Lower government grants, higher costs drag Sats into S$22.5m net loss for Q1
Uma Devi &
Tay Peck Gek
MAINBOARD-LISTED inflight caterer and ground handler Sats on Friday (Jul 22) posted a net loss of S$22.5 million for the first fiscal quarter ended June, reversing from a net profit of S$6.4 million in the corresponding quarter last year.
The group attributed the net loss for the quarter to lower government grants and increased costs that were booked as the group invested in resources ahead of a full recovery by the aviation sector. Excluding government reliefs, losses for Q1 FY2023 would have stood at S$31.9 million, versus a net loss of S$35.6 million in Q1 FY2022.
The red ink came despite a 36.2 per cent or S$99.9 million year-on-year rise in Q1 revenue to S$375.5 million from S$275.6 million. The group attributed that rise to travel growth, which has hit 55 per cent of pre-pandemic flights, and the inclusion of Asia Airfreight Terminal’s (AAT) revenue of $32.4 million.
During an earnings call after the update was published, chief financial officer Manfred Seah briefed reporters and analysts on the financial performance in the near term. He said: “Last quarter and this quarter will continue to be challenging as we invest in our resources in preparation for the growth trajectory that will accelerate in the second half of this year.”
While the volume handled currently is about 55 per cent of pre-pandemic levels, their manpower is at 80 per cent as the group is targeting to serve that level of volume by the end of the year as well as a higher volume beyond that horizon.
Sats will continue to hire in preparation as “it is a very fluid environment”. “If China opens up, then we’ll be firing on all cylinders, and that means that we’ll continue to scale up to build the capacity to support our customers,” said chief executive Kerry Mok.
And when Sats hits 80 per cent of volume handled, it would be able to enjoy operating leverage that would translate into better profitability.
On how the higher costs from raw materials, labour and overheads could be passed on to customers, Mok said the process is ongoing, but there is a time lag between the incurrence of higher costs and adjustments, including higher pricing. Some customers might well choose substitute products to mitigate the cost pressure.
“We have already started to pass on some of these costs based on the menus. We all know chicken prices have gone up a fair bit, so those are things that’s a clear pass through,” he said. (see amendment note)
Segmentally, revenue for the quarter from Sats’ food solutions division rose 26.4 per cent or S$38.9 million to S$186.2 million. Revenue from the gateway services division was up 49.1 per cent or S$62.3 million to S$189.3 million.
Group expenditure for the quarter was up by 50.6 per cent, or S$137.7 million to S$409.8 million. The group said the rise was due primarily to increased business activities as well as the consolidation of AAT. Cost of raw materials and licence fees increased in line with higher revenue, it added.
Operating expenditure was also driven up by higher staff costs due to lower job support grants, increased business activities and higher contract services, the group said.
Share of results of associates and joint ventures for the quarter swung back into the black with a profit of S$6.9 million, compared to a loss of S$1.2 million in the year-ago period, as the gradual recovery from the Covid-19 pandemic improved the performance of a majority of Sats’ associates and joint ventures in the aviation and cargo sector.
Looking ahead, Sats said it took full advantage of the lull in air travel during the pandemic to invest and embark on numerous digitalisation, automation and innovation initiatives. The group has been ramping up its operations and building its resource capacity and capabilities to meet the anticipated increase in volume on the back of the broad-based aviation recovery.
“We expect the recovery trajectory to continue and accelerate in the second half of this year, but inflation will remain a challenge for us to mitigate through productivity measures,” it added.
Kerry Mok, chief executive of Sats, said: “Sats remains focused on capitalising on growth opportunities to broaden our revenue streams and replicate our core competencies and capabilities across key markets overseas.
“We will continue to drive operational excellence, efficiency and productivity across the value chain, to fuel sustainable business growth as well as to mitigate inflationary pressures.”
Shares of Sats ended Friday at S$3.99, down 0.8 per cent or S$0.03, prior to the results announcement.
*Amendment note: A previous version of this story incorrectly quoted “ticket prices” instead of “chicken prices”. The amendment has been made to reflect the correct quote.
