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Singapore Airlines’ Latest Earnings: Fuel Costs Hit Profits

Singapore Airlines Ltd (SGX: C6L), the national carrier of Singapore, reported a downbeat set of earnings yesterday for the full fiscal year ending 31 March 2019 (2018/2019). Here are some of the key financial highlights from its latest full-year results:

1) Revenue grew 3.27% year-on-year to S$16.3 billion.

2) Total operating costs increased by 7.0% to S$15.3 billion.

3) As a result, operating profit declined by 31.1% to S$1.07 billion.

4) Profit attributable to shareholders followed suit, dropping by 47.5%, from S$1.30 billion to S$682.7 million.

5) Similarly, earnings per share plunged by 47.6% from 110.1 cents to 57.7 cents.

6) As of 31 March 2019, SIA’s balance sheet had S$2.94 billion in cash and bank balances, and S$6.65 billion in total debt. This translates to a net debt position of S$3.71 billion. This was a major step back from the S$559 million in net debt that SIA reported on 31 March 2018.

7) Operating cash flow rose by 7.3% year-on-year, from S$2.61 billion to S$2.80 billion. Capital expenditure, on the other hand, remained rather stable increasing by 6.8% from S$5.21 billion to S$5.56 billion. This resulted in SIA’s free cash flow dropping by 6.2%, from negative S$2.6 billion to negative S$2.76 billion.

8) SIA declared a final dividend of 22 cents per share, bringing its total dividend to 30 cents for the fiscal year.

Revenue increased on the back of growth in passenger traffic and cargo was flown revenue. Looking at the breakdown of operating profits according to different segments in the group, the biggest decline in operating profits was seen at its budget carrier Scoot, which reported negative operating profits. This was due to expansion costs which outweighed revenue growth and a slowdown in the rate of growth of Chinese travel.

Outlook

Singapore Airlines commented on its outlook:

“Growth in forward passenger bookings in the months ahead is tracking positively against capacity injection, with robust premium cabin demand. Most key markets, including those that have seen significant capacity growth such as the US, Japan, Indonesia, and New Zealand, continue to grow at a healthy pace. However, China’s international traffic growth rates have softened, at a time of increased supply in the market.

Notwithstanding the current demand picture, ongoing trade disputes and slowing economic growth in key markets pose uncertainty to the operating environment. Efforts will be made to capture opportunities and mitigate any arising weaknesses in both cargo and passenger segments.

Fuel cost headwinds may persist on supply risks in the oil market. However, the SIA Group’s significant fuel hedges should help to mitigate the effect of higher fuel prices. For the financial year 2019/20, the Group has hedged 64% of its fuel requirement in MOPS and 5% in Brent at weighted average prices of USD76 and USD53 per barrel, respectively. Longer-dated Brent hedges with maturities extending to the financial year 2024/25 cover up to 46% of the Group’s projected annual fuel consumption, at average prices ranging from USD58 to USD63 per barrel.

SIA’s Transformation program continues to progress well, resulting in revenue growth, and improvements to operational efficiency and organizational structure. The Airline’s digital transformation is also making good progress, with significant investments in support of an ambition to be the world’s leading digital airline. At the same time, new industry-leading products and services continue to be rolled out on more routes, as new fuel-efficient aircraft enter the fleet. With these and other initiatives, the Group is well positioned to navigate through ongoing challenges in the operating environment.”

SIA’s closing price on Thursday stood at S$9.40 per share, resulting in a price-to-earnings ratio of 16.3 and a dividend yield of 3.2%.

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Motley Fool writer Esjay contributed to this article. Esjay does not own shares in Singapore Airlines.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Tim Phillips does not own shares in any of the companies mentioned.