SIA unit cites rising costs, slowdown, credit-linked note write-off for the fall
By VEN SREENIVASAN
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WHEN it rains, it sometimes pours. And Singapore Airport Terminal Services (SATS) is bracing for a figurative storm as the aviation industry battles severe turbulence.
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| Braced for downturn: The company's priority is to 'right-size' its capacity and keep operating costs down, while seeking new opportunities in its core businesses, says Mr Woon |
Changi's biggest ground-services player has suffered one of its sharpest quarterly earnings dives in recent memory, thanks to rising costs, falling traffic, lower contributions from associates and a substantial credit-linked note (CLN) write-off.
The Singapore Airlines subsidiary reported a net attributable profit of $32.4 million for its July-September second quarter, down 33.5 per cent from $48.7 million a year earlier.
If not for a $10 million 3.91 per cent Fortis Bank-issued CLN, the Q2 bottom line would have been $40.6 million.
Operating revenue for the quarter grew a modest 5 per cent to $249.2 million, weighed down by falling cargo volumes.
Overall performance was also dragged down by the poor performance of associates in India, China and Hong Kong, where the industry faces serious falls in traffic and significant over-capacity.
The results translated to a 30.6 per cent drop in first-half earnings to $66.9 million at end-September, from $96.4 million a year earlier.
Revenue was up 5 per cent to $493.2 million.
The company's operating margin narrowed 3.3 percentage points to 16.6 per cent, while its overall net margin shrank almost seven percentage points to 13.6 per cent.
Its two biggest businesses - ground handling (47.4 per cent of revenue) and in-flight catering (42.5 per cent) - recorded modest revenue growth of between 4 and 6 per cent.
SATS was sitting on cash and near-cash holdings of some $736 million at the end of the first half, including $40 million in non-equity investments.
The company has since sold $20 million of this, realising a $1 million loss on a note issued by the Industrial Bank of Korea. The balance is in JTC bonds.
If no suitable acquisition or other opportunities arise for the use of the cash, some of it will be distributed to shareholders, said SATS chief executive Clement Woon.
Meanwhile, SATS is paying a dividend of four cents per share or $43.2 million for the first half.
In a conference call, Mr Woon said that business started to slow significantly in the final two weeks of September.
He said that given the depressed outlook, the company is not likely to recover the $20 million it spent on its Changi T3 start-up operations in the originally estimated 12-18 months.
SATS is bracing for a recessionary environment that will hit the air passenger and cargo traffic, he said.
As there is no escaping this reality, the company's priority is to 'right-size' its capacity and keep operating costs down, while seeking new opportunities in its core businesses.
But Mr Woon sounded an optimistic note, saying that recessionary conditions could moderate the cost of materials and labour.
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