SATS Ltd (SGX: S58) is a company with two business segments, namely, Food Solutions and Gateway Services. The former covers services such as airline catering, food distribution, and industrial catering. The latter is involved in ground handling services of passengers, flights, ferries, and cargo.
The company recently published its annual report for its financial year ending 31 March 2018 (FY2018). Given that reading an annual report is one of the best ways to keep up with a company’s developments, I decided to go through SATS’s latest annual report to understand the company’s prospects, and how it had performed in FY2018.
Generally, when reading an annual report, I will pay close attention to the letter to shareholders that the company’s chairman and/or CEO writes. In this article, I will look at an area that I found interesting: SATS’s strategy of growing its business through partnerships.
In FY2018, 27% of SATS’s profit after tax came from its associates and joint ventures. It is likely that SATS’s associates and joint ventures will continue to account for a significant portion of the company’s bottom line for the foreseeable future as it enhances old relationships and develops new ones. Here’s what management said:
“To enhance connectivity across Asia, we began by investing in new digital capabilities and technology for the apron, passenger, and cargo operations in our Singapore hub that will strengthen our long-term partnership with our core customer groups and attract new airline partners.”
SATS’s management went on to give examples of new partnerships it had formed during FY2018. The first was a joint venture with the Malaysia-based airline, AirAsia (KLSE: 5099.KL):
“We also formed a joint venture, Ground Team Red Holdings, with AirAsia. SATS owns 49% of Ground Team Red Sdn Bhd in Malaysia, and 60% of SATS Ground Services, an entity that offers ground services at Changi Airport Terminal 4. This Malaysian joint venture expanded our footprint into 15 new airports in November 2017, when it began operations ahead of the completion of the transaction in January 2018.”
The next was a partnership in India for air cargo:
“In India, we expanded our network through a new joint venture with Cargo Services Centre to build an international cargo terminal in Mumbai that started operations in April 2018.”
Then, there is also a large in-flight kitchen project in Turkey:
“Expanding our network further west, we have signed a binding Memorandum of Agreement with Turkish Airlines, to build what will be the world’s largest in-flight kitchen, in Istanbul New Airport. When fully completed in 2028, the airport will have the capacity to serve 150 million passengers.”
Looking at all the above, investors can expect SATS to continue to grow its profits through forming new partnerships. This also means that investors should spend some time digging into SATS’s profit from associates and joint ventures number, as the cost-side of this area will not be reflected in SATS’s income statement.
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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 Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore has a recommendation for SATS.