THE WINNING SPIRIT ANNUAL REPORT 2006

Transcription

1 THE WINNING SPIRIT ANNUAL REPORT 2006

2 CONTENTS 01 The Winning Spirit 10 Letter to Shareholders 16 Financial Highlights 22 Board of Directors 26 Senior Management 30 Organisation Chart 32 Corporate Governance 44 Environment, Health and Safety 45 Corporate Social Responsibility 46 Investor Relations 48 Investor Relations Calendar Financial Calendar Share Price Performance 50 Human Resources 54 Awards and Commendations 56 Operating Financial Review 62 ST Engineering at a Glance 89 Financial Report

3 1 The winning spirit entails more than performance. It is an active and adaptive mindset one that defies odds, embraces the courage to be different, and determination in the face of adversity. ST Engineering empowers its people to direct positive energy into innovation and achievement. With the winning spirit, challenges are transformed into opportunities, problems into successes.

4 THE WINNING SPIRIT ST Engineering AR Letter to Shareholders The Group recorded double digit growth for a second straight year in Our net profit rose by 12% to $445.1m on the strength of the Aerospace and Electronics sectors and higher contributions from our overseas acquisitions. Group turnover was up 34% to $4.49b, while profit before tax increased 12% to $564.3m. Our earnings per share were 15.2 cents, an increase of 11%. Economic Value Added grew 13% to $327.8m. Return on equity was a very respectable 28.4%, higher than the 26.5% in Cash and cash equivalents, including funds under management, remained a healthy $1.4b. Dear Shareholders Global markets continued their upward momentum in 2006, with Singapore s growth at a new high compared to recent years. Higher interest rates and oil prices, however, threatened to hinder economic activity and exerted pressure on bottom lines for most industries. While higher oil prices have minimal direct impact on the Group, they affected the aviation industry, increasing the cost of operations for airlines already in a difficult market compounded by heightened competition from low cost carriers. China appears to have had some success in cooling its economy and growth continued to be strong, aided in part by the build up to the 2008 Olympics. India is another growing market where the Group seeks to increase its presence. Another area of opportunity is the booming Gulf States. While various geographies pose different challenges, they serve as opportunities for the Group as we grow our presence globally. Against this backdrop, the ST Engineering Group enjoyed another good year in 2006 with net profit growing by 12% to $445.1m. Becoming a Global Entity The Group today is a global entity operating in five continents, spanning 20 countries and 35 cities. With our recent acquisitions, the profile of our business mix is increasingly global and commercial, due to the nature and location of these new acquisitions. These new additions have steadily increased their contributions to the Group, enabling us to diversify our earnings stream. As a vital part of our total business mix, the Group s defence business continues to grow with new solutions and product offerings. Customers are increasingly focused on the total cost of ownership and market best practices. Our flexibility to leverage on the interplay between our defence and commercial businesses, and tapping the strengths of each, helps strengthen the Group s ability to provide innovative and cost effective systems and solutions. Group revenues outside of Asia has today grown to 47% from 28% in 2002, reflecting our geographic spread and global customer base which covers more than 60 countries. Globalisation helps to diversify geographic-centric economic and political factors, thereby hedging the interests of the Group. Globalisation is the cornerstone of our strategy for growth and to build leading businesses to add vigour to the Group. We

5 11 Peter SEAH Lim Huat Chairman (left) TAN Pheng Hock President and CEO (right) select each new addition carefully to enhance the value of our existing businesses, expand our technologies and capabilities, address new markets, enlarge our customer base, and infuse fresh talent into our cosmopolitan workforce. In line with our globalisation thrust, this year we acquired two companies in the US one in simulation and digital media, and another in specialty vehicles. In addition, a joint venture company was formed with Kalyani Group for the research, development and manufacture of military land-based products and solutions, specifically large calibre guns and small arms for India s defence and security requirements. Our Aerospace sector is starting an aircraft maintenance facility in Panama in 2Q2007, which enhances our aerospace global network and complements the existing North American facilities in Mobile, Alabama, and San Antonio, Texas. Growing by Double Digit The Group recorded double digit growth for a second straight year in Our net profit rose by 12% to $445.1m on the strength of the Aerospace and Electronics sectors and higher contributions from our overseas acquisitions. Group turnover was up 34% to $4.49b, while profit before tax increased 12% to $564.3m. Our earnings per share were 15.2 cents, an increase of 11%. Economic Value Added grew 13% to $327.8m. Return on equity was a very respectable 28.4%, higher than the 26.5% in Cash and cash equivalents, including funds under management, remained a healthy $1.4b. ST Engineering s market cap reached $9.07b as at end December 2006, compared to $8.33b at the close of Recognising our Shareholders The ST Engineering Board of Directors is proposing to pay 100% of 2006 net profit of $445.1m to our loyal shareholders as dividends. This will translate into a dividend of cents per share, and a dividend yield of 5.1%. The dividends comprise an ordinary tax exempt (one-tier) dividend of 4 cents per share, and a special tax exempt (one-tier) dividend of cents per share. The Group plans to start paying half-year interim ordinary dividends from Winning the Trust of Customers Contracts announced during the year exceeded US$1.3b. The figure does not include smaller projects nor represent the Group s total sales. These contract wins expanded our order book to an all time high of $7.37b by yearend.

6 THE WINNING SPIRIT ST Engineering AR Letter to Shareholders We won several significant contracts in Among them were the US$635m Airbus contract for total aviation support to Skybus, Airlines, a new carrier a new in carrier the US; in the two US; roll-on two roll-off roll-on vessels rolloff be vessels used by to be Airbus used to by transport Airbus to large transport aircraft large components, aircraft to including components, sections including for their sections new A380 for their aircraft; new A380 and two aircraft; and two shipbuilding contracts contracts from from the US the Navy US Navy amounting amounting to over to over US$360m, namely the Egyptian Navy fast missile craft project and a missile range instrumentation ship. The latter project is significant as it marks the first time we have won a contract from the US Navy since we acquired VT Halter Marine in Our Electronics sector s foothold in the Chinese rail market now totals nearly $50m, including three projects in Guangzhou. It was also strengthened with the development of an integrated traffic command centre system, the first-of-its-kind aimed at efficiently managing major rail lines in Beijing. This makes us the first Singapore company to win a major Beijing Olympics related contract. Many of the contracts for the Group came from existing customers. A repeat customer is a happy customer. For an organisation driven by performance and results, there is no better validation and recognition than having customers come back time after time. Enhancing Capabilities The Singapore Army commissioned into service an enhanced version of our Bionix armoured vehicle, BXII, in This latest Bionix boosts SAF s 3rd Generation networked capability. Featuring innovations from the Electronics and Land Systems sectors, the BXII is integrated with the rest of the fighting forces through a battlefield management system and networkcentric wireless communications systems. In support of the digitised army programme, this provides an integrated situation awareness capability, collaborative planning tools and knowledge-based command and control (C2). This enables ground commanders to make responsive decisions and exercise highly effective C2 operations in a fast-moving battlefield a prime example of how the Group delivers value to customers through innovation. The need for continuous capability improvement is a given, particularly in an ever-evolving and competitive global market. This is supported by a corporate culture which encourages innovation in integrating technologies and collaboration with like-minded partners to add new solutions to meet our customers needs. Some of these Group-wide capabilities and technologies were showcased at Asian Aerospace Many of these are dual-purpose or applicable to both the defence and commercial businesses, including a slew of homeland security solutions. With our components companies in Scandinavia and the UK merged into one, our Aerospace sector has enlarged its product and services offerings in Europe, and added Scandinavian Airlines as a major customer. Together with the existing components repair capabilities, we now have expanded global coverage, as well as enhanced breadth and depth of our capabilities. Living Up to Corporate Citizenry As the Group expands, so does our Corporate Social Responsibility (CSR). Every country and every business has its own matrix of CSR hot buttons, ranging from the way we do business and preserve the environment to conservation/ recycling practices, staff welfare and community programmes. Good corporate governance is especially vital as the Group globalises. Transparent practices need to be applied with cultural and local sensitivity. ST Engineering constantly raises the bar in best practices, implementing a whistle-blowing process during the year.

7 13 In 2007, we will continue to grow our business organically in new markets, with new products and systems innovation, as well as develop new capabilities to address changing customer needs. In addition, the Group will focus on creating synergies among our businesses and leverage economies of scale in all four sectors. Looking Ahead As the Group spreads its wings globally, we are constantly mindful of the multitude of risks each new market entry brings, be they natural, political, economic or socio-cultural. The risk and business management framework that we have put in place, which is constantly being refined and reviewed, helps mitigate such business risks. Hurricane Katrina remains an important lesson of what could have been had we been less prepared. It is a reminder for us to stay vigilant and adaptive to an array of business challenges as we continue to grow our businesses globally. Going global also means making tough and painful decisions when necessary. We closed our UK aircraft maintenance facility in Bournemouth this year after being unable to turn it around since its setup in This was decided together with our joint venture partner in the long term interests of both companies and stakeholders. In 2007, we will continue to grow our business organically in new markets, with new products and systems innovation, as well as develop new capabilities to address changing customer needs. In addition, the Group will focus on creating synergies among our businesses and leverage economies of scale in all four sectors. At the same time, the Group will continue to seek companies and partners that enhance our core business through acquisitions, joint ventures, partnerships and collaborations. We adopt a pragmatic approach when developing new markets, realistically appraising the key performance indicators and adopting a flexible strategy for a particular environment which may require the Group to be a subcontractor, licensor, or supplier to local players. As an innovative organisation, we increasingly develop intellectual property to serve as a defensive measure in our global thrust and as leverage for market entry strategy where it makes sense. For the coming year, the Group expects to achieve a higher turnover and profit before tax, barring unforeseen circumstances. Expressing our Appreciation We formally express our appreciation to shareholders at the AGM and in the annual report. In reality, our gratitude for your support extends throughout the year. In the same light, we thank our customers for their continuing support through the years. Our Board of Directors is the beacon which steers Group strategy and sets Group directions. The Directors experience and depth of knowledge, willingly shared, have mapped our course and continue to guide our future. We would like to record our deep appreciation to our Director, Lieutenant-General Ng Yat Chung, who will be retiring at our coming AGM. Not least of all, our special thanks to our family of over 17,000 members around the world. Your dedication and loyalty have contributed to our success and winning spirit. Peter SEAH Lim Huat Chairman TAN Pheng Hock President and CEO 16 March 2007

8 TH E WI N N I NG SPI R IT ST Engineering AR

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10 THE WINNING SPIRIT ST Engineering AR Financial Highlights Group turnover rose 34% to $4,486m. EBIT, PBT and PATMI were $457.6m, $564.3m and $445.1m, representing growth rates of 17%, 12% and 12% respectively. Order book rose to a new high at $7.37b. Return on equity improved from 26.5% for FY2005 to 28.4% for FY2006. The Board is proposing to pay 100% of net profits as dividends or cents per share. TURNOVER BY SECTOR ($m) ,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 PROFIT BEFORE TAX BY SECTOR ($m) PROFIT AFTER TAX BY SECTOR ($m) Aerospace Electronics Land Systems Marine Others

11 17 Key Financial Data TURNOVER BY SECTOR ($m) 4, % 3, % 2, % 2, % 2, % Aerospace 1,673 37% 1,236 37% 1,118 38% 1,092 39% 1,043 40% Electronics % % % % % Land Systems 1,002 22% % % % % Marine % % % % % Others 158 4% 141 4% 129 5% 9 15 PROFIT BEFORE TAX BY SECTOR ($m) % % % % % Aerospace % % % % % Electronics % % % % % Land Systems % % % % % Marine % % % % % Others 4.9 1% % 5.0 1% (5.5) (2%) 5.3 1% PROFIT AFTER TAX BY SECTOR ($m) % % % % % Aerospace % % % % % Electronics % % % % % Land Systems % % % % % Marine % % % % % Others (5.9) (1%) 8.7 2% 3.5 1% (6.0) (2%) 2.5 1%

12 THE WINNING SPIRIT ST Engineering AR Key Financial Data Shareholders funds ($m) 1,565 1,493 1,358 1,324 1,452 Total assets ($m) 5,514 4,566 4,042 4,122 4,351 Net tangible assets ($m) ,131 1,296 1,266 1,431 Gross dividend per share (cents) Dividend yield (%) Dividend cover Earnings per share (cents) Return on turnover (%) Return on equity (%) Return on total assets (%) Net tangible assets per share (cents) , , , , ,324 SHAREHOLDERS FUNDS ($m) RETURN ON EQUITY (%) NET TANGIBLE ASSETS PER SHARE (CENTS)

13 19 Productivity Data Average staff strength 15,912 13,099 11,684 11,702 11,413 Sales per employee ($) 281, , , , ,492 Profit after tax per employee ($) 27,974 30,255 30,316 27,823 28,977 Employment costs ($m) 1, Employment costs per $ of turnover ($) Economic Value Added ($m) Economic Value Added spread (%) Economic Value Added per employee ($) 20,598 22,187 20,075 20,587 16,664 Value added ($m) 1, , , , ,274.2 Value added per employee ($) 125, , , , ,646 Value added per $ of employment costs ($) Value added per $ of gross property, plant and equipment ($) Value added per $ of turnover ($) PROFIT AFTER TAX PER EMPLOYEE ($ 000) ECONOMIC VALUE ADDED PER EMPLOYEE ($ 000) VALUE ADDED PER EMPLOYEE ($ 000)

14 THE WINNING SPIRIT ST Engineering AR Group Economic Value Added Statement ($m) Net profit before tax Adjust for: Share of results of associated companies and joint ventures Interest expense Others (4.8) Adjusted profit before interest and tax Cash operating taxes (Note 1) (112.8) (99.3) (85.7) (84.7) (76.3) Net operating profit after tax (NOPAT) (a) Average capital employed (Note 2) 2, , , , ,685.8 Weighted average cost of capital (Note 3) (%) Capital charge (b) (177.7) (113.8) (127.6) (111.3) (156.8) Economic Value Added (EVA) [(a) (b)] Minority share of EVA (2.7) (12.1) (1.6) 2.1 EVA attributable to ordinary shareholders Unusual items (UI) gains/(losses) (Note 4) (30.7) (7.0) EVA attributable to ordinary shareholders (exclude UI) Note 1: Note 2: The reported current tax is adjusted for the statutory tax impact of interest expense. Monthly average share capital plus interest bearing liabilities, timing provision, goodwill impaired/amortised, and present value of operating leases. Major Capital Components: $m Long term debt Short term debt Equity 1,438.0 Others ,691.9 Note 3: Note 4: The Weighted Average Cost of Capital is calculated in accordance to Singapore Technologies Engineering Group EVA Policy as follows: i) Cost of Equity using Capital Asset Pricing Model with market risk premium at 6.0% 6.0%); ii) Risk-free rate of 3.31% 2.62%) based on yield-tomaturity of Singapore Government 10 years Bonds; iii) Ungeared beta at ) based on Singapore Technologies Engineering risk categorisation; and iv) Cost of Debt rate at 3.54% 3.03%) using 5-year Singapore dollar Swap Offered Rate plus 25 basis point 75 basis point). Unusual Items (UI) refer to divestment of investment properties, subsidiary and associates, long term investments and disposal of major property, plant and equipment EVA ATTRIBUTABLE TO ORDINARY SHAREHOLDERS ($m) 190.2

15 21 Group Value Added Statement ($m) Value added from: Revenue earned 4, , , , ,619.2 Bought in materials and services (2,644.0) (1,959.0) (1,698.6) (1,578.5) (1,452.1) 1, , , , ,167.1 Income from investments and interest Exchange loss (3.9) (1.8) (2.1) (1.2) (4.2) Other non-operating income Share of results of associated companies and joint ventures Amortisation of goodwill on acquisition of associated companies (2.0) (1.5) Total value added 1, , , , ,274.2 Distribution of total value added To employees in wages, salaries and benefits 1, To government in income and other taxes To providers of capital on: Interest paid on borrowings Dividends to shareholders , , , , ,093.0 Balance retained in/(applied from) business Depreciation Impairment of assets Retained profits (15.6) 5.3 (0.6) (149.7) (62.2) Non-production cost and income Bad debts (9.2) (13.6) Income from investments and interest Exchange loss (3.9) (1.8) (2.1) (1.2) (4.2) Total distribution 1, , , , , , , , , ,363.1 TOTAL VALUE ADDED ($m)

16 THE WINNING SPIRIT ST Engineering AR Board of Directors The names of the directors holding office at the date of this report are set out below together with details of their academic and professional qualifications, age, date of first appointment as director, date of last re-election as director as well as directorships in listed companies. Mr Peter SEAH Lim Huat, Chairman Mr Peter Seah Lim Huat, 60, was appointed non executive Chairman on 15 April 2002 and was last re-elected on 31 March He is currently a member of the Temasek Holdings Advisory Panel. Mr Seah was a banker for 33 years before retiring as Vice Chairman and CEO of the former Overseas Union Bank in 2001 and joining Singapore Technologies Pte Ltd as President and CEO. He held this position until 31 December Mr Seah is the Chairman of SembCorp Industries Limited* and Singapore Computer Systems Limited*. He also sits on the Boards of CapitaLand Limited*, Chartered Semiconductor Manufacturing Ltd #, STATS ChipPAC Ltd # and StarHub Ltd*. Mr Seah is also President Commissioner of PT Indosat Tbk, PT Bank Internasional Indonesia Tbk and Deputy Chairman of Global Crossing Limited and ST Telemedia Pte Ltd. His other appointments include being a member of the Board of Siam Commercial Bank Public Company Limited and the Government of Singapore Investment Corporation. He serves as a member of the Institute of Defence and Strategic Studies, Defence Science Technology Agency (DSTA), Singapore Chinese Chamber of Commerce and Industry and Singapore Business Federation Council. Mr Seah was awarded the Public Service Star (Bintang Bakti Masyarakat) in 1999 and made a Justice of the Peace in He graduated from the former University of Singapore (NUS) in 1968 with an Honours degree in Business Administration. Mr TAN Pheng Hock Mr Tan Pheng Hock, 49, is the President and CEO of ST Engineering and an executive Director. He was appointed Director on 1 May 2001 and was last re-elected on 31 March Mr Tan sits on the Board of SembCorp Marine Ltd* and Neptune Orient Lines Limited*. He is Chairman of the Nanyang Polytechnic Board of Governors and Deputy Chairman of the Singapore Workforce Development Authority. Mr Tan began his career with the Group as an engineer in ST Marine in He was previously Executive Vice President of ST Marine, President of ST Kinetics, President and Chief Operating Officer of ST Engineering and ST Engineering Group President. Mr Tan holds a Bachelor of Science (First Class Honours) in Marine Engineering from the University of Surrey, UK and a Master of Science in Management from Stanford University, USA. Mr KOH Beng Seng Mr Koh Beng Seng, 56, is the CEO of Octagon Advisers Pte Ltd. He was appointed an independent non executive Director on 15 September 2003 and will be due for re-election at this coming AGM under Article 98 of the Company s Articles of Association. Mr Koh was Deputy President of United Overseas Bank Ltd (UOB) until 31 January Prior to UOB, Mr Koh was Senior Advisor to Asia Pulp & Paper Co Ltd and Advisor to Bank of China and the International Monetary Fund. Mr Koh has extensive experience in the financial services sector. He was with the Monetary Authority of Singapore from 1973 to 1998, where he served as Deputy Managing Director from 1988 to Mr Koh is a Director of Bank of China (Hong Kong) Limited^, Fraser & Neave Ltd* and Sing-Han International Financial Services Limited. Mr Koh holds a Bachelor of Commerce (First Class Honours) from the former Nanyang University, Singapore, and a Master of Business Administration from Columbia University, USA.

17 23 PAST DIRECTORSHIPS IN THE LAST THREE YEARS Mr Peter SEAH Lim Huat Civil Aviation Authority of Singapore Board of Commissioners of Currency Singapore AF (Indonesia) Pte Ltd EDBV Management Pte Ltd EDB Ventures 2 Pte Ltd EDB Ventures Pte Ltd PSA International Pte Ltd Singapore Technologies Pte Ltd Singapore Technologies Semiconductors Pte Ltd Lieutenant-General NG Yat Chung LG Ng Yat Chung, 45, is the Chief of the Defence Force 1. He was appointed a non executive Director on 15 June 2003 and will retire at this coming AGM. He joined the Singapore Armed Forces (SAF) in 1979 and was awarded the SAF Overseas Scholarship in In the course of his military career, he has held various key command and staff positions in the Ministry of Defence (MINDEF). LG Ng is the Deputy Chairman of SRCC Pte Ltd. He is also a member of the Board of Trustees of the National University of Singapore and a Director of DSTA. LG Ng holds a Bachelor of Arts (Honours) in Engineering Tripos and a Master of Arts (Mathematics) from the University of Cambridge, UK, as well as a Master of Business Administration from Stanford University, USA. Dr TAN Kim Siew Dr Tan Kim Siew, 52, is Permanent Secretary (Defence Development), MINDEF. He was appointed a non executive Director on 15 December 2003 and will be due for re-election at this coming AGM under Article 98 of the Company s Articles of Association. Prior to his present appointment with MINDEF, he was the Deputy Secretary (Policy) with the Ministry of Finance. He was formerly the CEO and Chief Planner of the Urban Redevelopment Authority (URA) from 1996 to Dr Tan is the Chairman of DSTA and also a Director of Singapore Technologies Holdings Pte Ltd. Dr Tan holds a Bachelor of Arts in Engineering Tripos and a PhD in Engineering from the University of Cambridge, UK. Professor LUI Pao Chuen Prof Lui Pao Chuen, 64, is the Chief Defence Scientist in MINDEF. He was appointed a non executive Director on 1 October 1997 and was last re-elected on 31 March Prof Lui sits on the management boards of various scientific and research institutes. He is an Adjunct Professor in the Engineering Faculty of NUS. He is also the Chairman of SembCorp Design and Construction Pte Ltd, a subsidiary of SembCorp Industries Ltd, and Chairman of the Management Boards of Temasek Defence Systems Institute, NUS, and Temasek Laboratories, NUS and NTU. Prof Lui graduated from the former University of Singapore with a Bachelor of Science (Honours) in Physics and obtained a Master of Science degree in Operations Research & Systems Analysis from the Naval Postgraduate School, USA. Mr TAN Pheng Hock TranSys Pte Ltd ST Training & Simulation Pte Ltd Unicorn International Pte Limited Mr KOH Beng Seng Chartered Semiconductor Manufacturing Ltd STATS ChipPAC Ltd. Far Eastern Bank Limited Industrial & Commercial Bank Limited Overseas Union Bank Limited United Overseas Bank Limited United Overseas Bank (Canada) Lieutenant-General NG Yat Chung Singapore Technologies Kinetics Ltd Trade Development Board Public Utilities Board Dr TAN Kim Siew HDB Corporation Pte Ltd Keppel Offshore & Marine Ltd Professor LUI Pao Chuen SembCorp Engineers and Constructors Pte Ltd 1 until 23 March 2007

18 THE WINNING SPIRIT ST Engineering AR Board of Directors Mr Winston TAN Tien Hin Mr Winston Tan Tien Hin, 58, is the Managing Director of Corporate Brokers International Pte Ltd. He was appointed an independent non executive Director on 1 October 1997 and was last re-elected on 31 March Mr Tan is also a member of the Salvation Army Advisory Board. He holds a Bachelor of Science in Physics from the former University of Singapore. Mr Lucien WONG Yuen Kuai Mr Lucien Wong Yuen Kuai, 53, is the Managing Partner of Allen & Gledhill. He was appointed an independent non executive Director on 1 October 1997 and will be due for re-election at this coming AGM under Article 98 of the Company s Articles of Association. Mr Wong is a Director of Cerebos Pacific Limited*. He is also a member of the Monetary Authority of Singapore and Board of Trustees of NUS. Mr Wong graduated from the former University of Singapore with a Bachelor of Law degree. Dr Philip PILLAI Dr Philip Pillai, 59, is the Senior Partner of Shook Lin & Bok. He was appointed an independent non executive Director on 1 April 2000 and was last re-elected on 31 March Dr Pillai is a Director of Singapore Press Holdings Limited*, Hotung Investment Holdings Limited* and International Board of Trustees of Haggai Institute, Atlanta. Dr Pillai obtained his Bachelor of Law (First Class Honours) from the former University of Singapore and a Master of Law and SJD from Harvard University, USA.

19 25 PAST DIRECTORSHIPS IN THE LAST THREE YEARS Mr Winston TAN Tien Hin Singapore Technologies Electronics Limited Enersave Holdings Ltd Gintic Technologies Pte Ltd Ascendas Pte Ltd Mr Lucien WONG CapitaLand Limited Raffles Hotel (1886) Ltd John Hancock International (Southeast Asia) Pte Ltd John Hancock Life Assurance Company Ltd Construction Exchange Pte Ltd Raffles Investments (1993) Pte Ltd Raffles Investments (Singapore) Pte. Limited Raffles Investments Limited Mr QUEK Poh Huat Mr Quek Poh Huat, 60, is the Group CEO of Singapore Power Ltd. He was appointed a non executive Director on 15 April 2002 and was last re-elected on 31 March Mr Quek is a Director of Singapore Power Ltd, SP PowerAssets Limited, SP and SP Services Limited. He is also the Chairman of PowerGas Ltd, SPI Management Services Pty Ltd, SP PowerGrid Limited and Temasek Management Services Pte Ltd. He is also Singapore s non resident Ambassador to Sweden. Mr Quek was awarded the Public Service Star award in August He obtained a Bachelor of Science in Chemical Engineering from the University of Leeds, UK, and a Master of Science in Management from the Naval Postgraduate School, USA. Mr Venkatachalam KRISHNAKUMAR Mr Venkatachalam Krishnakumar, 57, is a Senior Advisor to Barclays Bank PLC, Global Retail and Commercial Banking. Prior to his present appointment, he was a Senior Advisor to McKinsey and Co. He was the Chief Operating Officer and Chief Financial Officer for the Asia Pacific Consumer Bank of Citigroup until his retirement on 28 February 2005, after a 31- year career with them. He was appointed an independent non executive Director on 15 April 2002 and was last re-elected on 31 March He is a Director of Singapore Computer Systems Limited* and also a member of the Board of the Singapore Land Authority. He holds a Bachelor of Engineering and a Master of Business Administration from the Indian Institute of Management, India. Brigadier-General Bernard TAN Kok Kiang BG Bernard Tan Kok Kiang, 40, is the Director, Joint Intelligence Directorate of MINDEF. He was appointed Alternate Director to LG Ng Yat Chung on 1 June He has held various positions in the last 17 years and assumed his present office in He joined the SAF in 1984 and was awarded the President cum SAF Scholarship in He was also awarded the Lee Kuan Yew Scholarship in BG Tan is currently the Director of URA, Chairman of Sembawang Country Club and Board member of St Joseph s Institution. BG Tan holds a Bachelor of Social Science (First Class Honours) in Economics and Political Science from the University of Birmingham, UK, and a Master of Business Administration from the Massachusetts Institute of Technology, USA. Dr Philip PILLAI Lindeteves-Jacoberg Ltd* PT Agro Indomas Mr QUEK Poh Huat Shangri-la Asia Ltd S I Technology Fund Limited PSA Corporation Ltd Asia Financial Holdings Pte Ltd Singapore Power International (Pte) Ltd Singapore Telecommunications Limited Other subsidiaries of Temasek Holdings (Private) Limited * listed on Singapore Exchange Securities Trading Limited # listed on both Singapore Exchange Securities Trading Limited and NASDAQ ^ listed on Stock Exchange of Hong A stapled group comprising SP Australia Networks (Transmission) Ltd, SP Australia Networks (Distribution) Ltd and SP Australia Networks (Finance) Trust, acting through its responsible entity, SP Australia Networks (RE) Ltd. It is duallisted on the Australian Stock Exchange and the Singapore Exchange Securities Trading Limited.

20 THE WINNING SPIRIT ST Engineering AR Senior Management

21 Leadership is a team effort, drawing on individual strengths united by a common goal. 27

22 THE WINNING SPIRIT ST Engineering AR Senior Management 1 Mr TAN Pheng Hock is President and CEO of ST Engineering and a Director of the ST Engineering Board. (Mr Tan s profile is on page 22) 2 Mr WEE Siew Kim Mr WEE Siew Kim, 46, was appointed Deputy CEO in May 2004, overseeing the Aerospace and Marine sectors. He is concurrently the President, Defence Business of ST Engineering, a position he has held since 1 May Prior to his current position, Mr Wee was President of ST Engineering s Europe operations from July He joined ST Aerospace as an engineer in He was President of ST Aerospace from December 1997 to July Mr Wee is also a Member of Parliament for the Ang Mo Kio Group Representative Constituency. He has a Bachelor of Science (First Class Honours) in Aeronautical Engineering from the Imperial College of Science & Technology, University of London, UK, and a Master in Business Administration from Stanford University, USA. 3 Mr SEAH Moon Ming Mr SEAH Moon Ming, 50, was appointed Deputy CEO of ST Engineering, overseeing the Electronics and Land Systems sectors, and President, International Business in May He is concurrently President, ST Electronics, a position he has held since 8 December 1997, after serving as Managing Director from 1 July Mr Seah was General Manager of CET Technologies, a subsidiary of ST Electronics, from July 1994 to July He is Chairman of the Board of Governors of Temasek Polytechnic. Mr Seah also serves as Vice Chairman of ECS Holdings Limited and Trek 2000 Limited. He is a Fellow of the Institution of Engineers Singapore, a senior member of IEEE and a member of Eta Kappa Nu. Mr Seah holds a Master of Science (with distinction) in Electrical Engineering from the Naval Postgraduate School, USA. 4 Mr Raphael CHIN Mr Raphael Chin, 42, is currently Acting Chief Financial Officer of the ST Engineering Group. He began his career at ST Engineering in 1990 as an accountant in the Group s Aerospace sector. He subsequently held various finance positions in its subsidiaries, including SASCO, Perth Aerospace Engineering and STA Systems. In 1999, he took up the position of Financial Controller at ST Marine. The following year, he was appointed VP/Financial Controller of ST Engineering and became SVP/Group Financial Controller in Mr Chin holds a Bachelor of Economics from Monash University, Australia, and a Master of Commerce (Hons) from the University of Auckland, New Zealand. He is a Fellow of the Institute of Certified Public Accountants of Singapore.

23 Mr TAY Kok Khiang Mr TAY Kok Khiang, 57, was appointed President of ST Aerospace on 10 July Mr Tay joined ST Aerospace as Vice President/General Manager of ST Aerospace Engineering Pte Ltd in 1993 and held many senior management appointments before becoming President. He was Deputy President & Chief Operating Officer prior to his current appointment. Mr Tay holds a Bachelor of Engineering (Honours) and a Master of Science in Industrial Engineering from the National University of Singapore. 6 Mr SEW Chee Jhuen Mr SEW Chee Jhuen, 43, was appointed President of ST Kinetics on 1 September Prior to his current position, Mr Sew was the Deputy President (Operations) and President, Defence Business, of ST Kinetics. He joined ST Aerospace as an aeronautical engineer in 1988 and has held various management appointments before becoming Deputy President (Operations). Mr Sew holds a Bachelor of Science (with distinction) in Aeronautical Engineering and Mechanics from the University of Minnesota and a Master in Business Administration from Stanford University, USA. 7 Mr SEE Leong Teck Mr SEE Leong Teck, 56, was appointed President of ST Marine in December He began his career with Vosper Thornycroft (Singapore) and joined ST Marine as a naval architect in 1980, rising through the ranks to become Deputy General Manager and eventually President. Mr See holds a Master of Science in Naval Architecture from the University of London, UK and a Master of Business Administration from the Cranfield School of Management, UK. 8 General (Retired) John G COBURN Gen (Ret) John G COBURN, 64, was appointed Chairman and CEO of ST Engineering s US subsidiary, VT Systems, Inc on 1 December Gen (Ret) Coburn joined the Group after an illustrious 39-year career with the US Department of Defense. Prior to taking up this position, he was Commanding General of the US Army Materiel Command (AMC), one of the largest commands in the army with 50,000 employees and activities in 42 states and over a dozen foreign countries. Gen (Ret) Coburn holds a Juris Doctor from the University of Missouri, USA.

24 THE WINNING SPIRIT ST Engineering AR Organisation Chart AS AT 28 FEBRUARY 2007 TAN Pheng Hock President and CEO Raphael CHIN Acting Chief Financial Officer Members of Executive Office INTERNAL AUDIT David EAW Senior Vice President (Reporting to Audit Committee) DEFENCE BUSINESS LOW Yee Kah Senior Vice President INTERNATIONAL MARKETING Patrick CHOY Executive Vice President TECHNOLOGY FONG Saik Hay Chief Technology Officer NEW BUSINESS Steven CHEONG Senior Vice President HUMAN RESOURCE TAN Nga Kok Senior Vice President/ Director LEGAL LOW Meng Wai Vice President/Director INFORMATION TECHNOLOGY TEO Chin Seng Chief Information Officer STRATEGIC PLANS Robin THEVATHASAN Senior Vice President SPECIAL PROJECTS CORPORATE COMMUNICATIONS WU Tzu Chien President CHANG Cheow Teck President LIM Beng See Vice President/Head BUSINESS EXCELLENCE Harnek SINGH Vice President/Director RISK MANAGEMENT ONG Soon Leong Vice President/Head PROCUREMENT GOH Bak Nguan Chief Procurement Officer/ Vice President

25 31 SEAH Moon Ming Deputy CEO ELECTRONICS and LAND SYSTEMS President INTERNATIONAL BUSINESS WEE Siew Kim Deputy CEO AEROSPACE and MARINE President DEFENCE BUSINESS ELECTRONICS LAND SYSTEMS AEROSPACE MARINE SEAH Moon Ming President SEW Chee Jhuen President TAY Kok Khiang President SEE Leong Teck President LEE Fook Sun Deputy President, Operations and President, Defence Business NG Chong Khim President, Communication and Sensor Systems Group Deputy President, Corporate Services and Marketing TAY Hun Kiat President Asia Pacific Operations TEO Boon Swee Executive Vice President, Specialty Vehicles & Services GAN Boon Jin Senior Vice President, Land Systems & Solutions/ Defence Business Alex TEO Vice President, Total Support & Services HO Yuen Sang Deputy President, Operations/Chief Operating Officer & President, Defence Business Jeremy CHAN Deputy President, Marketing & Total Aviation Support HAN Yew Kwang Chief Operating Officer, Defence Business US OPERATIONS EUROPE OPERATIONS John G COBURN Chairman and CEO OOI Ling Heong Executive Vice President ADVANCED ENGINEERING CENTRE INTEGRATED SERVICES FONG Saik Hay President LIM Soon Heng Vice President/ General Manager

26 33 Corporate Governance Board s Conduct of Its Affairs (Principle 1) The Board s corporate objective is the creation of long term value for shareholders. It strives to achieve this through its commitment to high standards of corporate governance by providing the leadership and guidance to management to develop and drive corporate strategy, business directions, acquisitions and divestments and risk policy for ST Engineering. There are matters which the Board has reserved for its own decision making. These include major acquisitions and investments, shareholder matters, policies relating to corporate governance, CEO appointment, approval of budgets, board changes and appointments on board committees. Board members receive monthly consolidated management reports on the financial performance of each business sector, capital commitments and significant operational highlights. Other matters are delegated to Board committees and the Executive Office for review and decision making. The Executive Office comprises the President and CEO; Dy CEO, Electronics and Land Systems/President, International Business; Dy CEO, Aerospace and Marine/President, Defence Business; and CFO. The Board comprises 11 directors and an alternate director. On appointment, a new director is issued a formal letter of appointment setting out his duties and responsibilities under the various regulations. A new director is also given a briefing by the President and CEO on the strategies and performance of the Company and its key subsidiaries as well as an introduction to the senior management team. The Board consists of members with established track records in finance, banking, technology, legal and management skills. Each non executive director brings to the Board an independent and objective perspective based on his training and expertise to enable balanced and well considered decisions to be made. From time to time, the Board is updated on the relevant laws, continuing listing obligations and standards requiring compliance, and their implications for the Group as part of ongoing training for existing directors. The Board meets at least twice a year and convenes special board meetings where necessary. The Company s Articles of Association allows Board meetings to be conducted by way of teleconference or video conference. The Chairman has a second or casting vote. The Board is supported in its tasks by Board Committees which have been established to focus on the key areas of corporate governance oversight. The number of Board and Board Committee meetings held during the year is tabulated below: TYPE OF MEETING NO. OF MEETINGS ATTENDANCE (AVERAGE %) Board 2 77% Audit Committee 5 100% Business Investment and Divestment Committee 2 70% Executive Resource and Compensation Committee 4 92% Nominating Committee 1 100% Senior Human Resource Committee 1 75% Risk Review Committee 4 85% Budget and Finance Committee 3 92% Research, Development and Technology Committee 3 78% Minutes of the Board Committee meetings are made available to all Board members.

27 THE WINNING SPIRIT ST Engineering AR Corporate Governance Independence of the Board (Principles 2 and 3) The Chairman of the Board is Mr Peter Seah, a non executive director. Mr Seah was appointed to the Board on 15 April 2002 as Chairman. He was re-elected at the 2006 AGM. As a non executive director, Mr Seah is free from any relationship with the executive management of the Company that could materially interfere with the exercise of his independent judgment. However, as he is a Member of the Temasek Advisory Panel in Temasek Holdings, the Company s major shareholder, he is not considered independent within the definition of the Corporate Governance Code (Code). The President and CEO is Mr Tan Pheng Hock, who is an executive director. Save for Mr Tan Pheng Hock, our remaining 10 directors are non executive directors. The Nominating Committee (NC) has reviewed the provisions in the Code with regard to relationships and has concluded that five directors are independent. The independent directors are Mr Koh Beng Seng, Mr Venkatachalam Krishnakumar, Dr Philip Pillai, Mr Winston Tan and Mr Lucien Wong. More than one third of the Board is independent as required under the Code. The Board held a total of two meetings during the year, in accordance with its planning cycle, for the approval of the FY2005 results and release of half year results respectively. Board Committees (Principles 4, 7 and 11) Supporting the Board are the following Board Committees: Audit Committee Business Investment and Divestment Committee Executive Resource and Compensation Committee Nominating Committee Budget and Finance Committee Research, Development and Technology Committee Senior Human Resource Committee Risk Review Committee Tenders Committee The composition of the Board Committees is found on the next page. According to the Corporate Governance Code guidelines, an independent director is one who has no relationship with the Company, its related companies or its officers that could interfere, or be reasonably perceived to interfere with the exercise of the director s independent business judgment. Relationship tests aside, it is the quality of the governance that counts and that distinguishes an independent and effective board. While not all the non executive directors are considered independent based on relationship tests, the Board has, at all times exercised independent judgment in decision making using its collective wisdom and experience to act in the best interests of the Company.

28 35 Corporate Governance BOARD COMPOSITION AND COMMITTEES AS AT 31 DECEMBER 2006 Audit Committee (estbd on 5/1/1998) Business Investment and Divestment Committee (estbd on 8/9/1997) Executive Resource and Compensation Committee (estbd on 6/12/1997) Nominating Committee (estbd on 4/12/2002) Budget and Finance Committee (estbd on 5/1/1998) Research Development and Technology Committee (estbd on 1/8/2003) Senior Human Resource Committee (estbd on 16/1/1998) Risk Review Committee (estbd on 7/12/1998) Tenders Committee (estbd on 5/1/1998) BOARD MEMBERS Mr Peter SEAH Lim Huat C C M C Mr TAN Pheng Hock M M M M M Mr KOH Beng Seng C Lieutenant-General NG Yat Chung M M M Dr TAN Kim Siew M M Professor LUI Pao Chuen Mr Winston TAN Tien Hin M M C Mr Lucien WONG Yuen Kuai C M Dr Philip Nalliah PILLAI M M C Mr QUEK Poh Huat M M Mr Venkatachalam KRISHNAKUMAR M M M M Brigadier-General Bernard TAN Kok Kiang 1 C Rolling list of any three Board Directors NON BOARD MEMBER Mr CHANG See Hiang CM Denotes: C Chairman M Member CM Co-opted Member 1 Alternate director to Lieutenant-General NG Yat Chung

29 THE WINNING SPIRIT ST Engineering AR Corporate Governance Board Selection, Training and Evaluation of Performance (Principles 4 and 5) The NC is responsible for reviewing the composition of the Board regularly and identifying and selecting suitable candidates to the Board. The Committee also reviews the retirement and re-election of directors. Dr Philip Pillai is the Chairman of the NC. The other members are Mr Peter Seah and Mr Venkatachalam Krishnakumar. Both Dr Pillai and Mr Krishnakumar are independent non executive directors. The NC is charged with the responsibility of ensuring that the Company s Board and its subsidiaries comprise individuals who are able to discharge their responsibilities as directors. The NC identifies suitable candidates for appointment to the boards of the Group, in particular, candidates who can value add to the management through their contributions in the relevant strategic business. The NC has the same members as the Executive Resource & Compensation Committee. This is because both committees share similar objectives of searching for talent and expertise for Board renewal and to strengthen management. During the year, the NC reviewed and affirmed the independence of the Company s independent directors and reviewed the composition of the Board and the profile of Board members in relation to the needs of the ST Engineering Board. The NC also assessed the current board size and determined that it is adequate for the effective functioning of the Board. The NC also reviewed the directors who were due for retirement and re-election. At each AGM, one third of the directors with the longest term in office is required to retire and submit themselves for re-election. Mr Koh Beng Seng, LG Ng Yat Chung, Dr Tan Kim Siew and Mr Lucien Wong will retire. LG Ng has confirmed that he will not be seeking re-election. Save for LG Ng, the retiring directors, being eligible, have offered themselves for re-election. The NC has reviewed their contributions and recommended that each of the retiring Directors be re-elected at the Company s forthcoming AGM. Access to Information (Principle 6) The Board receives monthly reports providing updates on key operational activities and financial analysis. The Board also has unrestricted access to the President and CEO, the CFO, management and the Company Secretary as well as the internal and external auditors and the risk management team. The Board can also seek independent professional advice if deemed necessary. Level and Mix of Remuneration Disclosure on Remuneration (Principles 7, 8 and 9) The Executive Resource & Compensation Committee (ERCC) performs the role of the Remuneration Committee. The Committee comprises Mr Peter Seah as Chairman, Dr Philip Pillai and Mr Venkatachalam Krishnakumar. The majority of members of the ERCC have held senior positions in large organisations and are experienced in the area of executive remuneration. All the ERCC members are non executive directors. Apart from Mr Peter Seah, the other members of the ERCC are independent directors. The ERCC has access to professional advice from appropriate external advisors where necessary. The ERCC may meet with these external advisors without the presence of management. All decisions at any meeting of the ERCC shall be decided by a majority of votes of the ERCC members present and voting (the decision of the ERCC shall at all times exclude the vote, approval or recommendation of any member who has a conflict of interest in the subject matter under consideration). The ERCC has been authorised by the Board to carry out the following key duties and responsibilities: Review and establish executive remuneration policy Approve the remuneration package and service terms for senior executives Set targets for senior executives and approve equity based incentive share plans and the granting of performance share awards Approve non executive director remuneration structure