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Welcome to SATS Third Quarter Financial Year 2017, 2018 Earnings 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 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 conditions may differ materially from those expressed in any such forward-looking statements as a result of many factors that may be outside the company's control, including, but not limited, to changes in the business environment. The company does not undertake any obligation to update its forward-looking statements.
I will now hand over the call to Carolyn Khiu of SATS. Please go ahead.
Hi. Thank you, Serena. Good evening, everyone. Thank you for calling in to this webcast. A while ago, SATS released our results for quarter 3 FY '17/'18. With me here are Alex Hungate, President and CEO of SATS; as well as Manfred Seah, CFO, to take you through the results.
So without further ado, let me just hand you over to Alex to start the ball rolling. Hi, Alex?
Thanks, Carolyn, and good evening, everybody. So we're here for the 3Q numbers.
I'll start on Page 4, which has the executive summary. You can see a slight decline in the revenue to 0.2%. This quarter was the quarter in which we deconsolidated SATS Hong Kong. So without that deconsolidation, there would have been a slight increase of 1.3%. The operating margins 14.9%, so down 0.2 percentage points from last year, similar pattern to what we saw in the first 6 months. There was a 7.9% increase in share of after-tax profits from the associates, which helped the PATMI line to grow at 2.3% to $66.6 million. Earnings per share increased [ $0.002 to $0.06 ] per share, and the ROE remained at 4.2% year-on-year.
Okay, that's the summary, but I'll hand over to Manfred to quickly take us through the other financials; and then, as usual, we'll go into Q&A.
Thanks, Alex, and good evening. And I bring you to Slide 6 here. Our revenue is a $439.8 million, $1.1 million lower compared to last year. The drop was due to Food division's revenue fall of about 2.5%, due to lower revenue registered for SFS as well as TFK. And as Alex has mentioned, in second Q, SATS has deconsolidated SATS Hong Kong, which is now accounted as an associate. Group revenue would have increased about $10.3 million if we had excluded the deconsolidation effects of SATS Hong Kong.
Operating profit for 3Q was $65.7 million, and share of results from associates grew about 7.9% to $13.7 million in aggregate. And PATMI, high contribution from overseas operations and the one-off gain from the write-back of earn-out consideration, which is now not required of about $4.5 million, has helped PATMI by 2.3% to $66.6 million. Underlying net profit for 3Q was $62.1 million, or 4.6% decrease year-on-year.
Coming to 9 months. Revenue for the 9 months to date was flat at $1.3 million -- $1.3 billion against prior year. Operating profit year-to-date was lower by $4.5 million at $180.3 million. Share of profit, strong contribution from associates for both Food and Gateway divisions. PATMI increased by 2.5% to $196 million, while underlying PATMI was also 1% higher year-on-year. As a result, EPS increased [ $0.004 to $0.176 ]. Our debt/equity ratio remains healthy at [ 6% ]. In fact, we are net cash -- we are in a net cash position.
Going along to Slide 8, this gives a summary highlight of our 3Q and 9 months results with year-on-year comparative write-back. 3Q and 9 months this year -- this financial year included a write-back of the earn-out consideration of $4.5 million. The write-back is an adjustment for the earn-out targets not met for the acquisition of additional equity in MacroAsia Catering Services. Having said that, MacroAsia continued to report strong results. The target -- the non-performance target we look for something else. Gain on disposal on -- of assets held for sale in 9 months comprised the gain of -- disposal of 51% equity interest in SATS Hong Kong and the restructuring of Jilin of $1.8 million.
Moving on to financial indicators. Our operating margin are lower for 3Q and 9 months compared to prior year. Notwithstanding our group profit before tax and PATMI margin improved due to strong postings of our share of results from associates. Basic EPS for 3 months -- 3 quarter and -- third quarter and 9 months improved by 3.4% and 2.3%, respectively.
Slide 10 on segmental revenue. For both 3Q and 9 months, Food revenue declined mainly due to lower meal volumes at TFK and SFS, while Gateway revenue improved on the back of strong cargo growth. Revenue contribution from aviation remains comparable for 3Q and 9 months. A slight increase is noted for 9 months non-aviation revenue, mainly due to SATS-Creuers Cruise, [ DI Carry ], FASCO, offset by SFS. By geographical spread, Singapore remains a strong pillar, showing 4% growth, while Japan constitution has declined.
The slide on OpEx, Slide 11. Total OpEx was relatively consistent year-on-year. Nine months OpEx rose $2 million in FY '18 due to higher depreciation, higher license fees due to the withdrawal of rebates from Changi Airport and also OOE. The OOE increase was primarily due to higher fuel costs and loss of airline service incentive from Changi. As mentioned earlier, the cost increase was mainly -- mainly comes from the higher license fees due to the cessation of rebates by Changi Airport. Depreciation and amortization charges have increased in line with our productivity investments.
Slide 12 sets out the share of earnings from associates [ and lines ] in Food and Gateway divisions. As you can see, year-to-date, SATS has registered strong performance from our overseas associates and JVs, achieving about 30% for the 9 months.
Coming to group balance sheet, our gearing and liquidity position remains strong. We have a net cash position, with debt/equity ratio of about [ 6% ]. Our cash -- group cash position remains strong at about $426.6 million as at 12/31/17, of which $79.2 million lower than balance as at 31st March. This was due to the payment of dividend and investment in our associates and also capital expenditure.
To conclude, SATS group generated $146 million from operating activities, with a free cash flow recorded at $74.8 million for the 9 months of FY '18. The lower cash flow was attributed to higher working capital build-up and also increased CapEx spend vis-a-vis prior year.
I shall now hand you back to Alex to present the outlook for the year.
Thanks, Manfred. So the environment remains challenging. We talked a lot about the price pressure in our airline markets, with the airline margins being lower. But we also knew, coming into this year, that we would be facing the withdrawal of the franchise fee rebates for Changi Airport and the withdrawal of the cessation of certain incentives and wage credit, which will commence on 1st of April. So this quarter really is a resilient one where we've managed to call back the operating margin from those hits.
Based upon higher volume at Changi, which has been helpful, we do say in the outlook that the growth in passenger and cargo traffic present opportunities for us going forward. In the last quarter, we saw passenger traffic growing at about 5% to 6% and cargo growing at about 7%. So these volumes helped us to offset those one-off increases in costs or decreases in offsetting incentives that we had cut from 1st of April.
So similar to the prior quarters, we've managed to overcome those challenges with a fairly robust set of numbers. And then the upside has come from overseas. We continue to grow our network overseas, which does 2 things: firstly, it gives us growth opportunities; but secondly, it strengthens our products and services as a network across the region. And you can expect us to continue to do that. I think you're well aware that we've made the first move with AirAsia into Malaysia and we anticipate moving into additional countries with them. And then, you also are aware that we have a catering joint venture with Turkish Airlines that will commence in the new airport in Istanbul, when that is ready. At the same time, those of you that follow us closely will know that we have a greenfield cargo investment going into Saudi Arabia. We're the first international player to be allowed into that market. We have our investments in the central kitchens in China through SATS Yihai Kerry rolling out. And we're investing in digitizing a lot of our services as well. So we are glad that we've been able to maintain the bottom line performance, at the same time invest in those new growth opportunities; and that's something which we expect to continue to do so.
So with that, Serena, can you open up the lines for questions? And then Manfred and I will be able to enter into the Q&A. Thank you. Serena, can you open up the lines for Q&A, please?
[Operator Instructions] Our first question, we have Ajith K from UOB Kay Hian.
My questions, firstly pertains to the associates and JVs, but still for the Gateway Services segment, I notice that it declined by 4.5% and that does comes as a surprise to me, given the fact that cargo volumes throughout North Asia, especially, have been quite strong. So can you explain why it declined in that quarter? Was currency a factor in the decline? Also in terms of the group operations, other costs actually increased quite a bit, I think it's about 17% or so, what was the reason for that? And also my last question pertains to the effective tax rate that increased again in this quarter, is there something that we can expect as a run rate going into the fourth quarter, or is that some sort of anomaly? So these are my 3 questions.
Okay. Ajith, let me take the first one. There was a change in the way we accounted for SATS Hong Kong in the quarter, as we mentioned earlier, which resulted in deconsolidation for revenue. But SATS Hong Kong was loss-making, and that's one of the reasons why we entered into the partnership with Hong Kong Airlines, because they're bringing in now the significant base volume, which will hopefully improve its financial performance. So what's happened is that, the losses that it was making are now halved; of course, we've got 49% that we own as opposed to 100%. But they show up in the associate line, those losses, whereas before they were in the operating line. Does that make sense?
Yes, it does. But SATS Hong Kong was deconsolidated last quarter, right? So -- and yet, last quarter, the -- as I understand, the Gateway Services segment of the associate side actually grew sharply. So why is that -- why is the losses taking place in this quarter?
Yes, the deconsolidation happened in Q2, but then you didn't see a full quarter there. This is the first full quarter for SATS Hong Kong.
Okay, got it. Okay. Then the other questions pertain to the other costs in the overall cost item.
Yes, other costs, there are 2 things happening here. Fuel cost did go up, there's a couple of million of fuel cost in there; and then the other thing is that the Changi Airport incentives that were withdrawn on April 1, they were accounted for as a offset cost. So in the prior year comparison, there was that offset in there. When those incentives ended on the 1st of April, then obviously it looks like an increase in the other cost category, that's also a few million. So in them, that's more than half of the increase in OOE.
I see. So what about the licensing fees itself? That actually has also increased. So are you saying that there's an -- there's other cost elements aside from the increase in licensing fees?
Yes, that's correct. So going into this year, Changi -- last year, Changi had a rebate on the franchise fees. So you can see that rebate was withdrawn from 1st of April, so you can see an increase in the franchise fee. So [ likely it is payable ] that's very visible. What's less visible, although I did try to flag it going into this year, was that they were withdrawing the -- their incentives as well, they had a series of incentives. And those also went away on the 1st of April, which is one of the reasons why I said that this year would be a difficult year for us to get through. So that shows up as an increase in OOE, as I just explained to you.
I see. Okay, got that. Any indication whether Changi will be raising other fees?
No, they won't raise the -- I don't think they'd change the franchise fees going forward, neither will they implement another rebate as far as I'm aware. So I think you can expect it to stay at the same level. So that was a one-off impact. And then the withdrawal of the incentive is also a one-off impact. The only issue was that they all came on the same day of course.
Just to add -- this is Manfred here. Just to add to what Alex has said, now, in this quarter, we do have some -- the swing is also because of the ForEx. And, in fact, last year -- same time last year, there was a gain and this year there is no gain, so there was a swing.
Okay. So what about your associate side as -- upon translation, would there be some currency impact, strong Sing dollar?
There is some, yes. There is some. So -- but they are not significant.
Serena, can we have the next question, please?
Our next question, we have Neel from Maybank.
[Audio Gap]
Neel, perhaps we can't hear you very well.
Sorry. Is this better?
That's a bit better, yes. Maybe you can speak up.
Yes. So I wanted to know has there been any developments with the proposed venture with Turkish Airlines? That's one. The second is, how is Brahim's doing? The third is the expansion in Saudi Arabia, if you could just remind me what the timeline is? Has the construction already started? When does it -- when do you expect it to be operational? And the last question is on MacroAsia. So I actually met with them quite recently, 2 to 3 weeks ago, and they seem to be very positive about the market, especially with what's happening in MASCORP, some other new business up for grabs, and they seem to be doing well. So why did they not meet the performance targets? If you could shed some color on the market, are you as bullish as they appear to be on that market? Or is that just overblown optimism at their end?
Okay. Thanks, Neel. Heard you loud and clear in the end on all 4. So let's take those. I'll let Manfred take Brahim's, but let me take the other 3. Conversations continue to be to make progress with Turkish Airlines. We have nothing new to announce today, but still making progress. As I mentioned, we'd probably have something to say in the next -- hopefully next couple of months, which will -- as the deal is -- comes to fruition, we'll have something -- we'll be able to share more details. Right now, although it's a binding MoU that we announced to the SGX a couple months ago, we haven't signed the next level of the agreement yet. So -- but nothing to be alarmed about, we're still making progress. On Saudi Arabia, we have won the right to operate a cargo terminal operation at Dammam Airport in the Eastern Province. We initially thought that it would be 2.5 years for us to build the facility and get going, but actually we built a temporary facility already, which is already operational with our first customer, which is quite a big customer. And so we're already bringing in revenue kind of ahead of business plan, if you like. Other customers are in the pipeline. So that initiative is revenue -- generating revenue ahead of the plan. On MacroAsia, you're right, I think MacroAsia is a very impressive company and they're doing well. There's nothing wrong with their underlying business performance. This was a specific potential combination of businesses that might have been possible at the time that we struck the agreement with them. For a couple -- for various reasons, both parties have agreed it's not the right time to bring those businesses together. And therefore, the consideration associated with that combination is not payable. So it has nothing to do with their performance actually, it's just a potential business combination that did not occur in the end, which was -- which we both agree is because the timing was not right. Now I'll hand back to Manfred, which on the Brahim's side.
Thank you, Alex. In -- for Brahim, the operation is actually doing well, but not as well as what we would have liked. And as we know, Brahim major client is Malaysian Airlines and they have been through very difficult patches for the last couple of years, and -- but we have seen the volume coming back. So certainly the new volume has picked up as a whole and we think that the company has actually turned the corner. It is profitable, but it's not as profitable as we would have liked.
All right. Just a quick follow-up, Manfred, on Brahim's. I'm assuming, because of the MAS restructuring, the volumes will eventually come back, but pricing must be under a lot of pressure there, right? They must be...
I think the -- in the aviation sector, the pricing has always been a...
Is generally, yes.
Pressure generally, but the new volumes -- the volume is showing to be promising; and Malaysian Airlines, they are basically waiting for new aircrafts and we can see this volume picking up again.
And just to reinforce, Neel, that we -- the restructuring of the contract between Brahim's and Malaysian Airlines was done before our investments. So we knew that the prices of the contracts would be coming down before we invested and the valuation was based on that.
Our next question, we have Azita from Macquarie.
Just 2 questions from me. I think you mentioned some operating stats during your presentation, I kind of missed it, in terms of the passenger handled gross meal produced. And then secondly, is -- has the AirAsia JV already started to produce results? Or is it already in your associate line and by how much?
Okay. I'll take the first one, Manfred will take the second one. Azita, the -- every half-year, we do actually publish detailed operating stats for SATS, which you can then take and compare to market stats to look at how we're doing market share wise. I wanted to give some indication in my commentary this time about the overall -- where the overall market is. And this quarter, if you look at the Singapore passenger numbers from Changi, they're growing at between 5% to 6% year-on-year; and then the cargo numbers are even better than that, they're growing at about 7% year-on-year. And then Manfred is going to answer your question about whether AirAsia is included.
Azita, the -- AirAsia, the operations -- the commercial operation actually commenced in 1st November. And there's agreement between the partners that the operation should just kick start and whilst the final documentation of the deal eventually closed in January. So notwithstanding, we -- if you look at -- in fact, it's just about 2, 3 months ago, so what we'd like to do is, there's a lot of start-up costs and -- operationally, so we would be able to give you better resolution of the numbers in the fourth quarter.
Yes. I think the completion of that transaction was 4th of January. Wasn't it?
Yes. So you'll get pretty much a full quarter in -- when we talk about next -- for this current quarter's results.
[Operator Instructions] Our next question, we have Siew Khee from CIMB.
I'm not sure whether you have mentioned this, but how is the performance of TFK this quarter?
Thanks, Siew Khee. TFK revenue-wise, I think Manfred mentioned earlier, dropped in the quarter. He didn't mention profitability, but I can confirm that TFK did make money in the third quarter. So although the revenue dropped, they're managing their costs quite well and they have actually -- I think I mentioned last time, they have secured a couple of additional customers, who overtime -- over the next few months, are starting to improve their revenue picture. So I mean, TFK is not generating the kind of returns that we would like, but it is positive. And we hope that, with these new customers coming in, we'll get some improvement in revenue in the coming quarters.
So the revenue actually dropped Q-on-Q, because you lost some customers or just seasonality, when you say dropped as in your drop versus 2Q or drop versus 3Q last year?
Drop versus 3Q last year, because -- I know you like to look you Q-on-Q, Siew Khee. We [ normally look ] year-on-year. So we're just indicating it dropped against last -- same quarter last year, because we do get quite a lot of seasonality in our volumes. And therefore, it's better to really look -- if you're looking at trends, better to look at last year's Q3 versus this year's Q3.
Okay. Also whether -- not sure whether you have actually answered on the effective tax rate, I could have missed that. [indiscernible] this quarter and would that be the normal run rate ahead or is this something different?
I'll let Manfred answer that question.
Okay. So the -- Okay, Siew Khee, this is -- the effective rate has gone up because losses from a new start-up. There was no tax credit [ thus ] provided for.
Okay. So what's -- the second part of the question is, do you see that as the new rate going forward?
Unlikely to be the recurring phenomena.
Next in queue, we have Joe from Deutsche Securities.
I've got 2 questions for you. One is on your staff costs, where you seem to have done a good job of reducing staff cost around about $206 million per quarter run rate. I'm wondering whether that's a sustainable one and what you've done successfully to reduce it? That's the first question. And the second question is around announcement you made, I think a month or 2 ago, around a cargo business in Mumbai. Can you give us a bit more details on the thinking behind that and how material the earnings are going to be from this venture?
Okay. Joe, the reduction in staff costs, you're right, is there, but it's flattering because, of course, it also includes the deconsolidation of SATS Hong Kong. Underlying, I believe, the staff costs rose slightly, but less -- I mean, it was modified by the fact that we are becoming more productive on an underlying basis as well. So as you know, it's something we're very focused on in terms of the value-add per -- what we call, value-add per employment cost, that continues to be a major focus. So those staff in Hong Kong, as the entities, had some clients be moved from being a subsidiary to becoming an associate. They come out of that staff numbers and they come out our direct employment cost and they're only recognized in terms of the PATMI contribution. In this case, it's a PATMI loss as we mentioned earlier. On cargo Mumbai, I was just there last week, Mumbai is a very important hub, obviously not just in India but on a global basis. It's already doing about 900,000 tonnes of cargo per year. The facility through which that cargo moves is not the best. And so that's -- the opportunity that we have actually is to rebuild that facility, working with MIAL, which is the owner of the airport, who is very supportive of our plans to invest in that hub. We -- they will actually own the facility and we will lease it from them, so it will be an asset-light implementation, but we are designing the facility to our specifications so that we can get the productivity benefit. We expect that the current Mumbai airport will continue to grow its tonnage and remain very important. There is an expectation that eventually there will be a second airport in Mumbai called Navi Mumbai, which will also be owned by the MIAL. But for the foreseeable future, I think that might take a while to get off the ground as the current airport did take a while to get off the ground. So foreseeable future, this should be the only cargo operation in Mumbai at this airport. So there's a competitor locally, but this is probably a big opportunity for us to get a decent market share in that airport. I've seen the facilities of the other players and they're not very impressive either. So our track record with international airlines running at international standards, I think it's something that can help us on the sales and marketing front. And of course, our strategy is to link seamlessly into our existing cargo network across Asia so that the shippers and the airlines can get a more connected service, where we share information backward and forward. So we're very pleased to have the opportunity to add Mumbai to that network. I'm not going to give you any numbers in terms of what the upside can be, but I think you have an idea for the operating characteristics of cargo operations in large airports. They tend to be high operating leverage type businesses. So if you get a volume growth, then you can improve the margins. And similarly, by the way on the downside, just to be fair, if you get a big drop in volumes, obviously you can start to erode margins very quickly as well. So we feel confident that the volumes at Mumbai should continue to grow as they have done in the last several years.
That will go operational -- Joe, just one final point, that will go operational from April. So we'll be generating revenues in that from April.
There are no questions in queue. [Operator Instructions]
We actually have a question coming online from Sumit Choudhary from Zaaba Capital. Sumit asks, how much CapEx investment in JVs are you planning in the next couple of years? Also, how should we think about the increasing working capital, falling cash flow profile of late and implications for dividends of the same? Okay. All right. So we -- let me separate CapEx and investment. Firstly, we do expect for our CapEx to be higher than it has been, because we are investing in automation of our processes in order to become less reliant on -- in labor cost. And you can see that we've been doing that quite successfully over the last, let's say, 4 years, where our operating margins, broadly speaking, have been improving. Obviously, we've got those some one-off hits in Singapore operation this year, but even despite that, I think we've absorbed a lot of that within improving productivity. So we think that the -- from a shareholder perspective, there's a good return on invested capital from the technology investments that we're making. Year-on-year, our CapEx, I think, is $16 million higher. I don't expect it to go dramatically higher than that, so we run at about maybe $100 million for CapEx in the year, and that seems to be about right for the size of operation we have now. And then separating your point about investment in JVs, obviously the Turkish flight catering investments is the largest that we've -- of the ones that we've announced. That could be the largest flight kitchen in the world when it's completed. The airport will be 150 million passengers per year after phase 2. So it is a significant investment. The building will not be owned by us, so again its capital asset-light in the sense that it's owned by the airport and we lease it back. The equipment inside the kitchen will be owned by us. And there's a element of M&A in that as well in terms of the fact we're buying into a joint venture. So when we are able to, we'll tell you more about the terms associated with that probably, as I said, in the next quarter rather than this quarter. We do see additional opportunities like that. And like the AirAsia venture that we entered into as well, we have to consider our bandwidth for executing those things. We still have some additional bandwidth in terms of management bandwidth. And then in terms of balance sheet bandwidth, we obviously have the chance to raise that, if we wish to, from where the current level. Our strategy there will be to try to raise that locally where we can in the country, where we're making the investment in order to create a natural hedge to any currency exposures. But nonetheless, collectively as we start to do that, we have the opportunity to make the balance sheet work a bit harder for us, for our shareholders. And so we have some capacity to do further investments of the kind that you saw in Turkey and the kind of investments that we announced -- the joint venture that we announced with AirAsia as well. So when you say how much are we planning, it depends upon those opportunities being at the right quality. We're not desperate to do more, but we -- because of our reputation, we do see quite a big deal flow from the airlines and other potential partners. So we can do more and we will do more over the next few years, but we're not desperate to do [ if they ] don't meet our returns. In general, the cash flow profile has been improving over the last few years, but there was a drop in this quarter, as Manfred pointed out earlier. Manfred, maybe you want to comment on that and say whether you think that's a trend?
Yes. Just a quick note on the increase in -- changes in working capital, because the third Q is generally a strong quarter for us and there have been increase in trade receivable. It's not something that is unmanageable. Basically, there were some issues that we have to deal with, but this has been resolved. So the change in receivable, actually the build-up in receivable has caused a major flux in the working capital.
So that's something that's already been resolved in the current quarter, but in the third quarter, obviously it looks -- that just created that gap. And then, your final part of the question was implications for dividends. We still -- we have a policy that we [indiscernible] you want to pay a progressive dividend, but they must be sustainable as well. So you're right to point to cash flow as an indicator. But as Manfred said, there's no trend of declining cash flow, in fact quite the opposite over the last few years. So our intent is to continue to play a progressive dividend in line with the increasing cash flow over time. Okay. I don't know if there are any more questions that have come on the telephone line? Serena, any more questions?
Next we have Alfie Yeo from DBS.
Just I have one question [ further ] into the future. What's the progress of your planned T5 kitchen? Has there been any plans in place or developments yet?
Okay. Alfie, you're based here in Singapore, so you probably fly over T5 when you leave and land. You can see it's a very large site that's being reclaimed. There's no structures going into it currently, so we're still quite a long way off any of the structures being built. Although the airport has done a lot of work on the design of the runways and the terminal building, I don't believe there's even yet an architect who has been commissioned, so it's a bit early. Our view on T5 is that, it's going to be a massive operation and similar in size to Terminals 1, 2 and 3 combined. And we do expect to have a kitchen there probably serving SIA, who will be the base airline in T5. That kitchen may have a slightly different configuration than the kitchen that I'm sitting currently, which is SICC 1, our in-flight catering center number 1. This kitchen is -- started finished production facility, so raw materials in and then aviation meals out. Our configuration in large metropolitan areas now is much more a combination of aviation and non-aviation in order to get to the next level of scale. And even now the flight kitchen that I mean although it's designed to be from raw material in to meals out, it already takes large quantities of pre-prepared components from some of our large kitchens outside of the airport. And I think T5 will probably be an even better example of that, where we're talking about 10 years' time. So our volumes in Singapore should be even larger, both on aviation and non-aviation. We will be operating on a much more of central kitchen concept, where we're building very large scale batches of components to get to higher levels of operational efficiency. And then the T5 kitchen will be assembling those components and obviously launching them onto the flights through the hi-lift, which is the normal cabin services path. Probably focused on fresh prepared food for premium class travel and then depending a lot upon food components, which are going to be freshly prepared and preserved, but they'll be coming in from batches, which -- some of which might go to aviation, some of which might go to non-aviation customers like the schools, hospitals, universities and other institutions that we serve. So I think the T5 investment, therefore, will probably not be at the same comprehensive scale as it would be building everything from raw material in/out to serve something that we're covering all through -- something as large as Terminal 1, 2 and 3. It will be probably more of an assembly facility that benefits from the scale of our overall Singapore operations.
Okay. Yes, just one last quick question, because my line dropped when you talked about Turkey. Are you still at the due diligence stage whereby nothing is confirmed yet?
Yes. So the update on Turkey is that we're making progress in the discussions. We announced a couple of months ago that we had a binding MoU with Turkish Airlines, but we didn't announce a lot of details because we wanted to get to a final agreement before we announce too many details. So we're still not in a position to announce the final agreement. We're making progress in the discussion, so really no change and nothing new to announce either.
Our next question with Neel from Maybank.
So I had a quick follow-up. I don't think I got the answer to Siew Khee's earlier question on TFK. So the year-on-year revenue decline, was it because of loss of volumes from existing customers or loss for customer or pricing? Because from what I can see, I think this last Christmas season, Japan was extremely very busy as a market. The Narita numbers are pretty good, et cetera. So I'm trying to figure out whether it's -- yes, is it volumes of your specific customer base or was there customer loss or was it price renegotiation?
Yes, Neel, it's -- I don't remember, but one of the losses we had was from Vietnam Airlines, because ANA actually invested in Vietnam Airlines, they took a minority stake. And then part of the agreement was that Vietnam Airlines would move to the ANA kitchen in Tokyo. So that was -- we actually had a volume loss from that in this quarter, which is a shame. And then the other thing is that Delta Airlines, who is a customer of ours -- quite a big customer of ours, traditionally would use Tokyo as its main hub into Asia, has actually started overflying Japan to land directly in Shanghai, which has become kind of a China hub for them, and that also impacted our volumes in the quarter. I think those are the -- so it's mainly a volume impact.
Our next question, we have Swati from Bank of America.
Alex, just a quick question from my side. How is the performance of the Indonesian associates? And when you start the Turkey kitchen, how quickly can you ramp that up?
Okay. Swati, the Indonesian associates continue to perform well. Just to recap for the others, we've got 3 different tranches of investment but with the same partner. At a group level, we earn 41.65% of PT CAS, which is a publicly listed company in Jakarta, which does pretty much the same range of activities as SATS does. And at the divisional level underneath that group, we also own 49% of PT JAS, which is a ground handling and cargo handling company, which we -- which was our regional involvement with this partner and we helped build that company [ over the ] last 9 years or so. That's the market leader in ground handling in Indonesia and operates at 12 different airports across the archipelago. And then the most recent investment was in the flight catering division, which is called PMAD, in which we own 20%. So we've got 3 different investments that are all with the same partner. The performance has been pretty strong still. It's become one of our larger contributors in terms of the associates. Both of them improved their contribution in the quarter compared to the same quarter last year. And I think that reflects the underlying robust growth dynamics in Indonesia, where aviation continues to grow at healthy rates. Infrastructure, as you probably know, is a big part of the Jokowi government manifesto, and so they're pushing hard to grow tourism and pushing hard to improve infrastructure. So we're very pleased to have our longstanding partnership with PT CAS and its various divisions. On your Turkey question, our involvement is going to be in the new airport. So we won't be involved in any activities at the Ataturk Airport. So as soon as we sign the final agreement, we'll be able to start construction of our flight kitchen there. It will be a large flight kitchen. We'll probably build it in phases so that we can get some -- we can start catering to Turkish Airlines as soon as possible. There are some discussions about the airport being as ready -- ready as soon as the end of 2018. If that happens, the kitchen that we build will not be ready in time. So there has to be some interim catering arrangement that Turkish Airlines uses in the new airport. And we may or may not be involved in that, it depends on the -- what's the best kind of operational approach, but the -- we will certainly be the exclusive caterer once we have our main kitchen up at the new airport thereafter. Time scale for that is not -- it's obviously not a quick thing to build a new flight kitchen, probably 2 years from the time that we sign the agreement, something like that. Okay.
[Operator Instructions]
Looks like we have another question coming in online, which we'll just handle, maybe it's the last question then. It's from [ Gaurav Tewari from MSS ]. He says, why have dividends received from associates been lower, mainly which associates? So maybe Manfred, you can just summarize what the changes were there.
Okay. The dividend receivable generally are all about timing. Now the two that didn't come in are from associates that have consistently been dividend -- paying us dividend. So it's just a question of timing.
So no change in the flow-through back up to the group? That is just a question of the timing, so no trends or anything to get alarmed about that. Okay. I think, we'll make that the last question. Thanks very much, everybody, for your interest and questions, as usual. And we look forward to talking to you over the next couple of days and weeks, if you have further follow-up questions. Thank you.
Thank you very much.
Okay. Thank you, and wish you a Happy New Year.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, you may now disconnect.