Singapore Technologies Engineering (ST Engineering), the technology, defence and engineering conglomerate, saw earnings for 1H20 ended June fall 4% to $257.4 million from the $269.3 million posted last year.

The lower net profit was due to project losses from the group’s US shipbuilding business, the impairment of intangible assets, receivables, and fair value changes as the business outlook for some lines of business was forecasted to be poorer as a result of Covid-19. The lower sums were partially mitigated by cost reduction initiatives and government support, which provides a 10-month wage subsidy for 2020.

Thus, ST Engineering logged lower earnings per share (EPS) of 8.26 cents for the 1H20, down 4% from the 8.63 cents in 1H19.

Group revenue for the half-year period was up 2% y-o-y to $3.57 billion mainly driven by the performance and acquisitions by the Marine, Aerospace and Electronics sectors. However, this was largely offset by the reduction in customer demand, supply chain challenges, and workforce disruption arising from Covid-19, which eventually led to the lower gross profit and earnings y-o-y.

Excluding the effects of the acquisitions, revenue would have been 7% lower than that posted in 1H19.

Earnings before interest and tax (EBIT) fell 3% y-o-y to $299.2 million. while other income dropped 12% y-o-y to $6.6 million.

The lower other income was mainly due to the biennial Singapore Airshow expenses and impairment losses on trade receivables and contract assets.

Finance costs registered a 257% increase y-o-y in 1H20 to $33.1 million due mainly to higher interest expense incurred on acquisition of MRAS and iDirect Europe, unfavourable net fair value changes of associates in the Corporate Venture Funds, unfavourable foreign exchange rate movements and lower interests income in the falling interest rate environment in the same period.

As a result, profit before tax fell 13% y-o-y to $286.4 million.

Segmentally, revenue for the Aerospace sector was up 1% y-o-y to $1.47 billion largely due to a full six months contribution from MRA Systems (MRAS) compared to two-and-a-half months of contribution the year before.

Excluding MRAS, 1H20 revenue for the sector would have dropped 17% y-o-y.

Net profit for the Aerospace sector fell 17% y-o-y to $105 million due to lower volume of work and reduced MRO activities.

The Electronics sector saw a 2% y-o-y dip in revenue to $1.07 billion largely due to delays in project milestones, delivery schedules, and lower revenue recognition from communication projects. The dip was partly offset by revenue contribution from iDirect Europe (formerly Newtec).

Its net profit grew 7% y-o-y to $87.6 million, buffered by government support and a stronger cybersecurity business.

Land Systems revenue was down 4% y-o-y to $644 million on lower sales from US Specialty Vehicle and MAN bus businesses. Net profit for the sector was up 17% y-o-y to $41.8 million aided by government support and lower operating expenses.

Marine Revenue was up 34% y-o-y to $385 million, although it saw lower net profit of $21.4 million, down 19% y-o-y, due to weaker US shipbuilding performance.

For 1H20, commercial sales and defence sales accounted for $2.4billion and $1.2billion respectively of the group’s revenue.

ST Engineering’s Aerospace and Electronics sectors secured new contracts of some $1.1 billion in 2Q20, bringing total contract wins in the first half for these two sectors to $2.7 billion.

The group says it expects to deliver about $3.2 billion from the order book for the rest of 2020.

For 1H20, the board has approved an interim dividend of 5 cents per share, which will be paid out to shareholders on September 2.

As at end June, cash and cash equivalents stood at $342 million.

Vincent Chong, president and CEO of ST Engineering says the group is maintaining its guidance for FY20 revenue to come in between 5-15% lower than 1H19.

“We are cognisant of the ‘tail wind’ afforded us through the various government support schemes (especially the Singapore government’s JSS) for 2020. We do not expect such support beyond this year. We are working to position the Group to come out of the pandemic stronger and more competitive,” he says.

“This means focusing on cost reduction, productivity and talent acquisition, organising for growth and serving our customers better. We are also alert to opportunities that have emerged or been accentuated as a result of COVID-19. We are well positioned to benefit from areas like Passenger-to-Freighter conversion and smart city solutions, including safe access control management,” he adds.

Shares in ST Engineering closed flat at $3.27 on August 13.