5 Useful Things You Should Know About SATs Limited

SATS Ltd (SGX: S58) recently reported its second quarter earnings. The company has two major segments, Food Solutions and Gateway Services. The Food Solutions covers airline catering, food distribution, industrial catering and other services. The Gateway Solutions is involved in ground handling services of passengers, flights and cargo. You can read more about the company here and here.

SATS is also one of the cool companies which shares its earnings conference calls (the link is here) to discuss its results. Below are five useful (additional) things I learned from listening to its conference call:

1. SATS is looking at automate processes in its central kitchen to reduce its variable cost component. This effort is done in preparation for any upside in customer ordering volume in the future. With the reduction in the variable cost component, the company believes that it would stand to gain in margins if ordering volumes go up.

2. SATS regularly reports operating metrics such as unit meals served, gross meals served, and number of passengers handled. The three metrics do not move in tandem. For instance, low-cost carrier flights often do not come with meals for the passengers, hence an increase in passengers handled by its Gateway Services business does not always lead to more revenue in the Food Solutions business for SATS.

3. The 4.7% year on year decline in revenue for its Food Solutions business was due lower sales from its Japanese subsidiary, TFK. Management clarified that TFK did not lose any customers, however its current customers were ordering less. It is the opinion of the management that there is overcapacity in food catering for the Japanese aviation market. SATS is looking to adjust its kitchen capacity to the new level of demand from aviation customers, and expand to non-aviation customers.

4. On the flipside, profit for SATS benefited from a sharp increase in quarterly dividends from its associate companies. The increase was mainly due to timing differences, and may not continue at the same level for the future.

5. The management at SATS also mentioned that there were now 35 China airports connected to Changi Airport. They hope to leverage on upon the increasing flight network of Changi Airport for their future growth. SATS made 80% of its revenue in Singapore for the financial year ended 31 March 2014.

Foolish takeaway

To buy and hold a company’s shares for the long term also means keeping up with developments in the company. The access to management teams via webcast gives the Foolish investor a fair chance to judge for themselves on whether they would like to be invested alongside the management teams that they have chosen. It also helps us put together a more complete thesis around the company and keep up with developments in its industry.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.