SATS – BT

SATS Q3 earnings dip to $51.2m

4.1% drop due to lower non-aviation revenue and rising expenditures

SATS Ltd saw flattish topline growth and a dip in net profit for the October-December 2010 third quarter due to smaller contributions from its non-aviation segment and rising expenditures. Net earnings for the three months dipped 4.1 per cent to $51.2 million, from $53.4 million as costs rose some 3.3 per cent to $388.7 million. Contributing to the higher expenditure was some $3.3 million in professional fees for M&A activities.

Revenue was flattish at $440.9 million, compared to $434.3 million a year earlier due to a 5.7 per cent dip in non-aviation revenue to $194.1 million, largely at its UK-based Daniels brand (denominated in the weakening UK sterling), which offset its 8.2 per cent gain in aviation revenue to $244.1 million.

The company had cash of some $166.7 million at the end of December 2010, up from $138.4 million a year earlier.

The results translated into a nine-month earnings of $140.7 million, versus $134.7 million for the April-December 2009 period.

Revenue for the nine months came to $1.22 billion, 6.6 per cent up from $1.15 billion a year earlier.

The company said that underlying operating profit would have risen 7.1 per cent to $137.6 million after adjusting for M&A expense and the $15.6 million jobs credit it received the year before. Contribution from overseas associates and joint ventures rose by 58.8 per cent to $45.9 million for the nine months.

It was up 65 per cent at $15.3 million, from $9.3 million, for the October-December third quarter.

In the quarter, the group also completed its takeover of TFK, in which it has a stake of 53.8 per cent.

The company now gets almost 42 per cent of its revenue from the non-aviation side, while almost 58 per cent comes from aviation. In terms of business breakdown, 21.9 per cent comes from its UK food business, 33.4 per cent from gateway services at airports, and 44.1 per cent from food services.

SATS expects moderate growth for the current fourth quarter amid a recovery in the aviation sector. But it warned of inflationary impact on raw materials for food.

'Inflationary pressure on food materials is expected to worsen,' it said. 'Hence, managing food costs remains a key focus of management. Over in the UK, food inflation and the increase in value added tax to 20 per cent from January 2011 would potentially affect retailers.'

It said that Daniels management in the UK would monitor the situation closely and broaden its food sources.

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