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Latest Earnings From Singapore Airlines Ltd: Big Jump In Profits Seen, But Tough Times Ahead Expected

Yesterday evening, Singapore Airlines Ltd (SGX: C6L) announced its first-quarter earnings for its fiscal year ending 31 March 2017 (FY2017). The reporting period was for 1 April 2016 to 30 June 2016.

As a brief background, the company is the national airline of Singapore and one of the largest companies in Singapore’s stock market given that it is a part of the Straits Times Index (SGX: ^STI). With that, let’s run through the airline’s latest earnings.

Financial highlights

The following’s a quick summary of some of Singapore Airlines’ latest financial figures:

  • Revenue for the reporting quarter came in at S$3.65 billion, down 2.1% from the same quarter a year ago.
  • But, profit attributable to shareholders came in 182% higher at S$256.6 million, up from S$91.2 million year on year. The bottom-line had benefitted from higher non-operating income of S$133 million stemming from the one-off of gain of S$178 million logged by Singapore Airlines’ subsidiary SIA Engineering Company Ltd (SGX: S59). The one-off gain was partially offset by a loss of S$41 million from Virgin Australia as a result of restructuring efforts. That said, Singapore Airlines also managed to clock a big 73.4% increase in operating profit from S$111.4 million a year ago to S$193.2 million.
  • Consequently, Singapore Airlines’ earnings per share spiked from 7.8 cents a year ago to 21.7 cents.
  • The company’s net asset value (NAV) per share had increased by 4.7% from S$10.93 in the first-quarter of FY2016 to S$11.44 in the reporting quarter.
  • Singapore Airlines ended 30 June 2016 with S$4.1 billion in cash and cash equivalents and only S$1.2 billion in debt. This means that the company is in a net cash position of S$2.9 billion. This is a decline from a year ago when the net cash position was at S$3.8 billion.
  • Singapore Airlines has negative free cash flow of S$341 million (operating cash flow of S$759 million and capex of S$1.1 billion) in the reporting quarter. This is a big decline from a year ago when free cash flow was a positive S$189 million (operating cash flow of S$782 million and capex of S$593 million).

Operational highlights

The decline in Singapore Airlines’ revenue was due mainly to (1) a drop in passenger flown revenue from the group’s parent airline, and (2) a decline in cargo revenue due to a contraction in the cargo yield.  Better performances from Scoot and SilkAir due to growth in their operations had partially compensated for these.

Singaore Airlines’ operating profit growth  came about on the back of a drop in expenditure, which in turn resulted from a drop in average jet fuel prices and lower hedging losses.

The road ahead

On the topic of its outlook, Singapore Airlines was mostly negative. It said:

“The business outlook for the Parent Airline Company remains challenging amid economic weakness and geopolitical concerns in some markets. Competition remains intense with aggressive capacity injection, and yields will continue to remain under pressure. Yields will be further diluted if key revenue-generating currencies depreciate against the Singapore Dollar.

The Parent Airline Company looks forward to the expansion of its fleet of A350-900 aircraft to 11 by the end of the financial year. These more fuel efficient aircraft will offer new opportunities to grow long haul operations, and further strengthen the Singapore hub.

The purchase of all the ordinary shares of Tiger Airways and the establishment of Budget Aviation Holdings to own and manage Scoot and Tiger Airways, during the quarter, lays the foundation for the integration of commercial and operational synergies between the two low cost subsidiaries.

The cargo market remains soft, with economic uncertainty in Europe and China. Cargo yields are expected to remain under pressure as overcapacity persists in the industry.“

But, Singapore Airlines also added that its balance sheet “remains strong” and that this will position it “to weather the many challenges ahead.” Singapore Airlines’ shares closed at a price of S$11.20 each yesterday. This translates to a price-to-book ratio of 0.98.

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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 Esjay does not own shares in any companies mentioned.