1H 2026 Financial Results Webcast Briefing

Good morning and welcome to ST Engineering's first half 2026 results briefing. We will begin with a presentation by our group CFO Cedric Fu. Our group President and CEO Vincent Chong will then give his remarks. Following that, we will open the floor for a Q&A session for the analysts. Without further ado, may I invite Cedric to give his presentation, please. Yeah, good morning. Welcome to ST Engineering's first half 2026 Market Update. Also a warm welcome to those joining us via the webcast. Slide two. Before I begin, I would like to draw your attention to slide number two, which states among others that the group's actual performance, outcomes and results in the future may differ materially from those expressed in forward-looking statements as a result of risks, uncertainties and assumptions. Slide three. For our agenda today, I'll be covering group highlights,

business segment discussions, contract wins and order books, as well as dividends and outlook. After Vincent will make some key remarks before the Q&A. Slide four. First, let's start with group highlights on slide number five. I'm very pleased to report a very robust set of first half 2026 results. For this period, the group delivered very strong revenue growth at 11% year-on-year. In addition, it recorded even stronger earnings growth year-on-year. EBIT at 23%. PBT at 30%. And net profit at 27%. Our disciplined execution and scale effects are clearly manifested in this numbers.

Net profit for the first half of 2026, as you can see on the slide, was $512 million. And this is with a 500-hander. This is the highest half-year profit in our history. I recall not so long ago in 2023, some three years ago, the entire full year profit for 2023 was with a 500-hander, about $500 million. And now at half time, we are already 500-plus. Slide six. From left to right, it shows the revenue breakdown by segment, by type, and by location of customers. First, by segment on the pie chart. CA contributed 41%, DPS 43%, and U.S. 16%.

Now, DPS spanks both local and international customers, as well as commercial domains, such as critical infrastructure, and not just defense domains. Hence, the DPS segment revenue of $2.8 billion, you can see on the pie chart, differs from the defense revenue of $2 billion on the bar chart in the middle. Now, in the center, we show revenue by type. Commercial revenue rose from $4.1 billion to $4.6 billion, or 11% year-on-year. Defense revenue from $1.8 billion to $2 billion or 12% year-on-year. On the right-hand side, we show revenue breakdown by customer location. Asia contributed 55%, U.S. 14%, Europe 23%, and others 8%. Revenue to customers in Europe increased,

while those of U.S. reduced largely as a result of the divestment of Lebois in September last year. But importantly, the overall group revenue increased 11%, as I have described. Slide 7. This 11% revenue growth is contributed by all segments. Excluding Lebois, it would be 14%. Excluding both Lebois and the weakening U.S. dollar, for which many of our revenue are denominated, group revenue would have grown by 15.5%, close to 16%. So a very healthy underlying revenue growth. Slide 8. EBIT grew by a very strong 23% year-on-year to $738 million. On a rebase basis, excluding Lebois and our share of city cap,

both of which were divested last year, EBIT grew 27%. EBIT must test for underlying performance. Its cash flow, here our operating cash flow, grew very strongly at 26%. From $761 million, first half 25, to $960 million, first half 26. And this underscores the strength of our core business. So the accounting numbers are very straightforward. EBIT rose 27%. I would dwell into what are the drivers of that growth. But the cash also grew 26%. Slide 9. Net profit. Net profit improved from $403 million in first half 25 to $512 million in first half 26. An impressive 27% year-on-year improvement.

Now this is enabled by one, stronger product and margin mix. Two, higher productivity. We have aimed to secure about $200 million a year in productivity. We have already secured more than $150 million in half year. And lower finance costs, as we generated more cash flow, as I described, we are able to pay down debt and reduce interest costs. We are indeed very encouraged by our growth momentum and are confident of finishing the year strongly. By that, we meant strongly in terms of earnings, not just top nine. DPS is targeting a similar growth momentum as they did in first half 25. CA expects continued strong earnings growth rate. And U.S.S. will have a stronger second half.

So all segments are poised to finish the year strongly. Slide 10. Let's move on to business segment discussions. 11. Commercial aerospace revenue grew 15%, $2.7 billion. And this is at half time, $2.7 billion. This was driven by stronger engine MRO, Nacelle's and spare sales. CA eBit grew by a very strong 29% to $288 million. On the back of higher revenue, better product mix and cost savings. Slide 12. Next on DPS. DPS revenue grew 7% year on year on a reported basis. However, on a rebased basis, which is the underlying growth, DPS revenue grew 14%, 1.4% year on year to $2.8 billion.

This is largely because Leboi was invested in September last year. And hence, for the whole first half of 26, we do not enjoy any Leboi revenue. Digital business, spanning cloud, AI analytics and cyber achieved 27% revenue growth year on year from $367 million to $468 million in the first half of 26. $468 million just for the digital business aspect. This shows an increased momentum given that in 2025, digital business revenue grew 15% year on year and now 27% if you compare first half of 26 to first half of 25. We are about one year ahead of schedule and will achieve our targeted 2029 annual revenue for digital business of more than $1.3 billion, not in 2009 but in 2008 or earlier.

International defence wins amounted to $1.2 billion for first half of 26 compared to more than $600 million for the full year of 2025. So by this year end, since we have achieved $1.2 billion in first half of 26, we will be well above 2x of the full year 2025 wins, which is more than $600. So last year we are more than $600. First half we are really $1.2 billion. We have half a year to go and hence we will exceed 2x of 2025 wins. On a reported and rebased basis, DPS EBIT rose 10% and 16% respectively to $404 million ahead of its revenue growth. On slide 13, moving on to USS Seckom, revenue grew 15% to $1.1 billion.

And this is contributed by both URS and Seckom. USS EBIT improved from a low base of $12 million to $46 million and boosted by stronger revenue across both businesses. Seckom cost reduction initiatives, which we have explained previously, were completed by end of the first half of this year with $63 million of annualized cost savings, and these are starting to accrue. I will cover Seckom in greater detail in the next slide. Slide 14. The iDirect improved its financial performance in first half of 2026. Revenue grew 18% year-on-year, increasing from $117 million to $138 million. Cost savings initiatives, as I mentioned earlier, $63 million on an analyzed basis,

were completed in first half of 2026, explained. This puts iDirect on track to becoming EBIT positive. iDirect's intuition portfolio of products and services continues to gain traction with customers. We secured strategic wins in Asia and Europe, supporting mission-critical operations for government and defense contractors, while our new software-defined modem is gaining good adoption with U.S. and international government and defense customers. This new software-defined modem is a key differentiator, which enables multi-wayform, multi-orbit operations on a single-edged platform, protecting customer investments, submission requirements, and networks evolved. Intuition foresight, which is a trade name for this single pane of glass that iDirect have introduced,

has increased traction with customers. It does so by delivering AI-driven intelligence that helps customers simplify their network operations. So it is a network management system through a single pane of glass so that they can have a hybrid modems and they can manage their network through Intuition foresight. This allows them to scale their networks and also do so more efficiently. So as a result of both our cost initiative and product initiative and customer traction, we targeted for SACOM subsegment to be EBIT positive in 4Q26 and in the year 2027 as well. Slide 15. This next section is about contract win and order book. Our contract wins totalled $7.6 billion for 1.5.26.

This was contributed by DPS $3.6 billion, CA $2.9 billion and USS $1.2 billion. Our order book stood at a robust $35.7 billion as at end June 2026. We have included the NJTA easy pass contract this quarter. Of this $35.7 billion of order book, $5.7 billion is expected to be delivered over the remainder of the year. Based on the current CS pipeline and borrowing exceptional events, we expect contract wins for Q3.26 and 2.5.26 to be strong. Slide 17. This slide details our new contract wins for Q2.26.

In the quarter, the group secured new contracts worth $1.2 billion for CA, $1.2 billion for DPS and $0.5 billion for USS. As I said, the NJTA easy pass contract was awarded to Transcorp and included here. It was awarded in September 24, but we have not included it at that time due to some ongoing legal appeal by the incumbent service provider who lost the contract. It has been recognised in the order book now more than a year after the customer affirmed that the contract remains awarded to Transcorp. This contract was in April 25. Also, the commencement of the contract was already a notice to proceed and contract and revenue has been accruing since May 25. This contract also includes options for two further one-year extensions valued at US $0.4 billion or $0.5 billion,

which have not yet been included in the group's order book according to our policy, because the option is for the customer to exercise. But the base amount has been included in our order book. Slide 18. 19. The Board has declared a higher interim dividend of $0.05 per ordinary share for the quarter-handed 30 June, 2026, which is a sign of our confidence for a strong 2026 financial performance and dividends. The record date for the second quarter interim dividend is on 24 August, 2026, and payment will be on 4 September, 2026. Additionally, the Board has planned to pay out a dividend of $0.05 per ordinary share for the third quarter-handed 30 September, 2026.

So, we used to pay $0.18 if you remember as a base dividend in 2025, so it was like $4,446. This year, first quarter was $4.00. Second quarter, we have now declared $5.00, so it's higher. Third quarter, the Board planned to declare $5.00. And then for the final dividend, we will use our dividend policy to compute, and this is how it works. For the total dividend of $26, it will be based on $0.18 as a base, which is last year's ordinary dividend, and about one-third of the year-on-year incremental net profit per share. So, the base will be $0.25 BOP net profit of $8.51 million. And then depending on how much is the net profit in 2026, we use that number, minus $8.51.

And that difference will take one-third to be paid out as dividend. And of course, if we have already paid three interim dividends, then the balance will be paid in the fourth quarter. The final dividend will be proposed in February 27, subject to shareholders' approval. Slide 20. Last but not least, this is the Group CEO's message, and let me read it out to you. The Group achieved strong revenue and earnings growth for the first half. Our earnings growth rate outpaced, in fact, well outpaced, the revenue growth rate. The robust performance was underpinned by the strength of our businesses and disciplined execution. We are encouraged by our growth momentum and are confident of finishing the year strongly.

At the same time, our strengthening audiobook and robust pipeline of opportunities stand us in good state to drive continued revenue growth. Slide 21. A summary. We delivered a strong set of results for first half of 2016. Both revenue and earnings year-on-year growth rate was strong. In fact, earnings growth rate outpaced revenue growth rate. Audible continues to strengthen to $35.7 billion, and this will provide revenue visibility. Based on the current sales pipeline, we expect contract wins for 3Q26 and 2.526 to be strong. We are confident of finishing the year strongly. Our midterm 2029 goals remain well on track. Interim dividend, five cents per share, was declared for second quarter 26, and is also planned for third quarter 26.

This marks the end of my presentation. Thank you so much for your attention. I will now hand over to Vincent for his key remarks. And can we invite the ex- Goh members to the stage? Thank you. Thank you, Vince. Thank you, Cedric. The panelists this morning are Vincent Chong, group president and CEO, Jeffrey Lam, group deputy CEO, Cedric Fu, group CFO, Mervintan, group chief operating officer, technology and innovation, and president of defense and public security, and Tan-Li Chiu, group chief commercial officer, market development, and president Smart City and Digital Solutions. I will now hand it over to Vincent to deliver his remarks. Vincent, please. Okay, good morning, everyone, here at Nesti Engineering Hub. And for those who join us online, thank you very much for joining us this morning. Now Cedric has covered the key financial numbers, so I won't repeat them.

Now, behind the strong first half 2026 results, a few things about how we grew that matter more than the headline figures. And I plan to focus on those points in the next few minutes. First, as Cedric mentioned, first half 2026 was the strongest first half results that we have seen, we have experienced on record. Also with a higher quality of growth. And I think that's an important point. The robust results were driven by our strong underlying performance and cost savings across all three segments. And more importantly, this is not a one off high, but a reflection of the higher quality, more durable earnings base that we will continue to build. As we grow and expand our scale, we are becoming more efficient.

So more of our revenue growth flows through to the bottom line now. If you recall in 2025, we had a full year unit of tax, which defined as the total operating expense divided by total revenue. We had 10.2%, which was at the record low. And in first half of this year, the unit operating expense expressed as the impacts over revenue went down to 9.1%. Really a show of the continuous improvements that we have made, productivity gains as well as procurement savings. And in many ways also supported by efficiency in our processes, in many cases enabled by AI. So that's what gives us confidence in the quality and not just quantity of our growth. We are confident of finishing the year strongly as Cedric mentioned.

So just to recap, for second half of 2026, our DPS segment is targeting a similar growth momentum as first half, 26. Commercial aerospace segment is targeting a continued strong growth rate in second half. And our USS segment will have a stronger second half, I meant, compared to first half of 2026. Second, the demand behind our business is structural in nature. As I've mentioned on many occasions, in a commercial aerospace segment, air travel keeps growing while new aircraft demand continues to outstrip supply. So aircraft fleets fly longer driving demand for our airframe and engine aftermarket services. The growing fleets also support strong demand for our nacelle and composite floor panel businesses.

In defence and public security segment, governments are investing more in security and resilience and that's playing directly to our strengths. Our digital business spanning cloud, AI analytics and cyber is growing well ahead of plan because we are positioned where the demand is heading. In fact, based on the trajectory we're seeing and as Cedric already said, our digital business is tracking about a year ahead of our 2029 revenue target of more than $1.3 billion by then. The pace of urbanisation continues to drive investments in smart mobility and critical infrastructure where we are seeing good momentum across our rail and road mobility businesses and these are multi-year tailwinds and our USS segment is well positioned across all of them. Early on I mentioned AI. Now AI runs through our businesses in two ways, two main ways.

We are a developer of AI-enabled solutions with it built into the products we deliver. For example, across defence, cyber security and smart mobility and beyond. We are also a user of AI, applying it across our own operations, making them more efficient resulting in lower cost in our operation. And AI is not new to us. It is core to how we compete and how we grow. And you would recall that we have been sharing more details about our digital business including AI analytics since 2021 investor day conference. Third, we execute with discipline. We are thoughtful about the commitments we make and we are consistently delivering on them. The discipline behind all of it is that we continue to drive sustainable and profitable growth

and such discipline runs across the group and you will see that coming through in our very strong track record in the years past. Fourth, on contract winds, looking beyond the last quarter, we encourage you to look beyond the last quarter. Second quarter of 2026, new order winds was lighter than previous quarter because contract awards are lumpy by nature. We have been talking about this point very consistently. As the timing of contract awards moves with customer funding and procurement timing and variability between quarters is quite normal. So we don't get too focused on any quarter, be it up quarter or down quarter and we look at long term trends which remains intact. As we move through the third quarter,

opportunities that we have been pursuing are already converting into contract awards. Recent announcement examples include the Taoyuan Brown Line project in Taiwan for mobility rail and the 40mm ammunition contract in the UK. In international defence, we secured $1.2 billion of winds in the first half, about twice the total winds achieved for the whole of last year as we in line with our target, with additional opportunities progressing through the pipeline. In first quarter this year, if you recall, we shared the pipeline of opportunities that we have for international defence and we said that the pipeline size was $11 billion over the next 18 to 24 months as of first quarter and that pipeline remains intact. In fact, we expect the pipeline to come through in the next 15 to 20 months because three months ago, it was 18 to 24 months,

now the timeline is in the next 15 to 20 months. So basically it has not changed. So we remain very confident that the opportunities are there for us to capture. Now these developments, it reinforces our confidence that underlying demand remains healthy and that our pipeline continues to be robust and even if the timing of awards does not always align neatly with a particular reporting quarter, many of the opportunities in our pipeline remain active. In fact, we expect our contract winds for full year 2026 to be similarly robust as full year 2025 with potential upsides. Well, of course, the market will develop as they do, but basically based on what we know of today, we expect the full year 2026 contract winds to be as robust as 25

and potentially they may even be upsides. Okay. Now, barring unforeseen events, we expect order winds in 3Q third quarter and the second half of this year to be strong as Cedric already mentioned. Now that brings me to our final point. In terms of the attributes that are working in our favour, our growth outlook is grounded in the strength and resilience of our business and in what we are building and delivering. The external environment we all know will remain challenging, but our confidence rests on the strength of our portfolio, the durability of demand across the markets that we serve and our proven ability and track record in delivering long-term profitable growth. Now this is backed by our very strong order book equal to nearly three years of our financial year 2025 revenue, giving us clear visibility on revenue and earnings in the coming years.

Taken together, these positive factors put us in a strong position as we enter the second half of the year and support our expectation of finishing 2026 strongly. Finally, the group's performance continues to be underpinned by strong and consistent cash generation, which allows us to reinvest for growth while delivering sustainable dividends to shareholders. The higher interim dividend for second quarter 26, which Cedric just walked you through, and our intention to continue growing dividends in tandem with profit growth reflects that commitment. We remain on track to achieve the growth trajectory we set out at our investor day for 2029 and in the long-term growth of the group, maybe just give you a quick update on where we are on our five-year plan. We are tracking our five-year targets very well. Commercial aerospace revenue and group net profit

are more than one year ahead of plan. So we achieve them in more than one year ahead of plan, at least one year ahead of the 2029 plan with the rest tracking well, including the digital business, which we already have a plan by about a year. And we also expect the next few years for net profit to continue to outpace revenue by up to 5 percentage points higher than revenue, because I want to address this proactively. Some may think, are we upfront loading the net profit growth, which has outpaced revenue growth in the last couple of years? Are we upfront loading it such that the weighted average is still up to 5 percentage points? The answer is no, we are not upfront loading it. We had two strong years, and the first half of this year is very strong, but the remaining time spent until 2029, we expect net profit to continue to outpace revenue by up to 5 percentage points per our five-year plan,

and hopefully we can do even better than that. So on that note, we will take your questions, and we will first open the floor to those who are here with us at SDNJering Hub, and then we will switch over to those who join us virtually. Thank you. Thank you, Vincent. For analysts and media online, please raise your hand. Please click the raise your hand icon, and we will place you in the queue. For members and participants here, remember to state your name and the organisation you are from before you ask your question. Can we have the first question, please? Rachel. Hi, good morning. This is Rachel from UBS. Congratulations on the strong first half set of results. I have a couple of questions. One for Lichu, one for Jeffrey, one for Mervyn, and one for Cedric. Sorry, Vincent, you don't have a question. So first question would be to Cedric. Last year you delivered orders of close to 19 billion.

So when you say that the order wins are expected to be as robust as 2025, can I confirm that you expect your order wins to be something along the lines of like 20 billion or plus plus? Well, I mean, as robust as 25 means at that level that we displayed in 2025, which was a very healthy level, as you already mentioned, it was $18.7 billion, I think. We expect the full year new contract wins to be circa in that region. Yeah. So we didn't give other figures. So, which will be very strong. And there are potential upsides, as I mentioned. But we will see how the year pans out because we are still not near the end of the year yet. So maybe in third quarter when we finish the third quarter, we have a market update at that time. We will give you another update on our outlook for the rest of the year.

Okay, thanks. I was just trying my luck. Okay, and I guess to Jeffrey, I know that Cedric mentioned in his second sentence that there was a real effect as well as a strong operating leverage. Maybe could you elaborate on how you achieve these productivity gains and were they concentrated in a single segment? To Mervin, could you update us on where you are in terms of your international defense business? Also, outside of IBD, where are you seeing the biggest demand? And finally, for Li Qiu, for USS, we saw this huge swing in profitability on the EBIT basis. So how much of this were you attribute to the SEDCOM segment? And the next... Sorry. Yeah, how much of this were you attribute to the SEDCOM segment? And could you elaborate a bit more on how the EBIT will run in...

will trend towards profitability? That means what do you expect will drive your EBIT on SEDCOM from a loss to a break-even or even profit in 27. Thanks. Okay, thanks for the very comprehensive set of questions. But first, before I hand over to Jeff, productivity gains were achieved across the group. Not just limited to commercial aerospace, as you also heard. Just in SEDCOM alone, we have achieved or we have captured annualized savings of $63 million as of the end of the first half of course. And also going forward, those will come through. But productivity gains apply across the group. But we can let Jeff talk about the effects for commercial aerospace. And then after that, we'll have Mervin talk about international defense business, where we are and where's the biggest demand outside of international defense. There are a lot going well for us, including the digital business, as we mentioned, especially with the growth in AI analytics,

which is very encouraging. And then finally, Li Qiu will give you... share her insights on USS, URS, as well as Urban Solutions as well as SEDCOM, which are both doing well. Okay, so maybe Jeff, we'll start with you. Well, we are very fortunate to operate with a backdrop of steady long-term growth. In the aviation industry. And so we have been continually investing both in capability and capacity. So if you look at our very diverse geographic footprint and capabilities today, and you see how we are adding on new capabilities, for example, in the 350, A350, 320 new capabilities across engines, airframe and components, that gives us a lot of scale synergy and product synergy that we can increase and improve productivity on.

At the same time, if you look at our capacity growth, as we speak, we continue to build new capacity in engine overhaul in Singapore, new airframe maintenance capacity in Singapore, in China, and in the US. So we're not slowing down in terms of how we're building capability and capacity across the network. In addition, with the productivity focus that we have that Vincent spoke about and how we are implementing, increasing AI-enabled equipment and also tooling up our workforce, we do expect to continue to grow with the market growth. Thank you. So to add on to Jeff's point, across the group, our procurement and productivity savings in the first half alone is well above $150 million.

If we recall, every year we target $200 million. And I've mentioned that year after year, we continue to outperform that target. And first half this year is more than $150 million. I'm just being a bit conservative, actually it's well above $150 million in savings alone, which helped us to be more efficient and more competitive in the way we go about competing for new businesses, which is an important attribute for us to win in the marketplace. Our costs must be competitive. We must continue to look at lean operations, making sure that our processes are efficient and productive. All right, thanks, Jeff. Talk about the merven, please. Thank you very much for your question, Rachel. Well, I will start the comments on the international defense front, right? And I'll start by referring you back to the first quarter where we highlighted the slide, which Vincent mentioned,

where we showed you a pipeline of approximately US$11 billion of opportunities now in the next 15 to 20 months. And I'd like to reiterate that those opportunities continue to be intact. And in fact, I cannot go into the details, but some of those opportunities, we are in quite intense negotiation right now. So we are quite confident that some of these pipeline eventually will turn into new wins for us. But I just want to pivot from there to talk about the other opportunities that we see in the international market, not least our counter-drone business, which saw us entering into a very exciting new market for us on the international front, where we see strong demand, especially given recent conflicts that we saw in the video is where air defense, counter-drone capabilities come to the fore. And as we highlighted previously, we have won several international contracts

on that front in the Asia-Pacific region. We offer quite a range of the capabilities on that front, ranging from detection capabilities, command and control capabilities, and stitching and ending with, of course, interventions, both kinetic as well as non-kinetic response. And we find that this is a market that is likely to scale in the future given the challenges that sovereign nations face on that front. And I think a lot of the defense budget will go into that space. So now that we have had a foothold into that interesting market, we are fairly optimistic that this will gain momentum in the near future. People think from counter-drone, I'd like to talk about our munitions business, especially on the 155MM and 40MM front. We have seen repeat customers for our 40MM as well as new customers. The UK is one of the examples that we just won in the July. And then Czech Republic also is a repeat customer

that was also reported in the July timeframe. And I can't share too much details right now, but potentially there will continue to be even more and more significant munitions sales in the near future, which goes back to the point that Cedric, as well as Vincent made, that we are confident about our third quarter as well as fourth quarter for this year. A big part of it is driven by opportunities on the munitions front. I hope I responded well to your question on international defense. And now I want to pivot to discussing opportunities beyond international defense. We see huge demand, as Vincent highlighted earlier, on the digital solutions business. And a big part of that comes from the demand from our AI analytics, as well as cyber security needs of customers, as well as on our data center and GPU infrastructure business.

And when we talk about the demand, not just on the government front, but also commercial, not just local, but also on the international front. As more companies and governments push towards greater digitalization, as well as having greater demand for AI-infused solutions, I think we are well positioned, as Vincent highlighted, that this is a growth area. And we are quite glad that we have started our investments into building the capabilities and capacity for this space much earlier before the demand picked up. And therefore, we are now able to write the tailwind of some of these demands that are coming in. I'd also like to highlight that we also go beyond the defense business in Singapore. There's strong demand from the public security and safety sector as well. Governments, including the home team, there's huge demand for our products. And you have seen some of those reports of our wins over the last few months on that front.

But a big part of it is really the demand for more digitalization of the solutions. And as I said earlier, we are well positioned to capitalize on this new wave of demand that is coming in. So those are the areas beyond international defense that we are quite confident of being able to write that wave that is there. Thank you. So Rachel, on the U.S.S. front, we did improve the demand here on the end of the first half. It's really contributed both by URS, Urban Solutions, as well as SACCOM. Having said that, the question around SACCOM, let me just give some perspective there. We have been updating that since the beginning of the year, we've initiated a series of activities to manage costs. And you heard from Cedric earlier that the plan to have analyzed savings of 63 million was completed at the end of the first half.

Obviously, the positive impact of the cost initiatives which we implemented from Q1 also was felt in the first half set of results. The lower depreciation and amortization expense that arose from our impairment of iDirect in September of 2025 also accounted for the improvement that you saw in a year-on-year compared there. The other question around how do we look at that momentum and how do we continue to build towards a positive event in 2027? The analyzed savings that we talked about from the cost initiatives will support that target as we go into, as we execute the remaining of second half and as we go into 2027. We are also seeing good momentum in the adoption of intuition.

We have been releasing some announcements pertaining to defense and government contracts, which Cedric also alluded to. It might not be that well known, but we do have a very strong track record in our satellite communications capabilities as it relates to EU nations and NATO member states. So 20 of the 27 EU nations actually are served by SAE Engineering iDirect Comms solution and 24 of the 32 NATO member states use the secure communications devices from iDirect as well. So we saw that in Q2, the continued investment to enhance secure and resilient comms capabilities is front and center for Europe as well as for Asia.

We look at our robust pipeline and that obviously also underscores our confidence as we look at turning around not just a bit from cost but also growth in revenue. So more and more we are seeing customers resonating with the standard space, the interoperability, secure comms that we are putting forward, but even on the commercial side, they are seeing the resilience that comes with multiple waveforms that we support, multiple orbits that our technology and platform supports. Thank you, Rachel, for your questions. Yes, we'll get a second question and I will make sure everyone has time and then to ask your questions. We'll answer a second question and then we'll go online and we'll come back to the fiscal meeting arena if it's okay with you guys.

Thank you so much. Congrats on the results. This is Meg from CGS. So I have three questions. One on commercial aerospace. Thank you, Jeffrey, for the color on the productivity savings. But we also hear from you on the product mix changes as well. So in the first half, how has this mix changed and how do you see that progressing into the second half? And then my second question on the order wins. So again, just following up on the previous question. So if we assuming even if we are flat year on year, so that implies about 11 billion order wins into the second half or a roughly 5 billion ish win per quarter. So I think that's the right way to think. Understand there could be lumpiness, but is that the right way to think about it? And which segments are you like just just trying to understand where is this confidence year on year? Because I think we were previously at a 4.5, 4.9 rate and now to going above 5. Where is the confidence coming in from?

And thirdly on USS. So given that we've achieved the 63 million annualized run rate. We've gotten the EBIT at about 46 million for first half. So is it fair to say that the second half could be stronger on the back of completion of these cost savings? Thank you. Yes. Well, I think we can answer in the reverse order. We get you to talk about the savings and we already said that second half for USS will be stronger than first half. Well, give let the shoe give more colors color on that. And then we will save Jeff for the last in terms of your product mix and how they look at commercial aerospace going to second half. Now order wins. We didn't say flat year on year. We say it will be as robust as 2025 and there may even be a potential upsides depending on the timing of some of the programs. Where is the confidence coming from? The confidence stem from the fact that we are in three growth structurally growing segments that has long term good growth traction.

In defense and public security commercial aerospace or urban solutions and second, as I said in my opening remarks, these are structural demand that will underpinning underpins our confidence and our track record in securing growth. Delivering growth profitable growth give us even more confidence that the years ahead will continue to be very positive. And if you just look at our track record in terms of new order wins order book, despite the quarterly, you know, absent flows are trending in the right direction in the northeast direction. When it comes to order book and new order wins northeast and when it comes to cost is going in the southeast direction, up backs over revenue. And that's these are signs of businesses business that is very well run and well executed. And it's not over one year, but over many years over business cycles, even during the toughest time of covid pandemic.

We deliver resilient results because of the discipline that we apply in execution in investments, making sure that it gives us, you know, good returns from our investments and also making sure that we do continuous improvements efficiency productivity. And we have also been very candid to the market when we see headwinds and challenges, we talk about it and we see upsides. We also share with you. Keep in mind that business cycles will keep coming in and out, but our resolve and our focus on delivering a delivering such sustainable growth remains unchanged and will stand us in good state. In the years ahead. So it's a more elaborate answer than what you're expecting, probably. But keep in mind that we remain very confident that the order wins will continue to be robust.

Not just second half, but also going into 2027 because of the universe of opportunities that we are addressing as a group across three segments, all three segments. Yes, maybe we can just hand over to Jeff to talk about the short and sweet. We have many multiple product and market segments. I would say all segments are holding steady with some segments actually doing very well. If you look at the engine MRO market where the CFM56 engine has not peaked in short visits, expecting to peak in 2028 and with the leap engine ramping up very quickly. You can see a huge amount of growth in that area and our nacelle deliveries steadily following the OEM deliveries which continue to grow despite continuing supply chain challenges.

It's continuing to grow and addressing some of these challenges head on. So these are two key drivers of our product growth market. Thank you. I hope we address your questions for now. Thank you. Maybe we take a question online. Luis from Citi has a question. Luis, you may unmute your. Hi, good morning. Thanks for hosting the call and congrats on the results. Just two questions from me. EBIT margins for the half, once more quite strong and strengthening. Just wanted to get a sense of whether you expect EBIT margins for the group to continue to improve. And if so, which divisions would be leading the improvement? Second question is more of a housekeeping one. As Cedric mentioned, the DPS international wins are more than doubling this year from last year. Could you give us the level of international order wins last year?

Luis, just to confirm, you wanted to know how much was the order win for international defense in 2025? Correct. The one that's going to more than double. For first half, it's 1.2 billion I saw. But just wondering what level it's doubling to this year. For the full year of 2025, we secured more than $600 million worth of international defense wins. And I think earlier this year, we said that we target to double that for 2026. As of midpoint of 2026, we expect in the next two quarters, more upsides to come. I hope that addressed your question on the international defense wins. And as Mervin and I both mentioned, the pipeline remains robust and intact. And we are going after every opportunity that's addressable by us.

And then EBIT margin will continue to strengthen. If you think about what I've mentioned earlier, we are confident that net profit will continue to outpace revenue growth. So from that standpoint, margins will continue to strengthen. And it's going to be generally so because our three segments are all targeting for stronger performance in the five years that we plan through 2029. Of course, at the right time, we'll publish another set of five-year plans. But for now, the current five-year plan talks about 2029 targets. And we expect margins to continue to strengthen. For the various reasons that we talked about, we have more scale. Margin and Project Mix that we can see is going to support that. And we also have productivity savings that we expect to come our way. We expect our cash flow to be strong, which also drives reduced lower interest costs, which we talked about. And we also have another point where we say in the five-year horizon, we expect the amortization of intangible assets to continue to come lower in that five-year range.

So hopefully that answers your question on EBIT margin profile. Yes, it does. Thank you. We also have a question from Roy, you may unmute yourself. Thank you for the opportunity. Congrats on the very strong results. I have two questions. Sorry, two questions. First, I think one question was not answered just now was regarding the color for the U.S.S. second half outlook. I understand the revenue growth is guided to be higher. Potentially, these are from both Urban Solutions and the Cyclone business. So could you please elaborate where for the Urban Solutions growth, where does it come from? Yeah, that's the first question.

The second question is for Jeffrey. Could you please remind us regarding your capacity expansion growth rate in the next few years and the current utilization in terms of the booking of the hundred slots and also the engine workshop slots? Yeah, so these are the two questions. Thank you very much. Okay, so I'll let Jeff answer the question. But for U.S.S., we talked about second half, we're expecting second half to be stronger. As you asked about U.S., I think some quarters ago, we talked about our major projects for mobility that will kick into full gear. And that's one contributing factor for our URS business to be gaining strength in the next few years. But I'll let maybe start, let you start the discussion going. Yes, let you please. Okay, so let me just comment on the U.S.S. second half performance.

I know Vincent has said that, maybe Roy wanted to hear from me. Second half, U.S.S. is expected to be stronger than the first half, both in revenue as well as in EBIT. And we did say in the slides that we are targeting Q4 EBIT to be positive for SECCOM. So in totality, as we look at U.S.S. is typically second half weighted and that is supporting the claims and also our confidence that we will deliver both on the EBIT and revenue front a stronger second half versus what you are seeing in this first half results. The question around what is shoring up the URS revenue. So I would say that we are delivering against a very strong order book, which we talked about last quarter as well.

I think last quarter we said that our order book is more than 4.5 times of our 2025 revenue. And obviously, at that time it excluded the NJTA into the order book itself. And part of our focus in Urban Solutions is ensuring that we execute well for the contracts that we have won from the customers. And in the Urban Solutions portfolio, as you know, it comprises of smart mobility, both road and rail. It also has the smart utilities and infrastructure. We have projects globally ranging from the Middle East to the U.S. to Asia. And our confidence in delivering a stronger second half comes from the fact that we are executing to each of these projects diligently.

We announced a 840 million win with the Taoyuan Brown Line project. We also said that work will commence in Q4. So we know that as we continue to win these new orders and as we execute the projects in line with the customers timeline, these will give us visibility to our strength in the revenue that we will convert. So hopefully that answers your question, Roy. Thank you. We come back to the location of SDNJN Hub and we invite Lorraine to answer questions. I think was there still a question for Jeff? Across the MRO network, we are achieving close to 90% utilization today. And if I look at the capacity expansion over the next 18 months, I would estimate we are targeting around close to 20% capacity expansion across the MRO network. Thank you.

Okay. So with the Lorraine Tan from Morningstar, with the operating cash flow looking better, I'm just wondering whether the group is looking at how they will allocate any excess cash going forward. Are there opportunities for boats on acquisitions or other such acquisitions? Are there gaps that would help make securing the 11 billion pipeline more achievable or more specific? Just wondering if you can provide a little bit more on that. Yeah, we will maybe I'll let Cedric talk about it, but we have a very strong balance sheet and we have very good access to capital when we need them, when opportunities come. There's no limit or no constraint today in our ability to capture the opportunities that are out there, including the pipeline of international defense opportunities, the 11 billion US dollars that you mentioned. There's no constraint today.

But of course, a very strong operating cash flow gives us much more flexibility. Well, invite Cedric to help us to share more on this topic. Yeah, I mean, as I said, when we have excess cash, first order of businesses fulfill our dividend promise. So we have a very clear dividend policy. We allocate that to that. Then what remains is, can I pay down my debt or can I reinvest for growth? Now, this is a question where if you have a very fixed target, you kind of deny yourself an opportunity to consider growth. So every growth opportunity has different attributes. Even if it's an M&A, is it valued correctly? Is it a Cedric fit? Do we have a right to play? How short term is the payback? Cultural issues. There's so many things to be considered. So I would say that we are always open to opportunities, not just to reinvest, but also to divest, as we have done 20 businesses in the last few years.

So that we get into higher quality revenue, higher quality earnings, as Vincent described, right? Where we have a right to play and right to scale. I think that's our focus. As Vincent said also, we have access to short term capital. We have a US commercial paper program, which is very competitive, very liquid. In fact, we're only one, the only industry company in Singapore that has a US dollar commercial paper program. We also have a lot of access to long term fund. We are rated AAA for our bond issue. I don't think we have very good access to very competitive financing. So that definitely is not a constraint. Even if we use up the cash, we still have access for further growth if we choose to do so. But every growth opportunity must be done with discipline, very careful and clear clarity of strategic thought, and also into areas where we see growth and we have a right to play.

I think fortunately, just to chime in on some of the questions that were asked, we are in the right sectors. AI, something we've done in terms of machine learning for many, many years, especially in the defense business. Modern defense, men and men, teaming, we have demonstrated that at ASIO and recently we won two international counter drone facilities. And in terms of urbanization, as you have seen in Taiwan, we have won so many contracts, thanks to Lijiu and Tim. International defense, strong tailwinds, commercial aerospace is structurally growing, both from OEM production rate as well as MRO because aircrafts are used for longer, so are engines. So there are a lot of tailwinds here and hence our confidence to give you the numbers we have in the five-year plan. And now we're telling you many areas are ahead of that five-year plan.

And the five-year plan excludes M&A, and when the right opportunities come our way, we do have the ability to capture them through acquisition if needed. So we are constantly looking at acquisition opportunities, but we must make sure that the acquisition opportunities are in line with our strategy, and that they give us the required returns, or if they meet certain strategic objectives, then if they all meet the attributes or deliver those attributes, then we will certainly have the capacity to go after them or capture them. So, Lorraine, I hope we've addressed your questions. Do you have further questions at this time? It's fine? Okay, maybe we get... Do you have questions, Jason? No? Yeah. And then after that, we go to Paul. Sure, thanks. Just have three short questions. So first one is for Jeffrey. I wanted to get a bit more color on commercial-resquees margins, so I understand that you've really covered productivity and the product mix,

but there's been little... there's been no mention at all on pricing. Maybe if you could share how pricing has been trending over the past few quarters, and if it has actually contributed to margin expansion. Second question is for Lijiu. Thank you for sharing the milestones that is required for the SATCOM business to turn a positive ebit. I wanted to get a sense of, as you look at the business over the medium term, what kind of bit-mudging do you think can be sustainable, given that the commercial landscape still remains relatively challenging, to say the least? And last question is for Mervin. So, I mean, can you maybe share some of the key lessons that you have taken from the recent U.S.-Iran conflict? How do they differ from other recent conflicts, and maybe have these developments changed your views on which capabilities will be the most relevant, and if traditional platforms could slowly become slightly less relevant? Thank you. Okay, well, it's an interesting question. I'll let Mervin address. Well, we are well positioned with the portfolio of products that we have in the defense space, that we can say.

Then maybe we start with commercial aerospace on margin, you know, and then the effects of pricing, and then followed by Li Qiu on the SATCOM, the question regarding SATCOM ebit margin. Jeff? So, commercial aerospace, we operate in a very competitive global market. So, our contracts are with major airlines and lessors, and we compete directly with sizable global players. So, the market pricing continues to be highly competitive in a situation of bid to win or bid to lose. Bid and lose, you know. So, I would say that in terms of margin expansion, it's driven primarily by product mix. And of course, Min Shin has mentioned a lot about our scale efficiency, as well as our productivity initiatives. All this contributes to our margin expansion. And if you recall, we were working towards a double digit ebit margin for commercial aerospace.

And in the first half of this year, we've actually achieved that, thanks to the support of our customers. And we endeavor to continue to address and to grow our ability to be profitable. Thank you. Okay. Thank you, Jeff. Will we go to Li Qiu, please? Yeah, Jason. So, I think beyond taking the business profitable, which is obviously top of mind, we as an organization will need to stay a job to continue to drive up profitability. And the reason why I say that is if you follow the path that we have taken, not just from a technology standpoint, in rolling out intuition, both at the core, at the edge, you know, the software-defined modems, the foresight,

which is a single pane of glass for both network and service management. We've also gone out to market to say we will be offering asset service. So, intuition unbound is a new business model that we have introduced to the market. And we believe that that business model will open up markets that have not typically or traditionally been our set-com customers. So, it's not an easy question to answer because we need to see how the market will continue to evolve. As our customers, our satellite operators, regional as well as international, works their strategy of competing with the vertically integrated providers.

But we do know that the strategy of having a standard space, the strategy of having a platform that is multi-orbit, modems that will not lock in customers because they only need one hardware now. And it's not dependent on what kind of waveforms they need to operate in their environment. Those are elements of our strategy that would give us inroads, not just into the existing install base that we are servicing, but also potentially new customer base. So, with scale, profitability will also improve and come. So, I guess maybe I will say that, you know, we're working all the different pipes. We believe that that is the right path to get us to not just profitable business, but to improve profitability and we'll update you as we progress.

All right. Thanks, Liqiu. Thank you very much, Jason, for your question. On the issue of key lessons of the Iran conflict, what capabilities are you think are more relevant these days? I think the one that strikes quite clearly to most observers of the Iran war is that the air defence capability, especially the counter-drone space, probably is top of mind. If I go beyond the Iran conflict to also look at the Ukraine war, the use of drones and drone warfare as an offensive weapon redefines air power in terms of being able to deliver capabilities from the sky that are a lot more cost effective and quite asymmetric in terms of the targets that they are impacting and influencing the outcomes on the battlefield. So, I spoke about the counter-drone capability that we have built and which we have entered into a new market.

So, I think we're well positioned because of the new demand that comes from observations of the Iran war where air defence capabilities no longer are defined by expensive ground-based air defence solutions, missiles, etc., against traditional air power threats. But rather, much more lighter and more flexible counter-drone solutions that can be offered by primes like ourselves as well as startups. That's why we're also working with startups and looking at how we can integrate some of their capabilities in the full suite of offerings that will form part of our counter-drone package that we will be able to market to our customers. And so far, we have got successes on that front. On the drone warfare bit, the offensive bit, you also know that we have started to go beyond just the medium-sized drones to much smaller drones that can be operated by the soldier in the battlefield, the RTACs as well as the ATOS series of small drones that already see some local use is also something that we are promoting for overseas customers as well.

So, I would say that the drone warfare is one of the very obvious key lessons from the capability standpoint that stem up from the recent conflict in Iran and Ukraine. The other is actually in the digital space, right? The warfare on the battlefield these days, I think, is a lot more complex compared to the past. And therefore, having that situational awareness of what's going on and being able to make the right decisions on command and controlling your forces on the ground is also an important aspect of what we see as a lesson learned from the Iran conflict. And again, I think our business in SDN during its well-position to right the tailwind from this demand, our AI-enabled insights from our command and control solutions that we provide to our customers allow for the data analytics that is not possible in the past. So that some of these insights that come up from the analytics will allow our computer commanders on the ground to make better decisions, decisions that they couldn't have been able to make without their AI-enabled capabilities to enable cognitive abilities of our commanders beyond that was traditionally humanly possible.

Situational awareness using satellites is another area that we see as important. And that goes to our satellite business, especially Earth observation satellites, as well as the huge business in terms of satellite communications connectivity. No point being able to do the observation, but not being able to communicate to your forces at the edge to act on those situational awareness and knowledge. So I would imagine that the space arena is becoming more and more critical. And that's a tailwind for us in terms of our ability to build more Earth observation satellites, as well as satellite communication connectivity, the hubs and modems that will allow for the information to be passed down to the forces at the edge. There is a tendency to think of armour capabilities as being less relevant in the future. But from what you see in Ukraine, both sides continue to use armoured forces in order to move troops around.

So our own observation is that armour continues to be relevant, especially armoured fighting vehicles that is able to carry troops on the ground. Because ultimately it is the forces on the ground that will cover the area that you win. And you want to be able to move these forces in a protected manner quickly across the battlefield. And armoured fighting vehicles are the way to do so, whether it's tracked or wheeled. And which is the reason why we do see quite a significant amount of demand for our armoured fighting vehicle solutions, both in the Europe as well as in the Middle East. Another area I would like to talk about, not so much a capability per se, but rather the recognition that in order to fight a war of extended length, especially the attrition warfare that you're seeing in Ukraine, relies a lot on your ability to have your own indigenous supply chain. Because a lot of that capability in order to sustain a prolonged war requires you to build that industrial capability within your own sovereign nation, so that you don't have to depend on others.

And that's something that we saw in Ukraine. And that's something that you also see in Iran warfare, especially when demand for air defence capabilities are depleted at a rapid rate for the countries that are being attacked. So we do see that as an opportunity as well, because a lot of the Middle East as well as Eastern European countries where the industrial defence base is not as mature, that's where they are looking at building up their local capabilities. And we are well positioned to be able to leverage that new demand that comes from them, because we are always in the our strategy when we look at international customer is they would like to partner the local industry so that we are able to sort of share some of our technology so that they can also build up some of the indigenous capability, which is desired now and a key lesson from the recent conflict where your supply chain resilience is core. And that positions us well, because our strategy is really to work with the local partners to build up their capability, create good jobs for their people, which is of political interest to their leaders on top of building capabilities and selling their capabilities that we have in Singapore.

So I would say that the lessons that we see in recent conflicts all give us that confidence that we are putting our emphasis in the right areas, especially in our strategy towards switching out on the international defence market front. I hope I answered your question. Thank you. Maybe we go to Paul now. Thanks. I stand so long. Just two accounting questions. There was a bit of swing in the translation losses first half last year and first half this year. Maybe trouble said it is a bit of explanation. And also the decline in amortisation was it related to this I direct. Thanks. Okay. We can. Cedric. As I pointed out, US dollar did weaken if you look at the average weight in twenty six versus first half twenty six versus twenty five.

And therefore, at the revenue level, when you translate US dollar to sing, you have a smaller sing dollar. So it does affect us. In fact, at the group level, if you take into weakening US dollar into account, our growth is actually higher than eleven or fourteen percent. It's more than fifteen point five percent. So there's some effect on that. But in terms of hedging, in terms of cash flow hedges, we have always have a very good hedging policy to look at whether we are net long or short a certain currency. So in US dollar, for example, we have net long US dollars. So we will sell US dollar forward. So that will have much less impact on our EBIT because we protect our margin by doing it this way in a waged manner, actually. So there's one. So I would say the currency impact is not it's not great, but it does have some minor impact on the top line for us because of a weakening US dollar.

Then on the amortization, yes, I direct is one of them with some impact. But of course, as you have K-PACs in the past, you would also have amortization that's involved, anything that is capitalized. So that basically, I think K-PACs wise, we are looking somewhere in order for the full year of twenty six, something like five hundred six hundred million, which will include right of use assets, which are basically leases, but now classified as on the balance sheet as asset. So those will also be those are the ball punk numbers. Of course, if it does go higher than that means that we have unforeseen investment opportunities like what Lauren asked just now. And we will do so with great discipline and with great IRR. So even if it go up, it should be a good thing. Thanks. Just a quick follow up. So that the translation loss to gain, this flows through the P&L. There are two impacts, right? I mean, one is that as I said, the revenue side, it does hit, but we don't hedge that.

But on the net long-latched short side in terms of your revenue cost mismatch, right? In a particular currency. So, for example, we collect more U.S. dollar than we spend U.S. dollar. Then we are long U.S. dollar. So if we don't hedge this by buying it forward at a fixed rate, then our margins will be affected. So that we hedge. But even if we hedge, we don't hedge 100 percent and forever enough the length of the contract. We hedge in a wedge manner. So in the first six months, we try to be hedged about 80 to 100 percent. In the next six months, we try to be hedged 60 to 80 percent and so forth. So there are some parts that are still not hedged and therefore there will be some impact on the EBIT as well. But you'll be much minimized compared to a non-hedged position. I hope I answered it. Thank you. Okay. Thank you, Paul. Any other questions? Yes. I have three questions. Two, a quick follow-up on order book and margin. Another one for international defense.

Firstly, for the order book, can we have a breakdown of order book by segments so that we can assess the order duration and capacity tightness for each segment? And second question is for commercial aerospace, the margin for engine. Can we understand the margin for engine is higher than airframe? So that's that may our expansion on the capacity for engine. We could drive the margin expansion further. And thirdly, for international defense segments, what's our key competitiveness? Yeah, we understand that we have partnership with local partners to do local production. Beside that, what measure we plan to do to penetrate more new markets, like hire more international background people to penetrate new markets. Or we have more ample capacity compared with those European or Middle Eastern competitors. Or our key product like Bronco or Terrex is more compatible with our competitors' products. Thank you.

Well, so thanks, Herbert, for first of all, for attending our earnings review for the first time. Welcome. So thanks for your questions. We don't have three sections on order book by segments. And then you have margins on engine, MRO versus airframe, MRO and international defense, our key competitiveness. Now, I'll let Mervin talk about this because we do have a very unique differentiating attributes when it comes to international defense. Mervin talk a little bit about it. We know we partner with strong local partners. That's a very important attribute. We do local production in partnership with the local partner where possible to create the job opportunities and retaining the industrial capabilities. We also share intellectual properties, which are important aspect of having self-reliance and resilience for the country that we work with.

So I'll let Mervin talk a little bit more. Now, order book, we do not disclose by segment, but suffice to say that all three segments have robust order book. The one time that we give more example, actually in the first quarter of this year, we said that U.S.S. order book is more than four and a half times 2025 revenue. So book to bill is more than four and a half times. And if you add the NJTA contract of $1.7 billion that we added to the order book in end of second quarter, plus the brown line for Taiwan of $840 million that we secure in third quarter, not yet in our order book, you can see that the order book for U.S.S. alone is already very robust. So we kind of like you can do the calculation and math what that order book is. But we do not disclose by segment at this time. Suffice to say all three are at a very robust level.

So with that, I will hand over to Jeff to talk about the MRO margin situation. Well, it's a difficult question only because we have different product makes different geography, different contract type. So my straight answer is the margins are similar. Thank you very much. Thank you, Robert, for your question and welcome. First time here, right? Yeah, I don't know where to start because I think in terms of key competitive advantage, we have quite a fair bit, right? I spoke about partnering the local partners that are there and all those advantages in terms of being able to provide good jobs, being able to leverage on their networks, being able to help them in their ambition towards being supply chain resilient. Those are factors that are important considerations for international defence sales.

But on top of that, actually, some of these markets where they have a less mature industrial defence base is where also we find cheaper labour and lower cost in terms of some of the materials that we need for our manufacturing because they are closer to source, right? So cost effectiveness is probably one of our key competitive advantage. The other is in terms of performance of our platforms and solutions. I always like to highlight our Bronco solution that you mentioned, Herbert, right? And it is actually one of the most capable platforms, track vehicle that can provide that combat service support requirements for many militaries. And if you look at the literature, there's really not many competitors out there. In terms of the kind of performance that can be provided by our Bronco platform, I can count in less than one hand the kind of competitors that we have on that front, which is the reason why there's a lot of demand and interest in the Bronco platform that we're offering.

Even on the maritime arena, in terms of performance, one of the key characteristics of our products is the fact that we are able to man quite a significant capability in the water with a very small number of crew. And a big part of that is the special design that we have, incorporating a lot of technology into our solution. Because in Singapore, we have a very small population. So in terms of the number of sailors, airmen, as well as soldiers, we have much smaller numbers compared to European countries and in the Middle East, for example. And some of the Eastern European countries like Estonia, Lithuania, they also don't have a large population. And some of the Middle Eastern countries like Qatar, for example, they don't have a big local population too. So some of that design, there is a lot more ergonomic, which will leverage a lot of technology in order to reduce the crewing requirements, actually appeals to some of these customers that have similar constraints like ours in terms of manpower resource.

So I spoke about cost, I spoke about performance. Finally, I want to talk about capacity. Because of the war that you see in Europe, in Ukraine, actually a lot of the countries that supported Ukraine are trying to replenish their own defence capacity to levels that were before the Ukraine war. I would say it levels that were even higher than before the Ukraine war, because their realisation is that post World War Two, they have enjoyed their peace dividend and have reduced in terms of their investment in defence. But those have gone up significantly. So many of these countries are trying to replenish themselves to levels even higher than before the Ukraine war. And many of them are using their own local industry in order to provide that resupply of a levelling up of numbers to levels higher than even the Ukraine war. And that creates an opportunity for us, which is the reason why in many of the competition that we see, one of the value proposition for us is that we are able to meet their demand schedule.

At a much faster pace. Why? Because a lot of the other traditional competitors, they have capacity constraints because they are replenishing their own country to levels higher than before. At the same time, there's quite a lot of orders that they have received because there's overall increase in defence spending and overall demand. And that creates an opportunity for us to add a new proposition, which is that we are able to meet the demand schedule of the customer. So whether in terms of cost, whether in terms of performance, whether in terms of capacity, I will say all three are part of our competitive advantage. The final one is really the post sales support that we provide. The very fact that we are able to win the MRO in Qatar and MRO is maintenance, repair and overhaul services is really a post sales capability that we provide to our customers. And that requires quite a significant amount of a bit of engineering competencies. Our design in terms of space provisioning, our design in terms of the technical workshop, our ability to help to manage and make sure that even after we sell you the platform, the availability as well as the serviceability of the platforms continue to be very strong even after years of operations.

And that also is a strength of ours and together with the other three attributes that I mentioned earlier, put us in a good position to be able to have that strong pipeline hopefully to convert into wins in the near future. Thank you. So over, thank you, Mervin. Overarchingly, Singapore also has a very strong brand name, trusted brand name. We have a legacy or heritage of six decades of strategic partnership with the Singapore Armed Forces. That gives us good brand awareness and good brand strength as we address the international market. Thanks, of course, to our very important customers at the Singapore military, Singapore Armed Forces and the Ministry of Defense. So all that work together that make us very competitive in the international arena for defense competition. Here we have rather defense product competition, defense projects. Maybe we let we ask one have one final question in the room before we adjourn the meeting.

Any other questions at this time? I know there are no more questions online, as I understand. OK, go ahead. I want to squeeze in one. I think generally you give one slide on the overall management, which I didn't see in this deck. If you can just quickly highlight on your capital management, especially with your, you know, a growth targets that you have. Please go ahead. Yeah, because of our strong cash flow, our total debt has come down. We are now at the end of the first half of the 26th, we are at about 4.7 billion. And our weighted average financing cost is about 3.45%, 3.4 to 25%. So which is very healthy. That tower is all quite well spread out. And as I said, we have very good access to short term funds in terms of the U.S. commercial paper and the bond market,

because we are rated AAA. So in good hands, basically. There was an MTN that was due in May this year. Because of the interest rate environment, we decided to defer that. But on the other hand, because we have access to U.S. commercial paper, a very large program size, we can use it to breach it. In fact, at lower cost. But of course, it's a shorter time alone, but it's at a lower cost than if we had compared to if we had issued the bond at that point. Do you see the debt level in the overall, the debt metrics, gearing, etc. to be at this level? Or do you think it can go down further? Yeah, again, it depends on, I mean, dividend will fit fully backed it up. It depends on investment opportunity, right? So if we do invest, then of course, we are not shy to tap on the facility.

But just to state that right now we're not looking at anything large investment in the likes of Transco and things like that. That's not on our desk right now. But it behooves us to always look at good investment opportunities, because we want this trajectory to go well beyond 29, 39, 49, right? That's also why we invest in R&D conscientiously. So it depends on that. But barring that, then of course, our strong cash flow will allow us to reduce debt. So you can see the improved metrics going forward, especially our debt over EBITDA has improved. You can look at it over the years significantly. Yes, and of course, our strong balance sheet and cash flow gives us a lot of flexibility. Re-investing cash in the business gives us good returns. And just last year alone at the base operating performance level, our return on capital employees are 11% very strong.

So if there are good growth opportunities for us to invest our cash, we will have the ability to do so. Or if the best disposition is to pay down debt, we will also do so. But it gives us a lot of flexibility after paying dividends to our shareholders. So that is a commitment. And access to debt, actually, in some cases, not in an excessive way, will reduce our weighted average cost of capital, and therefore generate even higher economic value. And this leverage provided always is not in excess, helps your return on equity. And last year, our ROE is something 28%. And we believe this year will be higher than that. 28.7% return on equity.