SATS Ltd
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Ladies and gentlemen, welcome to SATS Third Quarter Financial Year 2020, 2021 Business Update.
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 conditions 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 these forward-looking statements. I will now hand over the call to Carolyn Khiu of SATS. Please go ahead.
Thank you, Serena. Good evening, everyone.
Welcome to another session of SATS webcast. The Chinese New Year is almost upon us, and in case I forget to say this at the end of the session, we would like to wish everyone a happy new year.
A while ago, we just released our third quarter financial year 2021 results. And with me here are Alex Hungate, President and CEO; and Manfred Seah, CFO, to take you through the results.
So I'll hand you over now to Alex to start the presentation going. Alex, please?
Thanks, Carolyn, and good evening, everybody. Thanks for joining us. [Foreign Language], as Carolyn mentioned earlier. Let's go to the slide.
I'm going to start with one of the highlights and also one of the areas that's most predictable and easiest to speak about in that sense because we still have a lot of uncertainty in the environment. But one area where there's perhaps more confidence about the pattern that we should expect to see going forward is cargo. So if we start on Slide 4, you can see that Asia Pacific cargo is starting to return to pre-COVID levels.
You can see that the volumes were at an 8.5% decline versus last year in November, and that gap has closed to just 3.9% in December. You can view that on the left-hand side versus the other regions. Globally, the seasonally adjusted cargo tonne kilometers grew by 3.6% between November and December. And now IATA is forecasting that the global cargo volumes will get all the way back to 2019 levels by around April this year, so in a couple of months' time.
In line with that, you'll see from our results that Manfred will take you through shortly. Our cargo associates are starting get back into profitable territory. In particular, the ones that came back into profit this year were -- or this quarter were Hong Kong, Taiwan and Vietnam. And then we continue to see improved cargo revenues here in Singapore and in Malaysia as well, which grew 22% quarter-on-quarter. So you see the same pattern of continued quarter-on-quarter improvements in the cargo space, both for the environment and also for SATS.
Moving to the next slide, Slide 5. We want to share with you -- although it's the third quarter, we want to share with you actually the full volume changes during the quarter. Let's start on the left-hand side with the flights handled. If you look at the first row, it's the third quarter versus last year. So it's versus the third quarter in the prior year. There's a massive drop in the number of flights handled.
But actually, that drop is better than the drop that we experienced in the first 2 quarters of the year. So the number of flights handled is starting to come up. Now it's at 84.4%. If you look at the quarterly progress underneath that, actually, there's been a drop in the number of flights in the third quarter. That's mainly out of Malaysia, where the MCO impacted the flights handled by GPR. In -- here in Singapore, we've seen a more steady increase underlying that contributed to the 14,600 flights handled in the quarter.
The next column is meals served. As you know, SATS has quite a substantial non-aviation meal business, and that's why the number of meals served does not drop as steeply a number of passengers handled. The -- within this, the majority is non aviation. But on total, almost 55% reduction in number of meals served.
If you look at the quarter-on-quarter chart on the bottom row, you can see that there is steady progression in terms of the volumes being served. That's driven mainly by non-aviation meals. And we'll talk a bit about that on the coming slide. The low point really is passengers handled because although the number of flights mounted is starting to increase, many of those flights are very low load factors, so the number of passengers handled versus this time last year is only about just reaching 5% now.
Even that is an improvement versus quarter-on-quarter for the last couple of quarters in particular. But again, you can see the MTO in Malaysia has reduced the number of flights -- passengers handled overall. Again, underlying that in Singapore, there has been an increase. But in aggregate, it's actually dropped slightly from the second quarter last year.
We talked about cargo tonnage earlier from a global and regional perspective. So as at the end of the quarter, on a quarterly average, with -- there's a 34% drop from the quarter -- third quarter last year. So you'll recognize again that that's an improvement from the second quarter. And in fact, you can see that in the volumes underneath, both rounded to 300,000 tonnes, but actually it's slightly larger in the third quarter than the second quarter.
The one line which is decreasing here is number of employees. So this is not a volume measure, but it's obviously our total staffing has dropped quite considerably. You can see here that in the third quarter last year, we were at around 18,000 employees, and now we're at around 12,000, in fact, 11,800 to be precise. You can also see that the progression between the first quarter and the third quarter is a steady decrease. This is something that we talked about at this call last quarter, that the number would continue to drift downwards.
And that's what you've seen, a further 1,000 drop from when we spoke at the last quarterly call.
Moving on to Slide 6. I know a lot of you are interested in the vaccine shipments. I think there are 2 reasons to be interested in the vaccine shipments. One is that SATS, of course, is handling both inbound vaccine shipments but also transshipment of vaccine across Asia.
We actually were the first to receive the shipment in Asia through our Singapore operations. And we've also been the first to make the shipments in Asia as well, not just in Singapore, but in our bases, such as Bangalore, India. At this point, I think we've handled the Pfizer vaccine, we've handled the Sinovac and Sinopharm, and we've also handled the Sputnik vaccine as well. So we've had experience with 4 of the major vaccines which are being shipped around Asia at this time.
Probably equally importantly, we are also pioneering the vaccination of our people in the airport here in Singapore. We're lucky that the government has prioritized aviation right after health care because it wants to create a safe environment through which we can start to think about how to increase the number of passengers and the inbound and outbound passengers as well. I think the Aviation Minister was in the news this week talking about his objective in that direction.
So our front-liners at SATS are nearly all vaccinated already, so we've moved very quickly since the vaccine was available towards the beginning of this month. And now virtually everybody is vaccinated in terms of the frontline. We'll continue to vaccinate the remaining staff or the support staff as well. Because along with the rest of the ecosystem, we see this as a way of keeping our people safe, the community space but also of restarting aviation sooner. We have much more confidence now that we know our people are safe.
And then I want to move to Slide 7. Our nontravel-related revenue stream are growing and continue to grow. We talked about this for the last several quarters, and in fact, several years. But I can confirm that nontravel-related revenue streams have grown in the quarter versus the same quarter last year by about 10%, and in the 9 months versus last year, has grown by about 40%. And of course, that 9-month number includes acquisitions. But the 10% versus prior year and the quarter is entirely organic growth.
Some of the areas that we're growing is our security services, which -- where we've been specialized in aviation security. But we are finding that the combination of technology and well-trained people that we have in our security teams for aviation makes it an attractive proposition outside of aviation, too. Country Foods has continued to grow in terms of the distribution and processing of foods. Distribution is a retail, and hotels and restaurants as well.
And then the consumer habits around food delivery and more consumption of ready-to-eat, ready-to-cook meals at home during this work-from-home period has helped us as well. And we are distributing meals into those market segments, not just here in Singapore, but quite comprehensively now in places like China, where we're serving ALDI, HERMA, COSCO, et cetera, and then in India, where we're serving Starbucks and others. So this is very much in line with the strategy they are expecting from us and it's coming through in the numbers.
With that, I think that's a good segue to Manfred, who will now take you through the numbers. So Manfred, why don't I -- hand it over to you, thanks.
Thanks, Alex, and good evening to all of you.
I shall now start with the executive summary, Slide 9. SATS third Q revenue dropped 54% to $251 million, and group PATMI decreased by $62 million year-on-year to a loss of $2.8 million. Quarter-on-quarter, SATS narrowed its net loss by $30 million -- $30.4 million to $2.8 million from $33.2 million loss reported in 2Q. This is on the back of increased cargo activities, as mentioned by Alex earlier as well as better contribution from our overseas associates and JVs.
In the third Q results, we have taken a total impairment charge of $22.5 million from our intangible assets and PPE. Share of earnings from associates and JVs has improved to a profit of $3.5 million from losses experienced over the last 3 previous quarters. SATS third Q EBITDA remained positive at $39.5 million compared to $20.5 million in 2Q.
Moving on to next slide. For the third quarter, aviation revenue is 67% lower due to COVID. Cargo volume continued to improve, but recovery of flight volume is modest, while pack and aviation meals volume remained lackluster. Revenue decline continued to outpace OpEx reduction, which fell 48.7%, net of $68.6 million of government relief.
OpEx reduced across the board, except for depreciation and amortization. The most significant reduction was in staff costs, which dropped 60% due to government grants, lower contract services and reduction in manpower. In line with lower aviation revenue, raw materials and license fees decreased in tandem for the quarter.
SATS recorded a positive EBIT $3.4 million after additional provision of doubtful debt of $5.1 million. As shared earlier, share of results of associates and joint venture return to profitability of $3.5 million, with cargo associates performing better than the rest of aviation associates.
In 3Q, we have taken additional impairment of $22.5 million relating to PPE and intangibles. Point to note, to date, the group has taken a total of $118 million of impairment charges and credit provision since the pandemic started in early 2020, of which $51 million was taken in the fourth quarter of last year and a further $67 million in the current year. Net loss narrowed $2.8 million. But excluding the $11 million impairment SATS' third Q core PATMI would have been $8.2 million. Without government grant and relief, 3Q core PATMI loss would have been $52.8 million.
For the 9 months results on Slide 11, revenue declined similarly by 54% to $691.5 million. Aviation revenue fell almost 70%, with gateway and food revenue decrease by 61% and 49% respectively. As in third Q, revenue decline surpassed the fall in OpEx of 45.3% or $599 million net of government relief of $220.7 million. OpEx was again lower across all categories, except for depreciation and amortization for reasons covered in the earlier slide.
Share of losses of associates and joint venture improved to $40.7 million as compared to second Q of $44.2 million, and PATMI dropped by $254 million year-on-year to a loss of $79.7 million for the 9 months of the year. Again, without government relief SATS 9 months loss would have been $275 million. This is including one-off impairment charges of $42.6 million.
Moving to group segmental revenue in Slide 12. Food revenue decreased by 53.8%, while Gateway fell by 55%. Food accounted for 57% of SATS consol revenue this quarter, similar to third Q of last year.
By industry, aviation revenue fell 67% and accounted for 58% of the group revenue. This compares to 81% in the same quarter of last year. The change of mix is due to lower aviation volume and growth in non-aviation food revenue, as mentioned by Alex earlier. Singapore accounted for more than 85% of SATS consol revenue.
Now in Slide 13, a similar trend for the 9 months, so I won't repeat the narratives, except to point out that non-aviation growth for the 9 months was at 28.3%. This was contributed mainly by the consolidation of Country Food. Now as spoken by Alex earlier, who mentioned that the non-travel side, we are increasing our activities there, and if I take out the SATS cruise revenue non-travel would have increased by about 40%. This includes the nonaviation-related securities activities. As in third Q, Singapore accounted for 87% of the consol revenue. And other than China having a slight growth, revenue in all other regions has declined.
Moving on to group OpEx in Slide 14. Group OpEx for the third Q dropped by 48.7% or $235 million, most significant being the reduction in staff costs, which fell by 60% to $96.7 million. The reduction in staff cost was due to several factors, primarily for the government relief, lower contract services and lower headcount for the quarter. Cost of raw materials was lower due to lower aviation volume, and this is partly offset by business activities of Country Food. In line with lower aviation revenue, license fees decreased by $17.6 million to $5.7 million for the quarter.
Now moving on to the associates and joint venture in Slide 15. The impact of COVID has affected all SATS associates and joint venture in the region. However, the -- our share has to profitability, as mentioned earlier, in the third quarter of $3.5 million, giving better -- given better performance by cargo associates compared to the rest.
On Slide 16, the -- this is the SATS share of revenue by region. For this quarter, SATS share revenue declined by 55% to $326.5 million. The year-on-year change show the significant impact that the pandemic has on the financial performance of SATS group in the region. At PATMI level, Singapore remains profitable at $22.9 million for the quarter, helped by government relief. Compared to second quarter, India has returned to profitability due to better performance of the cargo associates.
On the group financial position, Slide 17, total equity and total assets stood at $1.7 billion and $3.1 billion, respectively. Total debt has increased due to additional debt drawn during the period. The increase in total debt has resulted in debt-to-equity ratio to increase 0.45x, and cash balance at December 2020 remained strong at $807.9 million, with additional drawdown of about $271 million during the period. Excluding total borrowing of $686 million of term loans and NPN, SATS is still in cash -- net cash position of about $122 million.
I will move on to the financial indicators slide on Slide 19. On this slide, you can see that you can see that SATS has recorded a positive EBIT in third Q compared to a breakeven in the second Q. EBITDA margin improved to 15.7% in the third quarter compared to 8.9% in the second quarter. All the other profitability indicators remain negative due to the year-to-date net losses. And net asset per share is lower at $1.37 per share as at December 20.
I'm on the last slide, which covers the cash flow. You see that our net cash from operating activities remained positive at $14.2 million, but free cash flow -- after taking into account the capital expenditure spend of $38.8 million, free cash flow is a negative of about $24.6 million.
Now with this, I'll hand you back to Alex. Thank you.
Thanks, Manfred.
I think third quarter, we don't normally give an outlook, but I think given the uncertainty, we thought it was important to give some of our views on the outlook. So obviously, the operating environment does remain challenging due to the travel restrictions which are ongoing. In some parts of the world, like I mentioned earlier, Malaysia is a good example. In fact, the travel restrictions worsened from the second quarter to the third quarter. However, the demand for air cargo to transport e-commerce, which is a growing consumer trend, which has only been accelerated by the pandemic; pharmaceuticals and other medical products, which again, has been accelerated by the pandemic; and then perishables continue to increase across the region and across the world, as we saw from the numbers earlier.
The pandemic has changed consumer lifestyle with more focus on food delivery, e-commerce, and convenient ready-to-eat, ready-to-cook meals, and that does create opportunities for SATS to grow business outside of the travel segment.
At SATS, we are committed to helping our airline customers to rebound from this crisis, and that's really important to us. And we are confident about the rebound in aviation. But in addition, we aim to grow our revenue from food service, retail chains, institutions and fast casual restaurants and other nontravel-related customer segments, such as securities I mentioned earlier.
So that's the end of the slide set. So in summary, continuing challenging environment, but some bright spots in terms of the cargo side of things. But given the uncertainty going forward, we have made further impairments and provisions in the quarter, as Manfred mentioned, totaling $27.2 million, which brings the total since the pandemic to $117 million in provisions and impairments.
Though the vaccination has commenced, and we think that offers a sign of hope for the world, but also most particularly and most relevant to our discussion tonight for the aviation business, it's hard to predict exactly when the vaccine will improve the travel restrictions. But inevitably, there will be some connection, and that's why we want to be a pioneer in Singapore to make sure that the aviation community is vaccinated quickly so that we can get back to business as usual.
As Manfred mentioned, we've had very strong cost controls. Our costs are virtually halved from where they were a year ago. We've had, in this quarter, positive operating profit for the first time in this financial year. We've had positive share of joint venture and associates for the first time this financial year. We've also had positive core PATMI for the first time this financial year. And finally, positive EBITDA for the second quarter in a row now.
So all these are very encouraging. However, I want to emphasize that the core loss would have been $52.8 million without government relief. So government reliefs are very important in the current quarter. The government relief will reduce in the next quarter and, therefore, it's very important that we maintain our focus on cost control while we drive the nontravel-related revenues rather than wait around until aviation starts to come back. So we are being very proactive about that. We have a strong balance sheet, as Manfred mentioned, still net cash, that we are in -- currently are looking for attractive M&As can accelerate our strategy.
So with that, I will open the lines, and hopefully, you've got some questions and we can have further discussions and clarification.
[Operator Instructions] Our first question, we have Louis from Crédit Suisse.
Alex and Manfred, just a few questions from me. Firstly, in terms of the impairments, I saw that it was $22.5 million in the third quarter based on the presentation but in the press release I think the number was $11 million. So what's the -- what accounts for the difference?
Yes. Louis, the impairment of $11 million is pertaining to an investment. The remaining $11.5 million is actually on PPE.
Okay. So in terms of arriving at the core PATMI, it's only taken into considering the investment impairment then?
That is correct. So the investment impairment, we see as one-off on a nonrecurring basis, and PPE is generally in the ordinary course of the business, yes.
Got it. And the other questions in terms of the share of associates. So it turned profitable quarter -- improvement on a quarter-on-quarter basis. So were there any one-offs to take note? Or is it really from the improvement in the gateway associates and joint ventures?
You're right, Louis. As shared by Alex, our cargo volume is recovering better than the rest. So similarly, the business activities of our cargo entities in the region is doing much better.
Got it. And lastly, I think in terms the -- I think a while ago during your Capital Markets Day prior to COVID, you mentioned that you're going to be putting in about $1 billion in CapEx and investments over the next 3 years. So Alex, I think you also mentioned that you are looking at acquisition opportunities. So perhaps some guidance as to how we should be thinking about the -- this -- the quantum of investments over the next couple of years as well as where geographically these might be.
Yes, Louis, you're right. We still believe in the longer-term potential to execute the strategy that we described during the couple of Markets Day. Obviously, our first priority during the crisis was protect the company and its future. And so although we see signs of hope with the vaccination coming, we have to be prudent about the pace at which we execute that growth strategy.
And as you can appreciate, our first priority has been to address the cost base and to make sure that we had a strong balance sheet to go through the crisis, no matter how long the downturn in aviation. As the vaccination starts to take effect, we do hope that the travel restrictions will progressively be lifted, and that will mean that we'll -- as we start to see those things happening, we'll be more confident about putting some of our strong balance sheet to work in making those acquisitions.
So I guess it's more of a delay in the strategy, but the ambition is still at the same scale as we described to you at the Capital Markets Day before the pandemic.
Okay, got it. I mean, I also noticed -- just as a quick follow-up, I noticed that you have set up the Indonesia advisory panel in January. So just thinking whether or not we can join the dots in terms of your investment and acquisition strategy versus this panel?
Well, actually, you're very sharp, Louis, as usual. Yes. We did feel that we wanted some senior advisers in Indonesia to help us to access some of the opportunities that we think are going to be there. I mean, I think under President Jacoi, the build of infrastructure has been noticeable. And given the topography of Indonesia, we're confident that air cargo, for example, will play an important role in that country.
So you can see that with our strategy of focusing on air cargo and in central kitchens for the urbanizing Asia, Indonesia, with its massive population and archipelago topography definitely will be an attractive opportunity. And we want to make sure that we understand the dynamics in the market so that we can invest with confidence, and that's where the advisory panel that we set out will come in.
Next, we have Ajith K. from UOB Kay Hian.
Alex and Manfred, just one question from me. This is regarding the non-aviation revenue. You mentioned earlier that excluding the cruise-less business, non-aviation revenue grew about 40% here. Can you clarify that and whether it was Q-on-Q or Y-o-Y, and whether it was with reference to 3Q?
Ajith, this is Manfred here. The 40-odd percent is actually 9 months, year-on-year. Now the non-travel, what we have done, we usually try to split the aviation, non-aviation, but this time around, we do something quite different. We felt that actually, the cruise was kind of affected similarly to the aviation side. So we backed that out and looked at purely the non-aviation, non-travel side to ascertain what is the growth, right? So that's a 40% growth.
Okay. If I may ask a follow-up question with regards to debt. Did much of the growth accrue from Singapore or elsewhere?
It's actually in the region. I would say that the growth is primarily also due to the consolidation of new subsidiaries, right, Country Foods, Monty Bakehouse as well the Nanjing Weizhou, right? And included in that is also our -- all the activities that we have done in Singapore -- the essential activities that we've done in Singapore, including security, yes.
Including security, okay. Is SATS providing security in other areas now, especially with increased vaccination assets?
Yes. We -- our security team, as I mentioned, brings a combination of technology and trained people that, traditionally, we've focused on to the aviation market. But actually, we realized from talking to customers outside of aviation, government and nongovernment that, that combination is exactly what the market needs. So we have actually won some new contracts in non-aviation that are not related to the -- we definitely got some business in the second quarter, in particular, and also first quarter which were related to the pandemic.
But actually, the new contracts that we've been winning recently are long-term ongoing contracts which are not related to the pandemic, and some of them are government and some are nongovernment.
Okay, that's insightful. Okay. If I may ask, in terms of your market share, what's your market share on flight center or cargo handled at Changi? 86%?
We actually have the majority -- a large majority of our customers, both for cargo, passengers, and Apron and catering as well. So the issue -- in fact, I mentioned last quarter, we won a couple of major new customers in Singapore, like Qatar Airways and Malaysian Airways. So we are benefiting already from the flights coming in from Qatar, which has been relatively more consistent of all the big global players. And so the volume increases that you see from SATS have been slightly above the -- what the market is because of first competitive wins.
Okay. One more question with regards to your associates. I noticed -- I mean, I think Louis addressed the question earlier so -- and you mentioned that the improvement in revenue and bottom line for the associates was related to cargo. Did delivery of vaccines play a part in that, especially for India and China?
Yes, one of the growth areas that's growing faster than general air cargo is the pharmaceutical and medical product area. And you can imagine that the pandemic is driving that, including the shipment of vaccines. But not limited to the shipment of vaccines. Included, but not limited to the shipment of vaccines. So we are benefiting from that in terms of -- I think one of the key drivers for pharmaceutical and medical sector.
Next, we have Rachael from UBS.
Thanks for having this call with us. I have a couple of questions. One would be on the government grants. You said that you're expecting the government grants to drop-off in the subsequent quarters. What would your strategy to kind of mitigate the absence of grants be? It's quite a big gap, and I noticed that you still have quite a bit of headcount. So what's your thinking around that? Where else can you control costs?
Okay. Thanks, Rachael. There are further headcount reductions which will come through fully in the next quarter. They're not huge, but the cost controls do continue and the opportunities do continue there. In addition, we're managing other costs, which relate to things like process improvements, energy, et cetera. And you can see that coming through this quarter. The aviation volumes are improving. We've said with some confidence that we expect cargo to continue to improve across the region.
The number of flights being mounted in Singapore have also been improving quite steadily. And then we'll wait to see what happens in Malaysia, but I understand today there was some relaxation in Malaysia as well as some of the movement and restrictions there.
The key thing that we can do on the top line that's within our control is the non-aviation, nontravel-related revenue, which as Manfred mentioned earlier, organically in the quarter, grew about 10% from the quarter before. So that's very much still in our line of sight, and -- sorry, in the quarter from a year ago. So that's very much in our line of sight. And so we'll continue to drive that part of the top line proactively. At the same time, obviously, I was hoping that the aviation revenues will continue to grow.
Yes. I mean, if you look at seat capacity, the schedules as well as the kind of pace of vaccination and the travel restrictions that we're seeing at the moment, and this is something that you've also mentioned in the past that you're expecting to see a rather choppy and gradual recovery, I fully understand that Singapore wants to retain its place as an air hub, and therefore, will want to be ready when travel resumes, but with government jobs, the grant support coming off, how do you manage the long recovery versus the need to be ready for any uptick?
Yes. Well, I think the best thing we can do is manage our costs and continue to do that, which we've done very well. So I expect us to continue that tight focus. And as I said, we can't sit around and wait for aviation to come back, so we have to drive revenues from other sources. The government will decide whether or not, given the -- if there is a prolonged recovery -- if it takes a long time for recovery, the government will have to decide whether or not they'll extend the support for the jobs here in Singapore. That's also not within our control, so we'll -- we have to take matters into our own hands, obviously, accordingly and manage costs more tightly if that does not occur.
Okay. And maybe another question on your joint ventures and associates. I understand that it was overall a positive, but could you quantify -- maybe not quantify, maybe give some qualitative comment on the extent of losses on the food side? Yes. Or maybe how the food side is performing?
Well, I think all of our food associates are trying to do what Singapore has been doing over the last several years quite successfully, which is to use the spare capacity that they have in the flight kitchens to serve new customer segments. Those customer segments are very similar to the customer segments that Singapore has managed grow, and in some cases, they're actually the same customers. So you see names like 7-Eleven, Yum and COSCO, et cetera. Those come up on the list of customers in several countries because we've managed to exchange leads across borders and also because we've learned what those customers want from the commissary kitchen supplies.
So all of the flight kitchens currently have spare capacity, as you would imagine, and therefore, they're all trying to execute that pivot into the non-aviation customer base. Having said that, when you're looking at such reduced passenger volumes, clearly, their core revenues are suffering in the aviation side, so they are not able to breakeven at this time, the aviation kitchen. Unlike the cargo business where the recovery is almost back to where we were pre-COVID. The aviation kitchens are not able to immediately close that gap.
So they're closing that gap progressively, both on the revenue side, by going into non-aviation, and also probably more importantly, in the short -- over the last couple of quarters, we've also been working with them to take out their costs as well. And that's one of the reasons why you see the profitability, not only of the total share of joint ventures and associates, because not only are the cargo ventures contributing, but the losses in the catering ventures are being cut.
Okay. And maybe one last question on the cargo side, given that volumes have -- on the cusp of recovering, as you said, I expect the cargo ones to recover by April, do you see your cargo associates pulling similar profitability margins in 2019? Yes.
Okay. If they're pure-play cargo, so for example, in India it's a pure-play cargo investment, in Hong Kong, it's a pure-play cargo investment, then that's really what we should be targeting, yes. If they are quite -- sometimes, they are a combination of ground handling, including passenger Apron and cargo. And in that case, it won't be quite so clear-cut because they will not have the revenue from -- fully from passenger services, in particular. But also, they'll only have partial Apron revenue because it will be Apron related for handling cargo flights primarily rather than the passenger flights, which will still be subdued.
Okay. Let's take some offline questions. The first question here is from Pickett from SBH.
Noted on your strong cargo situation, do you see that continuing?
Yes, Pickett, thanks for your question. As we saw from IATA and also from our own experience, the cargo volumes have been relatively more resilient. And looking, not just in Asia Pacific but across the world, there's been a consistent pattern of recovery in volumes and that's led to IATA's forecast that by April, global cargo kilometers will actually be back up to the 2019 level.
Okay. I think the next 2 questions, I think Manfred refers to the financial side of things.
Kaseedit from Citibank said, "Can you elaborate more on the PPE write-off?" Would you like to take that question Manfred?
Kaseedit, I think the -- what we have included in core PATMI are generally activities that is actually part of the business -- day-to-day business activities. So this will be the ordinary courses. Whereas impairment of investments, these are generally one-off, and it's not seen as part of the business activities.
So perhaps I shouldn't have used the word recurring to confuse you, but generally, the -- what is in the ordinary cost, part of business activities is actually accounted for within the core activities.
Okay. We have another question from...
Just to clarify that for Kaseedit. So Kaseedit, that doesn't mean that the PPE write-off is recurring. It just means that it's in the ordinary course.
Okay. Thank you. We have another question from Ahmad from Nomura. A few questions, actually.
What is the risk exposure on potential double debts in the next 12 months? How much is past due 3 months receivable at the moment?
And I think he's referring to the Slide 12 of our presentation, the Singapore segment of the business.
The question is does this include Asia GTR joint venture?
Ahmad, maybe I'll answer the second question first. Now the ASEAN portion includes GTR Malaysia, whereas the GTR also has a subsidiary in Singapore, and that is actually included in the Singapore side, ex last year.
Okay. Now for the risk exposure, generally, we do this on an ongoing basis. And we have a provision called the expected credit loss. This is reviewed on an ongoing basis, and debt that is beyond 90 days would be part of this computation. Now I won't share any specific how much is our debt beyond 3 months, but suffice to say that we review this on a very stringent basis.
And to your question whether there's potential to put that in the 12 months, there's always a risk, but generally, suffice to say that we have exercised very stringent credit control.
Yes. Thank you, Manfred. So Serena, we can go back to the online questions. Over to you.
[Operator Instructions] Our next question, we have Siew Khee from CIMB.
Yes, okay. I'll just ask question by question or would you prefer me to give you the list of questions in one shot?
Why don't you take the whole list of question and then we'll...
Okay, all right. Okay. I've got 6 questions. The first one is, can you share the revenue or profit of cargo handling to the group or even to gateway? That will be really helpful.
Number two is, your impairment of $11.5 million PPE, where is it recorded? It's in the -- yes, just where is it recorded? I think it's in other costs or something? I'm not sure.
Number three is, why did your raw materials go up to $68 million compared to, I think, $63 million last quarter, considering that your Food Solutions revenue only went up by 3%?
The next question is, so I know that your cargo is strong in associates, but specifically, I think you mentioned that the pure cargo associates, so that would be one of the Indonesia and India, can we confirm that those are the 2 strongest -- sorry, and Hong Kong, the strongest associates in cargo?
And next question is your Food Solutions associate loss actually narrowed significantly in this quarter to a positive string of $7 million quarter-on-quarter. Can you elaborate what went right?
And lastly, can you also share about the likelihood of the country that you go into for your M&A strategy? That's all.
Thanks, Siew Khee. You said that all with some irony, I think. By the way, you were very close with your estimate for the quarter. Congratulations.
All right, let's start with the top. Revenue and profit for cargo, we don't disclose, as you know. But I will tell you that at this point in time, it's contributing a significant proportion of the gateway revenue because we've got virtually no revenue from passengers and a muted revenue from Apron. So it's become -- in normal times, it would become -- it would probably be around less than 1/3 of Gateway revenue, but now it's more than half of Gateway revenue. The next one...
I'll answer the next one.
Manfred will talk about where the impairments is recorded.
The PPE impairment is actually recorded in other -- non-operating expenses.
Thank you, Manfred. Do you want to pick up the raw mat as well?
Yes. The raw material increase is actually in tandem with our trading business, Country Foods.
Yes. And then the cargo associates that are closer to pure-play and, therefore, doing better, are indeed, Hong Kong, India. Indonesia, she does both, but I think it has a high proportion of cargo. So it is doing well as well, she is. And then we have a pure-play cargo associate in Taiwan as well, in Taipei. A joint venture with EVA Air. So you're right, those 2 pure-play cargo ones are the ones that you listed.
The positive performance from food associates is, I must say, driven primarily from cost controls over the last 2 quarters, and then in addition, driven somewhat by the pivot to non-aviation food. And I think Manfred, also, there's a cap from some of them.
Yes. So a couple of our food associates, we have also gone on very steep cost rationalization and reduction of headcount. There's also an entity in China that we have actually kept the losses because of the carrying value that is reduced.
Yes, yes. And that will likely -- so just to follow-up on the Food Solutions associates, so that is -- your cost control efforts, is it maxed out already? Should we expect more that it might swing? Or this is the biggest offer that you can see?
Well, the cost control efforts in the associates, I think, is now maxing out. There's no government support left in the associates, and there wasn't in this last quarter either. There's still government support in Singapore, and it may be continued. We'll have to see. If it's not continued, then there are probably further cost reductions that we might have to make in Singapore. But those will be -- we'll have to think very carefully about those costs and do it very sensibly.
And M&A, likely countries that...
About countries where we could be doing M&A, we are very attracted by the size of the market for central kitchen food production in China and India. We've embarked on that in China already with some success, so we want to continue that. Our katchen in Tianjin is being built currently. Where we can find the right quality of kitchen for acquisition, we will want to do that. That's not always available, so sometimes, we have to build from scratch. So -- but we are -- we do continue to look -- in parallel to building them ourselves in India and China, we are still looking to see whether we can make acquisitions of kitchens of the right quality to help out time to market in those countries.
In addition, we also are interested in M&As in the cargo space, cargo handling, perishable handling, e-commerce handling as well, where we have a strong customer base across the region. And we would like to continue to build through that vertical stack in the larger airports. We think scale is important, and we want to be involved in the major hubs.
So those could be beyond India and China, and hopefully -- but they will tend to be in the larger airports. So they won't be small airports, and they typically won't be small countries either because they'll have to have certain volume of aviation. So I hope that helps you.
We will take a last question. We have Alfie from DBS.
I have only one question, which is still on cargo. Could you help us understand the profitability of the cargo business in this quarter compared to the cargo business a couple of quarters before COVID happened? I remember the business was like high-leverage business. And when the volumes fell, your profitability was pretty bad a few quarters before COVID. Could you help us understand how much better in terms of profitability this quarter versus during that time?
Yes. Thanks, Alfie. You're right. If you'll recall, it seems like ancient history now, but in 2019, there was a trade war between China and the U.S., which did impact cargo volumes through Asia. And we saw a reduction in operating leverage from 2018 to 2019. The -- and obviously, a significant drop in operating leverage thereafter when the pandemic hit as well.
So the numbers we've been talking about today for IATA's forecast are a comparison to 2019. And they're not a comparison to the better year that occurred before that, which is 2018. So there is more scope as volumes come back after -- hopefully, continue to come back in the year following the return to 2019 level. There's more scope for a further operating leverage thereafter.
Okay, we're down to the end of our session today. Thank you, everyone, for calling in. Have a Happy Lunar New Year. Good evening. Bye.
Thank you.
Thank you.
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.