Latest / Investor Exchange / SATS 1Q FY26 Financial Results and Outlook

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SATS 1Q FY26 Financial Results and Outlook · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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  Welcome to the Deep Dive. We're here to help you get truly well-informed quickly.
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  That's the ball. Today, we're unpacking the latest from Essace,
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  you know, the big global player in aviation services.
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  We're looking at their first quarter results for fiscal year 26.
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  Right, the quarter ending June 30th, 2025. Exactly.
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  Our mission for you is to pull out the key insights from their business updates and media release.
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  What's driving things? Where are they headed?
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  And it's worth remembering, like always, these reports have forward-looking
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  statements. So we're talking about their current plans, their expectations.
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  Actual results could, you know, turn out differently. Absolutely. A crucial point.
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  And digging into these, it's really about seeing the connection,
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  isn't it, between the financials and the strategy behind them.
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  And this quarter, it's an interesting mix.
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  You see some really strong growth, but also some details, some nuances that
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  are quite important to understand.
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  Okay, let's get straight into it then. The headline figures for this first quarter,
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  what immediately jumps out at you? How's their overall financial health looking?
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  Well, the first thing is just how consistently positive the key metrics are.
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  You've got revenue at S1.51 billion dollars. Okay. That's up 9.9% compared to last year.
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  Pretty solid. Almost double digit growth. Nice. And the bottom line.
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  Profit. Profit after tax, the PPTMI, also grew nicely. 9.1% year-on-year, hitting $70.9 million.
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  So revenue and profit moving pretty much in lockstep there. That's good to see. What an efficiency.
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  Sometimes revenue grows, but costs blow out. How did metrics like EBITDA or operating profit look?
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  That's where it gets quite interesting. Their EBITDA improved by 9.9% as well,
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  reaching S273.8 million dollars. Okay.
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  Same growth rate as revenue. Exactly. Which means the EBITDA margin held steady,
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  really steady, actually, at 18.2%. Impressive.
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  And operating profit, or EBIT, did even slightly better.
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  It rose 10.9% year-on-year to S-125.2 million dollars.
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  So the operating margin actually ticked up a bit. Just slightly,
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  yeah, up to 8.3%. So like you said, it's not just growth. It seems to be well-managed,
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  efficient growth. They're expanding, but doing it smartly.
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  Right, which naturally makes you ask, why?
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  What's firing on all cylinders operationally to produce these kinds of numbers?
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  Yeah, this is where you see the real engine room.
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  Operationally, they saw significant volume increases. Let's take cargo, for example.
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  Record high tonnage, 2.4 million tons handled.
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  And that's a 10.4% year on year. But here's the really interesting part, the kicker, really.
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  Go on. They've actually outpaced the general industry trends,
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  specifically the AEDA benchmarks, you know, the global standard for seven quarters in a row now.
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  Seven quarters, that's not just a blip, that's sustained outperformance in cargo.
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  For you trying to track global trade, SATS beating those IATA figures consistently,
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  where it's a really interesting signal, isn't it?
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  It absolutely is. It suggests their strategy, their market capture and cargo
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  is really working effectively.
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  What do you think is behind that? Is it specific contracts, technology?
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  It's likely a combination. The reports mention a larger customer portfolio,
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  which definitely helps.
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  But that consistent outperformance, especially for seven quarters...
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  It points towards perhaps superior operational efficiency, maybe better use
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  of technology or data, or capturing specific high-growth trade lanes.
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  It's clearly a core strength.
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  Okay, so cargo is a big driver. What about other core activities?
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  Flights they handled? Meals they served? Similar positive trends there,
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  too, just maybe not quite as dramatic as cargo.
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  Flights handled were up 2.6% year-on-year. That's about 158,800 flights.
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  Still growth. Still growth, yes.
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  And aviation meals served, that was up 5.6% to 16.4 million meals.
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  16.4 million meals. I mean, the scale is just mind-boggling sometimes.
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  Does the report hint if everyone's suddenly ordering fancy lobster thermonore,
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  or is it more about just general travel recovery?
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  It doesn't quite get down to the menu specifics, unfortunately.
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  But it does mention sustained growth in air travel and in-flight meal demand,
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  especially for authentic, high-quality meals.
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  So maybe not lobster, but definitely a demand for better quality.
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  Okay. And you can definitely see the direct link, right? More flights, more meals, more cargo.
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  It all flows through to that higher revenue and profit. Precisely.
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  It's a clear correlation.
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  The operational volumes are the foundation for those financial results we talked about.
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  So if we break it down by their business segments, where did the growth really shine?
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  Both main segments did well, but Gateway Services, that's the air freight,
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  ground handling side of things, was particularly strong.
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  That's strong. Revenue there jumped 11.2% to S1.18 billion dollars.
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  And importantly, their EBIT, the operating profit from that segment.
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  Surged by 25.5% to S101.9 million dollars.
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  Whoa, profit grew much faster than revenue there.
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  Exactly. Which means their EBIT margin improved quite a bit from 7.7% last year to 8.7% this quarter.
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  The report tributes this, like we discussed, to a larger customer portfolio
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  and that strong cargo volume.
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  Okay, so Gateway was a powerhouse. How about food solutions, the catering side?
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  Also very healthy growth. Revenue was up 5.6% to S$328.3 million.
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  EBIT rose 16.4% to S$28.5 million. So again, profit growing faster than revenue. Yes.
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  Another margin improvement there too. EBIT margin went up to 8.7% from 7.9%
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  last year. and that was put down to sustained air travel growth and the demand
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  for those in-flight meals.
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  So both key parts of the business are firing well. And any particular regions
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  driving this where geographically was the growth strongest?
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  The two standouts were Singapore itself up 13% and the EMEA region,
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  Europe, Middle East and Africa.
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  That was up 15%. 15% in EMEA, interesting. Yeah, quite strong.
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  The Americas also grew about 4%. So it seems pretty broad-based,
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  but with particular strength in their home base and EMEA.
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  Okay, that paints a clear picture, strong operational volumes translating into
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  solid segment growth, especially in Singapore and EMEA.
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  But growth like this, especially outperforming benchmarks, usually isn't just
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  about riding market waves, right?
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  What strategic moves are they making? New contracts? Innovations?
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  You're spot on. Strategy is key. And they highlighted several significant new customer wins.
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  Long-term cargo handling deals, for instance. Emirates Sky Cardo in Frankfurt.
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  Cathay Cargo in Portland and Dallas-Fort Worth. Hmm. Major airlines, multiple locations.
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  Exactly. Plus, new business with Cathay Pacific, generally, and also Riyadh
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  Air and Turkish Airlines.
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  These aren't small deals. They signal real trust in SADC's network and service quality.
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  Securing those kinds of long-term multi-airport contracts with the big players
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  like Emirates and Cathay, what does that really signal?
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  Is it about airlines wanting fewer, bigger partners? Does it lock in revenue
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  but maybe increase pressure?
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  That's a really insightful question. I think it signals a couple of things.
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  Yes, it definitely helps stabilize Essieitz's revenue base over the longer term,
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  but it absolutely comes with high expectations for consistent service across
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  different airports, different regulatory environments. Right.
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  For the industry, it really points towards consolidation, strategically speaking.
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  Yeah. Airlines seem to increasingly prefer these integrated partners who can
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  offer scale, reliability, and potentially more seamless digital integration
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  across their network rather than managing lots of separate local providers.
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  It's about efficiency and trust.
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  Makes sense. What about infrastructure or tech? Are they investing there to support this?
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  Yes, definitely. They mentioned the new bulk unitization program,
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  BUP Handling Center in Singapore. BUP, what does that actually do?
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  Essentially, it's about consolidating cargo more efficiently.
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  Grouping smaller shipments into larger standard units much faster.
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  The claim is it's expected to cut the minimum processing time for cargo by 20%.
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  20% faster processing. That's huge in logistics.
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  It really is. Think about it like pre-sorting packages into perfectly sized
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  boxes before they even hit the main sorting belt. It just speeds everything up downstream.
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  For customers, that means faster turnaround. For SATs, higher throughput,
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  better asset utilization.
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  It's a significant operational upgrade. And are they getting notice for this
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  kind of thing? Any awards or recognition? They are, actually.
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  They picked up the Global Air Cargo Handling Agent of the Year Award,
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  and their food solutions team won something called the International Asian Gourmet Food Challenge.
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  Okay, so kudos on both fronts. Yeah, that kind of recognition doesn't hurt when
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  you're pitching for new business.
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  Plus, they're leaning into tech, specifically AI.
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  There's a new memorandum of understanding involving the Singapore authorities,
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  Singapore Airlines, and AI Singapore.
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  What's the goal there? The aim is to drive AI adoption and technological innovation,
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  specifically to boost productivity and also help with workforce development in the aviation sector.
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  So it shows they're thinking long term about efficiency and skills.
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  OK, so lots of positive momentum, strategic wins, tech investment.
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  But, you know, no business report is ever all sunshine. Were there any sort
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  of nuances or challenges flagged in the results, things we need to be aware of? Yes, absolutely.
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  And it's important to look at those with context. One area was the contribution
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  from their associates and joint ventures, the SoAJV line item.
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  It actually decreased by 7.1% to $33.0 million.
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  Okay, so less profit from their partnerships. On the surface, yes.
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  But the report gives a very specific reason. It was mainly due to a one-off
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  net gain recognized in the prior year period.
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  So a comparison issue, like a tough comp, basically.
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  Exactly. It wasn't that the underlying businesses performed poorly.
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  In fact, the report explicitly states those associated businesses continued to see growing volumes.
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  So it's more of an accounting echo from last year than a sign of current weakness.
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  Right. That's a crucial distinction.
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  Always got to read the footnotes, eh? What about cash flow? I think I saw something
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  there that looked a bit lower. You did.
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  Operating cash flow after they paid their leases was $45.8 million.
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  That's down quite a bit from $86.6 million the year before. Yeah,
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  that's a noticeable drop.
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  And free cash flow was actually negative S4.5 million dollars for the quarter.
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  Okay, negative free cash flow. Why was that? Again, the report provides a direct
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  explanation. It points to a delay of customer payments into 1st July.
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  Basically, some significant payments that were expected in Q1 actually landed
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  just after the quarter closed. Ah, timing again. Timing again.
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  They state that without that delay, cash flow would have been roughly flat compared to the prior year.
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  So, similar to this OAJV point, it seems more like a timing hiccup related to
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  the quarter-end cutoff rather than, you know, a fundamental problem with collecting
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  cash or the business generating it. Okay, that's reassuring context.
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  But I guess it does highlight how sensitive quarterly cash flow can be to payment
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  timings in this kind of business.
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  Does it raise any flags about their collection processes, or is it just one of those things?
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  That's a fair point. While they frame it as a specific timing issue here,
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  consistent cash collection and managing working capital are always,
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  always critical in this industry.
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  Large contracts, complex billing delays can happen.
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  This specific instance seems contained, but it's definitely something you'd
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  want to see resolve itself in the next quarter's figures.
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  It's a reminder of that financial discipline needed.
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  Any other sort of specific operational details, maybe regional quirks?
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  Just one other small point mentioned was a Reduction in flights handled volume
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  in EMEA. But again, context is key.
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  This was attributed to their divestment in the UK ground handling business.
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  Ah, so a planned reduction. They sold part of the business.
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  Exactly. It reflects a strategic portfolio change, not an unexpected downturn
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  in that market. It's them actively shaping their footprint. Okay.
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  So putting it all together, the strong core growth, the strategic wins,
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  managing these specific timing issues, what's the outlook?
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  How does Avadis see the road ahead, especially with, you know,
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  ongoing economic uncertainties?
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  They seem cautiously optimistic but grounded.
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  The outlook section suggests they expect gateway services to stay resilient.
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  They feel supported by their business mix, that global network we talked about.
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  Makes sense. And for food solutions, they expect it to continue to benefit from
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  increased regional demand for those higher quality meals. Right.
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  Now, IATA, the industry body, they're forecasting maybe a more measured rate
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  of expansion globally for cargo and passengers.
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  How does S&S square that with their own outlook? They acknowledge that more
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  measured pace from IATA.
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  But they explicitly state they expect to maintain our momentum in outperforming these benchmarks.
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  That's quite confident, basically saying, yeah, the market might slow a bit,
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  but we think we can still grow faster than the average.
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  Pretty much. It shows real confidence in their competitive position and strategy.
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  And their stated focus aligns with that. They talk about enhancing profitability,
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  strengthening cash flows and maintaining disciplined capital management.
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  The essentials. Exactly.
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  And investing in higher margin specialized services and strategic partnerships
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  to drive that long term sustainable growth.
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  It's not just about volume. It's about profitable strategic volume.
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  And the CEO, Kerry Mock, his comments seem to echo that confidence, right?
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  Highlighting resilience, adaptability. Absolutely. He really frames SS as this
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  adaptable, progressive, multinational headquartered in Singapore.
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  He points to the effectiveness of our integrated global platform and expresses
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  confidence in sustaining momentum.
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  He even uses the new Riyadh Airhub management deal as an example of growing
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  despite a, quote, volatile environment.
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  Yeah, that Riyadh deal is interesting setting up operations for a brand new airline.
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  That's a big vote of confidence. It really is. It encapsulates their strategy
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  of partnering for growth, even in dynamic markets.
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  So bringing it all home for you, our listener, we've walked through SST's strong Q1,
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  operational growth, key contract wins, driving solid financials,
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  even with a couple of timing related issues on SOIJV and cash flow that seem well explained.
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  Right. And their outlook is one of continued resilience, outperforming the market
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  through disciplined strategy and investment. It really paints a picture of a
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  company actively navigating, maybe even thriving, in a complex global environment.
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  Definitely. And the details we've discussed, they offer more than just numbers.
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  They show how a major player is adapting.
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  Which leads to maybe a final thought for you to consider. Go ahead.
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  What does S.A.Z.'s ability to consistently perform well, even amidst,
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  you know, market volatility and disruptions to global trade flows, as they put it?
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  What did that tell us about just how fundamental their services,
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  logistics, ground handling, food supply really are?
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  Music.