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									Contents of Operating Financial Review

55   Group History and Overview
56   Group Vision, Mission and Strategies
57   Performance of the Group
     Sector Overview
60      Aerospace Sector
66      Electronics Sector
74      Land Systems Sector
81      Marine Sector
     Dynamics and Risk Factors of the Business
86      Industry Review
88      Risk Management
91      Sensitivity Analysis
91   Shareholder Returns
93   Financial Review
95   Accounting Policies
96   Prospects for 2006
Operating Financial Review

                             Group History and Overview
                             ST Engineering was formed in December 1997 through the merger
                             of four public listed companies – ST Aerospace, ST Electronics,
                             ST Automotive (now known as ST Kinetics) and ST Marine – within
                             the then Singapore Technologies Group. In early 2000, the Group
                             acquired the Chartered Industries of Singapore group of companies
                             and merged it with ST Automotive to form ST Kinetics.

                             A leading player in its respective industry, each of these entities
                             has over 30 years of operating history. The merger led to the
                             creation of an integrated defence and engineering group with a
                             comprehensive suite of capabilities, systems and products to meet
                             the needs of global customers.

                             Headquartered in Singapore, ST Engineering today has a staff
                             strength of about 15,000, mostly located in Singapore and the US.
                             It has also established a strong presence in many other parts

                                                                                                   Singapore Technologies Engineering Ltd
                             of the world, offering a comprehensive range of services and
                             products through its four sectors, namely Aerospace, Electronics,
                             Land Systems and Marine.

                                                                                                   Annual Report 2005

                                                                                                   Operating Financial
                                         Operating Financial Review

                                         Group's Vision, Mission and Strategies

                                                                                                    Group Vision
                                                                                      To be a global defence and engineering group

                                                                                                   Group Mission
                                                                              To bring value to its customers and partners by delivering total
                                                                                         integrated quality solutions and support

                                                                      Innovation    Continual Improvement                Cost Effective Solutions
                                                                                       Customer centric processes
                                                                                       Strong design and development capabilities
                                                                                       Quality systems, products and services
                                                                                       Utilise dual use technologies
                                                                                       Competitive niches

                                                                                                                                                    Key Performance Indicators
                                                                                                                                                     Innovative products and services
                                                                                                                                                     Sales and profit growth
                                                                                                      Strategies                                     Growth in Economic Value Added
Singapore Technologies Engineering Ltd

                                                                                                                                                     Achieve high return on equity
                                                                                           Enhance business and strategic capabilities
                                                                                                                                                     Develop or acquire new capabilities
                                                                                           Build global networks
                                                                                           Strengthen business partnerships
                                                                                           Sustain business excellence
Annual Report 2005

Operating Financial
Operating Financial Review

Performance of the Group
Half Yearly Performance

The Group’s turnover for 2H2005 increased by 18% or $278m                      Half Yearly Turnover                    Half Yearly Profit Before Tax
compared to the first half. All sectors reported higher turnover in
the second half vis-à-vis the first half.                                         $m                                    $m



                                                                               1,800                                   300
The Group’s Profit Before Tax (PBT) for 2H2005 increased by 6%                  1,500                                   250
or $14.2m over the first half. Higher PBT was recorded by the
                                                                               1,200                                   200
Aerospace, Electronics and Marine sectors, but these were largely
                                                                                900                                    150
offset by lower PBT in the Land Systems sector.                                                                  2005                                       2005
                                                                                600                                    100
                                                                                300                                    50
                                 2005                2004 (Restated)              0                                      0
In $m Except
Per Share Amounts          1H       2H      FY      1H       2H          FY       2004 1st half year $1,372 m                2004 1st half year $204.6 m
Turnover                 1,530    1,808   3,338   1,372    1,576       2,948      2004 2nd half year $1,576 m                2004 2nd half year $241.6 m
                                                                                  2005 1st half year $1,530 m                2005 1st half year $244.5 m

                                                                                                                                                                  Singapore Technologies Engineering Ltd
EBITDA                   216.0    254.1   470.1   188.8    226.5       415.3
                                                                                  2005 2nd half year $1,808 m                2005 2nd half year $258.7 m
EBIT                     176.9    212.6   389.5   150.2    186.6       336.8
Profit before tax        244.5    258.7   503.2   204.6    241.6       446.2
Profit after tax after

                                                                                                                                                                  Annual Report 2005
minority interests       189.4    206.9   396.3   158.0    196.2       354.2
Basic earnings
per share (cents)          6.5      7.1    13.6     5.5      6.8        12.3
Net asset value
per share (cents)         43.4     51.2    51.2    40.3     47.0        47.0

                                                                                                                                                                  Operating Financial
                                         Full Year Performance                                                  Turnover By Sector                   Profit Before Tax By Sector               Earnings Per Share

                                         Turnover                                                                                                                                              cents
                                         The Group’s turnover of $3,338m for FY2005 was higher than that                                                                                         15

                                         of FY2004 by 13% or $390m. All sectors reported higher turnover.                                                                                        12                            02
                                                                                                                          FY2005                               FY2005                              9                                   3
                                         Profit                                                                                                                                                                                     200
                                         Group PBT for FY2005 of $503.2m was higher than that achieved                                                                                             6
                                         in FY2004 by 13% or $57.0m. All sectors recorded higher PBT,                                                                                                                                 2004
                                         except Land Systems sector. The higher PBT for “Others” was
                                         mainly attributable to income from the settlement of a legal suit                                                                                         0                                      2005
                                         received by a US subsidiary, Miltope.                                    Aerospace 37%      Marine 20%        Aerospace 51%         Marine 17%
                                                                                                                                                                                                 2001 11.92 cents         2004 12.26 cents
                                                                                                                  Electronics 21%    Others 4%         Electronics 15%       Others 4%
                                                                                                                                                                                                 2002 11.47cents          2005 13.64 cents
                                         Earnings Per Share (EPS)                                                 Land Systems 18%                     Land Systems 13%
                                                                                                                                                                                                 2003 11.29 cents
                                         The Group’s basic and diluted EPS for FY2005 were 13.64 cents
                                         and 13.54 cents respectively (FY2004: 12.26 cents and 12.23 cents
                                         respectively). The higher EPS was a result of higher profit after tax    Growing Presence in the US
                                         for FY2005.                                                             Recognising the importance of the US market,             In 2005, VT Systems was instrumental in the acqui-
                                                                                                                 ST Engineering established a US headquarters in          sition of iDirect for the Group’s electronics business
Singapore Technologies Engineering Ltd

                                                                                                                 Virginia, near the nation’s capital in 2001. Called      and of Specialized Vehicles Corporation for the
                                         Economic Value Added (EVA)                                              Vision Technologies Systems (VT Systems), its            Group’s specialty vehicles business. In the com-
                                         The Group’s EVA for FY2005 was $290.6m, an increase of 24% or           mission is to grow the Group’s business in the           ing months, VT Systems will focus on the integra-
                                         $56.1m over FY2004. The Weighted Average Cost of Capital was            Americas through mergers, acquisitions, invest-          tion of the two new entities, which will collectively
                                                                                                                 ments, joint ventures and alliances as well as pur-      add 1,000 employees, bringing the Group’s US staff
Annual Report 2005

                                         6.1% for 2005 (2004: 7.4%).                                             suing projects.                                          strength to about 3,500.

                                                                                                                 Today, VT Systems oversees the Group’s many busi-        VT Systems will continue spearheading the Group’s
                                                                                                                 nesses in Canada, Mexico and the US in each of the       long term business strategy in the US by facilitating
                                                                                                                 four sectors: Aerospace, Electronics, Land Systems       further acquisitions in the four sectors, actively
          58                                                                                                     and Marine.                                              seeking partnerships and collaborations, pursuing
                                                                                                                                                                          projects as well as nurturing organic growth.
Operating Financial
  FY2005 EVA Contribution                         Capital Expenditure                  FY2005 Deployment                        FY2004 Deployment
  By Sector                                                                            Of Assets                                Of Assets                                Expanding Businesses
                                                                                                                                                                         in China
 %                                                $m
                                                               $123m                                                                                                     In China, ST Engineering Group
 70           60%                                 140                                                                                                                    is active in the Aerospace,
                                                                                                                                                                         Electronics and Land Systems
 60                                               120                                                                                                                    sectors. It plans to further expand
                                                                                                  FY2005                                  FY2004
                                                                                $84m                                                                                     its businesses there, possibly
 50                                               100
                                                                                                                                                                         into the Marine sector.
 40                                                80
                                                                                                                                                                         With 2,500 staff in China, the
 30                                17%             60                                                                                                                    Group’s key operations comprise
                          12%                                                                                                                                            an aircraft MRO facility in Shang-
 20                                                40
                                                                                         Bank Balance & Other Liquid Funds 7%    Bank Balance & Other Liquid Funds 14%   hai; an IT software development
 10                                                20                                    Funds under Management 7%               Funds under Management 6%               centre in Shenzhen and an IT R&D
                                                                                          Debtors, Deposits & Prepayments 40%     Debtors, Deposits & Prepayments 41%    centre in Shanghai; automotive
  0                                                 0                                                                                                                    maintenance centres in Guang-
                                                        2005            2004              Stocks & WIP 18%                        Stocks & WIP 17%
                                    (5%)                                                                                                                                 zhou and Hangzhou; and JVs in
(10)                                                                                     Deferred Tax Assets 2%                  Deferred Tax Assets 2%
                                                                                         Intangible Assets 8%                    Intangible Assets 1%                    Beijing and Guiyang to produce
                                                                                         Associated Companies &                  Associated Companies &                  specialty vehicles for the con-

                                                                                                                                                                                                               Singapore Technologies Engineering Ltd
       Aerospace     Electronics         Land Systems   Marine         Others            Investments 8%                          Investments 8%                          struction and mining industries.
                                                                                         Fixed Assets 10%                        Fixed Assets 10%
                                                                                                                                 Others 1%                               The Group also has represen-
 Capital Expenditure                                                                                                                                                     tative offices in Beijing, Chengdu,

                                                                                                                                                                                                               Annual Report 2005
 The Group incurred capital expenditure of $123.3m in FY2005.                                                                                                            Guangzhou, Hong Kong, Shang-
 The addition of a new hangar and related equipment, and engines                       Total Assets                                                                      hai and Shenzhen.
 by the Aerospace sector as well as the construction of launch-                        As at end December 2005, total assets of the Group amounted to
 ways by the Marine sector contributed to the bulk of the capital                      $4.57b compared to $4.04b as at end December 2004. The deploy-
 expenditure for the year. The details are shown in note no. 8 to the                  ment of assets is stated above.                                                                                                   59
 Financial Statements.

                                                                                                                                                                                                               Operating Financial
Singapore Technologies Engineering Ltd

                                         Changing the way we travel
Annual Report 2005

                                         Innovation is propelling us into the future, from jet speed to
                                         hypersonic speed. Supersonic combustion scramjets are airbreathing
                                         engines that can power hypersonic flight, and this scramjet technology
                                         is applicable to hypersonic airplanes and missiles and reusable
          60                             single-or two-stage-to-orbit launch vehicles.
Operating Financial
Operating Financial Review | Aerospace

Creating value for customers
with Total Aviation Support

ST Aerospace provides total support services
to its customers, especially LCCs, under its
Total Aviation Support programme.
The Group’s aerospace arm, ST Aerospace, started in 1975 as the
maintenance depot of the Republic of Singapore Air Force (RSAF).
Today, ST Aerospace is a leading third party provider of Mainte-
nance, Repair and Overhaul (MRO) services for a wide range of
military and commercial aircraft. It was ranked the world’s largest
airframe MRO service provider in independent surveys by Over-
haul & Maintenance magazine in 2003 and 2005 with an annual
commercial airframe capacity of more than six million manhours.

Headquartered in Singapore, with operations located in Asia Pacific,
Europe and the US, ST Aerospace is capable of supporting engines,
components, engineering and materials services requirements for
its worldwide and diverse customer base. This includes some of

                                                                      Singapore Technologies Engineering Ltd
the world’s largest passenger and freight airlines, as well as low
cost carriers (LCC). ST Aerospace provides total support services
to its customers, especially LCCs, under its Total Aviation Support

                                                                      Annual Report 2005
programme. It is also the strategic partner of the RSAF and
provides support to its operations in Singapore and overseas.

Maintaining its mission of ‘Keeping Aircraft Flying Safely’,
ST Aerospace ensures its operations conform to the exacting stan-               61

                                                                      Operating Financial
dards of its quality system and safety standards. The ST Aerospace
                                                                                    Shanghai Technologies Aerospace Company (STARCO)
                                                                                    in Shanghai began operations as the group’s latest facility
                                                                                    for commercial airframe MRO in the first week of the year.

                                         (previous page) ST Aerospace, a leading    quality system is regularly audited and approved by major airwor-       and it added new customers, both large and small. It secured more
                                         third party provider of airframe, engine   thiness authorities such as the Civil Aviation Authority of China,      work with key customers such as FedEx, UPS, Japan Airlines,
                                         and components MRO, offers aerospace
                                         maintenance and engineering solutions      the European Joint Aviation Authority, the Japan Civil Aviation         ANA, Northwest Airlines and others, including the increasing
                                         for a spectrum of military and com-        Bureau, the Singapore Civil Aviation Authority, the UK Civil            number of China’s emerging airlines and LCCs in Indonesia and
                                         mercial aircraft                           Aviation Authority and the US Federal Aviation Administration,          Singapore. This further affirmed the company’s positioning as a
                                                                                    as well as by all its customers.                                        global service provider.

                                                                                    ST Aerospace is organised into three business groups:                   Building upon its capability for line maintenance, the AMM group
                                                                                                                                                            established a fully equipped Maintenance Operations Control centre
                                                                                    Aircraft Maintenance & Modification (AMM)                               at the Singapore Changi Airport to provide round the clock aircraft
                                                                                    In 2005, ST Aerospace’s AMM group continued to perform well.            fleet maintenance services and operations control for a customer’s
                                                                                    ST Aerospace’s subsidiary, ST Aviation Services Co. (SASCO), received   fleet of aircraft.
                                                                                    recognition from Boeing as its Supplier of the Year for the Aero-
                                                                                    space Support category. SASCO is the first company in Singapore to       For military customers, the group continued to extend its services
                                                                                    be given this recognition for its quality output, quick turnaround,     and support. It completed its delivery of 20 UH-1H helicopters to
                                                                                    effective costing and responsive customer service in the MD-11           the Philippine Air Force and it successfully completed the depot
                                                                                    Passenger To Freighter (PTF) aircraft conversion programme.             maintenance of the KC-135 for the RSAF.

                                                                                    The AMM group saw its first B777 induction for heavy mainte-             In spite of the worldwide shortage of skilled labour in the aviation
Singapore Technologies Engineering Ltd

                                                                                    nance and modifications in 2005, when SASCO received All Nippon          industry, ST Aerospace continued to increase its capacity in re-
                                                                                    Airways’ (ANA) B777 aircraft, the first in ANA’s fleet.                   sponse to growing customer demand. It added a new narrow-body
                                                                                                                                                            hangar at its Seletar Airport facility for ST Aerospace Engineering,
Annual Report 2005

                                                                                    Continuing to strengthen its service network, ST Aerospace was          which became operational in March 2005.
                                                                                    inducted as one of the pioneering members of the Airbus MRO
                                                                                    Network, through which ST Aerospace’s global network of facilities      ST Aerospace’s global footprint of facilities includes locations at
                                                                                    provides services to Airbus aircraft operators anywhere in the world.   Changi, Paya Lebar and Seletar airports in Singapore; Stansted
                                                                                                                                                            and Bournemouth in the UK; and Mobile and San Antonio in the
Operating Financial

                                                                                    AMM continued to make headway with its customer programmes              US. A new addition is Shanghai Technologies Aerospace Company
                                                                   The investment in SASC consolidates ST Aerospace’s European
                                                                   components repair and overhaul operations under one roof,
                                                                   adding breadth and depth to ST Aerospace’s capabilities, which in
                                                                   turn strengthen its market position and yield economies of scale.

Limited (STARCO) in Shanghai, which began operations as the        For non-engine components, it added some 600 new repair
group’s latest facility for commercial airframe MRO in the first    capabilities, primarily for pneumatic, hydraulic and electrical com-
week of the year.                                                  ponents (and their sub-assemblies) for commercial and military
                                                                   aircraft. These investments in new capabilities helped the group to
Since its launch, STARCO successfully completed major works on     grow its support for the A320 and B737.
58 aircraft. These included the completion of a heavy check on
China Eastern Airlines’ (CEA) A300 and MD-11 aircraft and an       In 2005, the CERO group boosted its reputation as a centre of
Aircraft On Ground (AOG) recovery of CEA’s A340, which both        excellence when ST Aerospace subsidiary, ST Aerospace Systems
achieved record turnaround time.                                   (STA Systems), received the SAC-SINGLAS accreditation (Singa-
                                                                   pore Accreditation Council – Singapore Laboratory Accreditation
In the span of one year, STARCO enhanced its aircraft ratings      Scheme) for its Calibration & Measurement Services for pressure,
approved by the Civil Aviation Authority of China to include       dimensional metrology, force measurement and electrical calibration.
the A300, A310, A320, A340, MD-11, MD-80 and MD-90.
In 2005, CEA and other airlines in China were customers of         Having established a track record with major customers such as
STARCO. STARCO obtained FAA certification in November.              Aloha Airlines, Adam Sky Connection Airlines (AdamAir), Safair,
                                                                   several Chinese airlines, the Bangladesh Air Force and the Peru
Component/Engine Repair & Overhaul (CERO)                          Air Force through total engine and component support, the CERO
During 2005, the CERO group further developed its repair and       group continues to set up MRO service centres through collabora-
overhaul capabilities for engines and components for the narrow-   tion with major airlines and Original Equipment Manufacturers,

                                                                                                                                          Singapore Technologies Engineering Ltd
body B737CG and B737NG as well as the A320. It also developed      namely Boeing, Liebherr and Parker.
required component capabilities in other narrow-body and wide-
body aircraft types.                                               Engineering & Materials Services (EMS)

                                                                                                                                          Annual Report 2005
                                                                   Maintaining its leadership position in MRO services among LCCs,
In engine support, the group made strides on maintenance           the EMS group renewed contracts with Asian LCCs such as AirA-
capabilities for the CFM56-7B, CFM56-3 and JT8D engines            sia, while gaining new ground with customers such as AdamAir and
that power narrow-body aircraft. It also added the T55 and F100    other startup airlines.
engine types to its military engine repair capability.                                                                                              63

                                                                                                                                          Operating Financial
                                                                                   In China, four emerging airlines contracted with ST Aerospace sub-     Performance of the Aerospace Sector
                                                                                   sidiary, ST Aerospace Supplies (STA Supplies), for Maintenance By
                                                                                   the Hour (MBH™) support for a comprehensive range of compo-            Half Yearly Performance
                                                                                   nents. These new customers include Okay Airways, Spring Airlines,      The turnover of the Aerospace sector in 2H2005 at $665m was
                                                                                   United Eagle Airlines and China United Airlines, which are newly       $95m higher compared to that of 1H2005. All the three busi-
                                                                                   established following the deregulation of China’s airline industry.    ness groups, namely AMM, CERO and EMS, contributed to the
                                                                                                                                                          increased turnover.
                                                                                   Having enhanced its technical support services to civil aircraft
                                                                                   operators, especially LCCs, ST Aerospace is now able to provide        PBT for 2H2005 at $141.1m was $26.9m higher compared to that
                                                                                   a full suite of engineering services in support of commercial          of 1H2005. All the business groups registered higher profits due
                                                                                   airlines, ranging from Maintenance and Reliability Engineering to      to the higher turnover.
                                                                                   Maintenance Planning and Fleet Data Management. Through these
                                                                                   programmes, ST Aerospace adds value to customers by maximising         Full Year Performance
                                                                                   aircraft airworthiness, improving performance reliability and reduc-   Aerospace sector’s FY2005 turnover at $1,236m was higher
                                                                                   ing overall maintenance costs.                                         than that of FY2004 by 11% or $118m. Higher turnover was
                                                                                                                                                          recorded by all three business groups. Higher turnover of the AMM
                                                                                   In 2005, ST Aerospace further enhanced its capabilities at ST          business group was due to higher redeliveries in all the AMM com-
                                                                                   Mobile Aerospace Engineering (MAE) with the introduction of a          panies, while higher sales in the engines division contributed to
Singapore Technologies Engineering Ltd

                                         (top) ST Aerospace completed 12 PTF
                                         conversions for the MD-11 in 2005         customised configuration for the B757 freight conversion. A con-        the increase in turnover in the CERO business group. In the EMS
                                                                                   tract with the Royal New Zealand Air Force was secured in late         business group, the higher turnover mainly came from increased
                                         (middle) ANA placed its first B777 with
                                         ST Aerospace, which also saw its first    2005 and the customer’s aircraft will be inducted in 2006.             components management and maintenance support sales.
Annual Report 2005

                                         induction of this aircraft type in 2005
                                         (bottom) ST Aerospace strengthened        On the military engineering front, ST Aerospace progressed on          Compared to FY2004, Aerospace sector’s FY2005 PBT of $255.4m
                                         its engine repair capabilities for the    development work for its indigenous FanTail and Skyblade II mini       was higher by 9% or $20.0m. Higher PBT was recorded in the AMM
                                         B737 with the commissioning of its
                                         CFM 56-7 capability                       Unmanned Aerial Vehicles (UAV) for use in homeland defence and         and CERO business groups, while the EMS business group had lower
                                                                                   other military applications. In 2005, the engineering and develop-     PBT. The higher PBT in the AMM and CERO business groups was in
Operating Financial

                                                                                   ment arm of ST Aerospace filed more than nine patents.                  line with the higher turnover. In the EMS business group, the lower
                                                                         In China, four emerging airlines contracted with ST Aerospace
                                                                         subsidiary, STA Supplies, for MBH™ support for a comprehensive
                                                                         range of components.

PBT was largely attributable to the absence of contribution from         In the LCC and emerging airline market, ST Aerospace’s MBH™
the Asian Aerospace air show as well as lower investment income.         and Total Aviation Support service offerings continued to attract
                                                                         new customers. Contracts were clinched with the newly estab-
Major Projects                                                           lished airlines in China. ST Aerospace has quickly gained a foothold
Despite increased competition, ST Aerospace maintained a healthy         in the newly established Chinese LCC market. The various con-
order book in 2005, which included PTF aircraft conversions,             tracts, worth a total of about US$51m ($87m), cover components
maintenance activities and engineering programmes.                       management and support for the airlines’ fleets.

ST Aerospace continued to pursue more work within its broad              Exploring new markets in Europe and the Middle East, ST Aero-
customer base of major and regional airlines, as well as seeking         space signed a memorandum of understanding with Turkish
new customers. Major external military projects acquired during          Airlines in June 2005 to study the possibility of establishing a joint
the year included the C-130 depot maintenance programme for              venture partnership to set up an MRO facility in Turkey.
the US Pacific Air Force and avionics development work for foreign
defence forces.                                                          In late 2005, ST Aerospace acquired a 67% stake in SAS Component
                                                                         A/S (SASC) for about €80.4m ($161m). With about 1,100 employ-
In the engineering and PTF conversions segment, ST Aerospace             ees, Copenhagen-based SASC provides components repair services
began development of variants to the B757 PTF, including a new           and material supply to airline operators.
15 pallet configuration, and marketed its 14½ pallet configuration

                                                                                                                                                  Singapore Technologies Engineering Ltd
on an approved Boeing Supplemental Type Certificate. Conver-              The investment in SASC will allow ST Aerospace to expand its
sions for the MD-11 progressed steadily in 2005 and, in addition         presence in Europe. SASC will merge with ST Aerospace’s aircraft
to UPS, additional PTF contracts for customers such as Central Air       components supplier, Airline Rotables Limited. This move will

                                                                                                                                                  Annual Report 2005
Leasing and FedEx Express were added. During the year, the Aero-         consolidate ST Aerospace’s European component repair and over-
space sector completed a further 12 MD-11 aircraft, bringing the         haul operations under one roof, adding breadth and depth to ST
MD-11 PTF aircraft redeliveries at year end to 30, out of its total of   Aerospace’s capabilities, which in turn strengthen its market
48 MD-11 PTF aircraft contracts awarded.                                 position and yield economies of scale.

                                                                                                                                                  Operating Financial
Singapore Technologies Engineering Ltd
Annual Report 2005

                                         Changing the way we work
                                         Wireless communications will enable everyone to work and communicate
                                         remotely. Holographic screens and instrumentation will allow people to
                                         control and manage the business while literally leaving plenty of space for
                                         imagining the future.
Operating Financial
Operating Financial Review | Electronics

Creating infocomm and networking solutions
for governments and commercial enterprises

                                           ST Electronics offers a wide range of
                                           communications infrastructure solutions
                                           which is cost effective and enables
                                           seamless connectivity.
                                           ST Electronics, the Group’s electronics arm, is a leading electronics
                                           and Information Communications Technology (ICT) system house.
                                           It specialises in the design, development and integration of pur-
                                           pose-built advanced electronics systems, including e-Government
                                           solutions, satellite communications, intelligent transportation,
                                           training and simulation, digital media and information security.

                                           In 2005, ST Electronics continued to expand its markets
                                           internationally, leveraging its core competencies and innovative
                                           product development capabilities. Marketing to more than 60
                                           countries worldwide, its main offices are located in Ang Mo Kio

                                                                                                                   Singapore Technologies Engineering Ltd
                                           and Jurong East, Singapore, with a network of offices in Australia,
                                           Botswana, China, Hong Kong, Kazakhstan, Malaysia, Mexico,
                                           Taiwan, Thailand and the US.

                                                                                                                   Annual Report 2005
                                           To strengthen its sector identity in the international marketplace,
                                           ST Electronics embarked on a branding exercise in April renaming its
                                           five key subsidiaries – Agilis Communication Technologies renamed
                                           ST Electronics (Satcom & Sensor Systems); CET Technologies                        67

                                                                                                                   Operating Financial
                                           renamed ST Electronics (Info-Comm Systems); SES Systems
                                         ST Electronics operates in a highly competitive landscape and
                                         continues to seek and make strategic investments in companies that
                                         augment its technology offerings or extend its market reach.

                                         (previous page) miniV - world’s smallest   renamed ST Electronics (Info-Software Systems); and ST Training &         continues to deliver solutions for transportation, intelligent building
                                         portable satellite communications
                                         terminal of its class when launched        Simulation renamed ST Electronics (Training & Simulation Systems).        and defence electronics, offering customers innovative turnkey solutions.

                                                                                    ST Electronics operates in a highly competitive landscape and             A major rail electronics solution provider in Singapore and Taiwan,
                                                                                    continues to seek and make strategic investments in companies             ST Electronics made a breakthrough into the China rail market
                                                                                    that augment its technology offerings or extend its market reach.          towards the end of 2004 when it was selected to deploy its auto-
                                                                                    It increased its shareholding in Sino Stride Technology in Febru-         matic fare collection system in the Guangzhou MRT Line 4. Phase 1
                                                                                    ary to address market opportunities in Zhejiang province and the          of this line was opened in December 2005.
                                                                                    eastern region of China for intelligent building solutions. This came
                                                                                    on the back of its 2004 investment in ECS Holdings, which has a           It went on to win other rail contracts in 2005. Through a
                                                                                    network of 5,000 distributors in China. It also enlarged its satellite    consortium, it achieved a milestone with its successful entry into
                                                                                    communications capabilities by acquiring iDirect in the US.               the Thailand rail market when it secured a contract to design,
                                                                                                                                                              supply, deliver and commission an upgraded Automatic Fare
                                                                                    To keep its costs competitive, ST Electronics set up an IT outsourc-      Collection System (AFC) to Bangkok Mass Transit System Public
                                                                                    ing and software development arm in Shenzhen, recruiting talent           Company Limited. This is a major breakthrough for ST Electronics
                                                                                    there to support its Singapore operations and customers in China.         as it will offer vast opportunities in the fast booming Bangkok
                                                                                    Capitalising on the lower production costs, its Shanghai subsidiary       metro market.
                                                                                    also acquired new facilities in order to locally integrate and as-
Singapore Technologies Engineering Ltd

                                                                                    semble the on-train communications systems and automatic fare             ST Electronics will focus on expanding its reach in the Middle East
                                                                                    collection gates for customers in China. It delivered the first batch of   for intelligent building management and security systems, and has
                                                                                    76 gates in August.                                                       participated in two consortia as the anchor company for Interna-
Annual Report 2005

                                                                                                                                                              tional Enterprise Singapore’s iPartners project to explore opportu-
                                                                                    ST Electronics’ core business activities are organised into three         nities in the market. The integrated resorts planned for Singapore
                                                                                    key groups:                                                               will also present new opportunities for implementing such systems.

                                                                                    Large-Scale Systems Group (LSG)                                           While integrating various combat systems into military platforms,
Operating Financial

                                                                                    Specialising in large-scale electronic systems integration, LSG           ST Electronics has embarked on the development of wide screen
displays that use commercial off-the-shelf LCD technology to provide   A key player in the global satellite communications equipment
a multi functional interactive man-machine interface.                 industry, the company continues to develop new products for its
                                                                      range of satellite and microwave communications and sensor solu-
Communication & Sensor Systems Group (CSG)                            tions. It launched the miniV, the world’s smallest VSAT (very small
Comprising ST Electronics’ Info-Comm Systems and Satcom & Sen-        aperture terminal) for satellite communications in its class, at the
sor Systems, CSG has made significant headway with e-Government        Global Security Asia 2005 exhibition. The miniV was successfully
and traffic management solutions, offering efficient intelligent           field-tested in emergency relief operations in Aceh, Indonesia, after
traffic management and advanced fleet management solutions to            the December 2004 tsunami disaster.
manage city centre traffic. With expertise in the areas of emergency
response and integrated security solutions, it also addresses the     ST Electronics strengthened its position and set up service centres
                                                                                                                                                       (top) An iDirect fly-away
current market demand for enhanced homeland security needs.           in India as the Singapore-India free trade agreement facilitated                  kit for quick broadband
                                                                      the acceptance of its products there. Bangladesh, Indochina, Nepal                        access anywhere
ST Electronics offers a wide range of e-Government communica-          and Sri Lanka are new potential markets for its VSAT and digi-         (middle) ST Electronics will supply
tions infrastructure solutions which are cost effective, providing     tal radio products. Through its US sister company, VT Miltope,           an Air Traffic Control Aerodrome
better connectivity and interoperability among public agencies.       ST Electronics offers ruggedised laptop solutions to the regional         Visual Simulator to India’s Civil
                                                                                                                                                        Aviation Training Centre
To this end, it was awarded a one-year contract by the Infocomm       market. VT Miltope’s TSC-750M ruggedised notebooks are in
Development Authority of Singapore (IDA) in August to supply          use as the computing platform in the US Army.                             (bottom) An office was opened
                                                                                                                                                in Shenzhen, China, to support
and maintain fully operational cabling and network infrastructure

                                                                                                                                                                                    Singapore Technologies Engineering Ltd
                                                                                                                                               ST Electronics and its customers’
systems to ministries and statutory boards.                           Software Systems Group (SSG)                                                software development needs
                                                                      SSG, comprising ST Electronics’ Info-Software Systems and its
In 2005, ST Electronics’ journey of continuous innovation re-         Training & Simulation Systems arm, provides C4I (command,

                                                                                                                                                                                    Annual Report 2005
sulted in the development of a Harbour Craft Identification and        control, communications, computers and intelligence) and IT security
Monitoring System for the Maritime Port Authority of Singapore.       solutions such as biometrics. Its expertise also includes proven
Based on global positioning system and general packet radio           training methodologies, value added training and simulation
service technologies, the system identifies, monitors and tracks       systems and computer and visual graphic technologies. It offers
harbour craft in coastal waters.                                      a comprehensive range of solutions to public safety and homeland                                                        69

                                                                                                                                                                                    Operating Financial
                                                           security customers and strives to extend its marketing reach in the    MERiTS (Multimedia Education Resource Interactive Teacher Sys-
                                                           Indian sub-continent, the Middle East and North Asia.                  tem), a cost effective interactive learning management system, was
                                                                                                                                  launched to help teaching professionals conduct classes efficiently.
                                                           As governments and public agencies streamline and integrate their      ST Electronics developed three other systems: Smart Scenario
                                                           operations, ST Electronics expanded its e-Government capabilities      Generator, a new building standard for future simulation systems
                                                           to meet this need. It built upon its decade-strong e-Government        that integrates and trains real military forces with virtual and con-
                                                           track record and embarked on a holistic approach known as Service      structive trainers; Knowledge Source, a simulation using computer
                                                           TransformationTM. This enables governments to be more customer-        generated forces that facilitates joint operations training; and a
                                                           centric and sensitive, while maintaining security and control.         Ship Handling Simulation System that provides navigation, ma-
                                                                                                                                  noeuvring and emergency training.
                                         ST Electronics strengthened its position and set up service centres
                                                                                                                                  ST Electronics has leveraged virtual simulation technology to ex-
                                         in India as the Singapore-India free trade agreement facilitated                         pand into the digital media industry. Two of its animators were
                                         the acceptance of its products there. Bangladesh, Indochina,                             selected to work on the production of ‘Jane and the Dragon’, a
                                                                                                                                  3D animated series produced by the renowned animation firm
                                         Nepal and Sri Lanka are new potential markets for its VSAT and                           of 'Lord of the Rings' fame, WETA (New Zealand). In addition, it
                                         digital radio products.                                                                  is working with IDA and Nelvana Limited, a leading international
                                                                                                                                  producer and distributor of children’s programmes, to produce an
Singapore Technologies Engineering Ltd

                                                           ST Electronics has forged partnerships with Original Equipment         animation series. The company expects growth in animation projects,
                                                           Manufacturers to expand its air traffic control tower simulator busi-    games and e-learning, as well as increased training demands in
                                                           ness and provide training systems for its customers at low cost. It    aviation, maritime, defence and homeland security.
Annual Report 2005

                                                           also developed an advanced surface movement and guidance sys-
                                                           tem to provide routing, guidance, movement and control to aircraft     Performance of the Electronics Sector
                                                           and vehicles to maintain safety levels in airfields. The company also
                                                           developed a state-of-the-art intelligent CCTV monitoring system.       Half Yearly Performance
                                                           By working through local partners, it was able to penetrate new        Turnover of $400m that was recorded in 2H2005 was 33% or
Operating Financial

                                                           markets such as Japan.                                                 $100m higher than that of 1H2005. The increase was contributed by
                                                                        The growing importance of seaport and maritime
                                                                        security has fuelled new opportunities for ST Electronics.

all three business groups. Higher sales for CSG were recorded with      completions in the LTA Circle Line project and Taiwan MRT projects.
the sales of satellite communications products and electro-optics
equipment as well as milestone completions for CityCab’s inte-          PBT of the Electronics sector for FY2005 of $76.0m was 18% or
grated taxi booking and dispatch system project. SSG’s sales were       $11.5m higher than that of FY2004. All three business groups
higher with progressive deliveries and installations of educational     contributed to the higher PBT. The higher PBT in SSG was mainly
multimedia laboratory systems in Kazakhstan and milestone               due to better margins in project milestones completed and higher
completions of simulator projects. LSG also recorded higher sales       income from associated companies, while the higher PBT in CSG
in 2H2005 as compared to 1H2005 with milestone completions in           was in line with the higher turnover. The higher PBT in LSG was
the Land Transport Authority’s (LTA) Circle Line project.               mainly due to the higher turnover and lower operating losses
                                                                        incurred by overseas subsidiaries and this was despite higher losses
The PBT of $44.7m for 2H2005 was 43% or $13.4m higher than              from associated companies. Overall, the sector recorded a higher
that of 1H2005. All three business groups recorded higher prof-         investment and interest income for FY2005.
its as compared to that of 1H2005. LSG recorded a higher profit
which was mainly due to higher sales, better margins in project         Major Acquisitions
milestones completed and lower operating losses incurred by over-       The growing importance of seaport and maritime security has
seas subsidiaries. This was despite the higher losses from associated   fuelled new opportunities for ST Electronics. These prompted the
companies. The higher profit from SSG was a result of higher sales.      set up of STET Maritime Education and STET Maritime Bureau to
CSG’s profit was higher mainly due to the higher sales and better        provide merchant marine education services and maritime com-

                                                                                                                                               Singapore Technologies Engineering Ltd
margins in project milestones completed.                                mercial survey and consultancy services respectively.

Full Year Performance                                                   In February, ST Electronics acquired a 50.05% stake in Chartered

                                                                                                                                               Annual Report 2005
FY2005 turnover of $701m for the Electronics sector was higher          Electro-Optics, which specialises in electro-optics applications and
than that of FY2004 by 12% or $75m. The higher turnover was             equipment, complementing the sector’s offerings of sensor systems.
mainly contributed by CSG with the sales of satellite communica-        ST Electronics together with Chartered Electro-Optics and the
tions products and electro-optics equipment and milestone com-          Defence Science and Technology Agency developed the Infrared
pletions of CityCab’s integrated taxi booking and dispatch system       Fever Screening System at the height of the SARS epidemic in 2003.               71

                                                                                                                                               Operating Financial
project. Higher turnover was also recorded by LSG with milestone        In November, ST Electronics acquired iDirect in the US, through
                                         Vision Technologies Electronics, at an enterprise value of             for transmitting cable TV programmes into homes, ST Electronics
                                         US$165m ($276m). iDirect designs, develops and markets satel-          added a further US$20m ($33m) contract in April, bringing its cumula-
                                         lite-based broadband access solutions targeted at the enterprise,      tive sales for this product in Mexico to US$53m ($92.5m) since 2002.
                                         government, carrier and educational sectors, offering fast, flexible
                                         and geographically dispersed two-way Internet and/or intranet          China is a key market for the sector and ST Electronics entered the
                                         access. iDirect will extend ST Electronics’ presence in the US and     mainland public safety market with the delivery of a computer-
                                         propel it to become a leading global satellite communications so-      aided despatch system to the Shenzhen Police. In March, the
                                         lutions provider with an expanded comprehensive product of-            Beijing TV Station awarded the company a contract to supply a
                                         fering. Industry research, including Frost & Sullivan’s, projects      security system for its new building.
                                         a tripling in global satellite broadband market demand between
                                         2004 and 2010.                                                         Traffic and fleet management is a niche area of expertise for
                                                                                                                ST Electronics and this was again demonstrated when Asia-Pacific
                                         Continuing to expand its global footprint, ST Electronics set up       An Xun in Beijing commissioned ST Electronics to supply 30,000
                                         three new representative offices in 2005 to serve increased business     units of in-vehicle equipment for its fleet of vehicles. In Taiwan,
                                         activities in Botswana, Kazakhstan and Shenyang, China. The            it won a $10.5m contract to supply platform screen doors for
                                         Botswana office addresses e-Government project opportunities in          Taipei’s Mucha Extension (Neihu) Line.
                                         the country, while the office in Kazakhstan will help grow the group’s
                                         e-learning and government-related businesses there.                    Israel Aircraft Industries – ELTA Systems (ELTA) awarded
Singapore Technologies Engineering Ltd

                                                                                                                ST Electronics a contract to supply a VSAT network system that will
                                         Major Projects                                                         form a high-speed network to enable the transmission of realtime
                                         ST Electronics continued to grow its order book, extending its         battlefield information to fixed and mobile installations over a wide
Annual Report 2005

                                         global reach and acquiring new customers overseas.                     geographical area.

                                         It was awarded a contract to supply an Air Traffic Control             ST Electronics also advanced into new markets. It was com-
                                         Aerodrome Visual Simulator to India’s Civil Aviation Training          missioned to develop a Pay as You Earn System for Botswana’s
                                         Centre. Building on its position as the world’s leading provider of    Unified Revenue Service. African states typically receive only
Operating Financial

                                         Multi-channel Multipoint Distribution System (MMDS) equipment          60-70% of tax collection, but this system will enable the Botswana
                                                                                                                                             (left) ST Electronics' Satellite News
                                                                                                                                                       Gathering System in Aceh
                                                                                                                                                       after the tsunami disaster
                                                                                                                                                  (middle) ST Electronics equips
                                                                                                                                                   Kazakhstan classrooms with
                                                                                                                                                        multimedia e-learning
                                                                                                                                            (right) The Singapore Management
                                                                                                                                            University looks to ST Electronics for
tax department to increase its tax collection by a further 6% in       On the homefront, ST Electronics supplied a campus-wide access             on-campus security solutions
2005/2006. This system costs less than 1.7% of the additional tax      control system in an upgrade for the National University of Singa-
revenue to be collected. ST Electronics also won an international      pore, while the Singapore Management University commissioned
tender from the Maldives Government, Ministry of Communication,        a security solution for its campus in March.
Science & Technology, to provide an information network that
will connect the Maldives government and its related agencies in       The Land Transport Authority of Singapore (LTA) awarded
Malé and on 23 islands. By 2006, the new network will enable the       ST Electronics a contract to design, develop and implement a new
government agencies to share information electronically.               closed-circuit TV surveillance system that will monitor about
                                                                       300 traffic junctions island-wide. Additionally, the sector secured
The Middle East is a new and growing market for ST Electronics. It     a separate LTA contract to supply communications systems for
won a contract from the Muscat Municipality of Oman for a travel       the Boon Lay extension MRT line.
information advisory system and another to provide homeland
security consultancy to state-owned Qatar Security Services Company.

ST Electronics also made a breakthrough into the Kazakhstan
market when it was awarded a $52m contract to equip about
800 schools in the republic with multimedia e-learning software
and equipment.

                                                                                                                                                                                     Singapore Technologies Engineering Ltd
In the US, VT Miltope was selected by Airbus to provide its new
wireless telephony server and cabin access point products. This

                                                                                                                                                                                     Annual Report 2005
will enable wireless local area network connectivity on the A380
aircraft using VT Miltope’s equipment.


                                                                                                                                                                                     Operating Financial
Singapore Technologies Engineering Ltd

                                         Changing the way we commute
Annual Report 2005

                                         Faster, quieter and more fuel-efficient transportation could be an everyday
                                         part of life for commuters in the future. Magnetic levitation technology is
                                         already in use for electromagnetic suspension system trains. Soon, road safety
                                         could be assured by using magnetic sensors to guide vehicles along GPS
                                         determined routes.
Operating Financial
     Land Systems
Operating Financial Review | Land Systems

Nurturing a commercial automotive business
that builds on its defence experience

ST Kinetics continues to leverage dual
use technologies and investments in
various technology companies to develop
cost effective solutions for commercial
and defence applications.
ST Kinetics was formed in 2000 after the acquisition of Char-
tered Industries of Singapore by ST Automotive, resulting in a
larger and more comprehensive land systems arm for the Group.
ST Kinetics’ headquarters and major facilities are in Singapore, while
its commercial operations are in China and the US.

ST Kinetics provides integrated systems, specialty vehicles and re-
lated services for various specialised applications in the defence,
government and commercial business sectors. This includes design
and development, systems integration, production, operations and

                                                                         Singapore Technologies Engineering Ltd
support and life cycle management. It is organised into two groups:

Integrated Systems and Services (ISS) Group

                                                                         Annual Report 2005
The ISS group is primarily responsible for the sector’s defence
business and supports the Singapore Armed Forces (SAF) in its
quest for a leaner and more potent 3G army. Its capabilities in-
clude multi role platform and weapon system design and en-
gineering – exemplified in cutting edge products such as the                        75

                                                                         Operating Financial
Bronco all terrain tracked carrier, 120mm super rapid advanced
                                         (previous page) ST Kinetics’     mortar system, the 40mm air bursting munition system and the              From its roots in conventional defence
                                         Pegasus lightweight howitzer     Pegasus lightweight heli-portable 155mm howitzer. It also offers
                                         offers unprecedented mobility
                                         coupled with enhanced lethali-
                                                                          system integration, maintenance, repair and overhaul and other            equipment, ST Kinetics has embarked on
                                         ty, capability and performance
                                         for the Singapore Army
                                                                          lifecycle management services for a wide range of military plat-          new technologies that emphasise smarter,
                                                                          forms, related subsystems and components.
                                                                                                                                                    network-centric solutions to meet the
                                                                          From its roots in conventional defence equipment, ST Kinetics has         needs of modern armed forces.
                                                                          embarked on new technologies that emphasise smarter, network-
                                                                          centric solutions to meet the needs of modern armed forces. To-           to ambulances and HAZMAT (hazardous materials) support
                                                                          day, its capabilities extend from remote operations to integrated         vehicles. Its subsidiary, Chartered Ammunition Industries, was
                                                                          surveillance and vetronics systems and state-of-the-art protection        renamed Advanced Material Engineering in March to reflect its
                                                                          solutions for multi role platforms, as well as lighter weapon systems     increased product and service offerings to meet new demands for
                                                                          and advanced munitions.                                                   homeland security and protective materials.

                                                                          ST Kinetics prides itself on its ability to leverage dual use technolo-   In defence exports, the ISS group continued to secure recurring
                                                                          gies and capabilities for both defence and commercial applications.       sales in existing markets and is actively involved in major vehicle
                                                                          It has invested in various technology companies to tap available          programmes for potential customers around the world. Building on
                                                                          intellectual properties to develop exacting solutions for both mili-      its success in Singapore, the ISS group is also exploring new mar-
Singapore Technologies Engineering Ltd

                                                                          tary and commercial applications.                                         kets for its homeland security and emergency response products.

                                                                          The global shift in homeland security needs has presented                 Specialty Vehicles and Services (SVS) Group
Annual Report 2005

                                                                          new opportunities for ST Kinetics to embark on R&D and                    The SVS group is focused on commercial specialty vehicles and
                                                                          collaborate with industry allies to develop and market solutions          automotive services. While it continues to grow its automotive
                                                                          for homeland security applications. Building on its experience            services in Singapore, it has also taken aggressive steps to venture
                                                                          with ordnance products, the ISS group now offers expertise in             into commercial vehicle markets overseas.
                                                                          blast mitigation and protection solutions, and surveillance as well
Operating Financial

                                                                          as emergency response equipment from mobile crash barriers                In Beijing, its Joint Venture (JV) company, Beijing Zhonghuan
                                                                                                                                                     (left and middle) SVC’s wide
                                                                                                                                                        range of specialised truck
                                                                                                                                                    bodies and trailers will boost
                                                                                                                                                ST Kinetics’ strategy to become a
                                                                                                                                                  global specialty vehicle player
                                                                                                                                                   (right) ST Kinetics established
                                                                                                                                                      STAR’s flagship automotive
                                                                                                                                                  centre in the city of Hangzhou,
                                                                                                                                                China – the first of two locations
Kinetics Heavy Vehicles (BZK), designs and produces specialised         ST Kinetics will continue to embrace new                                          opened during the year
heavy commercial and industrial vehicles such as off-road dump
trucks, bulk cement tankers, concrete mixers and terminal port          opportunities and strengthen core capabilities
tractors. In the short time since its conception, BZK has obtained      to stay relevant to its customers. In particular,
the coveted ISO 9002:2000 quality certification and also expanded
its marketing network outside of China. In Guiyang, it holds a ma-      it will commit resources to grow its commercial
jority stake in Guizhou Jonyang Kinetics (GJK), which designs,          specialty vehicle and related business areas.
manufactures and distributes construction excavators. BZK and
GJK will work together to secure a foothold in the construction         The SVS group will leverage the experience of ST Kinetics
and industrial vehicle market in China.                                 in the defence and commercial automotive industry and its grow-
                                                                        ing network with ongoing efforts in China and the US to realise
In Hangzhou and Guangzhou, ST Kinetics’ JV automotive services          its vision of becoming a significant player in the global specialty
companies under STAR Automotive Centre commenced operations             vehicle market. By working together with its overseas ventures,
in July and December respectively. The centres have been strategi-      ST Kinetics can harness additional value through economies of
cally located to service the provinces of Guangdong, Jiangsu and        scale, better material sourcing and lower cost Asian components;
Zhejiang, and enable ST Kinetics to export its service expertise as a   sharing of intellectual property and engineering resources to widen
one stop automotive centre.                                             the range of products; and improved efficiencies in manufacturing,
                                                                        distribution and support services of one another’s products.

                                                                                                                                                                                     Singapore Technologies Engineering Ltd
The newly acquired US-based Specialized Vehicles Corporation
(SVC) is ST Kinetics’ maiden entry into the North American com-         ST Kinetics will continue to embrace new opportunities and
mercial specialty vehicle market. Through its two divisions, Hack-      strengthen core capabilities to stay relevant to its customers. In

                                                                                                                                                                                     Annual Report 2005
ney and Kidron, it services a customer base that includes major         particular, it will commit resources to grow its commercial specialty
fleet and truck leasing operators, food service providers, beer and      vehicle and related business areas.
soft drink distributors, as well as municipal authorities such as the
West Virginia Office of Emergency Services and the New York City
Fire Department.                                                                                                                                                                               77

                                                                                                                                                                                     Operating Financial
                                         Performance of the Land Systems Sector                                 while the higher turnover of the S&T business group was mainly
                                                                                                                attributable to higher engine and trading sales. The M&W business
                                         Half Yearly Performance                                                group’s lower turnover was the result of lower munitions sales.
                                         Compared to 1H2005, 2H2005 turnover increased by 13% or
                                         $37m to $319m. This was due mainly to the higher delivery of           Compared to FY2004, Land Systems sector’s PBT of $65m for
                                         Primus and munitions sales as well as specialty vehicles sales from    FY2005 was lower by 9% or $6.5m. The lower PBT was mainly due
                                         new subsidiaries SVC and GJK, partially offset by the absence of       to lower PBT of the S&T business group, but this was partially off-
                                         Bionix delivery.                                                       set by higher PBT of the Auto business group. Despite higher turn-
                                                                                                                over, the S&T business group was impacted by the share of lower
                                         Compared to 1H2005, 2H2005 PBT decreased by 49% or $21.4m              profit from CityCab arising from increased competition. The Auto
                                         to $21.8m despite higher turnover. This was due mainly to different     business group’s higher profit mainly came from higher turnover as
                                         product mix, higher operating expenses and share of lower profits       well as gain on disposal of Solectria, in exchange for shares in Azure
                                         from an associated company, CityCab. Additionally, there was a         Dynamics Corporation, but these were partially offset by higher
                                         gain on disposal of associated company, Solectria, in exchange for     operating expenses.
                                         shares in Azure Dynamics Corporation in 1H2005.
                                                                                                                Major Acquisitions
                                         Full Year Performance                                                  In October, ST Engineering, through Vision Technologies Land Sys-
                                         Land Systems sector’s FY2005 turnover of $600m was marginally          tems, acquired Specialized Vehicles Corporation for approximately
Singapore Technologies Engineering Ltd

                                         higher than that of FY2004 by 1% or $9m. Higher turnover was           US$52.5m ($87m). The newly acquired entity, to be renamed VT
                                         recorded in the Automotive (Auto) and Services, Trading & Others       Specialized Vehicles Corporation, is a leading manufacturer of spe-
                                         (S&T) business groups, but these were largely offset by lower turn-     cialised truck bodies and trailers for food and beverage distributors
Annual Report 2005

                                         over of the Munitions & Weapon (M&W) business group. The Auto          and emergency rescue departments. The acquisition underscores the
                                         business group’s higher turnover was due mainly to higher delivery     Group’s strategy to grow the commercial automotive business of its
                                         of Bionix and specialty vehicles sales from the new subsidiaries SVC   Land Systems sector and to become a global specialty vehicle player.
                                         and GJK, but these were partially offset by lower delivery of Bronco,
Operating Financial
                                                                      (left) GJK is ST Kinetics’ latest JV
                                                                              to further its commercial
                                                                         automotive business in China
                                                                       (middle) The Bronco continues
                                                                        to attract interest from many
                                                                                   overseas customers
                                                                        (right) The Spider light strike
                                                                        vehicle does Singapore proud
In November, through its wholly-owned subsidiary, Autonomous            as a finalist in the prestigious
                                                                           US DARPA Grand Challenge
Technology, ST Kinetics entered into an agreement with Guiyang
City Industrial Investment Holding Corporation (GIIHC) to set
up a JV company. Named Guizhou Jonyang Kinetics, the new JV
is based in Guiyang, China, and has a total registered capital of
US$20m (approximately $33m). ST Kinetics holds the majority
equity interest of 60%, while GIIHC holds the balance of 40%.
GJK designs, manufactures and distributes a range of excavators,
specialty vehicles and engineering products for construction, min-
ing and related industries, as well as provides after sales service
support. Together with BZK in Beijing, and SVC in the US, GJK will
extend ST Kinetics’ range of products, capabilities and opportuni-
ties as a global specialty vehicle designer and manufacturer.

                                                                                                             Singapore Technologies Engineering Ltd
                                                                                                             Annual Report 2005

                                                                                                             Operating Financial
                                         Major Projects                                                         In July, STAR Automotive Centre commenced operations in Hang-
                                         2005 saw the contractual delivery of major projects such as the        zhou – a significant milestone that marked STAR’s debut and the
                                         Bronco, Bionix, SAR 21, Primus, Pegasus and munitions products         introduction of Singapore’s first independent automotive repair
                                         to the SAF.                                                            centre in China. This was shortly followed by the commencement
                                                                                                                of a second operation in Guangzhou in December.
                                         In March, ST Kinetics completed a developmental feasibility study
                                         for the Finnish Defence Force’s (FDF) Future All Terrain Vehicle       In October, ST Kinetics’ Spider light strike vehicle was named one
                                         (FATV) programme. This is the first of several evaluation phases        of 23 finalists in the prestigious US Defense Advanced Research
                                         to help the FDF decide on its future needs. As part of the evalua-     Projects Agency (DARPA) Grand Challenge. Although the Spider
                                         tion, the Bronco was subjected to several months of mobility trials    did not complete the gruelling 175-mile course, it proved its excep-
                                         under Finland’s harsh arctic conditions. A request for proposal for    tional mobility under the competition’s challenging conditions.
                                         a prototype vehicle is expected soon. The FATV programme was
                                         initiated to find a suitable replacement for the current FDF fleet of    Also in October, the Pegasus 155mm 39 calibre lightweight howit-
                                         articulated vehicles. ST Kinetics has also completed user trials for   zer, designed and manufactured by ST Kinetics, was commissioned
                                         the Bronco in another European country and expects to respond          into service with the Singapore Artillery by the Defence Minister.
                                         to a further request for proposal before the award announcement        The Pegasus offers an unprecedented combination of firepower and
                                         next year.                                                             mobility for future light forces. It is also the world’s first and only
                                                                                                                155mm 39 calibre howitzer with a self-propelled capability that can
Singapore Technologies Engineering Ltd

                                         In March, ST Kinetics launched a series of homeland security prod-     be transported in CH47 aircraft together with its munitions.
                                         ucts and solutions at the inaugural Global Security Asia exhibition
                                         in Singapore. Cutting edge solutions, ranging from blast mitigation
Annual Report 2005

                                         to protection and surveillance systems as well as less-than-lethal
                                         solutions and emergency response vehicles, were displayed.

                                         In April and July, through its STAR Automotive Centre in Singa-
                                         pore, ST Kinetics secured taxi fleet maintenance contracts from
Operating Financial

                                         Smart Automobile and SMRT Corporation respectively.
Dissolving borders
Accommodating global citizens

                                                                                    Singapore Technologies Engineering Ltd
Changing the way we live

                                                                                    Annual Report 2005
Technology will soon open new frontiers and free our living space from
terrestrial habitats. Global citizens will live in floating cities – massive ships
with commercial, educational and healthcare facilities on board that would
encircle the globe and berth in many ports.                                                   81

                                                                                    Operating Financial
                                         Operating Financial Review | Marine

                                         Customising technologies and applying global expertise
                                         to ship design and repair

                                         ST Marine and its US operations, VT Halter Marine,
                                         provide turnkey ship design, building and
                                         repair services to commercial customers and
                                         governments worldwide.
                                         ST Marine is the marine arm of the Group and is headquartered in
                                         Singapore. It specialises in the design, construction, maintenance,
                                         repair, upgrading and life extension of naval and commercial ves-
                                         sels. Together with VT Halter Marine, ST Marine has a global clientele
                                         that spans Asia, Europe, the Middle East and the US.

                                         ST Marine provides turnkey shipbuilding solutions from concept
                                         definition, detailed design, construction, onboard system installa-
                                         tion and integration to testing and commissioning for a wide range
                                         of naval and commercial vessels.
Singapore Technologies Engineering Ltd

                                         Supported by advanced computer aided design systems and
                                         technologies, ST Marine’s advantage is its proven ability to design
Annual Report 2005

                                         and construct sophisticated vessels that meet the unique opera-
                                         tional requirements of each of its customers. The successful deploy-
                                         ment of the 141m Landing Ship Tanks (LST) and other small craft
                                         by the Republic of Singapore Navy (RSN), all designed and built
                                         by ST Marine, in the December 2004 tsunami relief operations as
Operating Financial

                                         well as on peacekeeping missions in the Middle East, have placed
VT Halter Marine secured a repeat order from                               On the strength of its track record and reputation, the Marine          (far left) ST Marine launched three frigates
                                                                                                                                                   for the RSN during the year
                                                                           sector is poised to continue to grow its presence in the commercial
Crowley Maritime Corporation for four more                                 and naval newbuilding markets.
 Articulated Tug Barges (ATB) in August
for approximately US$190m ($318m).                                         ST Marine is reputed for providing quality shiprepair services at
                                                                           competitive rates and with fast turnaround time. Its track record
ST Marine firmly on the world map as a reputable designer and               extends from jumboisation and ship conversion to upgrading and
builder of sophisticated vessels. The stealth frigate newbuilding          retrofitting of a wide spectrum of commercial vessels including
programme currently ongoing at ST Marine is another affirmation              bulk carriers, tankers, container vessels, dredgers, seismic vessels,
of its capabilities as a leading shipbuilder in the region. The frigates   offshore supply vessels and cruise liners.
are expected to significantly enhance the operational capabilities of
the RSN.                                                                   ST Marine’s shiprepair services also extend to the repair of naval
                                                                           vessels including damage repairs, docking and specialised services
ST Marine’s standing as a premier shipyard for quality, customised         for high speed diesel engines and midlife refits. ST Marine also refits
vessels is well established in the commercial sector, having added         submarines for the RSN.
the design and construction of four feeder container vessels for
Transworld Group to its order book during the year.                        ST Marine has the capability to service vessels up to 70,000dwt

                                                                                                                                                                                                  Singapore Technologies Engineering Ltd
                                                                           Panamax-sized commercial vessels and up to frigate-sized warships.
ST Marine’s US operations, VT Halter Marine, based in Pascagoula,
Mississippi, is a leader in the design and construction of medium-         Reputable owners worldwide have come to rely on ST Marine’s

                                                                                                                                                                                                  Annual Report 2005
sized ships in the US. Its track record includes the construction of       quality services over the years. These include Dredging Interna-
a Pure Car Truck Carrier (PCTC) – the first PCTC to be built in the         tional of Belgium, Rickmers Reederei of Germany, Orient Express
US and the largest ship to be built in a mid-sized shipyard in the US      Shipmanagement of India, Vroon B.V. and Boskalis International
– as well as a state-of-the-art Fisheries Survey Vessel (FSV) for the      of the Netherlands and Stolt Nielsen Transportation of the US.
US government’s National Oceanic and Atmospheric Administra-               ST Marine continued to grow its customer base. One significant                                                                   83

                                                                                                                                                                                                  Operating Financial
tion (NOAA) among others.                                                  win during the year was securing the first repair project from E.R.
                                                                                      Schiffahrt GmbH, Germany, which owns a sizeable container fleet.        keel for the fifth and final Singapore-built frigate was laid in March.

                                                                                      Performance of the Marine Sector                                      Singapore-Built Frigates – Completed Milestones

                                                                                      Half Yearly Performance                                                  Frigate 2       Frigate 3       Frigate 4      Frigate 5       Frigate 6
                                                                                      The Marine sector’s turnover for 2H2005 at $338m increased by           RSS Intrepid   RSS Steadfast   RSS Tenacious   RSS Stalwart
                                                                                      5% or $17m compared to first half turnover of $321m due mainly          Launched Jul    Launched Jan    Launched Jul    Launched Dec   Keel laid Mar
                                                                                      to higher Shipbuilding turnover.                                          2004             2005           2005             2005          2005

                                                                                      PBT of $46.6m for 2H2005 increased by 13% or $5.3m over the first      The Marine sector achieved several milestones in other ongo-
                                         (top) Launch of Frigate 4, RSS Tenacious
                                                                                      half due mainly to the higher turnover and higher other income.       ing projects in 2005 and continued to add new contracts to its
                                         (middle) ST Marine signs first contract to                                                                         order book.
                                         design and build two feeder container
                                         vessels for Transworld Group                 Full Year Performance
                                                                                      FY2005 turnover of $660m for the Marine sector was higher than        In January, its Singapore operations, ST Marine, secured a $83m
                                         (bottom) At the naming ceremony of
                                         Warba, the landing supply craft built for    that of FY2004 by 36% or $176m. All three business groups recorded    contract to design and construct two feeder container vessels for
                                         Kuwait’s Ministry of Interior                higher turnover. The higher Shipbuilding turnover was attribut-       Shreyas World Navigation, a wholly-owned subsidiary of Transworld
                                                                                      able to higher activities in the local operation, while the higher    Group, with options for two more vessels that were exercised in
                                                                                      Shiprepair turnover was due to a more active shiprepair market.       March. The option vessels totalled $85m.
Singapore Technologies Engineering Ltd

                                                                                      PBT of Marine sector in FY2005 of $87.9m was 26% or $18.1m            Its US operations, VT Halter Marine, also secured new contracts.
                                                                                      higher than that of FY2004. The higher PBT was mainly due to          Having been named a prime contractor for a potential Foreign
Annual Report 2005

                                                                                      higher gross profit from higher turnover.                              Military Sale (FMS) of Fast Missile Craft (FMC) to the Govern-
                                                                                                                                                            ment of Egypt in 2004, there were positive developments in 2005.
                                                                                      Major Projects                                                        VT Halter Marine was awarded a US$28.8m (approximately $49m)
                                                                                      The frigate newbuilding programme is progressing on schedule at       contract from the US Government to develop a functional design
                                                                                      ST Marine, with Singapore-built frigates launched at its Benoi Yard   of a FMC for this FMS. This design phase is the first phase of the
Operating Financial

                                                                                      during the year: RSS Steadfast, RSS Tenacious and RSS Stalwart. The   contract and is expected to take a year. The second phase will
                                                                                                                                                         (left) Jean Anne, which
                                                                                                                                                   VT Halter Marine delivered to
                                                                                                                                                  Pasha Hawaii Lines, is the first
VT Halter Marine was awarded a US$28.8m (approximately $49m) Phrase 1 contract from                                                                    PCTC to be built in the US
the US Government to develop a functional design for up to three fast missile craft. The entire                                                       (middle) VT Halter Marine
                                                                                                                                               delivered the first FSV to NOAA in
programme could total some US$450m ($765m) in contract value.                                                                                  2005 and also secured a contract
                                                                                                                                                                   to build a third
                                                                                                                                                       (right) Transworld Group
include production design work and construction of up to three        Several deliveries were made during the year. ST Marine delivered a            exercised its option for two
vessels. The entire programme could total some US$450m ($765m)        landing supply craft to Kuwait’s Ministry of Interior, while VT Hal-           additional feeder container
in contract value.                                                    ter Marine delivered the first of three FSVs, Oscar Dyson, to NOAA                   vessels with ST Marine
                                                                      as well as a PCTC, Jean Anne, to Pasha Hawaii Transport Lines. A
Other new contracts include building a third FSV, valued at approx-   stevedoring crane barge that VT Halter Marine constructed for
imately US$38m ($62m), for NOAA. In June, VT Halter Marine            Tide Leasing Company was also delivered.
secured a contract to build a US$16.3m (approximately $27m)
catamaran barge for Washington Group International and its joint      Hurricane Katrina ,which hit the US Gulf Coast in August, impacted
venture partner, Alberici’s Group, for the Olmsted dam project. VT    VT Halter Marine’s operations. However, recovery efforts commenced
Halter Marine secured a repeat order from Crowley Maritime Cor-       immediately, allowing production to be promptly re-started.
poration when it ordered four more Articulated Tug Barges (ATB)       Full operations resumed by year end. The cost of damage from this
in August. The four ATBs are valued at approximately US$190m          hurricane will largely be covered by insurance as well as federal and
($318m). Crowley had initially ordered two ATBs from VT Halter        state assistance plans. Force majeure contract terms will cover any
Marine in June 2004 which are currently under construction.           project delays.

Ongoing projects continue to keep the Marine sector busy.             In shiprepair, ST Marine also accomplished several major projects
Besides the frigate newbuilding programme, the yard commenced         in 2005. These include repairs for a pipe laying barge, Castoro 2, for
construction of the first of four feeder container vessels for        Saipem, Luxembourg; a seismic vessel, Nordic Explorer, for Shipman

                                                                                                                                                                                      Singapore Technologies Engineering Ltd
Transworld Holdings with the plate cut in June and its keel laid in   AS, Norway; a dredger, Goryo Ho, for Hyundai Engineering and
September. The first plate for the second feeder container vessel     Construction, Korea; a tanker, Sutra Tigar, for Sutrajaya Shipping,
was cut in November.                                                  Malaysia; a chemical tanker, Bow Peace, for Ceres Hellenic Shipping,

                                                                                                                                                                                      Annual Report 2005
                                                                      Greece and a bulk carrier, ABG Keshava, for ABG Shipping, India.
The keel was laid for a double-ended passenger/vehicle ferry
for Nantucket Steamship Authority (SSA) at VT Halter Marine,
while the second FSV for NOAA, Henry B. Bigelow, and the first
of two harbour tugs for Lockheed Martin were launched.                                                                                                                                          85

                                                                                                                                                                                      Operating Financial
                                         Operating Financial Review

                                                                 Dynamics and Risk Factors of the Business                                could reduce seaborne international trade and demand for ships,
                                                                                                                                          it could increase oil exploration activities and generate higher
                                                                 Industry Review                                                          demand for offshore support vessels. This would benefit the
                                                                                                                                          Group’s shipbuilding business.
                                                                 Oil Price and Interest Rates
                                                                 Rising oil prices and interest rates were indirect industry influencers   Given the Group’s substantial net cash position, interest rate in-
                                                                 on the Group’s businesses in 2005. Oil prices breached the US$70         creases have benefited the Group through higher interest income.
                                                                 mark, while Fed rates ended the year at 4.25%
                                                                                                                                          Rising Cost of Raw Materials
                                                                 Together, these have significant impact on the airline industry,          This had a limited impact on the Group due to the nature of con-
                                                                 compelling airlines to impose fuel surcharges. In the US, many major     tractual arrangements, for example, steel in the Marine sector. In
                                                                 airlines have faced severe financial pressure since September 11.         the Land Systems sector, costs for major purchases to fulfil order
                                                                 There have been two additional Chapter 11 filings for bankruptcy          book obligations have been committed with suppliers. New con-
                                                                 protection and attempts to restructure staff and operational costs.       tracts would factor in any higher raw material prices.
                                                                 The latter include outsourcing MRO, which would open up oppor-
                                                                 tunities for independent MROs. The MRO industry, on the other            China’s Economic Growth and Yuan Revaluation
                                                                 hand, has had to continually invest in new capabilities and increase     There was no impact from the marginal yuan revaluation on the
                                                                 its efficiencies in this competitive and challenging environment.          Group’s businesses. Industry watchers expect further but gradual
Singapore Technologies Engineering Ltd

                                                                                                                                          revaluation to take place, which could strengthen the purchasing
                                                                 The oil price spike has had no direct impact on ST Engineering’s         power of Chinese industries and the government. Hence, the yuan
                                                                 other three sectors. The threat of higher inflation from high oil         revaluation could be positive for the Group’s businesses in China
Annual Report 2005

                                                                 prices, fanned by economic growth in China, India and Eastern            such as STARCO, its new aircraft maintenance facility in Shanghai.
                                                                 Europe, has led to higher cost of funding, making infrastructural        For the Marine sector, significant shifts in the profile of newbuild-
                                                                 developments more costly. As a result, Chinese municipal govern-         ing activities in the region are not expected.
                                                                 ments could scale back planned subway and intelligent transport
                                                                 systems, possibly reducing the opportunities for the Group’s             A rise in the yuan exchange rate may slow GDP growth, possibly
Operating Financial

                                                                 Electronics sector. For the Marine sector, while high oil prices         affecting property markets, consumer borrowing and consumption.
This could result in greater competition for businesses in China.        portation and building management systems. The Games may also
                                                                         lead to an expansion in China’s aviation market and increased
In late 2004, the Chinese government imposed macroeconomic               opportunities for aircraft maintenance services.
controls to cool the overheating economy, which included curbs
on bank lending. This affected the construction industry where            Terrorism and Homeland Security
demand for construction equipment was scaled back. However,              This year’s bomb blasts in Egypt, London and again in Bali were
ST Kinetics views China’s prospects to be bright and to present new      painful reminders of the need for continued vigilance and pro-
opportunities for growth. The Group’s Aerospace, Electronics and         tection against terrorist activities. Global terrorism exemplifies
Land Systems sectors have operations in various parts in China and       how the battlefield has morphed, both in location and form. Asym-
initiatives are in place to grow their presence.                         metric warfare has brought the warfront to one’s front yard, with
                                                                         both civilians and landmarks as the focus of vicious attacks. Over
In the longer term, China’s economic growth would continue to            time, demand for homeland security solutions is likely to increase.
spur rising demand for commercial automotive vehicles, including
heavy trucks and specialty vehicles, buses, cars and corresponding       Governments, such as that of Singapore, have begun to study vari-
after sales services are expected to rise in tandem. Increased aware-    ous homeland security protective systems, with some increasing
ness of environmental issues is also likely to boost demand for          funding for this purpose. While there is global market potential for
hybrid electric drives for city transportation.                          homeland security solutions, it will take time for governments to
                                                                         commit funding for these relatively costly security infrastructures.

                                                                                                                                                   Singapore Technologies Engineering Ltd
The 2008 Beijing Olympic Games is forecasted to attract di-              There is also increasing competition and the Group is seeking oppor-
rect investments of over RMB140b, according to the State                 tunities for strategic collaboration and/or mergers and acquisitions.
Information Centre. The Games are expected to spawn massive

                                                                                                                                                   Annual Report 2005
infrastructure developments, as well as supporting activities in         Transformation in Defence Industry
the construction, electronics, hospitality, service, mechanical equip-   In the face of increased terrorism risks, many armies are in various
ment and transportation industries.                                      stages of modernisation. The resultant 3G army relies less on brute
                                                                         force, more on technology; less on firepower, more on precision
Preparation for the Games is also likely to include infrastructural      strike; and less on independent platforms (land forces, navy, etc.) and             87

                                                                                                                                                   Operating Financial
spending on e-Government solutions, including intelligent trans-         more on integrated, network-centric intelligent systems. Globally,
                                         industry players have been consolidating to form larger consortia to   better decisions. Major categories of risks identified include stra-
                                         collaborate on R&D and to offer integrated systems and solutions.       tegic, operational, financial market, acts of God and/or war, legal
                                                                                                                and/or political, and reputation risks. The risk management pro-
                                         Most of the transformation will be enabled through electronics         cesses are then tailored to address these categories of risks.
                                         systems technology, such as Integrated Knowledge Command
                                         and Control.                                                           To enhance risk management effectiveness across the Group,
                                                                                                                management implemented these structured risk management
                                         In Marine forces, the US military is looking towards smaller,          initiatives:
                                         more agile and highly manoeuvrable sea-based platforms for the
                                         projection of defensive and offensive forces. This shift towards,       • Risk Reporting Dashboard: A structured dashboard was developed
                                         smaller-sized platforms may present mid-sized shipyards, such as        to comprehensively describe the risks by each risk driver and to
                                         VT Halter Marine, opportunities to offer solutions to meet the           identify and communicate risk profiles to management and the Risk
                                         needs of this changing environment.                                     Review Committee.

                                         Integrated capabilities across various platforms, unmanned             • Programme Risk Management Guide: This guide provides
                                         technologies, solutions for greater connectivity and homeland           guidance for planning, assessing, handling and monitoring
                                         security will define the defence industry in the coming years.          risks for major programmes.
Singapore Technologies Engineering Ltd

                                         Risk Management                                                        • Whistle Blowing Policy: This draft policy is currently being
                                                                                                                 reviewed, it serves to establish a scope and provide a feedback
                                         In 2005, the Group developed the Risk Management Framework,             channel for whistle blowers to report any corporate wrongdoings
Annual Report 2005

                                         which was formalised by the Board in July 2005. It is now in the        to an independent channel for attention.
                                         process of integrating and embedding its risk management activi-
                                         ties under this framework.                                             • Risk Management Adequacy and Effectiveness Review: The
                                                                                                                 Group’s Risk Review Committee continues to work with the
                                         It is intended to minimise surprises and provide a set of processes     management to ensure that the Group has adequately prioritised
Operating Financial

                                         that will enable the Group to be more risk aware and hence, make        and addressed the risk management issues within the Group.
                                                                       Integrated capabilities across various platforms, unmanned
                                                                       technologies, solutions for greater connectivity and homeland
                                                                       security will define the defence industry in the coming years.

The Group’s Audit Committee oversees and ensures that the risk         specialised services. The business proposals are guided by a given
management polices and activities are adequate and remain effective.    set of internal investment criteria, evaluated by senior manage-
                                                                       ment and endorsed by the Business Investment and Divestment
Strategic and Operational Risk                                         Committee before seeking final Board approval.
The Group operates in 17 countries spread across the Asia Pacific,
Europe and the US, and plans to continue growing its business          Interest Rate Risk
internationally. In 2005, 19% of the Group’s assets were in the US     The Group’s cash balances are placed with reputable banks, finan-
(2004: 10%). Revenue from customers located outside Asia has           cial institutions and a related corporation. The Group manages its
increased from 26% in 2001 to 34% in 2005.                             interest rate risk on its interest income by placing the cash balances
                                                                       in varying maturities and interest rate terms.
As part of its business strategy, the Group seeks to increase
the proportion of its international business and customers,            Foreign Exchange (FX) Risk
thereby achieving greater geographical diversification. Likewise,
the Group also plans to raise the proportion of its commercial         Foreign Exchange
business compared to its defence business. A more diversified base
of commercial and military customers will reduce the risk of cus-
tomer concentration.

                                                                                                                                                Singapore Technologies Engineering Ltd
Investment Risk
The Group seeks to grow its businesses on three fronts: through
organic growth of its existing capabilities and capacities; through

                                                                                                                                                Annual Report 2005
development of new capabilities; and through acquisitions or JV of
business entities or operating assets.
                                                                         USD/SGD                                        Source: Bloomberg
Acquisition activities, ranging from the identification of targets to
the conduct of due diligence, are supported by a team of invest-       The Group’s FX risk arises both from its subsidiaries operating in                 89

                                                                                                                                                Operating Financial
ment professionals and augmented by external professionals for         foreign countries, which generate revenue and incur costs denomi-
                                         nated in foreign currencies, and from those operations of its local     Credit Risk
                                         subsidiaries which are transacted in foreign currencies. The Group      Credit risk, or the risk of counterparties defaulting, is managed
                                         entered into forward FX contracts to hedge against its FX risk          through the application of credit approvals, credit limits and moni-
                                         resulting from anticipated sale and purchase transactions denomi-       toring procedures. Where appropriate, the Company or its subsidiar-
                                         nated in foreign currencies, primarily in Euros and US dollars.         ies obtain collateral from customers or arrange master netting agree-
                                                                                                                 ments. Cash terms, advance payments and letters of credit or bank
                                         Derivative Financial Instrument Risk                                    guarantees are required for customers of lower credit standing.
                                         The Group used forward FX and options to hedge its net
                                         foreign currency exposures in the management of FX risk. These          Acts of God and/or War Risk
                                         derivative instruments are used for hedging and not for speculative     The Group manages this risk through the development of business
                                         FX transactions.                                                        continuity plans so as to ensure quick recovery and resumption of
                                                                                                                 critical business functions after a disruption. These plans have been
                                         Market Risk                                                             communicated and the management has gone through simulated
                                         The Group has investments in quoted equity shares and bonds and         excercise of these plans. Regular reviews of these plans are performed
                                         has placed funds with fund management companies. The market             to ensure that these plans stay relevant. Most contracts signed also
                                         value of these investments will fluctuate with market conditions.        include Force Majeure clauses to mitigate risk from Acts of God.
                                         To mitigate market risk, some of the Group’s funds with fund
                                         managers are guaranteed 95% to 100% of their principal values at        Legal and/or Political Risk
                                         the end of the fund management period. Also, before a fund man-         Legal risks are managed through having standardised contracts with
Singapore Technologies Engineering Ltd

                                         ager is allocated funds for management, its management capability       terms and conditions that are pre-approved. Any deviation will be
                                         and financial strength are carefully considered.                         vetted and approved by an appropriate party. The management also
                                                                                                                 vigilantly monitors the respective country’s business practices, environ-
Annual Report 2005

                                         Liquidity Risk                                                          mental issues, political impact on the projects and overall business.
                                         To manage liquidity risk, the Group monitors its net operating cash
                                         flow and maintains an adequate level of cash and cash equivalents        Reputation Risk
                                         and secured committed funding facilities from financial institutions.    Recognising the importance of providing timely and key information to
                                         In assessing the adequacy of these facilities, management reviews its   our stakeholders, the Group had put in place a communication programme
Operating Financial

                                         working capital requirements regularly.                                 to ensure effective communication to our stakeholders at all times.
                                                                      The group’s Risk Management Framework is intended to minimise
                                                                      surprises and provide a set of processes that will enable the Group
                                                                      to be more risk aware and hence, make better decisions.

Sensitivity Analysis                                                  undertaken across the Group, with their accompanying variations
                                                                      in margin, have the effect of reducing the Group-wide impact of
Interest Rate                                                         specific project fluctuations.
The Group’s cash and cash equivalents as well as funds under
management are largely invested in fixed deposits and fixed income      Others
securities. Movements in interest rates will therefore have an im-    Other risk factors that will have an impact on turnover and net prof-
pact on the interest and investment income for the Group. Based       its tend to be sector or project specific. Hence, it is not practical to
on the Group’s cash and cash equivalents of $1.2b as at end 2005,     perform a sensitivity analysis in such instances.
a one percentage point movement in effective fixed deposit rates is
estimated to result in an annual $12m change in interest income
for the Group.                                                        Shareholder Returns
Interest Rate
                                                                      Return On Equity
                                                                      The Return On Equity (ROE) improved 0.4 percentage points
                                                                      to 26.5% in 2005, as a result of the higher profit after tax and mi-
                                                                      nority interests.

                                                                      Return On Equity

                                                                                                                                                Singapore Technologies Engineering Ltd
                                                                                                                                                Annual Report 2005
  USD 3M SIBOR    SGD 3M SIBOR                  Source: Bloomberg
Gross Profit Margin                                                                                       2001 25.0 %
                                                                                                          2002 22.8 %
At the 2005 turnover of $3.34b, a one percentage point movement
                                                                                                          2003 24.6 %                                     91
in the gross profit margin of the Group will lead to a $33.4m change                                       2004 26.1 %

                                                                                                                                                Operating Financial
in gross profit for the Group. The many different programmes                                                2005 26.5%
                                         Dividend Per Share (DPS) and Earnings Per Share (EPS)                   Total Shareholder Return for ST Engineering Shares
                                         The proposed dividend for 2005 of $396.3m is higher than the            %
                                         2004 dividend of $359.8m paid in April 2005. The recommended
                                                                                                                 30        6.1
                                         2005 dividend took into consideration the Group’s present cash                                                    5.2
                                                                                                                          23.6                            22.7
                                         position, positive cash flow generated from operations, and project-     20                     5.7
                                         ed capital requirements. Payment of the dividend is subject to the                            14.2
                                         approval of the shareholders of the Company at the forthcoming
                                         Annual General Meeting. The proposed 2005 dividend of $396.3m
                                                                                                                                2003          2004               2005
                                         represents 100% of earnings for FY2005.
                                                                                                                      Capital Gain            Dividend Yield
                                                                                                                 To maximise shareholders’ value, management will continue its
                                         Dividend/Earnings Per Share
                                                                                                                 policy of paying a high level of dividends to return excess cash
                                                                                                                 generated from the operations provided the cash is not required for
                                                                                                                 investments in the future. These investments may include potential
                                                                                                                 mergers and acquisitions and the building of new facilities and
                                                                                                                 capabilities to expand the existing operations.

                                                                                                                 Share Purchase Mandate
                                                                                                                 In the coming Extraordinary General Meeting, the Company will
Singapore Technologies Engineering Ltd

                                            DPS         EPS                                                      again seek shareholders’ approval to renew the Share Purchase
                                                                                                                 Mandate for the purchase of up to 10% of the number of ordinary
                                         Total Shareholder Return for ST Engineering Shares                      shares in the capital of the Company.
Annual Report 2005

                                         In 2005, ST Engineering shares generated a total shareholder
                                         return of 27.9% for its shareholders. This consists of 5.2%             The purpose of the Share Purchase Plan is to give the Company the
                                         dividend yield and a 22.7% capital gain for the period. Over the last   flexibility to undertake the share purchase exercise expeditiously.
                                         three years, ST Engineering has been able to consistently generate      The Share Purchase Plan provides the Company an alternate
                                         good total shareholder returns for its shareholders with more than      avenue to reward shareholders apart from the traditional dividend
Operating Financial

                                         5% of dividend yield and healthy appreciation in its share price.       payment route.
                                                                        Over the last three years, ST Engineering has been able to consistently
                                                                        generate good total shareholder returns for its shareholders with
                                                                        more than 5% dividend yield and healthy appreciation in its share price.

Financial Review                                                        Insurance
                                                                        Where appropriate, the Group manages its insurance risks on a Group
Treasury Policy and Capital Structure                                   basis to leverage its position with the general insurance market.
The Group’s Treasury Unit seeks to minimise the Group’s financial
risk, ensuring sufficient liquidity to meet day to day operational        The Group reviews its insurable risk profile continually and makes
needs in securing financing for long term investments, and to            the necessary adjustments on risk retention to optimise the cover-
invest the cash and cash equivalents within the guidelines approved     age and cost. This is done with advice and support from selected
by the Board of Directors.                                              insurance brokers. Major group insurance policies include Industry
                                                                        Special Risk and Liabilities and Workmen Compensation, designed
Cash and Foreign Exchange Management                                    to protect the Group against properties risk, liabilities for its prod-
The Group adopts the strategy of centralised cash management,           ucts and services, and workplace accidents respectively. The aviation
where the excess cash of its business entities are swept to the Trea-   and marine businesses have specialised insurance programmes.
sury Unit, which centrally manages the investment of the funds.
Similarly, the FX requirements of the business entities are managed     The Group adopts a proactive strategy, with advice and recom-
centrally. The business entities hedge their material FX exposures      mendations from insurance brokers, to manage the insurance risk
arising from sales and/or purchases in currencies other than the        with specific risk management programmes covering the preven-
functional currencies. Their FX requirements are matched internally     tion of fire and the adoption of behaviour-based safety practices,
by the Treasury Unit and this procedure enables the Group to off-        among others.
set and minimise FX risk within the Group. The Treasury Unit then

                                                                                                                                                   Singapore Technologies Engineering Ltd
hedges unmatched FX requirements with external counterparties.          Funding and Borrowings
                                                                        The Group funds its investments and operations through a mixture
The aim of the Treasury Unit’s cash management and FX manage-           of shareholders’ funds, advance payments from customers, and

                                                                                                                                                   Annual Report 2005
ment strategies is to maximise the returns of the Group’s cash re-      some borrowings. Its borrowings amount to $355.9m, about 24%
sources and to minimise FX exposures and associated costs. The most     of its shareholders’ funds.
common financial instruments used to manage the FX exposures are
forward FX contracts and currency options.                              Long term borrowings amount to $16.2m and the balance is of a
                                                                        short term nature. The long term borrowings comprise mainly an                       93

                                                                                                                                                   Operating Financial
                                                                        Industry Revenue Bond issued by an Aerospace sector’s subsidiary,
                                         ST Mobile Aerospace Engineering, to fund the initial purchase of       Cash Flows and Liquidity
                                         plant and machinery for the facilities located at Mobile, Alabama,
                                         in 1990. The short term loans are denominated in US dollars at a       Operating Activities
                                         floating rate that is commensurate with the Group’s Aaa credit          For 2005, the net cash generated from operating activities amount-
                                         rating from Moody’s. The rationale of borrowing in US dollars is to    ed to $303m. In 2004, the net cash generated from operating activ-
                                         create a natural currency hedge position for the Group’s investments   ities amounted to $174m. The improvement of $129m in FY2005
                                         denominated in the currency.                                           in net cash from operating activities was largely due to working
                                                                                                                capital movements with positive variances in trade creditors, ad-
                                         The Group’s interest cover stays at a healthy 64 times, with a gross   vance payments from customers and other creditors, accruals and
                                         debt-to-equity ratio of 0.24.                                          provisions, but these were largely offset by negative variances in
                                                                                                                stocks and work-in-progress, progress billings in excess of work-in-
                                                                                                                progress and trade debtors.

                                         Borrowings                                                             Investing Activities
                                         $m                                                                     The net cash used in investing activities in FY2005 of $435m, was
                                         420                                                                    higher than that of FY2004 of $135m by $300m. This was mainly
                                                                                        356                     the result of higher cash outflow for purchase of fixed assets and
                                         350      340                                                           acquisition of subsidiaries.
Singapore Technologies Engineering Ltd

                                         210                                                                    Financing Activities
                                                                                              160               In respect of cash flow from financing activities, the net cash used
Annual Report 2005

                                                         133                                                    in financing activities in FY2005 of $184m was lower than the net
                                         70                                                                     cash used in financing activities in FY2004 of $322m by $138m.
                                                                     16    27                                   This was largely due to higher proceeds from issue of shares as well
                                                                                                                as proceeds from bank loans, but these were partially offset by
          94                                   Short Term Borrowings Long Term Borrowings Total Borrowings
                                                                                                                higher dividend paid to shareholders of the Company and minority
Operating Financial

                                           2005         2004                                                    shareholders of subsidiaries.
Cash and Cash Equivalents                                             • FRS 39 Financial Instruments: Recognition and Measurement
As at 31 December 2005, the Group’s cash and cash equiva-             • FRS 102 Share-based Payment
lents stood at $1.2b, which is $0.3b lower than that of FY2004.
The cash and cash equivalents are centrally managed by the Treasury   Apart from the above, the Group adopted various revisions in FRS,
Unit and the majority of the funds were invested in liquid assets     applicable from 1 January 2005. These do not have a financial
such as fixed deposits and placements with a related corporation.      impact on the Group.
The cash and cash equivalents as at yearend is adequate to fund the
committed and planned capital expenditure as well as to service the
Group’s borrowings.                                                   Cash Flow
Notwithstanding the Group’s current positive cash and cash             400
equivalent position, it has established short term financing
                                                                       300 303.5
facilities with various financial institutions for bridging finance.
Such liquidity facilities can be tapped when requirements arise, in    200
particular, for financing significant merger and acquisition deals.
Accounting Policies

                                                                                                                                                                        Singapore Technologies Engineering Ltd
                                                                      (100)                                  (134.8)
                                                                      (200)                                                     (184.0)*
The Group’s significant accounting policies are presented in Notes
to the Financial Statements, note no. 2 (pg 123 to 139). The          (300)                                                           (322.0)*

                                                                                                                                                                        Annual Report 2005
Group has applied the same accounting policies and methods
                                                                      (400)                        (435.1)
of computation in the preparation of the financial statements
for the current reporting period compared with the audited            (500)
financial statements as at 31 December 2004, except for the adoption
of the following new Financial Reporting Standards (FRS) that are                  Operating Activities      Investing Activities      Financing Activities                       95

                                                                                                                                                                        Operating Financial
mandatory for financial years beginning on or after 1 January 2005.       2005      2004                                                    *Includes dividend payment
                                         Prospects for 2006                                                     efforts in developing new markets in the Asia Pacific region and the
                                                                                                                Gulf States and will continue to strengthen its business and help
                                         The global economy in 2005 was resilient despite economic              sustain long term growth. The sector will continue its strategy of
                                         uncertainties caused by successive increases in US interest rates      growing its international businesses by focusing on customer
                                         and sharply higher oil prices. The Group had an active year            relationship management, the development of niche offerings and
                                         in acquisitions and invested about $550m to augment the                local partnerships in the global market.
                                         organic growth of its existing businesses. Looking ahead to 2006,
                                         the possibility of further interest rate increases and continued       The Land Systems sector will focus on applying its engineering
                                         high oil prices, risk of unexpected economic slowdown in the US,       capabilities to its commercial automotive businesses, to create syn-
                                         and a possible bird-flu pandemic continue to cause uncertainties        ergies and operating efficiencies from its newly acquired SVC in the
                                         in the global economy. As the Group continues to expand into new       US, the newly formed GJK, BZK and the STAR automotive cen-
                                         markets, the impact from external risks on overall performance         tres JVs in China. The sector will continue to explore acquisition
                                         increases. Barring unforeseen circumstances, the Group expects to      opportunities to grow its presence in China and the US commercial
                                         achieve a higher turnover and PBT in 2006.                             specialty vehicles markets.

                                         In Aerospace sector, the key challenges confronting the aviation       In Marine sector, the various ongoing newbuilding programmes
                                         industry remain the high fuel prices and labour cost pressure. The     will keep the yards in Singapore and US busy. The US government
                                         sector will continue to enhance its engineering and MRO capa-          award of the functional design contract to VT Halter Marine for
Singapore Technologies Engineering Ltd

                                         bilities to meet changing market demands. 2006 will also see the       the Egyptian Fast Missile Craft under the US Foreign Military Sales
                                         addition of SAS Component, which would bring a range of capabili-      is expected to bolster shipbuilding activities in the US yard when
                                         ties and opportunities for the sector to enhance its presence in the   the design phase is completed in about 12 months’ time. VT Halter
Annual Report 2005

                                         European components and material services market and extend            Marine also succeeded in securing various projects last year which
                                         the range of Aerospace products and services well beyond Europe.       will keep the yard busy in 2006. The US yards have since resumed
                                                                                                                full operations after the disruption caused by Hurricane Katrina
                                         The acquisition of iDirect in November 2005 would extend the           in August 2005. The sector will continue to pursue opportunities
                                         Electronics sector’s presence in the US and enable it to offer a full   in the naval and government industries and niche segments of the
Operating Financial

                                         suite of satellite communications services in the US and globally      commercial market and grow its order book.
                                         as part of its wider range of cutting edge technologies. Ongoing

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