Here’s What SATS Ltd Said About Its Margins, Returns, Dividend

SATS Ltd  (SGX: S58) held its fiscal fourth-quarter earnings briefing recently.

There were a number of topics covered during the briefing, including SATS’s margin improvements over the past five years, the company’s returns on equity, and its dividend policy.

As a brief background, SATS has two major business segments, namely, Food Solutions and Gateway Services. The former covers airline catering, food distribution, industrial catering, and other services. Meanwhile, the latter is involved with ground handling services of passengers, flights, and cargo.

On improving margins

SATS has experienced improvements in its PATMI (profit after taxes and minority interests) over its last five fiscal years. This is shown in the chart below:

2016-06-07 SATS Margin
Source: SATS’s earnings presentation

Alex Hungate, SATS’s chief executive had some thoughts on the subject:

“In particular here, you can see the results of the operating leverage and the results of the productivity improvement. This year, our value added per employment cost has grown by 3.5% which is a critical number for us.

And that’s what we have done. The value added per employment cost has gone up this year, the margins has gone up at the same time. The margin progression is very healthy, as you have noticed. That is primarily driven by productivity but there is also the impact of the deconsolidation of the revenue from SATS-BRF. The low margin revenues are out, the remainder, the margins go up.”

Hungate noted that SATS employs around 14,000 people worldwide and 12,000 in Singapore alone. He added that the management team is focused on helping its people become more productive as wages rise. Productivity, along with the divestment of a food distribution business into the SATS-BRF joint venture, has benefited SATS’s PATMI margin.

On the return on equity

Next up, Hungate discussed SAT’s return on equity. The discussion centred on the following chart:

2016-06-07 SATS ROE
Source: SATS’s earnings presentation

Hungate said that the growth in SATS’s return on equity was even stronger than the progress in the firm’s margin improvements. He added that the progression of SATS’s earnings per share was also strong.

On dividends

This leads us to the next chart on dividends:

2016-06-07 SATS Dividend
Source: SATS’s earnings presentation

During the briefing, Hungate shared some comments about SATS’s dividend policy:

“That has allowed us to maintain and sustain this progressive policy of dividend payouts. I have been saying this for the last couple of years. Progressive means that we intend to continue this trend – here [referring to the presentation slide] – of increasing dividend payouts, as we generate more cash-flow.

And sustainable means that we will keep doing that unless we see something in the horizon that means that we don’t think that we cannot continue to do it.”

For the financial year ended 31 March 2016, SATS had a dividend payout of S$0.15 per share. This could be something that an income investor looks forward to. At SATS’s current price of S$4.14, it has a yield of 3.6%.

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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 company mentioned.