Aviation-related businesses have enjoyed a breath of fresh air as borders slowly reopen.
SATS Ltd (SGX: S58) is one of the players that has directly benefited.
The ground handler and airline catering service provider reported a much better set of numbers for its fiscal 2022 first half (1H2022) ended 30 September 2021.
Revenue increased by 29.3% year on year to S$569.5 million, boosted by its successful expansion into non-food segments and higher cargo revenue to mitigate the fall in aviation-related revenue.
SATS chalked up an operating profit of S$4 million for 1H2022, reversing the S$36 million operating loss the year before.
Share of associates’ results was also positive at S$900,000, and net profit came in at S$13.2 million, helped by a tax credit of S$8.9 million.
The group also released a set of slides for its Capital Markets Day where it outlined its growth strategies and targets for the fiscal year 2025 (FY2025).
Here are five highlights from that presentation that you should know about.
1. Increasing capital investments
Alex Hungate, SATS’ outgoing CEO, provided a quick rundown of SATS operating numbers for 1H2022.
Flights handled increased marginally by 4.1% year on year to 28,200..
However, cargo tonnage soared by 64.4% year on year to 808,000 tonnes as demand for air freight remained strong.
The ground handler reduced its headcount by around 15% year on year as part of cost-cutting measures to conserve cash, with employee numbers dropping to 11,000.
CEO Designate Kerry Mok emphasized that SATS will continue to grow through capital investments.
In the last five fiscal years, the group had spent around S$413 million in capital expenditures (capex), including S$333 million of investments outside its existing business.
The bulk of the capex has been centred on Singapore.
Within the next three years, SATS intends to ramp up spending to achieve its target of deploying S$1 billion in both capex and investments.
2. Lower reliance on travel-related revenue
The business has set targets to reduce aviation-related contributions to group revenue by FY2025.
In the fiscal year 2019 (FY2019), travel-related revenue took up 86% of group revenue but the aim is to reduce this to just 65% by FY2025.
More emphasis will also be placed on the food solutions division such that it will take up three-fifths of group revenue by FY2025, up from 54% in FY2019.
SATS’ food solutions venture building arm is rolling out a series of initiatives to grow its non-travel food business.
The group has committed S$3 million with support from Singapore’s Economic Development Board (EDB) to create new business lines that can grow and scale.
Known as “corporate venturing”, this arm will use a hybrid kitchen model to aggregate demand from various sources to support large-batch production of meal components to support new food and beverage concepts.
3. Expanding food solutions’ reach
SATS has ambitious plans for its food solutions division.
The caterer’s global innovation centre, located in both Singapore and the UK, intends to pursue growth and build resilience by cultivating a global network that spans supply and sourcing, processing, and distribution channels.
By building an integrated value chain from farm to fork, SATS can tap on diverse supply chains to strengthen its access to raw materials.
Its growing number of central kitchens and food factories enable the group to leverage efficiency and scale effects across a wide range of geographies.
Finally, SATS intends to penetrate existing and new market segments to distribute its wide range of food products.
The recent announcement that SATS has begun work on the construction of its largest central kitchen in India is part of this vision.
The kitchen will incorporate smart technology and automation to produce nutritious and tasty food in cost-effective ways.
4. Growing its cargo business
SATS is not neglecting its cargo business and plans to collaborate with e-commerce players such as Taobao.com, Lazada and Cainiao.
It will also build up its cold chain logistics capabilities to handle a wider range of distribution options.
Cross-border e-commerce logistics spend is expected to hit a gross merchandise value of US$7 billion by FY2025, while the global cold chain sector is forecasted to grow at 10.4% annually to hit US$70 billion.
Both areas offer promising prospects for SATS as it builds up its first mile and long-haul delivery capabilities through these partnerships.
5. A focus on sustainability
Even as it pivots for growth, SATS is not forgetting its commitment to sustainability.
It has an ESG roadmap that targets a 50% reduction in carbon emissions from its FY2018 baseline by FY2030.
The group has also identified key projects to drive down carbon intensity such as the use of electric vans and hi-lifts, high bay light replacement, and the use of electric forklifts.
SATS also intends to increase the average value-add per employee across all its subsidiaries and also targets to promote internally and fill more leadership positions with female employees.
Get Smart: Well-positioned for the recovery
SATS has given investors a glimpse of how its future may pan out.
Vaccinated travel lanes (VTLs) have injected more life into the aviation industry in the last two months.
But the group is not content to rest on its laurels and has mapped out clear strategies for growing beyond aviation.
The airline caterer is well-positioned for a strong rebound as the global economy recovers and could post improved numbers in the years ahead.
For the investor, patience is needed.
Looking for investment opportunities in 2022 and beyond? In our latest special FREE report “Top 9 Dividend Stocks for 2022”, we’re revealing 3 groups of stocks that are set to deliver mouth-watering dividends in the coming year.
Our safe-harbour stocks are a set of blue-chip companies that have been able to hold their own and deliver steady dividends. Growth accelerators stocks are enterprising businesses poised to continue their growth. And finally, the pandemic surprises are the unexpected winners of the pandemic.
Want to know more? Click HERE to download for free now!
Disclaimer: Royston Yang does not own shares in any of the companies mentioned.