SATS Sees Decline In First Quarter Profit: What’s Next?

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SATS (SGX: S58) saw a challenging first quarter due to rising manpower costs and the ongoing pressure on regional aviation.

The firm, which released its latest financial report card yesterday, operates in two main business segments – Food Business and Gateway Services. The former encompasses airline catering, institutional and remote catering, aviation laundry, as well as food distribution and logistics. On the other hand, the latter segment is involved in airfreight handling, passenger services, ramp handling, baggage handling, and so on.

Currently, SATS has a footprint in 44 airports and 12 countries across Asia and the Middle East. In Singapore Changi Airport, it takes care of about 80% of the scheduled flights and serves close to 60 scheduled airlines.

Let’s return to SATS’ first quarter results and see how it fared.

For the three months ended 30 June 2014, SATS’ total revenue went up slightly by 0.2% year-on-year to $435.2 million. When broken down, gateway revenue increased 2% to $171.2 million due to growth in flights and airfreight handled. Food revenue, however, decreased by 0.9% to $262.7 million mainly on the back of lower revenue reported by TFK Corporation, the leading airline caterer in Japan.

SATS has a number of overseas associates and joint ventures, especially in the Gateway Services segment. Contribution from them plunged 16.8% to S$10.4 million on the back of muted cargo volumes across Asia.

The company’s operating profit decreased due to greater staff costs and company premises and utilities expenses. This was partially offset by lower cost of raw materials and depreciation charges. All told, net profit came in at $43.3 million, some 6% lower than last year.

SATS’ balance sheet looks strong as of 30 June 2014; the firm is swimming in cash as it has S$395.1 million in its coffers while total borrowings are only at S$114.4 million. The company’s debt-to-equity ratio is also very healthy at 0.08 times.

The following quotes are some of SATS’ comments on its future plans:

“We will continue to invest in our state-of-the-art facilities, comprehensive suite of services and new technologies to obtain scale advantages, improve productivity and enhance connectivity for our customers.

We are also growing new businesses and customer segments.”

Although it’s nice to see SATS commit to growth, it’s also good to point out that the operating landscape will be demanding due to increasing staff costs and pressures on regional aviation. For instance, only moderate growth in passenger traffic and airfreight is also expected at Changi Airport.

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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.