SATS Ltd (SGX: S58), or SATS for short, is a company providing gateway services and food solutions, catering mainly to the aviation industry. SATS is present in over 60 locations and 13 countries across Asia and the Middle East.
On Thursday, the group released its full-year 2019 (FY 2019) earnings for the period ended 31 March 2019. Revenue and operating profit saw very healthy growth, and operating indicators were all up year-on-year but net profit was impacted due to the presence of one-off gains in FY 2018. Here are seven highlights from the earnings report, as well as a commentary on SATS’ prospects and plans for growing the business.
1. Group revenue grew 6% year-on-year for FY 2019 to S$1.83 billion from S$1.72 billion. Expenditure rose by a smaller 5.5% year-on-year, which led to a 9.1% increase in operating profit to S$247 million. The operating profit margin was 13.5% for FY 2019 versus 13.1% for FY 2018.
2. Profit attributable to shareholders fell by 5% year-on-year to S$248.4 million, due to the presence of one-off gains booked in FY 2018. Exclude these and core net profit rose by 2.2% year-on-year to S$241.4 million.
3. By division, Food Solutions saw a 4.4% year-on-year rise in revenue to S$988.2 million, while Gateway Services managed a 7.9% year-on-year rise to S$837.8 million. Growth in both divisions was underpinned by improvements in operating statistics, as shown below.
Source: SATS FY 2019 Presentation Slides
4. SATS continues to generate a very healthy operating cash flow of S$295.7 million for FY 2019. With capital expenditure at S$87.6 million, free cash flow amounted to S$208.1 million. This is also higher than the S$146.1 million of free cash flow generated in FY 2018.
5. The group declared a final dividend of 13 Singapore cents per share, up from last year’s 12 Singapore cents. The full-year dividend amounts to 19 Singapore cents, which is 5.6% higher than last year’s 18 Singapore cents. At the last traded share price of S$5.08, SATS is trading at a trailing dividend yield of 3.7%.
6. The outlook for SATS is positive, as demand for aviation services and high-quality food in Asia-Pacific continue to grow. Passenger traffic in the region is expected to grow by 5% and out-of-home food consumption is forecasted to grow by 6% from 2017 to 2023, according to International Air Transport Association (IATA) and Euromonitor respectively.
7. Alex Hungate, President and Chief Executive Officer of SATS, had this to say:
“Our investments in regional expansion and new capabilities are bearing fruit. Revenue growth accelerated throughout this year to reach 11.3% in the most recent quarter. Net profit declined due to the absence of one-off gains from our overseas operations, but operating profit continued to improve year on year, both for the quarter and the full year.”
SATS reported a respectable set of earnings, as both its divisions posted healthy growth along with investments in food solution businesses to drive the business to its next level of expansion. Expenses were slightly elevated due to management’s continuous drive to invest for the future but the group still managed to generate a higher year-on-year level of free cash flow and also declared a higher final dividend to shareholders.
Separately, there was also an announcement by SATS that it had agreed to buy a 50% stake in Nanjing Weizhou Airline Food Company (Weizhou) for approximately S$31.2 million. Weizhou is a major producer of frozen food, ambient meals, and food components to aviation companies. It also has an extensive domestic network of 12 cold storage facilities and distribution channel partners serving 80 domestic airports across China. The acquisition will strengthen SATS’ position in the Chinese aviation market and provide the group with access to a wider range of customers.
With such targeted acquisitions made over the last few years, it looks like SATS is poised to grow even further in the years to come.
There are 28 surprising and important things we think every Singaporean investor should know—and we’ve laid them all out in The Motley Fool Singapore’s new e-book. Packed with information and insights, we believe this book will help you be a better, smarter investor. You can download the full e-book FREE of charge—simply click here now to claim your copy.