Good morning, ladies and gentlemen.
Recording in progress.
Welcome to ST Engineering's first half 2023 results briefing. We will begin today with a presentation by our Group CFO, Cedric Foo. Our Group's President and CEO, Vincent Chong, will then give his remarks. After that, we will open up the floor to a Q&A session. Without further ado, may I invite Cedric to give his presentation, please.
Yeah, thank you very much. For those attending in person here, very warm welcome, and those via the webcast, similar warm welcome and good morning. Let me add my welcome to ST Engineering's first half 2023 results update. First, I would like to bring your attention to Slide 2, which states that, amongst others, the group's actual future performance, outcomes, and results may differ materially from those expressed in forward-looking statements. Slide 3 is the agenda for today. I will be covering group highlights, business discussions, segment financials, and order book, debt profile, and finally, the CEO's outlook. Thereafter, Vincent will provide his opening remarks, followed by Q&A. First, group highlights. Slide 5 shows a summary of our first half 2023 results. It's a very strong set of results. Group revenue recorded a 14% year-on-year increase to $4.9 billion.
Group EBITDA was strong at SGD 711 million, up 16% year-on-year. Group EBIT was SGD 444 million, up 15% year-on-year. Group profit before tax was comparable year-on-year at SGD 351 million, and group net profit stood at SGD 281 million, more or less flat for first half 2023 versus first half 2022. It actually belies the strong underlying business performance, which I will cover later. Slide 6. The pie chart on the left shows Commercial Aerospace constituted 38% of group revenue, DPS 44%, USS 18%. DPS segment includes both local and international customers. If you look at the pie chart, that SGD 2.1 billion is Defence and Public Security, and it includes local and international customers. It also covers defence and commercial domains, and not just military domains.
DPS's commercial businesses would include areas such as public security and safety, critical information infrastructure, and others. Hence, the bar chart in the middle of the slide shows defense revenue as opposed to DPS revenue, which I just defined, of SGD 1.6 billion, and this is a subset of DPS revenue of SGD 2.1 billion. The group's commercial revenue increased to SGD 3.3 billion in first half 2023, driven by the continued recovery in Commercial Aerospace. The group's defense revenue increased to SGD 1.6 billion in first half 2023, as I've just described. On the right-hand side of the slide, it shows first half 2023 revenue by location of customers. For Asia, 50%, the U.S. 24%, Europe 20%, and others 7%. Slide 7.
As I said, Group revenue grew 14% to $4.9 billion, this is contributed by all segments. It's despite the loss of revenue, which we choked up in first half 2022, since we have sold U.S. Marine in November 2022. That revenue by U.S. Marine in first half 2022 was $119 million. Slide 8. This slide shows the revenue growth in the three segments. On the left, Commercial Aerospace grew robustly by 32% to $1.9 billion. In the middle of the slide, U.S. Marine contributed $119 million in first half 2022. If we rebase this, DPS's first half 2023 revenue would be higher by $128 million, or 6%, growing to $2.1 billion.
On the right side of the slide, USS, which is Urban Solutions and Satcom, grew 18% to $891 million, contributed by Urban Solutions, which has TransCore in it, and partially offset by Satcom. Slide number 9 shows the first half 2023 EBIT, which grew by 15%, all the way to the right, 15%. In first half 2022, the group recorded an EBIT of $385 million, which is the first bar chart on the left, the number right at the top. This included a $72 million one-off pension restructuring gain, as many analysts would have noted. Also in first half 2023, the TransCore transaction and integration expenses were lower by $16 million.
If I take the net effect of the $72 million, which helped 2022 but was absent in 2023, and if I take the lower TransCore T and I expenses in 2023 first half, which is helped for 2023. I offset these two, it's $56 million. If I take $56 million out of the $385 million, I have the first bar chart of $329 million. If I take that as the new base, just to deconstruct so that you, you get the underlying business performance, and with the business growth of $141 million, the first half 2023 base operating performance is $470 million, which is a very robust $43 million higher than first half 2022 rebase. Sorry, 43% higher. We also incurred a one-off SatixFy divestment loss when we sold all the shares of SatixFy.
Also, Satcom is undergoing restructuring, and they will have incurred some severance expense. The total of these two is SGD 26 million, and if we take this off, then the first half 2023 reported number is SGD 444 million, which in itself, even if we do not rebase the 2020, is a 15% higher EBIT compared to first half 2022. Next, net profit. The difference between the two slide is obviously, finance expense and the tax effects. Similarly, in first half 2023, net profit was flat at SGD 281 million. That's the bar chart at the extreme right. In first half 2022, though, the group recorded a net profit of SGD 280 million, which included SGD 53 million, and now it's not SGD 72 million because of tax effects.
In first half 2023, TransCore transaction and integration expenses were lower by SGD 12 million after tax, which again, a different figure from the one you saw, but it was before tax. If we rebase both these items in first half 2022, that would be SGD 41 million off the 280. Starting with a new 2022 first half base of SGD 239 million, add to that business growth and cost savings of SGD 109 million net of tax in first half 2023, the green bar, 109, and the higher finance cost after tax of SGD 48 million, the base operating profit would be 26% stronger. At SGD 300 million base operating profit, this probably is our highest in many years.
In first half 2023, as I mentioned before, we also incurred loss on the full divestment of shares in SatixFy and some severance expense to put Satcom in a better footing. This totaled $19 million after tax. All in, the group net profit, as reported, showed it as flat at $281 million, despite higher finance cost. Let's go into some business discussions. Slide number 12 shows Commercial Aerospace revenue growth for Q1 and Q2 for three years. First off, as you can see in slide number 8 previously, the first half 2023 revenue was 32% higher year-on-year at $1.9 billion, and this was higher than pre-COVID level. For the chart on the right, 2Q 2023 revenue was $983 million.
We are looking at just 1 quarter, 2Q of 2023, which represented a robust 35% growth year-on-year, versus 1Q- sorry, versus 2Q 2022. You see the 35% on the right side of the chart. Strong recovery in engines and component businesses, together with PTF demand and higher nacelles delivery enabled this growth. This segment also saw robust new contract wins in 1H 2023 of $3 billion, including $2.3 billion in 2Q alone. Slide 13. In the month of May 2023, air travel has recovered to 96% of May 2019 pre-COVID level. We're comparing May 2023 to May 2019, 96% of pre-COVID level. Not quite the same level as pre-COVID yet, but 96%.
Of this 96%, domestic travel leads and has exceeded the pre-COVID level at 105% of pre-COVID level. Whilst international travel lags and is still below the pre-COVID level of 91%, at 91%. International travel with wide-body aircraft provides more MRO workload for our Commercial Aerospace segment and has yet to recover fully. If you look at APAC Airlines and their international travel recovery, it is at 69% of pre-COVID level, with potential for higher MRO demand going forward, especially with the reopening of China. This expected APAC air travel trajectory represents further upside for our Commercial Aerospace segment, as we have several hangars in Asia Pacific. Slide 14, let's discuss DPS. This segment reported a $9 million increase in revenue, despite a loss of revenue from U.S. Marine divestment in November last year.
Rebasing for this, DPS saw a healthy 6% base business revenue growth. Strong contract wins of $5.2 billion was recorded in the first half of 2023. It's really very strong. Growth in international defense business saw some early success, with about $100 million or more than $100 million contract wins from customers in Europe and the Middle East. As you can see, we have two very strong segments, Commercial Aerospace and DPS. Although DPS revenue grew modestly, when you look at the EBIT, it is very, very strong. The one area that we are restructuring to address future needs is in the Satcom area. Next, slide 15, Urban Solutions. We expect deliveries in Urban Solutions to be second half weighted.
In June 2023, just a couple of months ago, TransCore received a notice to proceed for New York congestion project, which is a very positive development, as we have waited for this for some months yet. This go-ahead means that this project, in fact, installation has already begun and is scheduled for completion as soon as 2Q next year. Transition for TransCore into the group has also been very smooth. Several new contracts, including the New Jersey, South Jersey contract, worth more than U.S. $1 billion, which is the largest contract ever, have also been won post-acquisition. TransCore is also pursuing other contracts, including urban congestion pricing. Now that the New York notice to proceed has been given, we have received many inquiries from other U.S. cities.
It is also pursuing synergies, which is the basis of the M&A, and pursuing various leads for road tolling in Southeast Asia, as well as the other way around, selling products of the ST Engineering group into the U.S. by using TransCore's channel. There are some active discussions in that area as well, and we hope to deliver some good news in due course. TransCore is also positioning itself not just for today, but for the future, and it has many interesting cutting-edge innovations and R&D in the pipeline. As a result of all this, TransCore earnings accretion in the second year post-acquisition as a target, which we announced when we bought TransCore, remains. We are confident that this will take place. Project deliveries are also weighted in the second half of 2023.
Earnings accretion, as defined here, when we say TransCore will achieve earnings accretion by the 2nd year of acquisition, it has taken into account amortization of intangibles, transaction and integration expenses, and also financing costs. It is basically a net profit figure. The other part of USS. is Urban Solutions-based business, which is our smart mobility business. As you are aware, we won many big contracts in Taiwan, and the notices to proceed for the Kaohsiung Yellow Line and the Red Lines are on track. Let me just devote a bit of time on Satcom, since it is an area that we are transforming and restructuring. Slide 16 talks to this. The Satcom business, mainly iDirect, was profitable before COVID. However, COVID impacted many of its key aviation and maritime customers.
As you know, these two domains are where Satcom iDirect sells to predominantly. This results in about break-even performance in 2020 and 2021. In 2022, however, which is last year, several factors impacted the profitability of Satcom. This included, firstly, supply chain disruptions, which included chip shortages, which we talked about. However, we expect relief to come by end of this year. Second, the remaining impact of COVID. Many in the industry, players like iDirect, are still facing remaining impact of COVID, although the effects are lingering off. Thirdly, near-term cost of restructuring, which we talk about, and this, I think, is a positive move by Satcom, as it is very decisive, and it really places Satcom iDirect in a much stronger foundation for future performance.
We also have a one-off divestment loss of SGD 24 million, where we sold SatixFy shares. Let me go into SatixFy a little bit. SatixFy is a company which develops ASIC semiconductor chipsets. ASIC is application-specific integrated circuit, basically for edge computing, and iDirect Satcom uses such chips. The investment in SatixFy was made in 2014, so it is some nine years ago, for $7 million, to enhance collaboration and to tap on the ASIC technology of SatixFy. By now, nine years hence, alternative technologies have become available, and the collaboration has been successful and fruitful. Hence, the original rationale of holding shares in SatixFy is no longer valid. SatixFy went on listing through a de-SPAC mechanism in October 2022, 4Q last year.
This investment was mark-to-market in our 4Q '22 results, pursuant to financial reporting standards, because there is a crystallized price in the IPO price. Subsequently, following the expiry of the sale moratorium of those original shareholders of SatixFy pre-listing, when the moratorium expired, we sold all the shares that we had in SatixFy for about $1.5 million. Actually, the cash flow loss is $7 million - $1.5 million. Because of the accounting ups and downs, the investment loss of $24 million was recorded. It's just one time for, for, for this half. Slide 17 now describes what are we doing about it, and the actions we are taking for the Satcom business is as follows: firstly, iDirect SatixFy uses several platform. You know, you may have heard of DIALOG, Velocity, and so forth.
Obviously, the industry is transforming from GEO, MEO, LEO, MEO even, well, HEO even, which is hybrid. So many form of satellites, this is a rapidly developing, but more nonetheless developing industry for the satellite players. Obviously, a Satcom modem and ground equipment provider has to keep up with these changes. So we have now decided that actually we can build the new generation platform on top of one of these several product lines, rather than a new platform on each of these product lines. By doing so, we achieve two things. One, cost efficiency, obviously, because you are fixing one product line to be future-ready rather than three or four, and less engineering work is required. Secondly, more dedicated efforts to position this new platform to be multi-orbit compatible.
Whether it's GEO, MEO, LEO, HEO, to be cloud native and 5G convergent. All this really is to kind of calibrate our, our solutions such that satellite communications either become the primary source of communications in remote areas, across continents, across oceans, or to be the redundant source, even on terrestrial communications. This is the vision which many of the big players are thinking about, connected everywhere, anywhere. Secondly, having done this converging of the platforms, we now have streamlining opportunities. We, we need less engineering hours, as I've described. Approximately 50 employees were released in June, and an additional 250 or so released in July, and these are mostly in the U.S. and Europe.
This organization rightsizing will reduce the workforce by approximately 20% and improving our cost structure and productivity, particularly in engineering and sales, and will enable Satcom to be more competitive in the marketplace. We expect cash savings of $40 million-$60 million a year from this, as well as other continuous improvement efforts. While the cash savings are between $40 million and $60 million a year, the P&L impact, yeah, for those of you who are building your model, the savings is expected to be around $30 million-$60 million. Instead of $40 million-$60 million for cash, $30 million-$60 million for P&L. That's because the affected employees' costs have been capitalized in the past to be amortized going forward, and this amortization will continue until it tears down to zero. That's for Satcom.
We strongly believe and are confident that we have, and will put it in a strong foundation for future growth and profitability. Next, I will spend some time talking about the segment financials and then the order book. Slide 19. When we look at EBIT by segment, starting from the left, Commercial Aerospace, as we have discussed, has a strong revenue growth of 32%. If we take out the pension restructuring gain, which was one-off in one half 2022, then the base operating profit increased 60% year-on-year, from SGD 111 million - SGD 178 million. In the middle of the slide, DPS posted strong EBIT of SGD 301 million. This is very strong, boosted by business growth, cost savings, and margin mix, and also the absence of U.S. Marine losses.
We more than make up for the U.S. Marine revenue loss, which we have foregone. On the EBIT side, the absence of U.S. Marine loss clearly produced a very strong EBIT for DPS as a whole. It is, even at hindsight, a good decision so far. On the right side of the slide, for USS, lower TransCore transaction and integration cost of $16 million. Weakness in Satcom, as we have discussed, due to supply chain, remaining COVID impact, and the one-off loss on divestment of SatixFy, contributed to an EBIT loss of $34 million. Having said that, our Satcom business, especially iDirect, continue to be a hubs and modems market leader. It has very strong brand equity in the market and held in very high regard by customers, particularly in the aviation, maritime, government, and cellular backhaul sectors.
On the whole, we remain positive about the long-term prospects of the Satcom industry. It is going to be a highly connected world, terrestrial alone will not cut it. We expect the restructuring efforts that we are taking now to strengthen the foundation of our Satcom business for future profits and growth. On the whole, Commercial Aerospace and DPS performed very strongly. USS segment EBIT is expected to be comparable to 2022 for the full year of 2023. While Satcom is weak, we believe second half will be significantly strong. Sorry, USS as a whole will be significantly strong for second half, such as USS segment EBIT will be comparable to 2022, which was a profit of about SGD 30 million or so. Next, slide number 20, new contract wins.
In 2Q 2023, the group secured $4.7 billion in new contracts. Commercial Aero recording $2.3 billion, DPS $1.9 billion, and USS $0.5 billion. Together with those in 1Q 2023, of $4.9 billion, the group secured a record $9.5 billion of new contracts in first half 2023. Which brings me to slide 21. With the strong contract wins, we ended the first half with a record order book of $27.7 billion. I think some of you who have covered us in the past will remember numbers like $13 billion. Now it's almost $28 billion. This is a leading indicator of future revenue growth in future periods, and we expect to deliver about $4.4 billion in the remaining 6 months of 2023 out of this order book.
Slide 23 discusses our debt profile. As you know, in May this year, we issued another tranche of $500 million, 3-year fixed rate bonds with an effective yield of 3.3% after the amortization of U.S. Treasury lock gains. The full amount of T-lock gains of $32 million that remained on the balance sheet, if you recall, we had $92 million, we amortized 60, there was 32 in the balance sheet, is now fully applied. Half of this will be amortized over the tenure of this new 3-year bond I just spoke of, the remaining half is realized as finance cost reduction in first half 2023, given that we have no intention to issue any more bonds in the near term. As of 30th June, 2023, total borrowings was $6.2 billion. That's the third bar chart.
This is lower when compared to $6.5 billion at the end of 2022, and slightly higher compared to March 2023. However, we expect to reduce borrowings to meet $5 billion by end of 2023. As a result, you know, we will do so through loan repayment, largely from strong operating cash flow and aviation asset sales to joint ventures. For 2023, we expect the group's weighted average borrowing cost to be in the low 3% range, and this is a figure we have shared previously, and it stands. For next year, we expect the group's weighted average borrowing cost to be in the mid 3% range. Even if we assume, and this is the underlying assumption, that the Fed hikes U.S. Fed funds rate by a further 25% post-July till before the end of the year.
Even with one more hike of 25 basis point, we expect the group's weighted average borrowing cost for next year to be mid 3%. For our interest rate debt profile, with the issuance of the three-year fixed rate bond, fixed versus floating debt proportion was rebalanced to 65%, 35% accordingly. Our credit rating remains strong. Moody's maintained our credit rating at triple A, however, favorably changed the outlook from negative to stable as recently as April this year. S&P reaffirmed our credit rating of double A plus and stable in June 2023 as part of their annual review. Finally, we'll end with the Group President and CEO's message, and let me just read it. It's not that long. "Our group performance in the first half demonstrated the strength and resilience of our business portfolio.
This is reflected in the strong recovery of the Commercial Aerospace segment and the strength of the Defence and Public Security segment. Despite near-term challenges in our Satcom sub-segment, decisive steps are being taken to restructure and transform this business so as to be future-ready. Consequently, we expect Urban Solutions and Satcom, the USS segment, full year 2023 segment EBIT to be comparable to 2022, supported by a significantly stronger second half 2023 for this segment, i.e., the USS segment. The target for TransCore to achieve earnings accretion from the second year post-acquisition remains-
... We remain very focused on delivering on our record high order book of SGD 27.7 billion to achieve growth and value for all our stakeholders. This marks the end of my presentation. Thank you.
Thank you, Cedric. May I now invite our panelists to the head table? The panelists this morning are Vincent Chong, Group President and CEO, Group CFO, Cedric Foo, Ravinder Singh, Group COO, Technology and Innovation, and President, Defence and Public Security, Tan Lee Chew , Group Chief Commercial Officer, Market Development, and President, Smart City & Digital Solutions, and finally, Jeffrey Lam, President of Commercial Aerospace. I will now hand over the floor to Vincent to deliver his remarks. Vincent, please.
Good morning. Can you hear me? Yeah, because my position is different. Okay, good morning to all of you at the ST Engineering Hub, and participants who are joining us virtually. Good morning. Welcome to ST Engineering's financial results briefing for the first half of 2023. Cedric has delivered the full financial presentation for the first half of 2023, reflecting the strength and resilience of our business portfolio. As you delve into details of our first half performance, the strengths of the group become evident.
Even as Urban Solutions and Satcom segment faces near-term challenges, the strong operating performance of the other two segments, namely Commercial Aerospace and Defence and Public Security, enabled the group to achieve a strong first half of 2023, with base operating performance of 26% year-on-year improvement in net profit on the back of a 14% year-on-year increase in revenue, as Cedric presented. We reported that group revenue was 14% higher year-on-year, despite the divestment of U.S. Marine, and that our EBIT was 15% stronger year-on-year, despite Satcom weakness in the near term. As you are well informed, we have been keeping the market apprised of the near-term Satcom weakness for a while now, and our internal transformation as well. We have now taken decisive steps to establish a stronger foundation for growth.
In fact, we have been doing so, in the last year or two. We have called out the impact of certain variables and non-recurring one-offs, which resulted in flat PBT and net profit in first half 2023. However, as I just mentioned, our base operating performance was stronger at the net profit level, with a 26% increase year-on-year, despite Satcom weakness and higher finance costs. For Commercial Aerospace, we were able to almost make up for the $72 million pension restructuring gain in the first half of 2022, which did not recur in first half 2023. Despite that, we were able to make up for the one-time gain in 2022 with base business improvement and cost savings initiative.
Of course, this Commercial Aerospace recovery traction continues to be very good and very strong, as Cedric also showed you earlier on. Let's go on to our segment performance and strategic outlook for the rest of the year. We are optimistic about Commercial Aerospace continued recovery, which has rebounded to its pre-COVID level. Excluding pension restructuring gain, which was one-time in first half of 2022. First half 2023, EBIT improved by 60% year-on-year. This is the base operating performance result of our Commercial Aerospace segment. As we continue to focus on sustaining this segment's growth and improving the learning curve of freighter conversion program across our conversion sites, we will actively, actively seek and capture productivity benefits.
While global air travel is fast approaching pre-COVID level, international air travel in Asia Pacific, however, has only reached about 70% of its pre-pandemic level. As we align our nacelle production rate to that of the OEM, we noted that Airbus ramp pace of ramp-up, including for A320neo, will continue to depend on its supply chain's capability to perform. I'll now touch on Defence and Public Security segment, which also recorded strong results in first half 2023. We reported higher revenue, despite the divestment of U.S. Marine, and stronger EBIT of 41% better than first half of 2022. That reflects the effect of a high-graded portfolio and a favorable margin mix.
The higher margin mix or better margin mix observed in the period, was partially attributed to the lumpy nature of project revenue and profit recognition, and diverse margin mix in defense-related contracts, and this can lead to fluctuations, as you may have already noted from following us over the years, in the segment's overall blended margin from time to time. On international defense, the segment made headway, securing new contracts of over $100 million in the first half of the year. These new wins further affirm the value and appeal of our defense solutions, highlighting the progress we have made in cultivating and establishing presence in our target markets. Moving on to the Urban Solutions and Satcom segment.
While revenue grew, EBIT was impacted by weaker Satcom performance due to supply chain disruptions, including chip shortages, remaining impact of COVID, near-term costs of ongoing Satcom business transformation, and a one-off loss, one-off loss from the divestment of SatixFy shares. Excluding Satcom weakness and the one-time divestment loss, USS EBIT in the first half of 2023 was $30 million higher compared to first half of 2022, attributed to a combination of business growth, cost savings, and lower TransCore transaction and integration expenses. Earlier, you heard the updates from Cedric on how TransCore is pursuing growth and synergies, and notably how the team is focused on executing the New York congestion pricing, pricing project since receiving the notice to proceed in June or a couple of months ago.
This is scheduled for completion by the second quarter of 2024, in spring of next year. With this in view, our target for TransCore to achieve earnings accretion by second year post-acquisition remains. As explained by Cedric, being accretive, earnings accretive means TransCore is generating sufficient profits to cover financing costs, integration costs, as well as amortization expense. More on Satcom, elaborating on what Cedric has said. The business has had a strong track record of profitability until COVID hit. While it faced the negative impact of the pandemic, it is essential to recognize that it was not the only factor reshaping its performance. Over the past 3 years, the Satcom industry has been undergoing significant transformation, as Cedric explained, driven by industry consolidation, technology advancements, and disruptions from the development of new satellite constellations.
These changes, coupled with the effect of supply chain constraints and chip shortages during COVID, have collectively presented challenges as well as opportunities. The losses incurred in 2022, last year, while partly attributable to chip shortages and remaining impact of COVID, called for a review to ensure that our business continues to offer best value to customers and stakeholders. This led to the strategic review, as you have just heard, to align the Satcom iDirect organization structure with evolving needs of the industry and to ensure sustainable growth in the long term. The strategic initiatives which followed aim at enhancing efficiency, optimizing costs, and streamlining roles across functions and operations will yield $40 million-$60 million of cash flow cost savings per year, each year for the next 5 years.
Meanwhile, we remain positive on the long-term growth prospects of the Satcom industry and will continue to invest in strengthening our product market leadership as well as Satcom capabilities. The business is also working towards streamlining its best-in-class technology into a single next-generation platform, as Cedric described, meeting the needs of customers in an industry undergoing transformation. With the restructuring being undertaken, we expect Satcom performance in the second half of 2023 to be materially better than first half of 2023. We expect 2024 to be stronger than 2023 for Satcom, with the absence of one-time costs from the divestment of Satcom shares, as well as SatixFy shares, sorry, as well as strengthening of our base business.
In 2024, there would be a cash savings of about $50 million arising from the organizational rightsizing and continuous improvement initiatives, which we described. Of this, about $30 million will flow directly into Satcom EBIT, excluding the impact of inflation on base business, which will be well supported by revenue growth. We will provide an update on 2024 Satcom outlook when we have our full year 2023 results. Taking all the above in, that Urban Solutions is second-half weighted this year, we are targeting and expect the Urban Solutions and Satcom full year segment EBIT in 2023 to be at least comparable to the prior year.
On new contracts, we are pleased to share that our year-on-year total contract value increased more than 70% to $9.5 billion in the first half of 2023, which is a very strong set of performance or contract wins. This comprises $4.7 billion for the second quarter and $4.9 billion for the first quarter, which we announced in May. We are determined to build upon this strong contract win momentum going forward, and you can refer to slide 20 in the presentation material for new contract details, which Cedric had also highlighted. Lifted by these new contracts and net of revenue delivery in the first half, we ended June with an all-time high record order book of $27.7 billion, positioning us very well for growth.
In summary, our group's overall strength, strength has been evident from our first half of 2023 results, notably backed by two strong operating segments, Commercial Aerospace and Defence and Public Security segments. While Urban Solutions and Satcom segment is impacted by Satcom, we are taking decisive steps to address the near-term challenges to enhance its competitive position, we are already seeing early results. Additionally, Urban Solutions and Satcom segment profitability will be boosted by contributions from its smart mobility business, of which TransCore is part of. We expect Urban Solutions and Satcom full year 2023 segment EBIT to be comparable to 2022, supported by a significantly stronger second half 2023 for this segment. The target for TransCore to achieve earnings accretion from second year post-acquisition remains. Next, our record order book continues to be a leading indicator of growth.
We will build upon our performance in the first half as we navigate the operating environment across our business segments and achieve sustained growth throughout the remainder of the year and beyond. While we are not providing specific guidance of profit or revenue guidance for the full year, given the dynamic market conditions, we have offered perspectives for our first half 2023 results that position us on a very strong footing. Lastly, our board of directors has approved a second interim dividend of SGD 0.04 per share, which shareholders will receive on 1st September 2023. On that positive note, let us move to Q&A, and we'll address the questions that you may have, both from the participants in the room here or as well as those who dial in virtually. All right. Thank you.
Thank you, Vincent. I will now open up the floor to our participants in the room first. For our online participants, please click the Raise Your Hand icon, and we will place you in the queue. Please kindly state your name and the organization you are from when you ask your question. May we have our first question from the floor, please?
Hi, Rahul Bhatia from HSBC. Congrats on strong set of results. three questions from my side. First, the CA and DPS divisions had a strong EBIT margin in first half. Could we consider this as a base for future, or were there some one-off positive factors helping the margin? For instance, I see aircraft sales of $100 million in 1H. Not sure if this is very high margin or any other big contract deliveries that happened in DPS division, that which had a high margin. Second, could you provide more color on the key levers that drive your view on TransCore earnings accretion? Is it more from high revenue, or do you expect some level of cost savings as well? The project, like in New York Congestion, are they higher margin than previous margins?
third, on Commercial Aerospace, in Q2, the revenue was close to $1 billion. Could I check if there is more space in terms of hangar availability or labor to go further higher from here in terms of revenue? Thank you.
I would ask that, to in answer in this sequence. First, I'll ask Ravi to talk about DPS margins first half, whether, whether there's a proxy for second half in terms of margin. Then for Lichi to talk about TransCore accretion, you know, what's the driver? Then for Jeff to talk about, you know, hangar capacity, whether we have the room to grow. You, you know that we are continuing to build capacity, you know, building a, you know, hangar complex in Pensacola, a work in progress, but we're also building hangars elsewhere. Well, I'll let, you know, Jeff talk about that later. Maybe I'll let Ravi first address the first question.
Thank you for your question. First of all, we are very happy with the very strong margins that the team has achieved for the first half. I think, as Vincent also alluded to it, there are two reasons why our margins are very strong. I think firstly, without losses of U.S. Marine, and secondly, I think the core business have done well. As we shared, the revenue has gone up by 6%, and if you look at each of the business areas, all of them have grown quite steadily. One reason why the margin is very strong, the first half is, of course, because of project deliveries, because of timing. Overall, I would say that the first half is very strong.
We will obviously, moving forward, won't see the losses from U.S. Marine, so that will help us. The rest of it, of course, depends on the delivery that we have for the next six months. Our new order win for the first half is SGD 5.2 billion, which is very strong. Even if you look back last year, that's close to what we secured for the whole year. I think from that point of view, we are in a good position, and we do hope, with the right opportunities to deliver good margins.
Okay. Thank you. Yeah.
Yeah.
Lichi.
Thanks, Rahul, for the question. Earnings accretion for us, naturally will factor in revenue, and revenue as a result of project milestones and, you know, project profiles that we have. We also look at the balance sheet that we have, funds, T-lock gains, et cetera. As we ponder and consider all these elements, we are confident that the commitment that we made to be earnings accretive, by second year still remains.
Okay. Thank you, Lichi. Now, Jeff.
Thank you. Thank you, Rahul. In terms of capacity, we continue to grow capacity in line with market demand. So, you know, we have invested in the LEAP engine capability. We're building more space to deliver more engines. In addition, we are completing our fourth hangar in Guangzhou, and we intend to break ground in the second half of this year at 3 additional sites. In Pensacola for hangars 3 and 4, in Ezhou, China, for a new hangar, also in Singapore for additional hangars. We continue to look to build capacity in tandem with market demand. In terms of operating margin, obviously, in the first half, we had some one-offs. We continue to be hopeful for the second half.
Essentially, we have already achieved recovery from COVID, and we are moving into a growth phase, and we expect to see continued steady, gradual growth in terms of nacelle delivery. Our P2F conversions, we also are adding 3 additional sites this year that are third-party modification sites. In addition, as you can see, the recovery in the engine and component business with the recovery of the air traffic is also steady and strong. We are hopeful for the second half, and hope we can continue to work towards good outcomes.
Yeah. Thank you, Jeff. I'd like to build on what Jeff said. One of the strengths of our group is that we have the financial capacity to invest across the business cycle. Even in the trough of COVID, we did not stop our investments in building new hangars. You know, second hangar in Pensacola, third hangar in Guangzhou, they are both operating. We continue to look at, you know, opportunities to expand, including in Ezhou, that was discussed in the thick of COVID. That, that is, you know, allowing us now to, to capture the benefits of the strong recovery in Commercial Aerospace, and this is the point which we mentioned at the Investor Day conference towards the end of 2021. The benefits are coming through.
We also said during our Investor Day that we expected, you know, our Commercial Aerospace to recover to pre-COVID level in 2024. We also said in the last one year or so, that there's a good chance we may get to pre-COVID level this year. As of first half of 2023, we are already at that, at that performance level. I'm very pleased to inform the market that our Commercial Aerospace is really doing well.
Yes, Yuki.
Hi. Can I just check again, the annual P&L savings from divesting Statics, Stat-Statics, right, is SGD 30 million or SGD 30 million-SGD 60 million? That's my first question. Also for USS, I wasn't sure whether you actually answered whether the second half strength would it come from higher revenue, cost savings or better margin from executing the U.S. New York congestion contract? Also, can I just check how much was ship repair orders in this half? We note that ship repair has actually been coming back since last year, and whether you are seeing that as a growing or sustainable, and what kind of vessels are we looking at? Just following up on aerospace, very strong EBIT margin this half.
What was the one-off, and how much was it?
Can you repeat your last question?
I think
Jeff.
Jeff mentioned that there was a one-off in aerospace, 'cause the EBIT margin was quite strong this half, so wanted to check what was it and how much was it?
We'll go in the sequence which you asked the question. First of all, the annual savings of $40 million-$60 million is not from SatixFy the investment. This is from our own internal transformation, streamlining, right-sizing of the workforce, and continuous improvement. Let's just be, be clear, but then I'll let Li Qiu later on build on, on this to answer your question in more specific with more specificities. For USS, I also let Li Qiu talk about, you know, why do we expect stronger second half. But it's a combination of both, Satcom doing better and then Urban Solutions being second half-weighted, as we mentioned earlier on. But I'll let Li Qiu expand on it.
Then Ravi to talk about ship repair orders in first half, then Jeff, to talk about the one-off aero, if that's okay? Yeah. Go ahead.
Okay. On USS, for second half, we are expecting revenue to be stronger. As we mentioned, you know, we are second half-weighted on revenue. We are also expecting the right sizing of the Satcom organization. Cedric mentioned that, across June and July, we have taken out 20% of our workforce, so the savings from that is going to flow also into supporting the second half P&L and business. Specific to the MTA contract, obviously, the fact that we are starting installation for the congestion pricing project in Manhattan, will contribute to the project milestone revenue that I talked about earlier, explaining, you know, to Rahul's question.
In summary, it's a combination of higher revenue that we are expecting, both from projects that we will see delivered in the second half, as well as recovering from product availability in the second half for Satcom. On the savings side, we are seeing some of the transformation activities we are implementing or we have implemented in the first half to benefit us on the bottom line for second half.
All right. Well, thanks, Nichol. We say, Ravi, you talk about the ship repair business.
On ship repair, firstly, it's not meaningful to talk about order books, because in ship repair, about 80% of the work is delivered in the year that we acquired, so a bit more faster delivery. In terms of ship repair for first half, we've done well, and actually, it looks like we are gonna be full for the rest of the year. It's very sustainable business and also a very good margin business for us.
Okay. Which is, which is a good situation for our ship repair business. We our team has been, what you call, very selective in the customer mix, at this time. I think we are off to a, a very good, foundation, even for ship repair. Okay. As, as you are aware, that we, we did, sell, aircraft, to our joint venture company, okay? Obviously, we had a fair and reasonable return, based on the holding period we had on those aircraft.
We should not forget that we operate in a very competitive market, and I should not forget to mention that we continue to face challenges in the market around inflation of wages and raw materials, as well as availability of labor, and the vendor supply chain continues to present challenges to our kitting operations for P2F. We are cautiously optimistic going forward. Obviously, we want to do our best and be able to actively manage all the market challenges while focusing on customer needs and growth. Thank you. Yeah. Well, just so that you know, when we divest aircraft into joint ventures, this is in alignment with our business model as we have described over the last few years, of our aircraft and engines leasing.
That we continue to focus on our core, which is MRO, end-to-end MRO services and passenger to freighter conversion. We look for partners, you know, as we move along for our aviation leasing business. The actions that we have been taking are very consistent with this business model.
Hi. Good morning. Thank you for this opportunity. Just a few questions from me. In terms of the Satcom business restructuring, I understand that cost savings from workforce reduction will begin immediately, but what's the projected timeline to realize the full annual cost savings of between SGD 30 million-SGD 60 million? Additionally, could you also elaborate on the potential top-line impact to the Satcom business as a result of shifting your focus to a single next-generation platform? And one more question, P&W recently disclosed contamination in more than 1,200 of its GTF engines. Do you foresee any impact to the Commercial Aerospace segment on this development? Thank you.
Okay, I will let Jeff, later on, talk about the GTF engines, whether there's any impact. Just so that you are clear. Thanks for your question. The savings from our organizational streamlining and continuous improvement is expected to give us $40 million-$60 million of cash flow savings per year. Next year, we expect the cash flow savings from this $40 million-$60 million range to be $50 million, of which $30 million would flow down directly as EBIT improvement, because not all the cash savings are related to direct OpEx. As Cedric mentioned, some of those are capitalized and amortized in the past. Let me just repeat.
Next year's cash flow, cash savings, versus this year from these initiatives that we have undertaken, would yield SGD 50 million of cash flow savings, but then SGD 30 million of EBIT improvement next year.
Let me answer the question on top-line impact as we converge to one single next-generation platform. As we make the decision to, you know, develop on top of the Velocity platform that Cedric was mentioning, we've actually been very much in discussion with customers, and we have taken their inputs. The way to look at it is that as we deliver a multi-orbit enabled-... at the end of that journey, we are going to take the needs of our current customer in maritime, in aviation, to give them an, a platform that leverages the best-in-class technologies that we have on Velocity, which is a proven mobility platform. Layer on top of it, you know, the flexible wave, the, the waveform that we have in DIALOG.
We are taking the best of multiple platforms, and then providing the customer a path forward and a journey into this next-gen platform. We do not see that as a necessarily a negative impact. In fact, we see that as a positive impact as we get them to be more ready, in their ability to operate multi-orbit, and also their ability to operate in a terrestrial as well as satellite converged world. Hopefully that answers the question.
Okay. Thanks, Liqiu. I also want to just build on the answer that I provided early on, on the EBIT impact and cash flow savings from our transformation. Although the EBIT impact or positive help will be $30 million next year, over a period of time, this annual effects will become $60 million as it gets fully depreciated. The EBIT help next year is expected to be $30 million from the streamlining exercise. In about 5 years, the full effect of $60 million will be realized per year in terms of EBIT. This is just accounting. In terms of real cash flow savings, it's $60 million. Early on, I also mentioned this is just a benchmark against our starting point, 2022, 2023, in terms of the difference in cost.
Our base business will also go through, you know, as in, the effects of inflation. As I also mentioned, revenue growth will more than offset or support this inflation, as we always do. Cost savings exercise will continue to be done. Our revenue growth will, of course, have to take care, take care of, or more than absorb the inflationary pressures, as we do for all our businesses.
Okay, a quick response to the Pratt & Whitney GTF engine issues in the market. We do not currently overhaul Pratt & Whitney engines, and we also don't deliver the nacelles for the Airbus aircraft powered by the GTF engine, it will not directly impact us. Nevertheless, the market will see some short-term under capacity for MRO to address these challenges, to change out these contaminated components. The pressure on Airbus will also be there in terms of the need for Pratt & Whitney to supply spare engines into the market to support existing fleet, rather than supply new engines for the delivery of new aircraft. That's gonna be kind of double impact on the MRO market as well as the new make market. Thank you.
Thanks. Okay, I'd like to follow up a little bit on Suki's earlier question on the Commercial Aerospace margin. I also heard Jeffrey mention there was some, well, help the margins in the first half. Just now, Jeffrey was saying, talking about the disposal of the 11 aircraft to the joint venture. I thought this one was only announced yesterday, and the impact has not been recognized yet, right? It should be recognized in the second half. It is recognized in the second half. The question is, my question is, what is the size of the disposal, and what is You also mentioned there will be a good holding investment return from the holding period.
I wonder, what is the size of the disposal gain? Yeah, that's my question. Thank you.
All right. You know, I was really referring to an earlier disposal. You know, we do these transfers actively. As Vincent explained, it is our strategy to work with partners in the market to be able to offer complete solutions. You know, we are actively doing that all the time. In the first half, we've also done that, and obviously, in the second half, as we announced, right? It is, of course, inappropriate for us to review the size, you know, but as I said, we've had certain holding period on these aircraft. We also process them. Sometimes we do work on them, and therefore, when we dispose of them to, to the market and to partners, we do have a fair and reasonable gain as a result. Yeah.
Okay, the keywords there is that fair and reasonable gains. I think it's more important to look at the business model. Yes, we do expect some fair compensation for 11 aircraft, and we would be a positive contribution. Importantly, we are just moving towards our business model, where we work with partners, while we continue to add value in the services, end-to-end MRO services, repair management, fleet management, that we are very good at. We have been doing this for a few years now. For various business reasons, sometimes speed to market, we sometimes acquire the aircraft on our own first, add value to them, before we transfer into the joint venture.
In case you wonder why it's a sale to JV, but the original intent has always been eventually, when the aircraft is ready, will be transferred to the joint venture, be it a converted aircraft or just a typical commercial aircraft for lease. Actually, the, you know, in Cedric's presentation, we also talked about the expected reduction in borrowings at the end of the year by some $600 million or $500 million-$600 million to mid five. Part of it is from this capital recycling that we're doing with our aviation business, but then the other part is really our strong cash flow. We can say 2/3, 1/3. 1/3 from strong cash flow, and 2/3 of that reduction will come from recycling our capital from the aviation asset business.
Okay.
Hi. Thanks so much for the presentation. I have 3 questions here. The first question is really about the order book outlook. We have very strong order book and contract wins year-to-date. Looking forward to the second half and, you know, maybe longer term, which, which are some of the categories we are more positive on in terms of the segments? I also saw, you know, in the second quarter, we, we did win some defense contracts in Europe and Middle East. Do you mind to share a little bit on, on that? I understand there's some confidentiality behind the customers. Maybe on TransCore as well, part of the objectives is always to bring the capabilities to Southeast Asia.
Do you mind to share a little bit about any potential negotiations we are having in ASEAN? What kind of differentiation do we have towards some of the toll road operators in the region, like Jasa Marga in Indonesia? Last question is on P2F EBIT margin. I think we previously were looking at this business turning accretive. Are we on track on this business, and what is the medium-term outlook for the margins?
Okay. All, all very good questions, Sean. I'll let Li Qiu talk about TransCore pipeline in this part of the world, which we spend a lot of time on, so we, we can share some info with you. Of course, our differentiation, I mean, just keep in mind that we are executing the congestion pricing project in Manhattan, the most populous city in the U.S., which speaks to the rigor of our solutions and the trust that our customers have placed on us, which we really appreciate. Then how can we then, you know, bring those technologies out to-- from the United States? I, I think there are good developments and good prospects in this region as well.
I'll let Li Qiu talk about them in at a higher level, given the sensitivity, as you mentioned. I'll let Ravi talk about the defense opportunities in Europe and Middle East, and where were some of the wins. Jeff to talk about the P2F accretion that we talk about, and we are certainly on track versus what we have told you. Order book is something that we don't really give forecast because it comes in, you know, lumps and pieces sometimes. We made it a point to call it out as our record high because it's indeed of material improvement versus before. Quarter to quarter, half on half, we really cannot predict.
One thing I would say is that our order book improvement is contributed by all three segments. It's not like, you know, we have a laggard, and then the other two is good. All three were giving good traction, albeit at different magnitude, but all three segments recorded stronger order book this half. Okay, I would let maybe Li Qiu first talk about the TransCore, and then Ravi talk about Defence.
Okay. Thank you, Sean, for the question. In terms of opportunities outside of the United States, particularly with reference to Southeast Asia, we have built a very strong pipeline. Of course, these deals take time to land, and they are in different phases of pursuit as we speak. Within Southeast Asia, we are looking at opportunities across Malaysia, Philippines. We are looking at opportunities, you know, also in other parts of Southeast Asia, including Indonesia and Thailand. You know, in fact, you ask about the differentiation. TransCore is a company that's established itself for 80 years in the United States, 8 out of 10 toll agencies in the United States use TransCore's tolling solution.
You know, what we are doing right now in terms of talent exchange, is to get the knowledge and the experience of how they manage some of these toll projects across to implementing projects here in Southeast Asia. Of course, the operating model needs to be different as well. We're also looking at how do we build out the right, you know, delivery model, leveraging the know-how as well as the experience that we have.
Add to it the knowledge that we have in Southeast Asia, from the smart city projects that we have done out of the ST Engineering Urban Solutions set up, and marrying the two assets, and also marrying our, or combining our, you know, capabilities both ways, to add to the synergies that we are building right now. Good pipeline, capabilities exchange, and we are also, you know, looking at, Cedric was mentioning earlier, exploring new technologies as we cover opportunities outside and within the United States.
Okay. Thank you, Lichi. Ravi? Yeah, thanks.
John, thank you for the question. First of all, I think as we have shared, previously, we have put in a very concerted effort to develop our products and solution for the international defense market for the last couple of years. We've also put in quite a bit of effort in terms of go-to-market, sending people overseas, participating exhibitions, finding partners and talking to end customers. I think as, as it would be obvious, the defense business is one where partners, local partners are very, very important because typically the countries that buy defense equipment want it to be sustainable long period. That's something that we've been working on for, for quite a while.
I would say that for the first half, and the generally, the momentum, we're seeing good traction, very good traction in a couple of areas. I'll just mention them. First of all, our 40 mm sales. We've had quite good sales in the first half, and even as recently as last month, we continue to get orders as some militaries, especially in Eastern Europe, build up their military capability, so we are seeing that. We sold 120 mm mortars to the Middle East. We are also doing reasonably well in our training and simulation solutions, especially in Europe. We are working with some of the Western militaries there. On our U.S.C Autonomous Mast, we've had some good traction.
That's an area that of interest to many militaries around the world, from, from Australia to the Middle East to Europe and even the U.S., and we've been building, building up that, the engagement and doing trials, and we hope that that will convert into more significant sales in the future. In the C-130 area, as you know, we do the C-130 MRO and upgrade, and actually the team has done really well. I think most of our capacity for this year is really take-taken up, thanks to the good work of the team and, of course, the reputation of defense, aerospace and, and Singapore for being able to do the MRO upgrade at with good quality and also on time.
I just wanted to add, in fact, our marine business, not only are we continuing to support the UAE PV program, and we managed to get some variation orders there, but we also do MRO work for foreign vessels coming into the region. We've done some work for the U.S., for Australia, New Zealand, and this actually we put under ship repair, ship repair and maintenance, MRO, and this is actually giving a marine business steady, steady, steady revenue. Overall, the defense business, I would say that we, we are getting traction, we are making good inroads, but we continue to want to grow this business.
In the platform area, which, as you know, we, we, we do develop and manufacture platforms, we are working with a couple of strong partners, especially in Europe and Middle East. We hope that, you know, in, in due course, there'll be some opportunity to convert, convert these opportunities into, to actual contracts. Of course, we have to remind ourselves, defense business, gestation period is very long, and the journey is quite challenging. We are quite determined to take on these opportunities and, and see whether we can go further, especially in the platform business.
Okay. Thank you, Ravi. As you go, you heard we have a lot of irons in the fire, when it comes to defense. All right.
Appreciate the interest in the P2F business. We were gross margin positive in the first half of 2023. We target to be EBIT margin positive for full year 2023. In addition, in the medium term, by 2025, we target to achieve high single-digit EBIT margin and hopefully double-digit EBIT margin thereafter. Thank you.
Okay. We will now move on to our online analyst participants. Lorraine from Morningstar, we will open up your line now.
Hi, good afternoon. I'm sorry I'm not there in person. I just want to follow up on the order book, contract wins for the Commercial Aerospace segment. I was just wondering, whether the contracts, are they new clients or renewals? Which regions they are from? All right, thank you.
Okay. It's a combination of new and existing clients. Specific to P2F conversion, we had a significant contract win from a lessor, and this gave us a very big leap. It's probably not what you would see every day, but certainly we hope to do more on these sizable contracts. We also have MRO contracts, long-term MRO contracts, that we signed with existing customers. It's a combination of both of those. Thank you.
All right. Thanks, Lorraine, for the question. I hope we answered your, your question. While we wait for the next question, I will invite Cedric to give a little bit more context to the interest rate forecast. I thought it may be so good for Ravi to talk about the digital business, which we kind of highlighted in our Investor Day, which is really making good progress. Maybe while we wait for the next question, Cedric, please.
Yes. If you refer to slide 23, we did talk about what our weighted average borrowing cost would be like this year, and I stated it as low 3%, so that stands. We also make an estimate of what our weighted average borrowing cost will be like next year, in 2024.
... I said it to be mid 3%, even assuming that the Federal Reserve increases the Fed funds rate by 25 basis points after their July action, so from August to end of the year. I should add now that even assuming that there's no rate cuts in the whole of 2024, and still, our weighted average borrowing cost will be mid 3%. In fact, if you read the literature, some banks are predicting there'll be rate cuts from 2Q 2024, but we haven't taken that into account when we arrive at the mid 3%. Yeah. Cedric, thank you.
Vincent, thanks. On our digital business, which comprise software and AI, cyber, and cloud, we are making. We are growing steadily, and we are on track for higher revenue growth this year. On the cyber side of the house, we continue to sell the, the encryption products, SOC builds new SOCs as well as SOC services, and also provide cybersecurity services. On the cloud side, we continue to win data center opportunities, help companies migrate to the cloud, their current solution, as well as build new software solutions on the cloud. I just want to mention very quickly about generative AI. This is something that I'm sure we all read about. Our team in our engineering center, as well as in digital systems, have been building and working on generative AI.
There are two areas that we are working on. One is using generative AI for, for video, video analytics. It's something that we, we've already developed, and we are delivering in some projects. The other is using generative AI to support analytics work for some of our customers. I think our strength is the ability to develop generative AI products, which are what we call on-premises, not using the cloud and not putting, you know, the customer's data onto the cloud. Those are our new opportunities, and our team is developing solutions, and we are quite confident that this will be an area that will continue to drive our digital business.
Yes. We set a target of tripling our digital business revenue to more than $500 million by 2026. I think our progress will tell us that we will certainly meet that target and, in fact, outperform that target by 2026. More to come, but we are certainly making good progress.
We will open the floor again to our physical participants. Do we have any next question? Okay, if not, maybe I will just invite Vincent to give his closing remarks before we close the event today.
Well, well, thank you for your attention. Thank you for joining us today for the results briefing. As you can see, our first half results really show that the underlying business is very strong. Although we have some near-term challenges in Satcom, we are taking very decisive action to address them, we are already seeing, you know, early results. We'll share more with you as we progress, for now, unless or rather, if you have any further questions, you can reach out to us after this call. I want to thank you for your attention, wish you a very pleasant weekend ahead. Thank you very much.
Thank you.