SATS Ltd
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SATS Ltd
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Welcome to SATS First Quarter Financial Year 2021-2022 Business Update Conference Call. Before we begin, SATS would like to remind you that certain comments made during this call may contain forward-looking statements. Many of these forward-looking statements can be identified by the word of -- by the use of words such as may, will, expect, anticipate, estimate, assume, continue, project, plan and similar words and phrases.
The company's actual results and future financial condition may differ materially from those expressed in any such forward-looking statement as a result of many factors that may be outside the company's control, including, but not limited to the changes in the business environment. The company does not undertake any obligation to update these forward-looking statements.
I will now hand over the call to Carolyn Khiu of SATS. Please go ahead.
Thank you, [ Sengup. ] Good evening, everyone. Welcome to SATS broadcast. Very quickly, we come to the end of our first quarter of the new financial year. Together here with me are Alex Hungate, CEO; and Manfred Seah, CFO, who will take you through the results. I will now hand over the floor to Alex to start the [indiscernible]. Alex, over to you.
Thanks, Carolyn, and welcome, everybody. Thank you for joining us this evening. This is a first quarter update. So let's start with the slide which shows the volume changes in the first quarter. If you look across the first row, you will see the year-on-year comparison. But of course, the year-on-year comparison, compared to first quarter last year, shows that everything increases because if you recall, the first quarter last year was really the low point in the pandemic in Asia. And so this marks an increase from a low point probably more informative is to look at the quarter-on-quarter statistics on the second row. And let's go 1 by one.
So we're starting with flights handled. You can see that there was a small increase in flights handled, some recovery from the drop in the fourth quarter '21, but still only about 25% of the pre-COVID volumes in Singapore, and actually, below that in Malaysia, where the movement control order has been extended. A relatively flat picture in terms of flights handled. In terms of meals served, there has been an increase, not driven by aviation recovery. In fact, there will be a small decrease in the number of aviation meals served in line with the drop in passengers handled. But actually, the increase is driven from China where we are seeing an increase from our growth in non-travel-related Food Solutions, which we've been embarking on for the last few years.
So we're getting good traction there. And also from our -- the subsidiary that we acquired called Nanjing Weizhou, which services both the domestic aviation market across about 85 airports in China and the domestic aviation volumes in China are quite healthy at this time as well as some non-aviation revenues.
Passengers handled, as I mentioned, although it looks like it jumped up materially in the -- from a year-on-year perspective is still much below where it would be pre-pandemic. The pre-pandemic scale, obviously, is not on this graph. But for -- as an example, in Singapore, Changi Airport, only about 3% of the normal passenger flow through the airport at this point in time, so still quite low.
And in Malaysia, with the movement control order also quite low. Cargo tonnage continues its sequential increase quarter-on-quarter. Now it's running at about 80% of the pre-pandemic levels and at the end of the quarter was above 85%, at about 80% as an average during the quarter. And then the last column is the only 1 showing decreases, but that's because it's the number of employees.
As you know, we've had to reshape the cost base quite materially especially on the aviation services market side. So the number has come down again this quarter, slightly below 11,000 at this point, down about 3% quarter-on-quarter, down 18.5% year-on-year, as you can see, down about 38% since before the pandemic in the fourth quarter of 2019, '20 when it was about 17,600 full-time equivalents.
Moving to the next slide. This is the IATA data on the global air cargo tonne kilometers flown. And you can see that actually this is the highest it's ever been. So it now exceeded the pre-COVID level, driven by the same mega trends that we've talked about in the past. So the growth of e-commerce, the focus on medical supplies and vaccine post pandemic and also the demand for fresh food across various cities in Asia as they start to increase in terms of wealth and demand for healthy food. So we expect this picture to continue. As I've said in prior discussions, it's probably supply constrains as much as anything at this point because of the lack of bellyhold capacity in the market.
All of our cargo associates were profitable in the quarter. That's something that we talked about last quarter and it's something that we expect to continue because of the strong demand despite the fact that passenger volumes are low, the continued strong demand for air cargo.
Turning to the next slide, we need to give you an update on the non-travel-related businesses. You know that we're not sitting around waiting for aviation to recover. We are driving growth in the non-travel-related businesses in the meantime and continuing to get good traction. You'll recall that year-on-year, last year, we increased this category by 28%. And in this quarter, we continued -- sorry, 38%. And in this quarter, we continued that progress with a further 22.6% growth year-on-year.
And at this point, in the first quarter, almost half of the group revenues came from non-travel-related businesses, 46%. So security -- new security contracts in Singapore, where we have 1 of the 3 licenses to operate a police force.
The productization work we're doing with SMEs to create retail products, in this case, KEK Seafood are going into a retail distribution via our food distribution subsidiary called Country Foods, peaking over the supply of bakeries into some of the major supermarket chains here in Singapore and then continuing to grow in China, as I mentioned earlier, where we're starting to see quite welcome increases in number of meals served and revenues from our 2 subsidiaries in that market.
So you'll see us continue to focus on this. Most recently, you would have heard the announcement of our acquisition of the Food City facility in Bangkok, which we acquired 85% from the seller of Bangkok Ranch. Bangkok Ranch will remain a 15% shareholder, but it will become a subsidiary of SATS, and we will use that large-scale frozen food capability nicely integrated into the food ecosystem in Thailand to increase our productivity and to improve our supply of frozen food across our supply chain.
The next slide focuses on sustainability. This is some -- a topic that we are taking very seriously. Our management team have prominence targets based upon achieving sustainability targets, and you will have seen our commitments in our sustainability report, which we have published just this month.
So 3 categories of activity. The first is developing smart infrastructure, which has a direct impact on our carbon footprint. And you should be aware that we're actually one of the leaders installing solar paneling. We intend to install another 6,000-megawatt hours of capacity, which will pretty much double our capacity and make us one of the bigger producers. This not only reduces our carbon footprint, it also reduces our costs because our offtake rates are below the rates that we can get on the open market and makes use of the roof space that we have on our facilities both at the cargo terminals and also in the kitchens. We've already begun to electrify our ground service equipment fleet, and almost 1/3 of it now is electrified, and we intend to continue that drive over the next 9 years to achieve 100% electrification by 2030.
Our carbon footprint has come down quite a bit this year from the baseline. Some of that is volume related, though, so I won't grow too much about it, but, some of it, as you can tell us from changes in infrastructure and introducing solar and more efficient equipment in both our kitchens and our freight terminals.
On the food packaging waste, we're doing waste tracking now for the first-time using AI. We're also investing in food to energy or waste -- food waste to energy conversion, which, again, will help us to reduce our cost base energy usage. And then we're very proud of the work we've been doing with the benefit of the capability we acquired when we bought Monty’s in March 2020. Montes Bakehouse is the world's leader in sustainable packaging for aviation food.
And we've made use of that to introduce some sustainable food packaging this year particularly on short-haul flights for some of our biggest customers and the customer reaction to that has been very positive, measurably so because in the customer surveys, we have started to see an increase -- a significant increase in the customer satisfaction with those meals served in this new packaging.
And then the last one, which has always been important to SATS, but continues to be a source of investment for us is investing in our people. So we've been reskilling and upskilling our people. So we can continue to harness technology to increase productivity, which is important because labor costs, we believe, will continue to increase in the major cities in Asia. And then, importantly, to enhance the services we provide to our customers, for example, by creating the software and service linkage between our different cargo terminal operations across Asia to provide better track and trace for the forwarders and the shippers.
With that, I'll hand over to Manfred and he'll take you through the financial results for the quarter. Thank you, Manfred.
Thank you, Alex. Good evening, everyone, and I shall take you now through the first Q financials, starting with the executive summary.
SATS' 1Q revenue improved by 31.6% to $275.6 million, backed by stronger business volume of both our travel and non-travel business. We recorded a PATMI of $6.4 million, making this the second consecutive quarter of positive results for SATS since the pandemic outbreak. For the quarter, we recognized a total relief net of tax of $42 million without which our 1Q PATMI would have been a loss of $35.6 million.
Share of losses from associates and JVs has reduced to $1.2 million, an improvement of about $30.2 million versus 1Q last year. SATS 1Q EBITDA remained positive at $32.9 million, and our EPS improved by $.045 to $0.06 per share.
On this summary, P&L, revenue grew 31.6% with overall increase in aviation volume. Travel-related revenue grew 41.9% year-on-year, while non-travel-related revenue grew 22.6%, as Alex has mentioned earlier.
Just to be clear, travel-related revenue comprises all revenue related plus cruise revenue, while non-travel-related revenue consists of non-travel, non-aviation food and non-aviation security services. Compared to revenue, OpEx increased at a slower pace of 10.9% to $272 million. This is after taking into account government relief of $45.4 million, which is $28.7 million lower compared to 1Q FY '21.
I have a separate slide for OpEx, which I shall come back later to. As a result, SATS EBIT improved by $39.5 million to $3.5 million compared to 1Q last year. As I mentioned, share of losses of associates and joint venture improved by $30.2 million as we see better performance of our associates and JVs, especially our cargo units.
In the next slide, we look at the quarterly trending over the past 5 quarters. All financial metrics registered significant improvements and favorable variances. 1Q FY '21 was the worst hit quarter, with $209.4 million revenue and PATMI loss of $43.7 million.
Since then, we see sequential quarterly improvement in our financial results, in line with the recovery of aviation volume, albeit modest growth in our non-travel businesses -- business activities as well as group-wide cost measures taken by management early and proactively to resize our cost base and improve our operational capabilities.
On Slide 6, segmental revenue for 1Q. Revenue-wise, both business divisions, Food and Cakeway grew by 8.4% and 77.4%, respectively. Cargo continue to register sequential Q-on-Q growth, while security revenue expanded through COVID-related projects and also diversification into non-aviation security services. By sector, travel revenue improved 41.9% and accounted for 53% of the group revenue, while non-travel grew 22.6% to $127.6 million and made up 46% of SATS' revenue.
The next slide, as noted earlier, group OpEx for 1Q increased 10.9%, led by higher staff costs due to higher contract services resulting from the implementation of additional safety measures at Changi Airport, increased business volumes, and lower grant support. The cost of raw materials, license fees, and other costs grow in line with higher revenue. Premise costs and depreciation and amortization were lower, generally resulted from cost measures taken by management.
Slide 14 shows the share of revenue and share of losses of associates and joint ventures for the period. COVID has adversely affected all SATS' associates and joint ventures in the region. However, we are seeing gradual improvement to the share of associates and JV results, especially the cargo units.
On Slide 15, I have 2 points to make here. One is SATS' share of revenue improved by 26.8% to $353.7 million. And PATMI-wise, Singapore is profitable at $16.1 million while the rest of the region are still in loss position.
And having said that, their losses have reduced considerably against last year. Slide 16 shows our financial position as at the 30th June 2021. Total equity and total assets stood at $1.7 billion and $2.9 billion, respectively.
SATS' total cash amounted to $753 million. If we back out the $531 million of borrowings, we are still in a net cash position of $222 million. In April this year, we actually repaid $150 million term loan, which resulted in our D&E -- our DE ratio dropped from 0.44x to 0.34x. This is excluding the IFRS 16 lease liabilities.
ROE for the quarter turned positive for the period. For the next slide, I shall leave you to read on your own. This is actually the group balance sheet.
Lastly, SATS' cash flow statement on Slide 18. Overall, SATS' cash flow -- cash position declined by $127 million to $753 million for the period ended 30th June 2021. This is after the repayment of the $150 million term loan.
Higher CapEx is mainly due to the construction of cargo terminal and a central kitchen in China. Free cash flow for 1Q FY '22 remained positive at $7.9 million, which is a significant improvement compared to 1Q FY '21.
With that, I shall hand you back to Alex to take us through the outlook.
Thank you very much, Manfred. So we wanted to provide an outlook statement even though it's just a 1Q update because, obviously, there's a lot of uncertainty related to travel restrictions. So we feel that while mass vaccination programs are still being rolled out in all of the world's major economies, the emergence of the new variants of the virus continue to create uncertainty about when those travel restrictions will be lifted.
SATS is adapting to the changes in this environment by reshaping our cost base and building new capabilities to support future growth. For example, the acquisition in Thailand that I mentioned, that gives us a much higher volume frozen food production out of the Thai ecosystem. And also the Monty's Bakehouse acquisition, which has given us the innovative capability to work on sustainable packaging and other product design capabilities.
I mentioned also earlier, this cloud-based cargo handling system, which is proprietary to SaaS, and it does give us an advantage as we believe we're the only cargo terminal operator that is linking together cargo terminal operations digitally across -- certainly across this region. And that will allow us to improve service standards for the shippers and the forwarders, and also to allow us to provide temperature information for some of the medical-related cargoes like vaccines.
And then finally, a very important topic for us is we must continue to invest in our people, upskilling and reskilling, so that we can continue to reshape and redesign the jobs to make them more productive and to provide rewarding careers for our people as well as to help them to harness technology as they adopt it to improve productivity and service levels. So I hope that's a useful sense of what the outlook is and how SATS is preparing for that future. Now we would love to hear your questions. So I hand back to the operator to take your questions. Thank you.
[Operator Instructions] Your first question from or Koma Dalata.
This is Ajit. Alex and Manfred, several questions from me. Perhaps I'll start off with some accounting-related question. So for first Q, was there a tax credit that was recognized? And if so, perhaps you could share that with us.
Secondly is pertaining to the term loans, the repayment of the term loans of $150 million or so, so can we expect additional debt repayment? So these are my 2 accounting-related questions.
As a follow-up question on -- this on the travel-related revenue, you mentioned earlier on, this is for Alex, and I guess, for Manfred as well. For the non-travel-related revenue, you mentioned security-related revenue. Am I correct to assume that this is not related to airport-related revenue, meaning that COVID checks at airport? So perhaps you could clarify that.
Next question is relating to Food City acquisition. When can we -- when is that expected to be completed? A follow-up question on that, would SATS be planning to distribute nonfrozen foods or some of its own product line via Food City?
And I've actually got 1 more final question. This is about Impossible Foods. What's your plan for that in terms of bringing it out to Singapore and so forth? Yes. So these are my questions.
Ajit, that's, as usual, you've got some good questions, a whole bunch of them. So I'll let Manfred to take the first 2, please. So Manfred the tax credit and term loan repayments.
Ajit, for the tax credit, indeed, we actually recognize some of the tax credit. This is pertaining to the losses that we have experienced. Now for the term loan, we are actually quite comfortable with our cash position at this point. As you can see that the COVID situation still remains very uncertain. And as a result of that, we will continue to monitor our liquidity and until such time where we are more comfortable, perhaps we can consider that. But at this point, no action is required.
Thanks, Manfred. And then I'll take the last 2 questions. So non-travel-related security is indeed not at all related to airlines or airport work. So it's work that depends upon the capabilities that people have in terms of technology and technology-enhanced security, which we've done quite a bit of in the airport. And both government and nongovernment customers are hiring SATS' security.
In the past, we've only really pitched to airlines and airport-related assignments. But obviously, with the volumes there having dried up, we are pitching to customers which are not related to aviation. And it seems that the combination of the technology-enhanced services that we've developed for aviation, plus the fact that all of our security people are trained in customer service skills, seems to be a differentiator. And so we'll continue -- we have a pipeline that will allow us to continue to grow that business.
And your last question was about the Food City acquisition. When do we expect to close it? There are a few bits of paperwork that we need from the authorities in Thailand before we can formally close. So we can't put a definitive date on that, but we're not expecting it to be a very long time, perhaps a couple of months. Will we distribute via Food City? It's really intended to be more of a production facility for us to create highly productive, cost-efficient frozen meals, and we would then export them outside of Thailand mainly.
We might have an option to distribute in Thailand, but that's not the main focus for that acquisition. One of the benefits of that acquisition is that there are export licenses already in place, so we can quickly do that once we make once we close the acquisition.
My final question was on Impossible Foods. Yes.
Alternative protein. What you said specifically Impossible Foods, but maybe I'll make the answer more in general and talk about alternative protein. Country Foods distributes Impossible plus a bunch of other well-known alternative protein providers like Growthwell, et cetera, Fable.
And these are -- this is a category where because we are strong in distribution of conventional proteins, we intend to leverage that distribution for the growth of alternative proteins. So you should expect to see us distribute a number of the leading market-leading players, whether they originate from Asia or from the U.S. or Europe, through our Asian distribution.
And then using the culinary skills of our chefs to create menus and uses for those alternative proteins that actually are appealing to the consumers here in Asia. That's worked very well so far, where we've managed to use that to win market share in ready-to-eat meals for commissary kitchen, central kitchen for the food service customers that we have as well as to enhance the sell-through into retail. So it seems to be a good combination and one that would make us an attractive partner for some of these alternative protein providers.
Next questing from Wong Yew Kiang from CLSA.
Alex, finally, can you hear me?
Yes, you can carry on with the question.
Yes. Firstly is on grants. Can you remind us how much more grants we can expect for the remaining of this financial year? And then given that government is also talking about another some more support for -- due to the situation in Singapore. SATS going to be eligible for this round of additional brands coming up that's related advance.
The second question is on Food Solutions. The $147 million this quarter, how much is it not related to travel because you've been talking about expanding the Food Solutions segment. So I just want to know, ex travel, how has this segment been performing?
The last question is on non-travel related. You talk about the security business, but out of that $127.6 million, how much does it contribute? That's it for me.
Okay. Thank you, Kiang. I'll ask Manfred to pick up the point on the grounds remaining. And then the question about whether we qualify going forward.
Yew Kiang, the -- on the grant, I think we've guided in the past that the quarter-on-quarter, the government support the brand value for SaaS is on the decline. We also actually mentioned that we will recognize all the job support grant and all the other brands all the way to the end of this FY. So you will still see a grant for the next 3 quarters, albeit on a declining basis. Yes.
Yes. We don't know, of course, yet how the government -- how or whether the government will extend the JSS. They are talking about this, but we don't know the details of the scheme. Obviously, we very much hope that aviation will be taken into account as it hasn't been in the past given the very low volumes of passengers traveling through Changi Airport.
For this current financial year, how much government grants can you get for the current financial year?
All right. Yew Kiang, Manfred, again. Last financial year, we took in the ground of a total of $247 million. This financial year, you will expect to substantially reduce even more than half of that. Yes. But I can't give you the exact amount because we don't guide as yet for the next 3 quarters.
Okay. And on the Food Solutions and travel security?
Yes. So 48% of the revenue in the quarter was from non-travel related, as I mentioned earlier, sorry, 46% of the total revenue of the crew was non-travel related. And you're asking for further information on the breakdown of the food and how much of that is non-travel, is that right, Yew Kiang?
No, I'm asking for the non-travel the 46% that you mentioned, how much of it is the security business that you talked about.
Maybe I can try that of the non-travel security actually represents up to about, I think, 7% if I'm not wrong. So of the total. And if you -- if you assume that non-travel is half of that, then you will actually expand to about 15% thereof. Yes.
15% of -- sorry, 7% of total revenue of the $275 million?
Yes. To check -- double check here. No, so this is -- Yew Kiang, I beg your pardon, sorry, I got the number mix-up. So non-travel security is actually about -- it is about 1% of total. And if you like, then that translates to about 2% of the non-travel, yes.
Okay. And then can you comment on the Food Solutions. How much of that is related -- not related to travel amidst the stuff that you are working on the QSR side and distribution in Singapore.
Okay. So the -- of the non-travel, the food side will contribute almost about 76% -- 75%, 76%. So non-travel predominantly 3/4 of that is actually food related.
Next question is from Rachael Tan, UBS.
So I have a couple of questions. So first 1 being, in previous quarters, you know that there was almost a linear quarter-on-quarter improvement in net profit to the tune of $20 million to $30 million per quarter. Could you explain why this net profit has kind of stagnated at about $36 million ex grant losses even though cargo is up, and your non-travel is actually contributing so much to your total group revenue? So that's my first question.
My second question would be how much would you say out of your current cargo volumes if the tonnage comprises of PPE and medical vaccine-related equipment. And my third question is for the JVs that are doing mixed ground and cargo handling, have they returned to profitability as well?
Rachael, thanks very much for your questions. There are some handling requirements that we are currently having to do both for cargo and packs which have increased the cost and the cost burden and reduce our productivity in the quarter because of the COVID restrictions. So although we're still handling the passengers, the complication is there and it's such a more manpower intensive temporarily because of that. That's been 1 of the issues. And there are similar issues on the cargo side.
And in fact, as you know, there have been a couple of outbreaks that do involve the airport, and those have created some disruption in the -- by taking people out into quarantine. So that's also increased our overtime expenses in the quarter. So I think that gives you some flavor that this is not kind of business as usual type operations in this interim phase as things pick up.
Rachael, Manfred here...
Could you elaborate -- could you elaborate on what some of these are -- what is this increased cost burden? And has it normalized already given that the Chinese class has been closed?
Some of it's normalized. Yes, the cluster itself doesn't exist any longer. So that was well managed by the airport community. So that part is normalized. But the handling -- the special handling requirements to avoid or to minimize the chances of any infections coming from passengers transiting from higher-risk countries, those are still in place, and those are -- that means that our passenger operations are not particularly productive. That won't last forever, but it's still ongoing at this point in time. And then similarly on the cargo side, the management of the certain aircraft types for cargo is not that productive either. So that's not helping in terms of the profitability track record that you were pointing to earlier. And I think Manfred wanted to make a comment also on this topic.
Hi, Rachael. I think quarter-on-quarter, we saw -- because of the heightened alert, we saw a drop in the institutional catering side. So that has kind of impacted quite a bit on our first Q results, yes.
Other than that -- otherwise, you will see that the trending is in the right direction. We are improving gradually. But unfortunately, last few weeks were affected by high tide alert.
Okay. All right. I believe I have like a couple of more questions. The -- maybe the 1 on JVs mixed ground and cargo handling, have they returned to profitability?
Okay, thanks. Yes, Rachael, I'm about to answer your second and third question. So the second question was how much of the cargo tonnage is related to PPE? At this point, not that much. There is still a significant amount of vaccine transshipments going on, but not so much PPE as there was maybe a year ago when there were large discrepancies and shortages across the world. Then your last question is the...
The JVs and associates.
The JVS and associates. Yes. Yes. So anything -- any of the associates which have cargo handling are now making money, including those that have ground handling components where they have a mix of ground handling and cargo. So it shows that there is demand for cargo and it does drive the Apron activities as well as the pure cargo handling.
Okay. If you don't mind, I have a final question. You've mentioned in the past that -- you've mentioned in the past that your non-travel, the food side, the margins, the net margins on an optimal basis can be about 10% to low teens percent. So you said that you're 75% to 76% of your non-travel revenue was actually related. So can we assume that there was a 10% net profit on that part of the revenue? Is this something we can assume?
Rachael, Manfred here. The -- a chunk of the non-travel food is actually on the -- more on the distribution side, the sourcing and distribution side. So to expect a double-digit margin is not realistic. That, over time, the scale of which will make up for the margin, the lower margin.
So the answer is no, it won't be 10% net of the entire 75%. It will be blended, and we hope to drive it to a high single-digit kind of a margin.
Next question from Neel Sinha from CLSA.
Alex, Manfred, I've got 3 questions, all non-aviation related. What is your sense of the non-aviation Food Solutions growth trajectory that you would expect over the next 4 to 6 quarters, I suppose, because I mean, the aviation side is a wild card till the market comes back to a similar of normalcy? Specifically on non-aviation food, do you -- would you have any update on the China commercial kitchens, like Kunshan as the other one, Tianjin, I think, right? And where are these bought -- I have not attended your briefings for a few quarters, so apologies for that question. Are they parked under the Beijing Kitchen subsidiary?
My second question is, again, apologies if this has been answered in the previous quarterly call. CapEx outlook for the year, should we think about this at the same run rate as this quarter? And what are you spending on and where? Is it mostly maintenance? I suppose it's not capacity increase.
And the third would be, if I exclude financing activity, can I assume that the cash flow prefinancing, at the current level of operating activity, should remain stable for the rest of the year?
Neel, I hope you're well. Let me answer these questions. So we don't guide on growth trajectory, but we have in the past said that we would seek to drive the top line for the non-aviation food to become a significant proportion of the overall group's food revenues over the next several years.
So you can tell that, over the last 15 months, we've been doing that, this is now quite a substantial part of the revenue of the group. And we will try to make sure that we keep that kind of level of momentum going. So without giving you any guidance, you can tell it's a very important target for management to keep growing that.
And in fact, my view is, we don't have any other choice. We can't, as I said earlier, wait around for the aviation food revenues to recover. So we have to continue to drive it. You'll remember, about 3 years ago, we invested in the Kunshan kitchen. And that kitchen is -- has contributed quite well to our -- the non-aviation meals growth. I mentioned earlier that, although the aviation meal volume had dropped quarter-on-quarter, it was -- you can still see on that first slide that I showed that there's been an increase in total meals served, and that's driven by China.
That China revenue is a -- China -- SATS China, which is a subsidiary, it's not going to come through any of the associates. So it's 100% owned by SATS. So hopefully, that answers your first question.
Second question, CapEx. We have given guidance for CapEx. We've said that will be around $60 million per year. That's down from where we were before the pandemic when we were between $80 million to $100 million in terms of annual CapEx. So we've cut back on everything except the essential CapEx. And the essential CapEx is that, which we think can help us continue to transform the business through digital initiatives, for example.
And then the last question, you seem to be asking for guidance on cash flow through the year. We haven't given that guidance either. So I think you're going to have to structure your own models around that and make your own estimates.
Right. Alex, on the -- thanks, Alex. On the cash flow question, if I can rephrase that, if I stripped out the financing activities component, I suppose what I'm trying to drive at is what we saw this quarter, it's a positive number. But is that at risk? Are you seeing law materials input component inflation, et cetera?
I see the same level of...
I suppose that's what I was driving at, like what's the pressure points at the current level of operating activity.
Got it. Okay. Well, in fact, from a cash flow generating perspective, SATS remains a strong cash flow generating company. We only dipped into a negative EBITDA in 1 quarter, which was the first quarter of last year. And since then, we've been positive EBITDA. We were $70 million over in EBITDA last year. And this year, in the first quarter, we are already generating more than $30 million.
So I think, though, what you have to bear in mind is that those numbers are boosted by the government relief. So obviously, with outcome for relief, we couldn't have claimed that positive cash flow. So it's not so much about the current situation. It's more about what will happen on the relief side. We will continue to drive the revenue for non-aviation, but we've got to anticipate, hopefully, that if aviation remains poor in terms of volumes, then we will get some government reliefs to offset the cost base. If aviation volumes pick up, of course, then we won't need those kind of reliefs it will be a self-solving equation. So that's kind of the judgment call, I think, you'll have to make if you want to look at that more broadly as a question.
Next question is Yew Ping from OCBC.
My first question is on the government relief. Can I clarify that for the government relief this quarter, was it $42 million or $45.5 million? Then my second question is on the non-aviation revenue. I think just now Alex mentioned that it's likely to make up a significant portion of the total revenue. Just wondering if you could share whether it's likely to be over half or still below?
Then my last question is on Japan. Can you provide some updates on Japan's business? Do you see any improvement or demand from Japan on the calling peak this year?
Okay. That's great. So Manfred, can you just confirm the first quarter release number, please?
Yes. The difference is actually the tax. $42 million is after tax. Yes? $45.5 million is a gross number.
Thank you. Yes. So the non-aviation revenue is already 46%. So it wouldn't take much to go over half. But of course, that's based on a very low travel related. So aviation, in particular, very low and cruise is also low at this point in time. So I think the -- I can see it going over half. It may go over half very soon if aviation doesn't pick up.
But actually, I think in -- I was talking more about a medium-term target, where we think that actually there could be -- we could easily reach a 50-50 balance between aviation and travel and non-travel-related food revenue. We -- and in fact, we have reached as high as this 46% now, and we'll see what happens in the next quarter because we intend to continue the growth of the non-aviation in the short-term at these kinds of rates.
Japan TFK is benefiting from a small increase from the Olympics. Obviously, most of the people traveling are the teams, but nonetheless, that has helped. There is some domestic travel in Japan as well as a relatively large market.
So quarter-on-quarter, there was an increase in the meals served for aviation. In addition, they are also trying to penetrate some of the convenience stores in the Japanese market. They've made some progress there, probably not as fast as the progress we're making in China, but there has been also an increase in the non-aviation meals for TFK as well.
Next question is Lim Siew Khee from CIMB Research.
Can you just go 1 by 1 in terms of the questioning? Can you just share how much is cargo contribution to revenue? Is it similar to previous quarters?
Yes. Siew Khee, yes, cargo forms about 15% of the group's revenue, 1-5.
And for Gateway, so I think I have to actually go back to your answers on the previous question. So I wanted to ask in Gateway, how much is COVID-related. Do we still have COVID-related revenue in Gateway?
Yes, we do. In fact, about -- of our non-travel related revenue, about 15%, coincidently, same number about 15% is related to COVID in some way of the non-travel related.
And then I think...
As you remember, non-travel related.
So this will probably...
So it's about 7% of the total.
Okay. So this will probably taper off by the year? Or how long will this contract on?
Well, it will taper off at the same time as the aviation revenue comes back, right? So that will be -- that will be overtaken, hopefully, by the aviation revenue once that goes away. I think there will be a similar timing.
Okay. Okay. So -- and then you mentioned that you had the police force contract. That is the security contract that we're talking about, which is non-COVID and non-travel, right?
Yes. What I said was that SATS has 1 of the 3 licensed police forces in Singapore. As a matter of fact, we do -- the police force is one of the clients, but that's not what I had mentioned earlier. I did mention that we have some government contracts.
Okay. So the government contract, I take it that it's also over a few years. Is it significant, the government contract? This is -- I guess this is something new this government contract.
Yes. That's 1 of the customers that we've done very well with over the last year or so. And hopefully, we'll continue to grow our market share of both government and nongovernment contracts.
Okay. And these contracts are -- how long do they last, a year or 2?
There is -- some of them are quite long-term and others are more short-term.
Okay. And also for associates, the Food Solutions associates had done quite well as well in terms of the improvement in narrowing in losses. Any -- like, can you just give us some color on that?
Yes. Most of that is the result of the reshaping of the cost base. So in some countries, it's taken us a bit longer to -- because of different labor laws involved, et cetera. So you can tell that the aviation catering volumes are not returning fast. And therefore, it's important that we took steps to reshape the cost base to get them in line with the new passenger volumes.
However, there's also some positive impact from each of them beginning to sell more into the non-aviation non-travel-related markets. Working with the teams in Singapore and China, who obviously made quite a bit of inroads into these markets to understand what kind of -- how to do the productization and the working with positioning for these new segments. So you can start to see some of that getting traction as well as the cost reduction measures.
On the non-aviation one, which are the countries that do have that impact?
The biggest ones are Japan, of course, which we talked about earlier, China and India.
Okay. Okay. And then I have just 2 more questions. One is for City. It's in loss -- in a loss position. How do you plan to actually put it around? And when will it be you recon?
Yes. So it's -- we're going to be using that facility in an entirely different way than the current owners. So it will be using it to slot into our supply chain and driving very cost-efficient export of frozen food out of Thailand. So the current owners use it primarily to process duck products and freeze those duck products also for export, so they have export licenses in place.
But ours will be ready-to-eat meals basically, both for aviation and non-aviation, which is quite a different way of using the facility. We haven't made any guidance externally about when we will -- about what we expect the financial characteristics of that facility to be. But obviously, we're expecting to be able to create value from that. And we're very happy with the acquisition cost that we managed to enter to get that asset. We think it's a very good entry cost for us.
Okay. So you will use the facility to -- first, you have to reconfigure -- do some of the reconfigurations and then you will export. And is it to create ready-to-eat meals and exports. Is that right?
That's correct.
Or export the ingredient for you to do basically to elsewhere?
Yes, in some cases, they could be assembled elsewhere. In some cases, there'll be intact ready-to-eat meals that we could use for aviation and also non-aviation demand.
Okay. And my last question is how much is tax credit?
Siew Khee, Manfred here. The tax credit amounted to somewhere below -- between $3 million to $4 million or thereout.
Okay. And also -- sorry, I think maybe I just asked the question on the repayment of terms loans. And yes, so just wanted to share a point of view of, is that -- you reckon you would actually continue to do that? Or this is just opportunistic that you -- is you and agent pay loan?
Okay.
I think it's quite impressive that you still manage to actually pay.
Yes. So Siew Khee, we -- maybe we backtrack a little bit. We took the loans very early for 2 reasons, right? One is actually for contingency and the other 1 is to ensure that we have sufficient liquidity for dues, right? So it really depends on how this situation recovers. And quite frankly speaking, today, there's a lot of uncertainty. While we still have a very comfortable cash position, we also want to monitor the situation before we take any action. It also depends on the pace of the transactions that we closed going forward.
Yes. In fact, that takes us probably to the next question. Siew Khee, unless you have other questions, I'll take another question from online because Jeffrey from the edge is asking...
Siew Khee thanks for the questions. He's asking SATS has a "healthy pile of cash." Will the company continue to embark on acquisitions or conserve cash to service existing debt?
So remember it, he just indicated, of course, having assembled the cash at the start of the pandemic to deal with any -- to make sure we had strong liquidity. We were able to pay down the $150 million quite confidently. Now we're balancing the continued slow recovery of aviation. Although we are EBITDA positive even then we have uncertainty over government relief, et cetera, and also the pace at which we can regrow -- which we can grow the non-aviation to balance.
But we are looking at a pipeline of acquisition opportunities. So to talk directly to Jeffrey's question, we are continuing to look for acquisitions. The acquisitions that we will target are either cargo terminal operations in larger cargo hubs -- air cargo hubs around the region or -- and/or central kitchens. So like the Food City acquisition that we just made in Thailand. We do think that this is a good time to look for assets which are undervalued. And I think the Food City acquisition is just that kind of a situation. It might also be a good time to look for undervalued cargo handling assets as well. Although, as we've all seen, cargoes tend out to be a highly resilient part of the aviation value chain.
But nonetheless, it could be that there are airlines that are restructuring their holdings, which might mean that some of these assets become available. So those are the 2 categories of acquisitions that we're looking for. If we don't find those acquisitions at the right value, of course, then we would be able to pay down more of the debt. And if we generate cash -- or if we continue to generate cash at the kind of levels that we are now or better, even as the government relief taper off, then of course, that will make us more ambitious on the acquisition side as well.
Okay. So that's Jeffrey's question. We have another question from Luis, I think.
Look, we're now back to other questions.
Our next question is from Louis Chua.
Alex and Fred, I just ask questions 1 by one, 2, if I may. First, I know this is a change in terminology for your segments. I mean travel versus non-travel versus aviation, non-aviation in the past. I don't think it's a very material change in numbers. But I just wanted to get the understanding of the thinking around it?
Louis, you want to ask all your questions first before we answer them?
Okay. Look this is -- so if I just -- this is related to what I think Rachael has also asked. I understand the -- on the cost side, there were some increases. But if I just look at it purely on the revenue side, since the first quarter last year, sequentially or until the first quarter this year, if I look at your aviation-related revenues, that has been increasing steadily since 1Q FY '21, notwithstanding that passenger volumes, flight volumes have been quite muted, but cargo has been increasing.
And this has presumably driven the aviation revenues. But this quarter, we saw that the aviation revenues has actually come more quarter-on-quarter. So just wanted to understand the drivers there, whether or not there's any change in your product mix or ASPs or anything along those lines?
The other question is in terms of the non-travel revenues. So if I just backtrack a bit if I look at the fourth quarter of FY '21. I think back then, there was a $20-odd million increase in revenues Q-on-Q, which, if I recall correctly, is because of the MHA contract as well as increase in the security services contracts that you have won.
But I understand from the question earlier today that if I look at the non-aviation-related security, I think that was just about 1% of group revenues. So again, if I look at this $127 million of non-travel revenues, the increase that came about the $20-plus million increase that came about last quarter, what was it really driven by?
If it's -- given that it's not really from your security services, I think that's on a historical basis. And going forward, I think, Alex, you mentioned that you are looking at the pipeline, maybe you had the pipeline to grow the business in terms of the security, tech-enabled security services. So at this point in time, are there any new contracts that you have really won that you expect to contribute to revenues in the next couple of quarters? Or are these still in the tender stage and haven't been awarded yet?
And final question, sorry, Manfred, I know you can't really guide on JSS. But if I look at the Q-on-Q decline in JSS, I think that's about $10 million or so decline. How much of that is really due to your -- the way that you accrue JSS? And how much of it is due to the declines in the headcount that has happened over the last 1, 2 quarters?
Okay. Louis, thanks for the questions. Manfred will cover the first one, which is the definition of travel, non-travel, and the thinking behind that?
Yes. Louis, thanks for the question. On the travel, non-travel, we actually redefined from aviation to non-aviation simply because to give a better reflection of our business and the way that we are pursuing if you like, the new food sector, and we want to be sharper in terms of being able to define that. So with the non-travel will exclude all the aviation catering business. And in fact, all the aviation side, we regard that as travel. And then plus the cruise business is also a travel, then everything else is non-travel except for corporate revenue, if you like. So corporate revenue is very, very small. It's negligible. So with that, as redefined, we are then able to segmentize our non-aviation catering business better, if you like. Yes.
Thanks, Manfred. Your second question was about the travel-related revenue, and why it has been gone up more considering that cargo is climbing. It's quite simply because the passenger volumes and the number of meals served to those passenger's decline. So both of those declined.
We have a decline quarter-on-quarter in aviation meals, and then we have also a decline in number of passengers. The decline in aviation meals is disguised on that slide where I showed the quarter-on-quarter volume evolution. That actually goes up, but that's all driven by non-travel-related food revenue. So that gets really to your third question because you know that the security, the non-travel-related security is actually quite small, and therefore, you're saying how is it that non-travel revenues have gone up?
That's driven by the food business. So there has been good growth in particular in China for selling into -- from Kunshan kitchen selling into non-travel-related customers. And then there's also been growth from the -- some of the aviation associates, who, as I mentioned earlier in this call, have been pivoting to sell to non-aviation customers. So people like TFK, [ bike, ] Nanjing Weizhou, Taj Sats Air Catering Ltd. They've all managed to increase their non-travel-related food sales during the quarter which is in line with our longer-term strategy.
So we're very pleased to see those developments. You asked about the pipeline, also your fourth question on the pipeline for the next couple of quarters for security. We are engaged in some RFPs currently and the results are not yet known. So it's really the latter case, which is that they're in the pipeline, but we can't -- there's nothing to tell you at this point in time. Okay. Thank you very much, Louis.
Louis, pertaining to your last question on the JSS, it's on the decline. And you were saying that -- sorry, can you just clarify your question so that can I answer it better, please?
Yes, because I think you have been seeing sequential declines in your headcount. So to what extent -- to what extent is that $10 million Q-on-Q decline in the JSS you recorded attributable to your accounting recognition versus the decline in actual headcount?
Thank you for clarifying that. It is more due to not so much the headcount because we try to continue to preserve the jobs of the locals as much as possible. It is more of the percentage that's been granted to us. Yes because aviation, if you like, at the onset of the pandemic, we have a 75% support, and then it goes on a decline. And when you got to the final round, the last 6 months, it's actually quite a low number. So as a result of that, it declines according to that percentage. Yes.
Okay. And with that -- this is Carolyn. Sorry, Louis. With that, I think we come to the end of today's session. Thank you, everyone, for tuning in.
If you have more questions, please send it to us. We'll rely you by email. I've also taken note of some questions that have come in, and we will get back to you. So thank you, everyone till our next quarterly session and stay safe. Bye.
Thank you. Bye-bye.