How Did The Land Systems Business Segment Of Singapore Technologies Engineering Ltd Fare In 2016?

Singapore Technologies Engineering Ltd (SGX: S63) is an engineering conglomerate with four main business segments, namely, Aerospace, Electronics, Land Systems, and Marine.

The company recently announced its 2016 full year results. Given the complexity of ST Engineering’s business, I thought it would be useful for investors to take a separate look at the performance of each of the four segments.

I had previously covered the Electronics, Marine, and Aerospace segments in here, here, and here, respectively. In this article, I will have a quick review of the Land Systems segment’s 2016 business performance and future outlook.

2016 business performance

In ST Engineering’s 2015 annual report, the Land Systems segment is described as one that “delivers integrated land systems, specialty vehicles and their related through life support for defence, homeland security and commercial applications.”

The Land Systems segment was the third-largest revenue contributor to ST Engineering in 2016. But, the business was the smallest profit contributor. Here’s a table showing some of the important financial numbers for the Land Systems business in 2016 and 2015:

ST Engineering Land Systems business income statement
Source: ST Engineering 2016 results announcement

At first glance, 2016 would not appear to be a good year for the Land Systems business: Revenue had declined by 6% while the bottom-line tumbled by some 77%. But, there are good reasons why the performance had been this way. Ravinder Singh, the president of ST Engineering’s Land Systems segment, shared the following comments on the business’s performance in 2016:

“FY2016 revenue was lower compared to FY2015 due to divestment of GJK. Lower PBT in FY2016 was mainly due to JHK impairment and closure cost. In 2017, we will pursue key programmes and continue to strengthen our engineering capability. We will continue to penetrate new markets through partnerships, pursue new customers and venture into new growth areas.”

So, the lower revenue was due to the divestment of the GJK subsidiary. Meanwhile, the profit decline was largely the result of the closure of another subsidiary, JHK, which brought with it impairment and closure costs of S$65.1 million. If the one-off charge was excluded, profitability at the Land Systems segment in 2016 would have been higher than in 2015.

The Land Systems business can be further broken down into three other sub-segments. The following table shows the revenues and profits before tax for the sub-segments in 2016 and 2015:

ST Engineering Land Systems sub-segment table
Source: ST Engineering 2016 results announcement

We can observe that with the exception of the Automotive sub-segment, the other two sub-segments had delivered growth in both revenue and profit before tax in 2016. But, if the one-off closure costs of JHK was excluded from the results of the Automotive business, it would have ended 2016 with a much better set of numbers.

Looking ahead

After a rough year in 2016 for the Land Systems business, ST Engineering expects the segment to deliver comparable revenue but higher profit before tax in 2017.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.