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Welcome to SATS's Third Quarter Financial Year 2018-2019 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 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, 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.
Thank you, Serena. Happy New Year to everyone, and thank you for calling in into SATS's results webcast. I'm Carolyn from Public Affairs and Branding.
A while ago, we released our results for FY '18-'19 third quarter. With me here are Alex Hungate, President and CEO; and Manfred Seah, our CFO, to take you through the results.
I'll now hand you over to Alex, who will take you through the executive summary. Alex, please?
Thanks, Carolyn. Welcome, everybody.
So Page 4 on the slide deck starts with good news on revenue. 5.5% growth is one of the higher levels of growth that we've generated in the last few years and I think it fits with the theme that we use for our AGM and annual report of enabling growth and relates to a lot of the investments we've been making. In particular, as far as consolidated revenue is concerned, you see growth in the cruise business, good growth in the volumes in our core business for aviation and also growth in the new businesses for non-aviation in China.
PATMI overall improved by 3.5%, and in particular, a good contribution from the associates and joint ventures, 51% up, including, though, a $5.8 million gain from the disposal of our DFASS SATS business to the new joint venture with Singapore Airlines related to KrisShop. But even without that, there would have been a 9% underlying growth in the performance from the associates and joint ventures.
Operating margin is still high at 14.1%, dipped slightly in the quarter, with some one-off costs and investments in some of the overseas growth opportunities, which we can talk about later. And overall earnings per share increasing $0.002 to $0.062.
So that's a summary, and now I will hand to Manfred, who will go through the group financial review.
Thanks, Alex. Good evening, everyone. I shall now take you through SATS's financial results for the third quarter. We are on Slide 6. Group revenue increased by 5.5% year-on-year. Both food and gateway revenue grew by 5% and 6.2%, respectively, resulting from volume growth during the period.
Operating profit was lower by $0.4 million at $65.3 million, due to higher IT renewal expenses, fuel costs and professional fees related to new projects or investments.
Share of profits -- share of earnings from associates increased by 51%, mainly due to $5.8 million gain from the disposal of DFASS SATS business to KrisShop.
PATMI increased by $2.3 million to $68.9 million, with ROE for the third Q reaching 4.3%.
Moving on to the 9 months for FY '19, Slide 7. Group revenue increased by $55.4 million to $1.36 billion, mainly due to volume growth despite some pricing pressure on the food side. Excluding the deconsolidation impact of SATS Hong Kong, which was divested in July '17, group revenue would have increased by $71 million.
Operating profits improved 8.8%, in line with the increase in our revenue as compared to last year. Our share of results of associates and JVs have reached $50 million, which is approximately 25% of our PATMI. PATMI grew to $198.5 million as compared to last year, and EBITDA for the 9 months have reached $306.5 million.
Now Slide 9 shows the detailed breakdown of the comparison of the results, which I shall leave it to you to cover.
Now moving on to the financial indicators in Slide 9. Group OP margin for the third Q is lower at 14.1%. Basic EPS is higher due to higher PATMI in the current quarter. For the 9 months, group OP margin improved to 14.5% compared to last year of 13.9%, resulting from the positive jaw. Year-to-date, PATMI margin was slightly lower at 14.6% due to lower one-off gains compared to last year, while ROE remained the same as per last year.
On Slide 9, segmental revenue, I will just cover the distribution of the aviation side, which is our -- still our dominant sector to the group, and this accounts for 85% of our group revenue, while improvement in non-aviation revenue mainly comes from the revenue growth from the Cruise Centre.
Now on Slide 11, we show the SATS share of revenue by region. You can see the combined revenue has increased by 7.8% to $1.945 billion. The growth was primarily attributed to growth in new joint ventures, such as GTR and our Mumbai Cargo that contributed to the revenue in ASEAN and India, respectively.
Group OpEx on Slide 12 has increased across all expense categories, in line with the volume growth. The increase in staff costs is also partly due to a reduce in employment credit for the third quarter. High depreciation charge is due mainly to the new cargo facility in Saudi Arabia.
Moving on to Slide 13, which sets out the associates and JV performance. Our share of earnings has increased, as mentioned, to 51.1% and 5.9%, respectively, in third quarter and the 9 months. This is mainly due to the one-off gain from the DFASS disposal, and we continue to see some profit contribution softening in Brahim's, given the low volume that we faced on the customer. Year-to-date [ FTE ] costs, the higher concession fee experienced in the previous quarter still prevails, as we look at measures to reduce the impact. Despite the underperformance, they still remain as our top contributor to the 9 months results. Other top contributor for the associates include AAT, the ICC group, the AISATS and also Mumbai Cargo.
Moving on to Slide 14, which is our group balance sheet. Our total equity is at $1.7 billion. The total assets rose to about $2.3 billion. This is after a dividend payment of more than $200 million in August and December.
For the group cash, cash flow on Slide 15. There's an increase in net cash from operating activities for the 9 months, mainly due to higher profits generated from operations for the financial period. Net cash used in investing activity is higher than last year, and net cash used in financing activity is higher, mainly due to the higher dividend payment compared to last year, repayment of the term loan as well as the purchase of some treasury shares. Lastly, the group has generated about $119 million of free cash flow, of which $63.4 million during the financial period.
I shall now hand you back to Alex to cover the financial outlook.
Thanks, Manfred. Outlook is a bit longer than usual because we want to give you a bit more color on some of the overseas activities, which, as Manfred described, is becoming more and more important for us in terms of returns.
So increasing volumes in the aviation industry and strong demand for convenient food in Asian cities are creating opportunities for SATS, notwithstanding the more gloomy headlines about the global economy. We think we're well-positioned to extend our market leadership in our core markets in Asia, especially in the 3 big focus markets that we have of China, India and ASEAN.
So as we grow in China, which I'm happy to talk about in more detail in the Q&A, I think it's worth noting that we just announced that we would be starting ground and cargo handling, as well as catering operations, in partnership with our longstanding partner in China, Capital Airport Holdings, in the new Daxing International Airport in Beijing. Daxing will be probably the largest airport in Asia when it's finished. It's opening in October 2019, and preparations are underway for our 2 joint ventures to open at the same time.
In addition, as you probably know, we are embarking on a strategy of building new central kitchens in China to supply the fast casual restaurants chain. The first was in Kunshan, and then we announced also that we are proceeding with a second site in Tianjin, which will complement our investments in flight catering kitchens in that region as well.
And at the same time, India is growing well and so is Malaysia. The 2 new joint -- ground and cargo handling joint ventures are growing profitably. And then you'll hear a lot more about this at the AGM at the end of the year and in our annual report, but we also believe that we have a sustainable business model based upon the use of technology to empower our people to be more productive and also building new capabilities that can help accelerate our market penetration, along with acquisitions, which will help us to continue to build our footprint across Asia and accelerate our strategy to feed and connect Asia.
And before we go to Q&A, I also want to make a brief announcement. I want to preannounce that we're going to hold a Capital Markets Day in July on the -- sorry, in May, on the 28th. So it will be after our full year results, the following -- the week after the following week from our full year results. And in our Capital Markets Day, we will update on our strategy, as we like to do once per year face-to-face, but we will also give more granularity on our overseas associates and joint ventures, something which I know many of people on the call wanted to have over the years. And we think it's a good time to do so because many of them are becoming more material. And therefore, quite rightly, we need to share more information with our shareholders.
Okay, Serena, maybe you can open up for Q&A questions, please.
[Operator Instructions] Our first question, Siew Khee from CIMB.
Can I just check with you on -- I may have missed out just now because the result came out only after you started talking. There's an increase in other costs this quarter to $40 million. Can you elaborate what happened?
Yes, thank you, Khee. Usually, our track record is that we've got positive jaws overall as a group. And in fact, over the 9 months, that's certainly true. But in this quarter, the jaws are slightly negative. And the reason for that is some one-off costs, notably professional fees that Manfred mentioned earlier, which are related to projects which we hope in the future will build improved productivity and growth into new markets. There's also some new costs associated with the new kitchen and the Saudi cargo facility which we're building in Dammam. However, if you just look at the core Singapore business without those one-off costs, our jaws would have been positive, even in this last quarter as well. So I think the message you should take away is that the underlying cost control on the core business is still very tight, but we are embarking on investments, as you know, which are, as we said in our AGM, enabling growth for the future. And that's resulting in some of the improvement in [ the result ].
Okay. So is it just one-offs that your other costs actually went up this quarter?
Yes, some of it is one-off. Some of it are investments in new facilities, like the cargo facility in Dammam and the new kitchen in China. So those are pre-revenue, obviously, so they show up as costs at this point.
Other costs. Okay, all right. And also, for associates, so in gateway, the hike is because of the one-off gain? And for underlying operations, how has it been without the -- I know, of course, it's -- without the $5.8 million, it's higher Q-on-Q, but generally, I remember that last quarter, Indonesia was hit by currency as well as inability to actually pass on the concession fee. How has that been?
Yes, so I did mention last quarter there will probably be one more quarter of that situation in Indonesia. So that's the current quarter. From this fourth quarter that we're now entering, we do expect the price interest -- increases to start coming through in Indonesia. So we anticipate that we'll get back on track with the Indonesian profitability. AAT is still performing well. AISATS, as Manfred mentioned, those are the 3 biggest contributors on the gateway side. On the food side, we've got Evergreen Sky Catering, which also continues to be strong. They built a new kitchen recently with expanded capacity, so they have slightly higher depreciation than they had, but actually, their volumes are still strong. So that's good. The new joint ventures are the Mumbai Cargo facility, and that is tracking very nicely, slightly ahead of what we had planned and it's growing profitably. And then GTR is also performing well. So that's growing fast in Malaysia, and it's also growing profitably. So I think the gateway ventures in general are strong, with the exception of the Indonesian performance, which we hope to improve from the current quarter, that is the fourth quarter, going forward.
So Q-on-Q, it would be just flat, excluding the currency for Indonesia, right? As in compared to 2Q?
Q-on-Q, I think it's up about 8% in terms of the contributions from the associates underlying, without the one-off from the DFASS transaction.
Okay. From Indonesia specifically...
Sorry, are you -- you're talking about second quarter versus third quarter?
Yes, Indonesia specifically. Is it like flat because you still have one quarter of inability to pass on? Or has it deteriorated?
No, no, it hasn't deteriorated. It's about the same as last quarter. That's correct. And then the improvement should come from the current quarter, which is our fourth quarter.
Okay. And I have one question on associates. So for Food Solutions, it actually came down, so that -- I mean, to $2.9 million this quarter. Is that purely because of Brahim's?
Yes, that was because of Brahim's. Yes, there was an increase in depreciation in Evergreen Sky Catering, but their volumes actually picked up as well, so that was offset by improved volume. But I think the main impact was Brahim's. Just to give you an update on that, we have put a SATS General Manager, someone, [indiscernible] from SATS, in there. And I think, as you realized before, up until 3 months ago, although we had [indiscernible] from finance in there, the operations were actually not managed by SATS. With the support of Malaysia Airlines, we've put somebody in from SATS to head the company. They're already making some changes, and our view is that based on what we've seen over the last 3 months, there's no reason why that kitchen with a large market share that it has in KL should not be able to make good returns. So Manfred is on the board, so he's keeping a close eye.
So the decrease is because of one-off costs, since you actually put people there? Or is just because of price pressure from [ MAS ] or just volume?
I think it's a mixture of a few things -- Siew Khee, it's Manfred here -- mainly because of volume, but we do see the volume coming back. We see positive improvement in the processes as far as in terms of productivity-wise. So we are confident that the March Q would be much better. Now Siew Khee, on the -- sorry, just to back up a little bit on your earlier question on one-off gain. Last year, year-on-year, third quarter of FY '18, we had a similar one-off gain as well. This is the back, [ back pay year ], right?
Last year, one-off gain was in gateway?
Sorry, sorry. I -- this is actually in the -- not in the operating income, yes.
So the $5.8 million gain is at the operating income level?
The $5.8 million is actually at the associate level.
Associate, yes, yes, got it.
[Operator Instructions] Our next question, we have [ Kylie ] from Credit Suisse.
I have 3 questions to ask. I think I'll just start with the first one. First, we have saw that you incorporated 2 joint ventures in Beijing to provide in-flight catering and ground handling services at Daxing Airport. Can you give us an indication of when the JV will be operational? And when can expect revenue and profit contribution to start for SATS? And given the scale of the airport, will there be additional equity capital required from SATS after the initial capital injection?
You want to go through all 3 questions first?
Okay, yes. The second question will be, there's been some news that Lufthansa is in talks to sell its catering division, LSG Sky Chefs. So I understand that you may not be able to comment on the specifics, but would an acquisition of such size and geographical scale be something SATS would be interested in? Any color you can provide will be useful. And thirdly, do you still see scope for cost reductions? And where would these be from? Are the easy wins already done?
Okay. Some good questions there. So yes, 2 new in-flight catering and then cargo and ground handling joint ventures in Beijing. The cargo and ground handling one, we have a 40% share and Capital Airport has a 60% share. The catering one, we only took a 10% share. Capital Airport has an 80% share of that. And there's an airline called Juneyao Airlines, which has a -- the balance of 10%. Those 2 ventures over time can become very large because the scale of the airport is very large. It's about 100 million passengers, and in further phases, we'll expand beyond that. It will become operational in October 2019, so quite soon. And therefore, we'll start to generate revenue in about that time line. The joint venture will start to generate revenue about that time line. The -- it won't reach profitability immediately, so we expect it to take a few years to start to generate profits, which will be normal.
However, if you think about our overall group strategy of clustering flight kitchens together with central kitchens, we hope that there will be some synergies with our new flight -- our new central kitchen in Tianjin, plus the other 3 kitchens which we have in that Bohai region. So we've got one large kitchen already at Capital Airport -- Capital Airport itself; we've got one in Tianjin and we've got one in Shenyang. So this will be, in fact, the fourth kitchen in which we have an investment, all clustered around that area. The location of our new central kitchen is at the intersection, really, of where those 3 big airports are. So if you drew a line between -- in the center of the triangle between Capital Airport, Tianjin Airport and Daxing Airport, then that location would be pretty much where the site of our new central kitchen would be.
So it will play a key role in the supply chain for the aviation catering cluster there. But it will also grow through selling to the fast casual restaurants that are clustered around the Beijing area, which, of course, is 1 of the 2 largest or 1 of the 3 largest clusters of fast casual restaurants that exist in China. The other big cluster -- the biggest cluster is around Shanghai, where we already have a central kitchen in Kunshan. And then the third one would be in the Guangzhou region. So although the entity stand-alone will take a few years to come to profitability, we do hope to get some supply chain synergies in that cluster of kitchens in the Northeast of China. You asked a question about capital -- the capital injection is already in there. Manfred, anything more on that?
Yes, the capital injection for the ground -- the Daxing ground handling JV, our portion is $21.3 million, representing 40% equity. And for the Daxing catering JV co, our contribution is $6 million.
Yes, representing 10%. So we'd rather take a smaller stake on the kitchen side. And our core investment in that region is the 100%-owned central kitchen, okay? And then the second question was about LSG, about which I won't comment at all. Apologies, but I think you'll understand why. And then the third question was about cost reductions. Yes, I think you can see over the last few years, we've done, I think, a fairly good job about improving productivity. Our value-add per employment costs in particular has gone up very steadily across the years. Over the last 4 years, I think it's gone up 25 -- sorry, productivity overall is up around 25%, and about half of that has fallen through to improve value-add per employment costs. Now we hope -- we have effected the same kind of intensity of focus on productivity as we ever did, and we believe that with new technologies coming through, and the creativity of our people and the openness of our culture to change, we hope to be able to continue to create those kinds of opportunities going forward. So there's no real end to our battle to improve productivity, that's a constant occupation for everybody here, whether they're small projects or large projects. We have some quite large projects, which I can give you an indicator of, which are in the pipeline. Some of which are -- account for some of the one-off costs. One in particular is our focus on digital integrated supply chain. I just described the situation in the Beijing area, where we're linking together central kitchens and flight kitchens to get improved productivity and to -- so we can cook in much larger scale. That's very similar to our strategy in Singapore. It's very similar to our strategy in places like Manila and Tokyo with TFK and India as well. So the capability to tie all that together, so through integrated demand planning, all the way back through to large-batch production and category management on the purchasing side, those are all really important new capabilities, which will, we believe, can continue to generate improved management of raw material costs, improved management of employment costs and get the most out of the capital that we put into our new kitchens. So by no means do we think that we've run out of ideas for further cost reductions.
Our next question, we have Ajith from UOB.
Alex and Manfred, I've got 3 questions from me. First is on the company premise and utilities expenses. You mentioned earlier on that part of the increase was due to higher fuel costs. During the previous quarter, you mentioned higher, I think, water-related costs as well. Would some of that have affected in this quarter as well? And then overall, how do you expect in terms of this cost to trend, especially over the next 2 quarters? Are we looking at some steady-state level or further increases? This is my first question. And the second question is on the slides where you mentioned that -- when you compare the revenue for FY '18 and FY '19, is this on a rolling 4-quarter basis? So that's second question. The third question is on the Daxing Airport and Capital Airport. As I understand, you already have an existing ground handling and catering operation at Capital Airport. And your JV partners, China Southern and China Eastern, would be transitioning to Daxing over a period of 3 to 4 years or so. So if that happens, then would your JV at Capital Airport, will that be impacted? And essentially, wouldn't that just be a matter of transferring of the business from Capital Airport to Daxing? And if that be the case, then would the -- would your Capital Airport kitchen and the ground handling operations, would it have excess capacity? Yes, so these are my questions.
So Ajith, I think we got the first and the third. We're not quite clear on the second question. Maybe you could repeat that.
Yes, second question is about Slide 11, set share of revenue in the PowerPoint presentation. Just I would like to know if it is just -- is it a full year basis or a rolling 4-quarter basis? Because it changes -- the numbers changes every quarter. So just trying to get some sense.
Okay, thanks very much. That's clear. All right.
Ajith, maybe I'll just take the second question quickly. The set share of revenue, this is actually for the 9 months year-to-date.
Let me just -- while we're on that slide and everyone's looking at it, you can see very clearly from the growth rates in the third column, why we want to tell you more about the overseas associates at the Capital Markets Day in May. You've got most of our consolidated revenue comes from Singapore and Japan. And those are -- they are good markets. They're still growing steadily, but they're the relatively more mature markets in the region. The majority of the associates are in the faster-growing markets, and you can see that coming through so clearly here. While we've been adding associates, the underlying growth rates in these markets are much closer to high single digits as opposed to low single digits. Some of them are even in double digits. In particular, these last 2 quarters, India has been growing very fast, as the aviation market overall. And then obviously, our presence in India has been growing as well, which is why you get the 43% year-on-year growth for the 9 months. So I'm glad you pointed us to that slide, because I think we have been enabling growth over the last couple of years and now you can see the growth coming through. And we want to tell you a bit more about the businesses that are generating that growth when we meet in May. Okay, company premises and utilities. It's mainly fuel costs. Manfred, do you want to comment on that?
Yes, so the fuel cost increases and the general market conditions, so there was a variance of about $1.1 million increase.
$1.1 million increase is fuel costs, Ajith.
Okay, all right. So the impact from the water levy was...
A lot of that's related to the market fluctuations, obviously, in oil price. And we are affected like other people. The water pricing did increase last time. I don't see that is going to be a feature going forward. We don't expect the water prices to go down at all. That's going to be a feature for everybody. But we are embarking, as I mentioned last time, on a lot of water-saving initiatives, not just because of the costs -- increased costs, but also because we feel it's part of our responsibility to minimize the impact on the environment as well. On Daxing, yes, it's a very complex situation, is the -- as the MU and CZ move to the new airport.
Firstly, I would say that it's not clear-cut exactly which flights will move to the new airport. A bit like the situation at Haneda and Narita in Tokyo, people recognize that being close to the city center is an advantage. And so not everybody wants to leave the slots at the Capital Airport, the existing Capital Airport. And so there's still some discussions going on about will that be a domestic airport and then Daxing be the international airport, or will it be split by airlines. So let's say, MU and CZ exclusively at the Daxing Airport, while the other airlines remain at the Capital Airport.
As you can imagine, there are important implications either way. We've run a business plan on both basis. And while there's some softening of the volumes at the Capital Airport as some of the flights move out, the demand at Capital Airport still remains relatively robust. And so we still think that the catering business there will continue to be profitable throughout the migration. And then at the new airport, our joint venture with Capital Airport will be the only independent caterer there. So we're confident that we can win a good market share of the non-aligned airlines at the new airport as well. But the short answer is nobody knows for sure which airlines or which flights will move across to the new airport and when they will move.
Okay. But wouldn't there be a dilution in the sense like BAIK, your stake was higher, and now your stake is going to be lower to 10%. So in terms of earnings from the flight catering operations at -- in China, would that be affected?
Well, BAIK, you're right, our stake is 28%. And it's a profitable entity. We think it will remain profitable throughout this no matter when the airlines move and which ones move, just because it's already -- it's not got a huge amount of unused capacity anyway, so I think we can run it very close to capacity all the way through the transition. The new entity will take a few years to become profitable. So from that perspective, we're happy to concentrate on the supply chain opportunity, working across all 4 of those airports and take a relatively small stake in the front-end part of it for the time being, and then we'll see how things go.
Okay. Just a follow-up question on that. When you mention supply chain possibilities, are you referring to non-airline catering?
Yes, so the -- our situation in -- around Beijing actually looks quite comprehensive now because we've got, with this new venture, we have 4 flight kitchens, all within about 4 hours' drive of one another. And then we have a large central kitchen, off airport, that's located between all those other flight kitchens. That kitchen will therefore play a role in providing large-batch, very efficient supply to the 4 flight kitchens. And it will also use that volume to be able to provide products to the fast casual restaurant chains, so non-aviation opportunity in the Beijing area. And as I mentioned earlier, the Beijing fast casual restaurant market opportunity is very large, many times the size of Singapore, as you can imagine, just on its own, and it's 1 of the 3 large markets in China at this time.
[Operator Instructions]
Okay. I think we'll take some off-line questions here. We have one from [ Sumit ]: If I exclude the one-off of $5.8 million, the PATMI fell year-on-year. Also, the revenue did not translate into EBITDA gain, which is flat year-on-year. When can we see revenue growth translate to profit growth for you?
[ Sumit ], this is Manfred. In relation to your question, if we take off one -- the one-off gain of $5.8 million, there is also, as I mentioned earlier, there was also a one-off gain last year, which relates to the write-back of the deferred consideration. So if you do apples-for-apples comparison, actually, our profit -- PAT is still up compared to last year. In relation to your question on the revenue growth did not translate to EBITDA growth, as mentioned by Alex, this quarter, there are some significant expense items. This relates to professional fees for new projects, as well as investments in some IT costs for productivity projects. So that has reduced our EBITDA, but the -- that did not grow in tandem with the revenue.
In the quarter, although over the 9 months, of course, it is.
Yes, over the 9 months, we're -- there's a positive jaw.
Okay, we have another question from Kaseedit from Citibank: On Daxing JV, who are the key ground handlers and caterers in Beijing? And rough market share? Any indication of drawing Chinese Big 3 airlines to become JV partners to provide minimal volume uptake?
Okay. Well, basically, the key ground handlers and caterers are our joint venture, which currently includes MU and CZ, and then the other one is Air China. So eventually, MU and CZ will move off into and create their own catering and ground handling in -- or their own self-handling in the new airport. They may or may not take on other customers. So our new joint ventures will be the only independent provider of services in the Daxing Airport. We have Juneyao Airlines as a co-investor in the catering operation, and so that's -- they expect to grow quite rapidly in the Beijing hub, and they will be a customer. But in general, we'll be targeting the independent unaligned airlines in the new airport. The old airport will remain broadly similar. As I mentioned earlier to Ajith, there will probably still be -- there is a scenario where there will still be quite a few MU CZ flights coming from that airport. There's another scenario where they will move out entirely. So either can happen. But in any case, the catering output for the Capital Airport is roughly equivalent to the total of Air China and the BAIK facilities. So we expect that the BAIK facility will remain profitable throughout. BGS, as you know, used to lose money up until last year. Last year, SATS GM took over the general management of the venture, and it's starting to make money now. The growth rates of BGS and the new services that they are adding means that we expect BGS also to continue to do pretty well in the new environment, although as I said, there is some uncertainty about exactly which flights will move out and which won't. So we'll just have to keep you up to date as the decisions are made as we get closer to October.
Okay. We'll take one more off-line question before we move back to the audio question. We have [ Simone ] from [ Standard Tree ] with 3 questions. Can the management provided more granularity on the increase in other costs? How much is attributed to IT renewal expense? How much is one-off costs and fees? And how much is recurring? How much would OpEx increase fees without such one-off costs? The second question is did management highlighted pricing pressure of Food Solutions during your prepared remarks? Did you see more pricing pressure in the current quarter? And the last question is on Japan. Any reason for the softer revenue growth in the quarter?
Okay. Manfred, why don't you take one. I'll take two, and I will -- and I'll also take three.
So I don't know whether you heard the earlier explanation on the increase in IT -- sorry, the fuel costs. Fuel cost contributed about $1.1 million of the delta for other costs. And professional fees, actually, is about 1/3 as well. And the other 1/3 is related to our -- the additional supply chain project, which is about $1 million. So in terms of how much of these increase is recurring, I would say maybe about 2/3 of that -- sorry, 1/3 of that would be recurring, 2/3 will be one-off.
Okay. So now let me talk about the pricing pressure. Manfred did mention pricing pressure for Food Solutions. I think that's an ongoing feature in the airline market. Although the good thing about the airline market is the volume growth is there, especially in Asia. I guess the less fortunate feature is that the airlines themselves are still struggling to make strong returns. So they remain cost-conscious. They have been like this, though, for several years, and we don't expect that to change going forward. So it's just a feature of our marketplace. And that's why we have such a focus on making sure that we are highly operationally efficient as well as providing services that they will pay a premium for. So I think that's an ongoing battle that we seem to be managing to keep pace with.
And then the third question was about Japan revenue growth. Japan revenue growth, as you can see from Slide 11, is roughly similar to Singapore revenue growth over the 9 months. There were a few quarters earlier on in the year where the Japan revenue growth was higher than that average over the 9 months, and those relate to a specific win of Air Canada, I think I mentioned that last quarter and the quarter before. So the Air Canada flights come across, so you don't get the year-on-year increase. So this represents more of the kind of underlying market growth rate in Japan. Obviously, if we can win higher market share going forward, then we might see a further increase.
Probably, of more importance for Japan, though, and more reliable in terms of revenue improvement will be the 2020 Olympics. We are finding that there's definitely going to be capacity constraints amongst the caterers at Haneda Airport, given the forecast flight volumes for the Olympics. We expect that to be reflected in improving pricing power from the caterers for that period. We have actually embarked upon increasing our capacity at Haneda because we have a -- the land around Haneda is very restricted, and we have the only piece of land, which we believe is the only piece of land that can be extended in the Haneda Airport envelope. So we've broken ground already, and that will help us to keep up with the increased demand that we expect, not just for the Olympics, but actually ongoing at Haneda, where the slots are highly sought after, both by the Japanese airlines and by the international airlines.
Okay. Carolyn, do you want to do another question?
If we have questions, audio questions, we'll move back.
Okay. Go back to audio.
Our next question is from Siew Khee from CIMB.
Just wanted to check on the gateway services revenue. That has actually done quite well Q-on-Q and year-on-year for Singapore. Anything to highlight?
Yes, Siew Khee, thank you. I think there is underlying volume growth that has been very healthy at Singapore, and our market share on ground handling has done well as well. In addition, though, I think I mentioned last year, the cruise business has become quite significant to us as well because some of the revenue growth is because of our management of the Marina Bay Cruise Centre. The volume of ship calls is up significantly year-on-year, with both Genting and Royal Caribbean doing home porting. And the significance of home porting, as we mentioned last time, is that means we've got ships all the year through to give us consistent revenue. Whereas in the past, before we had home porting, it meant that we were busy in the high season, but not necessarily in the low season, the low season being the Northern Hemisphere summer, when the ships can be moved up to places like the Mediterranean. So now we're pleased to say that we can count on ship calls all the way through the year. And you can imagine that the Cruise Centre is a business with very high operating leverage. So after having invested in the start-up period over the last 5 years, now we've reached critical mass and we're really starting to see not just revenue growth, but also good drop-down contribution as well.
Okay. And also for dividend received from associates, they are actually quite high this quarter, and I note that you say it's timing difference. What do you mean by that?
The dividend that we have received also include the transfer, the business transfer of $5.8 million. So if you normalize that, it actually is in line with what we usually receive.
Our next question, we have Neel from Maybank.
Alex, Manfred, actually, my 2 questions have been answered. Wait, hold on, one quick follow-up. Do you have any exposure to Jet Airways through your catering and other ventures in India?
Neel, actually the main provider for Jet Airways is Gate Gourmet, which is one of our international competitors based out of Zürich. We have -- I think we have -- we have some stations where we provide services for them, but their main provider is...
Yes, so Neel, this is Manfred and just to add to what Alex is saying, in India, we do have -- Jet is obviously a customer there. We've been -- they've been put on a watch list for the last 6, 7 months, but the amount is actually cleared through IATA. So there is a clearinghouse. And we do continue to receive a payment from them. So it's not, as you probably would have -- although the press announcement that they're going through some injection of capital by the borrowers. So I think it should be relatively safe. The amount is not big, by the way.
Because they're not their main provider. It's not in there. [ It's ] by smaller, some smaller stations where we supply them.
Okay, Carolyn again. We've come to the end of our session today. Thank you, everyone, for calling, and good evening. Thank you. Bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.