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Net Profit Slips 9% at SATS Limited

SATS Limited (SGX: S58), the leading provider of gateway services and food solutions for the airline industry in the region, released its third quarter results last evening.

It saw quarterly revenue dip 1.1% year-on-year to S$465.5 million with  net profit dropping by 8.7% to S$42.9 million.

SATS is present at 39 locations in 10 countries across Asia and the Middle East. It handles about 80% of the scheduled flights and serves close to 60 scheduled airlines at Singapore’s very own Changi Airport. The firm’s clients include Singapore Airlines (SGX: C6L) and Tigerair (SGX: J7X).

SATS has two main business divisions – gateway services, which involve ground handling, and food solutions, which involve catering. In the quarter, revenue from gateway services increased 4.3% to S$173.3 million while revenue from food solutions dropped 3.9% to S$291.1 million, mainly due to the weakening of the Japanese Yen.

Operating expenses was flat at S$423.5 million for the quarter, despite staff costs rising 3.6%.

Share of results of associates and joint ventures, after tax, went up 7.4% year-on-year to S$13 million. Some of the joint ventures include the 60:40 joint venture with Creuers del Port de Barcelona to operate Marina Bay Cruise Centre Singapore; a 60:40 joint venture with Capital Airports Holding Company to provide ground handling at Beijing Capital International Airport; and a 50:50 joint venture with Air India to provide ground and cargo handling services at the Indian metro airports in Bangalore, Delhi and Hyderabad, as well as at two other airports in Mangalore and Trivandrum.

Meanwhile, net profit declined from $47 million in 3Q 2013 to $42.9 million in the latest quarter largely due to an increase in profits that accrued to non-controlling interests.

As of 31 Dec 2013, SATS had a cash hoard of S$354.7 million and total borrowings of S$116.5 million. It is in a healthy net cash position of S$238.2 million.

Despite the drop in net profits, net cash flow from operations in the quarter surged more than eight times to S$34.6 million from S$3.7 million in the previous year. Capital expenditures, on the other hand, came in at S$15.8 million, translating into free cash flow of close to S$19 million.

SATS feels that the operating landscape remains challenging in view of the ongoing pressure on airlines’ profitability and rising labour costs. In the near-term, the firm expects modest growth in passenger traffic at Changi Airport and only a marginal growth in air freight at most.

Shares of the company last changed hands at S$3.18 on Tuesday.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.