Singapore Technologies Engineering Ltd (SGX: S63) is one of the cool companies in Singapore that shares webcasts and/or transcripts of their earnings presentations and conference calls. There may be useful and important information that investors can learn from the webcasts and transcripts. A month ago, Singapore Technologies Engineering (or ST Engineering for short), had released its results for its fiscal first-quarter, the three months ended 31 March 2016. I had spent some time listening to the webcast of the company’s earnings presentation and came away with seven things that may be important for investors to note. But before I share…
There may be useful and important information that investors can learn from the webcasts and transcripts.
A month ago, Singapore Technologies Engineering (or ST Engineering for short), had released its results for its fiscal first-quarter, the three months ended 31 March 2016. I had spent some time listening to the webcast of the company’s earnings presentation and came away with seven things that may be important for investors to note.
But before I share them, here’s a brief background on the company. ST Engineering has its fingers in many pies, thus making it a conglomerate. Its major business segments include Aerospace, Electronics, Land Systems, and Marine. These put the conglomerate into a variety of sectors including defense, information communication technologies (ICT), and global maintenance, repair and overhaul (MRO).
With that, here are my notes:
- David Choo, ST Engineering’s Group Financial Controller, kicked off the meeting with an overview of the overall results. The tagline to ST Engineering’s quarter – “lower profits” – was candid and fitting, since the company had reported higher revenue, but lower profit. Part of the reason is due to the consolidation of new subsidiaries into ST Engineering, which lead to higher revenue. But, there were weaker profits in part due to lower margins at the Marine segment.
- Moving on to the company’s various segments, ST Engineering’s Aerospace segment saw a 27% year-on-year increase in revenue for the quarter. Choo said that a good part of the top-line growth was due to the consolidation of the new Elbe Flugzeugwerke GmbH (EFW) subsidiary. Meanwhile, the Marine segment’s revenue was down due to weaker performance in shipbuilding. Land Systems revenue also fell as some of its projects were shifted out to a later date.
- If we break out ST Engineering’s revenue by the location of its customers, Asia comes out tops with $982 million. That equates to 60% of ST Engineering’s total first-quarter revenue. US is in second place with a 24% contribution. Choo highlighted the increase in Europe’s share of the pie – revenue from European customers had moved to $151 million, or 9% of ST Engineering’s total revenue. In the first-quarter of 2015, Europe had contributed just 6% of the company’s revenue.
- ST Engineering also recorded a 12% decline in earnings before interest and taxes (EBIT) for the reporting quarter. Choo said that this was mainly due to the weak shipbuilding performance at the Marine segment.
- Choo also covered the individual segments’ profit before tax (PBT) margins. Overall, PBT margins were down across the board. The most acute fall was at the Marine segment, where the PBT margin was just 2%, a significant decline from the 8% enjoyed in the first-quarter of 2015. Elsewhere, the Aerospace segment also saw its PBT margin slim down from 15% a year ago to 12% in the reporting quarter.
- Choo said that ST Engineering had cash and cash equivalents of $1.0 billion as of 31 March 2016. This is a decline from the selfsame figure of $1.7 billion recorded last year. Operating cash flow was also down to $121 million in the reporting quarter, as compared to $304 million recorded in the first-quarter of 2015. Choo said that lower profits and unfavorable working capital adjustments had pressured ST Engineering’s cash flows.
- An updated outlook for the first-half of 2016 was provided. Overall, ST Engineering expects revenue to be higher but PBT to be lower compared to the same period in 2015. Management also expects the Aerospace and Electronics segments to record higher revenue but comparable PBT. Lower revenue and PBT are expected at the Marine and Land Systems segments. For the whole of 2016, ST Engineering expects its total revenue to be higher and PBT to be comparable to 2015.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.