SATS Ltd (SGX: S58) is a company providing food solutions and gateway services solutions. The Food Solutions business covers airline catering, food distribution, industrial catering whereas the Gateway Solutions segment is involved with ground handling services of passengers, flights and cargo.
In my previous article here, we learned about SATS’ revenue streams in 2018. In this article, we will try to understand the other part of the equation — cost.
Below is a quick breakdown of SATS’ latest cost structure:
Source: SATS’ 2018 Annual Report
To start with, we can see that staff costs are by far the biggest cost component in FY2017-18. A significant portion of staff costs, in addition to other costs like depreciation and amortisation, premise and utilities, and licence fees, is generally fixed in nature. As such, any change in business volume will have a significant impact on SATS’ underlying profitability since these costs will remain largely unchanged.
Another important thing to know here is that total operating expenditure for the year ended 31 March 2018 fell S$0.6 million, from S$1,498.8 million to S$1,498.2 million.
Lower staff costs, cost of raw materials, as well as company premise and utilities, contributed towards the decline in total operating expenditure. The decline in staff costs and premise expenses were mainly due to the deconsolidation of SHK.
On the other hand, licence fees increased due to cessation of rebates by Changi Airport whilst depreciation and amortisation expenses increased due to higher capital expenditure.
The Foolish conclusion
The above is just a quick overview of the overall cost structure of SATS, which is important for any investors who have interest in this business. For serious investors, they may want to go even further by analysing other aspects of the costs, such as cost trends and margins.
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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. Motley Fool has a recommendation for SATS Ltd.