by the ASEAN Federation of Engineering Organisations for his contribution to the engineering profession. In 2012, Mr Tan was honoured as the Best Chief Executive Officer (for companies with $1b and above in market capitalisation) by the Singapore Corporate Awards. He received the Public Service Medal in 2011. He began his career as an engineer in ST Marine in 1981. Over the last three decades, he has held numerous senior appointments in the Group including that of Executive Vice President of ST Marine, President of ST Kinetics, President and Chief Operating Officer of ST Engineering and ST Engineering Group President. Mr Tan holds a Bachelor of Science (First Class Honours) in Marine Engineering from the University of Surrey, UK and a Master of Science in Management from Stanford University, USA. 17 ANNUAL REPORT 2014 MR KOH BENG SENG LIEUTENANT-GENERAL NG CHEE MENG MAJOR-GENERAL (NS) NG CHEE KHERN Mr Koh Beng Seng, 64, is the CEO of Octagon Advisors Pte. Ltd. He was appointed an independent nonexecutive Director on 15 September 2003 and is due for re-election at the 2015 AGM under Article 98 of the Company’s Articles of Association. Mr Koh was Deputy President of United Overseas Bank Limited from June 2000 to 31 January 2005. Prior to this, Mr Koh was Senior Advisor to Asia Pulp & Paper Company Ltd, and Advisor to Bank of China and the International Monetary Fund from 1998 to 2000. Mr Koh has extensive experience in the financial services sector. He was with the Monetary Authority of Singapore from 1973 to 1998, where he served as Deputy Managing Director from 1988 to 1998. Mr Koh is Chairman of Great Eastern Holdings Limited* and Director of Bank of China (Hong Kong) Limited^, BOC Hong Kong (Holdings) Limited, Sing-Han International Financial Services Limited, Hon Sui Sen Endowment CLG Limited and United Engineers Limited*. Mr Koh holds a Bachelor of Commerce (First Class Honours) from the former Nanyang University, Singapore, and a Master of Business Administration from Columbia University, USA. LG Ng Chee Meng, 46, is the Chief of Defence Force, Singapore Armed Forces. He was appointed a nonexecutive Director on 25 April 2013 and was last re-elected as Director on 24 April 2014. Prior to this, LG Ng was the Chief of Air Force. He joined the Ministry of Defence (MINDEF) in 1986 and was awarded the SAF Postgraduate Scholarship (Specialist Development) in 2002 and the Public Administration Medal (Gold) in 2011. LG Ng was conferred the “Most Exalted Order of Paduka Keberanian Laila Terbilang – First Class” by the Sultan of Brunei in 2013. In the course of his military career, LG Ng has held various command positions in MINDEF since 1993, including Director of Joint Operations. He is Deputy Chairman of SRCC Pte Ltd and a board member of DSTA and JTC Corporation. LG Ng holds a Bachelor of Science from the US Air Force Academy, and a Master of Arts from The Fletcher School of Law and Diplomacy, Tufts University, USA. MG (NS) Ng Chee Khern, 49, is the Permanent Secretary (Defence Development) in Singapore’s MINDEF and Second Permanent Secretary in Singapore’s Ministry of Health. He was appointed a non-executive Director on 20 May 2014 and is due for re-election at the 2015 AGM under Article 104 of the Company’s Articles of Association. Prior to this, MG (NS) Ng had held various senior positions in the SAF, including as the Chief of Air Force and as Director of Joint Operations and Planning Directorate. He is Chairman of DSTA, DSO National Laboratories, SaverPremium Fund Board of Trustees (Singapore) and the SAF Fund Care. He is a Director of CapitaMall Trust Management Ltd*, and a member of the Public Utilities Board and National Research Foundation, Prime Minister’s Office. MG (NS) Ng holds a Bachelor of Arts (Second Class Honours (Upper)) (Arts & Social Sciences) and Master of Arts (Arts & Social Sciences) from the University of Oxford, UK; and a Master of Public Administration (Humanities & Social Sciences) from Harvard University, USA. * listed on the SGX-ST ^ listed on the Stock Exchange of Hong Kong 18 ST ENGINEERING / ABOVE & BEYOND BOARD OF DIRECTORS MR QUEK TONG BOON MR QUEK POH HUAT MR VENKATACHALAM KRISHNAKUMAR Mr Quek Tong Boon, 59, is Chief Defence Scientist of Singapore’s MINDEF. Prior to this, he had concurrently held the position of Chief Research & Technology Officer until 1 July 2013. Mr Quek was appointed a non-executive Director on 1 March 2008 and was last re-elected as Director on 24 April 2014. He joined the Defence Science Organisation of MINDEF in 1980 and in the course of his career, has held various key appointments, including that of Deputy Secretary (Technology and Transformation) of MINDEF and CEO of the DSO National Laboratories. Mr Quek is a board member of the Public Utilities Board and an Adjunct Professor at the Department of Electrical & Computer Engineering in NUS. He holds a Bachelor of Arts (Honours) (Engineering) from the University of Cambridge, UK, and a Master of Science (Electrical Engineering) from NUS. Mr Quek Poh Huat, 68, is Senior Advisor of Singapore Power Limited (SingPower). Prior to this, he was the Group CEO of SingPower until his retirement on 31 December 2011. Mr Quek was appointed a nonexecutive Director on 15 April 2002 and will retire at the 2015 AGM. He is Singapore’s non-resident Ambassador to Sweden. Mr Quek also serves as Chairman of Aetos Holdings Pte. Ltd. and Director of Singapore Institute of Power and Gas Pte. Ltd. He was conferred the Public Service Star Award by the Singapore Government in 1994. In May 2012, Mr Quek was awarded the May Day Medal of Commendation (Gold) Award by the National Trades Union Congress. He obtained a Bachelor of Science in Chemical Engineering from the University of Leeds, UK, and a Master of Science in Management from the Naval Postgraduate School, USA. Mr Venkatachalam Krishnakumar, 65, is Chairman of Oracle Financial Services Software Pte. Ltd. (Singapore). Prior to this, he had held senior advisory roles at McKinsey and Company, Barclays Bank PLC, Global Retail and Commercial Banking and DBS Bank. He was Chief Operating Officer and Chief Financial Officer for the Asia Pacific Consumer Bank of Citigroup when he retired on 28 February 2005 (after a 31-year career with the group). During his career with Citigroup, he held several senior appointments in India, Singapore and New York. He was appointed an independent nonexecutive Director on 15 April 2002 and is due for re-election at the 2015 AGM under Article 98 of the Company’s Articles of Association. He is a Director of MediaCorp Pte. Ltd., Aspen Holdings Limited and CIMB Bank Berhad. He holds a Bachelor of Engineering and Master of Business Administration from the Indian Institute of Management, India. 19 ANNUAL REPORT 2014 MR DAVINDER SINGH DR STANLEY LAI TZE CHANG MR KHOO BOON HUI Mr Davinder Singh, 57, is the CEO of Drew & Napier LLC. He was appointed an independent non-executive Director on 1 August 2007 and is due for re-election at the 2015 AGM under Article 98 of the Company’s Articles of Association. Mr Davinder Singh has been in legal practice for more than 30 years. He was in the first batch of Senior Counsel appointed in 1997. He is a Director of the Petra Foods Limited* and PSA International Pte Ltd. Mr Davinder Singh is also a Member of the Board of Trustees of NUS. He holds an LLB (Honours) from the National University of Singapore. Dr Stanley Lai Tze Chang, 47, is Head of Intellectual Property & Technology Practice at Allen and Gledhill LLP. He was appointed an independent non-executive Director on 8 October 2009 and was last re-elected as Director on 24 April 2013. Dr Lai was appointed Senior Counsel at the Opening of the Legal Year 2010. He currently serves as Chairman of the Intellectual Property Office of Singapore (appointed on 1 April 2013). He obtained his law degree from the University of Leicester (UK) in 1992 and qualified to practise as a Barrister in England and Wales in 1993. Dr Lai is a member of Lincoln’s Inn. He was called to the Singapore bar in 1995. Dr Lai also holds a Masters in Law (LLM) and Doctorate (Ph.D) in law from the University of Cambridge, UK. Mr Khoo Boon Hui, 60, is Senior Advisor of the Ministry of Home Affairs (MHA), Singapore and concurrently a Senior Fellow of the Civil Service College. Prior to this, he was Senior Deputy Secretary, MHA until he relinquished his post on 20 January 2015. He was appointed an independent non-executive Director on 1 September 2010 and was last re-elected as Director on 24 April 2014. Mr Khoo was appointed Commissioner of the Singapore Police Force (SPF) in July 1997, and relinquished this post in January 2010 after serving 32 years in SPF. He was also the President of INTERPOL from 2008 to 2012. Mr Khoo is currently Honorary Chairman of the Paris-based Technology Against Crime Association, Deputy Chairman of Singapore Island Country Club and Singapore Quality Award Governing Council and a board member of Singapore Health Services Pte Ltd, the Casino Regulatory Authority and Temasek Foundation CLG Limited. He also sits on the advisory panels of the Singapore National Cybersecurity R&D Programme, the Qatar-based International Centre for Sports Security, the Cambridge University Police Executive Programme, and the Oxford University Journal of Policing. Mr Khoo is also an Advisor for the Board Financial Crime Risk Committee (Standard Chartered PLC). He holds a Bachelor of Arts (Engineering Science & Economics) degree from Oxford University and a Master in Public Administration from the Harvard Kennedy School of Government. Mr Khoo attended the Advanced Management Program at Wharton School of the University of Pennsylvania in 2002. * listed on the SGX-ST 20 ST ENGINEERING / ABOVE & BEYOND BOARD OF DIRECTORS MR QUEK SEE TIAT MS OLIVIA LUM OOI LIN DR BEH SWAN GIN Mr Quek See Tiat, 60, is Chairman of the Building and Construction Authority, Singapore. He was appointed an independent nonexecutive Director on 1 July 2013 and was last re-elected as Director on 24 April 2014. He retired as Deputy Chairman of PricewaterhouseCoopers Singapore in 2012, after a career in the firm that spanned 31 years. Mr Quek is a board member of Singapore Press Holdings Ltd*, Neptune Orient Lines Limited*, the Energy Market Authority and the Monetary Authority of Singapore. He holds a Bachelor of Science (Economics) Honours from the London School of Economics and Political Science, and is a Fellow of the Institute of Chartered Accountants in England and Wales and a member of the Institute of Singapore Chartered Accountants. Ms Olivia Lum, 54, is Executive Chairman and Group CEO of Hyflux Ltd* (Hyflux). She was appointed an independent non-executive Director on 20 May 2014 and is due for re-election at the 2015 AGM under Article 104 of the Company’s Articles of Association. Ms Lum started her corporate life as a chemist in GlaxoSmithKline plc. She is a board member of International Enterprise Singapore and Singapore Mediation Centre, a Trustee Member of The Chinese Development Assistance Council and a Council Member of the Singapore Business Federation. Ms Lum is the first woman to win the Ernst & Young World Entrepreneur Of The Year 2011 award in recognition of her Singapore-based water-treatment company, Hyflux. Ms Lum holds an Honours degree in Chemistry from the National University of Singapore. Dr Beh Swan Gin, 47, is Chairman of the Singapore Economic Development Board (EDB). Prior to this, he was Permanent Secretary of the Ministry of Law from 1 July 2012 to 30 November 2014. Dr Beh was appointed an independent nonexecutive Director on 1 September 2014 and is due for re-election at the 2015 AGM under Article 104 of the Company’s Articles of Association. He was previously Managing Director of EDB from 2008 to 2012. Dr Beh also serves as Chairman of EDBI Pte Ltd and EDB Investments Pte Ltd and is also a Director of Esplanade Co. Ltd. He is a medical doctor by training and graduated from the National University of Singapore. Dr Beh is also a Sloan Fellow with a Master of Science in Management from Stanford University’s Graduate School of Business, and completed the Advanced Management Program at the Harvard Business School in 2012. 21 ANNUAL REPORT 2014 PAST DIRECTORSHIPS IN THE LAST THREE YEARS Mr KWA Chong Seng DBS Bank Ltd DBS Group Holdings Ltd ExxonMobil Oil Singapore Pte Ltd Temasek Holdings (Private) Limited Mr TAN Pheng Hock Cradance Services Pte Ltd Nanyang Polytechnic International Private Limited VT Systems, Inc Mr KOH Beng Seng Fraser and Neave Limited COLONEL ALAN GOH KIM HUA COL Alan Goh Kim Hua, 38, is Head Naval Plans in the Republic of Singapore Navy (RSN). He was appointed Alternate Director to LG Ng Chee Meng on 25 April 2013. COL Goh joined the Singapore Armed Forces (SAF) in 1995 and has held various command and staff positions in MINDEF/SAF since 1999, including as the Deputy Director, Defence Policy Office, Head Naval Personnel and as Commanding Officer of the RSN’s Missile Corvette Squadron. He was awarded the SAF Overseas Scholarship in 1995, the SAF Overseas Postgraduate Scholarship (General Development) in 2011 and the Public Administration Medal (Bronze) in 2013. COL Goh holds a Bachelor of Arts (Honours) (Mathematics) from the University of Cambridge, UK, and a Master of Business Administration (Sloan Fellow) from the Sloan School of Management, Massachusetts Institute of Technology, USA. * listed on the SGX-ST # listed on the Nasdaq Stock Market Lieutenant-General NG Chee Meng Experia Events Pte. Ltd. Singapore Technologies Aerospace Ltd Mr QUEK Poh Huat Aetos Security Management Pte. Ltd. Aircraft Capital Trust Management Pte. Ltd. Enterprise Business Services (Australia) Pty Ltd PowerGas Limited Singapore Power Limited SP PowerAssets Limited SP PowerGrid Limited SP Services Limited SPI (Australia) Assets Pty Ltd SPI Management Services Pty Ltd Mr Venkatachalam KRISHNAKUMAR Cypress Holdings Limited HiSoft Technology International Ltd Pactera Technology International Ltd# Mr Davinder SINGH Singapore Exchange Limited* Mr KHOO Boon Hui Home Team Academy Board of Governors Institute of Leadership and Organisation Development, Civil Service College Singapore Technologies Kinetics Ltd Mr QUEK See Tiat Pricewaterhousecoopers Advisory Services Pte. Ltd. Pricewaterhousecoopers Asia Actuarial Services (Singapore) Pte. Ltd. Pricewaterhousecoopers Corporate Finance Pte. Ltd. Pricewaterhousecoopers LLP Pricewaterhousecoopers Services LLP Pricewaterhousecoopers WMS Holdings Pte. Ltd. Pricewaterhousecoopers WMS Pte. Ltd. PWC International Assignment Services Holdings Pte. Ltd. PWC International Assignment Services LLP PWC international Assignment Services (Singapore) Pte. Ltd. Dr BEH Swan Gin Agency for Science, Technology and Research Economic Development Board EDB Investments Pte Ltd International Enterprise Singapore Maxwell Arbitration Holdings Ltd Singapore Israel Industrial Research and Development Foundation 22 ST ENGINEERING / ABOVE & BEYOND SENIOR MANAGEMENT Seated, left to right: ELEANA TAN AI CHING LEE FOOK SUN TAN PHENG HOCK VINCENT CHONG SY FENG Standing, left to right: JOHN G COBURN LIM SERH GHEE SEW CHEE JHUEN NG SING CHAN TAN PHENG HOCK Mr TAN Pheng Hock is President & CEO of ST Engineering and a Director of the ST Engineering Board. (Mr Tan’s profile is on page 16) LEE FOOK SUN Mr LEE Fook Sun, 58, was appointed President of ST Electronics in August 2009 and took on the role of President, Defence Business of ST Engineering in March 2013, driving the strategic relationship with the Group’s core defence customers. In December 2014, he was concurrently appointed Deputy CEO of ST Engineering to explore additional synergies across the Group’s four business sectors. Mr Lee joined ST Electronics in 2000 as President of Defence and International Business and was appointed the company’s Deputy President (Operations) in 2005. Mr Lee serves as Deputy Chairman of Building and Construction Authority and Director of DSO National Laboratories. He holds a Bachelor of Arts (Honours) and a Master of Arts (Engineering Science) from the University of Oxford, UK and attended the Stanford University’s Executive Program. Mr Lee is a Fellow of The Institution of Engineers, Singapore. VINCENT CHONG SY FENG Mr Vincent CHONG Sy Feng, 45, was appointed Deputy CEO (Corporate Development) of ST Engineering in December 2014 overseeing the Group’s corporate functions. Prior to this, he was President of Strategic Plans & Business Development at ST Aerospace since April 2014. Mr Chong has a 20-year career in the oil and gas industry holding a variety of technical, operations and management positions from product marketing, refining & supply, to corporate strategic planning. His career has been global with postings in Hong Kong, Japan, the United Kingdom as well as the United States. Mr Chong graduated with a First Class Honours in Mechanical Engineering from the National University of Singapore. He has also attended executive leadership programs at the Thunderbird School of Global Management and the Columbia Business School. 23 ANNUAL REPORT 2014 LIM SERH GHEE SEW CHEE JHUEN* NG SING CHAN Mr LIM Serh Ghee, 55, was appointed President of ST Aerospace in December 2014. Prior to this, he was Chief Operating Officer from 2010 and the President, Defence Business, where he was responsible for forging strategic relationships with the group’s core defence customers. Mr Lim also served as Executive Vice President of Aircraft Maintenance & Modification (AMM), a business segment of ST Aerospace. He began his career with ST Aerospace as a mechanical engineer in 1984 and has held many senior management appointments within the Group. Mr Lim holds a Second Class Upper Honours degree in Mechanical Engineering from the National University of Singapore. He was conferred with the Master of Science in Aerospace Engineering from the University of Michigan and attended the Program for Management Development at Harvard Business School. Mr SEW Chee Jhuen, 51, was appointed President of ST Kinetics in September 2006. Prior to this, Mr Sew was Deputy President (Operations) and President Defence Business of ST Kinetics. He joined ST Aerospace as an Aeronautical Engineer in 1988, and had held many senior management appointments before becoming Deputy President (Operations). Mr Sew serves as a Member of the Board of Governors of Singapore Polytechnic. He was awarded the Medal of Commendation in the May Day Awards 2012 by the National Trades Union Congress. He holds a Bachelor of Science (High Distinction) in Aeronautical Engineering and Mechanics from the University of Minnesota, and a Master in Business Administration from Stanford University, USA. Mr Sew is a Fellow of The Institution of Engineers, Singapore. Mr NG Sing Chan, 54, was appointed President of ST Marine in May 2010. Prior to this, Mr Ng was Deputy President and President, Defence Business of ST Marine. He joined ST Marine in 1987 as an engineer. Mr Ng left in 1991 and later became the Deputy General Manager of Pan-United Shipyard Pte Ltd. He subsequently took on the positions of President of Changshu Xinghua Changjiang Dev Co and Executive Director of Pan-United Marine Ltd (now known as DDW-PaxOcean Shipyard Pte. Ltd.). Mr Ng re-joined the Group in March 2008 as Executive Vice President, Special Projects, ST Engineering and moved to ST Marine as Deputy President in April 2009. Mr Ng holds a Master of Business Administration (Finance & Banking) from the Nanyang Technological University, Singapore and a Masters in Engineering from the University of Hamburg, Germany. JOHN G COBURN ELEANA TAN AI CHING RAVINDER SINGH* General (Retired) John G COBURN, 73, was appointed Chairman and CEO of ST Engineering’s US subsidiary, VT Systems, in December 2001. Gen (Ret) Coburn joined the Group after an illustrious 39-year career with the US Department of Defense, where he commanded at all levels. Prior to assuming this position, he was Commanding General of the US Army Materiel Command, one of the largest commands in the US Army with 60,000 employees and an annual budget of more than US$50b with activities in 42 states and 28 foreign countries. Gen (Ret) Coburn is the recipient of many medals, and is a noted author and speaker. He holds a Juris Doctor from the University of Missouri, and a Doctor’s Degree from Eastern Michigan University and many other degrees. He is also a member of the Supreme Court, State of Kentucky; Supreme Court, State of Michigan and the Supreme Court of the United States. Ms Eleana TAN Ai Ching, 52, was appointed Chief Financial Officer of ST Engineering in March 2008. Ms Tan was previously Managing Director, Finance, Temasek Holdings (Private) Limited (Temasek). Prior to that, she was Director Finance at Singapore Technologies Pte Ltd (STPL) from August 2003 until December 2004, when STPL was restructured, and its assets transferred to Temasek. Prior to 2003, Ms Tan had held various key finance positions in the ST Engineering Group over a period of 13 years and last held the position of Group Financial Controller of ST Engineering. Ms Tan holds a Bachelor of Accountancy (Honours) from NUS and attended the Harvard Business School’s Advanced Management Program in 2013. She is a member of the Institute of Singapore Chartered Accountants. Mr Ravinder SINGH (not in picture), 50, was appointed President of ST Kinetics in March 2015. He joined the Group in August 2014 as Deputy President, Corporate and Market Development at ST Electronics. He joined the Group after a 30-year career with MINDEF and the Singapore Armed Forces (SAF) where he held various senior command and staff appointments. In his last appointment in the SAF, he served as Chief of Army. Before that, he was Deputy Secretary (Technology) in the Ministry of Defence. Mr Singh graduated with a Bachelor of Arts in Engineering Science (First Class Honours) in 1986 and a Master of Arts in Engineering Science in 1992, both from the University of Oxford, UK. He also completed his Master of Science in Management from Massachusetts Institute of Technology, USA in 1996 and the Wharton Advanced Management Program in 2014. * New appointments effective 23 March 2015. Sew Chee Jhuen relinquished his role at ST Kinetics and was appointed President for Special Projects, ST Engineering. Ravinder Singh relinquished his appointment as Deputy President at ST Electronics. For organisational chart, please refer to www.stengg.com 24 ST ENGINEERING / ABOVE & BEYOND O P E R AT I N G & F I N A N C I A L R E V I E W GROUP OVERVIEW ST Engineering is an integrated engineering group that provides innovative solutions and services in the aerospace, electronics, land systems and marine sectors. Incorporated in 1997 and headquartered in Singapore, we rank among the largest companies listed on the Singapore Exchange, and are one of Asia’s leading engineering groups. Our global network of over 100 subsidiaries and associated companies, supported by a workforce of about 23,000 allows us to serve customers in the Americas, Europe, Asia and Oceania. A leader in each of our core businesses, ST Engineering leverages multisector capabilities to develop advanced solutions for commercial and defence customers across industries. Our aerospace arm offers a wide spectrum of aircraft maintenance, engineering and training services for both military and commercial aircraft operators. These services include airframe, components and engine maintenance, repair and overhaul, engineering design and development, materials support, asset management and pilot training. Our electronics arm specialises in the design, development and integration of advanced electronics and communications systems for government, defence, commercial and industrial customers worldwide. Our land systems arm delivers integrated land systems, specialty vehicles and their related through-life support for defence, homeland security and commercial applications. Our marine arm provides customised shipbuilding, repair and conversion services to both naval and commercial vessels, at our yards in Singapore and the US. We also provide a host of environmental solutions through our environmental engineering subsidiary. NORTH AMERICA “ We serve our customers through a global network of 100 subsidiaries and associated companies in 46 cities across 24 countries. ” SINGAPORE TECHNOLOGIES ENGINEERING LTD 100% Singapore Technologies Aerospace Ltd 100% Singapore Technologies Electronics Limited 100% Singapore Technologies Kinetics Ltd 100% Singapore Technologies Marine Ltd 100% Singapore Technologies Dynamics Pte Ltd 100% ST Synthesis Pte Ltd 100% Vision Technologies Systems, Inc. For complete Group structure, please refer to www.stengg.com SOUTH AMERICA 25 ANNUAL REPORT 2014 In 2014, ST Engineering was again the biggest exhibitor at the biennial Singapore Airshow, where we showcased our suite of defence and aerospace solutions to a global audience. EUROPE ASIA MIDDLE EAST AFRICA SINGAPORE AUSTRALIA Aerospace Electronics Land Systems Marine Others 26 ST ENGINEERING / ABOVE & BEYOND O P E R AT I N G & F I N A N C I A L R E V I E W O p e r a t i n g R e v i e w & O u t l o o k ( c o n t ’d ) P rogressing up the engineering value chain, we continue to strengthen our support to customers through a broadened global network and integrated maintenance and engineering support for airframes, components and engines. 2014 REVIEW “ The Aerospace sector remained resilient with a strong emphasis on a balanced services portfolio, innovation and productivity improvements. ” The global aviation industry continues to face intense competition with industry experts expecting the global airline industry’s operating profits to grow modestly in the short term. Notwithstanding the challenging aviation landscape, the Aerospace sector remained resilient with a strong emphasis on a balanced services portfolio, innovation and productivity improvements. We secured a steady stream of new orders worth $1.74b in 2014, and continued to build focus on the following capability clusters – aircraft maintenance and modification; component total support; engine total support; aviation and training services; and aerospace engineering and manufacturing. Aircraft Maintenance & Modification (AMM) The AMM business continued to grow in capacity and capability during the year. The Aerospace sector also redelivered 962 aircraft for airframe maintenance and modification work, including freighter conversions. As part of the business strategy to grow our presence in the Gulf Coast region in the US, an agreement was signed with the City of Pensacola to set up an aircraft maintenance, repair and overhaul (MRO) facility at the Pensacola International Airport in Pensacola, Florida. Under the agreement, the City of Pensacola will construct an aircraft hangar complex on 18.66 acres of greenfield land and lease it to our Mobilebased VT Mobile Aerospace Engineering, Inc. for 30 years. Growing our support for the Embraer series of regional jets, a five-year agreement was secured with a regional US airline for heavy maintenance of 42 Embraer E-170 and E-175 aircraft at VT San Antonio Aerospace, Inc. This came shortly after clinching a two-year contract earlier in 27 ANNUAL REPORT 2014 the year for heavy maintenance of 20 Embraer E-190 aircraft. expanding its international customer base in China. Our VIP aircraft completions business continues to gain traction with the award of several interior modification contracts, including a nose-totail wide-body cabin completion project and our first green aircraft completion contract from an undisclosed Europeanbased VIP 737 BBJ customer. Growing the business capability, AERIA Luxury Interiors acquired a state-of-the-art 3D printer for prototyping and small production of non-structural parts. AERIA’s facility will be undergoing a 14,000 sq ft expansion, which will see the addition of a new cabinet and upholstery shop as well as an additional building for the design, sales and marketing teams in 2015. The 757-200SF freighter conversion programme continues to be an important platform for ST Aerospace. The sector has redelivered 117 757-200SF converted freighters since 2001, which are now in service around the world. Following the launch of the 15-pallet freighter conversion solution as part of a 757-200SF development programme in 2013, ST Aerospace secured a contract for five 757-200SF passenger-to-freighter conversions in a 15-pallet cargo configuration, with an option for three additional aircraft. This brings to 144 the total number of aircraft contracted for the 757200SF freighter conversion programme. Additionally, our new end-oflifecycle aircraft part-out and green harvesting business commenced in Hondo, Texas during the year. Plans are in place to develop a framework for the green harvesting programme with best practices guidelines being established for implementation in 2015. On the military side of maintenance, the Republic of Singapore Air Force (RSAF) inaugurated the M346 Advanced Jet Trainer in the year, following a Public-Private Partnership programme the air force incorporated with ST Aerospace as prime contractor. The RSAF has received the full fleet of 12 M346 aircraft. In China, our airframe facility in Guangzhou started operations with the induction of the first two aircraft (an Airbus A320 and a Boeing 767) respectively from a Chinese regional airline and an international air carrier. With this new node, the sector is now able to provide line maintenance support from key airports in Singapore, Shanghai, Guangzhou and San Antonio. Additionally, our Shanghaibased airframe MRO joint venture secured heavy maintenance contracts from two Russian airlines, which entail a series of C-level airframe maintenance checks on a total of 16 aircraft (Airbus A320 and Boeing 747), Component Total Support (CTS) ST Aerospace continued to invest in new capabilities, expand our global footprint and leverage existing OEM relationships for our CTS business. While our component repair and overhaul facilities delivered a steady stream of 44,674 components and 217 landing gears, we continued to provide support for nearly 900 aircraft around the world, through our component Maintenance-By-the-Hour (MBHTM) programme. CONTRIBUTION TO THE GROUP’S REVENUE 32% AEROSPACE REVENUE 2014 2013 $2,061M -0.9% $2,079M PROFIT BEFORE TAX 2014 2013 $283.0M -11.4% $319.4M 28 ST ENGINEERING / ABOVE & BEYOND O P E R AT I N G & F I N A N C I A L R E V I E W O p e r a t i n g R e v i e w & O u t l o o k ( c o n t ’d ) MRO scene as the largest segment with the highest growth rates over the next decade, ST Aerospace has been enhancing our ETS value chain with an expansive range of aftermarket services to stay ahead of the competition. VT MAE signed a 30-year lease agreement with the City of Pensacola to set up an aircraft MRO facility in Pensacola in the US. On the back of a persistently weak European economy which affected our landing gear repair and overhaul businesses in Europe, ST Aerospace carried out a rationalisation programme which saw to the closure of our landing gear MRO facilities in Oslo and Madrid. Existing capabilities were subsequently consolidated back into Singapore as the Centre of Excellence for landing gear MRO. engines, as well as Hamilton Sundstrand’s components installed on the Boeing 787. Engine Total Support (ETS) Recognising that engine MRO will continue to lead the global We continued to invest in new MRO capabilities for engine repair and overhaul, eco engine wash and engine leasing. We also grew our focus on engine parts and accessories repairs, on-wing support and engine parts trading, and at the same time, added new capacity to build up a larger spare pool of engines to support our customers’ growing requirements. The ETS business completed 170 engines and over 8,800 EcoPower® engine washes in 2014, supporting over 200 aircraft operators globally. The engine leasing joint venture received additional capital injection in the year as the business expanded market On component capability development, following the signing of two long-term repair licence agreements with UTC Aerospace Systems for MRO services on the Boeing 787, ST Aerospace is setting up new repair and overhaul capabilities in Singapore, for the first batch of UTC Aerospace Systems’ electrical and air management system components installed on the Boeing 787. As a member of UTC Aerospace Systems’ Boeing 787 MRO supplier network, we will be able to provide nose-to-tail services on the nacelle systems for both Rolls-Royce Trent 100 and General Electric GEnx ST Aerospace is setting up new repair and overhaul capabilities for Boeing 787. 29 ANNUAL REPORT 2014 reach and grew its customer footprint. On engine capability development, the sector injected additional capital into our Xiamen-based engine MRO joint venture in support of the business growth in China. On green engine aviation, EcoServices celebrated ten successful years of environmentally friendly engine wash with multiple contract wins and the completion of 50,000 EcoPower® green engine washes. In a continuation of the close partnership with CFM International, ST Aerospace has renewed our TRUEngineTM authorised MRO provider licence for CFM56 engines, demonstrating a further commitment to OEM quality engine maintenance. Aviation & Training Services (ATS) The ATS business continued to provide a wide spectrum of aircraft charter, aircraft leasing, technical and pilot training services to customers worldwide. Additionally, Qatar Airways’ pioneer batch of cadets has started its multi-crew pilot licence programme, while training for the second batch of MPL cadet pilots from Tigerair was completed during the year. In the area of air charter capability development, we injected additional capital into our Sydney-based charter subsidiary, to support the expansion of flight and training business in Australia. In the US, the Aerospace sector acquired 100% equity interest in Aviation Academy of America, a US Federal Aviation Administration (FAA) Part 141-approved flight school, to grow the sector’s pilot training business. Upon receipt of FAA’s approval to relocate the operations from New Braunfels to Hondo in Texas, US, the US pilot training academy is ready to welcome its first batch of students in 2015. Aerospace Engineering & Manufacturing (AEM) The Aerospace sector continued to grow our cabin retrofit service offerings as a onestop cabin reconfiguration solutions provider. Of the cabin interior contracts secured for 37 aircraft, 17 have since been redelivered. As the sector extends into cabin interior product engineering design and manufacturing, ST Aerospace introduced a new range of economy-class seats. On unmanned aerial systems engineering, we started the development of the USTAR series of vertical-take-offand-landing (VTOL) multirotor unmanned aerial vehicles. USTAR-X and USTAR-Y were launched at the Singapore Airshow 2014. In Burlington, VT Volant Aerospace, which specialises in the manufacturing of cabin In Singapore, ST Aerospace officially opened our new aviation centre at Singapore’s Seletar Aerospace Park (SAP), housing a comprehensive suite of air charter, ground training, flight training and support facilities. With an expanded Seletar footprint occupying over 75,000 sqm, ST Aerospace becomes the second largest tenant and the only integrated aviation service provider in SAP. ST Aerospace’s commercial pilot training business received extension contracts to train another 40 cadet pilots and 60 cadet pilots for Juneyao Airlines and Xiamen Airlines respectively. AERIA’s VIP aircraft completions business continues to gain traction with multiple contract wins. 30 ST ENGINEERING / ABOVE & BEYOND O P E R AT I N G & F I N A N C I A L R E V I E W O p e r a t i n g R e v i e w & O u t l o o k ( c o n t ’d ) health scares and economic growth prospects in China and Europe. Nonetheless, economic prospects are expected to improve as the year progresses. According to airframe OEM Boeing, long-term confidence in air traffic growth will remain, with global commercial aircraft fleet expected to increase at an average rate of 3.6% annually over the next 20 years. ST Aerospace’s indigenous VTOL multi-rotor unmanned aerial vehicle, USTAR-Y. “ We will continue to build new capabilities as a total aviation support provider, and extend the scope of our services in new locations, to improve our customer reach. ” interior parts, has expanded its capabilities for the Boeing 777 aircraft. Leveraging new technologies, ST Aerospace’s Singapore-based investment casting foundry started using 3D printing for rapid prototyping and small scale production of parts. On the Airbus A330P2F programme, ST Aerospace has since started on the engineering development phase and completed the critical design review for the A330-300P2F. It also secured NTO (No Technical Objection) from Airbus. INDUSTRY REVIEW & OUTLOOK The global airline industry continues to operate in a challenging environment as experts expect airlines’ operating profits to improve slightly in 2015, on the back of slowed world trade and fallen business confidence with concerns over aviation safety, geopolitical risks, While global MRO spending on aircraft maintenance and modification is expected to grow at a slower pace with the newer generation of aircraft requiring less maintenance, and the prescribed maintenance intervals further apart, MRO work will continue to increase due to the growing fleet size. According to aviation consultancy ICF International, global MRO growth is expected to maintain a 3.8% compound annual growth rate (CAGR) to US$90b by 2024. Asia Pacific, including China, will be leading the MRO market, and is expected to grow to US$29.2b over the next two decades. With a strong and expanded presence in this region, ST Aerospace is well-positioned to address this growing market. Growth prospects remain stable for our aircraft maintenance and modification segment, driven by an increase in demand for aircraft modification services. Boeing has forecasted that there would be 2,200 freighter aircraft deliveries over the next 20 years, out of which 60% would be converted aircraft. With many of the airfreight operators’ fleets due for renewal, ST Aerospace expects growth in the freighter conversion segment, notably with the Boeing 757 as a choice 31 ANNUAL REPORT 2014 candidate for narrow-body conversions due to its higher payload and range capabilities, while the A330 and Boeing 767 are expected to provide a good solution for the medium-sized freighter segment. As the market evolves, demand for cabin interior upgrades and modifications will continue to grow. Seizing the opportunity, ST Aerospace will leverage our existing strengths in aircraft maintenance and continue to build capabilities in highervalue modification activities such as cabin retrofits, VIP completions and freighter conversions. According to Boeing, aircraft retirement will reach 1,000 annually in ten years’ time. To this end, ST Aerospace is establishing a robust green harvesting framework for our part-out business, and at the same time, seeking accreditation of our business as a green process to generate carbon credits that will eventually benefit our customers in the long term. Engine MRO will drive market growth while component MRO is expected to grow as fast as engine MRO in the next five years. On component MBHTM, ST Aerospace currently supports over 20 aircraft operators for fleets operating in Asia Pacific, Europe and the Middle East. The Aerospace sector will continue to invest and scale our customised programme to support our strong customer fleet. On engines total support, ST Aerospace continues to leverage our partnerships with OEMs and airlines to build new capabilities for existing and other engine types. We will also strengthen technical capabilities to lower costs for our customers, by providing parts repairs and engine leasing as an extended service offering. According to Boeing, the aviation industry will need an additional 533,000 pilots over the next 20 years, to crew new DUSTIN SCHLOSSER Certification Engineer / VT DRB “My job, generally, is to outline and execute a plan to certify the modification of an aircraft. What I like most about being an engineer? Looking at the end product and knowing I am part of a global team that has accomplished something amazing.” aircraft deliveries and cater for pilot retirements. To this end, ST Aerospace will build on the success achieved for our commercial pilot training in Asia and the expanded footprint now in the US to offer a complete suite of pilot training solutions to our customers. Operating in a competitive environment, compounded by the continued economic softness in Europe, the Aerospace sector will continue to review our operations across the clusters to stay ahead of the competition. As a global ‘total aviation support’ provider, we will leverage our strong geographic presence, diverse customer base and capabilities in both defence and commercial arenas, broad MRO and engineering development capability offering, to enhance our support to our customers worldwide. 32 ST ENGINEERING / ABOVE & BEYOND O P E R AT I N G & F I N A N C I A L R E V I E W O p e r a t i n g R e v i e w & O u t l o o k ( c o n t ’d ) 2014 REVIEW ST Electronics continued to expand its solutions in the key areas of Intelligent Transportation Systems, Satellite Communications and Information Communications Technologies. “ Rapid urbanisation and a growing demand for public transportation has led to strong demand for safe and reliable rail infrastructure. ” Against a backdrop of a fast-ageing population, increasing healthcare costs and a shortage of healthcare workers, ST Electronics is developing smart healthcare solutions that offer a better experience for patients and greater operational efficiency for healthcare providers. Another exciting new development is in the area of Smart, Sustainable and Safe City solutions, which include an IOT (Internet of Things) concept behind a comprehensive suite of solutions to address the needs of a smart and connected nation. Participating in Singapore’s Infocomm Development Authority (IDA) Smart Nation initiative, ST Electronics secured a strategic win for the Jurong Lake District testbed which comprised pilots and trials of various applications. A key component to this complex system is the Smart Nation Platform that encompasses the common infrastructure and technical architecture to support a smart nation ecosystem. An intelligent sensor grid will be coupled with a video management and analytics system to provide real-time urban situational awareness. Data collected on the behaviour and preferences of the community will be used to develop applications to give residents in the test area a better living experience. Large-Scale Systems Group Rapid urbanisation and a growing demand for public transportation has led to strong demand for safe and reliable rail infrastructure. In Singapore, ST Electronics secured several rail electronics contracts, including the provision of the communications, maintenance management system, commercial radio, platform screen door systems and signaling installation for the new Thomson-East Coast Line; automatic fare collection equipment and Long Term Evolution (LTE) upgrade for the facility commercial information system of the Downtown Line; passenger information systems 33 ANNUAL REPORT 2014 for the North-South Line and Tuas West extensions; and the communications system for Jurong East. Overseas, our passenger information systems will be deployed in Malaysia and Brazil, on the Kelana Jaya Line and Rio de Janeiro Line 4 respectively. In Taiwan, we will be deploying our platform screen door systems on the Kaohsiung Red Line R11 Main Station and Taipei Tucheng Line BL36 Dingpu Station. ST Electronics’ security solutions have also been selected to provide secure access to several major Singapore educational institutions, namely the card access system for various premises within the National University of Singapore campus; and a pre-paid card system for recently completed residence halls (Crescent Hall and Pioneer Hall) at the Nanyang Technological University. We are also developing an integrated security management system for the Ministry of National Development Office and total access control systems for various public institutions under the ministry. Another large-scale system undertaken by ST Electronics is an Automated Weather Observing System & Low Level Wind Shear Alert System for the National Environment Agency which will be deployed at Seletar Airport. Development of ST Electronics’ series of Unmanned Surface Vehicles (USV) is on track. Venus 16, our 16m USV, was exhibited at the Singapore Airshow 2014. Communications & Sensor Systems Group In August, ST Electronics opened its new state-of-the- art Satellite Systems Centre in Ang Mo Kio. Custombuilt for the design and manufacturing of satellite systems, it houses some 100 engineering professionals who are developing Singapore’s first commercial Earth observation satellite, TeLEOS-1. Scheduled for launch into space in late 2015 using the Indian Space Research Organisation’s Polar Satellite Launch Vehicle, the 400kg satellite is equipped with an electro-optical camera capable of one-metre ground resolution imaging. These images are expected to be commercially available in the first half of 2016. ST Electronics will identify partners to distribute the images and will continue to expand our reseller network to satisfy our global customers’ needs. Concurrently, we are partnering US satellite manufacturer ATK to jointly develop, manufacture and market a new range of A150S, 150kg class microsatellites to meet growing worldwide demand for microsatellites. Meanwhile, VT iDirect (iDirect), the sector’s US affiliate, continued to solidify its position as a world leader in satellite-based IP communications technology. As reported in the 13th Edition of The VSAT Report, published by UK-based market analyst COMSYS, iDirect is now the world’s largest enterprise Very Small Aperture Terminal (VSAT) systems manufacturer with a 32% market share. iDirect is also the world leader in hub sales with 57% market share. Our AgilFence Perimeter Intrusion Detection System (PIDS), which offers highly reliable physical protection for any premises, continued to secure new projects. First implemented at Changi Airport, PIDS was implemented for bus depots in Singapore and CONTRIBUTION TO THE GROUP’S REVENUE 24% ELECTRONICS REVENUE 2014 2013 $1,583M -4.1% $1,650M PROFIT BEFORE TAX 2014 2013 $184.0M +8.0% $170.3M 34 ST ENGINEERING / ABOVE & BEYOND O P E R AT I N G & F I N A N C I A L R E V I E W O p e r a t i n g R e v i e w & O u t l o o k ( c o n t ’d ) Malaysia and will be installed at Setia Eco Glades Cyberjaya in Kuala Lumpur, Malaysia. In China, ST Electronics clinched a pilot project to supply the AgilTrack Coastal Surveillance System to monitor vessel traffic along its southern coast. With the proliferation and growing sophistication of cyber attackers, the importance of secure operations in cyber space has never been more critical. To this end, ST Electronics opened the DigiSAFE Cyber Security Centre where cyber professionals can be equipped with hands-on training in a real-world environment. ST Electronics also attained success on more rugged terrain. The sector’s SuperneT™ Vehicular Integrated Communication System (VICS) ST6800 was selected by the Singapore Armed Forces for its combat vehicles. VICS is an advanced, compact Internet Protocolbased integrated voice and data communication system that integrates various command, control, communications, computers, and intelligence systems, enabling more operational efficiency in high tempo and harsh tactical environments. On the roads, ST Electronics will implement a unified intelligent bus management solution to enhance operational control, fleet and business management, and passenger information for the Land Transport Authority (LTA) and two other public transport operators. The sector also implemented public carpark facilities and systems for the Housing Development Board (HDB) in Choa Chu Kang and Woodlands for more efficient carpark management and operations. Software Systems Group US-based VT MÄK (MÄK), the sector’s US simulation software company, clinched contracts with aircraft manufacturer Embraer to continue extending their use of MÄK’s VR-Forces in its Super Tucano aircraft training. It also secured projects with the US Army Program Executive Office - Simulation Training & Instrumentation, to provide support for DI-Guy human characters within their Close Combat Tactical Trainer programme; and the Cincinnati Children’s Hospital Medical Center for MÄK’s DI-Guy human simulation software, to help create sportspecific scenarios for training and evaluation. In China, ST Electronics was appointed by SembCorp China to conduct onsite and remote studies of water plants to ascertain ITinfrastructure readiness and integrated system design to support centralised realtime monitoring, report management, data analysis, and simulation. In Singapore, ST Electronics is working with SMRT Buses to co-design and co-develop an Integrated Driving and Service Control training system specially designed to meet the training needs of bus drivers and service controllers. The sector also secured a contract to supply Singapore Press Holdings with software, subscription and support. In the field of healthcare, ST Electronics introduced the Hospital C2 Operations Centre solution, an integrated hospital management system designed to effectively manage resources, improve response times, and lower costs, while providing better service quality to patients. The sector also launched mediCAP - Casualty Management ST Electronics’ new state-of-the-art Satellite Systems Centre in Ang Mo Kio is purpose-built to support the design and manufacturing of satellite systems in Singapore. 35 ANNUAL REPORT 2014 System (CMS), a real-time information management system to support the operational planning, monitoring and execution of mass casualty rescue operations. ST Electronics will design and set up the Healthcare Data Centre for staging and hosting healthcare services for Singapore’s public hospitals, national specialty centres and polyclinics, to ensure a seamless transition of healthcare services. In the area of maritime simulation, realism was enhanced by incorporating naval operation behaviour into Computer Generated Forces and 3D visuals for a high fidelity synthetic training experience. Lastly, as a result of our ongoing business review to enhance capabilities, the ownership of ST Electronics (Digital Media) Pte Ltd increased to 100% and was renamed ST Electronics (Enterprise 1) Pte Ltd. It is a distributor and value-added reseller, offering one-stop enterprise system integration solutions including hardware, software and professional services. ST Electronics’ 16m Unmanned Surface Vehicle, Venus 16, was exhibited at the Singapore Airshow 2014. scale electronics systems for transport and metro rail. technologies to make the Smart City concept a reality. Over in Mexico, ST Electronics is seeking opportunities through its subsidiary GFM Electronics S.A. de C.V. in the areas of public safety and security as well as Smart City projects. Intelligent Transportation ST Electronics has divested Kazakhstan-based MERITS Technologies as a result of ongoing business reviews to streamline capabilities and optimise resources. Acquisitions & Divestments INDUSTRY REVIEW & OUTLOOK Looking abroad, ST Electronics identified opportunities in the emerging economy of Brazil and set up a subsidiary, ST Electronics do Brasil Serviços e Soluções em Sistemas Eletronicôs Ltda, to facilitate entry into that market. With a local presence, ST Electronics will be able to work more closely with incountry partners and respond more quickly to opportunities, such as in the area of large- The convergence of data analytics, mobility solutions and social networking technologies have created opportunities for governments and enterprises to deliver goods and services that meet the needs of citizens and customers in a more efficient and effective way. ST Electronics has a comprehensive portfolio of capabilities, products and solutions that harness these The rapid growth and urbanisation of cities around the world have put a strain on resources, infrastructure and the environment. Cities are looking to adopt sustainable transportation solutions that address economic, social and environmental concerns. ST Electronics is one of a handful of global players which can offer a comprehensive suite of rail electronics solutions that include command, control and communications; automatic fare collection; platform screen doors; and passenger information and maintenance management systems. Our intelligent road and rail transportation, and traffic and fleet management solutions offer cities the ability to implement efficient and safe modes of transportation that give residents better connectivity and mobility. 36 ST ENGINEERING / ABOVE & BEYOND O P E R AT I N G & F I N A N C I A L R E V I E W O p e r a t i n g R e v i e w & O u t l o o k ( c o n t ’d ) Smart Utilities Cities need to adopt more efficient energy management systems. Integrated utilities infrastructure and smart meters facilitate efficient resource management, monitor consumption patterns, and offer a better utilisation of essential services such as electricity, water and gas. “ As more enterprise assets are shifted into cyberspace, cyber security will become more important. Essential services and critical infrastructure depend on a secure and robust infocomm infrastructure. ” Our Smart Utilities suite supports multi-utility network infrastructure for integrated electricity, water and gas management, enabling better resource distribution and consumption management by utilities providers. Metering and control systems also provide utilities usage insights that enable real-time updates, giving building managers better control over usage and fault identification. Cyber Security As more enterprise assets are shifted into cyberspace, cyber security will become more important. Essential services, critical infrastructure such as transport, communication and financial systems depend on a secure and robust infocomm infrastructure. Meanwhile, cyber threats are becoming more pervasive and persistent while organisations are becoming more vulnerable to cyber attacks as they expand their internet connectivity. These trends, combined with a growing awareness of cyber threats, have resulted in strong demand for cyber security infrastructure and expertise. ST Electronics started building up information security capabilities in 1999 and today, we have a complete suite of encryption products and cyber security solutions under the DigiSAFE brand. Officially inaugurated in 2014, our DigiSAFE Cyber Security Centre offers advanced cyber defence training that emulates real-world attacks on enterprise networks in a controlled environment. Satellite Communications Better connectivity and high-definition applications on-the-go are pushing the demand for more bandwidth and higher quality of satcom services. IP-based satellite systems have made this flexible and less expensive, with carrier-class quality and reliable connectivity that supports multiple applications. The emergence of HighThroughput Satellites (HTS), a new breed of high performance broadband satellites, will transform the satcom landscape. HTS offers improved data speeds at lower costs and higher reliability with the use of technologies such as DVB-S2 with adaptive coding and modulation and In Singapore, the sector continues to secure rail electronics contracts for new and existing lines such as the Downtown Line (above), Thomson-East Coast Line and North-South Line. 37 ANNUAL REPORT 2014 adaptive return channels. This is expected to accelerate satcom adoption by governments, enterprises, energy and maritime users worldwide. Data Centres The availability of large data and proliferation of mobile devices and mobile applications have made end-users more savvy and sophisticated. As connectivity and data grows, the need for data centres grows too. Data centres are no longer mere information storage depositories but now offer virtualisation and cloud computing. Increased bandwidth, high data flow from various devices, and a growing emphasis on energy efficiency, are turning data centres into hubs for big data management. Singapore aims to be the data centre hub for Asia Pacific, emphasising Green Data Centres for improved energy efficiency that mitigate environmental impact. The DigiSAFE Cyber Security Centre established in 2014 caters to the growing demand for cyber security infrastructure and expertise. With years of systems integration experience and technology development, ST Electronics is able to provide comprehensive solutions and services for Critical Operations Environments (COEs) such as data centres. Our COEs are highly secure, threatvulnerability risk-assessment compliant, highly survivable, and employ green and eco-friendly solutions. For all the above trends, ST Electronics is well positioned to offer innovative solutions that will enhance connectivity, improve efficiency, empower individuals and realise customers’ visions. NG HWEE PING System Consultant / ST ELECTRONICS “ What is exciting in my work is I get to collaborate with many different people -engineers from other units of ST Engineering and people from many countries. Apart from applying my skills in IT projects, my work helps to broaden my understanding of people. ” 38 ST ENGINEERING / ABOVE & BEYOND O P E R AT I N G & F I N A N C I A L R E V I E W O p e r a t i n g R e v i e w & O u t l o o k ( c o n t ’d ) 2014 REVIEW The Land Systems sector showcased forward-looking defence solutions and further extended our commercial business footprint into emerging markets. Putting Warfighters Ahead of their Game “ The Land Systems sector showcased forward-looking defence solutions and further extended our commercial business footprint into emerging markets. ” Combining industry-leading innovations with proven technologies, ST Kinetics unveiled a range of advanced defence innovations at the Singapore Airshow 2014. These solutions seek to address the current and future requirements of global armed forces, in the areas of soldiers’ weaponry, soldiers’ survivability, power management and unmanned operations, to enable them to stay ahead of evolving threats. ST Kinetics’ new Bullpup Multirole Combat Rifle (BMCR) and Conventional Multirole Combat Rifle (CMCR) are designed for compactness, minimum weight and full ambidextrous operation in a highly configurable multirole package. The rifles possess multi-role flexibility for assault, sharpshooter and suppressive roles, putting infantry sections ahead in lethality and in achieving their mission objectives. On the soldiers’ survivability front, ST Kinetics unveiled a proof-of-concept Adaptive Real-Time Core Temperature Intelligent Cooler (ARCTIC), which utilises both active and passive cooling methods to help soldiers achieve an optimal core temperature during operations. We also unveiled a Power and Energy Management System (POEMS), which integrates mini fuel cells and inductive charging technologies. POEMS enables soldiers to be constantly ‘plugged in’ and ‘powered up’ in the modern battlefield network. For unmanned operations, we launched the Terraton unmanned ground vehicle, designed for the autonomous surveillance and protection of critical infrastructure. On the munitions front, ST Kinetics continued to deliver and secure new markets for our 40mm solutions. Significant deliveries included the 40mm High Velocity ammunition 39 ANNUAL REPORT 2014 for the Canadian Armed Forces’ Tactical Armoured Patrol Vehicle programme, secured in 2013. Furthering our penetration into the North American 40mm ammunition market, ST Kinetics entered into a strategic partnership with General DynamicsOrdnance and Tactical Systems to manufacture the 40mm Air Bursting ammunition for the US market. Over in Brazil, Technicae Projetos e Serviços Automotivos Ltda. (Technicae), ST Kinetics’ defence MRO subsidiary in Brazil, was awarded a modernisation contract from the Brazilian Army for their Urutu 6x6 Armoured Personnel Carriers (APCs). Delivering Productive Specialty Vehicles On the commercial front, LeeBoy Brazil set up a manufacturing facility in Canaos to capitalise on local demand for road construction equipment (CE). The Brazilian facility has already begun localisation of US VT LeeBoy, Inc. (VT LeeBoy) designs – 1000F Track Paver and SD1 Aggregate Distributor – for the Brazilian and Latin American markets. LeeBoy India entered 2014 with an expanded portfolio of products that included motor graders, backhoe loaders, crawler excavators and concrete batching plants. These products were delivered to end-users through an expanded dealer network across the Indian sub-continent, Africa and the Middle East, and have been deployed in key infrastructure projects in these regions, including the Al Batinah Expressway and BidbidSur Road projects (Oman), and Hawassa-Chuko and Mega-Moyale road projects (Ethiopia). This year saw the US-based VT Hackney, Inc. (VT Hackney) expanding its international presence and market penetration into the Chinese, Middle East, and Central and South American markets. In China, VT Hackney inked a licensing and technology agreement with a local partner for refrigerated vehicles for the Chinese cold chain market. Over in the Middle East, VT Hackney embarked on an assembly partnership with a Saudi Arabian partner for its beverage bodies. The Hackney brand also secured multiple, large beverage vehicle contracts in Latin America. In North America, VT Hackney launched its new Express vending body to target the micro-market and pre-kit vending markets. In China, Guizhou Jonyang Kinetics Co., Ltd. (GJK) strengthened its presence in the Central Asian CE markets, delivering its excavators to Azerbaijan, as well as securing a significant contract for wheeled and tracked excavators in Uzbekistan. Another Chinese subsidiary, Jiangsu Huatong Kinetics Co., Ltd. (JHK), completed partial relocation of existing operations to its new 158,000 sqm manufacturing complex in the Dantu District in Zhenjiang, China. JHK continued pursuing research and development on enhancing its product lines for the Chinese road construction segment. With more than 140 patents already under its belt, JHK successfully launched new products like the HM1300 Milling Machine and 31ton ZJY5311TFC Asphalt Synchronous Chip Sealer. CONTRIBUTION TO THE GROUP’S REVENUE 21% LAND SYSTEMS REVENUE 2014 2013 $1,397M -5.3% $1,475M PROFIT BEFORE TAX 2014 2013 $56.2M -49.7% $111.8M 40 ST ENGINEERING / ABOVE & BEYOND O P E R AT I N G & F I N A N C I A L R E V I E W O p e r a t i n g R e v i e w & O u t l o o k ( c o n t ’d ) At the Singapore Airshow 2014, ST Kinetics unveiled the Terraton Unmanned Ground Vehicle, designed for autonomous surveillance and protection of critical infrastructure. The LeeBoy 985 Motor Grader (above) has been deployed in key infrastructure projects in India, Africa and the Middle East. 41 ANNUAL REPORT 2014 For its customised ambulance solutions, ST Kinetics successfully delivered all 18 units to the Singapore Civil Defence Force (SCDF). We also successfully delivered other specialty vehicles like the Multi-Utility Vehicles for Fire Fighting and Foam Tenders to the SCDF. Pioneering Green Transport Solutions Kinetics Drive Solutions Inc. (KDS), ST Kinetics’ wholly owned Canadian subsidiary, extended the reach of its InfiniDrive™ and NexDrive™ product lines. KDS partnered with North American firm L-3 Combat Propulsion Systems (L-3) for its InfiniDrive™ HMX transmissions. With L-3, KDS signed a manufacturing licensing agreement for the InfiniDrive™ HMX transmissions. KDS also inked a manufacturing agreement with Woxin Power Train of China to localise the NexDrive™ EV3-850 electric transmission for the Chinese electric city bus market. Furthermore, KDS embarked on a collaboration with UQM Technologies to offer an integrated electric motor and transmission solution to the European electric bus market, which Frost & Sullivan expects to have a market size of approximately 14,800 hybrid and electric buses shipped by 2020. Providing Cross-Sector Services The MAN truck and bus distribution business performed strongly this year, with several significant contracts secured, like the $100m contract from SMRT Buses Ltd (SMRT Buses) for 322 MAN A22 buses and 40 MAN A24 articulated buses. The contract for the MAN A22 buses is a repeat order and a strong testament to the efficiency and reliability of the MAN brand of city buses. Another breakthrough order was for MAN TGM refrigerated trucks by the Sheng Siong Group for their daily distribution operations. INDUSTRY REVIEW & OUTLOOK ST Kinetics furthered its penetration into the North American 40mm ammunition market by entering into a strategic partnership with General Dynamics Ordnance and Tactical Systems for the US market. The Land Systems sector will continue to grow sales in emerging markets while innovating to differentiate our offerings in niche product segments. Defence ST Kinetics will continue to pursue contracts globally, with Brazil as a market of focus, to grow the defence MRO business there by delivering on existing contracts with the Brazilian Army, like the Urutu 6x6 APC modernisation contract, and to pursue new contracts for other automotive platforms. Unveiled at the Singapore Airshow 2014, the BMCR (top) and CMCR (bottom) are designed to give infantry soldiers maximum lethality in a compact package. For other export markets, we will target the medium protected armoured vehicles segment with our Bronco and Terrex platforms. In North America, a key programme that ST Kinetics will be pursuing is the United States Marine Corps’ ACV 1.1 programme. A collaborative effort led by SAIC, ST Kinetics plans to respond to the United States Marine Corps’ Request for Proposals when it is released in the first half of 2015. For our 40mm solutions, ST Kinetics will continue to pursue both local and overseas contracts in the Asian, European and North ST Kinetics’ Canadian subsidiary, Kinetics Drive Solutions, has partnered L-3 Combat Propulsion Systems on a manufacturing licensing agreement for its InfiniDrive™ HMX transmissions. 42 ST ENGINEERING / ABOVE & BEYOND O P E R AT I N G & F I N A N C I A L R E V I E W O p e r a t i n g R e v i e w & O u t l o o k ( c o n t ’d ) American defence markets for our range of 40mm solutions. Local defence sales will continue to constitute the main bulk of ST Kinetics’ defence business and ST Kinetics will continue to innovate new solutions to meet the requirements of the Singapore Armed Forces. Commercial Despite the slow growth in the global CE market, market watchers have painted a more optimistic picture for the medium to longer term. Off-Highway Research had predicted a rise of 6.6% in global CE sales by 2017 to US$104.8b from US$97.8b in 2012. The Land Systems sector will put greater emphasis on expanding international sales in emerging markets in the African continent, Latin America and Asia. The LeeBoy brand of road CE now has three manufacturing bases globally (US, Brazil and India) and will continue ST Kinetics is now the only city bus provider in Singapore that offers the full suite of single deck, double deck and articulated bus types. to expand its customer base to regions in Africa, Asia, Latin America and the Middle East. In the US, VT LeeBoy has positioned itself to capitalise on the demand for road construction equipment in the recovering housing and infrastructure segments. Further south, LeeBoy Brazil will continue with the localisation of LeeBoy road construction equipment models for the Brazilian and Latin American market. In India, LeeBoy India is positioned to take advantage of upbeat market sentiments and will continue to pursue opportunities opened up by new infrastructure projects. It will continue to target export sales through Indian infrastructure companies’ projects in Africa and the Middle East. For defence exports, the Land Systems sector will continue to target the medium protected armoured vehicles segments with platforms like the Bronco New Gen (above) and Terrex. 43 ANNUAL REPORT 2014 In 2015, VT Hackney will launch its next-generation Kidron refrigerated truck body in the US market. The Hackney brand aims to further its US market share gain and capitalise on the US market’s recovery by expanding its distribution and market coverage. VT Hackney will continue to pursue orders in export markets beyond North America in the food services, beverage, and cooler bodies segments, and build on the increased penetration of these products in the Middle East and Latin America. With development in the Western and Central parts of China expected to herald the next wave of large-scale construction and development activity in the country, ST Kinetics’ Chinese CE companies will continue to customise and enhance their existing earth-moving and road-construction equipment to meet these requirements. They will continue to mitigate the weak recovery of the Chinese CE market by bolstering sales in Central Asia, Africa and Latin America. The Land System sector’s automotive sub-systems business will continue to commercialise the mature technologies that we have been developing over the years. Tie-ups with Chinese, North American and European electric vehicle OEMs in 2014 on the NexDrive™ will accord us better traction in the global electric vehicles market. In Singapore, for our MAN truck distribution business, ST Kinetics will be seeing potentially higher demand for new trucks as a result of the replacement of ageing trucks by fleet owners to comply with the Euro V emissions standard. For buses, we will continue to deliver the MAN city buses as part of the contract with SMRT Buses. In Myanmar, MAN CLA and TG truck bodies will be launched to target the logistics, tourism, construction and mining sectors. ST Kinetics aims to grow market share in these sectors by offering the MAN trucks and buses for the premium segments in these growth sectors. MOHAMED RAJKAMAL Head, Electronic Systems / ST KINETICS “ So much in today’s tracked and wheeled military vehicles are electronically controlled, and my job, together with my team of 60 technicians and engineers, is to manage these electronic systems so our customers’ vehicles run reliably. We take what we learn from our work in the field and apply it to do better. ” “ The Land Systems sector will continue to grow sales in emerging markets while innovating to differentiate our offerings in niche product segments. ” 44 ST ENGINEERING / ABOVE & BEYOND O P E R AT I N G & F I N A N C I A L R E V I E W O p e r a t i n g R e v i e w & O u t l o o k ( c o n t ’d ) 2014 REVIEW “ ST Marine differentiated ourselves by strengthening our long-term relationships with key offshore vessel owners and highly specialised dredger operators. ” Three key factors weighed on the offshore oil and gas industry in 2014. First, major oil companies around the world were under pressure from shareholders to cut budget spending and return cash to their shareholders. Second, day rates for deepwater rigs and semi-submersibles softened amid a supply glut. Third, the availability of shale gas and oil resulted in reduced reliance of the US on oil imports, leading to a higher stockpile of oil and depressed energy prices which prompted more cutbacks in investment on exploration and production (E&P) in deepwater oil and gas. vessels such as the large AHTS, Dive Support Vessel (DSV), Seismic Support Vessel (SSV), large Multi-Purpose Support Vessel (MPSV) and Deepwater Support Construction Vessel, areas where the sector stands out due to our commendable track record. The weak outlook led to a quiet market, fewer enquiries In the repair business, conservative maintenance budgets resulted in fewer conversions and upgrades. ST Marine differentiated ourselves by strengthening our long-term relationships with key offshore vessel owners and highly specialised dredger operators. Through years of interaction and cooperation, we have developed customised solutions for customers that have made significant improvements and a few shelved tenders by cautious offshore ship owners. Nevertheless, ST Marine demonstrated the strength of our capabilities with the timely delivery of six Anchor Handling Tug Supply (AHTS) vessels to Swire Pacific Offshore (Pte) Ltd (SPO). As the smaller Platform Supply Vessels (PSVs) were being commoditised and built in countries such as Malaysia and China, ST Marine directed our focus on specialised offshore to their highly complex and specialised vessels. We also continually trained and upgraded our skilled workforce to keep abreast of the technologies adopted by our partners and improved our productivity levels. Our partners in turn have become our advocates in the industry, which enabled us to secure projects from new customers such as Subsea 7 and Hartmann Offshore in 2014. 45 ANNUAL REPORT 2014 In the defence arena, ST Marine, with our proven capabilities and competencies in the building of Patrol Vessels (PVs), continued to forge ahead with current programmes to build four PVs for the Royal Navy of Oman (RNO) and eight Littoral Mission Vessels (LMVs) for the Republic of Singapore Navy (RSN). We continued to present our Operations and Support services, including our Engine Servicing capabilities to overseas navies, expanded our Total Naval Solutions services, particularly to customers whose platforms we built. STSE Engineering Pte Ltd (STSE), ST Marine’s environmental engineering arm, built up capabilities in Pneumatic Waste Collection System (PWCS) and Integrated Waste Management System (IWMS), with the aim to offer a full suite of waste management solutions. As part of an ongoing branding exercise to position ourselves globally as a provider of high quality defence and commercial vessels, ST Marine participated in major exhibitions including the Singapore Airshow, Shipbuilding, Machinery and Marine Technology (Hamburg, Germany), Euronaval (Paris, France), Marine Log Ferries (Boston, Massachusetts), International Workboat Show (New Orleans, LA) and Offshore Patrol Vessels (Toulon, France). In the field of environmental engineering, ST Marine, through its environmental engineering arm, showcased its water treatment solutions at the Singapore International Water Week. Ship Design And Build On the commercial front, our yards in Singapore executed projects in a timely manner according to plan, including the delivery of several vessels. The contracts with SPO, a wholly owned subsidiary of Swire Pacific Limited, to build and outfit six 18,000bhp AHTS vessels were successfully completed. The first four vessels, have since joined SPO’s modern fleet in their support of deepwater oil exploration works, including Pacific Dove, which was chartered to Petrobras in early 2013 for a period of four years. CONTRIBUTION TO THE GROUP’S REVENUE 21% MARINE In the defence sector, our largest naval export shipbuilding contract, awarded by the Ministry of Defence of the Sultanate of Oman in April 2012, is on track. This contract included the design and build of four PVs as well as the provision of associated logistics support for the RNO. Designed based on ST Marine’s proprietary Fearless class Patrol Vessels, and with its suite of modern sensors and equipment, coupled with good seakeeping abilities and endurance, these vessels are able to carry out a wide range of missions including economic protection and anti-piracy tasks. The Naming Ceremony for the first-in-class was officiated by His Excellency Sayyed Bader bin Saud bin Harib Al Busaidi, Minister Responsible for Defence Affairs of the Sultanate of Oman. The PV has been named RNOV Al Seeb and is expected to be delivered in 2Q2015. The second and third vessels were successfully launched this year, and the project is expected to be completed by 3Q2016. Since the award of the contract in 2013 to design and build eight LMVs for the RSN, ST Marine achieved the steel cut and keel laying milestones for the first vessel in the year. It is expected to be delivered in 2H2016 and when completed, it will enable RSN to carry out maritime security operations REVENUE 2014 2013 $1,341M +8.3% $1,238M PROFIT BEFORE TAX 2014 2013 $122.8M -16.1% $146.3M 46 ST ENGINEERING / ABOVE & BEYOND O P E R AT I N G & F I N A N C I A L R E V I E W O p e r a t i n g R e v i e w & O u t l o o k ( c o n t ’d ) “ Notwithstanding the difficult shipping environment, ST Marine continued to deliver on various upgrading and shiprepair projects with its regular customers. ” more effectively and efficiently. In the US, out of the ten 97.2m Offshore Supply Vessels (OSVs) for Hornbeck Offshore Services, LLC (HOS), our US shipyard VT Halter Marine delivered eight and is expecting to deliver the ninth and tenth in 1Q2015. The first was delivered in 2013. VT Halter Marine also delivered a 112-feet Articulated Tug Barge (ATB), Denise A. Bouchard to Bouchard Transportation Co., Inc. This is the sister ship to the Evening Star, which was delivered in 2012. Upon delivery, VT Halter Marine was further engaged to build two 130ft ATBs for use in transporting liquid petroleum, to be delivered in 2H2016. Container and Roll-on/Roll-off car truck carrier MV Marjorie C, the largest vessel ever to be built in Pascagoula, and the second vessel built for Honolulu-based Pasha Hawaii was launched. The first, MV Jean Anne, was put into service in March 2005 and designated “Ship of the Year” by American Ship Review in the same year. MV Marjorie C is the second US flag vessel to join Pasha Hawaii’s fleet and will sail opposite MV Jean Anne, enabling Pasha Hawaii to provide weekly service to Hawaii from mainland US. Under the Foreign Military Sales Programme, VT Halter Marine delivered the third and fourth of four Fast Missile Crafts (FMC). Shiprepair Notwithstanding the difficult shipping environment, ST Marine continued to deliver on various upgrading and shiprepair projects for its regular customers. This included upgrading work for the suction dredger Fairway, diving support vessel Rockwater 2, and semi-submersible pipe laying barge Semac 1. ST Marine also performed significant repair works for the Stingray, a pipe laying barge, Lincoln Express, a livestock carrier, Western Pride, a seismic survey vessel, Petrochem Supplier, a tanker, passenger vessels for Leisure World and Amusement World, Lewek Crusader, an offshore construction support vessel, and two 1,600 ton living quarters for drilling rigs, as well as other repairs and upgrades of dredgers and OSVs. For defence related repairs, our competencies saw us engaged in various upgrading, logistics management and maintenance programmes. With an established track record in this segment, we are optimistic and confident of continued success. In the US, with the operationalisation of the 12,000MT lifting capacity floating dock in 2013, VT Halter Marine entered into ship repairs for vessels operating in the Gulf of Mexico. Shiprepair enquiries were strong and VT Halter Marine is in negotiation with many potential clients including Bouchard Transportation, Crowley, and L&M Botruc. Engineering and Environmental Engineering Since December 2013, ST Marine bareboat-chartered its Roll-on/Roll-off passenger (Ropax) vessel to Nova Star Cruisers (NSC), a Canadianbased company licensed to operate the service between Petrochem Supplier in VT Halter Marine for repair services. 47 ANNUAL REPORT 2014 The first Al-Ofouq class patrol vessel built for the Royal Navy of Oman. Yarmouth, Nova Scotia and Portland Maine. The service commenced in May to positive publicity. Ridership rose with the temperature in the summer and total passenger count was just under 60,000 when the season ended in mid October, a credible performance for a service in its first year. ST Marine currently holds a 10% stake in Nova Star Cruises. STSE Engineering Services Pte Ltd (STSE) capabilities in Pneumatic Waste Collection System (PWCS) and Integrated Waste Management System (IWMS) were built up through various projects in Singapore, Middle East, India, Thailand, China and Brunei. Innovative development also contributed to our capability build-up and these efforts culminated in the development of our patent-pending Discharge Extruder, designed to improve the performance and costeffectiveness of our PWCS. In the year, STSE also started to expand our capability in the management of solid waste treatment, as well as water and wastewater treatment, to offer a full suite of waste management solutions. STSE also participated in WasteMET Asia 2014, displaying its technologies, products and services in the area of municipal waste management. INDUSTRY REVIEW & OUTLOOK Commercial Market The offshore oil and gas industry continues to be an important segment in sustaining many maritime-related sectors, spurred by continuing demands from emerging economies with their rising incomes and population growth. According to research firm MarketsandMarkets, the market for offshore support vessels is expected to grow at a CAGR of 5.7% to US$91.2b by 2018, with AHTS vessels and PSVs in the lead to the value of US$33.8b and US$21.8b respectively. However, with oil prices sliding and a deluge of new rigs expected to hit the market next year, there are concerns over the outlook for offshore and marine players. Lower oil prices could lead to downside risks for E&P which translate to a more cautious view by offshore drillers. Notwithstanding this, the demand for larger, more complex OSVs is expected to 48 ST ENGINEERING / ABOVE & BEYOND O P E R AT I N G & F I N A N C I A L R E V I E W O p e r a t i n g R e v i e w & O u t l o o k ( c o n t ’d ) Pacific Dragon, the sixth Anchor Handling Tug Supply (AHTS) vessel built for Swire Pacific Offshore (Pte) Ltd. stay firm. As observed by many industry players, larger and higher-specification OSVs will dominate the offshore vessels sector to cater to demand from an increasing number of modern jack-up rigs entering the market. We will continue to be prudent in selecting projects that we are confident of executing well and earning the best risk-adjusted returns. continue to be the backbone of the offshore industry, and ST Marine will remain focused in this segment. We will continue to capitalise on our strengths in the design, construction, conversion and repairs of these vessels. We are also seeking to target and move into the higher value end of this market with designs focused on dive support and heavy construction vessels. The expectation that the global oil and gas industry will continue to spend more than US$335b over the next few years, dominated by production services, remains. The recent sharp decline in oil prices may dampen the demand somewhat in the number of offshore platforms and production and exploration activities, but the market sentiment is that prices will recover in the later part of 2015 and this will be one of the key factors driving the growth of the OSV market. With no available substitutes, OSVs will With our previous builds and a dedicated team of designers tasked with improving on our current OSV designs, we will be well poised to take advantage of the demand when the market recovers. Another focus is on liftboats for the purpose of servicing wind farms as well as the oil and gas platforms in shallow waters. On the repair front, we will continue to serve our existing customers well while we seek new customers with our proven competencies, especially for the offshore support segment. Our newly introduced repair capabilities in VT Halter Marine, serving the larger Gulf of Mexico region, spell strong potential that we want to capitalise upon. Defence Market The global defence market remains difficult with shrinking budgets, and the budget sequestration in the US will only further add surplus capacity to an already competitive market. A preference for in-country builds is also apparent and this will further chip away at our ability to compete in this sphere. To overcome this, ST Marine will continue to emphasise on quality and services, as we are cognisant that our completed products and services will be our best advertisements. We are also willing and able to provide design and material packages to cater to a segment of the market that prefers local builds. 49 ANNUAL REPORT 2014 We will continue to build on our proven range of Maritime Security platforms as well as our larger support ships, and their entailing shore connectors that are well suited for a range of tasks, including Humanitarian Assistance and Disaster Relief operations. For the former, besides our proven range of Fearless Patrol Vessels, we have embarked on designs for larger Offshore Patrol Vessels, Corvettes and Light Frigates. This will position us well to serve our customers as their operational needs increase, necessitating larger and more sophisticated vessels. Environmental Engineering Our primary markets are in Asia, where increased population numbers and affluence has led to an increase in per capita waste generation and a greater need for efficient land utilisation. Municipal governments are also becoming increasingly stringent about environmental pollution, leading to the tightening of discharge and emissions standards. Modification and repair of trailing suction hopper dredger, the Queen of the Netherlands. The “more waste, less space” and co-mingled waste problems are significant macro challenges. At the same time, they spell attractive opportunities for STSE to integrate innovative technologies in offering an unparalleled waste and wastewater management solution specific to our target market that balances effective land space utilisation, cost effectiveness, and excellent discharge quality. STSE will also continue to focus on wastewater treatment facilities for both municipal and industrial wastewater, Mechanical Biological Treatment, and Waste-to-Energy plants utilising technologies compatible with wet and co-mingled waste. JACK CHUA Assistant Principal Engineer / ST MARINE “ The diverse business nature of ST Marine allows my team and I to have opportunities to work onboard different types of vessels. This is both interesting and challenging as we have to access the bowels of these vessels to lay the miles of cables and to install huge and complex electrical systems. We have recently delivered the last of the six D-class AHTS with system safety as a hallmark that we are all truly proud of. ” 50 ST ENGINEERING / ABOVE & BEYOND O P E R AT I N G & F I N A N C I A L R E V I E W Financial Review FUNDAMENTALS REMAIN STRONG THE GROUP REGISTERED COMPARABLE REVENUE OF $6.54B WITH A LOWER PROFIT BEFORE TAX (PBT) AND NET PROFIT OF $650.7M AND $532M RESPECTIVELY FOR FY2014 COMPARED TO FY2013. TOTAL ASSETS DEPLOYMENT ($M) 10,000 8,000 Trade Receivables, Deposits & Prepayment 1,290 1,311 6,000 Bank Balances and Other Liquid Funds & Funds under Management 1,520 1,578 4,000 1,916 Intangibles & Other Assets 1,712 2,229 Property, Plant & Equipment 2014 2013 1,860 2,000 During the year, the Group incurred capital expenditure of $240m (2013: $326m). About 81% or $194m of the total capital expenditure was investments in new capacity and capability. Additional capital expenditure included purchases of rotable components to support the growth in MBH TM programmes, investments in a transfer bay, repair of a dry dock and improvements to facilities to support the new shiprepair activities, as well as relocation of a China facility for the specialty vehicles business. 0 CAPITAL EMPLOYED ($M) 2014 2013 1,374 1,545 Borrowings * 2,384 2,228 Equity As at 31 December 2014, the Group’s total assets of $8,319m was $388m or 4% lower than that of 31 December 2013. The lower total assets were mainly due to lower cash, but this was partially offset by increases in property, plant and equipment and trade receivables. CAPITAL EXPENDITURE Inventories & Work-inProgress 1,808 1,802 FINANCIAL POSITION 280 299 Others* Others include adjustments for foreign currency translation, present value of leases, etc. Capital employed as at end 2014 was $4,038m compared to $4,072m at end 2013. The marginal decrease over 2013 was mainly attributable to lower borrowings, partially offset by higher shareholders’ funds including non-controlling interests. 51 ANNUAL REPORT 2014 TOTAL ASSETS BY GEOGRAPHY 69 % 3% 2% 2014 Asia excluding China China USA % % 17 8% 3% 2% 8% 18 70 % Europe 2013 Others CAPITAL EXPENDITURE BY SECTOR % 27 2 35 % % 19 % % 17 2% % 16 4% 18 35 % 7% 2014 Aerospace Electronics Land Systems 2013 Marine Others CAPITAL EXPENDITURE BY GEOGRAPHY Asia Europe USA 1% 3% 1% 0% % 2014 % % 22 74 % 78 21 2013 Others 52 ST ENGINEERING / ABOVE & BEYOND O P E R AT I N G & F I N A N C I A L R E V I E W F i n a n c i a l R e v i e w ( c o n t ’d ) TREASURY MANAGEMENT Liquidity ST Engineering has in place a set of policies and procedures to manage our treasury activities, which are regularly reviewed and updated. During the year, more focus was placed on the management of foreign exchange exposure in view of the increased market volatility arising from improvements in the US economy and ending of Quantitative Easing in the US, uncertainty in the Eurozone, and sharp decline in oil prices. The Group also continued to look at better deployment of liquid funds, and had repaid some loans on maturity, contributing to a reduction in borrowing expenses of $6.4m. The Group has $1.7b at the end of 2014 (2013: $2.2b), comprising $1.5b (2013: $1.9b) cash and cash equivalents and $0.2b (2013: $0.3b) funds under management. Working capital funds in Singapore, denominated in various currencies, are managed through a daily cash sweep arrangement whereby funds are placed out as fixed deposits with reputable banks in varying maturities and interest rate terms, with due considerations to operating cash flow requirements and yield optimisation. Interest income from fixed deposits yielded an average of 0.87% BORROWING PROFILE BY MATURITY ($M) 2014 2013 75 238 690 434 < 1 Year 16 231 2 to 3 Years 708 4 to 5 Years 63% 37% 55% 45% Fixed Floating BORROWING PROFILE BY CURRENCY 2014 2013 USD 70% 24% 6% 70% 22% 8% SGD RMB Foreign Exchange The Group is exposed to foreign exchange risk, which arises from its subsidiaries operating in foreign countries, generating revenue and incurring costs denominated in foreign currencies, as well as from operations of its local subsidiaries which are transacted in foreign currencies. The Group’s foreign exchange exposures, primarily from USD and Euro, are managed through netting across its business units first, then with external counter-parties. During the year, $1.7b (2013: $1.3b) equivalent of foreign currencies were transacted with external counter-parties. As at year end, $1.0b (2013: $1.7b) remained as outstanding foreign exchange transactions. Borrowings > 5 Years BORROWING BY FIXED AND FLOATING RATE 2014 2013 for 2014 (2013: 0.70%). Funds under management, primarily invested in fixed income instruments, earned yields ranging from 1.50% to 4.95% per annum. The Group seeks to minimise its interest rate risk exposure through tapping different sources of funds to refinance the debt instruments and/or enter into interest rate swaps, where appropriate. As at 31 December 2014, the Group has borrowings amounting to $1.0b (2013: $1.4b) comprising $0.6b (2013: $0.6b) from bonds, $0.3b (2013: $0.7b) short and long term loans from banks, and the remaining from lease obligations and other loans. During the year, the Group utilised excess cash to repay bank loans amounting to $392m. This reduced the proportion of the Group’s borrowings which were payable within one year to 7.3% (2013: 31.6%). 63% of the Group’s total borrowings were on fixed 53 ANNUAL REPORT 2014 BANKING FACILITIES ($B) interest rate at the end of 2014, as compared with 55% at the end of 2013. The increase in proportion of fixed rate liabilities was due mainly to a higher proportion of floating rate loans being repaid in 2014. As at the end of February 2015, the proportion of fixed rate liabilities increased further to 70%. 16 14 12 Borrowings are predominately in SGD, USD and RMB to support the Group’s operations in Singapore, USA and China. 10 8 Banking Facilities To support the Group’s diversified business operations globally, banking facilities have been secured in regions where the Group has its footprints. At the end of 2014, the Group has $14.7b (2013: $14.3b) of banking facilities comprising trade financing facilities for performance bonds, bankers guarantees and letters of credit; foreign exchange facilities; crosscurrency swap and interest rate swap facilities; and short term loan facilities; of which $3.7b or 29% (2013: $6.3b or 44%) has been utilised. $9.0b or 71% (2013: $8.0b or 56%) remained available for use. 6 4 2 0 Available 2014 Trade Finance Utilised 2014 Available 2013 Foreign Exchange Utilised 2013 Interest Rates Swaps & Cross Currency Swaps BANKING FACILITIES 52 % 56 % 20 % 9% 15 % % % 20 8% 20 BY NATIONALITY OF BANKS 2014 2013 Asia USA Europe Others Loans 54 ST ENGINEERING / ABOVE & BEYOND O P E R AT I N G & F I N A N C I A L R E V I E W F i n a n c i a l R e v i e w ( c o n t ’d ) INTEREST COVER RATIO The Group’s interest cover reduced marginally to 16.7 times from 16.8 times in 2013. The lower interest cover was attributable to lower profits, partially cushioned by $6.4m reduction in interest expense. The Group generated an operating cash flow of $624m in FY2014, and continued to be in a net cash position as at the end of 2014. Gross debt/ equity ratio improved to 0.4 times with repayment of bank loans. CASH FLOWS Operating Activities Net cash from operating activities of $624m in FY2014 was lower than FY2013 by 2014 2013 2012 Gross Debt/ Equity Ratio 0.4 0.6 0.6 Operating Cash Flow ($M) 624 930 1,041 Free Cash Flow ($M) 467 672 868 Net Cash ($M) 686 856 791 $305m. This was mainly due to lower profits, higher income tax paid as well as unfavourable working capital movements arising mainly from the unfavourable variances in trade receivables, advance payments to suppliers, INTEREST COVER RATIO 16.7x trade payables, advance payments from customers, other payables, accruals and provisions and deferred income, but these were partially offset by positive variance in progress billings in excess of work-in-progress. CASH FLOWS ($M) 16.8x 14.8x $731.9M $49.5M $742.8M $44.2M Investing Activities $37.9M $631.4M Financing Activities 2014 2013 2012 (925) (470) (157) (257) 624 Operating Activities 929 (1,000) 0 2014 PBT before Associates / Joint Ventures and Interest Expense Interest Expense Interest Cover 1,200 2013 55 ANNUAL REPORT 2014 Investing Activities The Group’s net cash used in investing activities of $157m in FY2014 was lower than that of FY2013 by $100m. The lower cash outflow was mainly attributable to proceeds from sale of an investment property in prior year, higher proceeds from sale and maturity of investments, lower cash outflow for acquisition of property, plant and equipment and other intangible assets as well as deconsolidation of a subsidiary. Financing Activities The Group’s net cash used in financing activities of $925m in FY2014 was higher than that of FY2013 by $455m, mainly attributable to repayment of bank loans, net of $392m on maturity and lower proceeds from issue of shares. The Group generated $467m of free cashflow in FY2014. TAX In line with the Government’s call in the 2014 Budget supporting innovation and skills to pervade the economy, the Group continues to build on our strengths to bring engineering and technology together to create solutions that give our customers an edge in what they do. In doing so, the Group has benefited from the Government’s Productivity and Innovation Credit (PIC) scheme and enjoyed 400% tax deductions/allowances for the investments in innovation and productivity improvements and in PIC qualifying activities. The Group has also embarked on the GST Assisted Compliance Assurance Programme (ACAP), a compliance initiative for businesses that set up robust GST Control Framework as part of good corporate governance. TOTAL SHAREHOLDER RETURN It is a holistic risk-based review initiative conducted on a voluntary basis to endorse the effectiveness of our GST controls. This exercise evaluates the functional structure and impact of GST on the business transactions that ensure the completeness and accuracy of GST reporting. This allows our business to benefit from improved productivity. The Group’s effective tax rate for 2014 is 17% (2013: 19%). SIGNIFICANT ACCOUNTING POLICIES The Group’s significant accounting policies are presented in Notes to the Financial Statements, Note 3 (pages 149 to 172). The Group has applied the same accounting policies and methods of computation in the preparation of the financial statements for the current reporting period compared with the audited financial statements as at 31 December 2013 except for the adoption of all the new and revised Singapore Financial Reporting Standards, that are mandatory for financial years beginning on or after 1 January 2014 as indicated on page 168. With strong cash flow generated from operating activities, the Group ended the year with $1.7b of cash and cash equivalents including funds under management. Management will continue to recommend return of excess cash generated from its operations to the shareholders. ST Engineering paid an interim ordinary dividend of 4 cents per share to shareholders in September 2014 and would recommend to shareholders at the forthcoming Annual General Meeting a final dividend of 11 cents per share. The total Dividend Per Share (DPS) for FY2014 will amount to 15 cents. Based on the average share price of $3.68, the DPS of 15 cents translates to a dividend yield of 4.08%. ST Engineering share price ended the year at $3.40, a 14.1% decrease in the share price compared to a year ago. Over the same period, the STI Index advanced by 6%. With dividend yield at 4.08%, ST Engineering shares generated a total negative shareholder return of 10% for its shareholders. The share price has since risen to $3.51 as at end February 2015, a 3% improvement over end December 2014 closing price of $3.40. TOTAL SHAREHOLDER RETURN 47.2% 5.2% 4.1% 7.6% 3.9% 42.0% 3.7% (14.1%) 4.4% 5.2% (21.3%) (10.0%) 2014 9.6% 5.1% (16.2%) 2013 Capital Gain 2012 2011 Dividend Yield 2010 56 ST ENGINEERING / ABOVE & BEYOND O P E R AT I N G & F I N A N C I A L R E V I E W F i n a n c i a l R e v i e w ( c o n t ’d ) ECONOMIC VALUE ADDED (EVA) The Group generated yet another year of positive EVA. Group’s FY2014 EVA attributable to ordinary shareholders of $344.5m was 17% or $69.3m lower than that achieved in FY2013. The decreased EVA was mainly attributable to lower Net Operating Profit After Tax (NOPAT) and a higher capital charge arising from an increase in the Weighted Average Cost of Capital to 5.6% in 2014 from 5.2% in 2013. EVA STATEMENT Net profit before tax Adjust for: Share of results of associates and joint ventures, net of tax Interest expense Others Adjusted profit before interest and tax Cash operating taxes (Note 1) NOPAT - (a) Average capital employed (Note 2) Weighted average cost of capital (Note 3) (%) Capital charge - (b) 2014 $M 2013 $M 593.5 698.6 57.2 46.3 (18.5) 678.5 (113.0) 565.5 31.1 52.5 (5.4) 776.8 (149.7) 627.1 4,038.1 5.6 (226.1) 4,072.0 5.2 (211.8) EVA - [(a) - (b)] Non-controlling share of EVA EVA attributable to ordinary shareholders 339.4 5.1 344.5 415.3 (1.5) 413.8 Unusual items (UI) losses/(gains) (Note 4) EVA attributable to ordinary shareholders (exclude UI) 14.6 359.1 (0.1) 413.7 Note 1: Note 2: The reported current tax is adjusted for the statutory tax impact of interest expense. Monthly average equity plus interest bearing liabilities, timing provision and present value of operating leases. Major Capital Components: Borrowings Equity Others $M 1,373.6 2,384.6 279.9 4,038.1 Note 3: The Weighted Average Cost of Capital is calculated in accordance to ST Engineering Group EVA Policy as follows: i) Cost of Equity using Capital Asset Pricing Model with market risk premium at 5.0% (2013 @ 5.0%); ii) Risk-free rate of 2.48% (2013 @ 1.55%) based on yield-to-maturity of Singapore Government 10 years Bonds; iii) Ungeared beta at 0.74 (2013 @ 0.74) based on ST Engineering risk categorisation; and iv) Cost of Debt at 3.07% (2013 @ 3.42%) using actual cost of debt of the borrowings in US, Europe, China and Singapore. Note 4: UI refer to divestment of investment properties, subsidiaries and associates, long term investments and disposal of major property, plant and equipment. 57 ANNUAL REPORT 2014 VALUE ADDED The Group’s total value added for FY2014 of $2,651m was comparable to that of FY2013. VALUE ADDED STATEMENT Value added from: Revenue earned Bought in materials and services Other income Finance income Finance costs (exclude interest expenses) Share of results of associates and joint ventures, net of tax Total value added Distribution of total value added To employees in wages, salaries and benefits To government in taxes and levies To providers of capital on: • Interest paid on borrowings • Dividends to shareholders Balance retained in business Depreciation and amortisation Retained profits Non-controlling interests Non-production costs Total distribution 2014 $M 2013 $M 6,539.4 (4,022.0) 2,517.4 6,633.2 (4,002.2) 2,631.0 40.2 43.5 (7.3) 57.2 34.2 68.9 (33.5) 31.1 2,651.0 2,731.7 1,739.2 136.5 1,783.6 157.3 37.9 498.8 2,412.4 44.2 521.3 2,506.4 170.5 48.2 5.0 223.7 142.0 62.8 10.7 215.5 14.9 9.8 2,651.0 2,731.7 58 ST ENGINEERING / ABOVE & BEYOND O P E R AT I N G & F I N A N C I A L R E V I E W F i n a n c i a l R e v i e w ( c o n t ’d ) 5-YEAR KEY FINANCIAL DATA 2014 2013 2012 2011 2010 Income statement ($M) Revenue Profit EBITDA EBIT PBT Net Profit 6,539 6,633 6,380 5,991 5,985 725.5 555.0 650.7 532.0 815.2 673.2 729.7 580.8 795.0 658.0 715.4 576.2 742.7 607.7 655.2 527.5 718.7 586.7 627.5 491.0 Balance Sheet ($M) Property, plant and equipment, and investment property Intangible and other assets Inventories and work-in-progress Trade receivables, deposits and prepayment Bank balances and other liquid funds and funds under management Current liabilities Non-current liabilities 1,578 1,311 1,802 1,916 1,712 3,716 2,339 1,520 1,290 1,808 1,860 2,229 4,094 2,353 1,213 1,049 1,922 1,777 2,070 3,890 2,128 1,358 1,027 1,594 1,659 1,769 3,479 2,052 1,303 1,059 1,471 1,645 1,790 3,551 1,990 Share capital Treasury shares Capital and other reserves Retained earnings Non-controlling interests 889 (6) 24 1,225 132 853 71 1,192 144 782 (20) 1,133 118 723 10 1,033 110 678 (7) 951 105 Financial Indicators Earnings per share (cents) Net assets value per share (cents) Return on sales (%) Return on equitys (%) Return on total assets (%) Return on capital employed (%) 17.06 68.34 8.2 24.9 6.5 14.0 18.73 68.14 8.9 27.4 6.8 15.4 18.76 61.51 9.2 30.4 7.3 17.4 17.28 57.79 9.0 29.9 7.3 19.8 16.21 53.38 8.4 30.3 6.9 16.2 Dividend Gross dividend per share (cents) Dividend yield (%) Dividend cover 15.00 4.08 1.14 15.00 3.86 1.25 16.80 5.16 1.11 15.50 5.07 1.11 14.55 4.36 1.11 Productivity Data Average staff strength (numbers) Revenue per employee ($) Net profit per employee ($) Employment costs ($m) Employment costs per $ of revenue ($) Economic Value Added ($m) Economic Value Added spread (%) Economic Value Added per employee($) Value added ($m) Value added per employee ($) Value added per $ of employment costs ($) Value added per $ of gross property, plant and equipment ($) Value added per $ of revenue ($) 22,671 22,837 22,560 22,193 21,508 288,449 290,456 282,795 269,944 278,244 23,464 25,434 25,540 23,771 22,829 1,745.8 1,789.7 1,760.2 1,633.2 1,568.1 0.27 0.27 0.28 0.27 0.26 344.5 8.4 15,197 413.8 10.2 18,118 437.9 12.1 19,411 405.0 12.0 18,250 369.7 10.5 17,187 2,651.0 2,731.7 2,710.5 2,494.5 2,395.6 116,935 119,616 120,149 112,398 111.382 1.52 1.53 1.54 1.53 1.53 0.83 0.91 1.06 0.90 0.91 0.41 0.41 0.42 0.42 0.40 59 ANNUAL REPORT 2014 REVENUE ($M) PROFIT BEFORE TAX ($M) BY SECTOR BY SECTOR 6,539 6,633 6,380 729.7 5,991 5,985 2014 2013 2012 2011 2010 Aerospace Electronics Land Systems Marine 715.4 650.7 655.2 627.5 2014 2013 2012 2011 2010 Others Aerospace Electronics NET PROFIT ($M) Land Systems Marine Others 10-YEAR ORDER BOOK ($B) BY SECTOR 580.8 532.0 Global Financial Crisis 14 576.2 527.5 491.0 12 $12.5b $10.6b 10 8 6 4 2 0 2014 2013 2012 2011 2010 Aerospace Electronics Land Systems Marine Others 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 60 ST ENGINEERING / ABOVE & BEYOND I N V E S TO R R E L AT I O N S ST Engineering is committed to corporate transparency as well as fair and timely disclosure. Our investor relations programme continues to enable the investment community to have greater awareness of the Group’s investment proposition, allowing all stakeholders to take an informed view and decision on their investments in us. We aim to exceed minimum standards in our communications – going beyond obligatory financial disclosure to voluntary activities to help the investment community gain a deeper understanding of our business, governance, financial performance and prospects. Quarterly financial results are presented at a briefing session for analysts and the media led by the President & CEO and the Chief Financial Officer, together with the Presidents of the four business sectors. These briefings are open to the public via real-time webcasts with the facility to post questions to the management team. In terms of communicating our investment case, our corporate website carries a depository of SGX and marketing announcements, presentation materials and financial statements, and recordings of our results webcasts. Financial data and highlights along with investment-related content are presented in the IR section of the corporate website, in a format that is easily digestible. Those keen to follow the Group’s developments on an ongoing basis may subscribe to our news alert service. of the Group and our business dynamics. These engagements also provide for dialogue that enable us to better understand their perceptions of our businesses. To achieve this, we organise various programmes and opportunities for dialogues with them throughout the year. In 2014, the investor relations team held about 200 meetings comprising one-on-one discussions, post-results meetings and conference calls, and facility visits. In addition, the team also participated in a series of IR conferences and non-deal roadshows in Singapore and overseas. We meet and engage our investors and analysts regularly to facilitate their understanding 2014 INVESTOR RELATIONS EVENTS 1st Quarter FY2013 results briefing for media and analysts with live webcast Post-results investor lunch US & Canada Non-Deal Roadshow Annual General Meeting 2nd Quarter 1Q2014 results briefing for media and analysts with live audio webcast DB Access Asia Conference - Singapore Investor visit to ST Aerospace with DB Access Asia Citi ASEAN Conference - Singapore 2Q2014 results briefing for media and analysts with live webcast 3rd Quarter Post-results investor lunch DB Singapore Corporate Access Day - Singapore Analysts’ visit to ST Marine DBS Corporate Access Day - Kuala Lumpur 4th Quarter 3Q2014 results briefing for media and analysts with live audio webcast Morgan Stanley Asia-Pacific Summit - Singapore 61 ANNUAL REPORT 2014 SHAREHOLDING Temasek Holdings remained our single largest shareholder, holding about 50% of shares as at end 2014. 13 4% 1% % 66 16 Excluding Temasek Holdings, other institutional investors held about 30% of the Group’s shares, with retail investors holding the rest. % % 2014 Asia (ex Singapore) Europe Others (including unidentified holdings and holdings below analysis threshold) Singapore North America Shareholders from Singapore held 66% of the shares, followed by those from North America at 13% and Europe at 4%. (Based on Top 30 Share Register Analysis as at 31 December 2014). SHARE PRICE & TRADING VOLUME 3.90 $ Share Price millions 17.5 Trading Volume 3.80 15 3.70 12.5 3.60 10 3.50 7.5 3.40 5 3.30 2.5 2014 DEC NOV OCT SEP AUG JUL JUN MAY APR MAR FEB 0 JAN 3.20 ST Engineering’s market capitalisation was $10.6b as at 31 December 2014. The average share price for the year was $3.68, with a daily trading volume of 2.46m shares. (Source: Bloomberg) DIVIDEND cents 2014 8.00 7.00 2013 7.00 8.00 2012 7.00 9.80 2011 7.00 8.50 2010 7.00 7.55 Ordinary 15.00 15.00 16.80 15.50 14.55 Special For 2014, the Board has proposed a final dividend of 11 cents per share, consisting of ordinary dividend of 4 cents per share and special dividend of 7 cents per share. Together with the interim dividend of 4 cents per share paid to shareholders in September 2014, the total dividend for the full year will amount to 15 cents per share. This translates to a dividend yield of 4.08%. 62 ST ENGINEERING / ABOVE & BEYOND AWARDS President & CEO, Tan Pheng Hock receiving the Outstanding CEO of the Year at the Singapore Business Awards 2014. BUSINESS EXCELLENCE Outstanding CEO of the Year at the Singapore Business Awards 2014 – ST Engineering’s President & CEO, Mr Tan Pheng Hock Best CFO for Singapore in Asia’s Best Companies Poll by FinanceAsia magazine – ST Engineering’s CFO, Eleana Tan Ranked 87 out of 100 companies on list of “The World’s Most Innovative Companies” by Forbes – ST Engineering Internal Audit Excellence Award at the SIAS 15th Investors’ Choice Awards 2014 – ST Engineering QUALITY & PRODUCT EXCELLENCE ATE&M Asia Best Airframe Service Provider of the Year by Aircraft Technology Engineering & Maintenance (ATE&M) – ST Aerospace 2014 Frost & Sullivan Asia Pacific Military Fixed Wing Customer Value Leadership Award by Frost & Sullivan – ST Aerospace Singapore Aerospace Industry Excellence Award (Gold) by Association of Aerospace Industries (Singapore) – ST Aerospace Singapore Aerospace Human Capital Leadership Award (Gold) by Association of Aerospace Industries (Singapore) – ST Aerospace Singapore Aerospace Innovation & Productivity Leadership Award (Gold) by Association of Aerospace Industries (Singapore) – ST Aerospace Singapore Aerospace Safety Leadership Award (Gold) by Association of Aerospace Industries (Singapore) – ST Aerospace Systems Singapore Aerospace Safety Leadership Award - Silver by Association of Aerospace Industries (Singapore) – ST Aerospace Supplies Defence Technology Prize 2014 (Team Engineering) by Ministry of Defence – the Missile Corvette Upgrade Team comprising DSTA, ST Engineering and the Republic of Singapore Navy. 63 ANNUAL REPORT 2014 Land Transport Excellence Awards 2014 - Best ICT Solution Delivery Partner (Merit) – ST Electronics (Info-Comm Systems) Land Transport Excellence Awards 2014 - Best Managed E&M Systems - Project Partner Award – ST Electronics Singapore Good Design SG Mark Gold Award 2014 by Design Business Chamber Singapore – ST Electronics, for innovative and exceptional design of its Passenger Emergency Communication Unit Singapore Good Design SG Mark Award 2014 by Design Business Chamber Singapore – ST Electronics and subsidiary ST Electronics (Info Security) for exceptional and innovative design of their Automatic Fare Collection Gate and DiskCrypt Mobile Onyx respectively. 2013 Technology Company of the Year & Social Media Company of the Year Excellence Award by Via Satellite – VT iDirect VSAT Technology Innovation of the Year award by VSAT industry’s leading analysts in conjunction with the VSAT 2013 Global Conference – VT iDirect WSQ Certified Productivity & Innovation Manager (Gold) by Singapore Manufacturers’ Federation and the Singapore Workforce Development Agency – ST Marine Top 50 Products of China Construction Machinery Award by Chinese trade magazine, Construction Equipment & Maintenance – for Jiangsu Huatong Kinetics’ WTS95 Stabilised Soil Paver Zhenjiang City Annual Science and Technology Progress Award (3rd Prize) – LSB2000 Asphalt Mixing Plant Zhenjiang City Enterprises Patent Breakthrough Award by Zhenjiang City Government – Jiangsu Huatong Kinetics SAFETY & HEALTH Singapore HEALTH Award by Health Promotion Board – ST Aerospace Engines WSH Innovations Awards 2014 (Gold) by Singapore Manufacturers’ Federation (SMa) – ST Aerospace Engineering – ST Kinetics – Advanced Pyrotechnic Materials Safety and Health Award Recognition for Projects (SHARP) by Ministry of Manpower and Workplace Safety & Health Council (WSH Council) for seven projects – ST Electronics BizSAFE Partner Certification by WSH Council – ST Marine CORPORATE CITIZENSHIP Ministry of Home Affairs Awards 2014 Home Team National Service Awards (Minister’s Honours Roll, 2012-2016) – ST Electronics (Satcom & Sensor Systems) MiDAs (Minister for Defence Awards) League - Honorary Member – ST Aerospace Systems Best New Responding Company (for Hong Kong and South East Asia) by the Carbon Disclosure Project (CDP) – ST Engineering, for the completeness, quality and transparency of its responses to CDP’s annual climate change reporting request. Community in Bloom Awards 2014 by National Parks Board Singapore Diamond Award (Three consecutive Platinum Awards) – ST Kinetics Platinum Award – ST Kinetics Gold Award – SDDA Silver Award – Singapore Test Services Plaque of Commendation (Star) Award by National Trades Union Congress – ST Marine INVESTOR RELATIONS Best In Sector (Industrials including materials) at IR Magazine Awards Southeast Asia 2014 – ST Engineering Bronze Award for Best Annual Report for 2013 (companies with $1 billion and above in market capitalisation) at the Singapore Corporate Awards 2014 – ST Engineering 64 ST ENGINEERING / ABOVE & BEYOND C O R P O R AT E I N F O R M AT I O N BOARD OF DIRECTORS COMPANY SECRETARIES PRINCIPAL BANKERS Mr KWA Chong Seng (Chairman) Mrs CHUA Su Li Mr TAN Pheng Hock (President & CEO) Ms NG Kwee Lian (Karen) Bank of America, N.A. 50 Collyer Quay #14-01 OUE Bayfront Singapore 049321 Mr KOH Beng Seng Lieutenant-General NG Chee Meng Major-General (NS) NG Chee Khern Mr QUEK Tong Boon Mr QUEK Poh Huat Mr Venkatachalam KRISHNAKUMAR REGISTERED OFFICE ST Engineering Hub 1 Ang Mo Kio Electronics Park Road #07-01 Singapore 567710 Tel: (65) 67221818 Fax: (65) 67202293 www.stengg.com Mr Davinder SINGH s/o Amar Singh SHARE REGISTRAR Dr Stanley LAI Tze Chang M & C Services Private Limited 112 Robinson Road #05-01 Singapore 068902 Mr KHOO Boon Hui Mr QUEK See Tiat Ms Olivia LUM Ooi Lin Dr BEH Swan Gin Colonel Alan GOH Kim Hua (Alternate Director to LieutenantGeneral NG Chee Meng) AUDITORS KPMG LLP 16 Raffles Quay #22-00 Hong Leong Building Singapore 048581 Ms ANG Fung Fung (Partner-in-charge) (Date of Appointment: 24/04/2013) Citibank N.A. 8 Marina View #21-01 Asia Square Tower 1 Singapore 018960 DBS Bank Ltd 12 Marina Boulevard Level 45, MBFC Tower 3 Singapore 018982 Oversea-Chinese Banking Corporation Limited 65 Chulia Street #10-00 OCBC Centre Singapore 049513 65 ST ENGINEERING ANNUAL REPORT / ABOVE2014 & BEYOND MANAGING FOR SUSTAINABILITY T his is our inaugural sustainability report, addressing our material sustainability issues. This report covers data and activities of our Singapore operations, unless otherwise stated. We aim to expand our scope of reporting across our operations progressively. The report covers the period 1 January to 31 December 2014. Our sustainability reports will be prepared on an annual basis. This report is prepared in accordance with Global Reporting Initiative (GRI) Core Guidelines. Data measurements are based on GRI G4 Guidelines. The GRI Content Index can be found in the Sustainability section of our website at www.stengg.com. We aim to seek external assurance in the future. Our greenhouse gas emission data are subject to internal and external reviews as part of ISO 14064 verification. Specific greenhouse gas emission factors used are detailed in the GRI Content Index. CONTENTS 66 70 94 104 Stakeholder Engagement Propelling Sustainable Growth Executing Operations Responsibly Supporting Communities 70 / Sustainability Governance 77 / Enterprise Risk Management & Materiality 84 / Sustainable Targets & Performance 86 / Enablers: Innovation & Productivity 90 / People Excellence 95 / Health & Safety 98 / Environment 102 / Sustainable Procurement 104 / Community 66 ST ENGINEERING / ABOVE & BEYOND S TA K E H O L D E R E N G A G E M E N T ENGAGING OUR STAKEHOLDERS ENABLES US TO UNDERSTAND AND ADDRESS CONCERNS, STRENGTHENING CRUCIAL RELATIONSHIPS FOR WHICH OUR BUSINESS IS DEPENDENT ON. KEY STAKEHOLDERS AND ISSUES RAISED BY STAKEHOLDERS CUSTOMERS Value, Safety, Security of Information and Personnel, Quality, Responsiveness EMPLOYEES & OTHER SUPERVISED WORKERS Compensation, Job Security, Worker Health and Safety, Respect, Work-life Balance, Training and Development, Career Progression ST Engineering aims to create sustainable value for our stakeholders including shareholders, customers, employees and the community at large. Key stakeholders are identified as part of the Enterprise Risk Management process, based on the magnitude of the impact of parties who can affect or be affected by the Group’s business activities. Information feeds up to the Risk Management team and Senior Management. CUSTOMERS Customer focus is one of ST Engineering’s key strategic thrusts. In fostering a customer-centric culture, we inculcate a ‘customer first’ mindset through building on a 1 REGULATORS Compliance, Constructive Consultations SHAREHOLDERS & INVESTORS Profitability, Return on Investment, Dividend Income, Succession Planning, Growth robust customer engagement process. Employees are equipped with the skills and knowledge to maintain exemplary service levels. Courses include, ‘Go the Extra Mile for Service (GEMS)’ training, Emotional Quotient (EQ) workshops, as well as Edward de Bono’s lateral thinking courses to help staff be creative in improving service. Learning and listening channels help to develop insights into our existing and potential customers’ needs. These channels include participation in local and international forums, exhibitions, trade shows, conferences and other touch points. Dedicated account managers are assigned to key customers SUPPLIERS Equitable Business Opportunities to ensure their needs are addressed. These account managers are contactable 24/7. Customer relationship management activities include regular project review meetings, inviting existing and potential customers to technology seminars, company visits to share our new capabilities and innovative products and services, and dialogue sessions. We carry out annual customer surveys to seek feedback from the customers to determine their satisfaction levels and develop action plans to address their areas of concern. Customers rate the quality, delivery, responsiveness, service levels and value for money of our products and services. In 2014, the Group achieved above 95% customer satisfaction1. The total number of survey questions which scored more than or equal to 6 points, out of a perfect score of 10, is divided by the total number of questions responded by the customers to derive the satisfaction rate. 67 ANNUAL REPORT 2014 Group-wide seminars are one of the platforms where employees are kept informed and updated of business policies and goals. EMPLOYEES Employee engagement allows ST Engineering to develop our people into creative, thinking and innovative individuals and team players working to meet business objectives and goals. The strategies adopted to encourage employee involvement and commitment in teamwork and innovation comprise: leadership involvement; effective communication and facilitation; learning and development; and rewards and recognition. The Business Excellence Seminar is an annual groupwide event, targeted at middle managers and above, where senior management will articulate the direction and plans for the coming year. Similarly, the annual Team Excellence Convention is aimed to motivate employees through recognition of high performing teams that have demonstrated creativity, innovation and continuous improvement. In addition, the President of each sector periodically organises interaction sessions with the employees in the form of forums, briefings and meetthe-staff sessions to share the sector’s performance, direction and plans. We conduct an Employee Opinion Survey biennially. Senior managers also chair informal focus groups and discussions to engage and consult with employees. Employees are encouraged to provide their suggestions through the Staff Suggestion Scheme. The 24/7 one-stop Enterprise Information Portal (EIP) is the primary platform for employees to access important information. This is complemented by quarterly newsletters, which include updates on key initiatives. Grievance mechanisms are established to provide a trusted channel to voice and resolve concerns. In 2014, four cases were filed. One case is still ongoing, with the other three cases resolved amicably. The annual performance appraisal session serves as a platform for employees to discuss their current work progress and career aspirations with their supervisors. More information can be found on page 91. 68 ST ENGINEERING / ABOVE & BEYOND S TA K E H O L D E R E N G A G E M E N T ( c o n t ’d ) SUSTAINABILITY-RELATED DISCLOSURES TO SHAREHOLDERS ST Engineering approaches sustainability as part of business excellence. In our engagement with investors, both mainstream and socially responsible investing arenas, we incorporate sustainability efforts and articulate their linkages to our business performance. Examples include: • Recruitment and retention efforts to sustain a pipeline of competent engineers • Environment, health and safety track record as a competitive advantage • Productivity efforts to help mitigate wage increases 69 ANNUAL REPORT 2014 At the operational level, morning briefings and toolbox meetings address day-to-day issues that impact work, while Safety and Quality Briefings highlight important safety issues and lessons. Details on how we engage our employees on safety can be found on pages 94-97. Potential young employees are also engaged through scholarship fairs and the Young Engineers Programme (YEP). Details on our initiatives relating to our people can be found on page 90-92. SHAREHOLDERS We are committed to timely and transparent communication with analysts and all our shareholders. We uphold our responsibility to provide timely, comprehensive and balanced information on the Group’s performance, business developments and challenges. Investor concerns are addressed by enhancing disclosure on these areas in our annual reports and corporate website. Announcements are made via SGX at the earliest feasible time, with our corporate website archiving these announcements. Throughout the cycle of a year, we organise platforms to give investors and analysts access to our senior management through one-on-one meetings, conference calls, non-deal roadshows, investor conferences and facility visits. These touch-points provide a deeper understanding of our operations and business landscape, while at the same time allowing frank feedback from our investors. Over the course of 2014, our Investor Relations team held about 200 such meetings. Each quarter, our senior management team presents ST Engineering’s financial performance and outlook at combined analyst and media briefings. These briefings are open to the public via real-time webcasts, and viewers may pose questions to our management team. As part of our ongoing outreach programme to retail investors, ST Engineering is a sponsor of the Securities Investors Association of Singapore’s Investor Education Programme. In recognition of our investor relations practices, ST Engineering is in the Securities Investors Association of Singapore’s Hall of Fame for Most Transparent Company. More information, including our Investor Relations Calendar, can be found on page 60-61. REGULATORS We are committed to complying with legal and regulatory requirements. We monitor developments around regulations closely. Key regulators include: • Singapore Exchange, and Accounting and Corporate Regulatory Authority (ACRA) • Industry regulators such as the US Federal Aviation Administration • Export control regulators, due to the international trading involved in our business Where regulators seek consultation in reviewing existing and emerging policies, we are responsive in providing our constructive feedback. Through monitoring and engaging regulators, we incorporate trends and learning points in our assessment of the business environment. SUPPLIERS We recognise our dependency on the timely delivery and quality of key materials or components, and quality of performance by sub- “ As part of our ongoing outreach programme to retail investors, ST Engineering is a sponsor of the Securities Investors Association of Singapore’s Investor Education Programme. In recognition of our investor relations practices, ST Engineering is in the Securities Investors Association of Singapore’s Hall of Fame for Most Transparent Company. ” contractors. This is a key risk that we manage diligently, and mitigate where possible. Supplier milestones and performance are reviewed periodically by the respective project teams. Each sector’s procurement function is responsible for establishing and managing end-to-end integrated supplier arrangements within each of their respective sectors. We communicate our expectations through our Code of Business Conduct and Ethics, which applies to contractors, consultants and agents. ST Engineering is working towards enhancing our engagement with suppliers on sustainability aspects. In 2014, we engaged an external consultant to work with us to develop a sustainable procurement strategy, which we intend to progressively deploy from 2015 onwards. 70 ST ENGINEERING / ABOVE & BEYOND P R O P E L L I N G S U S TA I N A B L E G R O W T H Sustainability Governance ST Engineering holds the view that creating sustainable value for all of our stakeholders is essential to our long term success. Our business processes should reflect that long-term and multistakeholder considerations are meaningful and effective. This section articulates our governance approach and practices for long-term sustainability. Our report addressing the Code of Corporate Governance in Singapore can be found on pages 106-122. An engineering group like ST Engineering exists to create real world solutions. These solutions could be for urban rail networks, complex aircraft conversions or meeting security threats posed by land, sea or air or in the cyber space. These solutions could be for today, or for the future. We need to balance meeting our customers’ needs for today, while casting a keen eye on long-term developments. We are on a journey to adapt and embed good practices in sustainability. We do so progressively and systematically with evident leadership involvement, to ensure management and employees understand how different facets in sustainability are relevant to us. We define sustainability in line with the United Nations’ Brundtland Commission: the goal of sustainability is to “meet the needs of the present without compromising the ability of future generations to meet their own needs.” Our strategy is underpinned by our values: Integrity, Value Creation, Courage, Commitment and Compassion. Our values shape our motivations as we approach increasingly complex needs in our business environment. Stakeholder expectations of business, government and society are diverse and changing, even as the world gets more interconnected through modern communication technologies. A successful business needs to consider these varying expectations to execute its strategy smoothly. We develop long-term strategy across our businesses, capturing both existing and emerging trends. We support our strategy development and execution with robust systems, including our corporate governance and enterprise risk management system. Specific areas such as innovation and environment are addressed and driven across businesses through the structure of Business Excellence component committees. The overall responsibility for sustainability lies with the President & CEO. Incentives are designed to attract and retain talent, and to encourage executives to adopt strategies that are aligned to the long-term interests of the Group. Variable components of compensation and performance appraisals are tied to various key business indicators, which include non-financial indicators such as safety. We take a serious attitude towards full compliance with regulatory and legal requirements. Meeting legal and regulatory requirements is a basic expectation across all our operations. In 2014, there were no significant fines or sanctions for non-compliance with laws and regulations. Beyond full compliance to legal and regulatory requirements, we align our management systems to international standards. Accordingly, our processes adopt a precautionary approach. All of our operating companies in Singapore are OHSAS 18001 and ISO 14001 certified. In 2014, our Singapore operations have also implemented an energy management system towards achieving ISO 50001 certification. Continuous improvement is an integral element across management approaches of issues. This includes regular evaluation against peers and industry best practices. 71 ANNUAL REPORT 2014 PROPELLING SUSTAINABLE GROWTH EXECUTING OPERATIONS RESPONSIBLY Sustainability Governance Health & Safety Innovation & Productivity Environment People Excellence Responsible Procurement SUPPORTING COMMUNITIES Community OUR VALUES Integrity We believe the foundation of our business success rests on unyielding honesty, trustworthiness and responsibility for our actions, striving to do the right thing and to fulfill our promises to one another, our customers, partners and stakeholders. Value Creation We are determined to add value in all that we do - in the best way possible and to the best of our ability. We work together to grow our people, markets and businesses around the world, to consistently create solutions that win in the marketplace and meet, or even exceed, our customers’ expectations. Courage We empower ourselves as an organisation, as teams and as individuals through small and large acts of courage in our everyday work and at more challenging moments of uncertainty, without fear of failure or the desire to stick with the status quo. Courage enables us to face the plain realities of our situation (favourable and unfavourable), to address concerns over change, to promote out-of-box thinking and to explore and commit to bold new possibilities for our business. Commitment We are determined and energised to achieve our shared vision, mission and strategic objectives together. This dedication to a common purpose stands behind our commitments to customers, partners, other stakeholders and one another, driving us to excellence in our results and in how we achieve them. Compassion Along with our passion to succeed and prosper as individuals, as teams and as a business, we also reach out to express our genuine care and responsibility for one another, our communities and the broader world community. We rally around those in difficulty to understand their troubles and actively help them with our time, energy and money. 72 ST ENGINEERING / ABOVE & BEYOND P R O P E L L I N G S U S TA I N A B L E G R O W T H S u s t a i n a b i l i t y G o v e r n a n c e ( c o n t ’d ) Chairmen of the BEC Council Component committees addressing questions at the BE Seminar. “ A ma jor objective of the BE Council is to ensure that the principles of high performing organisations and sustainability are incorporated within business decisionmaking to achieve positive and sustainable outcomes for all stakeholders including customers, businesses, employees, unions, the environment and the community at large. ” BUSINESS EXCELLENCE (BE) FRAMEWORK ST Engineering embraces the Business Excellence (BE) Framework as a roadmap for its business excellence journey and for achieving its sustainability goals. The BE Council was established in early 2007 to provide direction and oversight to assess where we are on the journey, review performance, identify opportunities for improvement and take action for our sustainability performance. The BE Council also regularly reviews the Framework to ensure its relevance. The last review was conducted in 2014. The BE Council is chaired by the Group’s President & CEO. Supported by its six component committees, and various corporate departments, the Council provides guidance, decides on new projects, and approves budgets. A major objective of the BE Council is to ensure that the principles of high performing organisations and sustainability are incorporated within business decision making to achieve positive and sustainable outcomes for all stakeholders including customers, businesses, employees, unions and the community at large. The BE Council meets at least twice a year, while its component committees meet at least four times a year. The committees are chaired by members of the senior management team, and involve the relevant management and operating staff from all business areas. The committees publish the work and results of their initiatives and performance, and share them at the annual Business Excellence Seminar. The theme in 2014 was ‘Sustainable Development’ with the opening keynote presentation by an invited sustainability expert Professor Kenneth Richards. The BE Council’s leadership shared what each committee had achieved and what the plans were for the coming year. Employees who have made outstanding contributions in the areas of innovation, productivity and EHS were also recognised during this event. 73 ANNUAL REPORT 2014 THE BUSINESS EXCELLENCE COUNCIL CHAIRMAN President & CEO ST Engineering BUSINESS EXCELLENCE Secretariat BUSINESS FORESIGHT COMMITTEE 1 Identify and analyse emerging risks and opportunities (including sustainability issues) that are material to the Group CUSTOMER EXCELLENCE COMMITTEE 1 Foster a customer centric culture that inculcates a ‘customer first’ mindset 2 Review and update the Group’s vision and mission statements 2 Establish and implement customer excellence practices TECHNOLOGY, IPR & INNOVATION COMMITTEE PEOPLE EXCELLENCE & LEARNING ORGANISATION COMMITTEE 1 Identify key technological trends, analyse their impact on sustainable growth, and recommend new areas for business growth 2 Promote and manage innovative and creative efforts within the Group 3 Promote, manage and exploit IP portfolio ENVIRONMENT, HEALTH & SAFETY COMMITTEE 1 Promote and share best practices in: a) managing and enhancing workplace safety and employees’ health and well-being; b) managing and reducing the environmental impact of our activities, thereby minimising our carbon and water footprints; and c) assuring system safety of our products and services 2 Establish common frameworks to fully comply with all applicable environmental, health and safety regulatory requirements and meet customers’ requirements and applicable international standards 1 Foster a committed and engaged workforce 2 Develop and maximise the potential of our employees 3 Build a healthy pipeline of talent and leaders for sustainable growth CORPORATE SOCIAL RESPONSIBILITY COMMITTEE 1 Review the impact of local and international practices and trends on the Group’s community development programmes; and make recommendations to the Council regarding these matters 2 Promote awareness of the current and future impact of our actions on the communities where we operate 74 ST ENGINEERING / ABOVE & BEYOND P R O P E L L I N G S U S TA I N A B L E G R O W T H S u s t a i n a b i l i t y G o v e r n a n c e ( c o n t ’d ) WE BELIEVE THAT FOR A POLICY TO BE EFFECTIVE, IT SHOULD BE UNDERSTOOD. OUR CODE OF BUSINESS CONDUCT & ETHICS IS WRITTEN IN LANGUAGE THAT IS CLEAR AND SIMPLE, GIVING GUIDANCE TO SITUATIONS WHEN IN DOUBT. IT INDICATES APPROACHABLE AND ANONYMOUS LINES OF OUTREACH. WORKPLACE AND BUSINESS CONDUCT INCLUDES RESPECT FOR PEOPLE, NON-DISCRIMINATION, SAFETY FIRST, SECURITY OF INFORMATION, IDENTIFYING AND AVOIDING BRIBERY, CARE FOR THE ENVIRONMENT, AND ENGAGING OUR COMMUNITY. BESIDES EMPLOYEES, IT IS COMMUNICATED AND APPLICABLE TO CONTRACTORS, CONSULTANTS AND AGENTS. CODE OF BUSINESS CONDUCT AND ETHICS “ Our Code reflects our expectations of responsible behaviour towards our material sustainability issues. It sets out the guiding principles and desired behaviour that embody how our people are expected to operate, and embrace the business practices and standards of behaviour that support the commitment to honest and ethical business conduct. Many standards set out in the Code have also been embedded in the various policies and procedures. ” To maintain an ethical environment that encourages and promotes professional and ethical conduct of the management and staff members, a Code of Business Conduct and Ethics (‘Code’) has been promulgated. Our Code applies to all employees in ST Engineering and in all subsidiary companies, in which we have management control. Contractors, consultants and agents who are working on our behalf will be required to act consistently with the Code when acting on our behalf. Our Code reflects our expectations on responsible behaviour towards our material sustainability issues. It sets out the guiding principles and desired behaviour that embody how our people are expected to operate, and embrace the business practices and standards of behaviour that support the commitment to honest and ethical business conduct. Many standards set out in the Code have also been embedded in the various policies and procedures. Our Workplace Conduct: • We are committed to providing a work environment that is free from discrimination or harassment of any type. • We always place safety and occupational health above other business priorities. • We observe all security and access arrangements at our premises and facilities, as well as all security policies and regulations. • We must protect company assets from waste, loss, damage, theft, unauthorised disclosure, mis-use or infringement. • We respect the rights and assets of others, including their proprietary information and intellectual property. • We will use company information technology facilities appropriately and responsibly. • We are committed to keeping employees’ personal information confidential. 75 ANNUAL REPORT 2014 • • We will handle Official or Classified information acquired in the course of our work, in accordance with company policies and applicable laws and regulations. We must not buy or sell the shares or securities of a company (including ST Engineering) either directly or through family members or other persons, while we are aware of inside information of the company. Our Business Conduct: • • • • • We will ensure our products are designed and manufactured, and our services provided, in a manner that seeks to reduce the risk of hazard to operators, the public, property and the environment. • We must seek approval for all gifts and hospitality to be given by us on behalf of the company. • We must declare all gifts and hospitality received, in accordance with policies and procedures. • We must not contribute any company funds or resources to any political candidates, political officials or political parties for the purposes of obtaining any business or to influence any official action. • We will comply with all applicable laws and regulations when importing and exporting products, services, technology and information. • We must refrain from any practices or involvement that could lead to, or be perceived as, a conflict of interest. We conduct our business in a fair, honest and ethical manner, in all our dealings with customers, suppliers, partners and competitors. • We must not offer, give, seek or accept any personal payment, gift, favour or other advantage in return for any business advantage or to influence a business outcome. We are committed to conduct ourselves in an environmentally responsible manner in all aspects of our work and business, and to use resources efficiently. • We should ensure that third party intermediaries are evaluated and appointed in accordance with policies and procedures. We must refrain from ‘facilitation payments’ made to government officials or employees to expedite or perform a routine administrative action as these are prohibited and often illegal under local anticorruption laws. We will support, sponsor and contribute to the wellbeing of our communities through volunteerism, charitable giving and civic activities. All employees are briefed on the Code at least once every two years. ANTI-CORRUPTION AND ANTI-FRAUD PROGRAMME ST Engineering takes a zero tolerance approach to fraud and corrupt practices. The senior management sets the tone and promotes an anti-fraud culture throughout the Group, through its set of Core Values. Briefings are also conducted on specific anti-corruption related policies and procedures, broken down into specific topics. Attendees are nominated based on relevance of their job scope. The Code is included as one of the important documents for the orientation of all new Directors to the Board. Contracts with independent service providers (‘ISP’) including agents, consultants and advisers, must include anti-corruption undertakings and representations as well as acknowledging the ISP Anti Corruption Policy. In 2014, an e-learning course on anti-corruption was launched for employees identified to be exposed to corruption risks. 1,885 employees in Singapore completed the course in 2014. The e-learning course will be rolled out in phases to all identified employees in Singapore, with plans to extend this to relevant employees in the other countries from 2015. ST Engineering conducted an assessment for risks related specifically to corruption and fraud (‘Fraud Risk Assessments) across Singapore operations between 2013 and 2014. The Fraud Risk Assessments will be rolled out to overseas operations from 2015 onwards. Significant corruption risks identified were: • Corruption by intermediaries; • Corruption by employees; • Gifts and entertainment to government officials construed as kickbacks or bribes. Following the Fraud Risk Assessments, the business operations will review existing 76 ST ENGINEERING / ABOVE & BEYOND P R O P E L L I N G S U S TA I N A B L E G R O W T H S u s t a i n a b i l i t y G o v e r n a n c e ( c o n t ’d ) “ The Risk Review Committee has oversight of the Anti-Corruption and Anti-Fraud Programme. ” policy and procedures against significant corruption or fraud risks identified to ensure adequacy of the preventive and detective anti-fraud controls. At its quarterly meetings, the Risk Review Committee reviews the following: 1. Progress and results of the Fraud Risk Assessments against the annual work plan; 2. Progress of the training on the Code and other anti corruption / anti fraud training against the annual training plan; 3. Substantiated fraud and corruption related incidents where lessons learnt and actions taken to strengthen the related controls will be shared, including updates, if any, to the policies and procedures; 4. Offset contracts. Violations of the Code, as well as violation of laws or regulations, or any wrong doings may be reported through the whistle-blowing channel. The whistle blowing channel is published in the employee intranet portal. Employees can report to the channel on an anonymous basis. Subject to applicable laws, the identity of the employees who raise any such reports is kept in strict confidence and they are protected from any disciplinary or retaliatory action arising by reason of their having made these reports. All fraud and suspected fraud cases received through the whistle blowing channel will be promptly notified to the Audit Committee Chairman. The Audit Committee has the powers to take prompt actions to inquire into the concerns raised. BRIEFING FOR COMPLETE ANTI-CORRUPTION POLICIES AND PROCEDURES, DONE IN PHASES: 2012 2013 2014 Number of employees 1,637 1,424 3,043 Percentage of employees 11% 10% 21% THE FOLLOWING WERE REPORTED IN 2014: August A former employee of a subsidiary of ST Electronics was convicted in the Singapore Court for receiving a bribe of about $57,000 as a reward for appointing an individual as an agent of the subsidiary. He has appealed against the conviction and the outcome of the appeal is pending. December Three public cases against former employees of ST Marine for alleged corruption in Singapore. Further information on these cases is available on the Press Release section of our website. 77 ANNUAL REPORT 2014 P R O P E L L I N G S U S TA I N A B L E G R O W T H Enterprise Risk Management & Materiality ST ENGINEERING BELIEVES THAT EFFECTIVE RISK MANAGEMENT IS CRITICAL TO ACHIEVING THE GROUP’S STRATEGIC AND SUSTAINABILITY GOALS. THE RISK REVIEW COMMITTEE AT BOARD LEVEL PROVIDES LEADERSHIP AND DIRECTION IN THE ESTABLISHMENT OF AN ENTERPRISE-WIDE RISK MANAGEMENT FRAMEWORK THAT IS INSTRUMENTAL TO BUILDING ROBUST RISK MANAGEMENT PROCESSES WITHIN THE GROUP. ENTERPRISE RISK MANAGEMENT (ERM) FRAMEWORK The ST Engineering ERM Framework is a discipline which the Group uses to identify, assess, control and monitor risks from six key areas: 1. Strategic 2. Operational 3. Financial 4. Integrity 5. Legal Compliance 6. Business Continuity The ERM framework sets out a consistent definition of risk and risk tolerance limits to ensure that business units have a common understanding when identifying and assessing risks. To enable ERM practices throughout the Group, we invested in a software application known as the GRC system to capture risks and controls in risk registers. The risk and control owners periodically review and update the registers, regardless of where the businesses are located geographically. As the Group diversifies further across multiple industries, sectors, geographies and jurisdiction, it becomes more important than ever for the senior management team and the Board to have visibility of key business risks. The GRC system therefore provides the needed transparency on risks. 12. Product Obsolescence The Group has identified the following significant business risks and has reviewed them with the Risk Review Committee and the Board. Mitigating measures are in place to manage these risks. More information about the business risks can be found in pages 80-83. 1. Competition 13. Export Controls 14. Compliance with Laws and Regulations 15. Business Interruption Significant business risks are also identified in all M&A and new business projects and reviewed with the Risk Review Committee. 4. Foreign Exchange Further details on the Group’s risk governance, including responsibilities of the Board, Audit Committee and Risk Review Committee, can be found on pages 106-122. 5. Credit MATERIALITY 6. Project Management Materiality comprises assessment of risks and opportunities. Sustainability considerations are fed into our risk identification and pursuit of opportunities, through our stakeholder engagement channels and Business Foresight Committee. New and existing opportunities are assessed against the ERM framework, with levels of risk defined by both financial and non financial impact descriptors. 2. Risk Inherent in Operating in a Global Market 3. Merger and Acquisition 7. Human Capital 8. Occupational Health and Safety 9. Subcontractor Performance and Key Suppliers 10. Product Quality, Safety and Reliability 11. Post-sales Support 78 ST ENGINEERING / ABOVE & BEYOND P R O P E L L I N G S U S TA I N A B L E G R O W T H Enterprise Risk Management & Materiality IMPACT CONSIDERATION In 2013, led by the Risk Management department, the Group conducted a materiality assessment of aspects in the GRI G4 guidelines released in the same year. Responsibilities for management and reporting were assigned for each material aspect. The material aspects were mapped onto the key business risks of the Group to ensure completeness and a clear understanding of areas of risks each material aspect posed. Please refer to pages 80-83. The diagram on page 79 illustrates the material aspects by level of direct impacts (x-axis) and level of influence from key internal and external stakeholders (y-axis). IMPACT CONSIDERATION Stakeholder Shareholders & Investors Financial Quality, Health & Safety Compliance ü ü Customers ü ü Regulators & Government ü Employees & other workers Suppliers Reputation ü INFLUENCE AND ASSESSMENT IMPACT OF MATERIAL ASPECTS The Group is satisfied that the ERM framework is sufficiently robust in capturing financial and non-financial impact arising from sustainability issues. Notwithstanding, ST Engineering recognises that there is room for improvement in strengthening our capacity and practices in the sustainability journey. The Group worked with a team of external sustainability experts to develop a sustainability roadmap, built on a gap analysis of where ST Engineering stood vis-à-vis regional and industry peers. 79 ANNUAL REPORT 2014 INFLUENCE AND ASSESSMENT IMPACT OF MATERIAL ASPECTS High Customer Health & Safety Anti-Corruption Labour Practices & Grievances Mechanism Occupational Health & Safety Compliance (Products & Services) Energy & Greenhouse Gas Emissions Medium Training & Education Employment Freedom of Association & Collective Bargaining Non-Discrimination Labour Management Relations Supplier Assessment Procurement Practice Local Communities Environmental Products & Services Low STAKEHOLDER INFLUENCE Economic Performance Low Medium High ECONOMIC, ENVIRONMENTAL & SOCIAL IMPACT INHERENT RISKS Competition Risk inherent in operating in a global market Merger & Aquisition Foreign Exchange Credit Project Management Human Capital Occupational Health & Safety (OHS) Subcontractor Performance & Key Supplies Product Quality, Safety & Reliability Post-sales Support Product Obsolescence Export Controls Compliance with Laws & Regulations Business Interruption 80 ST ENGINEERING / ABOVE & BEYOND P R O P E L L I N G S U S TA I N A B L E G R O W T H E n t e r p r i s e R i s k M a n a g e m e n t & M a t e r i a l i t y ( c o n t ’d ) The Group’s inherent top risks: RISK AREA INHERENT RISK RELEVANT GRI MATERIAL ASPECTS Strategic Competition • The Group’s businesses are subject to competition from national and multi-national firms in the various markets it operates in, and many contracts are obtained through a competitive bidding process. Energy and GHG emissions • Environmental Products and Services Risks inherent in operating in a global market • The Group conducts business in a number of countries and, as a result, assumes risks that are associated with operating in a global market. Some of these risks include: Energy and GHG emissions • Environmental Products and Services • Non-discrimination • Freedom of Association and Collective Bargaining • Anti-Corruption • Procurement Practices • Supplier Assessments (Environmental, Labour Practices, Human Rights and Impacts on Society) The Group’s ability to compete for contracts depends to a large extent on the effectiveness and innovation of the solutions it offers, as well as its ability to offer better value-for-money solutions. As the Group seeks to strengthen its commercial business, speed to market becomes ever more critical to success. The Group conscientiously monitors market conditions and continually seeks to innovate its processes and systems to better position itself in both local and overseas markets. 1. Changes to government regulations and administrative policies that may result in greater costs and constraints but at the same time present new business opportunities; 2. Political changes that could lead to changes in the business environment in which the Group operates; 3. Economic downturns; 4. Political instability and civil disturbances that could disrupt the Group’s business activities The Group seeks to maintain a more balanced portfolio by spreading its business operations across several markets. It continues to pursue new emerging markets such as Africa, Central Asia and the Gulf region to further expand and diversify its revenue streams. The Group also keeps pace with government regulations and administrative policies, and ensure that appropriate actions are taken in response to these changes. Merger and Acquisition One of the avenues through which the Group seeks to grow its businesses is the acquisition of business entities and operating assets or joint ventures. M&A risks include the under-performance or failure of acquired entities. M&A activities, ranging from the identification of targets to conducting due diligence, are supported by a dedicated team of investment professionals and augmented by external professionals for specialised services. The business proposals are guided by a given set of internal investment criteria, evaluated by senior management and endorsed by a Business Investment and Divestment Committee before seeking final Board of Directors’ approval. 81 ANNUAL REPORT 2014 RISK AREA INHERENT RISK RELEVANT GRI MATERIAL ASPECTS Financial Foreign Exchange • Economic Performance • Economic Performance • Economic Performance • • • Training and Education Employment Labour/Management Relations Labour Practices Grievances Mechanisms Non-discrimination Freedom of Association and Collective Bargaining Local Communities The Group’s foreign exchange risk arises both from its subsidiaries operating in foreign countries, generating revenue and incurring cost denominated in foreign currencies, and from operations of its local subsidiaries which are transacted in foreign currencies. The Group’s foreign exchange exposures are primarily from USD and Euro, and the Group enters mainly into forward currency contracts to hedge against its foreign exchange risk resulting from anticipated sale and purchase transactions denominated in foreign currencies in accordance with the Group’s hedging policy. The Group also enters into cross currency swap to hedge the foreign exchange risk of its loans denominated in foreign currencies. Credit Credit risk, or the risk of counterparties defaulting, is managed through the application of credit approvals, credit limits and monitoring procedures. Where appropriate, the Company or its subsidiaries obtain collateral from customers or arrange master netting agreements. Cash terms, advance payments and letters of credit or bankers’ guarantees are required for customers of lower credit standing. Operational Project Management The main business activity of the Group relates to management and execution of projects for defence and commercial customers. Risks relating to project management are therefore inherent in the business. These may include issues relating to project costs and schedules, as well as contractual and quality matters. The Group has project review and quality assurance systems in place to mitigate such risks. All contracts of material value require review by legal counsel, and significant deviations from pre-approved standard contract terms and conditions are to be highlighted and presented to higher levels of management for review and approval. Human Capital The recruitment and retention of qualified and experienced personnel is critical to achieving the Group’s strategic objectives. ST Engineering continues to work with local authorities in markets where it operates, and leverages training, retention schemes, scholarships as well as alternative sources for hire to sustain its growth. Talent management programmes also help to create a pool of potential successors for key positions. • • • • 82 ST ENGINEERING / ABOVE & BEYOND P R O P E L L I N G S U S TA I N A B L E G R O W T H E n t e r p r i s e R i s k M a n a g e m e n t & M a t e r i a l i t y ( c o n t ’d ) RISK AREA INHERENT RISK RELEVANT GRI MATERIAL ASPECTS Operational Occupational Health and Safety (OHS) • Occupational Health and Safety Subcontractor Performance and Key Suppliers • Procurement Practices The Group is dependent upon the delivery of key materials or components by suppliers and the performance by its subcontractors in a timely manner, and in accordance to specifications. The respective sector procurement function is responsible for establishing and managing endto-end integrated supplier arrangements within each of their respective sectors. Supplier milestones and performance are reviewed periodically by the respective project teams. • Supplier Assessment (Environmental, Labour Practices, Human Rights and Impacts on Society) Product Quality, Safety and Reliability • Customer Health and Safety • Compliance (Products and Services) • Economic Performance Product Obsolescence • Economic Performance The Group is affected by changes to technology and industry business structures and models. • Environmental Products & Services To provide a safe working environment, ST Engineering has integrated safety measures into key business activities with detailed OHS policies. The Group also seeks continuous improvement through proactive hazard and risk identification and constant monitoring of the safety targets. The Group has also initiated various programmes and activities to raise OHS awareness, and inculcate a safety culture and instil a responsibility in all of the employees. This includes regular safety briefings & trainings, health talks and recreational activities. Customers expect products and services to perform their intended functions satisfactorily, and not pose a risk to health and safety. The Group recognises that as systems become increasingly more complex, the impact on the surroundings increases. Efforts must be made to protect the safety of those who use the products. Accordingly, the Group has implemented system safety in all the products since the 1990s. The Group embraces system safety with emphasis of safety at the design stage, carrying through to safety in use, and all the way to disposal. The Group actively promotes awareness and a culture of system safety within its organisation and among its key suppliers. In addition, the Group has a comprehensive insurance programme for product and service liability. Post-sales Support Post-sales support is essential to the Group’s overall strategy in promoting customer excellence. It is often complex, as it involves high volume of work that is driven by intermittent and unpredictable events, in the countries where the customers are located. The Group makes investments into infrastructures, systems and processes to support our customers in the use of the product or service post sales. This is critical to our customer retention, operational performance and competitive differentiation. To keep pace with these developments, the Group, through analysis of the key technological trends and their potential impact on sustainable growth, constantly identifies new areas for business development and growth, promotes and manages innovative and creative efforts and invests in R&D efforts. 83 ANNUAL REPORT 2014 RISK AREA INHERENT RISK RELEVANT GRI MATERIAL ASPECTS Legal Compliance Export Controls • Compliance Compliance with Laws and Regulations • The Group, with its operations in several parts of the world, is subject to applicable laws and regulations of various jurisdictions. These laws and regulations include anti-corruption laws, aviation laws and regulations, export controls, safety and environmental regulations, anti-competition laws, etc. Energy and GHG emissions • Water • Occupational Health and Safety • Compliance Business Interruption • Compliance The Group recognises that quick recovery and resumption of business operations after a disruption are critical to minimising financial, operational and reputational impact. • Economic Performance Exports of ordnance products, which constitute a portion of the Group’s sales, are typically subject to export control regulations. Changes in these regulations could have an impact on the Group’s sales, while noncompliance could result in financial penalties, suspension of projects or even restrictions on future export business. The Group continues to place great emphasis on this area and has formal systems in place and designated personnel to ensure export control regulations are complied with. Failure by the Group to comply with these laws and regulations may result in criminal liabilities such as fines and penalties, and / or the suspension or debarment of the Group from government contracts. The Group has in place a framework that proactively identifies applicable laws and regulatory obligations, and embeds compliance into the day-to-day business processes. Business Continuity Accordingly, it has in place a Business Continuity Management Framework (BCM Framework), which embodies enterprise-wide planning and arrangements of key resources and procedures that enable the Group to respond and continue to operate critical business functions across a broad spectrum of interruptions to the business, arising from internal or external events. Besides incorporating force majeure clauses in all contracts to mitigate risk from acts of God, the Group also has in place a comprehensive insurance programme aimed at mitigating financial losses that might arise from such risks. 84 ST ENGINEERING / ABOVE & BEYOND P R O P E L L I N G S U S TA I N A B L E G R O W T H S u s t a i n a b i l i t y Ta r g e t s & P e r f o r m a n c e WHAT WE DID IN 2014 WHAT WE WILL DO IN 2015 PROPELLING SUSTAINABLE GROWTH Sustainability Governance • Commenced alignment of environmental management approach of the US operations •Start to include US operation in sustainability report progressively from 2015 Innovation • Met target spending on R&D • Meet target spending on R&D Productivity • More than 75% employees are involved in productivity initiatives • Involve at least 75% employees in productivity initiatives People Excellence • Reviewed annual Team Excellence Competition assessment criteria • • Organised Team Excellence Convention 2014 based on enhanced assessment criteria Review questions for Employee Opinion Survey 2015 • Organise Team Excellence Convention 2015 • Organise Business Excellence Seminar 2015 • Continue journey to reduce greenhouse gas intensity by 16% on a business as usual basis for Singapore operations by 2025 with the base year as 2010 • Achieve ISO 50001 certification for all Singapore operations • Measure water efficiency for Singapore operations • No significant fines or sanctions for non-compliance to environmental laws and regulations EXECUTING OPERATIONS RESPONSIBLY Environment • Implemented energy management system in line with ISO 50001 • Participated in the Carbon Disclosure Project (CDP) report for first time • Tracked water consumption • No significant fines or sanctions for non-compliance to environmental laws and regulations 85 ANNUAL REPORT 2014 WHAT WE DID IN 2014 WHAT WE WILL DO IN 2015 EXECUTING OPERATIONS RESPONSIBLY (CONT’D) Health & Safety Sustainable Procurement • Improved noise conservation programme for employees indentified to be at risk for Early Noise Induced Deafness (E-NID) • Achieved AFR and ASR below national benchmarks • No significant fines or sanctions for non-compliance to safety laws and regulations • Engaged a consultant to help develop a group-wide sustainable procurement strategy • Strengthen safety culture and improve health and safety performance through continuous review of programmes • No significant fines or sanctions for non-compliance to safety laws and regulations • Develop ST Engineering Sustainable Procurement Policy and Code of Conduct for Suppliers • Continue community initiatives, including strategic and long-term partnerships • Improve reporting based on LBG guidelines SUPPORTING COMMUNITIES Community • Adopted London Benchmarking Group (LBG) guidelines • Extended strategic community development partnership that leverages on ST Engineering’s unique expertise More information on targets, programmes, performance and activities in 2014 can be found under respective sections. 86 ST ENGINEERING / ABOVE & BEYOND P R O P E L L I N G S U S TA I N A B L E G R O W T H Enablers: Innovation & Productivity “ INNOVATION ST Engineering’s unrelenting focus on innovation earned us a place on Forbes’ list of The World’s Most Innovative Companies 2014. ” Innovation is central to our value creation model. Synthesising the most advanced ideas with practical needs, we continuously push frontiers to maintain our competitive edge. Where there are opportunities, innovation serves as a critical lever to create products and services that empower our customers to operate in a sustainable and resource-efficient manner. Our Group Chief Technology Officer chairs our Technology, Intellectual Property and Innovation (TII) Committee. The TII Committee is tasked to ensure there is a stream of ideas and innovations in the pipeline, with representatives across our businesses to facilitate innovation of integrated solutions. Working with the TII Committee is the Technology Management Committee, which also reports to the Chief Technology Officer. This committee focuses on the execution aspect of projects relating to innovation, and discusses and identifies action plans for the Group. The committee also draws insights from emerging technologies and trends, and shares them with the business units. Each business sector nurtures its research and development projects, and also works across businesses 87 ANNUAL REPORT 2014 P R O P E L L I N G S U S TA I N A B L E G R O W T H on collaborative research and development projects. Inputs from the Business Foresight and Customer Excellence committees are incorporated into innovation project development. Employees with outstanding ideas are given prizes and the opportunity to develop their ideas. In addition, the ideas and achievements of these employees are given recognition at both Group and business sector level at events including the annual President’s Forum. ST Engineering’s unrelenting focus on innovation earned us a place on Forbes’ list of The World’s Most Innovative Companies 2014, the only Singapore company on the list. Some platforms to encourage innovation are as follows: • • • Our Advanced Engineering Centre works closely with inventors, innovative firms and the academia, to develop strategic partnerships that have the potential to develop new business or product ideas for the Group. The Idea Competition is an annual event for employees to present their ideas for innovative products, services, new businesses and environmentally friendly solutions to senior management. Winning ideas are nurtured by the relevant business units. The quantity, quality and geographical diversity of entries received have grown steadily over the years. THINKOUT is our in-house biennial event to bring together entrepreneurial and creative problem solvers from across the business sectors and functions. The event is structured to leverage on the confluence of diverse expertise and experiences to generate new perspectives to overcome challenges facing our customers. In inculcating an innovative culture, employees are encouraged to constantly challenge conventions, explore new ideas and implement innovative ideas. PRODUCTIVITY Productivity is about better use of our resources: from facilities, equipment and materials to the skills, knowledge and teamwork of our people. In doing so, we improve our value proposition to our customers. At ST Engineering, productivity is also a key strategy where we engage our employees collectively. We believe that workforce productivity and engagement is critical to the success and resilience of the Group. The Group’s productivity agenda focuses on six drivers of productivity: 1. Enabling a productive work environment; 2. Encouraging innovation and leveraging technology; 3. Developing people and enhancing skills; 4. Organising work systems and reviewing work processes; 5. Adopting best practices and networking; 6. Measuring what matters. Each business sector has a Productivity / Economic Value Added (EVA) Steering Committee which identifies critical initiatives to focus on and determine the monitoring and review process, based on the nature of the initiatives. Sources of productivity initiatives include Kaizen Projects, Quality Improvement Teams, EVA projects, Idea and Innovation Competitions, and the Staff Suggestion Scheme. More than 75% of employees contributed to productivity initiatives in 2014. We believe that every employee is an expert in their job and thus best positioned to seek improvements. We empower employees through our continuous learning approaches to learn to spot and eliminate wastage of resources in business processes. Exemplary contributions are acknowledged through awards such as Top Kaizen Awards, EVA Awards, and the best teams and individuals are recognised at the annual Business Excellence Seminar as well as best practices and project sharing sessions. 88 ST ENGINEERING / ABOVE & BEYOND P R O P E L L I N G S U S TA I N A B L E G R O W T H E n a b l e r s : I n n o v a t i o n & P r o d u c t i v i t y ( c o n t ’d ) AT ST ENGINEERING, OUR EMPLOYEES ARE ENCOURAGED AND EMPOWERED TO COME UP WITH INNOVATIVE SOLUTIONS TO IMPROVE OUR WORK PROCESSES. HERE ARE SOME EXAMPLES OF OUR INITIATIVES: Enhancing and improving turnaround time The jig that helps reduce manpower requirement. In the offshore service industry, the removal and retrofitting of vessel propeller and shaft is a labour intensive process that involves certain levels of risks. Such tasks are part of the repair services that ST Marine provides. ST Marine designed and built an innovative jig that comprised a propeller shaft extractor, a supporting stand with roller assembly and a detachable track. Besides reducing the crew size required by 50% from six men to three, the use of the jig also prevents body injuries and fatigue. The project earned several commendations from customers for quality work achieved within a shorter turnaround time. This project won the Star Award in the ST Engineering Team Excellence Convention Innovation & Quality Circle 2014. Increasing cost effectiveness, reducing equipment required A Kaizen project was initiated to improve the productivity of the hard chroming of SAR21 and GPMG barrels. After a detailed review of the process, the cycle time per batch was reduced by 40% and the operating manpower required was reduced by 33%. An adaptor was developed and fitted to the GPMG barrel rotating fixture, such that both types of barrels can be chromed in the same loading. This results in greater production flexibility and efficiency, and cost savings from requiring two different sets of rotating fixtures. ST Kinetics’ SAR21 assault rifle and GPMG gun 89 ANNUAL REPORT 2014 Reducing labour time, increasing quality of work An important task in aircraft maintenance, repair and overhaul (MRO) is to detect corrosion, remove it and measure the remaining aircraft skin thickness. ST Aerospace worked with an external party to develop a dedicated testing platform using Phase Array Ultrasonic technology coupled with automated data extraction to carry out the measurements. This innovative inspection and measurement method resulted in manhour savings, reduced fatigue level of the technician performing the task and improved the turnaround time for the maintenance of the aircraft. The technology is being incorporated into Airbus’ Structure Repair Manual for the A319, A320 and A321. Other airlines and aircraft MRO companies are similarly able to do so as the SRMs are available to them. Building on its success, we are developing software upgrades that will expand the capabilities to perform other inspections such as delamination and porosity of composite parts. Improving turnaround time with the new inspection platform. Leveraging Knowledge Management ST Electronics developed a software programme that allows its service engineers to rectify network and system failures more efficiently. Called the System Maintenance Management and Knowledge Portal, it standardises the historical data collected by engineers, and provides a more accurate fault analysis. This makes it easier for the engineer to review past service records and be better equipped to attend to the problem. With the Portal, time taken to restore a network and system from failure on-site has improved by 25%. The System Maintenance Management and Knowledge Portal helps service engineers work more efficiently. 90 ST ENGINEERING / ABOVE & BEYOND P R O P E L L I N G S U S TA I N A B L E G R O W T H People Excellence Investing in our people is the key to our continued success and delivery of strategic advantage both locally and globally. HOW WE MANAGE The People Excellence and Learning Organisation (PELO) committee drives our human capital management programmes. Key indicators, such as turnover rates and training utilisation, are reported and analysed monthly at business sector level. Selected indicators are also reported quarterly at Group level. Our Employee Value Proposition articulates our commitments in: • • • • Investing in high performing teams by providing continuous development opportunities to our people, and nurturing and grooming leaders; Providing continuous learning and development opportunities to strengthen our technical and leadership competencies; Developing a workforce that promotes innovation and entrepreneurship, guided by our core values; Rewarding excellence and encouraging work-life harmony. All business sectors have talent management and development programmes based on specific industry needs. Information on how we engage our employees can be found on page 67. to outstanding students who have demonstrated leadership qualities. These students go on to pursue undergraduate and graduate studies in courses relevant to the Group in leading universities such as Massachusetts Institute of Technology, Imperial College London and Tsinghua University. 18 scholarships were awarded in 2014. The Young Engineers Programme (YEP) was developed to promote engineering as a career. Junior college students interact with our Chief Technology Officers, and are assigned mentors and buddies throughout the programme. They are given internship opportunities and invited to visit our facilities. 22 students were selected for the YEP in 2014. Internships for tertiary students are thoughtfully designed to provide exposure to various business and career opportunities. ST Engineering offered 665 internships this year. At the business sector level, ST Aerospace signed Memorandum of Understandings (MOUs) with Singapore Polytechnic and Republic Polytechnic to develop skilled aviation talents, where participating students will be able to work on real-life projects through industrial attachments. 25 students participated in 2014. To attract individuals from non-marine backgrounds, ST Marine works with industry and union partners to equip these individuals with knowledge and skills to progress as marine technical associates, supervisors and engineers in the marine industry. Nurturing a Talent Pool Grooming Our Leaders To identify and develop talent early, scholarships are awarded At ST Engineering, we believe in grooming leadership at all levels. The online selfassessment tool, Leadership Enhancement Portal (LEAP), provides a database of learning resource items that helps to develop a Personal Development Action Plan based on an employee’s preferred learning style. In addition, ST Engineering also engages external consultants to facilitate leadership competency assessments. Employees not only have the opportunity to assume managerial roles and move up the general management track, but the more technicallyinclined also have the option to progress along the engineering specialist path. These two career tracks fulfil different career aspirations. Employees who are versatile may also move between tracks to gain more exposure. We identify, groom and secure a pipeline of leaders to take up key positions in the Group. Senior employees may be selected for Senior Leadership Development Programme and Executive Education Programmes in leading universities such as Harvard, Stanford and INSEAD. Diversity and Inclusion In demonstrating our commitment to diversity and inclusion, ST Engineering signed the Employer’s Pledge of Fair Employment Practices. There were no reported incidences of discrimination by employees in 2014. We regard our workers who are past retirement age as a valuable and stable resource. Thus, we have also signed a Memorandum of Understanding to offer retirement planning and reemployment opportunities to all employees leading up to and beyond the retirement age. In 2014, there are 483 employees beyond the age of 91 ANNUAL REPORT 2014 Scholarships and internships are also offered to students studying at top universities in China and India. In 2014, there were 25 interns from China and 8 from India. Career Development Our training development plan and performance management system work in tandem to support the career progression of our employees. All employees will have at least one performance appraisal session annually with their supervisors, where they can discuss their current work progress and career aspirations. It also serves as a platform to identify skill gaps required for the current and next level of job requirements. We continue to send employees for professional training and skills upgrading, including undergraduate and postgraduate studies. In 2014, 80 employees received sponsorships for undergraduate and graduate studies, including 9 who were sent for the Master of Defence Technology and Systems Programme. We are committed to developing our employees for excellence, beyond technical competencies. Training programmes include communication skills such as business writing, and our GLOBAL WORKFORCE PROFILE TOTAL: 22,413 BY SECTOR Rewarding Our People % 32 % 27 9 % 2 8% 4% We offer competitive remuneration, and reward individual contribution with performance-based pay and bonuses. Regular salary reviews are conducted to ensure that our annual remuneration package remains competitive. For example, we have revised the entry pay of our engineers to ensure that we remain attractive as a career option for young engineering talent. Aerospace Electronics We grant eligible employees performance shares with KPIs that drive efficiency, productivity and profitability. The Group also gives out awards to recognise deserving employees. Promoting Work-Life Harmony We recognise that employees increasingly seek a balance between work and personal life. We provide a supportive work environment with a degree of work schedule flexibility. A formal framework for flexible work arrangements has been introduced. Our Sports & Recreation Clubs organise activities catering to the needs of different employee profiles. These activities include sports like badminton, soccer and bowling; customised wellness programmes ranging from talks and annual health screenings to kickboxing, shiatsu and cardio dance; and social activities such as canteen sales, prawn-catching and karaoke contests. Union Relations ST Engineering recognises that harmonious labour management relations are built on trust and fairness. 2014 Land Systems Marine Others BY GEOGRAPHY 65 20 % % 1 % 14 % <1 % As the Group expands its global footprint, a conscious effort is made to equip our employees with the skills to operate effectively in culturally diverse business units through overseas assignments, postings and attachment programmes. Building Interpersonal Skills Programme, which covers a range of topics such as active listening strategies. Singapore Americas 2014 Asia Pacific (Excl. Singapore) Europe Others BY QUALIFICATIONS 34 % 24 % 1 16 8 % 8% % 62. ST Engineering also works collaboratively with the union to facilitate the re-employment of older employees, implementing processes and systems ahead of the tripartite guidelines announced in 2010. 2014 Degree & equivalent Diploma & equivalent Trade Certificates ‘O’ & ‘A’ levels & equivalent Secondary level & lower 92 ST ENGINEERING / ABOVE & BEYOND P R O P E L L I N G S U S TA I N A B L E G R O W T H P e o p l e E x c e l l e n c e ( c o n t ’d ) “ We ensure our unions maintain representations on key committees such as safety and welfare so that concerns that affect daily activities are better heard. ” We respect all employees’ fundamental rights to freedom of association, including the right to be members of trade unions. In Singapore, we take guidance from the Industrial Relations Act. The excellent relations between the unions and management have earned the Group several awards from the National Trades Union Congress. In 2014, 33% of our employees are covered under collective bargaining agreements. We ensure our unions maintain representations on key committees such as safety and welfare so that concerns that affect daily activities are better heard. Union-Management meetings are held at least WORKFORCE PROFILE FOR SINGAPORE OPERATIONS EMPLOYEES VS SUPERVISED WORKERS Supervised Workers* Employees Male Female Male Female 11,650 2,978 2,284 93 50 ,6 11 Full-time 80 % % 2,98 7 EMPLOYEES BY EMPLOYMENT TYPE & GENDER 2014 Female * Female Male Female 11,635 2,958 15 20 Supervised workers refer to foreign workers whom we hire through contractors. They work on our premises and are supervised by us. EMPLOYEES BY EMPLOYMENT CATEGORY 158 325 359 ≥65 62+ - 65 4% 42 6,2 2 88 4, 60+ - 62 43 % BY AGE GROUP 3,101 50+ - 60 33 % 3,651 40+ - 50 4,397 30+ - 40 2014 Executives Part-time Male EMPLOYMENT 3,5 04 We have achieved zero stoppage of work arising from any industrial action to date. BY GENDER Male Managers The coverage of health and safety topics in formal agreements with unions can be found on page 95. EMPLOYMENT 20 2 twice a year. At these UnionManagement meetings, both parties discuss and resolve staff issues expeditiously, clarify policies and seek buy-in on new initiatives, improve the management-employee relationship and generally enhance the working climate. Monthly staff branch union meetings are means to discuss, clarify and resolve issues, and seek buy-in on new initiatives. 2,631 20+ - 30 Non-Executives 18 -20 6 93 ANNUAL REPORT 2014 2014 TURNOVER BREAKDOWN BY GENDER No. of turnover BY AGE GROUP No. of turnover Male 890 Female 274 18 - 20 20+ - 30 30+ - 40 40+ - 50 0 318 507 201 50+ - 60 60+ - 62 62+ - 65 ≥65 114 15 3 6 NEW HIRES TRAINING HOURS BY GENDER No. of new hires BY GENDER No. of training hours BREAKDOWN BREAKDOWN Male Female Male Female 1,373 447 45.4 34.6 BY AGE GROUP No. of new hires BY EMPLOYEE CATEGORY No. of training hours 18 - 20 20+ - 30 30+ - 40 40+ - 50 5 837 527 288 50+ - 60 60+ - 62 62+ - 65 ≥65 129 14 12 8 Manager Executive Non-Exec 33.4 51.9 39.2 We continuously review our training and development programmes to ensure a dynamic workforce. The average training hours per employee in 2014 is 43.2 hours. 94 ST ENGINEERING / ABOVE & BEYOND E X E C U T I N G O P E R AT I O N S R E S P O N S I B LY ST ENGINEERING IS COMMITTED TO PROTECTING THE ENVIRONMENT AND THE HEALTH AND SAFETY OF OUR EMPLOYEES, CUSTOMERS, AND THE COMMUNITIES WHERE WE OPERATE. The Environment, Health and Safety (EHS) Committee comprises 5 sub-committees, namely: Environment, Energy, Occupational Health, Workplace Safety and System Safety. The Committee meets quarterly to set direction and review the overall EHS performance and progress of each of the sub-committees. The subcommittees also meet regularly to monitor and discuss practices and initiatives to enhance their respective areas. Benchmarking exercises are conducted externally to identify opportunities for cross-learning. To encourage individuals and teams from business sectors to find innovative solutions to EHS challenges, our business sectors compete for rewards and recognition at the Group, industry and national levels. The ST Engineering BE EHS Excellence Award recognises outstanding efforts in EHS innovation and helps raise the profile of EHS issues among our employees. ST ENGINEERING ENVIRONMENT, HEALTH AND SAFETY (EHS) STATEMENT We at ST Engineering are committed to protecting the environment for our future generations; promoting the wellbeing and safeguarding the occupational health and safety of our employees; and ensuring the safety of our products and services for our customers. We fulfill this commitment by: 1. Complying fully with applicable EHS regulations. 2. Working with our business partners on their compliance with applicable EHS regulations and our EHS requirements. 3. Integrating EHS best practices into our daily activities. 4. Permeating a positive EHS culture with a strong sense of individual and collective responsibility among our employees and business partners working within our premises. 5. Improving our products and processes continually to reduce our environmental impact in the areas of emissions, waste material generation, water utilisation and energy consumption. 6. Setting realistic annual targets and monitoring our performance to continually enhance the effectiveness of our environmental, health and safety management systems towards both minimising our carbon and water footprints, and achieving zero incident in workplace injury, occupational disease and environmental pollution. 7. Ensuring our products and services are safe to produce, operate, support and service while minimising environmental impact through the use of system safety principles. 95 ANNUAL REPORT 2014 E X E C U T I N G O P E R AT I O N S R E S P O N S I B LY Health & Safety ST Engineering is committed to ‘Safety Before Profit’. The health and safety of our employees and contractors working on our products and delivering our services, as well as the health and safety impact arising from the use of our products are very important to us. We recognise the positive impact of health and safety on increasing work effectiveness, raising employees’ morale and enhancing our Group’s reputation. At the same time, we are cognizant of the negative impact manifested through lost time, higher costs and schedule delays. Product safety is a key criterion in our product quality assessment. Our system safety initiatives ensure that safety implications are thoroughly assessed and managed throughout the entire product life cycle. HOW WE MANAGE Through our monitoring and continuous improvement efforts, we aim to achieve our goal of zero accidents. We believe that ‘Safety Starts With Me’ and strive to build a culture whereby all staff abide by all safety rules and proactively stop all unsafe practices they see in the workplaces. The Group’s duty of care extends to all employees, visitors, supervised workers and subcontractors working within our premises. The EHS Committee drives our health and safety efforts. The objectives are set out in the EHS Statement in page 94 and the EHS Committee ensures health and safety management systems are properly implemented and improved upon, setting performance indicators and monitoring them. Programmes such as sharing opportunities and benchmarking projects take place annually to drive and sustain improvements. The EHS Committee also organises recognition events to acknowledge efforts of individuals and teams who contribute ideas to improve our health and safety practices. Each business sector monitors leading and lagging health and safety indicators on a monthly basis, with Group-wide data reviewed on a quarterly basis. Data is analysed over the past years, then presented and discussed at management review meetings. Joint representation of management and employees supports a collaborative safety conscious culture. Representatives are selected from the worker level up to supervisory personnel, middle management and higher management in compliance with Workplace Safety and Health (WSH) Council regulation. Our collective agreements with our trade unions cover among other things, the following: personal protective equipment; joint management-employee health and safety committees; participation of worker representatives in workplace safety inspection, training and education; complaints mechanism; right to refuse unsafe work; periodic inspections; and clear and large safety message signboards at our facilities. Occupational Health and Safety All our local business units are certified to OHSAS 18001:2008 standards by established certification bodies. Our operations in Singapore also adhere to the WSH Act. All business sectors participate in the national WSH Award, “ We believe that ‘Safety Starts With Me’ and strive to build a culture whereby all staff abide by all safety rules and proactively stop all unsafe practices they see in the workplaces. ” keeping abreast of best practices. We also organise induction briefings, health talks and occupational health seminars for our employees, and toolbox briefings for employees and contractors where WSH issues are discussed. Other initiatives are sector-specific, such as safety training for work-atheight workers, supervisors and managers. In addition, to better prepare ourselves for business continuity, we conduct emergency response exercises such as fire drills and chemical spill simulations. Our business sectors also share information with one another on successful safety initiatives and accident cases so the rest can learn from the experiences. To raise awareness of workplace safety to the wider community, ST Engineering partnered WSH Council to organise the Safety@Work Creative Awards for the tenth year in 2014. The winning posters and animation clips by tertiary students were subsequently reproduced and made available to industrial companies as resources for training. 96 ST ENGINEERING / ABOVE & BEYOND E X E C U T I N G O P E R AT I O N S R E S P O N S I B LY H e a l t h & S a f e t y ( c o n t ’d ) Accident Frequency Rate (AFR) and Accident Severity Rate (ASR) registered a slight increase across other sectors as a result of greater reporting awareness within the workforce. The increase in AFR and ASR for Land Systems is due to three injuries that arose from use of machinery and tools, that resulted in recuperation periods over two months. We will strengthen training and communication to ensure that our employees are able to handle equipment in a safe manner. All sectors have implemented the Behaviour-based Safety ACCIDENT FREQUENCY RATE (Number of incidents per million man hours) (Number of incidents per million man hours) 3 2.5 2.7 2.5 MARINE 2 1.6 1.23 0.98 0 0.78 0.22 0.23 2012 2013 Aerospace Land Systems 1.5 1.3 1.86 1 AFR and ASR figures across sectors remain below national industry averages. ACCIDENT FREQUENCY RATE MANUFACTURING 2 (BBS) programme. BBS aims to eliminate substandard work practices, a primary cause of injury, by shaping mindsets to achieve a safety focused culture and environment. 1.38 1 0.71 1.26 0.62 0.53 0.34 2014 0 2012 Electronics National Average (Manufacturing)* 2013 2014 National Average (Marine)* Marine ACCIDENT SEVERITY RATE ACCIDENT SEVERITY RATE (Number of incidents per million man hours) (Number of incidents per million man hours) MANUFACTURING MARINE 150 500 130 469.9 400 99 100 300 69 48.33 43.79 50 31.59 1.88 24.17 11.44 5.91 2012 2013 2014 13.48 0 Aerospace Land Systems * 200 149 100 9.2 Electronics National Average (Manufacturing)* 0 107 13.5 2012 2013 National Average (Marine)* 153 25.1 2014 Marine 2014 national average of manufacturing and marine sectors is an average of January to June only, as full year data is not yet available as of date of report preparation. 97 ANNUAL REPORT 2014 PERFORMANCE INDICATORS (2014) AEROSPACE ELECTRONICS LAND SYSTEMS MARINE 25 11 34 15 Audiometric Examination (Percentage of staff attended out of those identified at risk) 100% 100% 100% 100% Respiratory Protection Training (Percentage of staff attended out of those identified at risk) 100% 100% 100% 100% Number of Occupational Disease Cases 0 0 0 0 Number of Noise Induced Deafness Cases 0 0 1 0 No. of Occupational Health Activities Organised (target>4) Our occupational health programmes focused on risk assessment, hygiene monitoring, medical examination, noise induced deafness management and promotional activities. Our occupational health risk assessment programme involves regular reviews and surveillance inspections of the work environment. All employees identified to be exposed to occupational health hazards will undergo an annual medical examination. System Safety categories of products and services are assessed for improvement. ST Engineering steers all its businesses towards a culture of designing products that are safe to produce, safe to operate and safe to maintain through its system safety initiatives. It also strives to continually improve its system safety practices, especially in the area of software safety as more and more products incorporate embedded smart features. Health and safety impact of all significant We conducted inter-sector studies and sharing and engaged vendors to keep abreast of best practices in these focus areas. WSH Each business sector proactively identifies areas for improvement and plan new initiatives to promote system safety. We continue to participate actively in the annual International System Safety Conference to learn and share processes, methods and techniques that advance teams are formed to look into innovative practices and solutions to improve safety and health in the workplace. In 2014, the WSH teams also won various WSH awards in both industry and national conventions. For a list of our health and safety awards, please refer to page 63. objectives in the system safety discipline. In 2014, three papers were selected for presentation at the conference. In addition, each business sector also presents at least one topic for our annual internal ST Engineering System Safety Seminar, held in October 2014. 98 ST ENGINEERING / ABOVE & BEYOND E X E C U T I N G O P E R AT I O N S R E S P O N S I B LY Environment Climate change, widely thought by climate scientists to be caused by an increase in greenhouse gases in the atmosphere, is an issue of increasing urgency. Correspondingly, climate change is an issue of increasing importance to ST Engineering. We believe that a low carbon business strategy not only enables us to better respond to climate change regulations and price volatility of hydrocarbon resources, it also provides us with opportunities to meet the rising demand for energy efficient products. Being energy efficient also cuts our operating costs. Water is a valuable natural resource and ST Engineering believes in conserving it and ensuring that our operations are conducted in the most water efficient manner. Likewise, pollution is stringently controlled to protect our employees, and the communities where we operate. HOW WE MANAGE Environmental efforts are driven by the EHS Committee. Our objectives are set out in the EHS Statement (see page 94). • Benchmarking efforts and investing in technology towards environmental sustainability. All ST Engineering’s local business units are certified to ISO 14001:2004, and are audited by reputable third party auditors on a yearly basis. In addition, internal auditors who are our employees trained by external consultants also carry out audits to assess the implementation of our environment management system and standards. The audits also assess business units’ compliance with key legislation. Environmental issues are among those periodically reviewed and addressed by the Control SelfAssessment (CSA) Team and the Regulatory Compliance Audit (RCA) Team. In 2014, there were no significant fines or incidents relating to non-compliance of environmental laws and regulations. Environmental Management Plan for Excellence We take progressive steps towards achieving environmental sustainability and environmental excellence. Our challenge is to minimise our environmental impact across all our business sectors’ operations. Our commitments to tackle the challenges include: The environmental management plan for excellence shows how ST Engineering will progress through management systems to leadership and excellence, in alignment with our vision, mission and key strategic thrusts. • Analysing our energy consumption profile and its impact on climate change; • Taking initiatives towards better resource management through conservation programmes; • Making continuous effort on caring for the environment and prevention of environmental pollution; and Our first steps towards environmental sustainability focus on our processes that minimise the use of resources and environmental waste. The next steps will be examining the possibility of using renewable resources and evaluating the life cycle of ST Engineering’s products and processes to help us understand how they fit into the natural cycle, meaning that raw materials would come from renewable sources and waste would be assimilated into the environment without causing harm. The Group sets annual objectives and targets for its performance relating to the environment. These targets are supported by a work plan, which is an integral part of the EHS Committee’s annual plan. This work plan and EHS Committee’s annual plan are reviewed quarterly. The business sectors conduct a wide range of briefings and training on environmental compliance and related management topics for their employees in accordance to their needs. Other means of communication to raise environmental awareness include sharing of best practices, study visits and articles relating to the environment published in our newsletters. The newsletters are distributed to all employees and some of our customers. Environmental Products and Services Cities and organisations are increasingly looking to reduce their environmental impact. Our innovation and productivity initiatives incorporate these considerations into our product development. Energy efficiency, in particular, is an area of focus. Besides developing energy efficient products, we also design midlife upgrades with state-of-theart technology to ensure that products continue to perform in an energy efficient manner. This is important as most of our products have a long service life, and tend to consume significantly more energy than when first manufactured. In 2014, our investments in innovation resulted in energy reductions from our products and services, with estimated energy savings of 5,200 terajoules. 99 ANNUAL REPORT 2014 ENERGY CONSUMPTION Climate Change An external consultant was engaged in 2010 to map out the carbon footprint of ST Engineering’s operations in Singapore. In 2011, the 2010 greenhouse gas emissions computation was audited and validated to ISO14064. Operations in the USA had begun their greenhouse gas emissions computation journey in 2014. All operations in Singapore are planned to be ISO 50001 certified in 2015. We target to reduce greenhouse gas intensity by 16% below 2025 business as usual levels, with the base year set at 2010. 2012 2013 2014 Direct Energy Consumption (GJ) 410,356 578,560 362,749 Indirect Energy Consumption (GJ) 511,396 527,996 527,061 Energy intensity* (GJ/S$ m) 245.23 286.04 235.34 GREENHOUSE GAS INTENSITY* (tCO 2e/S$ M) 30 We are continuously exploring energy efficiency initiatives, including technological investments that provide a reasonable rate of return. These initiatives include: 29 • Installation of data loggers; 26 • Replacement of chillers and lighting to energy efficient models; 25 • Installation of motion sensors in toilets and staircases; • • 28 27 The amount of energy consumed is very dependent on the product mix delivered during the year. The greenhouse gas intensity remained at about the same level since 2012. Scope 1, 2 and 3 emissions decreased slightly in 2014. 25.94 26.76 2012 2013 2014 GREENHOUSE GAS EMISSIONS (tCO 2e) 2014 Use of transparent corrugated sheet to bring natural daylight to the production area in the day; and Implementation of productivity work measures such as more efficient layout and process flow. 28.52 2013 2012 29,598 39,454 32,223 Scope 1 emissions * 8,775 59,719 9,231 61,650 59,979 Scope 2 emissions 8,379 Scope 3 emissions Intensity figures are normalised using revenue from Asia, which Singapore is a significant contributor. In 2014, ST Engineering participated in the Carbon Disclosure Project (CDP) for the first time, and was named Best New Responding Company (for Hong Kong and South East Asia). 100 ST ENGINEERING / ABOVE & BEYOND E X E C U T I N G O P E R AT I O N S R E S P O N S I B LY E n v i r o n m e n t ( c o n t ’d ) Greenhouse Gas Inventory ISO 14064-1:2006 specifies principles and requirements at the organisation level for quantification and reporting of greenhouse gas (GHG) emissions and removals. The GHG Protocol defines direct and indirect emissions as follows: • Direct GHG emissions are emissions from sources that are owned or controlled by the reporting entity. • Indirect GHG emissions are emissions that are a consequence of the activities of the reporting entity, but occur at sources owned or controlled by another entity. The GHG Protocol further categorises these direct and indirect emissions into three broad scopes: • Scope 1: All direct GHG emissions. • Scope 2: Indirect GHG emissions from consumption of purchased electricity, heat or steam. • Scope 3: Other indirect emissions, such as the extraction and production of purchased materials and fuels, transport related activities in vehicles not owned or controlled by the reporting entity, electricity related activities (e.g. T&D losses) not covered in Scope 2, outsourced activities, waste disposal, etc. 101 ANNUAL REPORT 2014 Environment Protection ST Engineering business sectors use water in their facilities for processes, products, cooling, cleaning and general sanitation uses. Our source of water is solely from municipal water supplies. In 2014, our water consumption increased by about 26%. Water efficiency improvement efforts were focused on Marine and Land Systems sectors, which accounted for 70% of total water consumption. Initiatives undertaken included installation of digital water meters at strategic locations within the facilities, installation of watersaving devices such as water thimbles and flow reducing valves, and the use of NEWater for certain processes. Water conservation awareness was promoted through toolbox briefings, talks, productivity projects and other campaigns such as World Water Day. In addition, the business sectors aim to implement the Water Efficiency Management Plan in 2015, so as to further improve water conservation initiatives. All ST Engineering business sectors have introduced waste minimisation and recycling initiatives. We constantly monitor our operations to look out for opportunities to reduce, recycle or reuse the waste generated. This includes the use of computer numerical controlled (CNC) cutting machines to minimise material wastages and initiating doublesided printing for all working documents. Based on the Code of Practice on Pollution Control, our business units have taken conscious efforts to reduce pollutants generated as a result of operations. This includes • Regular monitoring of waste discharges, e.g. air, liquid, solid; • Segregation of waste through waste bin management programme which include heavy metals, lead batteries, contaminated oil and plastics etc; • Substituting the use of environmentally friendly degreaser and chemicals for components and vehicle washing/maintenance; • Centralising the storage, monitoring and distribution of chemicals for better control; and • Introduction of wet abrasive blasting to progressively replace conventional blasting. WATER CONSUMPTION (‘000 m3) 908 2014 2013 2012 More than 1,500 employees forming a water droplet in support of World Water Day. 721 818 102 ST ENGINEERING / ABOVE & BEYOND E X E C U T I N G O P E R AT I O N S R E S P O N S I B LY Sustainable Procurement ST ENGINEERING RECOGNISES OUR DEPENDENCY ON THE TIMELY DELIVERY AND QUALITY OF KEY MATERIALS PROVIDED, AND QUALITY OF PERFORMANCE BY SUB-CONTRACTORS AND SUPPLIERS. THESE ARE RISKS THAT WE MANAGE DILIGENTLY AND MITIGATE WHERE POSSIBLE. TO ENSURE ST ENGINEERING’S LONG TERM GROWTH AND PROFITABILITY, WE MUST MANAGE THE SUPPLY CHAIN IN A MORE EFFECTIVE AND SUSTAINABLE MANNER. TOTAL PURCHASE VALUE (S$M) 2,479 2014 1,797 2013 1,722 2012 0 2500 PURCHASE VALUE BY SECTOR 4% 2% 36 % % 25 33 % Aerospace Electronics 2014 Land Systems Marine Others NUMBER OF SUPPLIERS BY LOCATION Total number of suppliers: 15,675 % 9.5 7.4 % 5.4 % 0.9 % % 0.4 % .4 76 Singapore USA/Canada Europe 2014 Asia (excluding Singapore) Australia/New Zealand Others In December 2013, we engaged a consultant to assist in the development of a procurement sustainability strategy for the Group. Working with the consultant, the Group mapped out our supply chain and undertook a supply chain sustainability risk assessment, which included a SWOT analysis, and assessing the economic, social and environmental impacts in the supply chain. The Group’s businesses rely on a diverse range of suppliers to deliver high quality goods and services to customers. Our suppliers include Original Equipment Manufacturers (OEMs), Commercial Off-the-Shelf (COTS) goods manufacturers and suppliers, authorised distributors, stockists and agents, wholesalers and traders, contractors, sub-contractors and services providers. Across our business sectors, we purchase a wide variety of goods and services as illustrated on page 103. The Group purchased more than $2.47b worth of goods and services in 2014 from a diverse range of suppliers across our businesses. Our supplier base included 15,675 suppliers located in 73 countries, of which about 76.4% per cent of these were suppliers based in Singapore. In 2014, Singaporebased suppliers accounted for 52.6% per cent of our total purchase value at the Group level. Less than 5% of our suppliers were located in developing countries. In other words, a large majority of our suppliers are in developed countries where social and environmental risks are considered to be low. The Group intends to develop a sustainability vision, policy and strategy, and a supply chain monitoring and audit framework which will be progressively implemented across the Group from 2015. 103 ANNUAL REPORT 2014 ST ENGINEERING GROUP SUPPLY CHAIN An Overview AEROSPACE ELECTRONICS LAND SYSTEMS MARINE TYPES OF GOODS AND SERVICES PROCURED Aircraft engine, parts and components. Oil and lubricants and chemicals. Aviation fuel. Engineering services and on-wing support. Electronic hardware, parts, components and equipment. Communication hardware, parts, components and equipment. Tools and GSE Support. Electrical hardware, parts, components and equipment. Calibration. IT Software. Safety Equipment. Miscellaneous industrial tools and items. Services, sub-contractors. Packaging material. Safety equipment. Services, sub-contractors. Engines, transmissions, electronics, electrical, tyres and other parts and components of vehicles. Major marine equipment Materials: steel, aluminum, titanium, rubber, plastic, chemicals etc Navigational aid and communication equipment. Casting, Forging, Extrusion. Vehicle fuel, oil and lubricants. Production equipment and supply. Miscellaneous industrial tools and items. Measuring and testing equipment. Safety equipment. Services, sub-contractors. IT Equipment and Services Office supplies Professional Services Marine hardware and automation. Bulk material: Timber and building material, steel material, Aluminum material, rubber material Miscellaneous industrial tools and items. Marine fuel. Furniture & fittings, sanitation fittings. Safety equipment Services, sub-contractors. 104 ST ENGINEERING / ABOVE & BEYOND SUPPORTING COMMUNITIES Community Employees organised an outing to River Safari for the underprivileged. Our engineering expertise provides us an opportunity to inspire students to build a better future for themselves and others. In partnership with Assumption Pathway School (APS), ST Engineering organised a project where students build professional grade remote-controlled vehicles with the support of our staff mentor. The project cumulated in an exciting and memorable race event and the formation of the school’s RC (remote control) Club where current and future students could join to learn more about wireless control applications. With the objective to inspire and motivate students to stay and do well in school, ST Engineering aimed to forge a well-rounded partnership. Students participated in student attachments, and are given opportunities to visit our facilities and interact with our engineers and technicians. We created academic awards for excellence and the most improved, and funded an assistance scheme for needy students to support expenses such as textbooks, transport, and school lunches. At ST Engineering, supporting communities where we operate enables us to cultivate employees with compassion, one of our core values. We are committed to be a good corporate citizen, a firm that our employees are proud to belong to. We seek to leverage on our unique expertise to benefit lesser served segments of society. HOW WE MANAGE We focus our efforts on the less fortunate in society. Our community contributions operate both at a Group and business sector level. In order to assess our contributions and impact on the community systematically, we adopted the London Benchmarking Guidelines (LBG) in 2014. In recent years, ST Engineering has been exploring longterm partnerships where it can contribute with its vast engineering resources and expertise. To this end, we embarked on a partnership with Assumption Pathway School (APS) in 2013. APS is an educational institution that works to transform and empower students who have difficulty accessing or completing mainstream education. We have extended it for the next three years with the hope that the partnership can develop in size and content to benefit more students. Our sponsorship amounts to an annual commitment of $30,000. We are working with SG Enable, a unit of the Ministry of Social and Family Development, to support the Enabling Village. When completed in third quarter of 2015, the Enabling Village will be a focal point of services for Persons with Disabilities (PWD) and their caregivers. Within the Enabling Village is a one-stop consultancy 105 ANNUAL REPORT 2014 COMMUNITY CONTRIBUTIONS TOTALING $1.37M IN 2014 ISSUES ADDRESSED % ADDITIONALLY, $0.8M WAS RAISED AND 5,375 HOURS WERE DEDICATED BY OUR EMPLOYEES FOR OUR CHARITY PARTNERS IN 2014. 2014 Cash Time In-Kind Management and education centre to showcase how assistive and information technologies (AT/IT) can help meet the needs of PWD, as well as educate caregivers, employers and the public about AT/IT equipment available. The centre at the Enabling Village will also allow our engineers to put to good use their expertise to help PWD. We contribute financially to various charities on a regular basis. For example, we continued our support for the President’s Challenge in 2014 with a contribution of $370,000. Our donations were channelled to Community 36 % % 20 24 % 2% 77 1 2% 1% 10 % OUR CONTRIBUTIONS Social Welfare Environment 18 % 2014 Education Health Chest and Voluntary Welfare Organisations by the organiser of the President’s Challenge. Our people also give their time. Our employees organise visits, outings and celebrations with the less fortunate in society, and also volunteered for the International Coastal Cleanup Singapore. Employees and their families participated in the International Coastal Cleanup Singapore. Arts & Culture 106 ST ENGINEERING / ABOVE & BEYOND C O R P O R AT E G O V E R N A N C E ST Engineering’s framework of corporate governance reflects an institutional mindset of accountability and transparency at all levels of the Group. We believe that good corporate governance is not only the Board’s responsibility, but that of the management and every level of the organisation. This Report sets out ST Engineering’s corporate governance processes, practices and activities in 2014 with specific reference to the guidelines of the Singapore Code of Corporate Governance 2012 (the Code). BOARD MATTERS Board’s Conduct of its Affairs (Principle 1) The Board is accountable to shareholders for overseeing the effective management of the business. To this end, the Board relies on the integrity and due diligence of its senior management and its external advisors and auditors. In addition to its statutory responsibilities, the Board reserves the following matters for its decision: • approval of the Group’s overall long term strategic objectives and ensuring that decisions made are consistent with these objectives; • approval of annual budgets, major funding proposals, investment and divestment proposals in accordance with the approved delegation of authority framework; • appointment of the President & CEO, Board changes and appointments on Board committees; • review of the risk management framework through its Risk Committee as set out in page 118; and • approval of the unaudited quarterly, half yearly and full year audited results prior to their release. Besides monitoring the performance of the Group, the Board also provides guidance on sustainability issues such as environmental and social factors, as part of the overall business strategy. Board meetings may include presentations by the managements of its four key subsidiaries to discuss growth strategies relating to their specific business sectors. In the discharge of its functions, the Board is supported by nine Board committees to which it delegates specific areas of responsibilities for review and decision making, and the Executive Office. The Executive Office comprises the President & CEO, Deputy CEO, Deputy CEO (Corporate Development) and the Chief Financial Officer (CFO). Board members receive monthly consolidated management reports on the financial performance of each business sector, capital commitments and significant operational highlights to keep the Board apprised of business and performance updates in the Group. A formal letter is sent to a director upon his appointment setting out his duties and responsibilities. A new director is also given a briefing by the President & CEO on the strategic direction and performance of the Company and its key subsidiaries as well as his/her duties and obligations. Visits to the Group’s facilities are also arranged for new directors to enable them to develop a good understanding of the Group’s business and operations and the respective key managements. The Board is routinely updated on the relevant laws, continuing listing obligations and accounting standards requiring compliance, and their implications for the Group, so as to enable each Director to properly discharge his duties as Board and Board committee member. Depending on their skillsets and background, directors are sponsored for relevant courses, conferences and seminars in order that they can be better equipped to fulfil their governance role and to comply with directors’ obligations. Where there are statutory and regulatory changes that affect the obligations of directors, the Company will organise briefings by external legal counsel. During the year, a briefing by external legal counsel was conducted on changes to the Companies Act passed in Parliament on 8 October 2014. The changes would likely be effective in 2Q2015. We also arranged a session for our external auditors to brief the Board on impending changes to the accounting standards relating to revenue recognition which would likely impact the way ST Engineering recognises its revenue and profit. These changes would likely take effect in 2017. The Board convenes scheduled meetings on a quarterly basis to coincide with the announcement of the Group’s quarterly results. Special Board meetings may be convened as 107 ANNUAL REPORT 2014 C O R P O R AT E G O V E R N A N C E and when necessary to consider urgent corporate actions, long term strategies or specific issues of importance. To facilitate the Board’s decision-making process, the Company’s Articles of Association provides for Directors to participate in Board meetings by teleconference or video conference. Decisions of the Board and Board committees may also be obtained via circulation. The Board monitors the performance of the Group through its Board committees. At the end of every Board meeting, the Chairman allocates time for its non-executive Directors to meet without the presence of Management. The number of Board and Board committee meetings held during the year is tabulated below: TYPE Of MEETING NO. Of MEETINGS ATTENDANCE AVERAGE Board 5 88% Audit Committee 6 92% Business Investment and Divestment Committee – – Executive Resource and Compensation Committee 5 87% Nominating Committee 3 100% Senior Human Resource Committee 1 100% Risk Review Committee 5 77% Budget and Finance Committee 2 100% Research, Development and Technology Committee 3 89% Tenders Committee – – Minutes of the Board Committee meetings are made available to all Board members. Board Composition and Guidance (Principle 2) The Board comprises 14 directors and an alternate director. The Board, through the Nominating Committee (NC), reviews the size and composition of the Board taking into consideration the need to balance the diversity of skillsets and backgrounds with the independence element. The Board is also mindful of the need for board rejuvenation. During the year, the Board was pleased to welcome the following 3 new non-executive directors: • MG (NS) Ng Chee Khern joined the Board as nonindependent non-executive Director and member of the Budget and Finance Committee on 20 May 2014. MG (NS) Ng is the Permanent Secretary (Defence Development) (Ministry of Defence) and 2nd Permanent Secretary (Ministry of Health). • Ms Olivia Lum Ooi Lin was appointed independent non-executive Director and member of the Risk Review Committee on 20 May 2014. She is the Executive Chairman and Group CEO of Hyflux Ltd. • Dr Beh Swan Gin joined the Board as an independent non-executive Director on 1 September 2014. He is the Chairman of the Singapore Economic Development Board with effect from 1 December 2014. 108 ST ENGINEERING / ABOVE & BEYOND The Board consists of members with established track record in defence, business, finance, banking, technology, legal and management. Each nonexecutive director brings to the Board an independent perspective based on his training and expertise to make balanced and well considered decisions. The Board has nine independent directors who represent more than 60% of the Board. The Code requires the independent directors to comprise at least half of the Board. The independence of each director is determined upon appointment and reviewed annually by the NC. The NC has affirmed that the independent directors are Mr Kwa Chong Seng, Mr Koh Beng Seng, Mr Venkatachalam Krishnakumar, Mr Davinder Singh, Dr Stanley Lai, Mr Khoo Boon Hui, Mr Quek See Tiat, Ms Olivia Lum and Dr Beh Swan Gin. The Board agrees with the NC’s assessment. Mr Koh Beng Seng was appointed independent non-executive Director on 15 September 2003. Mr Koh has extensive experience in financial services and knowledge of financial regulations which enables him to effectively lead the Audit Committee in providing oversight on internal controls to support the Board. He has also demonstrated independence of character and judgment in his deliberations at the Audit Committee and Board level. The Board has, on the recommendation of the NC, determined that Mr Koh is independent notwithstanding that he has served more than nine years on the Board. As Chairman of the Audit Committee, Mr Koh continues to express his independent views and challenges management at Audit Committee meetings. Mr Quek Poh Huat was appointed a non-executive Director on 15 April 2002. Mr Quek who will be retiring at the coming AGM of the Company in April 2015 has decided not to seek re-election. Mr Venkatachalam Krishnakumar was appointed independent non-executive Director on 15 April 2002. Mr Krishnakumar has considerable financial and operations experience having served as Chief Operating Officer and Chief Financial Officer for the Asia Pacific Consumer Bank of Citigroup when he retired in February 2005. Mr Krishnakumar’s knowledge of information technology is an added advantage and enables him to contribute to various aspects of financial and operational issues. Although Mr Krishnakumar has served as an independent director on the Board for more than nine years, he continues to exercise independence of judgment in Board deliberations. The Board has, at all times, exercised independent judgment in decision making, using its collective wisdom and experience to act in the best interests of the Company. Any director who has an interest that may conflict with a subject under discussion by the Board either recuses himself from the information flow and discussion of the subject matter or declares his interest and abstains from decision-making. The Board, through the NC, reviews its size and composition from time to time to ensure it has the right blend and diversity of skills, expertise, experience and perspectives to enable the Board to effectively oversee ST Engineering. The Board held a total of five meetings during the year to consider, among other things, the approval of the FY2013 results and release of the 1Q2014, 2Q2014 and 3Q2014 results. The Board reviewed the Group’s strategy plans to ensure that the work of the Group is aligned with its charter and corporate objectives taking into account the major challenges in the global environment in which we operate. Chairman & Chief Executive Officer (Principle 3) The Chairman and President & CEO roles and responsibilities are kept separate in order to maintain effective oversight. No individual or small group of individuals dominates the Board’s decision making process. The President & CEO and senior management regularly consult with individual Board members and seek the advice of members of the Board committees through meetings, telephone calls as well as by electronic mail. The Chairman is responsible for leading the Board and ensuring the effective functioning of the Board to act in the best interests of the Company and its shareholders. The Chairman facilitates the relationship between the Board, President & CEO and management, engaging them 109 ANNUAL REPORT 2014 C O R P O R AT E G O V E R N A N C E in constructive discussions over various matters, including strategic issues and business planning processes. He ensures that discussions at the Board level are conducted objectively and professionally where all views are heard and key issues are debated in a fair and open manner. The Chairman also ensures that adequate time is provided for strategic issues. He represents the views of the Board to the shareholders. Mr Kwa is considered an active Chairman on the basis of, among other things, the following considerations: i. ST Engineering, as a global conglomerate, has reached a point where rapid changes in technology, the consolidation of the defence, aerospace and engineering-related industries and challenges of the global economy have thrown up many challenges. Our ability to meet these challenges and at the same time, transform ourselves, is vital to its sustainability; ii. To achieve this, we need an active and experienced Chairman, with the right background and global experience; one who is willing to devote time and is committed to leading the Board and engaging with and guiding the management in strategic issues; and iii. Mr Kwa has spent and continues to spend time in the Company and has also involved himself in senior talent hires to strengthen the Company and Group and to manage succession. The President & CEO is Mr Tan Pheng Hock who is an executive Director. He is accountable to the Board for the conduct and performance of the Group. He sits on the boards of its key subsidiaries to ensure that decision-making processes and information flows are effectively channelled in a timely manner to ensure alignment with the ST Engineering Group’s policies. He has been delegated authority to make decisions within certain financial limits authorised by the Board. He is supported in his work by Mr Lee Fook Sun, Deputy CEO who is concurrently President, Defence Business and President of ST Electronics and Mr Vincent Chong Sy Feng, Deputy CEO (Corporate Development). They took up their new appointments on 1 December 2014. Mr Tan continues to be supported by the CFO, Ms Eleana Tan Ai Ching and the respective Presidents of the subsidiaries. Board Membership & Evaluation of Performance (Principles 4 and 5) Supporting the Board are the following Board committees: • Nominating Committee • Audit Committee • Business Investment and Divestment Committee • Executive Resource and Compensation Committee • Budget and Finance Committee • Research, Development and Technology Committee • Senior Human Resource Committee • Risk Review Committee • Tenders Committee Nominating Committee The NC is responsible for reviewing the composition of the Board and identifying and selecting suitable candidates to the Board, in particular, candidates with the appropriate qualifications, skillsets and experience who are able to discharge their responsibilities as directors. Shortlisted candidates are recommended to the Board for approval. The NC is also responsible for reviewing annually and determining the independence of non-executive directors, conducting board performance evaluation, succession planning for CEO and director training and development. The NC comprises three non-executive independent directors. Mr Venkatachalam Krishnakumar is the Chairman of the NC. The other members are Mr Kwa Chong Seng and Dr Stanley Lai. During the year, the NC reviewed and affirmed the independence of the Company’s independent directors and the composition and profile of Board members in relation to the needs of the ST Engineering Board. The NC does not make any determination on the tenure of an independent non-executive director as the NC takes the view that in ascertaining a Director’s independence, it is his ability to exercise 110 ST ENGINEERING / ABOVE & BEYOND independence of mind and judgment to act honestly and in the best interests of the Company that matters. The NC also reviewed the active chairmanship role and the attributes of an active chairman, as set out under Principle 3 above. The NC conducted a collective assessment of the Board to gauge the effectiveness of the Board’s performance, the adequacy of the blend of skillsets and experience of the Board, and the quality and timeliness of board and committee meeting agendas and papers submitted by the Management. The review was internally undertaken with each Director being asked to complete a questionnaire. Their feedback was collated and shared with the Board. The review indicated that the Board continues to function effectively. The NC has also noted the list of other directorships held by our directors taking into consideration their principal commitments. The NC is satisfied that each of the directors is able to devote time to his directorship role in the Company. The Board has considered and agreed not to set guidelines for maximum directorships in a listed company that a director can hold. Before a director accepts an invitation to join the Board, he is required to affirm that he is able to commit sufficient time to perform his role effectively. Annually, an incumbent director is asked to affirm that he has adequate time to devote to his Board responsibilities. The ST Engineering Board members are selected on the basis of their relevant skillsets, experience, calibre and willingness to contribute. In addition, each Director is required to provide an annual affirmation of commitment to his Board responsibilities. With these considerations, the Board is of the view that setting a maximum number of board representations on listed companies for our directors is not needed. The NC is also responsible for renewal and succession plans to ensure Board continuity. At each AGM, one third of the directors with the longest term in office since his last re-election is required to retire. A retiring director may submit himself for re-election. Under this provision, Messrs Koh Beng Seng, Quek Poh Huat, Venkatachalam Krishnakumar and Davinder Singh will retire. MG (NS) Ng Chee Khern, Ms Olivia Lum and Dr Beh Swan Gin, who are newly appointed, will hold office until the forthcoming AGM of the Company. The retiring directors, being eligible, have offered themselves for reelection, save for Mr Quek Poh Huat who has decided not to seek re-election. Except for MG (NS) Ng Chee Khern who is the brother of LG Ng Chee Meng, a Director of the Company, each of the retiring non-executive directors has confirmed that he/she does not have any relationship with his/her fellow directors nor with the Company and its substantial shareholders. The Board, acting on the recommendation of the NC, proposes that each of the retiring Directors, save for Mr Quek Poh Huat, be reelected at the Company’s forthcoming AGM. With the exception of Mr Tan Pheng Hock, the remaining thirteen directors are nonexecutive Directors. 111 ANNUAL REPORT 2014 C O R P O R AT E G O V E R N A N C E M C M M C M M M M C M M M M C M M M M M C M C M M Tenders Committee (established on 5/1/1998) Risk Review Committee (established on 7/12/1998) M Rolling list of any 3 Board Directors Senior Human Resource Committee (established on 16/1/1998) M Research, Development and Technology Committee (established on 1/8/2003) C Budget and Finance Committee (established on 5/1/1998) Nominating Committee (established on 4/12/2002) C M Executive Resource and Compensation Committee (established on 6/12/1997) Business Investment and Divestment Committee (established on 8/9/1997) BOARD MEMBER Mr KWA Chong Seng Mr TAN Pheng Hock Mr KOH Beng Seng LG NG Chee Meng MG (NS) NG Chee Khern* Mr QUEK Tong Boon Mr QUEK Poh Huat Mr Venkatachalam KRISHNAKUMAR Mr Davinder SINGH Dr Stanley LAI Tze Chang Mr KHOO Boon Hui Mr QUEK See Tiat Ms Olivia LUM Ooi Lin* Dr BEH Swan Gin# COL Alan GOH Kim Hua+ Audit Committee (established on 15/1/1998) The composition of the Board committees as at 31 December 2014 is tabulated below: DENOTES: C Chairman M Member * Appointed Member on 20 May 2014 # Appointed Member on 1 September 2014 + Alternate Director to LG NG Chee Meng Access to Information (Principle 6) The Management furnishes Board members with monthly management reports, providing updates on key operational activities and financial analysis. The Board also has unrestricted access to the President & CEO, Deputy CEO, Deputy CEO (Corporate Development), the CFO, management and the Company Secretary as well as the internal and external auditors and the risk management team. The Board may also seek independent professional advice, if necessary. Board papers are sent to directors at least three days prior to meetings in order for directors to be adequately prepared for the meetings. The Company Secretary attends all Board meetings and ensures that board procedures are followed. The Company Secretary advises the Board on governance matters including their timely disclosure obligations. She also assists with the co-ordination of continuing training for board members to keep the Board up-to-date on corporate governance matters. The appointment and removal of the Company Secretary is a matter for the Board as a whole to decide. 112 ST ENGINEERING / ABOVE & BEYOND REMUNERATION MATTERS Procedures for Developing Remuneration Policies (Principle 7) Level and Mix of Remuneration (Principle 8) Disclosure on Remuneration (Principle 9) ROLE Of EXECUTIVE RESOURCE AND COMPENSATION COMMITTEE The Executive Resource and Compensation Committee (ERCC) performs the role of the remuneration committee. The ERCC comprises Mr Kwa Chong Seng as Chairman, Mr Venkatachalam Krishnakumar and Dr Stanley Lai. The members of the ERCC have held senior positions in large organisations and are experienced in the area of executive remuneration policies and trends. All the ERCC members are independent nonexecutive directors. The ERCC met five times during the year. All decisions at any meeting of the ERCC are decided by a majority of votes of the ERCC members present and voting (the decision of the ERCC shall at all times exclude the vote, approval or recommendation of any member who has a conflict of interest in the subject matter under consideration). The ERCC performs the following duties and responsibilities: Executive Remuneration General Framework • Reviews and recommends to the Board the Group’s general framework for determining executive remuneration including the remuneration of the Chief Executive Officer (CEO), top five key management executives of the Group Companies and other senior management executives (collectively referred to as “Senior Management Executives”). Executive Director and Senior Management Executives • • Reviews and recommends to the Board the entire specific remuneration package and service contract terms for the CEO, who is also the executive Director. Considers, reviews, approves and/or varies (if necessary) the entire specific remuneration packages and service contract terms for the Senior Management Executives of the Group Companies. For FY2014, the Board reviewed and approved the specific remuneration packages and service contract terms for the key management executives. Non-executive Director Remuneration • Reviews and recommends to the Board the remuneration framework (including directors’ fees) for non-executive Directors on the relevant Group Boards. Equity Based Plans • Approves the design of equity based plans and reviews and administers such plans. Executive and Leadership Development • • Oversees the development of management with the aim of a continual build up of talent and renewal of strong and sound leadership to ensure the continued success of the Group and its businesses. Approves appointments to Senior Management Executive positions in the Group Companies and reviews succession plans for key positions in the Group Companies. The Senior Human Resource Committee, chaired by Mr Kwa Chong Seng, comprises LG Ng Chee Meng and Mr Tan Pheng Hock. The Committee reviews the talent management and leadership development initiatives to build a leadership pipeline for the Group. By supporting and directing the Group’s talent management and leadership initiatives, the Committee has helped to enhance the process of identification and development of talents to be groomed for senior positions. For financial year 2014, Carrots Consulting Pte Ltd was engaged as remuneration consultant (Remuneration Consultant) to provide professional advice on board and executive remuneration matters. Carrots Consulting and its principal consultant, Mr Johan Grundlingh, are independent and are not related to the Group or any of its Directors. EXECUTIVE REMUNERATION STRUCTURE Remuneration for the Senior Management Executives comprises a fixed component, variable cash component, share-based component and benefits. A. Fixed Compensation: The fixed component comprises the base salary and compulsory employer contribution to an employee’s Central Provident Fund (CPF). B. Variable Cash Compensation: The variable component includes the Monthly Performance Bonus (which is 1/12 of the 13th month salary), Performance Target Bonus and EVA-based Incentive Scheme. Performance Target Bonus (PTB) The PTB is a cash-based incentive for Senior Management Executives which 113 ANNUAL REPORT 2014 C O R P O R AT E G O V E R N A N C E is linked to the achievement of annual performance targets that will vary depending on their job requirements. Individual performance objectives are set at the beginning of each financial year. The objectives are aligned to the overall strategic, financial and operational goals of the Group and Company, and are cascaded down to a select group of key executives using scorecards, creating alignment between the performance of the Group, Company and the individual. While the performance objectives are different for each executive, they are assessed on the same principles across the following four broad categories of targets: • • • • Core Business People Development & Teambuilding Organisation Development Self Development The individual PTB payouts for the CEO and key management executives are determined by the ERCC based on the Group, Company and individual performance at the end of the financial year. The maximum PTB payout is capped at 2.5 times of monthly base salary. EVA-based Incentive Scheme (EBIS) The EBIS is established with the objective of motivating and rewarding employees to create sustainable shareholder value over the medium term achieved by growing profits, deploying capital efficiently and managing the risk profile and risk time horizon of the business. A portion of the annual performancerelated bonus of the Senior Management Executives is tied to the EVA achieved by the Group in the financial year. Under the plan, one-third of the accumulated EVA-based bonus, comprising the EVA declared for the financial year and the balance of such bonus brought forward from preceding years (which comprises multiple years of incentive dollars retained in the EVA bank), is paid out in cash each year. The remaining two-thirds are carried forward in the individual executive’s EVA bank. Amounts in the EVA bank are at risk because negative EVA will result in a clawback of EVA accumulated in previous years. This mechanism encourages the senior management to work for sustained EVA growth and to adopt strategies that are aligned with the long-term interests of the Group. In addition, the Group has a clawback facility with respect to the EVA bank in the event of a restatement of the financial results of the Group subsequent to an earlier misstatement and provisions for the forfeiture of the remaining EVA bank balance on termination due to misconduct or fraud resulting in any financial loss to the Group. Based on the ERCC’s assessment that the actual performance of the Group in financial year 2014 has partially met the predetermined targets, the resulting annual EVA declared under EBIS was adjusted accordingly. C. Share-based Compensation: Share awards which were granted in financial year 2014 were based on the Singapore Technologies Engineering Performance Share Plan 2010 (PSP2010) and the Singapore Technologies Engineering Restricted Share Plan 2010 (RSP2010) approved and adopted by shareholders of the Company at the Extraordinary General Meeting held on 21 April 2010. Yearly awards under the PSP2010 and RSP2010 do not exceed the internal annual limit of 1% of the total number of issued shares of the Company, set by the ERCC. Details of the share plans and awards granted are given in the Share Plans section of the Directors’ Report from pages 130 to 133. PSP2010 The PSP2010 is established with the objective of motivating Senior Management Executives to strive for sustained growth and performance in the Group. Pursuant to the PSP2010, the ERCC has decided to grant contingent awards on an annual basis, conditional on meeting targets set for a three-year performance period. With effect from financial year 2010, the performance measures used in PSP grants under PSP2010 are: • Absolute Total Shareholder Return (TSR) against Cost of Equity hurdles (i.e. measure of absolute Wealth Added); and • Relative TSR against Defensive Stock Index, the constituents of which are selected “defensive stock” companies that have similar market risk as the Group and are listed on the Singapore Exchange Securities Trading Limited (SGX). A minimum threshold performance is required for any performance shares to be released to the recipient at the end of the performance period. The actual number of performance shares released will depend on the achievement of set targets over the performance period, capped at 170% of the conditional award. The final PSP award is conditional on the vesting of the shares under the RSP2010 which have the same performance end period. The Group has clawback policies for the unvested shares under PSP2010 in the event of exceptional circumstances of restatement of the financial results of the 114 ST ENGINEERING / ABOVE & BEYOND Group subsequent to an earlier misstatement, or of misconduct or fraud resulting in any financial loss to the Group. The Group has attained an achievement factor which is reflective of outperforming the pre-determined target performance level for PSP awards granted based on the performance period from financial year 2012 to 2014. RSP2010 The RSP2010 is established with the objective of motivating managers and above to strive for sustained long-term growth and superior performance in the Group. It also aims to foster a share ownership culture among employees within the Group and to better align employees’ incentives with shareholders’ interest. Pursuant to the RSP2010, the ERCC has decided to grant contingent awards on an annual basis, conditional on targets set for a two-year performance period. The performance measures, set based on the Group corporate objectives, are: • • Group EVA Spread; and Group EBITDA Margin. A minimum threshold performance is required for any restricted shares to be released to the recipient at the end of the performance period. The actual number of shares released will depend on the achievement of set targets over the performance period, and will be determined by the ERCC at the end of the performance period, capped at 150% of the conditional award. The shares will be released over three consecutive years at the rate of 50%, 25% and 25%. The Group has clawback policies for the unvested shares under RSP2010 in the event of exceptional circumstances of restatement of the financial results of the Group subsequent to an earlier misstatement, or of misconduct or fraud resulting in any financial loss to the Group. The Group has attained an achievement factor which is reflective of partially meeting the pre-determined target performance level for RSP awards granted based on the performance period from financial year 2013 to 2014. D. Market-Related Benefits: The benefits provided are comparable with local market practices. period from financial year 2008 to financial year 2013. Under the Code, the compensation system shall take into account the risk policies of the Group, be symmetric with risk outcomes and be sensitive to the time horizon of risks. The ERCC has conducted a Compensation Risk Assessment to review the various compensation risks that may arise, and introduced mitigating policies to better manage risk exposures identified. The ERCC will undertake periodic reviews of the compensation-related risks. The Code requires a company to disclose the names and remuneration of the CEO and at least the top five key management personnel (who are not also directors or the CEO). Details of the remuneration package for the CEO are provided in the Summary Compensation Table for Directors on pages 116 to 117. Details of the remuneration packages for the key management executives are provided in the Summary Compensation Table for Key Management Executives on page 117. During financial year 2014, there were no termination, retirement and post-employment benefits granted to Directors, CEO and key management executives other than in accordance with the standard contractual agreement. In performing the duties as required under its Terms of Reference, the ERCC ensures that remuneration paid to the Senior Management Executives is strongly linked to the achievement of business and individual performance targets. The performance targets as determined by the ERCC are set at realistic yet stretched levels each year to motivate a high degree of business performance with emphasis on both short- and long-term quantifiable objectives. A Pay-for-Performance Alignment study was conducted by the Remuneration Consultant and reviewed by the ERCC; it was found that there was sufficient evidence indicating Pay-forPerformance Alignment for the Group in both absolute and relative performance terms against a peer group of large listed companies for the six-year Non-executive Directors (NEDs) have remuneration packages consisting of Directors’ fees and attendance fees, which are approved in arrears by shareholders for services rendered in the previous year. The Directors’ fee policy is divided into basic retainer fees and additional fees for serving on Board committees. There were no employees who were immediate family members of a Director or the CEO, and whose remuneration exceeded S$50,000, during financial year 2014. NON-EXECUTIVE DIRECTOR REMUNERATION For services rendered in financial year 2014, eligible NEDs will receive 70% of the total Directors’ fees in cash and 30% of the total Directors’ fees in the form of restricted shares which are governed by the terms of RSP2010, subject to shareholders’ approval at its AGM in April 2015. As the restricted shares are awarded in lieu of Directors’ compensation in cash, the shares will be awarded outright as fully 115 ANNUAL REPORT 2014 paid shares with no performance conditions attached and no vesting periods imposed. To encourage the alignment of interests of the NEDs with the interests of shareholders, the share award has a moratorium on selling. Each eligible NED is required to hold shares in the Group worth the lower of: (a) the total number of shares in the Group awarded to such NED as payment of the shares’ component of the NEDs’ fees for financial year 2011 and onwards; or (b) the number of shares of equivalent value to the prevailing annual basic retainer fee for a Director of the Group. An NED can sell all his shares in the Group a year after the end of his Board tenure. The Board recommends that Mr Kwa Chong Seng be recognised for his contributions with an all-in fee of S$600,000 per annum (Active Chairman fee) having served as an Active Chairman for the full financial year 2014, subject to shareholders’ approval at the forthcoming AGM in April 2015. The Active Chairman fee is in lieu of all Board and Board Committee basic retainer fees and meeting attendance fees. The fee will be paid in a combination of cash (70%) and shares (30%). The share award, as part of the fee, will consist of fully-paid shares with no performance conditions attached and no vesting period imposed. However, the shares will have to be held for at least two years from the date of award, and the twoyear moratorium will apply even in the event of retirement. The NEDs’ compensation payable in respect of financial year 2014 is proposed to be S$1,592,830 (FY 2013: S$1,198,660). Details of the Directors’ remuneration are provided in the Summary Compensation Table for Directors on pages 116 to 117. The computation of NEDs’ compensation is based on current fee policy rates. from Private Sector ($) 2014 Active Chairman Fee 600,000 Basic Retainer Director 72,000 Additional/Committee Fees Audit Committee: – Chairman – Member Executive Resource and Compensation Committee and Risk Review Committee: – Chairman – Member Other Committee: – Chairman – Member Attendance Fees Per Board Meeting Per Board Committee Meeting 52,000 29,000 35,000 18,000 29,000 14,000 2,000 1,000 Fees to directors who hold public sector appointments follow the Directorship & Consultancy Appointments Council (DCAC)’s guidelines as set out below. from Public Sector ($) 2014 Chairman Deputy Chairman/Chairman Executive Committee/ Chairman Audit Committee Member Executive Committee/Member Audit Committee/ Chairman of Other Board Committee(s) Director/Other Committee Member 45,000 33,750 22,500 11,250 NEDs who hold public sector appointments follow DCAC guidelines and will not be eligible for the shares component of the NEDs’ compensation. 100% of their compensation in cash is payable to DCAC, where applicable. 116 ST ENGINEERING / ABOVE & BEYOND Summary compensation table for directors for the year ended 31 December 2014 (Group): Name of Director Executive Director: TAN Pheng Hock Name of Director Non-Executive Directors: KWA Chong Seng KOH Beng Seng LG NG Chee Meng MG (NS) NG Chee Khern QUEK Tong Boon QUEK Poh Huat Venkatachalam KRISHNAKUMAR Davinder SINGH s/o Amar Singh Dr Stanley LAI Tze Chang KHOO Boon Hui QUEK See Tiat Olivia LUM Ooi Lin Dr BEH Swan Gin COL Alan GOH Kim Hua (Alternate to LG NG Chee Meng) *1 *2 *3 *4 *5 (a) (b) (c) (d) (e) (f) Salary *1 $ 1,263,900 Salary *1 $ Variable *2 Benefit *3 $ $ 1,174,109 167,864 Variable *2 Benefit *3 $ $ Share-based *4 $ Directors’ Total fees *5 CashSharebased based $ $ 900,008 Share-based *4 $ (a) Total $ N.A. 3,505,881 Directors’ Total fees *5 CashSharebased based $ $ Total $ – – – – – – – – – – – – – – – – – – – – – – – – 420,000 180,000 95,200 40,800 – 22,500 (b) – 6,926 (b)(c) – 28,250 (f) 56,100 130,900 (f) 600,000 136,000 22,500 6,926 28,250 187,000 – – – – 134,400 57,600 192,000 – – – – – – – – – – – – – – – – – – – – – – – – 93,100 149,800 (f) 22,500 (b) 81,900 43,683 (d) 3,750 (b)(e) 39,900 64,200 – 35,100 18,721 – 133,000 214,000 22,500 117,000 62,404 3,750 – – – – – – – – – 1,232,909 – – 492,421 1,725,330 Salary includes base salary and employer CPF for the financial year ended 31 December 2014. Variable includes Monthly Performance Bonus (which is 1/12 of the 13th month salary or AWS paid over 12 months), Performance Target Bonus paid & EVA declared* for the financial year ended 31 December 2014. * The EVA declared for the year is added to the balance brought forward in each of the executive’s EVA Bank. 1∕3 of the total is paid out, with the balance 2∕3 carried forward to the next year. A negative EVA declared will result in a clawback of EVA declared in previous years. Benefits provided for employees are comparable with local market practices. These include medical, dental, insurances, car, transport, etc. Based on the fair values of PSP and RSP Contingent shares granted in 2014, using the Monte Carlo simulation model. The directors’ cash fees and share awards will only be paid/granted upon approval by the shareholders at the forthcoming AGMs of the Group. Fees payable to Tan Pheng Hock of $251,750 includes fees for directorships in subsidiaries and are payable to Singapore Technologies Engineering Ltd. Fees for public sector directors are payable to a government agency, the DCAC. Pro-rated. MG (NS) Ng Chee Khern was appointed as Director on 20 May 2014. Pro-rated. Ms Olivia Lum Ooi Lin was appointed as Director on 20 May 2014. Pro-rated. Dr Beh Swan Gin was appointed as Director on 1 September 2014. Includes fees for directorship in subsidiary(ies)/associated company. 117 ANNUAL REPORT 2014 The following information relates to remuneration of directors of ST Engineering: Number of Directors in Remuneration Bands $500,000 and above $250,000 to $499,999 Below $250,000 Total 2014 2013 2 0 12 14 2 0 12 14 Summary compensation table for key management executives for the year ended 31 December 2014 (Group): Remuneration $ Salary *1 $ Variable *2 Benefit *3 $ $ Share-based *4 $ Total $ Between $2,250,000 and $2,500,000 Lee Fook Sun 27% 53% 4% 16% 100% Between $1,500,000 and $1,750,000 Ng Sing Chan John Coburn 33% 55% 37% 25% 6% 1% 24% 19% 100% 100% Between $1,000,000 and $1,250,000 Sew Chee Jhuen 43% 19% *5 7% 31% 100% *5 Total for Key Management Executives *1 *2 *3 *4 *5 $5,809,269 Salary includes base salary and employer CPF for the financial year ended 31 December 2014. Variable includes Monthly Performance Bonus (which is 1/12 of the 13th month salary or AWS paid over 12 months), Performance Target Bonus paid and EVA declared* for the financial year ended 31 December 2014. * The EVA declared for the year is added to the balance brought forward in each of the executive’s EVA Bank. 1∕3 of the total is paid out, with the balance 2∕3 carried forward to the next year. A negative EVA declared will result in a clawback of EVA declared in previous years. Benefits provided for employees are comparable with local market practices. These include medical, dental, insurances, car, transport, etc. Based on the fair values of PSP and RSP Contingent shares granted in 2014, using the Monte Carlo simulation model. Total Remuneration and variable bonus exclude negative EVA declared of $984,121 which will be clawed back from his individual EVA Bank. Note: Vincent Chong Sy Feng and Lim Serh Ghee took on new roles as Deputy CEO (Corporate Development), ST Engineering and President, ST Aerospace respectively with effect from 1 December 2014. As Key Management Executives, their remunerations will be disclosed in the FY2015 Annual Report. 118 ST ENGINEERING / ABOVE & BEYOND C O R P O R AT E G O V E R N A N C E ACCOUNTABILITY AND AUDIT Accountability (Principle 10) The Board is responsible for providing a balanced assessment of the Company’s performance, position and prospects. In presenting the annual financial statements and quarterly results announcements to shareholders promptly, it is the aim of the Board to provide the shareholders with a detailed analysis, explanation and assessment of the Group’s performance, position, risk review and prospects. Directors are required to issue a Negative Assurance Statement to accompany the Company’s interim financial results announcement. For this purpose, certain internal procedures have been put in place to enable each member of the Board reviewing the interim financial statements to immediately raise any material information known to him which may render the interim financial results to be false or misleading prior to their release to SGX. Should there be any significant adverse issue(s) raised by the Audit Committee (AC) or Board member which may affect the results in a material way, the scheduled date of the results announcement will be postponed to allow time for investigation or further review. The appointment of auditors is subject to approval at each AGM. In making its recommendations to shareholders on the appointment and re-appointment of auditors, the Board relies on the review and recommendations of the AC. KPMG LLP in Singapore audits Singapore incorporated subsidiaries that are not exempt from audit under the Singapore Companies Act. Subsidiaries incorporated in countries outside Singapore that require an audit in their local jurisdictions are largely audited by other independent member firms of the KPMG network affiliated with KPMG International Cooperative, a Swiss entity. Some of our overseas associates and joint ventures which engage other auditing firms do not constitute a significant number. The names of the auditing firms of our subsidiaries, associates and joint ventures are disclosed at pages 205 and 210 of this Annual Report. The Company has complied with Rules 712 and 715 of the SGX Listing Manual in relation to the engagement of its auditors. Directors and key senior executives of the Group are prohibited from dealing in ST Engineering shares two weeks before the announcement of ST Engineering’s first quarter, second quarter, third quarter, and full year results up to the date of the announcement of the results. Directors are discouraged from trading on short term considerations. Additionally, all directors of the Group and employees are reminded not to trade in situations where the insider trading laws and rules would prohibit trading. The directors’ interests in shares of ST Engineering and its related companies during the year are found on pages 124 to 129 of this Annual Report. Risk Management and Internal Control (Principle 11) Internal Audit (Principle 13) The AC, with the support of the respective Sectors’ Risk and Audit Committees (RACs) oversees and appraises the quality of the IA function. The Board, through the AC, Risk Review Committee (these Committees are deliberately kept separate at the holding level to specifically focus on each important area of responsibility) and the RACs, is responsible for oversight of the risk management responsibilities, internal controls and governance processes delegated to Management. The IA supports the AC and RACs in reviewing the adequacy of the Company’s internal control system. Staffed by qualified auditors, IA has unrestricted direct access to the AC. The Head of IA’s primary line of reporting is to the Chairman of the AC, although she reports administratively to the President & CEO of the Company. IA plans its internal audit schedules in consultation with, but independently of, management. The IA Plan is submitted to the RACs and the AC for approval at the beginning of each year. The RACs and the AC also meet with IA at least once a year without the presence of management to gather feedback on management’s level of cooperation and other matters that warrant the RACs’ and the AC’s attention. All IA reports are submitted to the RACs and the AC for deliberation with copies of these reports extended to the relevant senior management, for prompt corrective actions, as recommended. Furthermore, IA’s summary of findings, recommendations and updates on management actions taken are discussed at the quarterly RACs and AC meetings. During the year, a joint Risk Review Committee (RRC) 119 ANNUAL REPORT 2014 and AC meeting was held in accordance with the respective terms of reference of the committees to facilitate constructive sharing of the common issues that may need to be addressed by both these committees. A risk-based Internal Audit Framework was endorsed by the RACs and the AC linking the audit plan to the key risks identified in the Group as part of the overall objective to strengthen corporate governance and to seek independent assurance on the effectiveness and adequacy of the system of risk management in the Group. During the year, IA worked with Management to align companies to the Group’s internal control environment and compliance standards in order to strengthen the self-regulating checks and balances. IA also made periodic visits to overseas subsidiaries to review their operations to ensure compliance with the internal controls framework. An external accounting firm, which is not the external auditors of the Company, was engaged to assist IA. In accordance with its plan, surprise audits were conducted in the course of the year on selected areas including treasury activities. Dormant bank accounts were also reviewed against bank mandates, bank statements, balances, etc. There were no material issues highlighted following the surprise audits. Control issues are discussed at AC meetings. The IA continued with its system of rating a company at the end of an internal audit for the purpose of differentiating the high risk issues which require immediate attention. Based on the internal controls established and maintained by the Group, work performed by the internal and external auditors, and reviews performed by Management and various Board Committees, the Board, with the concurrence of the RACs and the AC, is satisfied that the Group’s framework of internal controls and procedures as well as risk management systems are adequate as at 31 December 2014 to provide reasonable, but not absolute, assurance of achieving its internal control objectives and addressing financial, operational, compliance and information technology risks. The Board is satisfied that problems are identified on a timely basis and follow up actions are taken promptly to minimise unnecessary lapses. The Board, through the board committees, is supported in these areas by the Internal Audit and Risk Management teams of the Company. In this regard, the Board also notes that no system can provide absolute assurance against the occurrence of material errors, poor judgment in decisionmaking, human error, fraud or other irregularities. Risk Review Committee The RRC, chaired by Mr Khoo Boon Hui, comprises LG Ng Chee Meng, Mr Davinder Singh, Mr Venkatachalam Krishnakumar, Ms Olivia Lum and Mr Tan Pheng Hock. Each RAC oversees the risk and audit aspects at the Sector level. a) Risk Governance The RRC assists the Board in its risk governance responsibility. RRC’s role is one of oversight of the responsibility delegated to Management to ensure that there is a system of controls in place for identifying and managing risks in order to safeguard stakeholders’ interests and the Company’s assets. The RRC is supported by the Group Risk Management Team (GRMT), headed by SVP, Risk Management, working with the Sector Chief Risk Officers from each of the following Sectors: 1) Aerospace 2) Electronics 3) Land Systems 4) Marine The Head of GRMT reports to the Chairman of the RRC and ST Engineering’s President & CEO. The GRMT provides leadership in the implementation of a Group-wide Enterprise Risk Management (ERM) framework that allows risks to be identified, assessed, monitored and managed by the business managers. The respective RACs additionally take on the review of risks and risk management systems and assist in the discharge of the risk oversight responsibilities at the Sector level. Administratively, the RACs are supported by the GRMT and the Sector Chief Risk Officers. The GRMT ensures that there is general alignment in the quarterly risk agenda of the RAC meetings to that of the RRC. The annual risk work plan of each sector is also aligned to the Group risk work plan before it is approved by the respective RACs and further endorsed by the RRC. The RRC reviews the minutes of the RAC meetings which are circulated to all members of the RRC. The RAC Chairman or a member of the RAC is invited to attend the quarterly RRC meetings so as to have a clear understanding of group risk policies and to share any feedback or raise any issue that the RACs may have. 120 ST ENGINEERING / ABOVE & BEYOND In the respective Terms of Reference of the RRC and AC, the members of the RRC and the AC will come together at least once a year to discuss significant risks and audit issues of the group. There is at least a member on the RRC who is also a member of the AC to facilitate communication and access of information between the two committees. b) Risk Aware Culture and Training Embedding the right culture throughout the organisation is important for effective risk management. The RRC recognises good culture fosters openness that will enable Management and staff to escalate concerns in a timely manner without fear, as well as promote better judgment, which provides greater comfort to the Board and Management. As part of the risk awareness and communication programme, annual risk management training plans covering various risk topics are developed and implemented by the respective sectors, and the status of the training is updated to the RRC and RAC at periodic intervals. c) Risk Review Process Under the ERM framework, a risk dashboard of the top 15 business risks (comprising the key inherent risks that may impact the business objectives) is developed and maintained by each of the significant business units, rolling up into a summary dashboard for each of the four business sectors – Aerospace, Electronics, Land Systems and Marine. Once the top business risks are identified, measures will then be taken to develop and implement risk preventive and mitigation actions (collectively known as “controls”) and risk monitoring processes. The business managers are required to periodically review the effectiveness of the controls implemented, and initiate necessary changes as the risk profile changes. Quarterly, the Presidents and the Sector Chief Risk Officers review, with the RRC and RAC, their respective dashboard of top 15 business risks. At the meetings, the Presidents and Sector Chief Risk Officers would discuss the risk management action plans and measures to address these top business risks. At the same time, the Presidents and Sector Chief Risk Officers would also highlight the following for discussion: 1) emerging trends and issues in each business sector 2) new risk or changes to existing risk profile 3) new risk incident 4) major risk exposures 5) risk management actions taken on previously identified risks The Committee met five times during the year. d) Risk Management Self Assurance Process The Risk Management Self Assurance is a process whereby the business risk owners, together with the respective control owners, evaluate and assess the operational effectiveness of the controls established to manage the key risks that are reported in Sector Risk Dashboard. On the basis of this self assessment, annually, the RACs and RRC will receive from the respective Sector Presidents and Sector Group Financial Controllers written assurances on the adequacy and effectiveness of the system of risk management and controls to manage the significant risks. For more information on the Company’s principal inherent risks, and risk management framework, please refer to the “Risk Management Section” at page 118 of this Annual Report for more details. System of Internal Control and Risk Management The Board receives, at regular intervals, updates from the Board committees on the key business risks, the material controls to manage these risks, and the internal audit reports on the operational effectiveness of the material controls. The Board has also received assurance from the Group’s President & CEO and CFO on the effectiveness of the Company’s risk management and internal control systems, that the financial records have been properly maintained and that the financial statements give a true and fair view of the Company’s operations and finances. 121 ANNUAL REPORT 2014 The Board is satisfied with the risk management process in place, and, in its opinion, that the effectiveness and adequacy of the material controls to manage the key risks have been appropriately reviewed through the management self assurance process, as well as the independent assurance provided by the Company’s IA Function. • undertaking the statutory and regulatory functions of an AC as are prescribed by law from time to time; • reviewing the reports of the external and internal auditors to provide a further layer of assurance of the integrity, confidentiality and availability of critical information; Audit Committee (Principle 12) • reviewing interested person transactions; The AC is supported in its work by the audit committees of the four business sectors. The respective chairmen of the RACs of the four business sectors are invited to attend the AC meetings of ST Engineering so as to have a clear understanding of policies made at the holding company level and to share any feedback or raise any issue that the Sectors’ RACs may have. As a guiding principle to provide check and balance, a member of the AC should not also be a member of the Business Investment and Divestment Committee. • evaluating the work of the external auditors to determine their independence and recommending to the Board their re-appointment and compensation on an annual basis; and The AC has full authority to commission and review findings of internal investigations into matters where it is alerted of any suspected fraud or irregularity or failure of internal controls or infringement of any law likely to have a material impact on the Group’s operating results. It can investigate any matter within its terms of reference and with the full cooperation of management. The AC’s key terms of reference include the following: • reviewing the level of nonaudit services. The Company has in place a Whistle-Blowing framework, where staff may, in confidence and without fear of retaliation, raise concerns of incidents of possible wrongdoing or breach of applicable laws, regulations or policies to the respective chairmen of the RACs in the Group. In accordance with this framework, a WhistleBlowing dashboard reporting is presented to the Sectors RAC and the AC at its quarterly meetings. As ST Engineering has become a global company with a presence in many countries, it is aware of the need to apply international corporate governance standards wherever it operates. It takes a serious view of all reports of violations received and may commission investigations as appropriate. The AC comprises Mr Koh Beng Seng as Chairman, Mr Venkatachalam Krishnakumar, Dr Stanley Lai and Mr Quek See Tiat. All the members of the AC are independent directors and have the relevant accounting or financial management expertise or experience. The AC held six meetings during the year. The AC met twice with the external auditors, without management, at the beginning and middle of the year. The AC also met with the RRC to review the significant risks and related key controls. During the year, the AC reviewed and recommended to the Board the release of the 2013 full year, 1Q2014, 2Q2014 and 3Q2014 financial statements, and considered and approved the 2014 Audit Plan and the 2014 Internal Audit (IA) Plan. In addition, the AC reviewed the adequacy of internal control procedures including IT security issues, Interested Person transactions and the issues raised in IA reports. It also considered the reappointment of the External Auditors as well as their remuneration. The AC reviewed the level of non audit services performed by its external auditors. For the full year 2014, $2,385,000 was paid to the external auditors for audit and non audit services of the Group, of which $695,000 or 29% were for non-audit services. The AC was of the opinion that the non audit services performed by the auditors did not compromise their independence. 122 ST ENGINEERING / ABOVE & BEYOND The AC is routinely updated on the proposed and impending changes in accounting standards and their implications for the Group. Budget and finance Committee Chaired by Mr Davinder Singh, the Budget and Finance Committee members include Mr Quek Poh Huat, MG (NS) Ng Chee Khern and Mr Tan Pheng Hock. Budgets prepared by the respective subsidiaries are consolidated at the ST Engineering level and presented to the Budget and Finance Committee for review and recommendation to the Board for approval. During the year, the Budget and Finance Committee held two meetings to review the FY2014 budget assumptions and 5-year forecast and to review the 2015 Plan prior to submission to the Board for approval. Business Investment and Divestment Committee The Business Investment and Divestment Committee comprises Mr Kwa Chong Seng as Chairman, LG Ng Chee Meng, Mr Quek Poh Huat and Mr Tan Pheng Hock. The Committee is delegated authority by the Board to consider investments and divestments up to certain threshold values and to ensure that investments/divestments are in line with the Group’s strategy. SHAREHOLDER RIGHTS AND RESPONSIBILITIES Shareholder Rights (Principle 14) Communication with Shareholders (Principle 15) Conduct of Shareholder Meetings (Principle 16) The Company enters into regular and timely communication with shareholders as part of the Group’s effort to help shareholders better understand its businesses and to obtain feedback on the views and concerns of shareholders. To keep the market abreast and updated of the Group’s developments, presentation materials on financial results, as well as statutory announcements and marketing news releases are made available on the Company’s website at www.stengg.com. In 2014, ST Engineering’s investor relations team held over 200 face-to-face investor meetings and conference calls, as well as participated in investor conferences in Singapore, and non-deal roadshows in Hong Kong and the US. ST Engineering is committed to timely and transparent disclosures to ensure that the investing community receives a balanced and updated view of the Group’s performance and businesses. Board members attended the AGM and EGM in 2014 where shareholders present were given an opportunity to seek clarification or question the Board on issues pertaining to the resolutions proposed before they were voted on. The external auditors were also present at the AGM to assist the directors in answering questions on audit related matters from shareholders. The Company fully supports the Code’s principle to encourage active shareholder participation. For transparency in the voting process, ST Engineering has, since 2010, adopted the use of electronic poll voting for all the resolutions put to vote at its AGM and EGM. This is a fair and transparent way of voting based on the principle of one share one vote. ST Engineering will continue to use electronic poll voting at the forthcoming AGM. More on investor relations can be found on pages 60 to 61. 123 ANNUAL REPORT 2014 FINANCIAL REPORT 124 135 136 Directors’ Report Statement by Directors Independent Auditors’ Report F I N A N C I A L STAT E M E N TS 137 138 139 Consolidated Income Statement Consolidated Statement of Comprehensive Income Balance Sheets 141 144 149 Statements of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements 270 271 SGX Listing Manual Requirements Sectoral Financial Review 124 ST ENGINEERING / ABOVE & BEYOND DIRECTORS’ REPORT 31 December 2014 (Currency - Singapore dollars unless otherwise stated) We, the undersigned directors, on behalf of all the directors of the Company, submit this annual report to the members together with the audited financial statements of the Group and of the Company for the financial year ended 31 December 2014. DIRECTORS The directors of the Company in office at the date of this report are as follows: Kwa Chong Seng (Chairman) Tan Pheng Hock (President and Chief Executive Officer) Koh Beng Seng LG Ng Chee Meng MG (NS) Ng Chee Khern (Appointed on 20 May 2014) Quek Tong Boon Quek Poh Huat Venkatachalam Krishnakumar Davinder Singh s/o Amar Singh Dr Stanley Lai Tze Chang Khoo Boon Hui Quek See Tiat Olivia Lum Ooi Lin (Appointed on 20 May 2014) Dr Beh Swan Gin (Appointed on 01 September 2014) COL Alan Goh Kim Hua (Alternate Director to LG Ng Chee Meng) ARRANGEMENTS TO ENABLE DIRECTORS TO ACqUIRE ShARES OR DEBENTURES Except for the Singapore Technologies Engineering Share Option Plan (“ESOP”), Singapore Technologies Engineering Performance Share Plan 2010 (“PSP2010”), Singapore Technologies Engineering Restricted Stock Plan (“RSP2000”) and Singapore Technologies Engineering Restricted Share Plan 2010 (“RSP2010”) (collectively the “ST Engineering Share Plans”), neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose objects are, or one of whose objects is, to enable the directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate. DIRECTORS’ INTERESTS Except as disclosed in this report, no director who held office at the end of the financial year had interests in shares or debentures of the Company or of related corporations either at the beginning or at the end of the financial year or as at 21 January 2015. According to the register kept by the Company for the purposes of Section 164 of the Singapore Companies Act, Chapter 50, particulars of interests of directors who held office at the end of the financial year in shares, debentures, options and awards in the Company and its related corporations were as follows: holdings in the name of the director, spouse or infant children 1 January 2014 or date of appointment if later 31 December 2014 The Company Ordinary Shares Kwa Chong Seng Tan Pheng Hock Koh Beng Seng Quek Poh Huat Venkatachalam Krishnakumar Davinder Singh s/o Amar Singh Dr Stanley Lai Tze Chang Quek See Tiat 503,200 3,333,327 201,705 1,148,637 169,409 49,337 59,040 – 521,700 4,122,603 212,505 1,163,337 184,209 59,237 75,540 4,600 125 ANNUAL REPORT 2014 DIRECTORS’ REPORT 31 December 2014 (Currency - Singapore dollars unless otherwise stated) Directors’ interests (continueD) 1 January 2014 or date of appointment if later 31 December 2014 Exercise price $ Exercisable period The Company Options to Subscribe for Ordinary Shares Tan Pheng Hock 200,000 200,000 200,000 200,000 200,000 200,000 200,000 – – 200,000 200,000 200,000 200,000 200,000 2.09 2.12 2.37 2.57 3.01 2.84 3.23 10.2.2005 11.8.2005 8.2.2006 11.8.2006 10.2.2007 11.8.2007 16.3.2008 to to to to to to to 9.2.2014 10.8.2014 7.2.2015 10.8.2015 9.2.2016 10.8.2016 15.3.2017 holdings in the name of the director, spouse or infant children 1 January 2014 or date of appointment if later 31 December 2014 The Company Conditional Award of 250,000 shares under PSP2010 for performance period 2011 to 2013 Tan Pheng Hock 0 to 425,000 #1 – #2 0 to 425,000 #1 0 to 425,000 #1 0 to 297,500 #1 0 to 297,500 #1 Conditional Award of 250,000 shares under PSP2010 for performance period 2012 to 2014 Tan Pheng Hock Conditional Award of 175,000 shares under PSP2010 for performance period 2013 to 2015 Tan Pheng Hock Conditional Award of 250,000 shares under PSP2010 for performance period 2014 to 2016 Tan Pheng Hock – 0 to 425,000 #1 Unvested shares under RSP2000 arising from release of Conditional Award of 96,000 Shares for performance period 2010 to 2011 Tan Pheng Hock 24,096 #3 – Unvested shares under RSP2010 arising from release of Conditional Award of 96,000 Shares for performance period 2011 to 2012 Tan Pheng Hock 47,616 #3 23,808 #3 126 ST ENGINEERING / ABOVE & BEYOND DIRECTORS’ REPORT 31 December 2014 (Currency - Singapore dollars unless otherwise stated) Directors’ interests (continueD) holdings in the name of the director, spouse or infant children 1 January 2014 or date of appointment if later 31 December 2014 The Company Conditional Award of 96,000 Shares under RSP2010 for performance period 2012 to 2013 Tan Pheng Hock 0 to 144,000 #4 – #5 Unvested shares under RSP2010 arising from release of Conditional Award of 96,000 Shares for performance period 2012 to 2013 Tan Pheng Hock – 43,872 #3 Conditional Award of 86,000 Shares under RSP2010 for performance period 2013 to 2014 Tan Pheng Hock 0 to 129,000 #4 0 to 129,000 #4 Conditional Award of 96,000 Shares under RSP2010 for performance period 2014 to 2015 Tan Pheng Hock – 0 to 144,000 #4 Related Corporations Mapletree Commercial Trust Management Ltd. Unit holdings in Mapletree Commercial Trust LG Ng Chee Meng Venkatachalam Krishnakumar 12,000 100,000 12,000 100,000 300,000 300,000 8,000 8,000 Mapletree Greater China Commercial Trust Management Ltd. Unit holdings in Mapletree Greater China Commercial Trust Khoo Boon Hui Mapletree Industrial Trust Management Ltd. Unit holdings in Mapletree Industrial Trust Venkatachalam Krishnakumar 127 ANNUAL REPORT 2014 DIRECTORS’ REPORT 31 December 2014 (Currency - Singapore dollars unless otherwise stated) Directors’ interests (continueD) holdings in the name of the director, spouse or infant children 1 January 2014 or date of appointment if later 31 December 2014 Mapletree Logistics Trust Management Ltd. Unit holdings in Mapletree Logistics Trust Quek Tong Boon Venkatachalam Krishnakumar 2,000 100,000 2,000 100,000 2,500 2,500 400,000 400,000 $250,000 *1 $250,000 *1 Perpetual Securities Venkatachalam Krishnakumar Neptune Orient Lines Limited Ordinary Shares Kwa Chong Seng S$400 million 4.25% Notes due 2017 Kwa Chong Seng Olam International Limited Ordinary Shares Kwa Chong Seng N.A. 420,000 *1 N.A. 36,085 *1 Warrants Kwa Chong Seng Singapore Airlines Limited Ordinary Shares LG Ng Chee Meng Quek Poh Huat Venkatachalam Krishnakumar 20,000 600 3,733 20,000 600 3,733 $500,000 $500,000 S$300 million 2.15% Bonds due 2015 Davinder Singh s/o Amar Singh 128 ST ENGINEERING / ABOVE & BEYOND DIRECTORS’ REPORT 31 December 2014 (Currency - Singapore dollars unless otherwise stated) Directors’ interests (continueD) holdings in the name of the director, spouse or infant children 1 January 2014 or date of appointment if later 31 December 2014 Singapore Telecommunications Limited Ordinary Shares Kwa Chong Seng Tan Pheng Hock Koh Beng Seng MG (NS) Ng Chee Khern Quek Tong Boon Quek Poh Huat Venkatachalam Krishnakumar Davinder Singh s/o Amar Singh Khoo Boon Hui Quek See Tiat Olivia Lum Ooi Lin 26,466 3,350 1,520 2,720 2,030 42,938 34,000 1,800 3,087 680 100,460 26,466 3,350 1,520 2,720 2,030 42,938 34,000 1,800 3,087 680 100,460 4,000 8,000 4,000 8,000 SMRT Corporation Ltd Ordinary Shares Quek Tong Boon Quek Poh Huat SP AusNet Stapled Securities Quek Poh Huat 272,000 N.A.@ Starhub Ltd Ordinary Shares Tan Pheng Hock Venkatachalam Krishnakumar Quek See Tiat 25,150 15,716 5,000 25,150 15,716 5,000 30,000 30,000 TeleChoice International Limited Ordinary Shares Tan Pheng Hock 129 ANNUAL REPORT 2014 DIRECTORS’ REPORT 31 December 2014 (Currency - Singapore dollars unless otherwise stated) Directors’ interests (continueD) *1 Held in trust by a trustee company on behalf of the director. @ Ceased to be related corporation of Temasek Holdings (Private) Limited during the financial year. #1 A minimum threshold performance over a 3-year period is required for any performance shares to be released and the actual number of performance shares to be released is capped at 170% of the conditional award. #2 For this period, Mr Tan Pheng Hock was awarded 297,500 new shares upon partial achievement of targets set. The balance of the conditional award covering the period from 2011 to 2013 has thus lapsed. #3 Balance of unvested restricted shares to be released according to the stipulated vesting periods. #4 A minimum threshold performance over a 2-year period is required for any restricted shares to be released. A specified number of restricted shares to be released will depend on the extent of achievement of all performance conditions and will be delivered in phases according to the stipulated vesting periods. #5 For this period, Mr Tan Pheng Hock was awarded 87,744 new shares upon partial achievement of targets set. The balance of the conditional award covering the period from 2012 to 2013 has thus lapsed. There was no change in any of above-mentioned directors’ interest in the Company between the end of the financial year and 21 January 2015 except for Mr Tan Pheng Hock, whose interest has increased to 4,322,603 shares. DIRECTORS’ INTERESTS IN CONTRACTS Since the end of the previous financial year, no director has received or become entitled to receive a benefit (other than a benefit or any fixed salary of a full-time employee of the Company included in the aggregate amount of emoluments shown in the financial statements, or any emoluments received from related corporations and share options/awards granted pursuant to the ST Engineering Share Plans) by reason of a contract made by the Company or a related corporation with the director or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest, except for professional fees paid to a firm of which a director is a member as shown in the financial statements. 130 ST ENGINEERING / ABOVE & BEYOND DIRECTORS’ REPORT 31 December 2014 (Currency - Singapore dollars unless otherwise stated) ShARE PLANS The Executive Resource and Compensation Committee (“ERCC”) is responsible for administering the ST Engineering Share Plans. The ERCC members are Mr Kwa Chong Seng (Chairman), Mr Venkatachalam Krishnakumar and Dr Stanley Lai Tze Chang. As at 31 December 2014, no participants have been granted options and/or have received shares under the ST Engineering Share Plans which, in aggregate, represent 5% or more of the total number of new shares available under the ST Engineering Share Plans. The aggregate number of new shares issued pursuant to the RSP2010 and PSP2010 did not exceed 8% of the issued share capital of the Company. Except as disclosed below, there were no options granted and no shares awarded by the Company to any person to take up unissued shares of the Company. (a) ESOP (i) The options granted under the ESOP are as follows: Aggregate options granted and accepted since commencement to end of financial year under review Aggregate options exercised/lapsed since commencement to end of financial year under review Aggregate options outstanding as at end of financial year under review Tan Pheng Hock Koh Beng Seng Quek Poh Huat Venkatachalam Krishnakumar 2,602,500 204,000 375,000 152,500 1,602,500 204,000 375,000 152,500 1,000,000 – – – Non-Executive Directors of the Company and its subsidiaries (including current and former directors) 5,405,566 5,405,566 – 193,717,858 170,245,850 23,472,008 187,320 187,320 – Participant Directors of the Company Group Executives (including Tan Pheng hock) Parent Group Executives and others (ii) The options granted by the Company do not entitle the holders of the options, by virtue of such holdings, to any right to participate in any share issue of any other company. (iii) During the financial year, ordinary shares in the Company were issued pursuant to the exercise of options to take up unissued shares of the Company. 131 ANNUAL REPORT 2014 DIRECTORS’ REPORT 31 December 2014 (Currency - Singapore dollars unless otherwise stated) share Plans (continueD) (b) PSP2010 (“PSP”) The PSP is established with the objective of motivating senior management staff to strive for sustained long-term growth and performance in ST Engineering and its subsidiaries (“ST Engineering Group”). Awards of performance shares are granted conditional on performance targets set based on the ST Engineering Group corporate objectives. Pursuant to the PSP, the ERCC has decided to grant awards on an annual basis, conditional on targets set for a performance period, currently prescribed to be a 3-year performance period. The performance shares will only be released to the recipient at the end of the performance qualifying period. A specified number of performance shares shall be released by the ERCC to the recipient and the actual number of performance shares will depend on the achievement of set targets over the respective performance period. A minimum threshold performance is required for any performance share to be released and the actual number of performance shares to be released is capped at 170% of the conditional award. The performance measures used in PSP grants are Absolute Total Shareholder Return (TSR) against Cost of Equity hurdles (i.e. measure of absolute Wealth Added); and Relative TSR against Defensive Stock Index, the constituents of which are selected “defensive stock” companies that have similar market risk as the Group and are listed on the Singapore Exchange Securities Trading Limited (SGX). In addition to PSP performance targets being met, the ERCC decided that the final award for PSP is conditional upon the performance targets for RSP that has the same end of performance period being met. Known as the plan trigger condition, this is to create alignment between senior management and other employees. The final award for PSP 2012 is therefore conditional on the performance targets for RSP 2013, which has the same end of performance period in December 2014, being met. The awards granted under the PSP2010 are as follows: Participant Conditional Awards awards granted released during during the the financial financial year year under under review review Aggregate conditional awards granted since commencement to end of financial year under review Aggregate Aggregate awards conditional released since awards not commencement released as at to end of end of financial financial year year under under review review PSP2010 Director of the Company Tan Pheng Hock (c) 0 to 425,000 297,500 0 to 1,572,500 297,500 0 to 1,147,500 Group Executives (including Tan Pheng hock) 0 to 2,402,100 1,545,821 0 to 9,486,170 1,545,821 0 to 5,837,012 RSP2000 / RSP2010 (“RSP”) The RSP is established with the objective of motivating managers and above to strive for sustained long-term growth and superior performance in ST Engineering Group. It also aims to foster a share ownership culture among staff within the ST Engineering Group and to better align staff’s incentive scheme with shareholders’ interest. Pursuant to the RSP, the ERCC has decided to grant awards on an annual basis, conditional on targets set for a performance period, currently prescribed to be a 2-year performance period. The actual number of restricted shares delivered will depend on the achievement of set targets over the respective performance period. This will be determined by the ERCC at the end of the qualifying performance period and released to the recipient over a 3-year vesting period in the ratio of 50%, 25% and 25% consecutively. 132 ST ENGINEERING / ABOVE & BEYOND DIRECTORS’ REPORT 31 December 2014 (Currency - Singapore dollars unless otherwise stated) share Plans (continueD) (c) RSP2000 / RSP2010 (“RSP”) (continued) A minimum threshold performance is required for any restricted share to be released while the maximum number of restricted shares to be delivered is capped at 150% of the conditional award. The medium-term stretched targets measured over a 2-year performance period are set based on ST Engineering Group corporate objectives. The performance measures used for the 2-year performance period are ST Engineering Group EVA Spread and EBITDA Margin. Since 2011, the awards granted under the ST Engineering RSP2010 to the Non-Executive Directors (other than those from the public sector) are outright shares with no performance and vesting conditions but with a Moratorium on selling. These shares will form up to 30% of their total compensation with the remaining 70% payable in cash. The awards granted under the RSP2000 / RSP2010 are as follows: Participant Conditional awards/awards Awards granted during released the financial during the year under financial year review under review Aggregate conditional Aggregate awards/awards awards granted since released since commencement commencement to end of to end of financial year financial year under review under review Aggregate awards not released as at end of financial year Aggregate conditional awards not released as at end of financial year under review RSP2000 Directors of the Company Tan Pheng Hock Koh Beng Seng Quek Poh Huat Venkatachalam Krishnakumar Davinder Singh s/o Amar Singh Dr Stanley Lai Tze Chang – – – 24,096 – – 0 to 499,500 0 to 58,600 0 to 69,800 246,618 30,205 35,909 – – – – – – – – 0 to 71,000 37,109 – – – – 0 to 54,800 28,237 – – – – 0 to 31,700 22,540 – – Non-Executive Directors of the Company and its subsidiaries (including current and former directors) – – 0 to 812,050 408,663 – – Group Executives (including Tan Pheng hock) – 1,659,932 0 to 38,290,836 18,214,397 – – 133 ANNUAL REPORT 2014 DIRECTORS’ REPORT 31 December 2014 (Currency - Singapore dollars unless otherwise stated) share Plans (continueD) (c) RSP2000 / RSP2010 (“RSP”) (continued) Participant Aggregate Conditional conditional Aggregate awards/ awards/awards awards awards Awards granted since released since Aggregate granted during released commencement commencement awards not the financial during the to end of to end of released year under financial year financial year financial year as at end of review under review under review under review financial year Aggregate conditional awards not released as at end of financial year under review RSP2010 Directors of the Company Kwa Chong Seng Tan Pheng Hock Koh Beng Seng Quek Poh Huat Venkatachalam Krishnakumar Davinder Singh s/o Amar Singh Dr Stanley Lai Tze Chang Quek See Tiat 18,500 0 to 144,000 10,800 14,700 18,500 67,680 10,800 14,700 21,700 0 to 561,000 33,300 45,200 21,700 115,296 33,300 45,200 – 67,680 – – – 0 to 273,000 – – 14,800 14,800 45,600 45,600 – – 9,900 9,900 31,000 31,000 – – 16,500 4,600 16,500 4,600 50,000 4,600 50,000 4,600 – – – – 156,300 156,300 480,500 480,500 – – Group Executives (including Tan Pheng hock) 0 to 9,015,151 4,094,177 0 to 34,090,011 7,781,687 Non-Executive Directors of the Company and its subsidiaries (including current and former directors) 3,224,660 0 to 14,183,430 134 ST ENGINEERING / ABOVE & BEYOND DIRECTORS’ REPORT 31 December 2014 (Currency - Singapore dollars unless otherwise stated) AUDIT COMMITTEE The Audit Committee comprises four independent non-executive directors, one of whom is also the Chairman of the Committee. The members of the Audit Committee at the date of this report are as follows: Koh Beng Seng (Chairman) Venkatachalam Krishnakumar Dr Stanley Lai Tze Chang Quek See Tiat The Audit Committee carried out its functions in accordance with Section 201B(5) of the Singapore Companies Act, Chapter 50. The Audit Committee met during the year to review the scope of the internal audit functions and the scope of work of the statutory auditors, and the results arising therefrom, including their evaluation of the system of internal controls. The Audit Committee also reviewed the assistance given by the Company’s officers to the auditors. The consolidated financial statements of the Group and the financial statements of the Company were reviewed by the Audit Committee prior to their submission to the directors of the Company for adoption. In addition, the Audit Committee has reviewed the requirements for approval and disclosure of interested person transactions, reviewed the procedures set up by the Group and the Company to identify and report and where necessary, seek approval for interested person transactions and, with the assistance of the internal auditors, reviewed interested person transactions. The Audit Committee has recommended to the Board of Directors that the auditors, KPMG LLP, be nominated for re-appointment as auditors at the forthcoming Annual General Meeting of the Company. AUDITORS The Auditors, KPMG LLP, have indicated their willingness to accept re-appointment. On behalf of the Board of Directors Kwa Chong Seng Director Singapore 26 February 2015 Tan Pheng hock Director 135 ANNUAL REPORT 2014 S tat e m e n t by d i r e c to r S We, Kwa Chong Seng and Tan Pheng Hock, being directors of Singapore Technologies Engineering Ltd, do hereby state that, in the opinion of the Directors: (a) the accompanying balance sheets, consolidated income statement, consolidated statement of comprehensive income, statements of changes in equity, and consolidated statement of cash flows together with notes thereto set out on pages 137 to 269 are drawn up so as to give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2014, and changes in equity of the Company and of the Group, and the results of the business and cash flows of the Group for the year ended on that date; and (b) at the date of this statement there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due. On behalf of the Board of Directors Kwa Chong Seng Director Singapore 26 February 2015 Tan Pheng hock Director 136 ST ENGINEERING / ABOVE & BEYOND Independent audItors’ report Members of the Company Singapore Technologies Engineering Ltd REPORT ON ThE FINANCIAL STATEMENTS We have audited the accompanying financial statements of Singapore Technologies Engineering Ltd (the “Company”) and its subsidiaries (collectively the “Group”), which comprise the balance sheets of the Group and the Company as at 31 December 2014, the statements of changes in equity of the Group and the Company, the consolidated income statement, the consolidated statement of comprehensive income and the consolidated statement of cash flows of the Group for the year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 137 to 269. MANAGEMENT’S RESPONSIBILITY FOR ThE FINANCIAL STATEMENTS Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the provisions of the Singapore Companies Act, Chapter 50 (the “Act”) and Singapore Financial Reporting Standards, and for devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair profit and loss accounts and balance sheets and to maintain accountability of assets. AUDITORS’ RESPONSIBILITY Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. OPINION In our opinion, the consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2014, the changes in equity of the Group and of the Company, and the results and cash flows of the Group for the year ended on that date. REPORT ON OThER LEGAL AND REGULATORY REqUIREMENTS In our opinion, the accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act. KPMG LLP Public Accountants and Chartered Accountants Singapore 26 February 2015 137 ANNUAL REPORT 2014 C o n s o l i d at e d i n C o m e s tat e m e n t for the year ended 31 December 2014 (Currency - Singapore dollars) Revenue Cost of sales Gross profit Distribution and selling expenses Administrative expenses Other operating expenses Profit from operations Other income Other expenses Other income, net Finance income Finance costs Finance costs, net 2014 $’000 4 6,539,433 (5,220,934) 1,318,499 6,633,152 (5,201,083) 1,432,069 5 (180,309) (467,687) (115,530) 554,973 (175,908) (466,598) (116,348) 673,215 8 45,175 (5,000) 40,175 40,095 (5,907) 34,188 9 43,550 (45,197) (1,647) 68,911 (77,704) (8,793) 57,182 650,683 31,082 729,692 (113,693) 536,990 (138,145) 591,547 531,952 5,038 536,990 580,834 10,713 591,547 17.06 17.04 18.73 18.67 Share of results of associates and joint ventures, net of tax Profit before taxation Taxation Profit for the year 10 Attributable to: Shareholders of the Company Non-controlling interests Earnings per share (cents) Basic Diluted The accompanying notes are an integral part of the financial statements. Group Note 11 2013 $’000 138 ST ENGINEERING / ABOVE & BEYOND C o n s o l i d at e d s tat e m e n t o f C o m p r e h e n s i v e i n C o m e for the year ended 31 December 2014 (Currency - Singapore dollars) Note Profit for the year 2014 $’000 Group 536,990 2013 $’000 591,547 Other comprehensive income Items that are or may be reclassified subsequently to profit or loss: Net fair value changes on available-for-sale financial assets Net fair value changes on cash flow hedges Share of net fair value changes on cash flow hedges of an associate Foreign currency translation differences Share of foreign currency translation differences of associates and joint ventures Reclassification of foreign currency translation reserve to profit or loss arising from disposal of foreign entities 36 36 36 (2,020) (58,327) (9,891) 19,968 1,336 50 (7,931) 48,592 – 45,993 10,395 (205) Other comprehensive income for the year, net of tax (48,884) 96,844 Total comprehensive income for the year, net of tax 488,106 688,391 482,522 5,584 488,106 674,953 13,438 688,391 Total comprehensive income attributable to: Shareholders of the Company Non-controlling interests The accompanying notes are an integral part of the financial statements. 44 139 ANNUAL REPORT 2014 Balance SheetS as at 31 December 2014 (Currency - Singapore dollars) Note 2014 $’000 12 13 14 15 16 17 18 19 22 43 20 21 22 23 17 18 24 25 Group Company 2013 $’000 2014 $’000 1,577,523 – 478,352 127,211 671,022 2,735 973 106,318 4,806 24,263 2,993,203 1,520,404 – 462,139 166,033 638,408 12,528 2,679 95,634 7,430 39,978 2,945,233 4,568 1,197,716 17,657 – – – – 7,000 50,000 81 1,277,022 1,434 927,728 17,657 – – – – 7,200 258,874 77 1,212,970 1,802,073 1,319,101 66,382 530,298 11,375 6,872 119,279 1,470,723 5,326,103 1,807,509 1,221,937 40,076 598,210 12,508 16,447 134,581 1,930,140 5,761,408 – – 497,070 3,597 – – – 404,876 905,543 – – 504,498 9,827 – – – 470,124 984,449 8,319,306 8,706,641 2,182,565 2,197,419 809,637 1,667,180 29,364 245,072 725,347 164,660 29,820 43,590 1,126 148 3,715,944 878,895 1,604,740 24,953 218,910 734,725 197,139 139,842 292,789 1,321 369 4,093,683 – 26,961 196,988 – – 8,112 – – – – 232,061 – 25,017 98,946 – – 11,666 – – – – 135,629 1,610,159 1,667,725 673,482 848,820 2013 $’000 ASSETS Non-current assets Property, plant and equipment Subsidiaries Associates and joint ventures Investments Intangible assets Long-term receivables, non-current Finance lease receivables, non-current Deferred tax assets Amounts due from related parties, non-current Derivative financial instruments, non-current Current assets Inventories and work-in-progress Trade receivables Amounts due from related parties, current Advances and other receivables Long-term receivables, current Finance lease receivables, current Short-term investments Bank balances and other liquid funds Total assets EqUITY AND LIABILITIES Current liabilities Advance payments from customers, current Trade payables and accruals, current Amounts due to related parties, current Provisions Progress billings in excess of work-in-progress Provision for taxation Short-term bank loans Long-term bank loans, current Lease obligations, current Other loans, current Net current assets 26 27 28 20 29 29 29 29 140 ST ENGINEERING / ABOVE & BEYOND Balance SheetS as at 31 December 2014 (Currency - Singapore dollars) Note 2014 $’000 Group Company 2013 $’000 2014 $’000 899,279 274,155 108,484 658,424 267,532 17,547 441 98,759 1,000 11,260 1,871 2,338,752 857,496 353,701 94,867 631,283 288,867 18,150 564 83,695 1,500 22,515 406 2,353,044 – 17,006 – – – – – – – – 407,413 424,419 – 18,817 – – – – – – – – 553,192 572,009 Total liabilities 6,054,696 6,446,727 656,480 707,638 Net assets 2,264,610 2,259,914 1,526,085 1,489,781 889,426 (6,529) 116,323 (92,057) 1,225,040 2,132,203 132,407 2,264,610 852,611 – 116,323 (44,651) 1,191,958 2,116,241 143,673 2,259,914 889,426 (6,529) – 74,865 568,323 1,526,085 – 1,526,085 852,611 – – 72,754 564,416 1,489,781 – 1,489,781 8,319,306 8,706,641 2,182,565 2,197,419 2013 $’000 Non-current liabilities Advance payments from customers, non-current Trade payables and accruals, non-current Deferred tax liabilities Bonds Long-term bank loans, non-current Lease obligations, non-current Other loans, non-current Deferred income Other long-term payables, non-current Derivative financial instruments, non-current Amounts due to related parties, non-current 26 19 29 29 29 29 30 31 43 27 Share capital and reserves Share capital Treasury shares Capital reserves Other reserves Retained earnings Equity attributable to owners of the Company Non-controlling interests 32 33 35 36 37 44 Total equity and liabilities The accompanying notes are an integral part of the financial statements. 141 ANNUAL REPORT 2014 S tat e m e n t S o f C h a n g e S i n e q u i t y for the year ended 31 December 2014 (Currency - Singapore dollars) Note Share Capital Other capital reserves reserves $’000 $’000 $’000 Retained earnings $’000 Noncontrolling Total interests $’000 $’000 Total equity $’000 The Group At 1.1.2013 781,841 116,323 (136,121) 1,132,644 1,894,687 Total comprehensive income for the year Profit for the year – – 36 – – – – – – (7,931) 49,401 42,459 – – – (7,931) 49,401 42,459 36 – – 10,395 – 10,395 36 – – Other comprehensive income for the year, net of tax – – 94,119 – 94,119 2,725 96,844 Total comprehensive income for the year, net of tax – – 94,119 580,834 674,953 13,438 688,391 70,770 – (18,624) – 52,146 – 52,146 – – – – – – – – – – – – – – – 15,490 – 15,490 – – – – (521,290) (521,290) – – – – – – 22,761 22,761 108 15,598 (1,354) (1,354) – (521,290) (12,767) (12,767) 483 483 70,770 – (3,134) (521,290) (453,654) 9,231 (444,423) – – 70,770 – – – – – – 255 – 255 (2,879) (521,290) (453,399) 3,109 3,109 – 255 12,340 (441,059) Other comprehensive income Net fair value changes on available-for-sale financial assets Net fair value changes on cash flow hedges Foreign currency translation differences Share of foreign currency translation differences of associates and joint ventures Reclassification of foreign currency translation reserve to profit or loss arising from disposal of a foreign entity Transactions with owners of the Company, recognised directly in equity Contributions by and distributions to owners of the Company Issue of shares Capital contribution by non-controlling interests Cost of share-based payment Return of capital by a subsidiary Dividends paid Dividends paid to non-controlling interests Loans forgiven by non-controlling interests Total contributions by and distributions to owners of the Company Changes in ownership interests in subsidiaries Acquisition of subsidiaries with non-controlling interests Disposal of a subsidiary Total transactions with owners of the Company Transfer from retained earnings to statutory reserve At 31.12.2013 36 38 – – 852,611 116,323 – (205) 580,834 – 580,834 117,895 2,012,582 (205) 230 (230) – (44,651) 1,191,958 2,116,241 10,713 – (809) 3,534 – – 591,547 (7,931) 48,592 45,993 10,395 (205) – – 143,673 2,259,914 142 ST ENGINEERING / ABOVE & BEYOND S tat e m e n t S o f C h a n g e S i n e q u i t y for the year ended 31 December 2014 (Currency - Singapore dollars) Share Treasury Capital Other Retained Note capital shares reserves reserves earnings $’000 $’000 $’000 $’000 $’000 Noncontrolling Total interests $’000 $’000 Total equity $’000 The Group At 1.1.2014 852,611 Total comprehensive income for the year Profit for the year Other comprehensive income Net fair value changes on available-for-sale financial assets Net fair value changes on cash flow hedges Share of net fair value changes on cash flow hedges of an associate Foreign currency translation differences Share of foreign currency translation differences of associates and joint ventures Reclassification of foreign currency translation reserve to profit or loss arising from disposal of foreign entities Other comprehensive income for the year, net of tax – – – – – – – (2,020) – (57,327) – – (2,020) (57,327) 36 – – – – – (9,891) – 18,422 – – (9,891) 18,422 36 – – – 1,336 – 1,336 – 1,336 36 – – – 50 – 50 – 50 – – – (49,430) – – – (49,430) 531,952 482,522 36,815 – – (19,559) 36 Transactions with owners of the Company, recognised directly in equity Contributions by and distributions to owners of the Company Issue of shares Capital contribution by non-controlling interests Cost of share-based payment Purchase of treasury shares 33 Dividends paid 38 Dividends paid to non-controlling interests Total contributions by and distributions to owners of the Company – 531,952 531,952 143,673 2,259,914 – Total comprehensive income for the year, net of tax Changes in ownership interests in subsidiaries Acquisition of non-controlling interests in subsidiaries representing total changes in ownership interests in subsidiaries that do result in a loss of control Acquisition of subsidiaries with noncontrolling interests Deconsolidation of a subsidiary Disposal of subsidiaries Total transactions with owners of the Company Transfer from retained earnings to statutory reserve At 31.12.2014 – 116,323 (44,651) 1,191,958 2,116,241 – – (49,430) 17,256 – – – – – – – (6,529) – – – – – – – 21,574 – 21,574 – – – (6,529) – – (498,857) (498,857) – – – – 36,815 (6,529) – 2,015 (498,857) (466,556) 5,038 536,990 – (2,020) (1,000) (58,327) – 1,546 546 (9,891) 19,968 (48,884) 5,584 488,106 – 17,256 9,368 9,368 96 21,670 – (6,529) – (498,857) (18,193) (18,193) (8,729) (475,285) – – – – – – (194) (194) – – – – – – – – – – – (4) – – – – – (4) 729 (8,656) – 729 (8,656) (4) 36,815 – 889,426 (6,529) – 2,011 (498,857) (466,560) (16,850) (483,410) – – 13 (13) – (6,529) 116,323 (92,057) 1,225,040 2,132,203 – – 132,407 2,264,610 143 ANNUAL REPORT 2014 S tat e m e n t S o f C h a n g e S i n e q u i t y for the year ended 31 December 2014 (Currency - Singapore dollars) Share capital $’000 Treasury shares $’000 Share-based payment reserve $’000 Retained earnings $’000 Total $’000 781,841 – 75,780 542,390 1,400,011 – – – – – – 543,316 543,316 543,316 543,316 70,770 – – – – – (18,624) 15,598 – – – (521,290) 52,146 15,598 (521,290) 70,770 – (3,026) (521,290) (453,546) At 31.12.2013 852,611 – 72,754 564,416 1,489,781 At 1.1.2014 852,611 – 72,754 564,416 1,489,781 – – – – – – 502,764 502,764 502,764 502,764 Note The Company At 1.1.2013 Total comprehensive income for the year Profit for the year Total comprehensive income for the year Transactions with owners of the Company, recognised directly in equity Contributions by and distributions to owners of the Company Issue of shares Cost of share-based payment Dividends paid Total contributions by and distributions to owners of the Company 38 Total comprehensive income for the year Profit for the year Total comprehensive income for the year Transactions with owners of the Company, recognised directly in equity Contributions by and distributions to owners of the Company Issue of shares Cost of share-based payment Purchase of treasury shares Dividends paid Total contributions by and distributions to owners of the Company At 31.12.2014 33 38 The accompanying notes are an integral part of the financial statements. 36,815 – – – – – (6,529) – (19,559) 21,670 – – – – – (498,857) 17,256 21,670 (6,529) (498,857) 36,815 889,426 (6,529) (6,529) 2,111 74,865 (498,857) 568,323 (466,460) 1,526,085 144 ST ENGINEERING / ABOVE & BEYOND C o n s o l i d at e d s tat e m e n t o f C a s h f l o w s for the year ended 31 December 2014 (Currency - Singapore dollars) 2014 $’000 Group 2013 $’000 Cash flows from operating activities Profit before taxation Adjustments: Share of results of associates and joint ventures, net of tax Depreciation charge Property, plant and equipment written off Gain on disposal of property, plant and equipment Gain on disposal of an investment property Gain on disposal of investments (Gain)/loss on disposal of subsidiaries (Gain)/loss on disposal of associates and a joint venture Gain on bargain purchase Impairment losses on goodwill Impairment losses on other intangible assets Impairment losses on property, plant and equipment Impairment losses on quoted and unquoted investments Impairment losses on associates Impairment loss on loan to an associate Impairment loss on progressive payments to contractor Share-based payment expense Changes in fair value of financial instruments and hedged items Changes in fair value of financial instruments held for trading Interest expenses Interest income Dividends from investments Amortisation of other intangible assets Operating profit before working capital changes Changes in: Inventories and work-in-progress Progress billings in excess of work-in-progress Trade receivables Advance payments to suppliers Other receivables, deposits and prepayments Amount due from holding company and related corporations balances Amount due to holding company and related corporations balances Amount due from associates Amount due from joint ventures Trade payables Advance payments from customers Other payables, accruals and provisions Loans to staff and third parties Deferred income Foreign currency translation of foreign operations Cash generated from operations Interest received Income tax paid Net cash from operating activities 650,683 729,692 (57,182) 154,318 885 (1,310) – (2,640) (519) (2,797) (47) 10,829 3,210 1,087 638 2,108 2,892 7,109 21,670 (15,592) (152) 37,874 (23,629) (2) 16,188 805,621 (31,082) 127,176 1,386 (430) (12,548) (6,154) 50 318 – 2,141 312 690 624 5,539 – – 15,598 (3,174) (107) 44,240 (23,320) (1) 14,868 865,818 17,475 10,809 (91,592) (27,658) 34,891 (21,499) 12,065 (4,508) (9,122) 43,767 (19,001) (37,263) 12,191 7,224 52 733,452 23,662 (132,792) 624,322 4,904 (26,476) (61,792) 26,292 36,296 (7,495) (6,962) (7,385) 10,439 105,060 18,648 8,777 11,735 35,432 6,885 1,020,176 19,595 (109,978) 929,793 145 ANNUAL REPORT 2014 C o n s o l i d at e d s tat e m e n t o f C a s h f l o w s for the year ended 31 December 2014 (Currency - Singapore dollars) Note 2014 $’000 Group 2013 $’000 Cash flows from investing activities Proceeds from sale of property, plant and equipment Proceeds from sale of an investment property Proceeds from sale and maturity of investments Proceeds from disposal of an associate and a joint venture Proceeds from insurance settlement Loan to associates Loan to a joint venture Repayment of loan from joint ventures Dividends from associates and joint ventures Dividends from investments Purchase of property, plant and equipment Purchase of investments Investments in associates Investments in joint ventures Acquisition of other intangible assets Acquisition of controlling interests in subsidiaries and business, net of cash acquired Deconsolidation of a subsidiary Net cash used in investing activities 44 4,543 22,000 147,057 3,280 5,220 (640) (272) 3,887 38,840 2 (223,771) (90,172) – (622) (30,878) (67) (35,896) (157,489) 10,166 – 137,419 1,200 – – (3,136) – 39,596 1 (282,121) (66,623) (7,924) (9,385) (67,079) (9,877) – (257,763) 9,368 (369) (471,990) (1,550) (824) – 80,435 17,256 (6,529) – (194) (498,857) (18,193) (34,504) 1,105 (924,846) 22,761 (335) (172,596) (726) – 836 201,898 52,146 – (1,354) – (521,290) (12,767) (40,346) 2,025 (469,748) Cash flows from financing activities Capital contribution from non-controlling interests of subsidiaries Repayment of other loans Repayment of bank loans Repayment of lease obligations Repayment of loan to a joint venture Proceeds of a loan from a joint venture Proceeds from bank loans Proceeds from issue of shares Purchase of treasury shares Payment to non-controlling interest for reduction of share capital Acquisition of non-controlling interests in a subsidiary Dividends paid to shareholders of the Company Dividends paid to non-controlling interests Interest paid Deposits discharged Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Exchange difference on cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year 25 (458,013) 1,920,924 (299) 1,462,612 202,282 1,700,950 17,692 1,920,924 146 ST ENGINEERING / ABOVE & BEYOND C o n s o l i d at e d s tat e m e n t o f C a s h f l o w s for the year ended 31 December 2014 (Currency - Singapore dollars) ACqUISITIONS OF CONTROLLING INTERESTS IN SUBSIDIARIES IN 2014 During the year, the Group acquired the following companies: (i) On 20 May 2014, the Group acquired 100% of Aviation Academy of America, Inc. (“AAA”) for a cash consideration of US$811,000. AAA specialises in the provision of flight training services for pilots. In the seven months to 31 December 2014, AAA contributed revenue of $15,000 and loss of $416,000. If the acquisition had occurred on 1 January 2014, management estimates that the contributions to consolidated revenue and net profit would be immaterial. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 January 2014. The allocation of the purchase price to the identifiable assets acquired and liabilities assumed in the business combination has been completed with $996,000 of intangible assets recognised on acquisition. (ii) On 30 December 2014, the Group acquired additional interest of 1% in an associate, GFM Electronics S.A. de C.V. (“GFME”) for a cash consideration of $713,000. GFME provides design and implementation, distribution and sales of high technology systems, services and products, in the communications area, as well as electronics systems. As a result of the additional interest acquired, the Group increased its equity interest in GFME from 50% to 51%. The Group was deemed to have acquired control of GFME and accounted for the additional investment as an acquisition of a subsidiary. If the acquisition had occurred on 1 January 2014, management estimates that the contributions to consolidated revenue and net profit would have been $0.17 million and $0.15 million respectively. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 January 2014. 147 ANNUAL REPORT 2014 C o n s o l i d at e d s tat e m e n t o f C a s h f l o w s for the year ended 31 December 2014 (Currency - Singapore dollars) acquisitions of controlling interests in subsiDiaries in 2014 (continueD) The acquisitions had the following effect on the Group’s assets and liabilities on acquisition date: Property, plant and equipment Intangible assets Trade receivables Advances and other receivables Cash and cash equivalents Trade payables and accruals Net identifiable assets Non-controlling interests Net identifiable assets, after non-controlling interests Gain on bargain purchase Total purchase consideration Total purchase consideration: Cost of acquisitions Fair value of pre-existing interest in the acquiree Cash outflow on acquisitions in 2014: Cost of acquisitions Cash to be paid in subsequent year Net cash acquired with the subsidiaries Net cash outflow on acquisition Recognised on acquisition $’000 Carrying amount before acquisition $’000 24 1,049 115 422 1,255 2,865 24 53 115 422 88 702 (359) (359) (606) (606) 2,506 (729) 1,777 (47) 1,730 96 1,693 37 1,730 (1,693) 371 1,255 (67) 148 ST ENGINEERING / ABOVE & BEYOND C o n s o l i d at e d s tat e m e n t o f C a s h f l o w s for the year ended 31 December 2014 (Currency - Singapore dollars) ACqUISITIONS OF CONTROLLING INTERESTS IN A SUBSIDIARY AND BUSINESS IN 2013 In the prior year, the Group acquired the following subsidiary and business: (i) On 22 July 2013, the Group acquired 90% of Technicae Projetos e Serviços Automotivos Ltda. (“Technicae”) for a cash consideration of $612,000. (ii) On 27 December 2013, the Group acquired the manufacturing assets, intellectual property and relevant manufacturing expertise from Ticel Equipamentos Ltda, a Brazilian construction equipment company, for a total cash consideration of $9,284,000. Following the completion of the final purchase price allocation during the financial year, the Group made adjustments to the provisional fair value originally recorded in the prior year. The effect of the adjustments made during the 12-month period from acquisition date (the “Window Period”) is set out below: Fair values recognised on acquisition (provisional) 2013 $’000 Property, plant and equipment Intangible assets Inventories and work-in-progress Advances and other receivables Cash and cash equivalents Trade payables and accruals Deferred tax liabilities Net identifiable assets Non-controlling interests Net identifiable assets, after non-controlling interests Goodwill arising on consolidation Total purchase consideration Cash outflow on acquisitions: Cost of acquisitions Net cash acquired with the subsidiary and business Net cash outflow on acquisition Adjustments during Window Period 2014 $’000 Fair values recognised on acquisition (final) 2014 $’000 400 5,705 3 4 19 6,131 – (741) – – – (741) 400 4,964 3 4 19 5,390 (132) (1,939) (2,071) – 252 252 (132) (1,687) (1,819) 4,060 (11) (489) – 3,571 (11) 4,049 5,847 9,896 (489) 489 – 3,560 6,336 9,896 (9,896) 19 (9,877) – – – (9,896) 19 (9,877) Purchase price adjustments, which are non-cash in nature, made during the Window Period have not been applied retrospectively as these adjustments, which relate mainly to balance sheet effects and certain consequential income statement effects, are immaterial to the Group. In 2013, the Group incurred acquisition-related cost at $262,000 related to external legal fees and due diligence costs. The legal fees and due diligence costs have been included in administrative expenses in the Group’s income statement. The accompanying notes are an integral part of the financial statements. 149 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) These notes form an integral part of and should be read in conjunction with the accompanying financial statements. 1. GENERAL The Company is a public limited company domiciled and incorporated in Singapore. The address of the Company’s registered office and principal place of business is 1 Ang Mo Kio Electronics Park Road #07-01 ST Engineering Hub, Singapore 567710. The Company’s immediate and ultimate holding company is Temasek Holdings (Private) Limited, a company incorporated in Singapore. The principal activities of the Company are those of an investment holding company and the provision of engineering and related services. The principal activities of the subsidiaries are set out in Note 13 to the financial statements. The financial statements of Singapore Technologies Engineering Ltd and the consolidated financial statements of Singapore Technologies Engineering Ltd and its subsidiaries (collectively referred to as the “Group”) as at 31 December 2014 and for the year then ended were authorised and approved by the Board of Directors for issuance on 26 February 2015. 2. BASIS OF FINANCIAL STATEMENTS PREPARATION The financial statements are prepared in accordance with Singapore Financial Reporting Standards (“FRS”). The financial statements have been prepared on the historical cost convention, except as disclosed in the accounting policies below. The financial statements are presented in Singapore dollars which is the Company’s functional currency. All values are rounded to the nearest thousand ($’000) except when otherwise indicated. The preparation of the financial statements in conformity with FRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses are disclosed in Note 3.20. Actual results may differ from these estimates. Except for changes in accounting policies discussed in Note 3.19, the accounting policies set out below have been consistently applied by the Company and the Group and are consistent with those used in the previous year. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 3.1 Basis of consolidation (i) Business combinations Business combinations are accounted for using the acquisition method in accordance with FRS 103 Business Combination as at the acquisition date, which is the date on which control is transferred to the Group. Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets. For the measurement of goodwill at initial recognition, refer to Note 3.5(i). The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. 150 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.1 Basis of consolidation (continued) (i) Business combinations (continued) Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not re-measured and settlement is accounted for within equity. Otherwise, any subsequent changes to the fair value of the contingent consideration are recognised in profit or loss. Non-controlling interests (“NCI”) that are present ownership interests and entitle their holders to a proportionate share of the acquiree’s net assets in the event of liquidation are measured either at fair value or at the NCI’s proportionate share of the recognised amounts of the acquiree’s identifiable net assets, at the acquisition date. The measurement basis taken is elected on a transaction-by-transaction basis. All other NCI are measured at acquisition-date fair value, unless another measurement basis is required by FRSs. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as transactions with owners in their capacity as owners and therefore no adjustments are made to goodwill and no gain or loss is recognised in profit or loss. Adjustments to NCI arising from transactions that do not involve the loss of control are based on a proportionate amount of the net assets of the subsidiary. (ii) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Consistent accounting policies are applied to like transactions and events in similar circumstances. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. In the Company’s separate financial statements, investments in subsidiaries are accounted for at cost less accumulated impairment losses. (iii) Acquisitions of entities under amalgamation The Company’s interests in Singapore Technologies Aerospace Ltd, Singapore Technologies Electronics Limited, Singapore Technologies Kinetics Ltd, and Singapore Technologies Marine Ltd (collectively referred to as the “Scheme Companies”) resulted from the amalgamation of the Scheme Companies pursuant to a scheme of arrangement under Section 210 of the Companies Act, Chapter 50 in 1997. As the amalgamation of the Scheme Companies constitutes a uniting of interests, the pooling of interests method has been adopted in the preparation of the consolidated financial statements in connection with the amalgamation. Under the pooling of interests method, the combined assets, liabilities and reserves of the pooled enterprises are recorded at their existing carrying amounts at the date of amalgamation. The excess or deficiency of amount recorded as share capital issued (plus any additional consideration in the form of cash or other assets) over the amount recorded for the share capital acquired is recorded as capital reserve. (iv) Loss of control Upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any noncontrolling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently, it is accounted for as an equity-accounted investee or as an available-for-sale financial asset, depending on the level of influence retained. 151 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.1 Basis of consolidation (continued) (v) Investments in associates and joint ventures (equity-accounted investees) Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20% or more of the voting power of another entity. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. Investments in associates and joint ventures are accounted for by the Group using the equity method and are recognised initially at cost, which includes transaction costs. The consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Group’s share of losses exceeds its interest in an equity-accounted investee, the carrying amount of the investment, including any long-term interest, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Group has an obligation to fund the investee’s operations or has made payments on behalf of the investee. In the Company’s separate financial statements, investments in associates and joint ventures are accounted for at cost, less accumulated impairment losses. (vi) Transactions eliminated on consolidation All significant inter-company balances and transactions are eliminated on consolidation. 3.2 Foreign currency (i) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of the Company and its subsidiaries and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. The major functional currencies of the Group entities are Singapore dollar, United States dollar and Euro. Monetary assets and liabilities denominated in foreign currencies are translated at the closing rate of exchange ruling at the balance sheet date. Non-monetary items in a foreign currency that are measured in terms of historical cost are translated using the exchange rates as at the date of the transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Monetary item carried at amortised cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year and the amortised cost in foreign currency are translated at the exchange rate at the end of the year. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments, a financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective, or qualifying cash flow hedges to the extent the hedge is effective, which are recognised in other comprehensive income. 152 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.2 Foreign currency (continued) (ii) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Singapore dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Singapore dollars using exchange rates at the date of the transactions. Foreign currency differences are recognised in other comprehensive income and presented in the foreign currency translation reserve in equity. However, if the foreign operation is a non wholly-owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the foreign currency translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is re-attributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains or losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income, and presented in the foreign currency translation reserve in equity. 3.3 Financial instruments (i) Non-derivative financial assets Financial assets are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. All regular way purchases and sales of financial assets are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace concerned. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the balance sheet when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets. The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, reevaluates this designation at each financial year-end. 153 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.3 Financial instruments (continued)) (i) Non-derivative financial assets (continued) Financial assets at fair value through profit or loss Financial assets held for trading are classified as financial assets at fair value through profit or loss. Financial assets held for trading are financial assets acquired principally for the purpose of selling in the near term. Financial assets at fair value through profit or loss are measured at fair value and gains or losses arising from change in the fair values are recognised in profit or loss. Attributable transaction costs are recognised in profit or loss as incurred. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Gains or losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process. Loans and receivables comprise cash and cash equivalents, and trade and other receivables (including finance lease receivables and amounts due from related parties). Cash consists of cash on hand and cash with banks or financial institutions, including fixed deposits. Cash equivalents are short-term and highly liquid investments that are readily convertible to known amounts of cash and that are subject to insignificant risk of changes in value. For the purpose of the statement of cash flows, cash and cash equivalents also include bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management. Available-for-sale financial assets Available-for-sale financial assets are those financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. Available-for-sale financial assets are recognised initially at fair value plus any directly attributable transaction costs. After initial recognition, the changes in fair value are recognised in other comprehensive income and presented in the fair value reserve in equity, except for impairment losses and foreign exchange differences on available-for-sale debt instruments, until the financial asset is derecognised. Upon derecognition, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to income statement as a reclassification adjustment. The fair value of available-for-sale financial assets that are actively traded in organised financial markets is determined by reference to quoted market prices at the close of business on the balance sheet date. For those financial assets where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument, which is substantially the same; discounted cash flow analysis and option pricing models. For those financial assets where there is no active market and where fair value cannot be reliably measured, they are measured at cost. Available-for-sale financial assets comprise equity securities and bonds. 154 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.3 Financial instruments (continued) (ii) Non-derivative financial liabilities Financial liabilities are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. Financial liabilities for contingent consideration payable in a business combination are initially measured at fair value. Subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. Financial assets and liabilities are offset and the net amount presented in the balance sheets when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Non-derivative financial liabilities are recognised initially at fair value plus directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method. The Group’s financial liabilities comprise bank overdrafts, trade and other payables (including lease obligations and amounts due to related parties), and borrowings. (iii) Share capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects. (iv) Treasury shares When ordinary shares are reacquired by the Company, the consideration paid is recognised as deduction from equity. Reacquired shares are classified as treasury shares. When treasury shares are sold, or re-issued subsequently, the cost of treasury shares is reversed from treasury shares account and the realised gain or loss on transaction is presented as a change in equity of the Company. No gain or loss is recognised in profit or loss. Treasury shares have no voting rights and no dividends are allocated to them. (v) Derivative financial instruments and hedge accounting The Group uses derivative financial instruments such as forward currency contracts, interest rate swaps and cross currency swaps to hedge its risks associated with foreign currency and interest rate fluctuations. From time to time, the Group also uses monetary assets and liabilities and embedded derivatives as hedging instruments to hedge its risks associated with foreign currency fluctuations. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivatives are not closely related, a separate instrument with the same terms as the embedded derivatives would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss. 155 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD)) 3.3 Financial instruments (continued) (v) Derivative financial instruments and hedge accounting (continued) On initial designation of the derivative as the hedging instrument, the Group formally documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and the methods used in assessing the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, of whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or cash flows of the respective hedged items attributable to the hedged risk, and whether the actual results of each hedge are within a range of 80% to 125%. For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect profit or loss. Derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into. Attributable transaction costs are recognised in profit or loss as incurred. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below. Fair value hedges The gain or loss from re-measuring the hedging instrument at fair value (for a derivative hedging instrument) or the foreign currency component of its carrying amount measured in accordance with Note 3.2(i) (for a non-derivative hedging instrument) is recognised in profit or loss. The gain or loss on the hedged item attributable to the hedged risk is recognised in profit or loss. When an unrecognised firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognised as an asset or liability with a corresponding gain or loss recognised in profit or loss. The changes in the fair value of the hedging instrument are also recognised in profit or loss. The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting or the Group revokes the designation. Any adjustment to the carrying amount of a hedging instrument for which the effective interest method is used is amortised in the income statement. Amortisation may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. Cash flow hedges The portion of the gain or loss on a derivative designated as the hedging instrument that is determined to be an effective hedge is recognised in other comprehensive income and presented in the fair value reserve in equity, while the ineffective portion is recognised immediately in profit or loss. Amounts taken to equity are transferred to profit or loss when the hedged transaction affects profit or loss, such as when hedged financial income or financial expense is recognised, or when a forecast sale or purchase occurs. When the hedged item is a non-financial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability. If the forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to profit or loss. If the hedging instrument expires or is sold, terminated, or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction occurs. If the related transaction is not expected to occur, the amount is then transferred to profit or loss. 156 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.3 Financial instruments (continued) (v) Derivative financial instruments and hedge accounting (continued) Hedge of net investment in foreign operations The Group has foreign currency differences arising from the translation of financial liabilities that are designated as net investment hedges of foreign operations. These hedging instruments are accounted for similarly to cash flow hedges. The currency translation differences on the financial liabilities relating to the effective portion of the hedge are recognised in other comprehensive income and presented in the foreign currency translation reserve in equity, while the ineffective portion of the hedge are recognised immediately in profit or loss. On the disposal or partial disposal of the foreign operation, the amounts previously recognised in equity are transferred to profit or loss as part of the gain or loss on disposal. Separable embedded derivatives and other derivatives Any gains or losses arising from changes in fair value on derivatives that are not designated in hedging relationships are recognised immediately in profit or loss. (vi) Intra-group financial guarantees in the separate financial statements Financial guarantees are financial instruments issued by the Company that require the issuer to make specified payments to reimburse the holder for the loss it incurs because a specified debtor fails to meet payment when due in accordance with the original or modified terms of a debt instrument. Financial guarantees are recognised initially at fair value and are classified as financial liabilities. Subsequent to initial measurement, the financial guarantees are stated at the higher of the initial fair value less cumulative amortisation and the amount that would be recognised if they were accounted for as contingent liabilities. When financial guarantees are terminated before their original expiry date, the carrying amount of the financial guarantee is transferred to profit or loss. 3.4 Property, plant and equipment and depreciation (i) Recognition and measurement All items of property, plant and equipment are initially recorded at cost. The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Cost includes expenditure that is directly attributable to the acquisition of the asset and capitalised borrowing costs. The cost of self-constructed assets also includes the cost of material and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use and the costs of dismantling and removing the items and restoring the site on which they are located. Cost may also include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately. Subsequent to initial measurement, except for certain property, plant and equipment which were subject to a one-time revaluation in 1972 (“the 1972 assets”), property, plant and equipment are measured at cost, net of depreciation and any impairment losses. The 1972 assets stated at valuation are exempted from conducting a regular frequency of revaluation but are measured net of depreciation, and any impairment losses. The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and is recognised net within other income in profit or loss. 157 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.4 Property, plant and equipment and depreciation (continued) (i) Recognition and measurement (continued) The cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the Group, and its cost can be measured reliably. The carrying amount of the replaced component is derecognised. (ii) Depreciation Depreciation is based on the cost of an asset less its residual value. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Property, plant and equipment purchased specifically for projects are depreciated over the useful life of the class of property, plant and equipment or the duration of the project, whichever is shorter. Construction-in-progress is not depreciated until each stage of development is completed and becomes ready for use. Freehold land is not depreciated. The estimated useful lives are as follows: Buildings Leasehold land Improvements to premises Wharves and slipways Syncrolift and floating docks Boats and barges Plant and machinery – Aerospace – Electronics – Land Systems – Marine – Others Production tools and equipment – Aerospace – Electronics – Others Furniture, fittings, office equipment and computers Transportation equipment and vehicles Aircraft and aircraft engines * – – – – – – 2 to 50 years * Over the period of the lease of between 2 to 50 years * 3 to 30 years * 20 years 15 years 10 to 23 years – – – – – 8 to 25 years 10 years 5 to 15 years 5 to 30 years 5 years – – – – 5 to 15 years 10 years 3 years 2 to 5 years – – 5 years 15 to 30 years Refer to Note 12(d)(ii) for details of the lease tenure used to approximate the useful lives of the leasehold land, buildings and improvements. The residual value, useful life and depreciation method are reviewed at each financial year-end to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the depreciation period or method, as appropriate, and treated as changes in accounting estimates. 158 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.5 Intangible assets (i) Goodwill Goodwill represents the excess of: • the fair value of the consideration transferred; plus • the recognised amount of any non-controlling interests in the acquiree; plus • if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree, over the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. Goodwill is initially measured at cost. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. In respect of equity-accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and an impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying amount of the equity-accounted investee. (ii) Research and development expenditure Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in profit or loss as and when incurred. Development expenditure on an individual project is recognised as an intangible asset when the Group can demonstrate the technical feasibility of completing the development so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete and the ability to measure reliably the expenditure during the development. The expenditure capitalised includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use, and capitalised borrowing costs. In any other circumstances, development costs are recognised in profit or loss as incurred. Development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses. (iii) Film cost inventory Film cost inventory comprise film production costs which are recognised as an intangible asset when the Group can demonstrate the technical feasibility of completing the film so that it will be available for use or sale, its intention to complete and its ability to use or sell the film, how the film will generate future economic benefits, the availability of resources to complete and the ability to measure reliably the expenditure during the film production. Other film production costs are recognised in profit or loss as incurred. Film cost inventory is measured at cost less accumulated amortisation and accumulated impairment losses. 159 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.5 Intangible assets (continued) (iv) Other intangible assets Other intangible assets that are acquired by the Group are initially recognised at cost. The cost of intangible assets acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Licences • Licences acquired as part of business combination a) These licences relates to Air Operator Certificate issued by the Civil Aviation Safety Authority of Australia to conduct commercial aviation activities such as flight training school and air charter, and the Federal Aviation Administration’s Organisation Designation Authorisation programme that allows autonomy and efficiency in the issuance of supplementary type certificates for avionics and interiors projects. b) These licences relates to the Federal Aviation Administration’s Part 141 Approval to a flight school for pilot training in the US, including the issuance of the relevant entry visa to foreign students to enter the US. These licences are not amortised as they are considered to have an indefinite useful life and are tested annually for impairment. • Licences acquired for purchase and leasing of Boeing parts These licences are awarded by the relevant authorities such as the Federal Aviation Authority (“FAA”), European Aviation Safety Agency (“EASA”), ISO9001, AS9100 Rev C, as well as commercial arrangement with Boeing for the purchase and leasing of Boeing parts. • Licences acquired to develop maintenance, repair and overhaul services capabilities These licence agreements relate to the maintenance, repair and overhaul services for UTC Aerospace Systems components on Boeing 787 aircraft. These licences are not amortised until the repair capabilities are set up and available for use. Technology agreement The technology agreement relates to the intellectual property assets required to operate the EcoPower Engine Wash business. The intellectual property is an integral part of business as the business uses highlyproprietary processes to clean engines to enable fuel burn reduction and extended time on-wing. (v) Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated intangible assets, is recognised in profit or loss as incurred. 160 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.5 Intangible assets (continued) (vi) Amortisation Amortisation is calculated based on the cost of the asset less its residual value. Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, development expenditure of Aerospace sector and film cost inventory, from the date that they are available for use. Amortisation of development expenditure is recognised in profit or loss using the units of production method. Film cost inventory is amortised using the individual-film-forecast computation method which amortises the film costs in the same ratio that current gross revenue bear to anticipated total gross income for the film. Amortisation commences when each film begins to earn revenue. The estimated useful lives/units are as follows: Dealer network Development expenditure – Aerospace – Electronics Commercial and intellectual property rights Brands – Aerospace – Electronics – Land Systems Film cost inventory Licences Technology agreement – 5 to 10 years – – – 21 to 80 units 2 to 5 years 2 to 16 years – – – – – – 5 years 20 years 70 years 20 years 7 to 30 years 7 to 13 years The useful lives and amortisation methods are reviewed at the end of each financial year-end to ensure that the amount, method and period of amortisation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the intangible assets. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortisation expense is recognised in the expense category consistent with the function of the intangible asset. 3.6 Investment property Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is measured at cost, net of depreciation and any impairment loss. Cost includes expenditure that is directly attributable to the acquisition of the investment property. The cost of self-constructed investment property includes the cost of materials and direct labour, any other costs directly attributable to bringing the investment property to a working condition for their intended use and capitalised borrowing costs. Depreciation is recognised in profit or loss on a straight-line basis so as to write-off the cost of the investment property over its estimated useful life of 12 years. Investment property is derecognised when either it has been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gain or loss on the retirement or disposal of an investment property are recognised in profit or loss in the year of retirement or disposal. 161 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.6 Investment property (continued) Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner-occupied property, the carrying value at the date of change in use becomes the cost for subsequent accounting. For a transfer from owner-occupied property to investment property, the property is accounted for in accordance with the accounting policy for property, plant and equipment set out in Note 3.4 up to the date of change in use. 3.7 Inventories and work-in-progress Inventories are measured at the lower of cost and net realisable value. Cost is calculated on a first-in, first-out basis or by weighted average cost depending on the nature and use of the inventories. Cost includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. Cost may also include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of inventories. Allowance is made for deteriorated, damaged, obsolete and slow-moving inventories. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Work-in-progress is measured at cost plus profits recognised to date less progress billings and recognised losses. Cost includes all direct material and labour costs, equipment and sub-contracting services, together with appropriate overhead expenses and may also include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of such services. Provision for foreseeable losses on uncompleted contracts is made in the year in which such losses are determined. Work-in-progress is included in current assets in the balance sheet for all contracts in which costs incurred plus recognised profits exceed progress billings. If progress billings exceed costs incurred plus recognised profits, then the difference is presented as “progress billings in excess of work-in-progress” and is included in current liabilities in the balance sheet. 3.8 Impairment (i) Non-derivative financial assets The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset not carried at fair value through profit or loss is impaired. To determine whether there is objective evidence that financial assets (including equity securities) are impaired, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor/issuer, default or significant delay in payments, significant adverse changes in the business environment where the debtor/issuer operates and disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. Financial assets carried at amortised cost The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Financial assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. 162 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.8 Impairment (continued) (i) Non-derivative financial assets (continued) Financial assets carried at amortised cost (continued) In assessing collective impairment, the Group uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends. If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced either directly or through use of an allowance account. The amount of the loss shall be recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in profit or loss, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. Financial assets carried at cost If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. The loss recognised is not reversed in future periods. Available-for-sale financial assets If an available-for-sale financial asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the income statement, is transferred from equity to profit or loss. Reversals in respect of impairment losses on equity instruments classified as available-for-sale are recognised in other comprehensive income. Reversals of impairment losses on debt instruments are reversed through profit or loss, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognised in profit or loss. (ii) Non-financial assets The Group assesses at each reporting date whether there is an indication that its non-financial assets, other than goodwill, investment property, inventories, work-in-progress and deferred tax assets, may be impaired. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. If any such indication exists, the Group makes an estimate of the asset’s recoverable amount. An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit (“CGU”) exceeds its estimated recoverable amount. 163 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.8 Impairment (continued) (ii) Non-financial assets (continued) The recoverable amount of an asset or CGU is the higher of its fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGU. Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU or group of CGUs, and then to reduce the carrying amounts of other assets in the CGU or group of CGUs on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount since the last impairment loss was recognised. If that is the case, the impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised in prior years. Such reversal is recognised in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation or amortisation charged is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Goodwill that forms part of the carrying amount of an investment in an associate and/or joint venture is not recognised separately, and therefore is not tested for impairment separately. Instead, the entire amount of the investment in an associate and/or joint venture is tested for impairment as a single asset when there is objective evidence that the investment in an associate and/or joint venture may be impaired. 3.9 Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. (i) Warranties The warranty provision represents the best estimate of the Group’s contractual obligations at the balance sheet date. Under the terms of the revenue contracts with key customers, the Group is obligated to make good, by repair or replacement, engineering or manufacturing defects that become apparent within the warranty period from the date of sale. The warranty obligation varies from 1 year to 8 years. The Group’s experience of the proportion of its products sold that requires repair or replacement differs from year to year as every contract is customised to the specification of the customers. The estimation of the provision for warranty expenses is based on the Group’s past claim experience over the duration of the warranty period and the industry average in relation to warranty exposures and represents the best estimates of the costs expected to incur per dollar of sales. The warranty provision made as at 31 December 2014 is expected to be incurred over the applicable warranty periods. 164 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.9 Provisions (continued) (ii) Liquidated damages Provision for liquidated damages is made in respect of anticipated claims from customers on contracts of which deadlines are overdue or not expected to be completed on time in accordance with contractual obligations. The utilisation of provisions is dependent on the timing of claims. 3.10 Employee benefits (i) Employee equity compensation benefits The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. (ii) Defined contribution plans The Group participates in national pension schemes, a post employment benefit, as defined by the laws of the countries in which it has operations. In particular, the Singapore companies in the Group make contributions to the Central Provident Fund scheme in Singapore, a defined contribution pension scheme. Contributions to national pension schemes are recognised as an expense in the period in which the related service is performed. (iii) Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under cash bonus plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. (iv) Economic Value Added (“EVA”)-based Incentive Scheme The Group adopts an incentive compensation plan, which is tied to the creation of EVA, as well as attainment of individual and Group performance goals for its key executives. An EVA bank is used to hold incentive compensation credited in any year. Typically one-third of the accumulated EVA-based bonus, comprising the EVA declared in the financial year and the balance of such bonus brought forward from preceding years is paid out in cash each year, with the balance being carried forward to the following year. The balances of the EVA bank in future will be adjusted by the yearly EVA performance of the Group and the payouts made from the EVA bank. The Group measures the bonus payable after one year at the present value of the amount payable. 165 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.11 Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and revenue can be reliably measured. Revenue is measured at the fair value of consideration received or receivable, net of any returns, trade discounts and volume rebates. Revenue is recognised using the following methods: (i) Revenue from sale of goods is recognised when persuasive evidence exists that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably. The timing of the transfer of risks and rewards usually occurs upon delivery of goods and acceptance by customers. (ii) Revenue from rendering of services is recognised in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to the work performed. (iii) Revenue from long-term contracts is recognised by reference to stage of completion, which is measured by either: (a) (b) (c) a combination of different cost components or a single cost component that would provide the most reliable indication of the stage of completion of a contract; or when goods and services, representing part of a contract, are delivered; or upon completion of designated phases of a contract. Provision for foreseeable losses on uncompleted contracts is recognised in profit or loss as soon as such losses are determinable. 3.12 (iv) Management fee income is recognised on an accrual basis over the duration upon which management services are rendered. (v) Commission income in excess of the certain percentage of the total amount received is taken up in the income statement as and when the services are performed. Where it is probable that a portion of the commission income may not materialise, a certain percentage of the total commission received is treated as downpayment and is deferred and taken up in the income statement only upon the discharge of specified contractual obligations. (vi) Rental income from investment property is accounted for on a straight-line basis over the duration of the lease terms. (vii) Rental income from leasing of facilities is accounted for on a straight-line basis over the lease terms. Government grants Government grants are recognised when the Group complies with the conditions associated with the grants. Grants that compensate the Group for expenses incurred are recognised in profit or loss as other income in the same periods in which the expenses are recognised. Grants relating to depreciable assets are deferred and recognised in profit or loss as other income over the period in which such assets are depreciated and used in the projects subsidised by the grants. 166 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.13 Finance income and finance costs Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on disposal of available-for-sale financial assets, fair value gains on financial assets at fair value through profit or loss, gains on hedging instruments that are recognised in profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Dividend income is recognised in profit or loss when the shareholder’s right to receive payment is established. Finance costs comprise interest expense on borrowings, losses on disposal of available-for-sale financial assets, fair value losses on financial assets at fair value through profit or loss, impairment losses recognised on investments, and losses on hedging instruments that are recognised in profit or loss. In 2014, the Group has re-assessed the nature of the fair value gains or losses arising from embedded derivatives and forward currency contracts that provide an economic hedge to trading transactions. The Group has considered that the economic hedges are part of the Group’s operating activities and are classified under part of cost of sales prospectively to better reflect the nature of the transactions. Comparative information are not reclassified as the Group has assessed that the net impact of the fair value changes of embedded derivatives and forward currency contracts to be not material to the financial statements of the Group. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method. Foreign currency gains and losses on financial assets and financial liabilities are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position. 3.14 Finance leases (i) As lessee Finance leases are those leasing agreements, which effectively transfer to the Group substantially all the risks and benefits incidental to ownership of the lease items. Assets financed under such leases are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Any initial direct costs are also added to the amount capitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to profit or loss. Assets acquired on finance lease arrangements are depreciated in accordance with the policy set out in Note 3.4 above. (ii) As lessor Leases where the Group transferred substantially all the risks and rewards incidental to legal ownership of the leased assets, are classified as finance leases. The leased asset is derecognised and the present value of the lease receivables (net of initial direct costs for negotiating and arranging the lease) is recognised on the balance sheet. The difference between the gross receivables and the present value of the lease receivables is recognised as unearned finance income. Each lease payment received is applied against the gross investment in the finance lease receivables to reduce both the principal and the unearned finance income. The finance income is recognised in profit or loss on a basis that reflects a constant periodic rate of return on the net investment in the finance lease receivables. Initial direct costs incurred by the Group in negotiating and arranging finance leases are added to finance lease receivables and recognised as an expense in profit or loss over the lease term on the same basis as the leased income. 167 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.15 Operating leases Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased asset, are classified as operating leases. Operating lease payments are recognised as an expense in profit or loss on a straight-line basis over the lease term. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis. 3.16 Income taxes (i) Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. Current taxes are recognised in profit or loss except to the extent that it relates to items recognised directly in other comprehensive income or in equity. (ii) Deferred tax Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax is not recognised for temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss and taxable temporary differences arising on the initial recognition of goodwill. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled based on tax rates enacted or substantively enacted at the balance sheet date. Deferred tax liabilities are recognised for all taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carry-forward of unused tax assets and unused tax losses can be utilised. At each balance sheet date, the Group re-assesses unrecognised deferred tax assets and the carrying amount of deferred tax assets. The Group recognises a previously unrecognised deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. The Group conversely reduces the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of the deferred tax asset to be utilised. Deferred income tax relating to items recognised outside profit or loss is recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity and deferred tax arising from a business combination is adjusted against goodwill on acquisition. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current income tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same tax authority. 168 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.17 Earnings per share The Group presents basic and diluted earnings per share data for its ordinary shares. Basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year, adjusted for own shares held. Diluted earnings per share is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise share plans granted to employees. 3.18 Operating segments For management purposes, the Group is organised on a worldwide basis into four major operating segments. The management of the Company reviewed the segments’ operating results regularly in order to allocate resources to the segments and to assess the segments’ performance. Additional disclosures on each of these operating segments are shown in Note 41, including the factors used to identify the reportable segments and the measurement basis of segment information. 3.19 Changes in accounting policies The Group has adopted FRS 32 Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities, FRS 110 Consolidated Financial Statements, FRS 111 Joint Arrangements and FRS 112 Disclosure of Interests in Other Entities, as well as the consequential amendments to FRS 28 Investments in Associates and Joint Ventures (2011), with a date of initial application of 1 January 2014. (i) Subsidiaries As a result of the adoption of FRS 110 Consolidated Financial Statements, the Group has changed its accounting policy for determining whether it has control over and consequently whether it consolidates its investees. FRS 110 introduces a new control model that is applicable to all investees, by focusing on whether the Group has power over an investee, exposure or rights to variable returns from its involvement with the investee and the ability to use its power to affect those returns. In particular, FRS 110 requires the Group to consolidate investees that it controls on the basis of de facto circumstances. As a consequence, the Group has changed its control conclusion in respect of its investment in STELOP Pte. Ltd. (“STELOP”), which was previously accounted for as a subsidiary. Although the Group owns more than half of the voting rights of STELOP, the contractual agreement requires all shareholders to act together to direct the operations of STELOP. Accordingly, the Group has reclassified its investment in STELOP to a joint venture. The change in accounting policy was not applied retrospectively as the impact of restating prior year’s comparative was immaterial. (ii) FRS 111 Joint Arrangements FRS 111 Joint Arrangements, which establishes the principles for classification and accounting of joint arrangements. The adoption of this standard required the Group to re-assess and classify its joint arrangements as either joint operations or joint ventures based on its rights and obligations arising from the joint arrangements. Under this standard, interests in joint ventures will be accounted for using the equity method, whilst interests in joint operations will be accounted for using the applicable FRSs relating to the underlying assets, liabilities, revenue and expense items arising from the joint operations. The Group has investments in joint arrangements as disclosed in Note 14. The Group has re-evaluated the rights and obligations of the parties to these joint arrangements and has determined that the parties in these joint arrangements have rights to the net assets of the arrangements. Accordingly, these have been classified as joint ventures under FRS 111 and will be accounted for using the equity method. Previously, these investments in joint arrangements are accounted for as jointly-controlled entities under FRS 31 Interests in Joint Ventures using the equity method. As the Group is already applying the equity method of accounting, there is no impact to the Group’s financial statements when the Group adopted FRS 111. 169 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.19 Changes in accounting policies (continued) (iii) FRS 112 Disclosure of Interests in Other Entities FRS 112 Disclosure of Interests in Other Entities, which sets out the disclosures required to be made in respect of all forms of an entity’s interests in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities. The adoption of this standard resulted in more extensive disclosures being made in the Group’s financial statements in respect of its interests in other entities; as FRS 112 is primarily a disclosure standard, there was no financial impact on the results and financial position of the Company and the Group when the Group adopted FRS 112 in 2014. This has been presented in Notes 14 and 44. (iv) FRS 32 Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities Amendments to FRS 32 Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities, which clarifies the existing criteria for net presentation on the face of the Balance Sheet. Under the amendments, to qualify for offsetting, the right to set off a financial asset and a financial liability must not be contingent on a future event, and must be enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all counterparties. The application of the standard had no impact to the Group’s financial statements. 3.20 Significant accounting estimates and judgements Estimates and assumptions concerning the future are made in the preparation of the financial statements. They affect the application of the Group’s accounting policies, reported amounts of assets, liabilities, income and expenses, and disclosures made. They are assessed on an ongoing basis and are based on experience and relevant factors, including expectations of future events that are believed to be reasonable under the circumstances. (i) Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Impairment of non-financial assets The Group assesses whether there are any indicators of impairment for all non-financial assets at each reporting date. Goodwill and other intangible assets are tested for impairment annually and at other times when such indicators exist. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. When value-in-use calculations are undertaken, management must estimate the expected future cash flows from the asset or CGU and choose a suitable discount rate in order to calculate the present value of those cash flows. Further details of the key assumptions applied in the impairment assessment of goodwill and other intangible assets are given in Note 16 to the financial statements. 170 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.20 Significant accounting estimates and judgements (continued) (i) Key sources of estimation uncertainty (continued) Impairment of loans and receivables The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset is impaired. To determine whether there is objective evidence of impairment, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience for assets with similar credit risk characteristics. The carrying amount of the Group’s loans and receivables at the balance sheet date is disclosed in Note 43 to the financial statements. Depreciation charge Property, plant and equipment and investment property are depreciated on a straight-line basis over their estimated useful lives. Management estimates the useful lives of these property, plant and equipment and investment property to be within 2 to 50 years. Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these property, plant and equipment and investment property, and therefore future depreciation charges could be revised. Revenue recognition and provision for foreseeable losses The Group has recognised revenue from long-term contracts by reference to the stage of completion. The bases for measuring the stage of completion are described in Note 3.11(ii) and (iii). Significant judgement based on management’s knowledge and experience is required in determining the appropriate stage of completion and estimating a reasonable contribution margin or expected losses for revenue and costs recognition. Allowance for inventory obsolescence and write down of finished goods to net realisable value The allowance for inventory obsolescence is based on estimates from historical trends and expected utilisation of inventories. The actual amount of inventory write-offs could be higher or lower than the allowance made. Provision for warranty The provision for warranty is based on estimates from known and expected warranty work to be performed after completion. The warranty expense incurred could be higher or lower than the provision made. 171 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.20 Significant accounting estimates and judgements (continued) (i) Key sources of estimation uncertainty (continued) Income taxes The Group has exposure to income taxes in numerous jurisdictions. Significant judgement is involved in determining the group-wide provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. In addition, certain subsidiaries of the Group have potential tax benefits arising from unutilised tax losses, unabsorbed wear and tear allowances and other temporary differences, which are available for set-off against future taxable profits. Significant judgement is involved in determining the availability of future taxable profits against which the Group can utilise the tax benefits therefrom. The use of the potential tax benefits is also subject to the agreement of the tax authorities and compliance with certain provisions of the tax legislation of the respective countries in which the subsidiaries operate. Where the final outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax provision and recognised deferred tax assets relating to the potential tax benefits in the period in which such determination is made. Measurement of fair values A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred. Further information about the assumptions made in measuring fair values is included in Note 43 to the financial statements. EVA-based Incentive Scheme (“EBIS”) Estimates of the Group’s obligations arising from the EBIS at the balance sheet date may be affected by future events, which cannot be predicated with any certainty. The assumptions and estimates are made based on management’s knowledge and experience and may vary from actual experience so that the actual liability may vary considerably from the best estimates. Negative EVA will result in a clawback of EVA bonus accumulated in previous years. (ii) Critical judgements made in applying accounting policies Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements relates to assessing whether the Group has control over its investee companies. During the year, the Group assessed the terms and conditions of the shareholders’ agreement of subsidiaries that are not wholly-owned by the Group. The Group made critical judgements over: (a) their ability to exercise power over its investees; (b) their exposure or rights to variable returns for its investments with those investees; and (c) their ability to use its power to affect those returns. The Group’s judgement included considerations of their power exercised at the board of the respective investees and rights and obligations arising from board reserve of matters as agreed with the other shareholders. 172 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 3. summary of significant accounting Policies (continueD) 3.21 Future changes in accounting policies Except as otherwise indicated below, those new standards, amendments to standards, and interpretations are not expected to have a significant effect on the financial statements of the Group and the Company. The Group does not plan to early adopt these standards. • FRS 115 Revenue from Contracts with Customers FRS 115 Revenue from Contracts with Customers will replace FRS 18 Revenue, FRS 11 Construction Contracts and related interpretations. The standard establishes the principle for companies to recognise revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled to in exchange for those goods or services. The new standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed (e.g. service revenue and contract modifications) and improved guidance for multi-element arrangements. The Group is currently assessing the impact upon adoption of this standard in financial year ending 31 December 2017. • FRS 109 Financial Instruments The standard replaces FRS 39 Financial Instruments: Recognition and Measurement. The standard sets out the requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. The Group is currently assessing the impact on adoption of this standard in financial year ending 31 December 2018. 4. REVENUE Revenue represents invoiced value of sales/services less returns and discounts given and billings recognised on contracts as follows: 2014 $’000 Sale of goods Service income Contract revenue 2,155,395 3,322,171 1,061,867 6,539,433 Group 2013 $’000 2,381,791 3,277,714 973,647 6,633,152 173 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 5. PROFIT FROM OPERATIONS Profit from operations is arrived at: Note 2014 $’000 Group 2013 $’000 After charging/(crediting) Auditors’ remuneration – auditors of the Company – other auditors Non-audit fees – auditors of the Company – other auditors Fees and remuneration of directors * Fees paid to a firm of which a director is a member Personnel expenses Depreciation charges Allowance/(write-back of allowance) for – inventory obsolescence – doubtful debts (trade) – doubtful debts (related parties) – unbilled receivables (trade) – doubtful lease receivables Provision for – warranties – liquidated damages – foreseeable losses Property, plant and equipment written off Research, design and development expenses Operating lease expenses Amortisation of other intangible assets Impairment losses on property, plant and equipment Impairment losses on goodwill Impairment losses on other intangible assets Impairment loss on progressive payments to contractor Fair value changes in embedded derivatives not designated as hedging instruments (included in cost of sales) – Losses Fair value changes of forward currency contracts not designated as hedging instruments (included in cost of sales) – Gains – Losses * Includes share-based payment expense of $492,421 (2013: $345,400). 6 12 1,690 2,375 1,828 2,561 695 1,174 5,231 436 1,749,364 154,318 802 1,184 7,070 488 1,796,531 127,176 102,671 5,546 (792) – 9,872 28 28 16 12 16 16 23 27,631 2,962 (793) 1,202 7,108 39,076 12,928 24,758 885 96,940 44,425 16,188 1,087 10,829 3,210 7,109 6,524 2,371 38,234 1,386 101,432 48,814 14,868 690 2,141 312 – 24,199 – (27,577) 4,578 – – 174 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 6. PERSONNEL ExPENSES 2014 $’000 Wages and salaries * Contributions to defined contribution plans Share-based payments Other personnel expenses * 7. 1,406,667 130,323 20,925 191,449 1,749,364 2013 $’000 1,450,899 133,163 14,977 197,492 1,796,531 Includes directors’ remuneration of $2,438,009 (2013: $3,909,347). KEY MANAGEMENT PERSONNEL COMPENSATION 2014 $’000 Short-term employee benefits Contributions to defined contribution plans Other long-term benefits Share-based payments 8. Group Group 31,082 475 3 8,287 39,847 2013 $’000 39,575 445 18 7,239 47,277 OThER INCOME, NET 2014 $’000 Other income Gain on disposal of property, plant and equipment and investment property Gain on disposal of subsidiaries Gain on disposal of a joint venture Government grants Grant income from Wage Credit Scheme Commission income Rental income Proceeds received from insurers Others Other expenses Loss on disposal of a subsidiary Loss on disposal of associates Impairment losses on associates Impairment loss on loan to an associate Other income, net, recognised in profit or loss Group 2013 $’000 1,310 519 2,797 5,787 9,122 398 7,345 5,023 12,874 45,175 12,978 – – 11,503 – 311 6,336 – 8,967 40,095 – – (2,108) (2,892) (5,000) (50) (318) (5,539) – (5,907) 40,175 34,188 175 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 9. FINANCE COSTS, NET 2014 $’000 Finance income Dividend income quoted equity investments Interest income – bank deposits – staff loans – finance lease – bonds – others Exchange gain, net Gain on disposal of investments Gain on fair value changes of investments held for trading Net change in fair value of cash flow hedges reclassified from equity on occurrence of forecast transactions Fair value changes of financial instruments – gain on forward currency contract, cross currency interest rate swaps and cross currency swap not designated as hedging instrument – gain on forward currency denominated cash balances designated as hedging instrument in fair value hedges Fair value changes of hedged items Fair value changes of embedded derivatives – not designated as hedging instrument Finance costs Interest expenses – bank loans and overdrafts – bonds – finance lease – others Exchange loss, net Net change in fair value of cash flow hedges reclassified from equity on occurrence of forecast transactions Fair value changes of financial instruments – loss on forward currency contracts, cross currency interest rate swaps, interest rate swaps and cross currency swap not designated as hedging instrument – loss on forward currency contract designated as hedging instrument Fair value changes of hedged items Impairment losses on unquoted investments Finance costs, net, recognised in profit or loss Group 2013 $’000 2 1 14,327 15 310 6,921 2,056 – 2,640 152 13,052 20 579 8,917 752 3,315 6,154 107 739 – 15,822 – – 566 814 1,558 – 43,550 33,642 68,911 (10,269) (26,542) (744) (319) (5,150) (16,484) (26,574) (871) (311) – – (1,558) – (30,593) (796) (739) (638) (45,197) (447) (242) (624) (77,704) (1,647) (8,793) 176 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 10. TAxATION 2014 $’000 Current income tax Current year Overprovision in respect of prior years Deferred income tax Current year Underprovision in respect of prior years Effect of reduction in tax rate Group 2013 $’000 122,606 (15,122) 107,484 155,385 (15,472) 139,913 2,699 3,796 (286) 6,209 (2,234) 542 (76) (1,768) 113,693 138,145 Deferred income tax related to items (charged)/credited directly to other comprehensive income: 2014 $’000 Net change in fair value of derivative financial instruments designated in cash flow hedges Group 2013 $’000 (10,770) 9,479 A reconciliation between tax expense and the product of accounting profit multiplied by the applicable corporate tax rate for the year ended 31 December is as follows: 2014 $’000 Group 2013 $’000 Profit before taxation 650,683 729,692 Taxation at statutory tax rate of 17% (2013: 17%) Adjustments: Income not subject to tax Expenses not deductible for tax purposes Different tax rates of other countries Overprovision in prior years, net Effect of change in tax rates Effect of results of associates and joint ventures presented net of tax Tax incentives Deferred tax assets not recognised Deferred tax assets previously not recognised now utilised Deferred tax assets previously not recognised now recognised Others 110,616 124,048 (4,442) 34,257 (4,736) (11,326) (286) (9,721) (3,536) 9,755 (2,133) (1,000) (3,755) 113,693 (5,302) 17,553 19,149 (14,930) (76) (5,284) (3,942) 15,008 (5,729) – (2,350) 138,145 177 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 11. EARNINGS PER ShARE Basic earnings per share The calculation for basic earnings per share is based on: 2014 $’000 Profit attributable to shareholders Group 531,952 2013 $’000 580,834 The weighted average number of ordinary shares is arrived at as follows: Number of shares Issued ordinary shares at beginning of the year Weighted average number of ordinary shares issued during the year Weighted average number of ordinary shares 2014 ’000 3,105,904 11,959 3,117,863 Group 2013 ’000 3,080,442 21,302 3,101,744 Diluted earnings per share When calculating diluted earnings per share, the weighted average number of ordinary shares is adjusted for the effect of all dilutive potential ordinary shares. The number of unissued shares under option granted under the ESOP and their exercise prices are set out in Note 34. The average fair value of one ordinary share during the financial year ended 31 December 2014 was $3.71 (2013: $4.15) per share. The weighted average number of ordinary shares adjusted for the unissued shares under option is as follows: Number of shares Weighted average number of ordinary shares * (used in the calculation of basic earnings per share) Weighted average number of unissued shares under option Number of shares that would have been issued at fair value Weighted average number of ordinary shares (diluted) * 2014 ’000 3,117,863 25,761 (21,089) 3,122,535 Group 2013 ’000 3,101,744 34,882 (24,839) 3,111,787 The weighted average number of ordinary shares takes into account the weighted average effect of changes in treasury shares transactions during the year. There are no anti-dilutive share options granted to employees under the existing employee share option plans for the current and previous financial years presented. 178 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 12. PROPERTY, PLANT AND EqUIPMENT Valuation/Cost Arising from acquisition Finalisation of interest in of purchase As at Disposals/ a subsidiary price 1.1.2013 Additions* write-off and business allocation $’000 $’000 $’000 $’000 $’000 Reclassi- Translation As at fications difference 31.12.2013 $’000 $’000 $’000 The Group At Valuation Leasehold land and buildings Wharves and slipways Syncrolift and floating docks Plant and machinery Furniture, fittings, office equipment and computers At Cost Freehold land and buildings Leasehold land and buildings Improvements to premises Wharves and slipways Syncrolift and floating docks Boats and barges Plant and machinery Production tools and equipment Furniture, fittings, office equipment and computers Transportation equipment and vehicles Aircraft and aircraft engines Construction-inprogress * 1,919 – – – – – – 1,919 1,490 – – – – – – 1,490 4,603 1,694 – – – – – – – – – – – – 4,603 1,694 279 – – – – – – 279 56,737 5,982 – – – 166 1,798 64,683 781,301 44,297 (2,870) – – 143,815 10,767 977,310 59,168 8,082 (1,125) 11 – 4,588 1,573 72,297 35,520 1,958 – – 3,719 335 41,532 68,936 10,369 724,412 3,508 – 65,424 – – (14,394) – – 365 272,581 18,523 (17,528) – 223,163 29,266 (23,505) 24 16,933 2,677 (1,531) – – 192,679 18,601 (5,491) – – 99,218 2,551,002 127,401 325,719 (24) (66,468) – 400 – – – (317) – (215) – (532) 14,388 – (54,652) (1) 42 12,711 86,831 10,411 733,549 1,364 5,739 280,679 3,379 2,786 234,898 228 17,608 4,485 1,176 211,450 24,041 144,594 2,319 39,473 252,955 2,994,188 (699) Includes $19,726,000 under finance lease arrangement and $16,405,000 by way of non-cash government grant. 179 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 12. ProPerty, Plant anD equiPment (continueD) Valuation/Cost Arising from acquisition of DeconsolidAs at Disposals/ interest in a ation of a 1.1.2014 Additions* write-off subsidiary subsidiary $’000 $’000 $’000 $’000 $’000 Reclassi- Translation As at fications difference 31.12.2014 $’000 $’000 $’000 The Group At Valuation Leasehold land and buildings Wharves and slipways Syncrolift and floating docks Plant and machinery Furniture, fittings, office equipment and computers At Cost Freehold land and buildings Leasehold land and buildings Improvements to premises Wharves and slipways Syncrolift and floating docks Boats and barges Plant and machinery Production tools and equipment Furniture, fittings, office equipment and computers Transportation equipment and vehicles Aircraft and aircraft engines Construction-inprogress * 1,919 – – – – – – 1,919 1,490 – – – – – – 1,490 4,603 1,694 – – – – – – – – – – – – 4,603 1,694 279 – – – – – – 279 64,683 403 (1,746) – – 305 2,602 66,247 977,310 15,618 (12,805) – – 41,329 8,293 1,029,745 72,297 10,789 (3,507) – 13,455 337 92,920 41,532 1,608 1,629 597 45,366 86,831 10,411 733,549 185 2,152 45,781 759 50 4,866 87,877 181,075 753,231 280,679 – (451) – – – – (18,575) – – – – – – 22,953 (5,662) – (1,858) 96 3,613 299,821 234,898 33,643 (11,363) 24 (3,136) 5,670 2,270 262,006 17,608 1,110 (1,245) – (101) 25 166 17,563 211,450 996 – 2,492 214,938 252,955 2,994,188 105,256 240,494 2,005 28,050 120,397 3,181,171 – (584) (55,487) Includes $16,258,000 by way of non-cash government grant. – – 24 – 102 168,462 (12,390) – (239,235) (5,546) (20,552) 180 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 12. ProPerty, Plant anD equiPment (continueD) Accumulated depreciation As at 1.1.2013 $’000 Depreciation charge / impairment losses* for the year $’000 1,919 1,490 4,603 1,694 – – – – – – – – – – – – – – – – 1,919 1,490 4,603 1,694 279 – – – – 279 19,160 365,431 37,388 24,454 68,647 4,968 376,265 198,576 1,344 32,259 5,873 968 520 820 33,145 10,457 – (2,863) (1,081) – – – (10,420) (13,721) 692 3,211 1,020 86 6 42 4,908 5,330 21,196 408,199 43,189 25,508 69,173 5,830 393,025 200,402 177,532 29,433 (22,849) 1,675 186,040 12,281 53,949 – 1,348,636 2,109 10,151 – 127,079 (1,192) (3,220) – (55,346) 172 550 – 17,692 13,374 61,408 36,455 1,473,784 Disposals/ Translation As at write-off Reclassifications difference 31.12.2013 $’000 $’000 $’000 $’000 The Group At Valuation Leasehold land and buildings Wharves and slipways Syncrolift and floating docks Plant and machinery Furniture, fittings, office equipment and computers At Cost Freehold land and buildings Leasehold land and buildings Improvements to premises Wharves and slipways Syncrolift and floating docks Boats and barges Plant and machinery Production tools and equipment Furniture, fittings, office equipment and computers Transportation equipment and vehicles Aircraft and aircraft engines Construction-in-progress * – 10,161 (11) – – – (10,873) (240) 249 4 (22) 36,455 35,723 Includes impairment losses of $690,000 resulting from an assessment of the recoverable amount of an engine, based on the fair value less cost to sell. The fair value is measured based on the amount to sell the engine at market price. 181 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 12. ProPerty, Plant anD equiPment (continueD) As at 1.1.2014 $’000 Depreciation charge / impairment losses* Disposals/ for the year write-off $’000 $’000 Accumulated depreciation Deconsolidation Translation As at of a subsidiary Reclassifications difference 31.12.2014 $’000 $’000 $’000 $’000 The Group At Valuation Leasehold land and buildings Wharves and slipways Syncrolift and floating docks Plant and machinery Furniture, fittings, office equipment and computers At Cost Freehold land and buildings Leasehold land and buildings Improvements to premises Wharves and slipways Syncrolift and floating docks Boats and barges Plant and machinery Production tools and equipment Furniture, fittings, office equipment and computers Transportation equipment and vehicles Aircraft and aircraft engines Construction-inprogress * 1,919 – – – – – 1,919 1,490 – – – – – 1,490 4,603 1,694 – – – – – – – – – – 4,603 1,694 279 – – – – – 279 21,196 1,309 (1,505) – – 961 21,961 408,199 37,497 (4,339) – – 3,606 444,963 43,189 7,639 (3,495) – 496 47,473 25,508 1,166 – 153 26,827 69,173 5,830 393,025 1,244 6,634 39,795 – – (10,781) 70 50 4,831 70,487 48,969 426,869 200,402 13,821 (5,214) (1,583) 2 3,901 211,329 186,040 34,683 (11,207) (2,924) 1 2,122 208,715 13,374 1,862 (1,185) (101) – 142 14,092 61,408 9,755 (2) 817 71,978 36,455 1,473,784 – 155,405 – – – (37,726) (356) – – – – – – (4,964) – 36,455 (1) (36,455) – – – 17,149 1,603,648 Due to continued losses of a subsidiary, the Group performed an impairment assessment and recognised an impairment loss of $1,087,000 on certain plant and equipment. The recoverable amounts of these plant and equipment were determined based on the fair market value of the plant and equipment, net of selling costs. 182 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 12. ProPerty, Plant anD equiPment (continueD) 31.12.2014 $’000 Net book value 31.12.2013 $’000 1.1.2013 $’000 The Group At Valuation Leasehold land and buildings Wharves and slipways Syncrolift and floating docks Plant and machinery Furniture, fittings, office equipment and computers At Cost Freehold land and buildings Leasehold land and buildings Improvements to premises Wharves and slipways Syncrolift and floating docks Boats and barges Plant and machinery Production tools and equipment Furniture, fittings, office equipment and computers Transportation equipment and vehicles Aircraft and aircraft engines Construction-in-progress – – – – – – – – – – – – – – – 44,286 584,782 45,447 18,539 17,390 132,106 326,362 88,492 53,291 3,471 142,960 120,397 1,577,523 43,487 569,111 29,108 16,024 17,658 4,581 340,524 80,277 48,858 4,234 150,042 216,500 1,520,404 37,577 415,870 21,780 11,066 289 5,401 348,147 74,005 45,631 4,652 138,730 99,218 1,202,366 Due to changes in the use of assets, plant and machinery with net book value amounting to $20,552,000 (2013: $22,944,000) were reclassified to inventories. In the prior year, inventories (Note 20) amounting to $131,815,000 were reclassified to property, plant and equipment and included within construction-in-progress as the asset would be engaged in an operating lease. This was reclassified to boats and barges during the year when the asset was put into use. 183 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 12. ProPerty, Plant anD equiPment (continueD) Leasehold land and buildings $’000 Furniture, fittings, office equipment and computers $’000 Transportation equipment and vehicles $’000 Total $’000 The Company Cost As at 1.1.2013 Additions Disposal/write-off As at 31.12.2013 Additions Disposal/write-off As at 31.12.2014 Accumulated depreciation As at 1.1.2013 Depreciation charge for the year Disposal/write-off As at 31.12.2013 Depreciation charge for the year Disposal/write-off As at 31.12.2014 – – – – 2,841 – 2,841 4,109 776 (732) 4,153 1,546 (767) 4,932 398 468 (341) 525 – – 525 4,507 1,244 (1,073) 4,678 4,387 (767) 8,298 – – – – 165 – 165 3,094 785 (732) 3,147 981 (765) 3,363 103 96 (102) 97 105 – 202 3,197 881 (834) 3,244 1,251 (765) 3,730 Net book value As at 31.12.2014 2,676 1,569 323 4,568 As at 31.12.2013 – 1,006 428 1,434 As at 1.1.2013 – 1,015 295 1,310 (a) Property, plant and equipment at valuation Certain property, plant and equipment, which are shown at valuation are stated at values arrived at by an independent firm of professional valuers on 30 November 1972, on the basis of open market value for existing use. As the property, plant and equipment were subject to a one-time revaluation prior to 1984, the Group is exempted from having a regular frequency of revaluation in subsequent years. These property, plant and equipment have been fully depreciated as at 31 December 2014 and 2013. (b) Property, plant and equipment pledged as security Property, plant and equipment of certain overseas subsidiaries of the Group with a carrying value of $86,778,000 (2013: $96,217,000) are pledged as security for bank loans. 184 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 12. ProPerty, Plant anD equiPment (continueD) (c) Property, plant and equipment under lease obligations Included in the above are property, plant and equipment acquired under finance lease obligations with a net book value of: 2014 $’000 17,059 242 17,301 Leasehold land and buildings Transportation equipment and vehicles (d) Group 2013 $’000 16,975 281 17,256 Major properties (i) Freehold land and buildings Description Land area (sq. m.) Net book value 2014 2013 $’000 $’000 13442 Emerson Road Kidron, Ohio Industrial buildings 68,351 1,022 1,033 300 Hackney Ave, Independence, Kansas Industrial buildings 117,358 4,718 4,643 400 Hackney Ave, Washington, North Carolina Industrial buildings 39,942 1,541 1,494 914 Saegers Station Drive, Montgomery, Pennsylvania Industrial buildings 122,659 4,383 4,294 7801 Trinity Drive, Escatawpa, Mississippi Shipyard and buildings 839,564 3,856 3,707 5801 Elder Ferry Road, Moss Point, Mississippi Shipyard and buildings 227,151 4,146 3,982 900 Bayou Casotte Parkway, Pascagoula, Mississippi Shipyard and buildings 331,803 20,486 19,671 3800 Richardson Road South, Hope Hull, Alabama Production facility 8,361 2,655 3,021 Office building and training classrooms 7,714 1,364 1,478 Location USA Australia 2 Bowral Place Ballarat, Victoria 185 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 12. ProPerty, Plant anD equiPment (continueD) (d) Major properties (continued) (ii) Leasehold land, buildings and improvements Location Description Tenure Land area (sq. m.) Net book value 2014 2013 $’000 $’000 Singapore 501 Airport Road Factory and office building 10.6 years from 1.6.2013 23,899 4,085 4,247 503 Airport Road Factory and office building 10.6 years from 1.6.2013 7,175 411 427 505 Airport Road Jet engine test cell 2 years from 1.7.2014 5,317 16,380 16,695 540 Airport Road Warehouse and office building 30 years from 15.8.1985 5,850 165 310 Hangar and office building 30 years from 1.11.1984 18,918 – 381 Hangar and office building 30 years from 1.1.1992 75,713 27,457 29,849 8 Changi North Way Hangar and office building 22.5 years from 16.6.1999 14,860 2,079 2,220 Hangar and office building 16.3 years from 20.8.2005 9,764 9,331 9,772 102 Gul Circle Factory and office building 30 years from 17.7.2012 6,857 7,903 8,187 540 Airport Road Hangars and office building 2 years lease from 1.7.2014 * 48,882 19,625 17,768 Seletar West Camp Hangars and office building 31.7 years lease from 5.1.2009 25,200 30,987 31,068 Seletar West Camp New Aero Centre 23,094 10,200 10,301 24 Ang Mo Kio Street 65 Industrial and commercial 30 years from 1.12.2012 buildings 23,970 4,545 5,211 100 Jurong East Street 21 Industrial and commercial 30 years from 1.11.1988, buildings renewable to 2048 11,232 6,170 6,443 28.4 years lease from 1.4.2012 1 Ang Mo Kio Industrial and commercial 30 years from 1.11.2011 Electronics Park Road buildings 20,000 68,165 68,561 6 Ang Mo Kio Industrial and commercial 30 years from 1.12.2011 Electronics Park Road buildings 5,000 19,228 20,753 33 Tuas Avenue 2 Factory and office building 30 years from 1.4.1996 to 31.3.2026 6,669 1,817 1,967 16 Benoi Crescent Industrial and commercial 30 years from 16.7.1989 to buildings 15.7.2019 6,981 1,761 1,911 249 Jalan Boon Lay Industrial and commercial 27 years from 1.10.2001 206,031 125,238 108,238 buildings to 31.12.2028, renewable to 10.10.2065 186 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 12. ProPerty, Plant anD equiPment (continueD) (d) Major properties (continued) (ii) Leasehold land, buildings and improvements (continued) Location Land area (sq. m.) Description Tenure Industrial buildings 30 years from 16.8.2013 to 12,029 15.8.2043 Net book value 2014 2013 $’000 $’000 Singapore 16 Tuas Avenue 7 556,074 186 168 4,554 4,140 601 Rifle Range Road Industrial buildings Renewable every year * 15 Chin Bee Drive Industrial buildings 60 years from 1.8.1973 to 31.7.2033 16 Benoi Road Administrative offices and 56 years from 1.6.1969 workshop 7 Benoi Road Buildings, foreshore and workshops 56 years from 1.6.1969 103,802 60 Tuas Road Buildings, foreshore and workshops 30 years from 1.12.1992 137,739 4,039 3,532 30/36 Kian Teck Avenue Workers’ dormitory 30 years from 1.9.1995 3,908 3,117 3,409 2100 Aerospace Drive Hangar and office building 22 years from 1.1.1991 Brookley Complex, Mobile, Alabama 103,825 27,579 27,149 9800 John Saunders Road, San Antonio, Texas Hangar and office building 16.6 years from 1.6.2002 255,121 22,045 22,248 No 2, Huayu Road, Leasehold land for factory 50 years from 20.11.2008 Huli District, Xiamen building 361006, Fujian 38,618 50,207 50,400 97 Zhong Cao Road, Guiyang, Guizhou Leasehold land, industrial 50 years from 26.2.2008 to 242,662 and commercial buildings 21.2.2058 21,773 22,006 6 Kuang Ji Road, Zhenjiang, Jiangsu Leasehold land, industrial 40 years from 21.5.2009 to 76,711 and commercial buildings 21.3.2049 1 Ding Mao Wei San Road, Zhenjiang, Jiangsu Leasehold land, industrial 46.5 years from 21.5.2006 and commercial buildings to 5.12.2052 39,137 20,224 20,327 21,394 6,119 6,712 16,091 11,764 USA People’s Republic of China 55,883 8,461 8,723 – 8,380 187 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 12. ProPerty, Plant anD equiPment (continueD) (d) Major properties (continued) (ii) Leasehold land, buildings and improvements (continued) Location Description Land area (sq. m.) Tenure Net book value 2014 2013 $’000 $’000 People’s Republic of China 66 Xin Cheng Rui Shandong Road, Dantu, Zhenjiang, Jiangsu Leasehold land, industrial 50 years from 30.11.2012 and commercial buildings to 30.11.2062 68 Xin Cheng Rui Shandong Road, Dantu, Zhenjiang, Jiangsu Leasehold land, industrial 50 years from 31.05.2013 200,120 and commercial buildings to 31.05.2063 * 13. 12,812 51,576 3,142 12,688 12,713 This relates to buildings constructed by subsidiaries on properties rented from the Ministry of Defence Singapore on leases which are renewable from one to three years. In view of the relationship between the landlord and the subsidiaries, the cost of the buildings is depreciated over the period of intended use, i.e. 30 years. SUBSIDIARIES 2014 $’000 Unquoted shares, at cost: Singapore Technologies Aerospace Ltd Singapore Technologies Electronics Limited Singapore Technologies Kinetics Ltd Singapore Technologies Marine Ltd Vision Technologies Systems, Inc. Singapore Technologies Dynamics Pte Ltd ST Synthesis Pte Ltd FusionTech Pte. Ltd. Kaz-ST Engineering Bastau Limited Liability Partnership ST Engineering Financial I Ltd. ST Engineering Financial II Pte. Ltd. Impairment in subsidiaries Carrying amount after impairment in subsidiaries Capital contribution *2 *1 Amount less than $1,000. Company 358,626 26,982 211,938 56,000 422,301 6,000 4,656 1,000 578 – *1 – *1 1,088,081 (7,000) 1,081,081 116,635 1,197,716 2013 $’000 142,626 26,982 211,938 56,000 359,021 6,000 4,656 1,000 578 – *1 – *1 808,801 (7,000) 801,801 125,927 927,728 *2 The amount relates mainly to capital contribution in the form of share options, performance shares and restricted shares issued to employees of subsidiaries. 188 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 13. subsiDiaries (continueD) Details of the subsidiaries are as follows: Effective equity interest held by the Group 2014 2013 % % (a) Singapore Technologies Aerospace Ltd and its subsidiaries 100 100 ST Aerospace Engineering Pte Ltd and its subsidiaries: ST PAE Holdings Pty Ltd and its subsidiaries Aerospace Engineering Services Pty Ltd Aerospace Engineering Services Pty Ltd Unit Trust Pacific Flight Services Pte Ltd Pacific Flight Services Pty Ltd ST Aerospace Academy Pte. Ltd. and its subsidiary: Aviation Training Academy Australia Pty Ltd and its subsidiary: ST Aerospace Academy (Australia) Pty Ltd ST Aerospace Engines Pte Ltd and its subsidiary: ST Aerospace Technologies (Xiamen) Company Limited ST Aerospace Systems Pte Ltd ST Aerospace Supplies Pte Ltd and its subsidiaries: iShopAero Pte Ltd ST Aerospace Guangzhou Aero-Technologies & Engineering Co Ltd. ST Aerospace International Structures Pte Ltd ST Aviation Resources Pte Ltd ST Aerospace Services Co Pte. Ltd. Singapore Technologies Engineering (Europe) Ltd Singapore Aerospace K.K. Visiontech Investment Pte Ltd ^ Visiontech Engineering Pte Ltd ST Aerospace Solutions (Europe) A/S and its subsidiary: Airline Rotables (UK Holdings) Limited and its subsidiary: Airline Rotables Limited ST Aerospace Panama, Inc. ST Aerospace Rotables Pte. Ltd. Precision Products Singapore Pte Ltd ST Aerospace Resources Pte. Ltd. 100 100 100 100 100 100 100 100 100 100 80 100 100 100 100 100 100 80 100 100 – 51 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 80 100 100 100 100 100 100 80 100 100 100 51 100 100 100 100 100 100 100 189 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 13. subsiDiaries (continueD) Details of the subsidiaries are as follows: (continued) Effective equity interest held by the Group 2014 2013 % % (b) Singapore Technologies Electronics Limited and its subsidiaries 100 100 SEEL Electronic & Engineering Sdn Bhd ST Electronics (Info-Software Systems) Pte. Ltd. and its subsidiaries: INFA Systems Limited ST Electronics (Software Services) Limited ST Electronics (e-Services) Pte. Ltd. and its subsidiary: Knowledge Alive Pte. Ltd. and its subsidiary: COMAT Training Services Pte Ltd ST Electronics (Data Centre Solutions) Pte. Ltd. and its subsidiary: PMB Project Management Business Sdn Bhd ST Electronics (Wuxi) Co., Ltd. ST Electronics (Training & Simulation Systems) Pte. Ltd. and its subsidiaries: Antycip Simulation Limited and its subsidiary: Antycip Simulation SAS ST Education & Training Private Limited and its subsidiaries: STET Homeland Security Services Pte. Ltd. STET Maritime Pte. Ltd. MERITS Technologies LLP ³ ST Electronics (Enterprise 1) Pte. Ltd. ST Electronics (Info-Comm Systems) Pte. Ltd. and its subsidiaries: ST Electronics (Info-Security) Pte. Ltd. STELCOMMS Pte. Ltd. Telematics Wireless Ltd. and its subsidiary: Telematics Wireless USA Corp ST Electronics (Satcom & Sensor Systems) Pte. Ltd. and its subsidiaries: ST Electronics (Sichuan) Co., Ltd @ iDirect Asia Pte. Ltd. OrisTel Systems Pte. Ltd. ST Electronics (Shanghai) Co., Ltd and its subsidiary: ST Electronics (Tianjin) Co., Ltd iTS Technologies Pte Ltd ST Electronics (Taiwan) Limited ST Electronics (Thailand) Limited ST Electronics do Brasil Serviços e Soluções em Sistemas Eletronicôs Ltda GFM Electronics S.A. de C.V. 100 100 100 100 100 100 100 100 100 100 100 93 93 70 70 70 – 100 100 100 51 100 100 100 – 100 100 100 100 100 100 100 100 51 100 100 100 100 100 100 100 100 100 100 100 93 93 70 70 70 51 100 100 100 51 100 100 100 100 100 100 100 100 100 100 100 – – 190 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 13. subsiDiaries (continueD) Details of the subsidiaries are as follows: (continued) Effective equity interest held by the Group 2014 2013 % % (c) (d) Singapore Technologies Kinetics Ltd and its subsidiaries 100 100 SDG Kinetics Pte. Ltd. and its subsidiaries: LeeBoy India Construction Equipment Private Limited LeeBoy Brazil Equipamentos De Construção Ltda. Mobility Systems Pte Ltd and its subsidiaries: Silvatech Global Systems Limited Silvatech Systems Corporation Pte Ltd and its subsidiary: Kinetics Drive Solutions Inc. Technicae Projetos e Serviços Automotivos Ltda. STA Inspection Pte Ltd Singapore Commuter Private Limited and its subsidiaries: Jiangsu Huatong Kinetics Co., Ltd. Jiangsu Huaran Kinetics Co., Ltd. Securedge Pte. Ltd. STA Investment Pte Ltd ST Kinetics International Pte. Ltd. and its subsidiary: VT Hackney, S.A. de C.V. SDDA Pte. Ltd. and its subsidiary: Kinetics Link Services Sdn. Bhd. ST Kinetics Integrated Engineering Pte. Ltd. Singapore Test Services Private Limited Advanced Material Engineering Pte. Ltd. and its subsidiaries: Advanced Pyrotechnic Materials Private Limited SMART Systems Pte Ltd Unicorn International Pte Limited Allied Ordnance of Singapore (Pte) Limited Ordnance Development and Engineering Company of Singapore (1996) Private Limited Autonomous Technology Pte Ltd and its subsidiaries: Guizhou Jonyang Kinetics Co., Ltd. Kinetics Automotive & Specialty Equipment Co., Ltd Kinetics Systems (Shanghai) Co., Ltd. 100 99.2 100 100 100 100 100 90 100 100 75.3 75.3 100 100 100 100 100 60 100 100 100 51 51 100 100 100 100 60 100 100 100 97.9 100 100 100 100 100 90 100 100 75.3 75.3 100 100 100 100 100 60 100 100 100 51 51 100 100 100 100 60 100 100 Singapore Technologies Marine Ltd and its subsidiaries 100 100 STSE Engineering Services Pte Ltd and its subsidiaries: STSE (Shanghai) Co. Ltd. STSE Engineering Services (B) Sdn Bhd Hovertrans Solutions Pte. Ltd. ST Marine (Wuhan) Engineering Design Consultancy Co. Ltd. 100 100 100 51 100 100 100 100 51 100 191 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 13. subsiDiaries (continueD) Details of the subsidiaries are as follows: (continued) Effective equity interest held by the Group 2014 2013 % % (e) (f) Vision Technologies Systems, Inc. and its subsidiaries 100 100 Vision Technologies Aerospace, Incorporated and its subsidiaries: VT Mobile Aerospace Engineering, Inc. (formerly known as ST Aerospace Mobile, Inc.) DalFort Aerospace GP, Inc. DalFort Aerospace, L.P. San Antonio Aerospace GP, LLC D VT San Antonio Aerospace, Inc. (formerly known as ST Aerospace San Antonio, L.P.) VT DRB Aviation Consultants, Inc. (formerly known as DRB Aviation Consultants, Inc.) EcoServices, LLC Aviation Academy of America, Inc. VT Volant Aerospace, LLC (formerly known as Volant Aerospace, LLC) VT Aviation Services, Inc. (formerly known as Venture Capital Systems, Inc.) Vision Technologies Electronics, Inc. and its subsidiary: VT iDirect, Inc. and its subsidiaries: iDirect Hong Kong Limited @ iDirect UK Limited and its subsidiary: Parallel Limited iDirect Italy S.r.l. iDirect International, Inc. iDirect Government Technologies, Inc. VT iDirect Canada, Inc. Vision Technologies Kinetics, Inc. and its subsidiaries: Miltope Corporation and its subsidiary: IV Phoenix Group, Inc. MÄK Technologies, Inc. Vision Technologies Land Systems, Inc. and its subsidiaries: VT Dimensions, Inc. VT LeeBoy, Inc. VT Hackney, Inc. Vision Technologies Marine, Inc. and its subsidiary: VT Halter Marine, Inc. VT Systems International, LLC and its subsidiary: VT Systems Participações Ltda. 100 100 100 100 100 – 100 100 50.1 100 100 100 100 100 – 100 100 100 100 100 100 100 100 97 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50.1 – 100 100 100 100 100 100 100 100 100 100 100 100 100 97 100 100 100 100 100 100 100 100 100 Singapore Technologies Dynamics Pte Ltd and its subsidiary 100 100 Innosparks Pte. Ltd. (formerly known as ST Kinetics Pte. Ltd.) 100 100 192 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 13. subsiDiaries (continueD) Details of the subsidiaries are as follows: (continued) Effective equity interest held by the Group 2014 2013 % % (g) ST Synthesis Pte Ltd 100 100 (h) FusionTech Pte. Ltd. 100 100 (i) Kaz-ST Engineering Bastau Limited Liability Partnership 51 51 (j) ST Engineering Financial I Ltd. 100 100 (k) ST Engineering Financial II Pte. Ltd. 100 100 ^ The company was struck off from the Registrar of the Accounting and Corporate Regulatory Authority pursuant to Section 344 of Companies Act, Cap 50, in December 2014. ³ The company was disposed during the year. @ These companies completed their deregistration during the year. D This company merged into VT San Antonio Aerospace, Inc. pursuant to Section 10.151 of the Texas Business Organizations Code, State of Texas, USA during the year. Further details of the subsidiaries are as follows: Name of subsidiary Principal activities Country of incorporation/ place of business Singapore Technologies Aerospace Ltd Investment holding and provision of engineering, marketing and engineering support services Singapore ST Aerospace Engineering Pte Ltd Repair, maintenance and servicing of aircraft Singapore ST PAE Holdings Pty Ltd Investment holding Australia Aerospace Engineering Services Pty Ltd Trustee of unit trust fund Australia Aerospace Engineering Services Pty Ltd Unit Trust D Dormant Australia Pacific Flight Services Pte Ltd Providing air transport services Singapore Pacific Flight Services Pty Ltd Flight training school operation and aircraft management Australia ST Aerospace Academy Pte. Ltd. Flight training school operation and simulator-based pilot training Singapore 193 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 13. subsiDiaries (continueD) Further details of the subsidiaries are as follows: (continued) Name of subsidiary Principal activities Country of incorporation/ place of business Aviation Training Academy Australia Pty Ltd Aircraft management Australia ST Aerospace Academy (Australia) Pty Ltd Flight training academy Australia ST Aerospace Engines Pte Ltd Repair and overhaul of engines, parts repair, on-wing services, asset management and parts manufacturing Singapore ST Aerospace Technologies (Xiamen) Company Limited Repair and overhaul of engines ST Aerospace Systems Pte Ltd Service, repair and overhaul of aircraft components Singapore ST Aerospace Supplies Pte Ltd Maintenance-By-the-Hour services, materials distribution, trading and warehousing services, asset management and provision of jet fuel services Singapore iShopAero Pte Ltd Trading, e-commerce and information technology related services for the aerospace industry Singapore ST Aerospace Guangzhou Aero-Technologies & Engineering Co Ltd. Import/export for aircraft component leasing, repair, exchange and trading, warehousing, packaging, distribution and other related services ST Aerospace International Structures Pte Ltd Designing, developing and manufacturing aircraft, engines, equipment, accessories, components and such other parts Singapore ST Aviation Resources Pte Ltd Investment holding Singapore ST Aerospace Services Co Pte. Ltd. Repair, maintenance, modification and servicing of commercial aircraft Singapore Singapore Technologies Engineering (Europe) Ltd Providing marketing and investment services to the Group United Kingdom Singapore Aerospace K.K. # Providing marketing services to the Group Visiontech Engineering Pte Ltd Provision of engineering services for the repair, maintenance and modification of aircraft, aircraft equipment and components People’s Republic of China People’s Republic of China Japan Singapore 194 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 13. subsiDiaries (continueD) Further details of the subsidiaries are as follows: (continued) Name of subsidiary Principal activities Country of incorporation/ place of business ST Aerospace Solutions (Europe) A/S Supply of aircraft components, including purchase, maintenance and logistics services Denmark Airline Rotables (UK Holdings) Limited Investment holding United Kingdom Airline Rotables Limited Providing component management and support services for aircraft United Kingdom ST Aerospace Panama, Inc. + Repair and maintenance of aircraft Republic of Panama ST Aerospace Rotables Pte. Ltd. Trading, leasing and asset services of rotables Singapore Precision Products Singapore Pte Ltd Manufacture and sale of investment castings, mould toolings and precision formings Singapore ST Aerospace Resources Pte. Ltd. Investment holding Singapore Singapore Technologies Electronics Limited Design, development, supply, installation, integration and maintenance of transportation, intelligent building, defence electronics and communication systems Singapore SEEL Electronic & Engineering Sdn Bhd Sales of electronic instruments and equipment, electronic engineering and system integration services and maintenance and calibration of electronic equipment Malaysia ST Electronics (Info-Software Systems) Pte. Ltd. Design, development and supply of real-time/ mission critical systems and provision of related maintenance services Singapore INFA Systems Limited Provision of services in consulting, designing and developing systems integration, the maintenance and support of operational and computer systems and distribution sales of system equipment Hong Kong ST Electronics (Software Services) Limited ~ Dormant ST Electronics (e-Services) Pte. Ltd. Providing shared services to government ministries, agencies and enterprises People’s Republic of China Singapore 195 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 13. subsiDiaries (continueD) Further details of the subsidiaries are as follows: (continued) Name of subsidiary Principal activities Country of incorporation/ place of business Knowledge Alive Pte. Ltd. Offer technologically-driven learning and knowledge solutions, products and services to corporate, tertiary and workforce markets Singapore COMAT Training Services Pte Ltd Operating a computer training school, providing training in computer software and applications Singapore ST Electronics (Data Centre Solutions) Pte. Ltd. Relate to mechanical, electrical and engineering works to design, build and provide facility management services for mission critical environments such as data centres, disaster recovery and business continuity sites Singapore PMB Project Management Business Sdn Bhd ~ Dormant Malaysia ST Electronics (Wuxi) Co., Ltd. Consulting, research, development, integration, distribution and maintenance of information communication technology software & hardware and related technologies People’s Republic of China ST Electronics (Training & Simulation Systems) Pte. Ltd. Design, development, supply, integration and maintenance of training and simulation systems, distribution of games, edutainment and animation programs and the sales and licensing of related products, merchandise and rights Singapore Antycip Simulation Limited Investment holding and acting as a selling agent of software and incidental hardware to the defence industry and education establishments United Kingdom Antycip Simulation SAS A value added reseller/distributor of simulation products and provision of simulation subsystem/components solutions France ST Education & Training Private Limited Provision of education and training, management and consultancy services for operational and technical domains of maritime, aerospace and land services industries Singapore STET Homeland Security Services Pte. Ltd. Provision of security consultancy, solutions implementation and training Singapore 196 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 13. subsiDiaries (continueD) Further details of the subsidiaries are as follows: (continued) Name of subsidiary Principal activities Country of incorporation/ place of business STET Maritime Pte. Ltd. Provision of marine audit, survey and consultancy services Singapore ST Electronics (Enterprise 1) Pte. Ltd. Design, development and manufacture of computers and data processing systems, provision of services for the processing and maintenance of data and information, and production of animation pictures Singapore ST Electronics (Info-Comm Systems) Pte. Ltd. Design and development, systems integration, manufacturing and sale of communication equipment, GPS-based fleet management system, traffic management system, info appliances and defence electronics Singapore ST Electronics (Info-Security) Pte. Ltd. Design, development, sale and provision of technical support for information security products, solutions and services Singapore STELCOMMS Pte. Ltd. To undertake design and integration of projects in the area of communications network and systems and to market and trade in communications related products and subsystems Singapore Telematics Wireless Ltd. Development, manufacture, and marketing of products for Location Based Services such as stolen car recovery, Automatic Meter Reading for remote reading of utility meters and Electronic Toll Collection tags and roadside readers Israel Telematics Wireless USA Corp # Serves as a local point of contact for Telematics Wireless Ltd’s customers for payments and Return Material Authorisation support USA ST Electronics (Satcom & Sensor Systems) Pte. Ltd. Manufacture of microwave components and sub-systems, system integration and provision of related repairs and maintenance for the telecommunications and defence electronics industries Singapore iDirect Asia Pte. Ltd. Marketing and sales, design, manufacture & engineering services for electronics and communication systems Singapore 197 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 13. subsiDiaries (continueD) Further details of the subsidiaries are as follows: (continued) Name of subsidiary Principal activities Country of incorporation/ place of business OrisTel Systems Pte. Ltd. Turnkey supply of telecom network solutions to regional Telecom Service Providers, Government and Utility companies, sale of telecom equipment and accessories and provision of engineering support, maintenance and training services Singapore ST Electronics (Shanghai) Co., Ltd Development and manufacturing of monitoring and control systems, microwave systems, training and simulation systems, security systems, metro passenger information systems, metro automated fare collection systems, metro platform screen door systems, integrated transportation systems (including fleet management systems, urban transport management systems, highway management systems, etc.), metro transmission and communication systems, EMC electromagnetic products and software; sale of product manufactured, system integration, aftersales, and consultancy services for the above mentioned products. Engineering contractor for building intelligent projects (involving administrative licensing will need approved certification). People’s Republic of China ST Electronics (Tianjin) Co., Ltd Development and manufacturing of monitoring and control systems, microwave systems, training and simulation systems, security systems, metro passenger information systems, metro automated fare collection systems, metro platform screen door systems, integrated transportation systems (including fleet management systems, urban transport management systems, highway management systems, etc.), metro transmission and communication systems, EMC electromagnetic products and software; sale of product manufactured, system integration, aftersales, and consultancy services for the above mentioned products. Engineering contractor for building intelligent projects (involving administrative licensing will need approved certification). People’s Republic of China iTS Technologies Pte Ltd Dormant Singapore 198 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 13. subsiDiaries (continueD) Further details of the subsidiaries are as follows: (continued) Name of subsidiary Principal activities Country of incorporation/ place of business ST Electronics (Taiwan) Limited Provide integration for large-scale system projects in rail, expressway and intelligent building management solutions ST Electronics (Thailand) Limited To engage in engineering project service business as well as to install, test, inspect, and control electronic system works of skytrain projects and other engineering projects ST Electronics do Brasil Serviços e Soluções em Sistemas Eletronicôs Ltda # Engineering services GFM Electronics S.A. de C.V. Design and implementation, distribution and sales of high technology systems, services and products, in the communications area, as well as electronics systems, principally closed circuits and alarms for airports, malls, stadiums and highways. Management of reusable electronic equipment and components Singapore Technologies Kinetics Ltd Provision of design and engineering services, manufacture, sales and knowhow transfer of military and commercial vehicles, automotive subsystems, armament, weapons, weapon systems, ammunition and explosives and the provision of engineering services for assembly, upgrading/modifications, maintenance, repair and overhaul of vehicles and weapon systems, and trading in motor vehicles, equipment, vehicle spares and related accessories Singapore SDG Kinetics Pte. Ltd. Investment holding Singapore LeeBoy India Construction Equipment Private Limited Design, manufacture, sale, distribution and aftersales support of construction equipment India LeeBoy Brazil Equipamentos De Construção Ltda. # z Manufacture of road construction equipment Brazil Mobility Systems Pte Ltd Investment holding Silvatech Global Systems Limited # z Owns the intellectual property rights to electrohydraulic drive, hydro-mechanical and electromechanical continuously variable transmissions technologies, and equipment powered by such drives Taiwan Thailand Brazil Mexico Singapore British Virgin Islands 199 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 13. subsiDiaries (continueD) Further details of the subsidiaries are as follows: (continued) Name of subsidiary Principal activities Country of incorporation/ place of business Silvatech Systems Corporation Pte Ltd Designing, manufacturing, marketing and managing licences of technologies and products using electro-hydraulic drive, hydro-mechanical and electro-mechanical continuously variable transmissions, and equipment powered by such drives, globally Singapore Kinetics Drive Solutions Inc. # z Research and development, manufacturing and sales of electro-hydraulic drive, hydromechanical and electro-mechanical continuously variable transmissions technologies, and equipment powered by such drives Canada Technicae Projetos e Serviços Automotivos Ltda. # z Provision of automotive maintenance, repair and overhaul services including automotive platforms revitalisation and modernisation projects, as well as related trade, import and export of parts and accessories STA Inspection Pte Ltd Dormant Singapore Singapore Commuter Private Limited Investment holding Singapore Jiangsu Huatong Kinetics Co., Ltd. Manufacture and sale of paving, mixing, road maintenance and compaction equipment and other road construction machineries People’s Republic of China Jiangsu Huaran Kinetics Co., Ltd. Manufacture and sale of engineering machinery and equipment People’s Republic of China Securedge Pte. Ltd. Provision of design and engineering services, manufacture and sales of security related products, and the provision of equipment maintenance services Singapore STA Investment Pte Ltd Dormant Singapore ST Kinetics International Pte. Ltd. Investment holding Singapore VT Hackney S.A. de C.V. Manufacture and marketing of specialised aluminium drop-frame truck bodies and trailers Mexico SDDA Pte. Ltd. Assembling and marketing of diesel engines and related products and the provision of technical services, field services, repair and maintenance services Singapore Brazil 200 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 13. subsiDiaries (continueD) Further details of the subsidiaries are as follows: (continued) Name of subsidiary Principal activities Country of incorporation/ place of business Kinetics Link Services Sdn. Bhd. Assembling, distributing and marketing of port handling equipment, diesel engines and related products, and the provision of technical services, field services and maintenance services Malaysia ST Kinetics Integrated Engineering Pte. Ltd. Provision of customised solutions, products for defence and commercial markets Singapore Singapore Test Services Private Limited Provision of professional engineering consultancy, tests, inspection, certification and related services, inspection of heavy goods vehicles, light vehicles, motor cars, buses and motorcycles, provision of vehicle inspection, project management as well as provision of independent damage assessment services Singapore Advanced Material Engineering Pte. Ltd. Provision of design and engineering services, manufacture, sales, disposal and knowhow transfer of precision munitions, ammunition, armament, weapon systems, military equipment, explosives, hand-grenades, thunder-flashes, pyrotechnic products and gunpowder and the provision of engineering services for assembly, upgrading/modifications, maintenance, repair and overhaul of ammunition and weapon systems, and related services Singapore Advanced Pyrotechnic Materials Private Limited Manufacture and sale of pyrotechnic products Singapore SMART Systems Pte Ltd Life systems integration of weapon system Singapore Unicorn International Pte Limited Trading and marketing Singapore Allied Ordnance of Singapore (Pte) Limited Dormant Singapore Ordnance Development and Engineering Company of Singapore (1996) Private Limited Dormant Singapore Autonomous Technology Pte Ltd Investment holding Singapore 201 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 13. subsiDiaries (continueD) Further details of the subsidiaries are as follows: (continued) Name of subsidiary Principal activities Country of incorporation/ place of business Guizhou Jonyang Kinetics Co., Ltd. Design, manufacture, sale and service support of construction, engineering and industrialrelated machinery and accessories, provide engineering consultancy services to engineering and manufacturing companies, provide rental of own-manufactured machinery and accessories People’s Republic of China Kinetics Automotive & Specialty Equipment Co., Ltd z Dealer support in areas of marketing activities, product and technical training and aftersales services including warranty Myanmar Kinetics Systems (Shanghai) Co., Ltd. Manufacture and sale of vehicle drive systems, industrial drive motors and small external combustion engines People’s Republic of China Singapore Technologies Marine Ltd Construction and repair of naval and commercial vessels, design, integration, fabrication, installation of military and commercial engineering equipment and the provision of engineering consultancy and technical management services Singapore STSE Engineering Services Pte Ltd Design, manufacture, maintain and operate environmental infrastructures and provide planning, consultancy services in environmental and renewable energy management solutions Singapore STSE (Shanghai) Co. Ltd. Design, development, manufacturing, sales, after-sales services and consulting services of equipment for environmental protection projects; wholesale, import and export and related business of similar products; consulting services for environmental projects information, consulting services for commercial information People’s Republic of China STSE Engineering Services (B) Sdn Bhd Design, manufacture, maintain and operate environmental infrastructures and provide planning, consultancy services in environmental and renewable energy management solutions Brunei Hovertrans Solutions Pte. Ltd. Design, marketing and solutioning for employment of heavy lift air cushion marine vessel for use in oil and gas, transportation and other civil engineering purposes Singapore 202 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 13. subsiDiaries (continueD) Further details of the subsidiaries are as follows: (continued) Name of subsidiary Principal activities Country of incorporation/ place of business ST Marine (Wuhan) Engineering Design Consultancy Co. Ltd. To provide industrial engineering design, research and development and consultancy services People’s Republic of China Vision Technologies Systems, Inc. # Investment holding USA Vision Technologies Aerospace, Incorporated # Investment holding USA VT Mobile Aerospace Engineering, Inc. (formerly known as ST Aerospace Mobile, Inc.) # z Repair and maintenance of aircraft USA DalFort Aerospace GP, Inc. ++ # Dormant USA DalFort Aerospace, L.P. ++ Dormant USA Repair and maintenance of aircraft VT San Antonio Aerospace, Inc. (formerly known as ST Aerospace San Antonio, L.P.) # z USA VT DRB Aviation Consultants, Inc. (formerly Provision of aircraft engineering services known as DRB Aviation Consultants, Inc.) # z USA EcoServices, LLC # z Provision of engine wash services USA Aviation Academy of America, Inc. Flight training academy USA VT Volant Aerospace, LLC (formerly known as Volant Aerospace, LLC) # z Providing new or refurbishment of aircraft interior parts; support services and aircraft interior configuration services USA VT Aviation Services, Inc. (formerly known as Venture Capital Systems, Inc.) # Aircraft management USA Vision Technologies Electronics, Inc. # Investment holding USA VT iDirect, Inc. # z Design, develop and market two-way internet protocol – (IP) based broadband satellite networking solutions that deliver voice, data and video services to enterprise and government customer locations worldwide USA iDirect UK Limited Markets two-way internet protocol – (IP) based broadband satellite networking solutions United Kingdom 203 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 13. subsiDiaries (continueD) Further details of the subsidiaries are as follows: (continued) Name of subsidiary Principal activities Country of incorporation/ place of business Parallel Limited Software development and associated services; installation, configuration, consultancy and support United Kingdom iDirect Italy S.r.l. # z Markets two-way internet protocol – (IP) based broadband satellite networking solutions Italy iDirect International, Inc. # z Markets two-way internet protocol – (IP) based broadband satellite networking solutions USA iDirect Government Technologies, Inc. # z Design, develop and market two-way internet protocol – (IP) based broadband satellite networking solutions that deliver voice, data and video services to government customers USA VT iDirect Canada, Inc. # z Research and development Vision Technologies Kinetics, Inc. # Investment holding USA Miltope Corporation # z Development of computers and peripheral equipment for rugged and other specialized applications for military and commercial customers, both domestic and international USA IV Phoenix Group, Inc. # Dormant USA MÄK Technologies, Inc. # z Develop and supply software products and services for Networked Synthetic Environments USA Vision Technologies Land Systems, Inc. # Investment holding USA VT Dimensions, Inc. # Investment holding and licensing of intellectual properties USA VT LeeBoy, Inc. # z Manufacture of asphalt paving and road maintenance equipment including LeeBoy branded asphalt pavers, motor graders, compactors, force feed loaders, asphalt maintainers/patchers, tack distributors, and Rosco branded asphalt distributors, street flushers, brooms and asphalt spray patchers USA VT Hackney, Inc. # z Manufacture and marketing of specialised aluminium drop-frame truck bodies, trailers, refrigerated truck bodies and trailers and specialty vehicle cabs USA Canada 204 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 13. subsiDiaries (continueD) Further details of the subsidiaries are as follows: (continued) Name of subsidiary Principal activities Country of incorporation/ place of business Vision Technologies Marine, Inc. # Investment holding USA VT Halter Marine, Inc. # z Construction and repair of naval and commercial vessels, design, integration, fabrication, installation of engineering equipment and provision of engineering services USA VT Systems International, LLC # Investment holding USA VT Systems Participações Ltda. # Promotion and marketing of products and services Brazil Singapore Technologies Dynamics Pte Ltd Technology development, advanced concept design and development and technology acquisition Singapore Innosparks Pte. Ltd. (formerly known as ST Kinetics Pte. Ltd.) Manufacturing, distribution, sales and marketing of engineering products Singapore ST Synthesis Pte Ltd Provision of one-stop total integrated logistic support services and engineering services Singapore FusionTech Pte. Ltd. Investment holding Singapore Kaz-ST Engineering Bastau Limited Liability Partnership # Dormant Kazakhstan ST Engineering Financial I Ltd. Provision of financial and treasury services to the Group Singapore ST Engineering Financial II Pte. Ltd. Provision of financial and treasury services to the Group Singapore D The company ceased operations in November 2008. # Not required to be audited under the law in the country of incorporation. + The company ceased operations in November 2012. ~ These companies are under members’ voluntary liquidation. z Audited by member firms of KPMG International for consolidation purposes. ++ These companies ceased operations in October 2003. 205 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 13. subsiDiaries (continueD) All subsidiaries that are required to be audited under the law in the country of incorporation are audited by KPMG LLP, Singapore and other member firms of KPMG International, except for the following: Name of subsidiary Name of auditing firm GFM Electronics S.A. de C.V. LeeBoy India Construction Equipment Private Limited Kinetics Automotive & Specialty Equipment Co., Ltd Deloitte Mexico B S R R & Co., Bangalore Khin Su Htay & Associates, Myanmar (a) During the financial year, the Group incorporated the following company: Country of incorporation/ place of business Name of company ST Electronics do Brasil Serviços e Soluções em Sistemas Eletronicôs Ltda (b) Consideration $’000 Fair value of net identifiable assets acquired $’000 100 1,017 1,017 During the financial year, the Group acquired additional equity interests in the following companies: Interest Interest acquired after acquisition % % Name of company GFM Electronics S.A. de C.V. LeeBoy India Construction Equipment Private Limited Consideration $’000 Carrying value of net identifiable assets acquired $’000 1 51 713 760 1.3 99.2 194 194 During the financial year, the Group disposed the following company: Name of company MERITS Technologies LLP # (e) 100 Interest acquired % Aviation Academy of America, Inc. (d) Brazil During the financial year, the Group acquired the following company: Name of company (c) Equity interest held % Interest disposed % Consideration $’000 Carrying value of net identifiable assets disposed $’000 51 –# – Date of disposal 4 September 2014 Amount less than $1,000 Singapore dollar. During the financial year, the Group made an additional capital contribution of $27,086,000 in ST Aerospace Technologies (Xiamen) Company Ltd. The effective equity interest held by the Group remains the same at 80%. 206 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 14. ASSOCIATES AND JOINT VENTURES 2014 $’000 Unquoted shares, at cost Goodwill on acquisition written off, net Share of net assets acquired Impairment in associates and joint ventures * Share of post-acquisition reserves Represented by: Interest in associates Interest in joint ventures * Group 2013 $’000 373,307 (110) 373,197 (7,222) 112,377 478,352 380,130 (110) 380,020 (6,660) 88,779 462,139 437,385 40,967 478,352 436,258 25,881 462,139 2014 $’000 Company 17,657 2013 $’000 17,657 During the year, an impairment loss of $2,108,000 was recognised in an associate due to sustained losses and expiry of the contract on repair and overhaul of A320 landing gears. In the prior year, (a) An impairment loss of $2,723,000 was recognised in an associate due to a permit not granted by the relevant authorities to conduct its operations; (b) An impairment loss of $1,270,000 was recognised in an associate as the financial performance of the associate was not up to management’s expectation; and (c) An impairment loss of $1,546,000 was recognised in an associate as there were indications of impairment and management assessed that the recoverable amount of the investment based on management’s estimate of fair value less cost to sell is $1. (a) Details of associates are as follows: Country of incorporation/ Effective equity interest place of business held by the Group 2014 2013 % % Name of associate Principal activities Airbus Helicopters Southeast Asia Private Limited Selling, maintaining and overhauling of helicopters Singapore 25 25 CJS Aviation Pte. Ltd. Provision of scheduled premium class jet services Singapore 26 26 Composite Technology International Pte Ltd Repairing and rebuilding helicopter rotor blades Singapore 33.33 33.33 207 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 14. associates anD joint ventures (continueD) (a) Details of associates are as follows: (continued) Name of associate Principal activities Elbe Flugzeugwerke GmbH Conversion of used Airbus passenger aircraft to freighter as well as the production of aircraft components and equipment, including supply for Airbus production of new and converted aircraft Country of incorporation/ Effective equity interest place of business held by the Group 2014 2013 % % Germany 35 35 Madrid Aerospace Services S.L. *1 Repair and overhaul of aircraft landing gears and its related components Spain 50 50 Shanghai Technologies Aerospace Aircraft and component Company Limited maintenance, repair, overhaul and other related maintenance business People’s Republic of China 49 49 ST Aerospace (Guangzhou) Aviation Services Company Limited Aircraft and component maintenance, repair, overhaul and other related maintenance business People’s Republic of China 49 49 Singapore Precision Repair and Overhaul Pte Ltd Repair and overhaul of aircraft and helicopter landing gears and its related components Singapore 50 50 Turbine Coating Services Pte Ltd Repair, refurbishment and upgrading of aircraft jet engine turbine blades and vanes Singapore 24.5 24.5 Turbine Overhaul Services Pte Ltd Repair and service of gas and steam turbine components Singapore 49 49 NEC STEE Cloud Services Pte. Ltd. Providing cloud computing services, computing infrastructure for cloud computing services, systems integration and systems migration services in relation to cloud computing services, customisation of SAP software or other customised software for use in conjunction with or in relation to cloud computing services Singapore 40 40 208 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 14. associates anD joint ventures (continueD) (a) Details of associates are as follows: (continued) Country of incorporation/ Effective equity interest place of business held by the Group 2014 2013 % % Name of associate Principal activities WizVision Pte. Ltd. Providing information technology services and trading of computer accessories Singapore 22.8 22.8 CityCab Pte Ltd Rental of taxis and provision of premier bus service, charge card facilities and travel related services Singapore 46.5 46.5 GFM Maquinaria, S.A.P.I. de C.V. *2 Sale of construction and mining machinery and equipment Mexico – 40 Timoney Holdings Limited Design and prototyping services and component supply for the automotive and aerospace engineering sectors Republic of Ireland 27.7 27.7 NanoScience Innovation Pte Ltd Research and development of ultra fine structure, especially nano-scale, materials, devices, equipment and intellectual properties Singapore 21.6 21.6 Experia Events Pte. Ltd. Organising and management of conferences, exhibitions and other related activities, including the biennial Singapore Airshow event Singapore 33 33 Singapore Airshow & Events Pte. Ltd. Dormant Singapore 33 33 209 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 14. associates anD joint ventures (continueD) (b) Details of joint ventures are as follows: Country of incorporation/ Effective equity interest place of business held by the Group 2014 2013 % % Name of joint venture Principal activities Total Engine Asset Management Pte. Ltd. Leasing of engines Singapore 50 50 WingStar Pte. Ltd. Acquisition, ownership and management of aircraft Singapore 50 50 GFM Electronics S.A. de C.V. *3 Design and implementation, distribution and sales of high technology systems, services and products, in the communications area, as well as electronics systems, principally closed circuits and alarms for airports, malls, stadiums and highways. Management of reusable electronic equipment and components Mexico – 50 ST Electronics (Satellite Systems) Pte. Ltd. Design and development, system integration, manufacturing and sale of satellite equipment Singapore 51 51 STELOP Pte. Ltd. *4 Design and development, manufacturing, maintaining and sale of electro-optical products and systems and the provision of related services Singapore 50.05 50.05 ATREC Pte. Ltd. Research and technology development in advanced materials for both defence and commercial applications Singapore 50 50 Beijing Zhonghuan Kinetics Heavy Vehicles Co., Ltd. *5 Develop, manufacture and sale of People’s Republic specialised heavy vehicles and sale of China of related spare parts and provision of relevant technical consultancy and after sale technical support services – 50 Takata CPI Singapore Pte Ltd Manufacture of pyrotechnic components for seatbelts and air bags used in motor vehicles Singapore 49 49 First Response Marine Pte. Ltd. Ship and boat leasing with operator (including chartering) Singapore 50 50 210 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 14. associates anD joint ventures (continueD) (b) Details of joint ventures are as follows: (continued) Country of incorporation/ Effective equity interest place of business held by the Group 2014 2013 % % Name of joint venture Principal activities Fortis Marine Solutions Pte. Ltd. To provide design and systems engineering services and maintenance of specialised naval vessels Halter-Bollinger Joint Venture, L.L.C. *6 Singapore 51 51 To bid and secure US boat fabrication contracts for its shareholders USA 50 50 Joint Shipyard Management Services Pte Ltd Construction and managing workers’ dormitories Singapore 30 30 Nova Star Cruises Limited Provision of ferry services Canada 10 10 *1 This entity is under members’ voluntary liquidation. * This entity was disposed during the year for a cash consideration of US$1. 2 *3 This entity has been reclassified from a joint venture to a subsidiary following the acquisition of additional equity interest during the year. * 4 Based on the revised definition of control over entities in FRS 110 Consolidated Financial Statements, the Group reclassified its investment in this entity from a subsidiary to a joint venture. The change in accounting policy was not applied retrospectively as the impact of restating prior year’s comparative was immaterial. *5 This entity was disposed in January 2014 for a cash consideration of $3.28 million. As part of the agreement, the Group will co-own the product intellectual property of the entity. *6 Not required to be audited under the law in the country of incorporation. All associates and joint ventures that are required to be audited under the law in the country of incorporation are audited by KPMG LLP, Singapore and other member firms of KPMG International, except for the following: Name of associate/joint venture Name of auditing firm Composite Technology International Pte Ltd ST Aerospace (Guangzhou) Aviation Services Company Limited Turbine Coating Services Pte Ltd Turbine Overhaul Services Pte Ltd Total Engine Asset Management Pte. Ltd. WizVision Pte. Ltd. CityCab Pte Ltd Takata CPI Singapore Pte Ltd Fortis Marine Solutions Pte. Ltd. Nova Star Cruises Limited NanoScience Innovation Pte Ltd Deloitte and Touche LLP, Singapore BDO Shu Lun Pan Certified Public Accountants LLP, Guangdong Branch PricewaterhouseCoopers LLP, Singapore PricewaterhouseCoopers LLP, Singapore Ernst & Young LLP, Singapore R Chan & Associates PAC Deloitte and Touche LLP, Singapore Ernst & Young LLP, Singapore Ernst & Young LLP, Singapore Grant Thornton LLP, Canada NSC & Associates Pac 211 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 14. associates anD joint ventures (continueD) Associates The following table summarises the information of each of the Group’s material associates, based on their respective financial statements prepared in accordance with FRS, modified for fair value adjustments on acquisitions and differences with the Group’s accounting policies. The summarised financial information is not adjusted for percentage ownership held by the Group. Name of associate Elbe Flugzeugwerke GmBh $’000 Shanghai Technologies Turbine Turbine Aerospace Coating Overhaul Experia Company Services Services CityCab Events Immaterial Limited Pte Ltd Pte Ltd Pte Ltd Pte. Ltd. associates $’000 $’000 $’000 $’000 $’000 $’000 Total $’000 2014 Percentage of interest 35% 49% Revenue Profit for the year Other comprehensive income Total comprehensive income Attributable to NCI Attributable to investee’s shareholders 301,488 4,564 60,182 744 (39,074) 1,880 1,796 4,902 – – (34,510) – 2,624 – 19,728 – 59,978 – 24,664 167 16,622 – (34,510) 2,624 19,728 59,978 24,497 16,622 Non-current assets Current assets Non-current liabilities Current liabilities Net assets Attributable to NCI Attributable to investee’s shareholders 386,114 158,459 (2,498) (157,083) 384,992 – 95,668 49,123 – (10,299) 134,492 – 27,899 26,954 – (8,157) 46,696 – 27,738 183,575 – (85,036) 126,277 – 200,022 104,395 (26,467) (64,972) 212,978 1,253 64,083 41,065 (3,330) (28,165) 73,653 – 384,992 134,492 46,696 126,277 211,725 73,653 147,657 64,619 11,554 52,276 96,361 18,821 766 364 4,392 26,989 11,391 5,486 (68) 49,320 918 1,282 442 4,834 2,400 29,389 – 11,391 (2) 5,484 422 354 (9,496) 39,824 Group’s interest in net assets of investee at beginning of the year Group’s share of: – Profit/(loss) for the year – Total other comprehensive income Total comprehensive income Dividends received during the year Impairment of an associate Carrying amount of interest in investee at end of the year (13,676) (12,910) – – – – 134,747 65,901 24.5% 49% 46.5% 33% 47,600 241,944 334,933 17,932 55,076 24,664 52,926 16,622 (4,947) (19,789) – – (9,300) – 11,441 98,452 61,876 – – 24,305 44,970 436,258 (2,553) (36,589) (2,108) (2,108) 40,663 437,385 212 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 14. associates anD joint ventures (continueD) Name of associate Elbe Flugzeugwerke GmBh $’000 Shanghai Technologies Turbine Turbine Aerospace Coating Overhaul Experia Company Services Services CityCab Events Immaterial Limited Pte Ltd Pte Ltd Pte Ltd Pte. Ltd. associates $’000 $’000 $’000 $’000 $’000 $’000 Total $’000 2013 Percentage of interest Revenue Profit/(loss) for the year Other comprehensive income Total comprehensive income Attributable to NCI Attributable to investee’s shareholders Non-current assets Current assets Non-current liabilities Current liabilities Net assets Attributable to NCI Attributable to investee’s shareholders Group’s interest in net assets of investee at beginning of the year Group’s share of: – Profit/(loss) for the year – Total other comprehensive income Total comprehensive income Group’s contribution during the year Dividends received during the year Impairment of associates Disposal of associates during the year Carrying amount of interest in investee at end of the year 35% 49% 347,251 4,829 60,479 (327) 9,043 13,872 – 13,872 24.5% 49% 46.5% 33% 58,859 246,281 316,144 20,876 44,293 21,487 8,080 (6,801) 8,210 7,883 – 1,473 22,349 – 3,541 47,834 – – 21,487 221 – (6,801) – 7,883 22,349 47,834 21,266 (6,801) 24,764 145,740 – (63,819) 106,685 – 388,734 174,428 (8,094) (133,190) 421,878 – 97,701 45,915 – (11,741) 131,875 – 17,326 38,776 – (8,942) 47,160 – 205,118 88,367 (25,684) (59,566) 208,235 1,006 66,988 30,855 (3,133) (37,678) 57,032 – 421,878 131,875 47,160 106,685 207,229 57,032 – 60,753 (2,311) (160) 9,754 48,431 93,912 26,016 52,232 291,098 5,115 21,707 9,889 (2,245) (2,970) 29,025 – (2,245) 1,605 10,890 (1,365) 39,915 3,165 854 4,026 3,866 359 5,474 1,735 23,442 – 9,889 146,803 – – – – – – – – – – – – – – 147,657 64,619 11,554 52,276 96,361 18,821 (3,674) (19,597) – – (7,440) – – (4,950) – 3,683 150,486 (2,523) (38,184) (5,539) (5,539) (1,518) (1,518) 44,970 436,258 213 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 14. associates anD joint ventures (continueD) Joint venture The following table summarises the information of each of the Group’s material joint ventures, adjusted for any differences in accounting policies and reconciles the carrying amount of the Group’s interest in joint ventures and the share of profit and other comprehensive income of equity-accounted investment (net of tax). The summarised financial information is not adjusted for the percentage ownership held by the Group. Name of joint venture Total Engine Asset Management Pte Ltd. $’000 Beijing Zhonghuan Fortis Kinetics heavy Marine Immaterial STELOP Vehicles Solutions joint Pte. Ltd. Co., Ltd. Pte. Ltd. ventures $’000 $’000 $’000 $’000 Total $’000 2014 Percentage of interest Revenue Profit/(loss) for the year Other comprehensive income a Total comprehensive income a Includes: – Depreciation and amortisation of: – Interest expense of: – Income tax expense of: Non-current assets Current assets b Non-current liabilities c Current liabilities d Net assets b c d Includes cash and cash equivalents of: Includes non-current financial liabilities (excluding trade and other payables and provisions) Includes current financial liabilities (excluding trade and other payables and provisions) Group’s interest in net assets of investee at beginning of the year Share of total comprehensive income Group’s contribution during the year Carrying amount of interest in a joint venture deconsolidated as a subsidiary Carrying amount of interest in a joint venture reclassified to a subsidiary Disposal of joint ventures during the year Dividends received during the year Carrying amount of interest in investee at end of the year 50% 50.05% 50% 12,213 2,693 1,448 4,141 26,773 307 – 307 5,490 (3,558) – (3,558) 4,671 2,180 272 624 – 328 141,035 8,083 (112,781) (1,233) 35,104 68 193 – 51% 39,977 9,196 – 9,196 306 – 1,872 6,154 52,687 (6,737) (33,453) 18,651 – – – – – 338 20,591 – (9,221) 11,708 8,048 25,523 – 17,576 112,781 – – – 675 – – – 14,859 2,071 622 – 154 – – 10,432 – – – – – (1,251) 17,552 9,335 4,403 (1,920) – – – (2,483) – – 1,281 4,690 – 5,338 3,808 – 25,881 8,803 622 – – 10,432 – – – 5,971 (37) – (1,000) (37) (2,483) (2,251) 8,109 40,967 214 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 14. associates anD joint ventures (continueD) Name of joint venture Total Engine Asset Management Pte Ltd. $’000 Beijing Zhonghuan Kinetics heavy Immaterial joint Vehicles Co., Ltd. ventures $’000 $’000 Total $’000 2013 Percentage of interest Revenue Profit/(loss) for the year Other comprehensive income a Total comprehensive income a Includes: – Depreciation and amortisation of: – Interest expense of: – Income tax expense of: Non-current assets Current assets b Non-current liabilities c Current liabilities d Net assets b c d Includes cash and cash equivalents of: Includes non-current financial liabilities (excluding trade and other payables and provisions) Includes current financial liabilities (excluding trade and other payables and provisions) Group’s interest in net assets of investee at beginning of the year Share of total comprehensive income Group’s contribution during the year Dividends received during the year Carrying amount of interest in investee at end of the year 50% 50% 4,938 1,600 888 2,488 8,038 (5,122) – (5,122) 2,558 1,005 204 101,246 2,532 (72,695) (1,365) 29,718 171 327 – 750 22,260 – (14,204) 8,806 2,498 240 72,695 – 679 6,764 4,231 1,244 9,384 – 6,587 (2,184) – – 4,200 3,830 1 (1,412) 15,018 2,890 9,385 (1,412) 14,859 4,403 6,619 25,881 215 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 15. INVESTMENTS Note quoted investments Equity shares, at fair value (Available-for-sale) 43 Unquoted investments Equity shares (Available-for-sale) Non-related corporations, net of impairment losses 2014 $’000 Group 2013 $’000 378 349 3,963 632 Bonds, at fair value (Available-for-sale) Interest rate: 1.5% to 4.95% (2013: 1.18% to 4.95%) per annum Maturity: 28.1.2015 to 18.3.2020 (2013: 17.1.2014 to 7.11.2024) 43 122,858 165,009 Venture capital funds and limited partnership, at fair value Total unquoted investments 43 12 126,833 43 165,684 127,211 166,033 Total investments, net of impairment losses Unquoted equity investments where the fair value cannot be reliably estimated are classified as available-for-sale investments. The Group has no intention to dispose these investments at the balance sheet date. 216 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 16. INTANGIBLE ASSETS (a) Goodwill Note Cost At beginning of the year Acquisition of a subsidiary and business Finalisation of purchase price allocation Deconsolidation of a subsidiary Disposal of subsidiaries Translation difference At end of the year Impairment At beginning of the year Impairment losses for the year ^ Disposal of a subsidiary Translation difference At end of the year Net book value ^ 5 2014 $’000 Group 2013 $’000 480,397 – 489 (1,732) 476 17,575 497,205 460,337 5,847 (908) – (112) 15,233 480,397 31,995 10,829 – 798 43,622 29,262 2,141 (112) 704 31,995 31.12.2014 $’000 Group 31.12.2013 $’000 1.1.2013 $’000 453,583 448,402 431,075 For the purpose of annual impairment testing, the recoverable amounts of the CGUs are determined based on their value-in-use calculations. During the year, the recoverable amounts of three CGUs (2013: three CGUs) are determined to be lower than the carrying values and impairment losses of $10,829,000 (2013: $2,141,000) are recognised in other operating expenses in the income statement. 217 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 16. intangible assets (continueD) (b) Other intangible assets Commercial and intellectual Dealer Development property Film cost Technology Note network expenditure rights inventory Brands Licenses agreement $’000 $’000 $’000 $’000 $’000 $’000 $’000 Others $’000 Total $’000 The Group Cost At 1.1.2013 Additions Acquisition of business Finalisation of purchase price allocation Translation difference At 31.12.2013 and 1.1.2014 Additions ^ Acquisition of subsidiaries Finalisation of purchase price allocation Deconsolidation of a subsidiary Translation difference At 31.12.2014 12,282 – 14,619 2,978 62,957 – 2,742 – 2,963 – – 8,252 – – – 35 (155) – 290 166 2,138 – 2,839 (185) 629 23,566 – 17,763 29,094 68,058 2,000 – – – – – 650 – – (749) 156 22,331 184 47,041 1,987 71,946 – 2,903 11,803 79,235 7,540 4,564 40,209 11,803 7,183 39 – 4,215 75,553 5 2,059 2,813 5,754 – 1,229 851 2,002 160 14,868 5 – – – – 312 – – – 312 269 145 1,336 – 289 (4) 22 – 2,057 9,868 7,522 47,299 11,803 9,013 886 2,024 4,375 92,790 5 1,488 3,518 4,369 – 1,294 1,154 2,432 1,933 16,188 5 – – 1,900 – – 1,310 – – 3,210 – – – – – – – 340 11,696 82 11,122 1,662 55,055 – 261 11,803 10,568 At 31.12.2014 10,635 35,919 16,891 – 68,667 At 31.12.2013 13,698 10,241 20,759 4,742 10,055 22,748 Accumulated amortisation At 1.1.2013 Amortisation for the year * Impairment losses Translation difference At 31.12.2013 and 1.1.2014 Amortisation for the year * Impairment losses + Deconsolidation of a subsidiary Translation difference At 31.12.2014 (1,391) (175) 11,803 73,458 – – 11,803 76,332 – – 9,905 32,748 – 31,353 – – 12,047 197,071 – 67,079 – (1,068) – 5,705 7,064 5,877 42,313 12,024 31,982 – – 996 – 53 – – – – – (741) – – – – – (749) (87) 55,246 (11) 3,339 1,355 33,337 10,979 282,796 – 43,118 1,049 – 6,498 11,032 331,971 (175) 186 4,642 (1) 2,519 6,307 114,532 51,907 28,695 4,725 217,439 – 67,319 41,427 29,958 6,604 190,006 – 66,275 9,866 – 7,832 121,518 Net book value At 1.1.2013 218 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 16. intangible assets (continueD) (b) (c) Other intangible assets (continued) ^ Includes $2,000,000 of intellectual property rights received as part of the consideration received from disposal of a joint venture. * Amortisation charge of $16,188,000 (2013: $14,868,000) is recognised in the income statement as part of: – Other operating expenses of $6,172,000 (2013: $8,671,000); and – Cost of sales of $10,016,000 (2013: $6,197,000) + During the year, the Group assessed that certain licenses and commercial and intellectual property rights are impaired as these intangible assets are not expected to be generating future economic benefits for the Group. Hence, impairment losses of $3,210,000 were recognised during the year. Total intangible assets Net book value 31.12.2014 $’000 Group 31.12.2013 $’000 1.1.2013 $’000 671,022 638,408 552,593 Impairment testing of goodwill For the purpose of impairment testing, goodwill is allocated to the Group’s business divisions. The aggregate carrying amounts of goodwill allocated to each CGU within the business divisions are as follows: 2014 $’000 Aerospace Aircraft Maintenance & Modification Component/Engine Repair & Overhaul Engineering & Material Services Group 2013 $’000 11,527 12,940 3,986 10,740 12,133 5,921 Electronics Communication & Sensor Systems Group Software Systems Group 236,985 27,353 229,164 26,263 Land Systems Automotive 126,702 131,477 34,090 453,583 32,704 448,402 Others The purchase price allocation to goodwill and other net assets relating to the acquisition of Technicae Projetos e Serviços Automotivos Ltda. and Ticel Equipamentos Ltda were finalised during the year. Details of the adjustments made to the provisional purchase price allocation are set out in the consolidated statement of cash flows. 219 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 16. intangible assets (continueD) (c) Total intangible assets (continued) The recoverable amounts of the CGUs are determined based on value-in-use calculations, using cash flow projections derived from the financial budgets approved by management for the next five years. The key assumptions used in the calculation of recoverable amounts are as follows: Pre-tax discount rate Terminal value growth rate 2014 % 2013 % 2014 % 2013 % Aircraft Maintenance & Modification 9.2 – 12.1 0 – 4.6 Component/Engine Repair & Overhaul 8.9 – 10.8 Engineering & Material Services 6.5 – 12.5 9.2 – 13.5 10.8 – 13.0 5.2 – 18.7 1.3 – 2.4 0 – 2.0 0 – 2.0 2.0 – 4.4 10.6 – 12.0 12.8 – 14.1 4.0 – 5.0 9.6 – 17.7 11.4 – 17.3 2.0 – 3.0 4.0 – 5.0 2.0 – 3.0 11.8 – 15.0 14.0 – 15.9 5.0 5.0 12.7 14.2 3.0 3.0 Aerospace 0 – 3.0 Electronics Communications & Sensor Systems Group Software Systems Group Land Systems Automotive Others The discount rate used is estimated based on past experience and the industry weighted average cost of capital. The long-term terminal value growth rate has been determined based on either the nominal GDP rates for the country in which the CGU is based on the long-term compound annual growth rate estimated by management by reference to forecasts included in industry reports and expected market development. 220 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 16. intangible assets (continueD) (c) Total intangible assets (continued) Sensitivity to changes in assumptions: (a) Following the impairment in three (2013: three) of the CGUs within the business divisions, the recoverable amounts in these CGUs are approximately equal to the carrying amounts. Therefore, any adverse movement in a key assumption would lead to a further impairment in these CGUs. (b) Management has identified the following key assumption for which a change as set out below could cause the carrying amount to exceed the recoverable amount. Business Divisions Assumption Change required for carrying amount to equal the recoverable amount % 2014 Others Sales growth rate (average of next 5 years) 1.8 Sales growth rate (average of next 5 years) 4.0 Sales growth rate (average of next 5 years) 5.4 2013 Aerospace Aircraft Maintenance & Modification Component/Engine Repair & Overhaul Electronics Communications & Sensor Systems Group Land Systems Automotive (c) Pre-tax discount rate 2.9 Pre-tax discount rate Terminal value growth rate 1.0 1.6 No sensitivity analysis was disclosed for the remaining CGUs as the Group believes that any reasonable possible change in the key assumptions is not likely to materially cause the recoverable amount to be lower than its carrying amount. 221 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 17. long-term receivables 2014 $’000 Long-term trade receivables Housing and car loans and advances to staff Loans to: Third parties * Allowance for doubtful loans Receivable: Within 1 year After 1 year 887 617 Group 2013 $’000 – 670 12,606 – 12,606 14,110 33,312 (8,946) 24,366 25,036 11,375 2,735 14,110 12,508 12,528 25,036 Long-term receivables are carried at amortised cost and are subject to impairment. * Included in the loans to third parties are: (a) an amount of $12,606,000 (2013: $24,366,000) relating to instalment payment plans granted to customers. These loans are unsecured, repayable over a period of 7.5 years from 2008. The interest rates on these loans are LIBOR with margins at 0.63% (2013: 0.63%) per annum. The interest rates range from 0.95% to 0.98% (2013: 0.98% to 1.16%) per annum, which are also the effective interest rates. The interest rates are repriced every six months. Included in the loans to third parties in the prior year are: (a) a loan of $8,312,000 secured by intellectual property rights. Interest was repriced every month and chargeable at the US dollar prime rate plus 2% per annum, which was also the effective interest rate. The loan was convertible to shares of that entity, subject to certain terms and conditions. The loan was fully impaired in the prior year and the loan was written off during the year. (b) a bridging loan of $633,600 (US$500,000) was extended to a third party. The bridging loan was secured by way of a Deed of Debenture, which created a floating charge over the assets of the third party. This loan was treated as a net investment in the third party. The loan was stated at cost and was fully impaired due to uncertainty over collectability. During the year, bridging loan of US$500,000 was converted into ordinary shares of an investment. The conversion was due to the third party restructuring all their outstanding loans into new ordinary shares. 222 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 18. FINANCE LEASE RECEIVABLES The Group entered into finance lease arrangements with customers with terms ranging from 1 to 5 years (2013: 1 to 5 years) and effective interest rates ranging from 3.95% to 23.38% (2013: 1.3% to 8.73%) per annum. Gross investment in finance lease $’000 Unearned interest $’000 Present value of minimum lease receivables $’000 Allowance for doubtful lease receivables $’000 Net investment in finance lease $’000 31,067 2,553 33,620 (517) (283) (800) 30,550 2,270 32,820 (23,678) (1,297) (24,975) 6,872 973 7,845 29,903 4,484 34,387 (330) (545) (875) 29,573 3,939 33,512 (13,126) (1,260) (14,386) 16,447 2,679 19,126 The Group 2014 Within 1 year 2 to 5 years 2013 Within 1 year 2 to 5 years 2014 $’000 Net investment in finance lease Not past due and not impaired Past due and not impaired Individually assessed Doubtful lease receivables Allowance for doubtful lease receivables 19. Group 2013 $’000 2,984 4,861 7,845 6,956 12,170 19,126 24,975 (24,975) – 14,386 (14,386) – DEFERRED TAx ASSETS AND LIABILITIES Unrecognised temporary differences relating to investments in subsidiaries As at 31 December 2014, a deferred tax liability of $138,236,000 (2013: $131,076,000) for temporary difference of $486,606,000 (2013: $459,651,000) related to undistributed earnings of certain subsidiaries was not recognised as the Group has determined that the undistributed profits of its overseas subsidiaries will not be remitted to Singapore in the foreseeable future, but be retained for organic growth and acquisitions. 223 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 19. DeferreD tax assets anD liabilities (continueD) Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items: 2014 $’000 244,742 3,135 2,198 250,075 Tax losses Deductible temporary differences Unabsorbed wear and tear allowance and investment allowance Group 2013 $’000 207,291 2,915 2,218 212,424 The tax benefits have not been recognised in the financial statements due to the uncertainty over the sufficiency of future taxable profits to be generated in the foreseeable future. The use of these potential tax benefits is subject to the agreement of the tax authorities and compliance with certain provisions of the tax legislation of the respective countries in which the subsidiaries operate. Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: 2014 $’000 Assets 2013 $’000 2014 $’000 Liabilities 2013 $’000 The Group Property, plant and equipment Intangible assets Allowance for doubtful debts Allowance for inventory obsolescence Provisions and accruals Unabsorbed capital allowances and unutilised tax losses Fair value of derivative financial instruments designated as cash flow hedges Other items Deferred tax (assets)/liabilities Set off of tax Net deferred tax (assets)/liabilities (24) – (712) (25,724) (131,624) (51) – (1,688) (18,882) (130,425) 98,615 71,987 – – 1 84,955 69,655 – – – (21,002) (24,700) – – (4,788) (9,310) (193,184) 86,866 (106,318) (803) (8,711) (185,260) 89,626 (95,634) 2014 $’000 Assets 2013 $’000 172 24,575 195,350 (86,866) 108,484 2014 $’000 6,934 22,949 184,493 (89,626) 94,867 Liabilities 2013 $’000 The Company Property, plant and equipment Provisions and accruals Other items Deferred tax (assets)/liabilities Set off of tax Net deferred tax assets – (7,392) – (7,392) 392 (7,000) – (7,639) – (7,639) 439 (7,200) 149 – 243 392 (392) – 167 – 272 439 (439) – 224 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 19. DeferreD tax assets anD liabilities (continueD) Movement in temporary differences during the year: As at 1.1.2013 $’000 Recognised in other Recognised in comprehensive profit or loss income $’000 $’000 Acquired in business combinations $’000 Utilisation of tax losses $’000 The Group Property, plant and equipment Intangible assets Allowance for doubtful debts Allowance for inventory obsolescence Provisions and accruals Unabsorbed capital allowances and unutilised tax losses Fair value of derivative financial instruments designated as cash flow hedges Other items 76,111 60,533 (2,486) (16,257) (122,689) 7,822 1,914 890 (2,337) (6,338) – – – – – – 4,941 – – – – – – – – (31,103) (1,300) – – 8,742 (3,299) 13,531 (25,659) – (2,419) (1,768) 9,479 – 9,479 – – 4,941 – 2,556 11,298 As at 31.12.2013 $’000 Recognised in profit or loss $’000 As at 31.12.2014 $’000 As at 1.1.2013 $’000 Recognised in profit or loss $’000 The Company Property, plant and equipment Provisions and accruals Other items 167 – (737) (570) – (7,639) 1,009 (6,630) 167 (7,639) 272 (7,200) (18) 247 (29) 200 149 (7,392) 243 (7,000) 225 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) Exchange difference $’000 As at 31.12.2013 $’000 971 2,267 (92) (288) (1,398) 84,904 69,655 (1,688) (18,882) (130,425) (1,039) (24,700) (49) 570 942 6,131 14,238 (767) Recognised in other Recognised in comprehensive profit or loss income $’000 $’000 13,024 50 1,023 (6,270) (912) 63 36 (805) 6,209 – – – – – – (10,770) – (10,770) Deconsolidation of a subsidiary/ Finalisation of purchase price allocation $’000 (79) (252) – 25 412 Utilisation of tax losses $’000 (643) – – – 646 Exchange difference $’000 As at 31.12.2014 $’000 1,385 2,534 (47) (597) (1,344) 98,591 71,987 (712) (25,724) (131,623) – 4,175 (540) (21,002) – – 106 – 1,507 5,685 (13) 325 1,703 (4,616) 15,265 2,166 226 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 20. inventories anD work-in-Progress 2014 $’000 Inventories of equipment and spares Work-in-progress in excess of progress billings Work-in-progress, including profits recognised Progress billings Total inventories and work-in-progress at lower of cost and net realisable value Progress billings in excess of work-in-progress Work-in-progress, including profits recognised Progress billings 847,574 Group 2013 $’000 935,692 4,184,535 (3,230,036) 954,499 3,506,919 (2,635,102) 871,817 1,802,073 1,807,509 4,318,592 (5,043,939) (725,347) 4,456,434 (5,191,159) (734,725) In 2014, raw materials, consumables and changes in finished goods and work-in-progress recognised as cost of sales amounted to $4,952,789,000 (2013: $4,739,240,000). (i) Allowances for inventory obsolescence and foreseeable losses As at 31 December 2014, the inventories are stated after allowance for inventory obsolescence of $302,931,000 (2013: $210,103,000) and work-in-progress in excess of progress billings is stated after provision for foreseeable losses of $15,567,000 (2013: $17,969,000). (ii) Net realisable value write-down As at 31 December 2014, write down of work-in-progress to net realisable value was nil (2013: $30,225,000). The written-down value was included in cost of sales. In 2013, the work-in-progress with net realisable value of $131,815,000 was reclassified to construction-in-progress (Note 12) as the asset would be engaged in an operating lease. 227 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 21. TRADE RECEIVABLES 2014 $’000 Not past due and not impaired Past due and not impaired Collectively assessed Gross receivables Allowance for doubtful debts Individually assessed Gross receivables Allowance for doubtful debts Unbilled receivables Allowance for unbilled receivables Trade receivables, net 596,894 430,723 1,027,617 Group 2013 $’000 574,989 366,912 941,901 4,310 (4,310) – 4,777 (4,777) – 50,378 (50,378) – 44,946 (44,886) 60 292,726 (1,242) 281,201 (1,225) 1,319,101 1,221,937 Trade receivables denominated in currencies other than the functional currencies of the Company and its subsidiaries as at 31 December are as follows: • • $289,498,000 (2013: $218,060,000) denominated in USD $51,779,000 (2013: $14,546,000) denominated in Euro Trade receivables amounting to $30,092,000 (2013: $10,970,000) are arranged to be repaid through letters of credit issued by reputable banks. A subsidiary within the Group has not recognised $17,600,000 (2013: $18,100,000) of trade receivable due from one of its customers in view of uncertainty over the collectability of the debts. The amount would be recognised in the financial statements upon receipt. 228 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 22. AMOUNTS DUE FROM RELATED PARTIES Group Trade: Subsidiaries Associates Joint ventures Related corporations Company 2014 $’000 2013 $’000 2014 $’000 2013 $’000 – 22,383 3,090 40,568 66,041 – 16,061 1,527 19,069 36,657 6,592 – – 43 6,635 5,601 – – 7 5,608 – 3,049 5,279 8,328 – 2,624 9,285 11,909 547,416 – – 547,416 762,665 – – 762,665 (3,181) 71,188 (1,060) 47,506 (6,981) 547,070 (4,901) 763,372 66,382 4,806 71,188 40,076 7,430 47,506 497,070 50,000 547,070 504,498 258,874 763,372 Non-trade: Subsidiaries *1 Associates *2 Joint ventures *3 Allowance for doubtful debts Receivable: Within 1 year After 1 year There were no significant amounts due from related parties denominated in currencies other than the functional currencies of the Group as at 31 December 2014 and 31 December 2013. Amounts due from related parties denominated in currencies other than the functional currency of the Company as at 31 December are as follows: • *1 $84,119,000 (2013: $147,204,000) denominated in USD Included in the amounts due from subsidiaries (non-trade) are: (a) loans of $532,724,000 (2013: $752,171,000) bearing interest at rates ranging from 1.30% to 4.18% (2013: 0.61% to 4.98%) per annum. The loans are unsecured and repayable from 12 March 2015 to 31 March 2016; and (b) interest-free loans of $6,981,000 (2013: $4,901,000), which are unsecured and not repayable in the foreseeable future. The loans are fully impaired. 229 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 22. amounts Due from relateD Parties (continueD) *2 The amounts due from associates (non-trade) are: (a) a loan of $2,892,000 (2013: $2,624,000) whereby interest is charged at EURIBOR + 1% per annum (2013: EURIBOR + 1% per annum) and is repriced every three months (2013: three months). The interest rate on the loan is 1.08% (2013: 1.29%) per annum. The loan is unsecured and repayable on demand; and (b) an interest-free loan of $157,000 (2013: nil), which is unsecured and repayable on demand. *3 Included in amounts due from joint ventures (non-trade) are: (a) a loan of $272,000 (2013: $1,060,000) bearing interest at LIBOR + 0.75% (2013: LIBOR + 0.75%) per annum. The loan is unsecured, not expected to be repayable in the next 12 months and had been fully impaired in prior years; (b) a loan of $4,806,000 (2013: $4,806,000) bearing interest at 6.38% (2013: 6.38%) per annum, which is the effective interest rate. The loan is unsecured and repayable by 2029; and (c) a loan of $3,136,000 in 2013 was fully repaid during the year. The loan was unsecured, bearing interest at 6.36% per annum, which was the effective interest rate. 23. ADVANCES AND OThER RECEIVABLES Note Deposits Interest receivables Other recoverables Non-trade receivables Advance payments to suppliers Prepayments * Derivative financial instruments * 43 2014 $’000 22,604 13,098 30,543 37,642 341,503 83,737 1,171 530,298 Group 2013 $’000 2014 $’000 19,519 12,330 42,080 73,261 314,626 84,580 51,814 598,210 63 1,432 2,035 43 – 24 – 3,597 Company 2013 $’000 4,422 1,602 3,557 44 – 88 114 9,827 The Group made progressive payments to a contractor of $7,109,000 for the development of intellectual property rights relating to the design and prototype of a construction and mining equipment. During the year, the Group issued a notice for breach of contract to the contractor as they were unable to fulfil their contractual obligations to complete the development. The Group assessed that the progressive payments made are not recoverable and the intellectual property developed to date has no economic value. As such, the Group fully impaired the progressive payments made in relation to the intellectual property rights being developed up to 31 December 2014. 230 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 24. short-term investments Note quoted investments Equity shares, at fair value (Fair value through profit or loss) Unquoted investments Bonds, at fair value (Available-for-sale) Interest rate: 2.67% to 4.95% (2013: 1.10% to 5.875%) per annum Maturity: 26.1.2015 to 7.11.2024 (2013: 7.1.2014 to 18.7.2022) 25. 2014 $’000 Group 2013 $’000 43 359 204 43 118,920 134,377 119,279 134,581 BANK BALANCES AND OThER LIqUID FUNDS 2014 $’000 Fixed deposits with financial institutions Cash and bank balances Deposits pledged Cash and cash equivalents Group 1,134,657 336,066 1,470,723 (8,111) 1,462,612 2013 $’000 1,460,088 470,052 1,930,140 (9,216) 1,920,924 2014 $’000 316,033 88,843 404,876 – 404,876 Company 2013 $’000 329,417 140,707 470,124 – 470,124 Fixed deposits with financial institutions mature at varying periods within 10 months (2013: 10 months) from the financial year-end. Interest rates range from 0.04% to 3.8% (2013: 0.01% to 3.08%) per annum, which are also the effective interest rates. Cash and bank balances of $8,111,000 (2013: $9,216,000) have been placed with banks as security for letters of credit issued to third parties. Cash and cash equivalents denominated in currencies other than the functional currencies of the Company and its subsidiaries as at 31 December are as follows: • • $184,243,000 (2013: $200,213,000) denominated in USD $132,114,000 (2013: $304,512,000) denominated in Euro 231 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 26. TRADE PAYABLES AND ACCRUALS Note Trade payables Non-trade payables * Purchase of property, plant and equipment Accrued operating expenses Accrued interest payable Derivative financial instruments Payable: Within 1 year After 1 year * 43 2014 $’000 Group Company 2013 $’000 2014 $’000 831,020 172,779 785,872 221,200 – 8,004 – 5,989 693 897,037 18,396 21,410 1,941,335 228 907,400 15,398 28,343 1,958,441 – 35,963 – – 43,967 – 37,845 – – 43,834 1,667,180 274,155 1,941,335 1,604,740 353,701 1,958,441 26,961 17,006 43,967 25,017 18,817 43,834 2013 $’000 The non-trade payables includes an amount of $101,352,000 (2013: $142,562,000) for its obligation to perform engineering development work as part of the consideration for the acquisition of an associate. Trade payables denominated in currencies other than the functional currencies of the Company and its subsidiaries as at 31 December are as follows: • • $199,622,000 (2013: $120,203,000) denominated in USD $169,913,000 (2013: $216,914,000) denominated in Euro 232 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 27. AMOUNTS DUE TO RELATED PARTIES Group Trade: Subsidiaries Associates Joint ventures Related corporations Non-trade: Subsidiaries *1 Joint ventures *2 Related corporations Payable: Within 1 year After 1 year Company 2014 $’000 2013 $’000 2014 $’000 2013 $’000 – 5,625 3,117 22,488 31,230 – 3,828 10,266 10,409 24,503 1,882 – – 3 1,885 1,778 158 – 12 1,948 – – 5 5 – 837 19 856 602,516 – – 602,516 650,190 – – 650,190 31,235 25,359 604,401 652,138 29,364 1,871 31,235 24,953 406 25,359 196,988 407,413 604,401 98,946 553,192 652,138 Amounts due to related parties denominated in currencies other than the functional currency of the Company as at 31 December are as follows: • $195,103,000 (2013: $246,067,000) denominated in USD *1 Included in the amounts due to subsidiaries (non-trade) are loans of $562,959,000 (2013: $606,055,000) bearing interest at 4.18% (2013: 4.98% to 12.15%) per annum. The loans are unsecured and repayable from 01 September 2015 to 16 July 2019. *2 In the prior year, the amounts due to joint ventures (non-trade) included a loan of $836,000 bearing interest at 1.025% per annum, which was the effective interest rate. The loan was unsecured and had been fully repaid. 233 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 28. PROVISIONS 2014 $’000 Provisions for: Warranties Liquidated damages Foreseeable losses (a) 200,355 20,710 24,007 245,072 At beginning of the year Charge to profit or loss Provision utilised Deconsolidation of a subsidiary Translation difference At end of the year 5 186,212 10,890 21,808 218,910 2014 $’000 Group 186,212 39,076 (25,924) (854) 1,845 200,355 2013 $’000 195,447 6,524 (17,479) – 1,720 186,212 Movements in provision for liquidated damages are as follows: Note At beginning of the year Charge to profit or loss Provision utilised Deconsolidation of a subsidiary Translation difference At end of the year (c) 2013 $’000 Movements in provision for warranties are as follows: Note (b) Group 5 2014 $’000 Group 10,890 12,928 (1,861) (1,241) (6) 20,710 2013 $’000 11,949 2,371 (3,430) – – 10,890 Movements in provision for foreseeable losses are as follows: 2014 $’000 At beginning of the year Charge to profit or loss Provision utilised Translation difference At end of the year 21,808 14,939 (12,769) 29 24,007 Group 2013 $’000 16,741 19,706 (14,639) – 21,808 234 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 29. BORROWINGS Note Non-current Bonds Long-term bank loans Lease obligations Other loans Current Short-term bank loans Long-term bank loans Lease obligations Other loans Total borrowings Total borrowings comprise: Unsecured fixed rate bonds Secured bank loans Unsecured bank loans Lease obligations Other loans (a) (a) (b) (b) (c) (d) 2014 $’000 Group 2013 $’000 658,424 267,532 17,547 441 943,944 631,283 288,867 18,150 564 938,864 29,820 43,590 1,126 148 74,684 139,842 292,789 1,321 369 434,321 1,018,628 1,373,185 658,424 46,809 294,133 18,673 589 1,018,628 631,283 87,975 633,523 19,471 933 1,373,185 Unsecured fixed rate bonds 2014 $’000 Principal Unamortised discount Unamortised discount: At beginning of the year Amortisation for the year Translation difference Group 2013 $’000 660,450 (2,026) 658,424 633,600 (2,317) 631,283 2,317 (372) 81 2,026 2,579 (351) 89 2,317 On 16 July 2009, the Group issued US$500 million 4.80% Notes due 2019 under its US$1.2 billion Multicurrency Medium Term Note Programme. The bonds bear interest at a fixed rate of 4.80% per annum and interest is payable every six months from the date of issue. The bonds are unconditionally and irrevocably guaranteed by the Company. At the reporting date, the Company does not consider it probable that a claim will be made against the Company under the guarantee. 235 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 29. borrowings (continueD) (b) Secured and unsecured bank loans Bank loans Effective interest rate % Maturity 2014 $’000 0.41% to 7.21% 2015 to 2019 340,942 Group 2013 $’000 721,498 The bank loans are denominated in USD and Chinese Yuan (2013: SGD, USD, Indian Rupees and Chinese Yuan). Included in the bank loans are: (c) (i) Loans amounting to $17,040,000 (2013: $27,183,000) which are secured by land and buildings of certain subsidiaries; and (ii) Loans amounting to $29,769,000 (2013: $60,792,000) which are secured over certain property, plant and equipment of a subsidiary. Lease obligations A subsidiary leases certain land, buildings and equipment from a foreign Airport Authority under a finance lease arrangement until 31 October 2041, with an option to terminate the lease at any time with a 36-month written notice. The leased assets are pledged as collateral against the lease. The obligations under the finance leases to be paid by the subsidiaries are as follows: Minimum lease payment $’000 Interest $’000 Present value of payment $’000 The Group 2014 1 to 5 years After 5 years Total 6,368 30,543 36,911 (3,410) (14,828) (18,238) Repayable: Within 1 year After 1 year 2,958 15,715 18,673 1,126 17,547 18,673 2013 1 to 5 years After 5 years Total 7,218 30,389 37,607 (3,258) (14,878) (18,136) Repayable: Within 1 year After 1 year Lease terms do not contain restrictions concerning dividends, additional debt or further leasing. 3,960 15,511 19,471 1,321 18,150 19,471 236 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 29. borrowings (continueD) (d) Other loans Included in other loans are: 30. (i) US dollar denominated term notes of $468,000 (US$354,622) (2013: of $564,000 (US$445,307)) and $121,000 (US$91,248) (2013: $138,000 (US$109,393)) owing to the Pennsylvania Industrial Development Authority and the Industrial Properties Corporation, respectively, by a US entity of the Group. These notes are secured by land and buildings of the entity and bear interest, respectively, at 2.75% and 4% (2013: 2.75% and 4%) per annum, which are also the effective interest rates, and are payable through 1 July 2019 and 28 June 2019, respectively; and (ii) A loan of $231,000 (MYR600,000) from a non-controlling shareholder of a subsidiary in 2013 was fully repaid during the year. This loan was unsecured, bears interest at 5% per annum, which was also the effective interest rate. DEFERRED INCOME 2014 $’000 Government compensation Government grants Deferred rents Group 41,507 47,876 9,376 98,759 2013 $’000 48,209 32,431 3,055 83,695 Government compensation and grants relate mainly to grants received: 31. (a) for subsidising the costs incurred in the acquisitions of plant and equipment for new product development and production activities, and for the relocation of a subsidiary’s manufacturing facility in the People’s Republic of China; and (b) to share the cost for purchase of plant and machinery, and yard facility upgrades in the US operation. other long-term Payables 2014 $’000 After 1 year 1,000 Group 2013 $’000 1,500 The loan of $1,000,000 (2013: $1,500,000) is payable to a previous non-controlling shareholder of a subsidiary for the purchase of remaining shareholdings of the subsidiary. The amount payable is unsecured, interest-free and repayable within seven years from 2010. 237 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 32. ShARE CAPITAL Group and Company 2014 2013 $’000 $’000 Issued and fully paid At beginning of the year 3,105,903,530 (2013: 3,080,441,746) ordinary shares Issued during the year 14,101,186 (2013: 25,461,784) ordinary shares At end of the year 3,120,004,716 (2013: 3,105,903,530) ordinary shares 852,611 781,841 36,815 70,770 889,426 852,611 Included in share capital is a special share issued to the Minister for Finance. The special share enjoys all the rights attached to the ordinary shares. In addition, the special share carries the right to approve any resolution to be passed by the Company, either in general meeting or by its Board of Directors, on certain matters specified in the Company’s Articles of Association. The special share may be converted at any time into an ordinary share. The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restriction. 33. TREASURY ShARES Group and Company 2014 $’000 At beginning of the year Purchased during the year At end of the year – 6,529 6,529 Treasury shares relate to ordinary shares of the Company that are held by the Company. During the financial year, the Company purchased 2,034,000 of its ordinary shares by way of on-market purchases. The total amount paid to purchase the shares was $6,529,000. The shares, held as treasury shares, were included as deduction against shareholders’ equity. 238 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 34. share-baseD Payment arrangements The Singapore Technologies Engineering Share Option Plan (“ESOP”), the Singapore Technologies Engineering Performance Share Plan (“PSP2000”) and the Singapore Technologies Engineering Restricted Stock Plan (“RSP2000”) of the Company (collectively referred to as the “Old Share Plans”) were approved by the members of the Company at an Extraordinary General Meeting held on 23 November 2000. Current share plan comprising the Singapore Technologies Engineering Performance Share Plan 2010 (“PSP2010”) and the Singapore Technologies Engineering Restricted Share Plan 2010 (“RSP2010”) was approved by the members of the Company at the Annual General Meeting held on 21 April 2010 (together, the “Current Share Plans”). The Old Share Plans were terminated following the adoption of the Current Share Plans. However, all options and awards granted under the Old Share Plans prior to its termination will continue to be valid and be subject to the terms and conditions of the Old Share Plans. ESOP The Company ceased to grant options under the ESOP with effect from 2007. Information regarding ESOP is as follows: (a) The exercise price of the options is equal to volume-weighted average price for the shares on the SGX over the three consecutive trading days immediately preceding the date of grant. (b) The options are exercisable at the end of the first year after date of grant, in accordance with a vesting schedule to be determined by ERCC and are settled in cash. (c) The options granted expire after five years for non-executive directors and 10 years for the employees of the Company and its subsidiaries. During the financial year, the Company issued 6,644,956 (2013: 17,986,756) ordinary shares for cash at the respective price per share upon the exercise of options granted by the Company under ESOP. Grant no. 0402N 0408N 0502N 0508N 0602N 0608N 0703N 0708N No. of ordinary shares issued Price per ordinary share $ 1,020,383 1,511,048 730,606 823,404 639,705 612,993 817,837 488,980 2.090 2.120 2.370 2.570 3.010 2.840 3.230 3.610 239 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 34. share-baseD Payment arrangements (continueD) ESOP (continued) At the end of the financial year, unissued ordinary shares of the Company under options granted to eligible employees and directors of the Company are as follows: (i) Options outstanding under the ESOP Number of shares 2014 2013 (ii) ESOP At beginning of the year Exercised Lapsed At end of the year 30,517,942 (6,644,956) (400,978) 23,472,008 48,760,165 (17,986,756) (255,467) 30,517,942 Exercisable at end of the year 23,472,008 30,517,942 Details of share options 2014 Details of share options to subscribe for ordinary shares pursuant to ESOP are as follows: Date of Grant 9.2.2004 10.8.2004 7.2.2005 10.8.2005 9.2.2006 10.8.2006 15.3.2007 10.8.2007 * Balance as at 1.1.2014 Options lapsed Balance No. of Options as at holders at exercised 31.12.2014 31.12.2014 1,060,256 1,589,308 2,479,376 3,509,381 4,572,311 4,723,330 6,387,216 6,196,764 30,517,942 39,873 78,260 13,320 32,408 36,442 47,104 74,600 78,971 400,978 1,020,383 – 1,511,048 – 730,606 1,735,450 823,404 2,653,569 639,705 3,896,164 612,993 4,063,233 817,837 5,494,779 488,980 5,628,813 6,644,956 23,472,008 Includes one Executive Director of the Company – – 118* 193* 346* 345* 512* 638* Exercise price $ Exercisable period 2.090 2.120 2.370 2.570 3.010 2.840 3.230 3.610 10.2.2005 to 9.2.2014 11.8.2005 to 10.8.2014 8.2.2006 to 7.2.2015 11.8.2006 to 10.8.2015 10.2.2007 to 9.2.2016 11.8.2007 to 10.8.2016 16.3.2008 to 15.3.2017 11.8.2008 to 10.8.2017 240 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 34. share-baseD Payment arrangements (continueD) ESOP (continued) (ii) Details of share options (continued) 2013 Details of share options to subscribe for ordinary shares pursuant to ESOP are as follows: Date of Grant Balance as at 1.1.2013 6.2.2003 883,629 11.8.2003 1,300,123 9.2.2004 1,818,628 10.8.2004 2,384,058 7.2.2005 3,496,153 10.8.2005 4,670,559 9.2.2006 6,879,107 10.8.2006 6,645,040 15.3.2007 10,113,959 10.8.2007 10,568,909 48,760,165 * (iii) Options lapsed Balance No. of Options as at holders at exercised 31.12.2013 31.12.2013 46,236 837,393 – 30,886 1,269,237 – 182 758,190 1,060,256 – 794,750 1,589,308 3,882 1,012,895 2,479,376 18,434 1,142,744 3,509,381 8,471 2,298,325 4,572,311 – 1,921,710 4,723,330 38,241 3,688,502 6,387,216 109,135 4,263,010 6,196,764 255,467 17,986,756 30,517,942 – – 83* 142* 193* 265* 406* 405* 580* 709* Exercise price $ Exercisable period 1.790 1.860 2.090 2.120 2.370 2.570 3.010 2.840 3.230 3.610 7.2.2004 to 6.2.2013 12.8.2004 to 11.8.2013 10.2.2005 to 9.2.2014 11.8.2005 to 10.8.2014 8.2.2006 to 7.2.2015 11.8.2006 to 10.8.2015 10.2.2007 to 9.2.2016 11.8.2007 to 10.8.2016 16.3.2008 to 15.3.2017 11.8.2008 to 10.8.2017 Includes one Executive Director of the Company Details of share options exercised Exercise price $ Proceeds from share issue $’000 Share price $ 3,291,672 1,709,312 1,218,411 425,561 6,644,956 2.09 – 3.61 2.12 – 3.61 2.12 – 3.61 2.37 – 3.61 8,430 4,869 2,843 1,114 3.66 – 3.91 3.77 – 3.99 3.61 – 3.84 3.22 – 3.71 11,847,108 4,114,641 1,498,716 526,291 17,986,756 1.79 – 3.61 1.86 – 3.61 1.86 – 3.61 2.09 – 3.61 34,666 12,408 3,711 1,361 3.81 – 4.31 3.69 – 4.54 3.90 – 4.40 3.76 – 4.23 No. of shares 2014 January to March April to June July to September October to December 2013 January to March April to June July to September October to December The weighted average share price for options exercised during the year was $3.80 (2013: $4.13). The weighted average remaining contractual life for these options is 1.68 years (2013: 2.43 years). The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured based on a binomial model, taking into account the terms and conditions upon which the options were granted. No options were granted for the years ended 31 December 2014 and 31 December 2013. 241 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 34. share-baseD Payment arrangements (continueD) PSP2010 Performance shares are granted on an annual basis with key performance indicator targets set for a performance period, currently prescribed to be a 3-year performance period. The performance shares will only be released to the recipient at the end of the performance period if the targets are met. The final number of performance shares awarded will depend on the level of achievement of those targets and can range from 0% to 170% of the conditional award of performance shares. In addition, commencing with the PSP contingent awards for financial year 2009, the final award for performance shares is conditional upon the performance targets for restricted shares that have the same end of performance period being met. Outstanding Awards under PSP2010 are as follow: 2014 Year of grant 2013 2012 Total Number of performance shares At grant date Lapsed Outstanding as at 31.12.2014 1,413,000 (155,634) 1,257,366 1,037,100 (147,584) 889,516 1,627,000 (340,345) 1,286,655 4,077,100 (643,563) 3,433,537 During the year, performance shares amounting to 1,545,821 ordinary shares were awarded in respect of grant made in 2011 under PSP2010. The fair value of the performance shares is determined on conditional grant date using the Monte Carlo simulation model. The significant inputs to the model used for the conditional grants are as follows: Market conditions Volatility of Defensive Index (%) Volatility of the Company’s shares (%) Correlation of volatility of Defensive Index/ MSCI Index vs. the Company (%) Risk-free rate (%) Share price ($) Cost of equity (%) Dividend yield 2014 Year of grant 2013 2012 9.76 15.35 10.47 14.66 12.54 15.88 51.2 52.7 43.2 0.54 0.24 0.35 3.79 4.16 3.17 6.90 7.00 7.90 (-- Management’s forecast in line with dividend policy --) RSP2000 / RSP2010 Restricted shares are granted on an annual basis with key performance indicator targets set for a performance period, currently prescribed to be a 2-year performance period. The restricted shares will only be released to the recipient at the end of the performance period if the targets are met. The final number of restricted shares awarded will depend on the level of achievement of those targets and range between 0% and 150% of the conditional award of the restricted shares and will be delivered to recipients over a 3-year vesting period; half at the end of the performance qualifying period and the balance will vest equally over the subsequent two years. 242 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 34. share-baseD Payment arrangements (continueD) Outstanding Awards under RSP2000 / RSP2010 are as follow: Date of grant Number of restricted shares as at grant date Number of restricted shares lapsed Number of restricted shares released Balance outstanding as at 31.12.2014 8,547,400 1,194,840 7,352,560 – 50,000 7,380,041 349,900 5,000 4,617,900 4,347,000 90,000 4,873,600 300,000 1,404,751 156,300 – 1,028,241 – – 874,401 436,669 – 249,125 – – – 30,000 4,938,890 349,900 5,000 2,011,749 – 30,000 – – 323,530 156,300 20,000 1,412,910 – – 1,731,750 3,910,331 60,000 4,624,475 300,000 1,081,221 – RSP2000 22 March 2010 RSP2010 25 February 2011 16 March 2011 27 June 2011 17 October 2011 22 March 2012 22 March 2013 19 September 2013 13 March 2014 4 April 2014 28 April 2014 19 May 2014 During the year, restricted shares amounting to 1,659,932 and 4,250,477 ordinary shares were awarded under RSP2000 and RSP2010 respectively. The fair value of the restricted shares is determined at conditional grant date using the Monte Carlo simulation model. The significant inputs to the model used for the conditional grant in 2013 and 2014 are as follows: Year of grant 2014 2013 Volatility of the Company’s shares (%) Risk-free rate (%) Share price ($) Dividend yield 15.35 14.66 0.36 – 0.98 0.21 – 0.35 3.79 4.16 (--Management’s forecast in line with dividend policy--) 243 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 35. CAPITAL RESERVES Included in capital reserves is: 36. (a) an amount of $115,948,000 (2013: $115,948,000) relating to share premium of the respective pooled enterprises, namely Singapore Technologies Aerospace Ltd, Singapore Technologies Electronics Limited, Singapore Technologies Kinetics Ltd and Singapore Technologies Marine Ltd classified as capital reserve upon the pooling of interests during the financial year ended 31 December 1997; and (b) an amount of $375,000 (2013: $375,000) relating to an excess capital contribution from non-controlling shareholders of a subsidiary in China following the additional capital injection in prior years. OThER RESERVES Foreign currency translation Statutory Note reserve reserve $’000 $’000 ShareFair based value payment reserve reserve $’000 $’000 Premium paid on acquisition of non-controlling interests $’000 Total $’000 The Group At 1.1.2013 Other comprehensive income: (212,747) 3,830 (10,062) 85,727 (2,869) (136,121) Net fair value changes on available-for-sale financial assets (i) – – (7,931) – – (7,931) Net fair value changes on cash flow hedges (ii) – – 49,401 – – 49,401 Foreign currency translation differences (iii) 42,553 – 69 (54) 42,459 10,395 – – – – 10,395 – – – – 52,743 – 41,361 69 (54) 94,119 Issue of shares – – – (18,624) – (18,624) Cost of share-based payment – – – 15,490 – 15,490 Disposal of a subsidiary – – – – 255 255 230 4,060 – 31,299 – 82,662 Share of foreign currency translation differences of associates and joint ventures Reclassification of foreign currency translation reserve to profit or loss arising from disposal of a foreign entity Total comprehensive income for the year, net of tax Transfer from retained earnings to statutory reserve At 31.12.2013 (205) – (160,004) (109) – (2,668) (205) 230 (44,651) 244 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 36. other reserves (continueD) Foreign currency translation Statutory Note reserve reserve $’000 $’000 ShareFair based value payment reserve reserve $’000 $’000 Premium paid on acquisition of noncontrolling interests $’000 Total $’000 The Group At 1.1.2014 Other comprehensive income: (160,004) 4,060 31,299 82,662 (2,668) (44,651) Net fair value changes on available-for-sale financial assets (i) – – (2,020) – – (2,020) Net fair value changes on cash flow hedges (ii) – – (57,327) – – (57,327) Share of net fair value changes on cash flow hedges of an associate (ii) – – (9,891) – – (9,891) Foreign currency translation differences (iii) 18,330 1 37 121 (67) 18,422 Share of foreign currency translation differences of associates and joint ventures 1,336 – – – – 1,336 Reclassification of foreign currency translation reserve to profit or loss arising from disposal of foreign entities 50 – – – – 50 19,716 1 Issue of shares – – – Cost of share-based payment – – Disposal of a subsidiary – – Total comprehensive income for the year, net of tax Transfer from retained earnings to statutory reserve At 31.12.2014 – (140,288) 13 4,074 (69,201) (67) (49,430) (19,559) – (19,559) – 21,574 – 21,574 – – (4) (4) – 84,798 – (2,739) 13 (92,057) – (37,902) 121 245 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 36. other reserves (continueD) 2014 $’000 (i) Net fair value changes on available-for-sale financial assets: – Net fair value changes during the year – Reclassification adjustment to profit or loss on disposal of financial assets in finance costs, net (ii) Net fair value changes on cash flow hedges: – Net fair value changes during the year – Reclassification adjustment to profit or loss on occurrence of forecast transaction in finance costs, net – Recognised in the carrying value of non-financial assets on occurrence of the hedged transactions (iii) Foreign currency translation differences arising from: – Translation of quasi equity loans forming part of net investments in foreign entities – Translation of foreign currency loans used as hedging instruments for effective net investment hedges – Translation of foreign entities Foreign currency translation reserve 619 Group 2013 $’000 (2,447) (2,639) (2,020) (5,484) (7,931) (66,601) 48,535 (739) 1,558 122 (67,218) (692) 49,401 (8,764) (945) (14,579) 41,673 18,330 (5,890) 49,388 42,553 The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries whose functional currencies are different from that of the Group’s presentation currency. As at 31 December 2014, bonds amounting to $396.3 million (US$300 million) (2013: $197.4 million (US$155.8 million)) have been designated as a hedge of the net investment in Vision Technologies Systems, Inc. and its subsidiaries (“US subsidiaries”) and are being used to hedge the Group’s exposure to foreign exchange risk on this investment. Exchange gain or loss on the re-translation of these bonds is transferred to other comprehensive income to offset any exchange gain or loss on translation of the net investment in the US subsidiaries. There is no ineffectiveness in the hedge during the year. Statutory reserve (a) In accordance with the Foreign Enterprise Law applicable to certain wholly-owned subsidiaries in the People’s Republic of China (“PRC”), the subsidiaries are required to make appropriation to a Statutory Reserve Fund (“SRF”). At least 10% of the statutory after tax profits as determined in accordance with the applicable PRC accounting standards and regulations must be allocated to the SRF until the cumulative total of the SRF reaches 50% of the subsidiaries’ registered capital. Subject to approval from the relevant PRC authorities, the SRF may be used to offset any accumulated losses or increase the registered capital of the subsidiaries. The SRF is not available for standard distribution to shareholders. (b) In accordance with the Law of the PRC on Joint Ventures Using Chinese and Foreign Investment applicable to certain subsidiaries, appropriations from the net profits are made to the Reserve Fund and the Enterprise Expansion Fund, after offsetting accumulated losses from prior years (if any), and before profit distributions to the investors. The percentage to be appropriated to the Reserve Fund and the Enterprise Expansion Fund is to be determined by the Board of Directors of the PRC entities. 246 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 36. other reserves (continueD) Fair value reserve Fair value reserve records the cumulative fair value changes of available-for-sale financial assets until they are derecognised or impaired, as well as the portion of the fair value changes on the derivative financial instruments designated as hedging instruments in cash flow hedges that are determined to be an effective hedge. Share-based payment reserve Share-based payment reserve represents the equity-settled share options, performance shares and restricted shares granted to employees and non-executive directors. The reserve is made up of the cumulative value of services received from employees recorded on grant of equity-settled share options, performance shares and restricted shares. The expense for services received will be recognised over the vesting periods. Premium paid on acquisition of non-controlling interests The reserve represents the difference between the consideration paid on acquisition of non-controlling interests and the carrying value of the proportionate share of the acquiree’s net assets acquired. 37. RETAINED EARNINGS 2014 $’000 Retained by: The Company Subsidiaries Associates and joint ventures 38. 568,323 515,715 141,002 1,225,040 Group 2013 $’000 564,416 518,693 108,849 1,191,958 DIVIDENDS Group and Company 2014 2013 $’000 $’000 Final dividend paid in respect of the previous financial year of 4.0 cents (2013: 4.0 cents) per share Special dividend paid in respect of the previous financial year of 8.0 cents (2013: 9.8 cents) per share Interim dividend paid in respect of the current financial year of 4.0 cents (2013: 3.0 cents) per share Additional final dividend paid in respect of the previous financial year due to issue of shares before books closure date 124,295 123,355 248,591 302,220 124,774 497,660 93,153 518,728 1,197 498,857 2,562 521,290 The Directors propose a final dividend of 4.0 cents (2013: 4.0 cents) per share amounting to $124.9 million (2013: $124.3 million) and a special dividend of 7.0 cents (2013: 8.0 cents) per share amounting to $218.5 million (2013: $248.6 million), in respect of the financial year ended 31 December 2014. These dividends have not been recognised as a liability as at year end as they are subject to approval of the shareholders at the Annual General Meeting of the Company. 247 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 39. RELATED PARTY INFORMATION In addition to related party information disclosed elsewhere in the financial statements, the Group has significant transactions with the following related parties on terms agreed between the parties as follows: 2014 $’000 2013 $’000 Associates of the Group Sales and services rendered Purchases and services received Dividend income 12,087 (22,367) 36,589 9,692 (24,060) 38,184 Joint ventures of the Group Sales and services rendered Purchases and services received Dividend income 27,514 (15,081) 2,251 15,590 (25,043) 1,412 Other related parties * Sales and services rendered Purchases and services received Rental expense Rental income 124,517 (23,023) (7,180) 2,246 106,323 (22,408) (11,701) 3,768 * 40. Group Other related parties refer to subsidiaries, associates and joint ventures of immediate holding company. COMMITMENTS (a) Capital commitments 2014 $’000 Capital expenditure contracted but not provided in the financial statements 145,345 Group 2013 $’000 145,575 248 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 40. commitments (continueD) (b) Leases Future minimum lease payments under non-cancellable operating leases are as follows: 2014 $’000 Third parties Within 1 year 2 to 5 years After 5 years Related parties Within 1 year 2 to 5 years After 5 years Group 2013 $’000 40,680 106,850 222,895 370,425 37,574 82,942 214,145 334,661 5,047 17,761 24,161 46,969 2,938 10,884 25,651 39,473 The Group has several operating lease agreements for leasehold land and buildings, office premises and computers. The leases have varying terms, escalation clauses and renewal rights. Lease terms do not contain restrictions on the Group activities concerning dividends, additional debt or further leasing. None of the operating leases is subject to contingent rent arrangements. (c) Operating lease commitments – As lessor The Group has entered into commercial leases on its aircraft, aircraft engines and certain property, plant and equipment. The non-cancellable leases have lease term ranging from 1 to 16 years. The leases on the aircraft include a clause to enable upward revision of the rental charge on an annual basis based on prevailing market conditions. The future lease payment receivables under non-cancellable operating leases are as follows: 2014 $’000 Within 1 year 2 to 5 years After 5 years 17,872 27,970 15,424 61,266 Group 2013 $’000 16,298 31,846 17,400 65,544 None of the operating leases is subject to contingent rent arrangements. (d) Investments As at 31 December 2014, the Group has outstanding commitments in respect of uncalled capital to the extent of $0.7 million (2013: $0.2 million) in subsidiaries. 249 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 40. commitments (continueD) (e) 41. Contingent liabilities (unsecured) (i) The Group is a party to various claims that arise in the normal course of the Group’s business. The total liability on these matters cannot be determined with certainty. However, in the opinion of management, the ultimate liability, to the extent not otherwise provided for, will not materially impact the combined financial statements of the Group. (ii) The Group’s certain subsidiaries provided equipment buy-back guarantees to financial institutions which have extended equipment financing to the customers for their purchase of their products. The outstanding equipment buy-back guarantees as at 31 December 2014 amounted to $10,531,000 (2013: $10,900,000). SEGMENT INFORMATION (a) Analysis by business segments The Group is organised on a worldwide basis into four main reportable segments, namely: (i) Aerospace Provides a spectrum of maintenance and engineering services that include airframe, engine and component maintenance, repair and overhaul; engineering design and technical services; and aviation materials and management services, including Total Aviation Support. (ii) Electronics Delivers innovative system solutions to government, commercial, defence, and industrial customers worldwide. It specialises in the design, development and integration of advanced electronics and communications systems, such as broadband radio frequency and satellite communication, e-Government solutions, information communications technologies and IT, rail and traffic management, real-time command and control, modelling and simulation, eLearning and interactive digital media, training services, intelligent building management and information security. (iii) Land Systems Delivers integrated land systems, specialty vehicles and their related through life support for defence, homeland security and commercial applications. (iv) Marine Provides turnkey building, repair and conversion services for a wide spectrum of naval and commercial vessels. In shipbuilding, it has the proven capabilities to provide turnkey solutions from concept definition to detailed design, construction, on-board system installation and integration, testing, commissioning to through-life support. It has also established a track record in providing high engineering content shiprepair and ship conversion services for a worldwide clientele. It also provides a suite of sustainable environmental engineering solutions. Other operations include research and development, treasury, investment holding and provision of management, consultancy, integrated logistics management, integrated facilities management, warehousing and other support services. None of these segments meets any of the quantitative thresholds for determining reportable segments in financial years 2014 and 2013. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss which in certain respects, as explained in the table below, is measured differently from operating profit or loss in the consolidated financial statements. Inter-segment pricing is on an arm’s length basis. 250 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 41. segment information (continueD) Aerospace Electronics $’000 $’000 Land Systems $’000 Marine $’000 Others Elimination $’000 $’000 Group $’000 2014 Revenue External sales Inter-segment sales Reportable segment profit from operations Other income Other expenses Finance income Finance costs Share of results of associates and joint ventures, net of tax Profit before taxation Taxation Non-controlling interests Profit attributable to shareholders 2,061,225 1,583,288 1,396,880 1,341,084 10,239 30,791 8,252 867 2,071,464 1,614,079 1,405,132 1,341,951 156,956 24,069 181,025 – 6,539,433 (74,218) – (74,218) 6,539,433 261,471 7,059 (5,035) 11,894 (24,670) 174,371 10,402 (6) 4,867 (6,136) 38,727 14,525 (1,570) 3,124 (11,655) 100,835 12,115 (37) 3,931 – (76,109) 628,530 (24) 115,809 (112,961) 55,678 (627,456) 1,672 (96,075) 110,225 554,973 45,175 (5,000) 43,550 (45,197) 32,280 282,999 (53,892) (8,963) 220,144 470 183,968 (30,614) (1,211) 152,143 13,050 56,201 (11,001) 5,123 50,323 5,936 122,780 (14,695) 1 108,086 – 555,245 (3,491) – 551,754 5,446 (550,510) – 12 (550,498) 57,182 650,683 (113,693) (5,038) 531,952 Other assets Associates and joint ventures Segment assets 2,202,519 1,783,773 2,091,015 1,106,096 4,250,300 (3,592,749) 7,840,954 322,508 10,297 112,750 8,159 17,657 6,981 478,352 2,525,027 1,794,070 2,203,765 1,114,255 4,267,957 (3,585,768) 8,319,306 Segment liabilities 1,779,360 1,596,964 1,931,326 Capital expenditure Depreciation and amortisation Impairment losses Other non-cash expenses 87,674 60,166 6,186 807 61,893 38,362 638 56 86,318 38,053 21,049 20 955,383 2,102,832 (2,311,169) 6,054,696 37,581 27,098 – – 10,635 6,869 – 3 – (42) – (1) 284,101 170,506 27,873 885 251 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 41. segment information (continueD) Aerospace Electronics $’000 $’000 Land Systems $’000 Marine $’000 Others Elimination $’000 $’000 Group $’000 2013 Revenue External sales Inter-segment sales Reportable segment profit from operations Other income Other expenses Finance income Finance costs Share of results of associates and joint ventures, net of tax Profit before taxation Taxation Non-controlling interests Profit attributable to shareholders 2,079,076 1,650,332 1,475,361 1,237,933 9,029 31,946 9,858 914 2,088,105 1,682,278 1,485,219 1,238,847 190,450 31,926 222,376 – 6,633,152 (83,673) – (83,673) 6,633,152 673,215 40,095 (5,907) 68,911 (77,704) 291,828 9,884 (2,738) 14,528 (18,645) 165,546 3,685 (1,641) 9,546 (5,342) 90,472 23,840 (4,353) 4,836 (11,175) 134,479 6,047 (43) 37,038 (33,284) (58,943) 609,322 (21) 77,706 (89,735) 49,833 (612,683) 2,889 (74,743) 80,477 24,585 319,442 (53,589) (6,639) 259,214 (1,466) 170,328 (30,502) (2,707) 137,119 8,173 111,793 (19,196) (1,358) 91,239 2,073 146,310 (36,325) (30) 109,955 – 538,329 1,467 – 539,796 (2,283) 31,082 (556,510) 729,692 – (138,145) 21 (10,713) (556,489) 580,834 Other assets Associates and joint ventures Segment assets 2,421,451 1,732,792 1,991,478 1,137,593 4,281,836 (3,320,648) 8,244,502 328,017 729 110,972 3,223 17,681 1,517 462,139 2,749,468 1,733,521 2,102,450 1,140,816 4,299,517 (3,319,131) 8,706,641 Segment liabilities 2,222,830 1,538,772 1,779,140 Capital expenditure Depreciation and amortisation Impairment losses/(write-back of impairment) Other non-cash expenses 950,319 2,260,361 (2,304,695) 6,446,727 176,066 50,194 90,305 29,106 67,719 39,083 56,195 18,514 3,488 956 3,479 315 2,348 112 – – 7,452 5,189 (9) 3 – (42) – – 397,737 142,044 9,306 1,386 252 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 41. segment information (continueD) (b) Analysis by country of incorporation Revenue is based on the country of incorporation regardless of where the goods are produced or services rendered. Non-current assets, excluding derivative financial instruments and deferred tax assets, are based on the location of those assets. 2014 $’000 Asia USA Europe Others (c) 4,981,137 1,420,462 75,513 62,321 6,539,433 Revenue 2013 $’000 4,811,651 1,642,208 129,952 49,341 6,633,152 Non-current assets 2014 2013 $’000 $’000 1,932,656 781,302 47,647 101,017 2,862,622 1,893,992 732,649 81,599 101,381 2,809,621 Analysis by geographical areas Revenue is based on the location of customers regardless of where the goods are produced or services rendered. 2014 $’000 Asia USA Europe Others 42. 3,780,770 1,525,088 290,317 943,258 6,539,433 Revenue 2013 $’000 3,868,536 1,705,677 420,875 638,064 6,633,152 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group and the Company are exposed to financial risks, namely, interest rate, foreign exchange, market, liquidity and credit risks, arising from its operations and the use of financial instruments. The Group’s principal financial instruments, other than foreign exchange contracts and derivatives, comprise bank guarantees, performance bonds, bank loans and overdrafts, finance leases and hire purchase contracts, investments, cash and short-term deposits. All financial transactions with the banks are governed by banking facilities duly accepted with Board of Directors’ resolutions, with banking mandates, which define the permitted financial instruments and facilities limits. All financial transactions require dual signatories. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. It is the Group’s policy not to engage in foreign exchange and/or derivatives speculation. The purpose of engaging in treasury transactions is solely for hedging. The Group’s treasury mandates allow only foreign exchange spot, forward or non-deliverable forward, foreign exchange swap, cross currency swap, purchase of foreign exchange call, put or collar option, forward rate agreement, interest rate swap, purchase of interest rate cap, floor or collar option (“Permitted Transactions”). These instruments are generic in nature with no embedded or leverage features and any deviation from these instruments would require specific approval from the Board of Directors. The Group’s accounting policies in relation to derivative financial instruments are set out in Note 3. 253 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 42. financial risk management objectives anD Policies (continueD) The policies for managing each of these risks are broadly summarised below. Interest rate risk As at reporting date, the interest rate profile of the interest-bearing financial instruments is: 2014 $’000 Fixed rate instruments Financial assets Financial liabilities Variable rate instruments Financial assets Financial liabilities Group 2013 $’000 2014 $’000 Company 2013 $’000 1,147,308 (735,904) 411,404 1,487,156 (919,839) 567,317 316,033 – 316,033 329,417 – 329,417 254,541 (282,724) (28,183) 326,376 (454,182) (127,806) 532,724 (562,959) (30,235) 752,171 (606,055) 146,116 The Group has cash balances placed with reputable banks and financial institutions. The Group manages its interest rate risk on its interest income by placing the cash balances in varying maturities and interest rate terms with due consideration to operating cash flow requirements and optimising yield. The Group’s debts include 10-year bonds issued, bank loans and lease commitments. The Group seeks to minimise its interest rate risk exposure through tapping different sources of funds to refinance the debt instruments and/or enter into interest rate swaps, where appropriate. Movements in interest rates will therefore have an impact on the Group. An increase of 50 basis points in interest rate at the reporting date would lead to a reduction of the Group’s profit or loss and other comprehensive income by approximately $1.4 million (2013: $2.1 million) and $2.4 million (2013: $2.9 million) respectively. A decrease in 50 basis points in interest rate at the reporting date would increase the Group’s profit or loss and other comprehensive income by approximately $1.4 million (2013: $2.1 million) and $2.6 million (2013: $3.3 million) respectively. This analysis assumes that all other variables remain constant. Fixed deposits, bonds, bank loans and other financial instruments with interest rate fixed over the contractual period are excluded from the sensitivity analysis. Information relating to the Group’s interest rate risk exposure is also disclosed in the notes on the Group’s borrowings, investments and loans receivable, where applicable. Foreign exchange risk The Group’s foreign exchange risk arises both from its subsidiaries operating in foreign countries, generating revenue and incurring costs denominated in foreign currencies, and from operations of its local subsidiaries which are transacted in foreign currencies. The Group’s foreign exchange exposures are primarily from USD and Euro and the Group enters mainly into forward currency contracts to hedge against its foreign exchange risk resulting from anticipated sale and purchase transactions denominated in foreign currencies in accordance with the Group’s hedging policy. The Group enters into cross currency swap to hedge the foreign exchange risk of its loans denominated in foreign currency. The Group also uses monetary assets and liabilities and embedded derivatives to hedge its risks associated with foreign currency fluctuation. The Company’s centralised Treasury Unit (“Unit”) facilitates intra-group foreign exchange transactions within the Group to net-off the foreign exchange exposures before proceeding to transact with the banks. The Unit executes the Group’s material foreign exchange transactions with proper segregation of duties between authorised dealers and back office. Only authorised dealers can transact with the banks on behalf of the Group, with back office confirming the deals. The dealers’ limits and permitted treasury instruments in the form of an authorisation matrix and mandates are communicated to all counterparties. No foreign exchange sensitivity analysis was disclosed as the Company had assessed that a reasonable change in the exchange rate would not result in any significant impact on the Group’s results. 254 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 42. financial risk management objectives anD Policies (continueD) Market risk The Group has strategic investments in quoted equity shares. The market value of these investments will fluctuate with market conditions. The impact to the Group’s profit or loss and other comprehensive income arising as a result of a 10% increase in the fair value of the quoted investments, assuming no impairment on the quoted investments would lead to an increase in the Group’s profit or loss and other comprehensive income by approximately $0.04 million (2013: $0.02 million) and $0.04 million (2013: $0.03 million) respectively. A 10% decrease in the fair value of the quoted investments, assuming no impairment on the quoted investments would have an equal but opposite effect. This analysis assumes that all other variables remain constant. Liquidity risk To manage liquidity risk, the Group monitors its net operating cash flows and maintains an adequate level of cash and cash equivalents and secured committed funding facilities from financial institutions. In assessing the adequacy of these funding facilities, management reviews its working capital requirements regularly. The table below analyses the Group’s financial liabilities and certain derivative financial instruments that will be settled on a gross basis into relevant maturity groupings based on the remaining period at reporting date to the contractual maturity date. The amounts disclosed in the table below are the contractual undiscounted cash flows including estimated interest payments. Contractual cash flow $’000 Within 1 year $’000 2 to 5 years $’000 More than 5 years $’000 The Group 2014 Bank loans Bonds Other loans Lease obligations Other long-term payables Trade and other payables Derivative financial instruments: • Forward currency contracts – gross payments – gross receipts • Interest rate swaps - settled net • Cross currency interest rate swaps – settled net (351,486) (804,516) (669) (36,911) (1,000) (1,951,160) (76,460) (31,702) (18) (1,818) – (1,675,134) (275,026) (772,814) (651) (4,550) (1,000) (276,026) (791,244) 777,387 (667) (553,680) 541,255 (857) (237,564) 236,132 190 – – – 19,803 – 24,184 4,381 – – – (30,543) – – 255 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 42. financial risk management objectives anD Policies (continueD) Liquidity risk (continued) Contractual cash flow $’000 Within 1 year $’000 2 to 5 years $’000 More than 5 years $’000 The Group 2013 Bank loans Bonds Other loans Lease obligations Other long-term payables Trade and other payables Derivative financial instruments: • Forward currency contracts – gross payments – gross receipts • Cross currency swap – net receipts • Interest rate swaps - settled net • Cross currency interest rate swaps – settled net (746,276) (802,222) (1,054) (37,606) (1,500) (1,955,457) (438,292) (30,413) (257) (1,972) – (1,601,350) (294,139) (121,651) (84) (5,246) (1,500) (354,107) (1,652,840) 1,636,338 (1,234,003) 1,233,605 (418,837) 402,733 1,243 (1,744) 1,243 (1,844) – 100 3,143 4,447 298 (13,845) (650,158) (713) (30,388) – – – – – – (1,602) The Company 2014 Trade payables and accruals Amounts due to related parties Derivative financial instruments: • Forward currency contracts – gross payments – gross receipts • Intra-group financial guarantee 2013 Trade payables and accruals Amounts due to related parties Derivative financial instruments: • Forward currency contracts – gross payments – gross receipts • Intra-group financial guarantee (43,967) (638,327) (26,961) (201,973) (17,006) (436,354) – – (722) 803 (274,748) – – (274,748) (722) 803 – – – – (43,834) (716,713) (25,017) (99,671) (18,817) (535,941) (5,354) 5,545 (349,874) (4,632) 4,746 (349,874) (722) 799 – – (81,101) – – – 256 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 42. financial risk management objectives anD Policies (continueD) Liquidity risk (continued) For derivative financial instruments, the cash inflows/(outflows) represent the contractual undiscounted cash flows relating to these instruments. The amounts are compiled on a net basis for derivatives that are net-settled. Gross inflows and outflows are included for derivatives that are gross-settled on a simultaneous basis. Net-settled derivative financial assets are included in the maturity analysis as they are held to hedge the cash flow variability of the Group’s bank loans and bonds. Except for the cash flow arising from the intra-group financial guarantee, it is not expected that the cash flows included in the maturity analysis of the Group and the Company could occur significantly earlier, or at significantly different amounts. At the reporting date, the Company does not consider it probable that a claim will be made against the Company under the intra-group financial guarantee. Credit risk Credit risk, or the risk of counterparties defaulting, is managed through the application of credit approvals, credit limits and monitoring procedures. Where appropriate, the Company or its subsidiaries obtain collaterals from customers or arrange master netting agreements. Cash terms, advance payments, and letters of credit or bank guarantees are required for customers of lower credit standing. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date is: 2014 $’000 Investments Long-term receivables Finance lease receivables Derivative financial instruments, non-current Trade receivables Amounts due from related parties Advances and other receivables Bank balances and other liquid funds Recognised financial assets 246,490 13,223 7,845 24,263 1,028,504 71,188 105,058 1,470,723 2,967,294 Group 2013 $’000 2014 $’000 300,614 25,036 19,126 39,978 941,961 47,506 199,004 1,930,140 3,503,365 – – – 81 – 547,070 3,573 404,876 955,600 Company 2013 $’000 – – – 77 – 763,372 9,739 470,124 1,243,312 The Group limits its exposure to credit risk on investments held by investing mostly in bonds of high credit ratings. Management actively monitors the credit ratings and does not expect any counterparty to fail to meet its obligations. Derivatives are entered into with financial institutions, which have long-term rating of A3 by Moody’s, A- by Standard & Poor’s or the equivalent by a reputable credit rating agency. Cash and bank deposits are placed with reputable financial institutions. 257 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 42. financial risk management objectives anD Policies (continueD) Credit risk (continued) As at 31 December 2014, there were no significant concentrations of credit risk, except for 43% (2013: 30%) of trade debts relating to three major customers of the Group. The table below analyses the trade receivables by the Group’s four main reportable segments. 2014 $’000 261,162 354,998 303,153 89,863 19,328 1,028,504 Aerospace Electronics Land Systems Marine Others Group 2013 $’000 303,981 306,528 205,951 98,065 27,436 941,961 The ageing of financial assets excluding cash and cash equivalents, investments and derivative financial instruments, net of impairment losses, are as follows: 2014 $’000 Not past due 1 – 90 days 91 – 180 days 181 – 360 days > 360 days 734,236 365,265 52,347 48,839 23,960 1,224,647 Group 2013 $’000 2014 $’000 769,442 304,316 59,208 23,729 24,124 1,180,819 550,643 – – – – 550,643 Company 2013 $’000 772,997 – – – – 772,997 The movements in allowance for impairment losses in respect of financial assets excluding cash and cash equivalents, intangibles and derivative financial instruments are as follows: 2014 $’000 At beginning of the year Charge to profit or loss Allowance utilised Translation difference At end of the year 76,230 17,797 (10,572) 1,012 84,467 Group 2013 $’000 2014 $’000 88,450 9,277 (24,522) 3,025 76,230 4,901 2,000 – 80 6,981 Company 2013 $’000 7,963 2,000 (5,132) 70 4,901 258 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 43. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table shows an analysis of financial instruments carried at fair value by level of fair value hierarchy. quoted prices in active markets for identical Significant other instruments observable inputs Note (Level 1) (Level 2) $’000 $’000 Significant unobservable inputs (Level 3) $’000 Total $’000 The Group 2014 Financial Assets Available-for-sale – Equity investments (quoted) 15 – Venture capital funds and limited partnership 15 – Bonds (unquoted) 15, 24 Fair value through profit or loss – Equity investments (quoted) 24 Derivatives – Forward currency contracts – Cross currency interest rate swaps – Embedded derivatives Financial Liabilities Derivatives – Forward currency contracts – Interest rate swaps – Embedded derivatives 378 – – 378 – – – 241,778 12 – 12 241,778 359 – – 359 – – – 737 2,612 22,247 575 267,212 – – – 12 2,612 22,247 575 267,961 – – – – 16,469 653 15,548 32,670 – – – – 16,469 653 15,548 32,670 349 – – 349 – – – 299,386 43 – 43 299,386 204 – – 204 – – – – 553 32,031 1,241 2,871 55,649 391,178 – – – – 43 32,031 1,241 2,871 55,649 391,774 – – – – 48,132 1,728 998 50,858 – – – – 48,132 1,728 998 50,858 2013 Financial Assets Available-for-sale – Equity investments (quoted) 15 – Venture capital funds and limited partnership 15 – Bonds (unquoted) 15, 24 Fair value through profit or loss – Equity investments (quoted) 24 Derivatives – Forward currency contracts – Cross currency swap – Cross currency interest rate swaps – Embedded derivatives Financial Liabilities Derivatives – Forward currency contracts – Interest rate swaps – Embedded derivatives 259 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 43. fair value of financial instruments (continueD) Significant other observable inputs (Level 2) $’000 The Company 2014 Financial Assets Derivatives – Forward currency contracts 81 2013 Financial Assets Derivatives – Forward currency contracts 191 Valuation processes applied by the Group The Group has an established approach with respect to the measurement of fair values. The Group regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair value, then the Group assesses and documents the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of FRS, including the level in the fair value hierarchy the resulting fair value estimate should be classified. Fair value hierarchy The Group classifies fair value measurement using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy have the following levels: (a) Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities; (b) Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and (c) Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs). The following methods and assumptions are used to estimate the fair value of each class of financial instruments. Bank balances, other liquid funds and short-term receivables The carrying amounts approximate fair values due to the relatively short-term maturity of these instruments. Quoted and unquoted investments The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the transfer has occurred. There have been no transfer from Level 2 to Level 1 and vice versa in 2014 (2013: no transfers in either directions). The fair values of quoted investments are determined directly by reference to their quoted bid prices for these investments as at balance sheet date. For unquoted investments, the fair values cannot be reliably estimated because of the lack of quoted market prices and the assumptions used in valuation models to value these investments cannot be reasonably determined. For unquoted bonds, the investments are valued using valuation models which use market observable data. For unquoted investments in venture capital funds and limited partnerships as stated in Note 15, the fair value is determined by reference to valuation provided by non-related fund managers based on non-observable data. Changing one or more of the inputs to reasonable alternative assumptions is not expected to have a material impact on the changes in fair value. 260 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 43. fair value of financial instruments (continueD) Long-term receivables The fair values of long-term receivables and amount due from related parties are estimated based on the expected cash flows discounted to present value. Long-term payables The fair values of amount due to related parties are estimated based on present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. Short-term borrowings and other current payables The carrying amounts approximate fair values because of the short period to maturity of these instruments. Derivatives The fair value of forward currency contracts, interest rate swaps, cross currency swap, embedded derivatives and cross currency interest rate swaps are based on broker quotes. Similar contract are traded in an active market and the quotes reflect the actual transactions in similar instruments. Bonds The fair value of the US$500 million bonds as at 31 December 2014 is determined based on quoted market prices. Movements in level 3 financial instruments measured at fair value The following table presents the reconciliation for all financial instruments measured at fair value based on significant unobservable inputs (Level 3). 2014 $’000 Equity instruments (unquoted) Opening balance Total gain or loss: – recognised in profit or loss, in finance costs, net – recognised in other comprehensive income Sales Closing balance Total gain or loss for the year included in profit or loss (presented in finance costs, net) for assets held at 31 December Group 2013 $’000 43 44 – (31) – 12 26 – (27) 43 – 10 261 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 43. fair value of financial instruments (continueD) Set out below is a comparison by category of carrying amounts of all the Group’s financial instruments that are carried in the financial statements: Classification of financial instruments Fair value Derivatives Loans and through used for receivables profit or loss hedging $’000 $’000 $’000 Available -for-sale $’000 Liabilities at amortised cost $’000 Total carrying amount $’000 Fair value $’000 The Group 2014 Assets Investments Long-term receivables Finance lease receivables Derivative financial instruments Trade receivables Amounts due from related parties Advances and other receivables Short-term investments Bank balances and other liquid funds Liabilities Creditors and accruals Amounts due to related parties Lease obligations Bank loans Other loans Other long-term payables Bonds Derivative financial instruments – 13,223 – – – – 127,211 – – – 127,211 13,223 127,211 13,223 7,845 – – – – 7,845 7,845 – 1,028,504 23,278 – 985 – – – – – 24,263 1,028,504 24,263 1,028,504 71,188 – – – – 71,188 71,188 103,887 462 709 – – 105,058 105,058 – 359 – 118,920 – 119,279 119,279 1,470,723 2,695,370 – 24,099 – 1,694 – 246,131 – – 1,470,723 2,967,294 1,470,723 2,967,294 – 5,257 16,153 – 1,919,925 1,941,335 1,936,667 – – – – – – – – – – – – – – – – 31,235 18,673 340,942 589 31,235 18,673 340,942 589 31,235 17,938 340,942 589 – – – – – – – – 1,000 658,424 1,000 658,424 912 730,227 – – 821 6,078 10,439 26,592 – – – 2,970,788 11,260 3,003,458 11,260 3,069,770 262 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 43. fair value of financial instruments (continueD) Fair value Derivatives Loans and through used for receivables profit or loss hedging $’000 $’000 $’000 Available -for-sale $’000 Liabilities at amortised cost $’000 Total carrying amount $’000 Fair value $’000 The Group 2013 Assets Investments Long-term receivables Finance lease receivables Derivative financial instruments Trade receivables Amounts due from related parties Advances and other receivables Short-term investments Bank balances and other liquid funds Liabilities Creditors and accruals Amounts due to related parties Lease obligations Bank loans Other loans Other long-term payables Bonds Derivative financial instruments – 25,036 – – – – 166,033 – – – 166,033 25,036 166,033 25,036 19,126 – – – – 19,126 19,126 – 941,961 18,939 – 21,039 – – – – – 39,978 941,961 39,978 941,961 47,506 – – – – 47,506 47,506 147,190 – 36,424 204 15,390 – – 134,377 – – 199,004 134,581 199,004 134,581 1,930,140 3,110,959 – 55,567 – 36,429 – 300,410 – – 1,930,140 3,503,365 1,930,140 3,503,365 – 20,734 7,609 – 1,930,098 1,958,441 1,951,234 – – – – – – – – – – – – – – – – 25,359 19,471 721,498 933 25,359 19,471 721,498 933 25,359 19,329 721,498 933 – – – – – – – – 1,500 631,283 1,500 631,283 1,357 698,265 – – 16,621 37,355 5,894 13,503 – – – 3,330,142 22,515 3,381,000 22,515 3,440,490 263 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 43. fair value of financial instruments (continueD) Loans and receivables $’000 Fair value through profit or loss $’000 Liabilities at amortised cost $’000 Total Carrying amount $’000 Fair value $’000 – 81 – 81 81 547,070 – – 547,070 547,070 3,573 – – 3,573 3,573 404,876 955,519 – 81 – – 404,876 955,600 404,876 955,600 – – 43,967 43,967 42,893 – – – – 604,401 648,368 604,401 648,368 604,401 647,294 – 77 – 77 77 763,372 – – 763,372 763,372 9,625 114 – 9,739 9,739 470,124 1,243,121 – 191 – – 470,124 1,243,312 470,124 1,243,312 – – 43,834 43,834 42,629 – – – – 652,138 695,972 652,138 695,972 652,138 694,767 The Company 2014 Assets Derivative financial instruments Amounts due from related parties Advances and other receivables Bank balances and other liquid funds Liabilities Trade payables and accruals Amounts due to related parties 2013 Assets Derivative financial instruments Amounts due from related parties Advances and other receivables Bank balances and other liquid funds Liabilities Trade payables and accruals Amounts due to related parties 264 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 43. fair value of financial instruments (continueD) Derivative financial instruments Note Contractual/ notional amount $’000 2014 Estimated fair value Asset $’000 Liability $’000 Contractual/ notional amount $’000 2013 Estimated fair value Asset $’000 Liability $’000 Cash flow hedges Forward currency contracts: – to hedge confirmed sales in foreign currencies – to hedge firm purchase commitments in foreign currencies – to hedge accounts receivable in foreign currencies – to hedge accounts payable in foreign currencies Interest rate swaps Embedded derivatives (a)(i) 275,705 1,505 (6,016) 410,956 2,558 (7,720) (a)(i) 180,123 134 (5,528) 159,225 5,912 (1,308) (a)(i) 4,861 – (154) 84,950 24 (1,666) (a)(i) (b)(i) (a)(i) 2,045 231,158 433,068 – – – (143) (653) (12,211) 2,411 221,760 644,391 18 – 27,904 (13) (886) (998) (a)(i) 742 49 872 13 (a)(i) 22,971 6 (952) 32,919 – (a)(i) 14,060 – (935) – – (a)(ii) (a)(ii) (b)(ii) (c) 230,110 52,807 – – 462 456 – – (2,671) (70) – – 625,415 348,326 151,372 210,913 104 23,402 – 1,241 (36,513) – (842) – (d) (a)(ii) 246,350 249,512 – (3,337) (32,670) 21,410 (11,260) 246,350 470,178 2,871 27,745 91,792 (51,814) 39,978 – – (50,858) 28,343 (22,515) Fair value hedges Forward currency contracts: – to hedge firm purchase commitments in foreign currencies – to hedge accounts receivable in foreign currencies – to hedge accounts payable in foreign currencies – – (912) – Non-hedging instruments Forward currency contracts: – sales – purchases Interest rate swap Cross currency swap Cross currency interest rate swaps Embedded derivatives Total Less: Current portion Non-current portion 22,247 575 25,434 (1,171) 24,263 265 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 43. fair value of financial instruments (continueD) (a) Forward currency contracts (i) As at 31 December 2014, the Group has forward currency contracts and embedded derivatives separated from the foreign currency portion of sales contracts amounting to $933,575,000 (2013: $1,335,724,000) designated as hedges of confirmed sales in foreign currencies, firm purchase commitments in foreign currencies, accounts receivable in foreign currencies and accounts payable in foreign currencies. The maturity dates of the forward currency contracts and embedded derivatives separated from the foreign currency portion of the sales contracts approximate the timing of the expected cash flows of their respective hedged items, which are on varying periods up to six years (2013: seven years) from the financial year-end. (ii) (b) As at 31 December 2014, the Group has outstanding forward currency contracts and embedded derivatives separated from the foreign currency portion of sales contracts amounting to $532,429,000 (2013: $1,443,919,000). These were not designated as accounting hedges, but were used to economically hedge confirmed sales in foreign currencies and firm purchase commitments in foreign currencies. Interest rate swaps (i) As at 31 December 2014, the Group has outstanding interest rate swaps amounting to $231,158,000 (2013: $221,760,000), which are designated as cash flow hedges. The USD interest rate swaps are being used to hedge the exposure to variability in cash flows associated with the floating rate of the unsecured USD long-term loans. Under the USD interest rate swaps, the Group pays fixed rates of interest of 0.61% to 0.77% (2013: 0.62% to 0.77%) per annum and receives variable rates of interest equal to the LIBOR per annum on the notional amount. The USD interest rate swaps have the same maturity terms as the unsecured USD long-term loans due in 2016. (ii) In the prior year, the Group had an outstanding interest rate swap amounting to $151,372,000, which was not designated as hedging instrument in a cash flow hedge relationship. The Euro interest rate swap was being used to hedge the exposure to variability in cash flows associated with the floating rate of the unsecured long-term bank loan. Under the Euro interest rate swap, the Group paid a fixed rate of interest of 2.50% per annum and receives a variable rate of interest up to the EURIBOR per annum on the notional amount. The Euro interest rate swap had the same maturity terms as the unsecured bank loan. In 2014, the interest rate swap had matured with the repayment of the bank loan. (c) Cross currency swap In the prior year, the Group had an outstanding cross currency swap amounting to $210,913,000, which was not designated as hedging instrument in a cash flow hedge relationship. The cross currency swap was matured during the year with gain recognised in profit or loss. The USD cross currency swap converted the USD bank loan with floating USD interest rate at LIBOR + 0.60% per annum to an equivalent Euro bank loan (Euro 120,000,000) with floating Euro interest rate at EURIBOR + 0.41% per annum. (d) Cross currency interest rate swaps As at 31 December 2014, the Group has outstanding cross currency interest rate swaps amounting to $246,350,000 (2013: $246,350,000), which are not designated as hedging instruments. The swaps are being used to economically hedge the foreign currency exposure of the US$500 million bond liability and convert the fixed USD bond interest rate of 4.8% (2013: 4.8%) per annum to floating SGD interest rate at 6-month SOR plus margins. The effective SGD interest rates range from 2.8% to 3.6% (2013: 2.9% to 3.6%) per annum. 266 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 43. fair value of financial instruments (continueD) Master netting or similar agreements The disclosures set out in the tables below include financial assets and financial liabilities that: • are offset in the Group’s and the Company’s balance sheets; or • are subject to an enforceable master netting arrangement, irrespective of whether they are offset in the balance sheets. Financial instruments such as trade receivables and trade payables are not disclosed in the tables below unless they are offset in the balance sheets. The derivative transactions that the Group and the Company enter into, are not subject to master netting arrangements. These derivative transactions are also not offset into the balance sheets as the Group and its counterparties do not intend to settle on a net basis or to realise the assets and settle the liabilities simultaneously. The following table sets out the carrying amounts of recognised financial instruments that are subject to the above agreements. Gross amount of recognised financial instruments $’000 Gross amounts of recognised financial instruments offset in the balance sheets $’000 Net amounts of financial instruments presented in the balance sheets $’000 Related financial instruments that are not offset $’000 Net amount $’000 55 55 – – – 122 55 67 – 67 53 1 52 – 52 1 1 – – – The Group 2014 Financial assets Trade receivables Financial liabilities Trade payables 2013 Financial assets Trade receivables Financial liabilities Trade payables The gross amounts of financial assets and financial liabilities and their net amounts as presented in the balance sheets that are disclosed in the above tables are measured amortised cost. The amounts in the above tables that are offset in the balance sheets are measured on the same basis. 267 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 44. non-controlling interests in subsiDiaries The following table summarises the information relating to each of the Group’s subsidiaries with material NCI, based on their respective (consolidated) financial statements prepared in accordance with FRS, modified for fair value adjustments on acquisition and differences in Group’s accounting policies. The summarised financial information is not adjusted for percentage ownership held by NCI. EcoServices, LLC $’000 Guizhou Jonyang Kinetics Co., Ltd $’000 Jiangsu huatong Kinetics Co., Ltd $’000 20% 50% 40% 24.7% Revenue Profit/(loss) Other comprehensive income Total comprehensive income Attributable to NCI: – Profit/(loss) – Other comprehensive income – Total comprehensive income 269,186 42,267 30,038 3,853 7,950 3,031 Non-current assets Current assets Non-current liabilities Current liabilities Net assets Net assets attributable to NCI 61,034 237,244 34,452 24,299 31,384 235,131 105,789 56,907 (15,900) (91,197) 191,181 – (5,065) 53,686 (7,838) (202,452) 56,225 (41,299) (62,009) 59,388 38,236 26,789 22,490 14,669 61,956 (1,794) (7,753) 30,289 (19,659) (431) (23,364) 2,397 (40,000) (11,793) 2,495 (15,600) 2,297 (14,018) (28,622) 17,086 (8,000) (3,926) (3,706) – Name of NCI ST Aerospace Services Co Pte. Ltd. $’000 Other individually immaterial subsidiaries $’000 Intra-group elimination $’000 Total $’000 3,547 (546) 5,038 (18) 546 (564) 5,584 2014 NCI percentage Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities * Net increase/ (decrease) in cash and cash equivalents * including dividends to NCI 129,717 (15,029) (2,517) 2,221 39,750 6,074 (14,134) (8,061) 8,453 1,923 (6,012) (2,327) (503) 1,108 895 54,227 (9,421) 379 (5,633) 1,360 296 (2,031) (716) 2,831 27,403 2,820 132,407 268 ST ENGINEERING / ABOVE & BEYOND N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 44. non-controlling interests in subsiDiaries (continueD) Name of NCI ST Aerospace Services Co EcoServices, Pte. Ltd. LLC $’000 $’000 STELOP Pte. Ltd. D $’000 Guizhou Jiangsu Other Jonyang huatong individually Kinetics Kinetics immaterial Intra-group Co., Ltd Co., Ltd subsidiaries elimination $’000 $’000 $’000 $’000 Total $’000 2013 NCI percentage 20% 50% 49.95% 40% Revenue Profit/(loss) Other comprehensive income Total comprehensive income Attributable to NCI: – Profit/(loss) – Other comprehensive income – Total comprehensive income 252,737 34,332 28,467 3,248 35,482 3,028 185,786 3,790 (4,325) 1,464 – 6,017 2,960 30,007 4,712 3,028 9,807 (3,544) 6,866 1,621 1,512 1,516 (1,606) 732 – 2,146 6,001 2,353 1,512 3,662 Non-current assets Current assets Non-current liabilities Current liabilities Net assets Net assets attributable to NCI 63,945 235,670 37,626 25,482 1,514 57,423 32,222 261,547 (21,364) (87,299) 190,952 – (7,631) 55,477 38,190 27,683 8,669 31,782 14,187 35,422 8,791 (3,913) 35,244 630 (8,766) (32,684) (30,000) Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities * Net increase/ (decrease) in cash and cash equivalents * including dividends to NCI D (865) 24.7% 61,148 (6,504) 524 (1,082) 1,522 284 (718) 10,713 (96) 2,725 1,806 (814) 13,438 19,943 3,219 143,673 71,403 81,399 (7,969) (5,294) (48,804) (33,612) (209,020) (46,562) 17,356 79,455 57,436 (290) (755) 4,371 32,259 (4) (9,031) 28,576 (3,344) 8,366 (4,207) 25,458 33,577 (6,000) – – (3,638) – Due to the implementation of the FRS 110 Consolidated Financial Statements, the Group has reclassified its investment in STELOP Pte. Ltd. (“STELOP”) from a subsidiary to a joint venture with effect from 1 January 2014. The net assets of STELOP includes cash and cash equivalents of $35,896,000. 269 ANNUAL REPORT 2014 N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 31 December 2014 (Currency - Singapore dollars unless otherwise stated) 45. CAPITAL MANAGEMENT The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy financial metrics in order to support its business and maximise shareholder value. Capital consists of total shareholders’ funds and gross debts. The Group manages its capital structure and makes adjustment to it, in the light of changes in economic and financial market conditions. The Group may adjust the dividend payout to shareholders, buy back or issue new shares to optimise capital structure within the Group. No major changes were made in the objectives, policies or processes during the years ended 31 December 2014 and 31 December 2013. The Group is currently in a net cash position. The Group will continue to be guided by prudent financial policies of which gearing is an important aspect. Neither the Company nor any of its subsidiaries is subject to externally imposed capital requirements other than those imposed by local regulatories. 2014 $’000 Gross debt Bank loans Bonds Capitalised lease obligations Other loans Shareholders’ funds Share capital Treasury shares Other reserves Retained earnings Non-controlling interests Gross debt/equity ratio Cash and cash equivalents Funds under management Gross debt (excluding bank overdrafts) Net cash position Group 2013 $’000 340,942 658,424 18,673 589 1,018,628 721,498 631,283 19,471 933 1,373,185 889,426 (6,529) 24,266 1,225,040 2,132,203 132,407 2,264,610 852,611 – 71,672 1,191,958 2,116,241 143,673 2,259,914 0.4 1,462,612 241,778 1,704,390 (1,018,628) 685,762 0.6 1,920,924 299,386 2,220,310 (1,373,185) 847,125 270 ST ENGINEERING / ABOVE & BEYOND SGX LiStinG ManuaL RequiReMentS 31 December 2014 (Currency - Singapore dollars) INTERESTED PERSON TRANSACTIONS Interested person transactions carried out during the financial year pursuant to the Shareholders’ Mandate obtained under Chapter 9 of the Listing Manual of the Singapore Exchange Securities Trading Limited (“SGX”) by the Group are as follows: Aggregate value of all transactions excluding transactions conducted under a Shareholders’ Mandate pursuant to Rule 920 of the SGx Listing Manual 2014 2013 $’000 $’000 Aggregate value of all transactions conducted under a Shareholders’ Mandate pursuant to Rule 920 of the SGx Listing Manual 2014 2013 $’000 $’000 Transactions for the Sale of Goods and Services CapitaLand Limited and its Associates SembCorp Industries Ltd and its Associates SembCorp Marine Ltd and its Associates SATS Ltd. and its Associates Singapore Telecommunications Limited and its Associates SMRT Corporation Ltd and its Associates StarHub Ltd and its Associates Temasek Holdings (Private) Limited and its Associates – – – – – – – – 215 190 13,236 – 173 – 6,399 900 – – – – – – 130 120,535 2,296 722 750 – – – – – 4,490 141,092 10,208 19,152 – – – – 2,599 11,977 2,552 – – – – – 2,775 – 1,389 283 – – – – 23,036 40,387 2,927 7,151 – – 181,479 26,303 Transactions for the Purchase of Goods and Services SATS Ltd. and its Associates Singapore Airlines Limited and its Associates Singapore Telecommunications Limited and its Associates SMRT Corporation Ltd and its Associates Temasek Holdings (Private) Limited and its Associates Total Interested Person Transactions 271 ANNUAL REPORT 2014 S EC TO R A L F I N A N C I A L R E V I E W – A E R O S PAC E 31 December 2014 (Currency - Singapore dollars) INCOME STATEMENT 2014 $’000 Revenue Cost of sales Gross profit 2013 $’000 2,071,464 (1,664,645) 406,819 2,088,105 (1,659,131) 428,974 (10,892) (113,731) (20,725) 261,471 (3,072) (116,936) (17,138) 291,828 Other income Other expenses Other income, net 7,059 (5,035) 2,024 9,884 (2,738) 7,146 Finance income Finance costs Finance costs, net 11,894 (24,670) (12,776) 14,528 (18,645) (4,117) Share of results of associates and joint ventures, net of tax Profit before taxation 32,280 282,999 24,585 319,442 Taxation Profit for the year (53,892) 229,107 (53,589) 265,853 220,144 8,963 229,107 259,214 6,639 265,853 Distribution and selling expenses Administrative expenses Other operating expenses Profit from operations Attributable to: Shareholder of the Company Non-controlling interests 272 ST ENGINEERING / ABOVE & BEYOND S EC TO R A L F I N A N C I A L R E V I E W – A E R O S PAC E 31 December 2014 (Currency - Singapore dollars) BALANCE ShEET 2014 $’000 2013 $’000 671,068 322,508 12 126,958 1,534 19,941 1,142,021 679,552 328,017 43 108,546 14,900 17,778 1,148,836 560,001 388,430 35,173 144,118 11,428 359 243,497 1,383,006 666,523 410,695 18,433 110,384 12,371 204 382,022 1,600,632 2,525,027 2,749,468 60,244 500,842 360,864 47,538 105,617 64,518 – – 330 1,139,953 110,305 520,909 415,443 55,339 87,707 71,812 53,793 204,085 358 1,519,751 243,053 80,881 237,838 180,794 39,689 29,769 17,341 1,000 – 132,976 639,407 249,931 246,188 30,559 60,771 16,951 1,500 318 96,862 703,080 1,779,360 2,222,831 NET ASSETS 745,667 526,637 Share capital and reserves Non-controlling interests 668,421 77,246 745,667 453,316 73,321 526,637 2,525,027 2,749,468 ASSETS Non-current assets Property, plant and equipment Associates and joint ventures Investments Intangible assets Long-term receivables, non-current Deferred tax assets Current assets Inventories and work-in-progress Trade receivables Amount due from related parties, current Advances and other receivables Long-term receivables, current Short-term investments Bank balances and other liquid funds TOTAL ASSETS EqUITY AND LIABILITIES Current liabilities Advance payments from customers, current Trade payables and accruals, current Amount due to related parties, current Provisions Progress billing in excess of work-in-progress Provision for taxation Short-term bank loans Long-term bank loans, current Lease obligations, current NET CURRENT ASSETS Non-current liabilities Advance payments from customers, non-current Trade payables and accruals, non-current Deferred tax liabilities Long-term bank loans, non-current Lease obligations, non-current Other loans, non-current Derivative financial instruments, non-current Amount due to related parties, non-current TOTAL LIABILITIES TOTAL EqUITY AND LIABILITIES 273 ANNUAL REPORT 2014 S EC TO R A L F I N A N C I A L R E V I E W – A E R O S PAC E 31 December 2014 (Currency - Singapore dollars) STATEMENT OF CASh FLOWS 2014 $’000 2013 $’000 Net cash from operating activities 247,726 318,689 Net cash used in investing activities Proceeds from sale of property, plant and equipment Proceeds from sale and maturity of investments Dividends from associates Dividends from investments Purchase of property, plant and equipment Investment in associates Acquisition of subsidiaries Investment in joint ventures Loans to associates Acquisition of intangible assets (49,883) 2,318 – 27,125 2 (65,410) – (632) (622) (640) (12,024) (141,534) 8,833 27 25,771 1 (97,040) (7,620) – (9,385) – (62,121) Net cash used in financing activities Capital contribution from non-controlling interests of subsidiary Capital contribution from holding company Repayment of bank loans Repayment of lease obligations, net Proceeds from bank loans Proceeds from loans with related corporations Repayment of loans with related corporations Payment to non-controlling interests for reduction of share capital Dividends paid to shareholder Dividends paid to non-controlling interests Interest paid (330,753) 6,772 216,000 (290,014) (371) – 290,224 (419,113) – (107,299) (12,525) (14,427) (108,786) 15,645 – (20) (394) 9,181 8,034 (24,247) (1,354) (92,366) (6,742) (16,523) Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Exchange difference on cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year (132,910) 382,022 (5,615) 243,497 68,369 305,124 8,529 382,022 274 ST ENGINEERING / ABOVE & BEYOND S EC TO R A L F I N A N C I A L R E V I E W – A E R O S PAC E 31 December 2014 (Currency - Singapore dollars) FINANCIAL hIGhLIGhTS Income Statement Revenue Profit EBITDA EBIT PBT Net Profit Balance Sheet Property, plant and equipment Intangible and other assets Inventories and work-in-progress Trade receivables, deposits and prepayments Bank balances and other liquid funds, and short-term investments Current liabilities Non-current liabilities 2014 $’000 2013 $’000 2012 $’000 2011 $’000 2010 $’000 2,071,464 2,088,105 2,025,627 1,926,800 1,874,995 321,637 261,471 282,999 220,144 342,022 291,828 319,442 259,214 323,320 274,306 297,840 253,242 299,886 242,114 278,198 231,794 299,864 233,829 262,219 209,767 671,068 470,953 560,001 579,149 679,552 469,284 666,523 551,883 630,709 298,485 603,391 614,346 836,777 255,096 334,451 498,591 825,248 199,426 374,815 765,529 243,856 382,226 305,219 253,904 323,869 1,139,953 639,407 1,519,751 703,080 1,374,363 601,082 1,082,014 629,349 1,464,573 602,227 368,512 (41,493) 341,402 77,246 152,512 (37,753) 338,557 73,321 152,512 (73,513) 341,709 55,997 152,512 (65,331) 332,843 47,432 100,000 (68,672) 346,649 44,110 46.99 159.16 11.1 29.2 9.1 15.7 102.65 208.56 12.7 48.0 9.7 19.6 100.29 238.35 12.7 52.0 10.5 20.1 115.90 233.73 12.3 48.8 10.8 20.1 104.88 211.04 11.5 48.7 8.7 18.4 Productivity Data Average staff strength (numbers) Revenue per employee ($) Net profit per employee ($) Employment costs Employment costs per $ of revenue ($) 7,314 283,219 30,099 607,228 0.29 7,370 283,325 35,172 648,113 0.31 7,307 277,217 34,657 657,440 0.32 7,303 263,837 31,740 608,257 0.31 7,323 256,042 28,645 591,191 0.31 Economic Value Added Economic Value Added spread (%) Economic Value Added per employee ($) 162,092 10.1 22,162 217,064 14.4 29,452 189,716 14.8 25,964 180,047 14.2 24,654 163,904 12.7 22,382 Value added Value added per employee ($) Value added per $ of employment costs ($) Value added per $ of gross property, plant and equipment ($) Value added per $ of revenue ($) 975,569 133,384 1.61 1,035,479 140,499 1.60 1,032,108 141,249 1.57 959,184 131,341 1.58 935,010 127,681 1.58 0.74 0.47 0.79 0.50 0.83 0.51 0.63 0.50 0.64 0.50 Share capital Capital and other reserves Retained earnings Non-controlling interests Financial Indicators Earnings per share (cents) Net assets value per share (cents) Return on sales (%) Return on equity (%) Return on total assets (%) Return on capital employed (%) 275 ANNUAL REPORT 2014 SECTORAL FINANCIAL REVIEW – ELECTRONICS 31 December 2014 (Currency - Singapore dollars) INCOME STATEMENT 2014 $’000 Revenue Cost of sales Gross profit 2013 $’000 1,614,079 (1,125,260) 488,819 1,682,278 (1,182,514) 499,764 (82,982) (153,706) (77,760) 174,371 (86,827) (158,134) (89,257) 165,546 Other income Other expenses Other income, net 10,402 (6) 10,396 3,685 (1,641) 2,044 Finance income Finance costs Finance (costs)/income, net 4,867 (6,136) (1,269) 9,546 (5,342) 4,204 Distribution and selling expenses Administrative expenses Other operating expenses Profit from operations Share of results of associates and joint ventures, net of tax Profit before taxation 470 183,968 (1,466) 170,328 Taxation Profit for the year (30,614) 153,354 (30,502) 139,826 152,143 1,211 153,354 137,119 2,707 139,826 Attributable to: Shareholder of the Company Non-controlling interests 276 ST ENGINEERING / ABOVE & BEYOND SECTORAL FINANCIAL REVIEW – ELECTRONICS 31 December 2014 (Currency - Singapore dollars) BALANCE ShEET 2014 $’000 2013 $’000 179,704 10,297 3,963 304,545 187 30,023 528,719 170,244 729 632 282,861 – 31,159 485,625 381,322 427,564 104,178 57,776 16,976 7 – 277,528 1,265,351 280,051 385,754 24,053 58,737 19,818 6 1,415 478,062 1,247,896 1,794,070 1,733,521 169,046 387,775 26,934 78,382 375,486 48,805 – 1,086,428 173,581 337,406 21,210 65,440 431,917 51,445 6 1,081,005 178,923 166,891 182,717 42,534 4,825 8,565 271,895 510,536 161,379 38,561 5,009 2,583 250,235 457,767 1,596,964 1,538,772 NET ASSETS 197,106 194,749 Share capital and reserves Non-controlling interests 191,847 5,259 197,106 182,754 11,995 194,749 1,794,070 1,733,521 ASSETS Non-current assets Property, plant and equipment Associates and joint ventures Investments Intangible assets Long-term receivable, non-current Deferred tax assets Current assets Inventories and work-in-progress Trade receivables Amounts due from related parties, current Other receivables, deposits and prepayments Advance payments to suppliers Loan receivables, current Finance lease receivable, current Bank balances and other liquid funds TOTAL ASSETS EqUITY AND LIABILITIES Current liabilities Advance payments from customers, current Trade payables and accruals, current Amounts due to related parties, current Provisions Progress billings in excess of work-in-progress Provision for taxation Lease obligations, current NET CURRENT ASSETS Non-current liabilities Advance payments from customers, non-current Trade payables and accruals, non-current Deferred tax liabilities Deferred income Amounts due to related parties, non-current TOTAL LIABILITIES TOTAL EqUITY AND LIABILITIES 277 ANNUAL REPORT 2014 SECTORAL FINANCIAL REVIEW – ELECTRONICS 31 December 2014 (Currency - Singapore dollars) STATEMENT OF CASh FLOWS 2014 $’000 2013 $’000 88,193 266,548 (99,367) 65 – – – 1,297 (42,574) – (18,854) (3,970) 565 (35,896) (69,032) 173 1,200 12,842 100 23 (80,088) (304) (2,978) – – – Net cash used in financing activities Repayment of a related party loan Loans to related parties Proceeds from a related party loan Repayment of lease obligations Repayment of loans by related parties Proceed of a loan from a joint venture Repayment of a joint venture loan Dividends paid to shareholder Dividends paid to non-controlling interests Interest paid Deposits discharged (188,171) (50,140) (173,000) 89,009 (6) 93,000 – (824) (143,249) – (4,005) 1,044 (120,836) (24,803) (5,187) 14,664 (29) 7,010 836 – (109,300) (660) (3,512) 145 Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Exchange difference on cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year (199,345) 476,383 (145) 276,893 76,680 396,312 3,391 476,383 Net cash from operating activities Net cash used in investing activities Proceeds from sale of property, plant and equipment Proceed from sale of an associate Proceeds from sale of a quoted investment Proceed from sale of an unquoted investment Dividends from an associate and a joint venture Purchase of property, plant and equipment Additional investment in an associate Acquisition of other intangible assets Investment in unquoted investments Acquisition of controlling interests in a subsidiary, net of cash acquired Deconsolidation of a subsidiary 278 ST ENGINEERING / ABOVE & BEYOND SECTORAL FINANCIAL REVIEW – ELECTRONICS 31 December 2014 (Currency - Singapore dollars) FINANCIAL hIGhLIGhTS Income Statement Revenue Profit EBITDA EBIT PBT Net Profit Balance Sheet Property, plant & equipment, and investment property Intangible and other assets Inventories and work-in-progress Trade receivables, deposits and prepayments Bank balances and other liquid funds, and shortterm investments Current liabilities Non-current liabilities 2014 $’000 2013 $’000 2012 $’000 2011 $’000 2010 $’000 1,614,079 1,682,278 1,618,717 1,516,975 1,428,467 212,733 174,371 183,968 152,143 194,652 165,546 170,328 137,119 185,659 158,207 152,332 119,771 169,536 145,587 136,853 108,802 152,948 130,322 127,563 100,708 179,704 348,855 381,322 606,661 170,244 315,530 280,051 489,634 104,672 329,671 306,697 421,520 79,393 360,524 393,085 406,138 60,862 380,970 365,162 376,186 277,528 478,062 398,136 371,411 250,458 1,086,428 510,536 1,081,005 457,767 1,035,080 372,975 990,176 475,975 856,156 455,829 52,522 (5,135) 144,460 5,259 52,522 (20,609) 150,841 11,995 52,522 (32,821) 123,022 9,918 52,522 (24,361) 103,751 12,488 52,522 (35,834) 88,949 16,016 144.84 187.64 9.5 47.1 8.5 22.2 130.53 185.40 8.3 43.7 8.1 23.3 114.02 145.31 7.6 43.7 7.8 24.8 103.58 137.47 7.3 41.4 6.9 23.9 95.87 115.81 7.2 42.5 7.2 21.1 Productivity Data Average staff strength (numbers) Revenue per employee ($) Net profit per employee ($) Employment costs Employment costs per $ of revenue ($) 5,933 272,051 25,644 536,807 0.33 5,678 296,280 24,149 527,360 0.31 5,485 295,117 21,836 493,720 0.31 5,274 287,633 20,630 457,155 0.30 4,987 286,438 20,194 418,477 0.29 Economic Value Added Economic Value Added Spread (%) Economic Value Added per employee ($) 118,650 16.6 19,998 106,127 18.1 18,691 101,777 19.5 18,556 88,689 18.0 16,816 80,916 15.4 16,225 Value added Value added per employee ($) Value added per $ of employment costs ($) Value added per $ of gross property, plant and equipment ($) Value added per $ of revenue ($) 764,967 128,934 1.43 737,285 129,849 1.40 691,904 126,145 1.40 633,677 120,151 1.39 587,679 117,842 1.40 2.12 0.47 2.23 0.44 2.69 0.43 2.84 0.42 3.06 0.41 Share capital Capital and other reserves Retained earnings Non-controlling interests Financial Indicators Earnings per share (cents) Net assets value per share (cents) Return on sales (%) Return on equity (%) Return on total assets (%) Return on capital employed (%) 279 ANNUAL REPORT 2014 SECTORAL FINANCIAL REVIEW – LAND SYSTEMS 31 December 2014 (Currency - Singapore dollars) INCOME STATEMENT 2014 $’000 Revenue Cost of sales Gross profit 2013 $’000 1,405,132 (1,140,622) 264,510 1,485,219 (1,188,779) 296,440 (69,100) (106,692) (49,991) 38,727 (70,289) (100,077) (35,602) 90,472 Other income Other expenses Other income, net 14,525 (1,570) 12,955 23,840 (4,353) 19,487 Finance income Finance costs Finance costs, net 3,124 (11,655) (8,531) 4,836 (11,175) (6,339) Share of results of associates and joint ventures, net of tax Profit before taxation 13,050 56,201 8,173 111,793 (11,001) 45,200 (19,196) 92,597 50,323 (5,123) 45,200 91,239 1,358 92,597 Distribution and selling expenses Administrative expenses Other operating expenses Profit from operations Taxation Profit for the year Attributable to: Shareholder of the Company Non-controlling interests 280 ST ENGINEERING / ABOVE & BEYOND SECTORAL FINANCIAL REVIEW – LAND SYSTEMS 31 December 2014 (Currency - Singapore dollars) BALANCE ShEET 2014 $’000 2013 $’000 372,275 112,750 378 205,335 – 13 973 18,028 5,650 1,196 716,598 330,063 110,972 349 213,942 – 58 2,679 8,898 5,420 9,208 681,589 673,177 359,991 27,726 134,505 61 6,872 609 284,226 1,487,167 673,322 265,431 21,062 189,853 63 15,032 4,252 251,846 1,420,861 2,203,765 2,102,450 247,876 468,553 119,872 1,848 60,199 30,907 153 148 29,820 – 5,687 965,063 244,284 413,309 100,138 3,941 46,857 39,687 123 138 46,639 231 2,821 898,168 522,104 522,693 ASSETS Non-current assets Property, plant and equipment Associates and joint ventures Investments Intangible assets Investment property Long-term receivables, non-current Finance lease receivables, non-current Deferred tax assets Amounts due from related parties, non-current Derivative financial instruments, non-current Current assets Inventories and work-in-progress Trade receivables Amounts due from related parties, current Advances and other receivables Long-term receivables, current Finance lease receivables, current Derivative financial instruments, current Bank balances and other liquid funds TOTAL ASSETS EqUITY AND LIABILITIES Current liabilities Advance payments from customers, current Trade payables and accruals Amounts due to related parties, current Progress billings in excess of work-in-progress Provisions Provision for taxation Lease obligations, current Long-term loans, current Short-term bank loans Short-term loan from non-controlling interests Derivative financial instruments, current NET CURRENT ASSETS 281 ANNUAL REPORT 2014 SECTORAL FINANCIAL REVIEW – LAND SYSTEMS 31 December 2014 (Currency - Singapore dollars) balance sheet (continueD) 2014 $’000 2013 $’000 478,074 2,455 356,810 107 441 6,605 50,588 63,041 8,142 966,263 446,187 14,377 295,275 195 564 6,336 55,032 58,316 4,690 880,972 1,931,326 1,779,140 NET ASSETS 272,439 323,310 Share capital and reserves Non-controlling interests 223,060 49,379 272,439 265,486 57,824 323,310 2,203,765 2,102,450 Non-current liabilities Advance payments from customers, non-current Trade payables and accruals, non-current Amounts due to related parties, non-current Lease obligations, non-current Long-term loans, non-current Long-term bank loan Deferred income Deferred tax liabilities Derivative financial instruments, non-current TOTAL LIABILITIES TOTAL EqUITY AND LIABILITIES 282 ST ENGINEERING / ABOVE & BEYOND SECTORAL FINANCIAL REVIEW – LAND SYSTEMS 31 December 2014 (Currency - Singapore dollars) STATEMENT OF CASh FLOWS 2014 $’000 2013 $’000 Net cash from operating activities 122,107 145,577 Cash flows used in investing activities Proceeds from sale of property, plant and equipment Proceeds from sale of an investment property Proceeds from disposal of a subsidiary Proceeds from disposal of quoted equity investment Proceeds from disposal of a joint venture Short-term loan to joint venture Repayment of short-term loan by joint ventures Dividends from associates Purchase of property, plant and equipment Purchase of intangible assets Acquisition of a subsidiary and business, net of cash acquired Acquisition of a non-controlling interests in subsidiary (43,601) 1,834 22,000 2 1 3,280 – 3,887 9,418 (83,829) – – (194) (66,522) 841 – – 82 – (3,136) – 7,440 (59,892) (1,980) (9,877) – Cash flows used in financing activities Interest paid Repayment of short-term related party loans Proceeds from short-term related party loans Repayment of short-term immediate holding company loans Proceeds from long-term immediate holding company loans Repayment of long-term immediate holding company loans Repayment of long-term related party loans Repayment of long-term loans Repayment of short-term loans Proceeds from long-term bank loan Proceeds from short-term bank loans Repayment of short-term bank loans Dividends paid to shareholder Dividends paid to non-controlling interests Capital contribution from non-controlling interests Deposits discharged (47,095) (10,190) (7,865) 20,000 (47,000) 50,000 – – – (369) – 28,847 (45,709) (31,800) (5,666) 2,596 61 (73,587) (10,587) (3,669) 8,152 (21,272) – (6,851) (2,976) (335) – 2,616 10,895 (4,391) (48,800) (5,365) 7,116 1,880 Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Exchange difference on cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year 31,411 244,309 1,030 276,750 5,468 237,969 872 244,309 283 ANNUAL REPORT 2014 SECTORAL FINANCIAL REVIEW – LAND SYSTEMS 31 December 2014 (Currency - Singapore dollars) FINANCIAL hIGhLIGhTS 2014 $’000 2013 $’000 2012 $’000 2011 $’000 2010 $’000 1,405,132 1,485,219 1,525,341 1,506,465 1,518,406 76,780 38,727 56,201 50,323 129,555 90,472 111,793 91,239 139,979 98,512 113,268 88,160 136,836 100,250 108,073 83,818 140,750 111,341 113,949 90,255 Balance Sheet Property, plant and equipment and investment property Intangible and other assets Inventories and work-in-progress Trade receivables, deposits and prepayment Bank balances and other liquid funds 372,275 338,296 673,177 535,791 284,226 330,063 347,621 673,322 499,598 251,846 311,761 324,702 669,198 504,660 247,386 307,314 341,267 541,886 527,333 151,452 288,408 350,563 496,561 484,191 254,066 Current liabilities Non-current liabilities 965,063 966,263 898,168 880,972 971,044 936,491 979,820 734,291 1,081,625 651,357 Share capital Capital and other reserves Retained earnings Non-controlling interests 194,445 8,655 19,960 49,379 194,445 18,204 52,837 57,824 44,445 (13,842) 67,628 51,941 44,445 (6,478) 67,606 49,568 44,445 (14,916) 66,638 44,640 9.57 51.80 3.2 13.6 2.1 5.2 17.35 61.47 6.2 22.2 4.4 11.6 73.12 124.56 5.9 36.1 4.4 14.1 69.52 128.68 6.0 33.3 4.8 12.2 74.86 116.79 6.4 37.3 5.2 13.5 6,738 208,538 7,469 342,860 0.24 6,998 212,235 13,038 340,675 0.23 6,968 218,907 12,652 339,518 0.22 6,872 219,218 12,197 318,485 0.21 6,574 230,971 13,729 313,406 0.21 61,162 6.4 8,740 72,381 8.8 10,388 55,121 6.3 8,021 63,686 7.8 9,688 483,896 71,816 1.41 517,685 73,976 1.52 532,146 76,370 1.57 487,530 70,944 1.53 466,122 70,904 1.49 0.67 0.34 0.80 0.35 0.88 0.35 0.83 0.32 0.83 0.31 Income Statement Revenue Profit EBITDA EBIT PBT Net Profit Financial Indicators Earnings per share (cents) Net assets value per share (cents) Return on sales (%) Return on equity (%) Return on total assets (%) Return on capital employed (%) Productivity Data Average staff strength (numbers) Revenue per employee ($) Net profit per employee ($) Employment costs Employment costs per $ of revenue ($) Economic Value Added Economic Value Added spread (%) Economic Value Added per employee ($) Value added Value added per employee ($) Value added per $ of employment costs ($) Value added per $ of gross property, plant and equipment ($) Value added per $ of revenue ($) 4,963 (0.4) 737 284 ST ENGINEERING / ABOVE & BEYOND SECTORAL FINANCIAL REVIEW – MARINE 31 December 2014 (Currency - Singapore dollars) INCOME STATEMENT 2014 $’000 Revenue Cost of sales Gross profit Distribution and selling expenses Administrative expenses Other operating expenses Profit from operations Other income Other expenses Other income, net Finance income Finance costs Finance income, net 2013 $’000 1,341,951 (1,187,968) 153,983 1,238,847 (1,050,705) 188,142 (8,906) (33,150) (11,092) 100,835 (6,699) (35,302) (11,662) 134,479 12,115 (37) 12,078 6,047 (43) 6,004 3,931 – 3,931 37,038 (33,284) 3,754 Share of results of joint ventures, net of tax Profit before taxation 5,936 122,780 2,073 146,310 Taxation Profit for the year (14,695) 108,085 (36,325) 109,985 108,086 (1) 108,085 109,955 30 109,985 Attributable to: Shareholder of the Company Non-controlling interests 285 ANNUAL REPORT 2014 SECTORAL FINANCIAL REVIEW – MARINE 31 December 2014 (Currency - Singapore dollars) BALANCE ShEET 2014 $’000 2013 $’000 334,075 8,159 94 1,001 19,021 12,806 605 375,761 324,043 3,223 355 194 16,072 4,806 27,899 376,592 110,445 117,296 123,776 5,252 157,683 15 224,027 738,494 112,178 119,858 21,403 28,071 149,612 44 333,058 764,224 1,114,255 1,140,816 289,949 256,322 2,900 51,491 241,197 14,456 856,315 305,632 265,242 3,462 42,001 210,479 19,823 846,639 (117,821) (82,415) 650 29,670 39,606 2,799 26,343 99,068 – 34,636 26,080 16,621 26,343 103,680 TOTAL LIABILITIES 955,383 950,319 NET ASSETS 158,872 190,497 Share capital and reserves Non-controlling interests 158,834 38 158,872 190,459 38 190,497 1,114,255 1,140,816 ASSETS Non-current assets Property, plant and equipment Joint ventures Intangible assets Long-term receivables, non-current Deferred tax assets Amounts due from related parties, non-current Derivative financial instruments, non-current Current assets Inventories and work-in-progress Trade receivables Amounts due from related parties, current Other receivables, deposits and prepayments Advance payments to suppliers Long-term receivables, current Bank balances and other liquid funds TOTAL ASSETS EqUITY AND LIABILITIES Current liabilities Advance payments from customers, current Trade payables and accruals, current Amounts due to related parties, current Provisions Progress billings in excess of work-in-progress Provision for taxation NET CURRENT LIABILITIES Non-current liabilities Advance payments from customers, non-current Trade payables and accruals, non-current Deferred income Derivative financial instruments, non-current Amounts due to related parties, non-current TOTAL EqUITY AND LIABILITIES 286 ST ENGINEERING / ABOVE & BEYOND SECTORAL FINANCIAL REVIEW – MARINE 31 December 2014 (Currency - Singapore dollars) STATEMENT OF CASh FLOWS 2014 $’000 2013 $’000 Net cash from operating activities 112,462 227,625 Net cash used in investing activities Proceeds from disposal of property, plant and equipment Proceeds from insurance settlement Proceeds from disposal of investments Purchase of property, plant and equipment Dividends from joint ventures (15,064) 39 5,220 – (21,323) 1,000 (38,082) 43 – 253 (39,790) 1,412 Net cash used in financing activities Repayment of related corporation loans Repayment of short-term bank loan Proceeds from related corporation loans Proceeds from short-term bank loan Loans to related corporation Repayment of loan by a related corporation Dividends paid to shareholders Interest paid (209,460) – – – – (115,494) 19,814 (113,780) – (79,598) (14,653) (6,194) 14,624 6,373 – – (79,684) (64) Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Exchange difference on cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year (112,062) 333,058 3,031 224,027 109,945 221,190 1,923 333,058 287 ANNUAL REPORT 2014 SECTORAL FINANCIAL REVIEW – MARINE 31 December 2014 (Currency - Singapore dollars) FINANCIAL hIGhLIGhTS 2014 $’000 2013 $’000 2012 $’000 2011 $’000 2010 $’000 1,341,951 1,238,847 1,011,092 877,204 1,044,850 127,933 100,835 122,780 108,086 152,993 134,479 146,310 109,955 136,565 122,226 127,582 95,013 123,152 110,522 121,617 91,465 119,946 109,389 117,666 89,057 334,075 28,776 110,445 416,932 324,043 70,050 112,178 301,487 151,322 38,058 280,740 196,915 118,578 35,214 236,426 233,480 112,313 36,702 154,194 263,015 224,027 333,058 221,442 139,889 167,239 Current liabilities Non-current liabilities 856,315 99,068 846,639 103,680 624,457 139,636 574,776 73,563 597,995 43,022 Share capital Capital and other reserves Retained earnings Non-controlling interests 50,856 2,494 105,484 38 50,856 28,425 111,178 38 55.27 81.24 8.1 58.4 9.7 42.9 Income Statement Revenue Profit EBITDA EBIT PBT Net Profit Balance Sheet Property, plant and equipment Intangible and other assets Inventories and work-in-progress Trade receivables, deposits and prepayment Bank balances and other liquid funds and short-term investments Financial Indicators Earnings per share (cents) Net assets value per share (cents) Return on sales (%) Return on equity (%) Return on total assets (%) Return on capital employed (%) Productivity Data Average staff strength (numbers) Revenue per employee ($) Net profit per employee ($) Employment costs Employment costs per $ of revenue ($) Economic Value Added Economic Value Added spread (%) Economic Value Added per employee ($) Value added Value added per employee ($) Value added per $ of employment costs ($) Value added per $ of gross property, plant and equipment ($) Value added per $ of revenue ($) 50,856 (6,920) 80,907 (459) 50,856 2,369 62,137 (114) 50,856 (1,146) 42,745 (9) 56.22 97.41 8.9 50.7 9.6 63.3 48.58 63.60 9.4 62.8 10.7 74.1 46.77 58.93 10.4 64.5 12.0 50.2 45.54 47.27 8.5 75.0 12.1 44.7 1,884 712,288 57,370 180,390 0.13 1,871 662,131 58,768 197,545 0.16 1,834 551,304 51,806 186,990 0.18 1,850 474,164 49,441 174,248 0.20 1,856 562,958 47,983 179,228 0.17 93,593 37.3 49,678 114,848 58.2 61,383 91,402 68.8 49,838 81,042 44.3 43,806 71,095 39.0 38,305 336,164 178,431 1.86 366,414 195,839 1.85 332,510 181,303 1.78 308,606 166,814 1.77 307,242 165,540 1.71 0.49 0.25 0.56 0.30 0.77 0.33 0.79 0.35 0.83 0.29 288 ST ENGINEERING / ABOVE & BEYOND S h a r e h o l d i n g S tat i S t i c S As at 2 March 2015 ShARE CAPITAL Paid-Up Capital (including treasury shares) Number of issued ordinary shares (excluding treasury shares) Number of ordinary shares held in treasury Percentage of such holding against the total number of issued ordinary shares (excluding ordinary shares held in treasury) Class of Shares : : : : $894,282,405.723 3,108,513,160 13,481,700 0.4337% : Voting Rights : Ordinary Shares One Special Share held by the Minister for Finance One vote per share (excluding shares held in treasury) ShAREhOLDING hELD IN hANDS OF PUBLIC Based on the information available to the Company as at 2 March 2015, 38.8552% of the issued ordinary shares of the Company is held by the public and therefore, Rule 723 of the Listing Manual issued by SGX-ST is complied with. ANALYSIS OF ShAREhOLDINGS Range of Shareholdings 1 --99 100 --1,000 1,001 --10,000 10,001 --1,000,000 1,000,001 AND ABOVE Substantial Shareholders Temasek Holdings (Private) Limited Aberdeen Asset Management PLC Aberdeen Asset Management Asia Limited No. of Shareholders % 736 4,518 23,234 6,181 36 34,705 2.12 13.02 66.95 17.81 0.10 100.00 Direct Interest 1,554,764,574 – – No. of Shares (excluding treasury shares) % 12,191 3,895,416 106,483,342 238,333,273 2,759,788,938 3,108,513,160 No. of Shares Deemed Interest 40,066,552 299,319,771 (2) 283,470,271 (3) (1) 0.00 0.12 3.43 7.67 88.78 100.00 Total Interest %* 1,594,831,126 299,319,771 283,470,271 51.305 9.62903 9.11915 Notes: (1) Temasek Holdings (Private) Limited is deemed to have an interest in the following shares held by:Name of Company No. of Shares DBS Group Holdings Ltd Keppel Corporation Limited ST Asset Management Ltd. Vestal Investments Pte. Ltd. 9,181,552 2,302,000 82,000 28,501,000 (2) Includes interests held by Aberdeen Asset Management PLC and its subsidiaries, including Aberdeen Asset Management Asia Limited. (3) Details of their deemed interests are not available. * The percentage of issued ordinary shares is calculated based on the number of issued ordinary shares of the Company (excluding ordinary shares held in treasury) as at 2 March 2015. 289 ANNUAL REPORT 2014 S h a r e h o l d i n g S tat i S t i c S As at 2 March 2015 major shareholDers list – toP 20 No. Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Temasek Holdings (Private) Limited DBS Nominees (Private) Limited Citibank Nominees Singapore Pte Ltd DBSN Services Pte. Ltd. BNP Paribas Securities Services United Overseas Bank Nominees (Private) Limited HSBC (Singapore) Nominees Pte Ltd Raffles Nominees (Pte.) Limited Vestal Investments Pte. Ltd. Lee Pineapple Company (Pte) Limited DB Nominees (Singapore) Pte Ltd OCBC Securities Private Limited OCBC Nominees Singapore Private Limited DBS Vickers Securities (Singapore) Pte Ltd Bank Of Singapore Nominees Pte. Ltd. Lee Seng Tee Tan Pheng Hock Phillip Securities Pte Ltd Mrs Lee Li Ming Nee Ong KI Investments (HK) Limited * No. of Shares 1,554,764,574 363,097,510 231,441,815 177,375,912 154,106,602 66,527,495 64,187,291 29,470,461 28,501,000 15,000,000 8,183,240 6,388,852 6,365,298 5,874,322 5,846,028 5,750,000 4,322,603 4,036,236 3,500,000 2,302,000 2,737,041,239 %* 50.02 11.68 7.45 5.71 4.96 2.14 2.06 0.95 0.92 0.48 0.26 0.21 0.20 0.19 0.19 0.18 0.14 0.13 0.11 0.07 88.05 The percentage of issued ordinary shares is calculated based on the number of issued ordinary shares of the Company (excluding ordinary shares held in treasury) as at 2 March 2015. ANNUAL REPORT 2014 C O N TA C T I N F O R M AT I O N SINGAPORE TECHNOLOGIES ENGINEERING LTD (ST Engineering) ST Engineering Hub 1 Ang Mo Kio Electronics Park Road #07-01 Singapore 567710 Tel: (65) 6722 1818 Fax: (65) 6720 2293 Email: [email protected] Website: www.stengg.com SINGAPORE TECHNOLOGIES AEROSPACE LTD (ST Aerospace) 540 Airport Road Paya Lebar Singapore 539938 Tel: (65) 6287 1111 Fax: (65) 6280 8213 Email: [email protected] Website: www.staero.aero SINGAPORE TECHNOLOGIES ELECTRONICS LIMITED (ST Electronics) 24 Ang Mo Kio Street 65 Singapore 569061 Tel: (65) 6481 8888 Fax: (65) 6482 1079 Email: [email protected] Website: www.stee.stengg.com SINGAPORE TECHNOLOGIES KINETICS LTD (ST Kinetics) 249 Jalan Boon Lay Singapore 619523 Tel: (65) 6265 1066 Fax: (65) 6261 6932 Email: [email protected] Website: www.stengg.com SINGAPORE TECHNOLOGIES DYNAMICS PTE LTD (ST Dynamics) 249 Jalan Boon Lay Singapore 619523 Tel : (65) 6660 7060 Fax : (65) 6261 6566 Email: [email protected] ST SYNTHESIS PTE LTD 12 Tai Seng Street #06-02 Luxasia Building Singapore 534118 Tel: (65) 6861 6566 Fax: (65) 6861 6676 Email: puahls@stengg,com VISION TECHNOLOGIES SYSTEMS, INC. (VT Systems) 99 Canal Center Plaza Suite 220 Alexandria Virginia 22314 United States of America Tel: (1) 703 739 2610 Fax: (1) 703 739 2611 Email: [email protected] SINGAPORE TECHNOLOGIES ENGINEERING (EUROPE) LTD Marquis House 68 Jermyn Street London SW1Y 6NY United Kingdom Tel: (44) 20 7930 8989 Fax: (44) 20 7930 7828 Email: [email protected] SINGAPORE TECHNOLOGIES MARINE LTD (ST Marine) 16 Benoi Road Singapore 629889 Tel : (65) 6861 2244 Fax : (65) 6861 3028 Email : [email protected] Website: www.stengg.com This annual report has been certified by the Forest Stewardship Council as an example of environmentally responsible forestry print production. From the forest, to the paper mill and printer, each step of this annual report’s production is certified according to FSC standards. SINGAPORE TECHNOLOGIES ENGINEERING LTD ST Engineering Hub 1 Ang Mo Kio Electronics Park Road, #07-01 Singapore 567710 Tel : (65) 6722 1818 Fax : (65) 6720 2293 (Regn. No.: 199706274H) www.stengg.com