2 Key Insights to Learn from SATS Ltd’s Chief Executive

SATS Ltd (SGX: S58) is among the newest components of the Straits Times Index (SGS: ^STI), having joined the list only in September 2015.

The company 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 sees SATS provide ground handling services of passengers, flights, and cargo.

Recently, SATS’s chief executive Alex Hungate was featured in an interview series. There might be things investors can learn from Hungate. Here are two key insights I had picked out from the interview:

1. Rise of the machines

Labour costs in SAT’s key markets, namely, Singapore, Hong Kong, and China, are expected to rise in the future. This might have an impact on SATS’s business. As Hungate noted, the company needed to transform the way it delivers its services:

“We realised that unless we did that, no matter how much volume growth there was in the market in terms of food and air travel, we would never be able to translate that growth into bottom-line growth.”

To do so, Hungate said that SATS has been deliberate in its approach:

“So we deliberately set out to redesign job processes – replacing manual roles with automation, and for those manual tasks we could not automate, we created more dynamic rostering for people, so they could spend their time more productively.”

2. Productivity is boosting the bottom-line

SATS has found a measure of success with its approach. This can be seen in its margins and return on equity. Hungate noted:

“Over the last three years, our margins have gone from high, single-digit to almost 13%, while our ROE has improved correspondingly – from 11% a few years ago to 15% now.”

But the benefits do not accrue to merely SATS’s shareholders. Hungate said:

“We’re able to give our shareholders better returns for the capital we’ve invested, we’re able to pay our staff more as they have upskilled themselves into more technically oriented jobs, and we’re able to continue to sustain our business, in an environment where labour shortages will get more and more acute, not just in Singapore but also the region.”

As Hungate pointed out, automation does not just boost the bottom-line – it allows SATS to pay its staff higher salaries, an act which may help with staff retention.

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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.