Sats posts S$9.9 million loss in Q2; says rights issue will not exceed S$800 million

INFLIGHT caterer and ground handler Sats on Wednesday (Nov 9) reported a net loss of S$9.9 million for its second quarter, reversing a year-ago profit of S$6.8 million, as operating expenses rose and lower government grants were received.

Excluding the effect of reliefs, net loss for the three months ended Sep 30 would have been S$19.7 million, an improvement from the S$30.1 million net loss excluding reliefs in the year-ago period, the company said in a bourse filing.

During the second quarter, Sats revenue rose 46 per cent to S$429 million, as its food and gateway segments reported higher revenue on the back of aviation recovery and the consolidation of revenue from Asia Airfreight Terminal. 

Operating expenses climbed 48.9 per cent to S$437 million, due to factors such as higher staff costs and lower job support grants, the group said. 

For the first half of its financial year, Sats’ revenue climbed 41.3 per cent on year to S$804.5 million, driven by growth in cargo volume and recovery in travel demand. 

“Travel recovery is on track and picking up pace with further improvements expected in coming quarters,” the group said.

The group’s net loss for H1 FY23 stood at S$32.5 million, a reversal from the net profit of S$13.2 million in the year-ago period. Excluding the impact of government reliefs, net loss for H1 FY23 would have been S$51.7 million, an improvement from S$65.5 million loss in the prior-year period.

No dividend was declared, as the board said “it would be prudent to not pay a dividend until SATS restores profitability without government reliefs”.

Meanwhile, Sats also provided an update on the funding plan for its proposed acquisition of Worldwide Flight Services (WFS), announced in September this year.

The proposed rights issue will not exceed S$800 million, with the balance of the S$1.8 billion cost to be funded primarily through a combination of S$700 million in term loans and S$320 million in internal cash, Sats said, describing this funding mix as “optimal”.

It had S$690 million in cash as at end-September.

In a call after releasing its financial results, chief financial officer Manfred Seah rubbished the suggestion that the equity amount to be raised was reduced from the S$1.7 billion in its indicative plan mentioned earlier because of the over 30 per cent plunge in share price since the acquisition plan was announced.

On the pricing of the rights issue, he said it would be a “reasonable discount” and “not excessive”, because the current share price is already heavily discounted. “What more discount are we going to give?”

He also noted Sats has never been in a distressed situation, and it does not want to give the impression that this is “funding of the last resort”.

The rights issue is targeted to be launched after an extraordinary general meeting, expected to be convened in January 2023, with further details of the funding plan to be announced prior to the meeting. Sats has garnered state investor and its major shareholder Temasek’s confirmation that it will subscribe for its pro rata entitlement to the rights issue, subject to the terms of the capital call.

Kerry Mok, chief executive of Sats, responding to a commentary by The Business Times that urged Sats’ board and management to buy its own shares to restore investor confidence, said they are restricted from doing so being insiders with intimate information of the WFS transaction and the funding plan.

“Many of us – (the) board, (the) management – are willing to buy, because…it’s a very attractive price for us to buy, but unfortunately we cannot do so… (Members of) the board themselves have unanimously agreed that, for their rights issue, all will take up their rights … So that’s all I can say in terms of the confidence we have in our own business,” Mok said.

Sats shares rose 1.5 per cent or S$0.04 to close at S$2.72 on Wednesday, before the announcement.