SATS Ltd (SGX: S58) is one of the last few blue-chip companies to turn in its financial report card.
The airline caterer and ground handler announced its earnings for the first half of its fiscal 2024 (1H FY2024) ending 30 September 2023.
This is the first half-year report where SATS included the financials after its S$1.6 billion acquisition of Worldwide Flight Services (WFS).
Here are five highlights from the group’s latest financial report.
1. A surge in revenue led to an operating profit
For 1H FY2024, revenue tripled year on year from S$804.5 million to S$2.5 billion.
The increase was led by a more than four-fold year on year surge in revenue from Gateway Services to nearly S$2 billion, helped by the consolidation of WFS’s financials.
Food Solutions division saw revenue climb 28.2% year on year to S$516.1 million.
In total, WFS contributed S$1.4 billion, or around 56%, of SATS 1H FY2024 revenue.
SATS’s standalone revenue improved by 30% year on year to S$1 billion, boosted by the aviation sector’s recovery.
The group reported an operating profit of S$75.7 million for 1H FY2024, reversing the S$42.3 million loss in the prior year.
However, interest expense soared nearly 12-fold from S$10.7 million to S$120 million, resulting in SATS reporting a net loss of S$7.8 million.
For 1H FY2024, SATS generated a positive operating cash flow of S$75.5 million, a sharp increase from the negative operating cash flow of S$26.7 million a year ago.
Free cash flow, however, remained negative at S$20.7 million.
Digging into the second quarter of fiscal 2024 (2Q FY2024), the numbers looked better with revenue more than doubling to S$1.3 billion with a core net profit of S$16.8 million, up more than four-fold year on year.
2. A jump in operating metrics
SATS also reported a host of encouraging operating metrics as the group enjoyed a strong uplift from the aviation and travel recovery.
For 1H FY2024, the number of flights handled jumped nearly three-fold year on year to 299,100.
Passengers handled surged by nearly 72% year on year to 38.5 million with meals served increasing 50% year on year to 47.1 million.
Cargo tonnage also saw a sharp increase, more than tripling year on year from 1.2 million to 3.7 million.
In line with these improved business metrics, SATS also increased its staff strength from 15,600 in 1H FY2023 to 48,800 as of 30 September 2023.
3. Promising business developments
The group announced promising business developments that will help to grow its business further.
In the area of cargo handling, SATS will support Etihad Airways in its cold chain cargo handling in both the US and Copenhagen.
The ground handler is also extending its cargo-handling partnership in Liege, Belgium.
Meanwhile, SATS is also expanding its capacity at Chicago’s O’Hara airport with a new cargo terminal while building a fifth cargo terminal in Madrid.
4. Rising cargo volumes
Air cargo volumes are showing signs of gradual recovery as the inventory glut slowly clears.
However, because of the uncertain global trade outlook, management does not expect a sharp recovery.
With the consolidation of WFS, SATS is now handling a significantly higher volume of cargo and will leverage its global networks to win new contracts to bring in incremental revenue in the next few quarters.
The group recently partnered with Kuehne and Nagel to develop new value-added solutions to improve the speed and visibility of time-critical shipments.
5. Focusing on the 3 Rs
Management will now focus on optimising SATS’ cash flow to achieve the 3 Rs.
They are to repay debt, reinvest capital expenditure for sustainable growth, and the resumption of a dividend payment.
SATS intends to continue with its integration of WFS to unlock more value for shareholders with debt refinancing being a key step to achieving better synergies.
The group has already saved S$15 million from the refinancing of WFS’ bonds for 1H FY2024.
With better operating and free cash flow, SATS can then slowly pare down its debt level and improve its ability to restore its dividend payments.
Investors need patience for the group to execute these initiatives, but if done right, the airline caterer and ground handler could see dividends flowing by the next fiscal year.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
