FOOD solutions and gateway services group on Tuesday (Sep 5) announced that it has appointed Pier Sigismondi as an independent non-executive director and a member of the company&rsquo s board Risk and Safety committee, with immediate effect.

 

Sigismondi, 57, is currently the executive chairman of Sustenir Group, an urban farming startup backed by state investor Temasek. He began this role in August 2020. 

 

In its filing to the Singapore bourse, Sats acknowledged that Sustenir may enter into transactions with Sats &ldquo from time to time&rdquo . 

 

Sigismondi will thus recuse himself from participating in all matters between Sats and Sustenir, or any of Sustenir&rsquo s competitors, Sats said. 

 

He was the president and executive vice-president of Dole Sunshine Company from February 2019 to June 2023, where he spearheaded a &ldquo purpose-led transformation&rdquo over the course of four years. 

 

Before that, he worked for a decade at Unilever. From 2009 to 2015, he was the chief supply chain officer of Unilever London. Thereafter, from 2016 to 2018, he was the executive vice-president and president for South-east Asia and Australasia region of Unilever Singapore. 

 

Sats said that his diverse experience and background in food and beverage businesses will add value and synergy to its board and enhance the existing competencies and skills within the listco&rsquo s board. 

 

Sigismondi does not have any prior experience as a director of a stock listed on the Singapore Exchange, and will attend the prescribed training within a year of the date of his appointment, Sats added. 

 

Analysts at DBS Group Research and PhilipCapital have kept their &ldquo buy&rdquo and &ldquo neutral&rdquo calls for SATS S58 -0.4% after the aviation company&rsquo s results for the 1QFY2024 ended June.

 

The analysts have also kept their target prices unchanged at $3.20 and $2.51 respectively.

 

On Aug 15, SATS reported its first set of results for the three-month period since the successful acquisition of Worldwide Flight Services (WFS) back in April.

 

Group revenue surged by $823.1 million to reach $1.2 billion in the 1QFY2024, a significant upswing from the $375.5 million recorded in1QFY2023. This boost was primarily fueled by the revenue infusion from WFS and the rise in the volume of managed flights, which has now rebounded to 81% of pre-covid levels.

 

However, the group reported a net patmi loss of $29.9 million, considering the exceptional costs linked with the integration of WFS.

 

With the exclusion of integration-related unique expenses however, the underlying core patmi loss narrowed down to $17.4 million, demonstrating an improvement over the loss of $19.5 million in 1QFY2023, which had included government assistance totalling S$9.4 million.

 

In his Aug 16 report, DBS&rsquo s Jason Sum noted that SATS&rsquo s 1QFY2024 earnings were largely within his expectations, accounting for about 20% of his full-year estimates. The group&rsquo s revenue for the quarter stood at 23.6% of his full-year expectations.

 

The analyst has remained fairly optimistic on the group&rsquo s outlook, observing that the sustained recovery in global air passenger traffic and growth in non-travel food business will drive SATS&rsquo s earnings momentum.

 

&ldquo Although a deceleration in SATS&rsquo s cargo business is on the horizon, we foresee the group&rsquo s ground handling and in-flight catering businesses benefitting from the global recovery in air travel,&rdquo he writes.

 

The analyst also points out that the group&rsquo s non-travel-related food business should also register healthy growth, attributing it to the group&rsquo s expanding product portfolio and customer base, as well as increased production capacity and footprint.

 

Notably, Sum expects the acquisition of WFS to start yielding operational and financial synergies over the next few years, which he deems are &ldquo critical to drive re-rating&rdquo .

 

He writes: &ldquo SATS has completed the refinancing of WFS&rsquo s costly debt, with meaningful interest savings to materialise from FY2025. More importantly, the market will be paying attention to the assimilation of WFS, and whether the group can achieve its intended operating synergies within its projected timeline, to justify the hefty price tag on WFS.&rdquo

 

At present, the analyst likes the present-reward set up and anticipates a 20% to 25% upside from the current share price level. Sum is also projecting SATS&rsquo s core earnings per share (EPS) to reach 15.1 cents in FY2025, representing 67% of its FY2019 level.

 

Sum&rsquo s blended valuation framework incorporates both forward ev/ebitda multiple (pegged to 11.4x FY2024 ebitda) and a discounted cash flow valuation.

 

Key risks noted by the analyst include macroeconomic instability that could delay the normalisation of air passenger traffic or negatively impact air cargo volumes, also including that there are potential execution risks associated with integrating WFS and achieving the anticipated synergies.

 

Meanwhile, PhillipCapital analyst Peggy Mak has taken on a dimmer take as SATS&rsquo s acquisition costs weighed on its 1QFY2024 earnings.

 

That said, Mak notes that the group&rsquo s net loss of $0.2 million excluding integration costs and amortisation expenses relating to the acquisition of WFS were &ldquo in line&rdquo with her expectations.

 

Mak points out that although WFS&rsquo s volume has declined in line with softer cargo demand, yields are holding up.

 

The analyst opines that although SATS&rsquo s core operations turned in a profit, even with the expiry of government relief, the ebit margin of 3.4% is &ldquo still a far cry&rdquo from the pre-Covid level of 16% to 17%.

 

On the group&rsquo s net debt of $2.2 billion as compared to $0.77 billion in March last year, Mak notes that SATS&rsquo s higher interest expense &ldquo cancelled out all the operating gains.&rdquo

 

&ldquo The outlook is mixed,&rdquo she adds, noting that positives include the improvement of aviation-related profits with inflight meals restoring to pre-Covid levels, a reduction in double-catering and an increase in the number of flights.

 

Conversely, negatives include continued sluggish air cargo volume from lower manufacturing output and trade activities and a drag on earnings due to higher interest expense.

 

Mak has lowered her net earnings estimates for FY2024 by 49% to factor in acquisition-related costs.

 

SATS has reported a loss of $29.9 million for the 1QFY2024 ended 30 June, its first set of financial statements reported following the successful completion of the acquisition of Worldwide Flight Services (WFS) in April.

 

The loss is due to the one-off integration costs related to the integration of Worldwide Flight Services (WFS), which amounted to $12.6 million.

 

Excluding the integration-related one-off expenses, the underlying core patmi loss narrowed to $17.4 million compared to a loss of $19.5 million, which included government reliefs of $9.4 million, in 1QFY2023.

 

This $17.4 million accounted for expenses for refinancing of WFS bonds and integration related expenses, including interest on EUR 500 million acquisition loans and the incremental lease accounting expenses upon adoption of Singapore Financial Reporting Standards (International) by WFS.

 

This brings its loss per share to 2 cents, lower than the 1.6 cents loss per share recorded in the same period a year ago.

 

Despite the recorded losses, SATS&rsquo group revenue increased $823.1 million to $1.2 billion in 1QFY2024 from $375.5 million in 1QFY2023 due primarily to the revenue contribution from WFS and increase in flights handled, which has recovered to 81% of pre-pandemic levels.

 

With the acquisition of WFS, the group saw a 215% y-o-y increase in flights handled to 145,900 and a 205% increase in cargo volumes y-o-y to 1.8 million tonnes. Meals served in aviation increased 120% from a year ago to 12 million in tandem with travel recovery.

 

Share of results of associates/joint ventures improved by $14.4 million to $21.3 million from $6.9 million in the corresponding period a year ago as the performance of most associates and joint ventures in the aviation sector improved in tandem with the global aviation recovery post-pandemic.

 

The group&rsquo s expenditure amounted to $1.2 billion in 1QFY2024, driven by the increase in business activities and consolidation of WFS, with staff cost comprising 59% of expenditure.

 

SATS operating profit came in at $10.2 million, compared to an operating loss of $34.3 million a year ago. This is notwithstanding the discontinuation of government reliefs in the current quarter and the inclusion of one-time restructuring and liability management (LM) costs totalling $13.3 million related to the integration of WFS.

 

Cash or cash equivalents amounted to $562.0 million and a debt-to-equity ratio, including lease liabilities, of 1.68 times. The group has completed the redemption of EUR Senior Secured Notes and USD Senior Secured Notes issued by WFS through loan facilities of EUR 1.04 billion ($1.54 billion). This will result in net interest savings of over S$40 million annually for the Group until the notes&rsquo maturity date in 2027.

 

SATS notes that the growth momentum in the aviation industry continues, with optimistic projections from IATA, ICAO, Boeing, and Singapore&rsquo s Ministry of Transport (MOT).

 

IATA estimates that global air traffic will reach 88% of pre-pandemic levels in 2023 and 100% by 2024, while MOT anticipates that Changi Airport, currently operating at approximately 90% of pre-pandemic levels, will fully recover by the first half of 2024.

 

Kerry Mok, president and chief executive officer of SATS said: &ldquo The underlying performance of the enlarged SATS Group remains resilient, despite the recent slow-down in the air-cargo market. We are laser-focused on restoring profitability and driving productivity across the group through operational excellence and have seen early wins. As part of integration initiatives, we have successfully refinanced our debt delivering interest savings of $40 million annually. We will continue to realise synergies and drive value creation from the Group&rsquo s enlarged global network.&rdquo