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Welcome to SATS's Fourth 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.
Good morning, everyone. This is Carolyn. Thank you for calling in to this webcast. Today is a bit special, we are broadcasting from 2 cities, Singapore and Shanghai. Joining us in the call are Alex, our President and CEO; Manfred, CFO; and Eugene, our EVP for Group Services from Shanghai.
And we released our results earlier this morning, so to take us through it, I will now pass the call over to Alex in Shanghai to take you through the summary. Alex, over to you.
Thanks, Carolyn. Good morning, everybody. Thanks for joining us. I want to take you through the first slide of the presentation, which is titled executive summary full year '18/'19 performance. If you recall, the title of our annual report from last year was, "Enabling Growth" and we're pleased to say that this year, the revenue line does reflect higher growth than we've seen historically in the last -- certainly, the last 5 years for SATS. Total year average of 6% had an acceleration in this last quarter to over 11%.
Core earnings increased by 2.2%. Operating profit rose 9.1% for the year to $247 million. Again, though, fourth quarter was even stronger than that, greater than 10% operating profit growth. EBITDA improved 5.3% and PATMI decreased because of the share of earnings decrease from last year, largely because of nonrecurrence of a one-off item related to M&A last year. But there are also some other nonrecurring items that Manfred will talk about later.
Return on equity remains resilient at 15% and free cash flow was $208 million this year, that's the biggest increase from last year and something that we are very pleased to see.
Earnings per share decreased because of that drop in the share of earnings from associates to $0.223 and we decided to increase the final dividend by $0.01 to $0.13, bringing the total for the year to $0.19.
Moving to the next page, the operating statistics. We continue to see strong volume growth across the board. Passenger handled went up 7.2%. This does not include any numbers from our new subsidiary, GTR, in Malaysia, because they currently do not report passengers handled but of course, if he had included them, it would have been a higher growth rate.
We will find a way of getting them to measure them and start to report that so that we can share that with you going forward. However, they do measure and support -- and report the flights handled. So this second line with a massive increase of 62.3% from second half last year to this year, that does include GTR. If -- in fact, the majority of that is GTR. If we had excluded GTR, it would have grown at about 3.3%. So good healthy growth in the existing businesses plus a reflection of our expanding geographic footprint.
Cargo is probably an area that you will want to talk about. Obviously, some questions related to the U.S.-China trade war, et cetera. We have seen a slowdown in cargo and you can see a little bit in the second half, just a flat number. We continue to grow in terms of meals produced. This shows -- reflects the growth strategy that we've shared with you earlier, in particular, here, we're seeing very strong here in Shanghai where we -- from where I speak to you today and that should continue, not least because we just announced a new acquisition of the Nanjing Weizhou Food Company, which we can talk about later.
And then, ship calls handled, as you're aware, the Marina Bay Cruise Centre has been growing very well and continues to grow second half to second half, again, this time.
So I think our strategy of feeding, connecting Asia and exposing our business to faster growth areas is having impact, and we're pleased to say that having trailed enabling growth last year, we are seeing numbers overall, which reflect a growing company.
With that, I will hand over to Manfred and he can talk in more detail about the financials.
Thank you, Alex. Good morning, everyone. Please turn to Slide 7 and I shall take you through the financial results.
Group revenue increased by $103 million, which is 6% to $1.83 billion backed by volume growth in both food and Gateway divisions. The growth in Gateway is also partly attributed to the commencement of the consolidation of GTR in the last quarter. We started consolidating GTR from a joint venture to a subsidiary from 1st January of this year.
Operating profit improved by 9.1% to $247 million, achieving positive jaws as a revenue outpaced OpEx. Share results decreased by $12.3 million, mainly due to one-off gains -- substantial one-off gains that were reported last year compared to this year. Last year, we reported $11.6 million gains, one-off gains. This is from the negative goodwill resulting from the increasing stake in Evergreen versus this year of $1.2 million for the fourth quarter. So there is a flux of about $4.6 million.
PATMI is lower by 5% at $248.4 million. Now maybe at this point, it's worthwhile for me to just mention that last year, total one-off gain amounted to 24 -- $25.4 million versus this year of $7 million. If you recall this, in the third quarter, we announced the disposal of business assets from DFASS. So that has resulted in a total gain of $7 million, $5.8 million was booked in third quarter and then the balance of $1.2 million in the fourth quarter.
So as a result, you will see that our core earnings is actually 2.2% better if we were to normalize all the one-off gains resulting from both years. Debt/equity ratio stood at about 6% with free cash flow of about $208 million generated for FY '19.
Flip over to the next page, this gives you a detailed breakdown of the year-on-year comparison of results for 4Q and the full year.
For the fourth quarter, group revenue increased 11.3%. This strong growth resulted from volume growth during the period. Gateway grew by $15.7 million. This was attributed partly to the cruise terminal operations as well as the consolidation of GTR. Operating profits improved by 10.2% to $50.8 million compared to last year. Share of results decreased by $15.1 million, mainly due to the lower one-off gain of $10.4 million recorded in the current year compared to last quarter. Excluding the one-off gains in both years, share of results would have decreased by $4.7 million. The decrease mainly was due to some doubtful debts and also asset write-down from some of the associates that we have.
PATMI, as a result, dropped by about 23.7% to $49.9 million. And as a result of -- so this was because of the one-off gains that was mentioned earlier.
On Slide 9, I will take you through some financial indicators and I will focus on the full year data on the right-hand side. You see that our group operating margin improved to 13.5%, but PATMI margin was lower at 13.6% due to the one-off gains that was mentioned earlier. EPS and ROE are lower due to the lower reported earnings.
On Slide 10, segmental revenue. Overall, both food and Gateway revenue grew in 4Q and full year due mainly to volume growth. Gateway growth was contributed by increased flights handled, additional ship calls of about 123 at the cruise terminal as well as the commencement of consolidation of GTR.
Moving very quickly to Slide 11, SATS' share of revenue by region. You will see that our combined revenue grew 7.2% from $2.4 billion to $2.6 billion. And if you recall from the earlier side, our console revenue grew by 6%, but combined revenue grew 7.2%. And Singapore accounted for 63% compared to 65% last year with shared growth in ASEAN, China and India. The growth in ASEAN and India were attributed to growth in the new JVs, such as GTR and Mumbai Cargo.
Now moving on to Slide 12, I'll take you through the group OpEx. Generally, group OpEx has increased in line with revenue across all category with volume growth as well as due to the consolidation of GTR. GTR was consolidated in 4Q with revenue and OpEx of $21.3 million and $19.4 million, respectively. The increase in staff cost is also partly due to the reduction in employment credit. The change -- year-on-year change for the employment credit amounted to about $6 million.
Higher depreciation and amortization charge is mainly due to the depreciation arising from new projects and assets and amortization of intangible assets of GTR.
On Slide 13, on share of associates and JV, I've reported the change here. So earlier -- so I will leave this for your reading. Suffice to say that SATS' one-off gain in FY '19 amounted to $7 million compared to $11.6 million reported last year. This is attributed to the associates.
Slide 14, on financial position, our total equity and assets stood at $1.8 billion and $2.4 billion, respectively. The consolidation of GTR has -- we have effected the reclassification of GTR from investment in associates to all the line items due to the consolidation. Cash position remains healthy at about $350 million with net gearing of 6%.
On the cash flow, you'll see that in net cash from operating activities for the year came in at about $300 million. The group generated $208 million of free cash flow, which is an increase of $61.8 million compared to last year.
With that, I will hand over to Alex who will take you through the outlook statement.
Thanks, Manfred. So Manfred managed to talk through some of the growth that we've seen across the group, and I think that's still very much our outlook for the medium and long term in Asia, notwithstanding short-term challenges, which might be related to the trade tension. There's no doubt that -- amongst the analysts of the industry that passenger traffic, and indeed, food consumption in the major cities will continue to grow and that's, as you recall, the nature of our strategy. We are exposing our businesses to the growth in aviation and cargo and in the growth in the consumption of high-quality food out of home in the cities.
So what have we been doing? Well, I think it's worth highlighting that the contract with Singapore Airlines Group has been extended, but also the length of the contract has increased. Though the prior contract was a 3-plus 2 years and this contract is a 5-plus 5-year contract. That's, I think, an important milestone for both Singapore Airlines and for SATS. It's a milestone within the Singapore Airlines transformation strategy and a milestone for us because Singapore Airlines remains our biggest customer.
It allows both of us, on a long-term basis, to invest together in making the hub in China even stronger, stronger in terms of service, stronger in terms of technology and capability and also more productive going forward because of the use of that technology. So that's a very important milestone in this reporting period that we wanted to share with you.
And we continue to invest in new opportunities. Manfred talked earlier about the impact that we've already seen in India from our investment in the CSC Cargo and also in Malaysia with the strong growth of GTR, which is now a subsidiary of SATS. Those are both accretive and are showing very good growth patterns as well.
We'll continue to invest in those kinds of opportunities. And at this point, I want to just spend a few minutes talking about the other announcement this morning, which is that we have acquired 50% of -- are acquiring 50% of Nanjing Weizhou Food Company, which is based very close to Shanghai in Nanjing, which is why we are speaking to you from Shanghai this morning.
This is the leading independent aviation food producer in China. It supplies primarily frozen food, but also ambient food from a single facility in Nanjing, which is then transported across to currently 80 airports from this 1 facility, using the network of cold storage facilities that they've built up to facilitate the logistics of doing that.
So it's a very cost-effective central kitchen, which, as you recall, is exactly the kind of framework that we are using, SATS is using, in other markets where we have large central kitchens which create a cost advantage and then we use logistics to feed into other kitchens. So it gives us a very good base in China, which is one of our core key opportunities for the future.
I noticed that in the press -- in the quote in the press release, the Chairman of Nanjing Weizhou Food Company, Luo Bo, he pointed to the fact that there are actually 229 airports now across China that serve 1.1 billion passengers, which just shows you the size of the domestic market. So he's serving a fraction of that currently, and it's his strategy and our intent to support him to make sure that he continues to grow his market share to become a leading player across those -- across all of the different tiers of the airports operating in Nanjing -- operating across China.
They serve all the big 4 Chinese airlines, which is important, and also serve many of the smaller regional domestic airlines as well that typically have not been the focus for SATS. So this gives us a central kitchen capability, fits with our strategy in China and access to the fast-growing Chinese market, which we haven't targeted before either.
And then the last thing I want to point to, which is the final paragraph of the outlook statement is that SATS as a company is very much focused on a sustainable future. We'll be talking a lot about this at the upcoming AGM as well. What we mean by sustainable future is that we believe that our strategy focusing on a technology-driven but people-led approach is fundamentally sustainable. It's a strategy, which means that we will continue to improve productivity and continue to improve services to customers going forward.
We have a particular focus on our ability to connect people and our focus on treasuring resources through technology. And so we will talk more about that at the AGM, but it is a very important feature of our strategy that not only can we produce results in the short term, but we can -- we will be here in the long term because of that focus on having a strategy that is sustainable and continue to improve our performance going forward.
So with that, maybe I'll hand back over to Carolyn and we can start some of the Q&A. Thank you.
[Operator Instructions] Our first question, we have Ajith from UOB Kay Hian.
Two questions from me. Firstly, to Manfred, could you give us the approximate revenue contribution from GTR in 4Q? And if possible, the operating profit contribution, just so that we can model going forward into the next financial year and also to assess what's the impact on a true-comparison basis for 4Q? Next, in terms of the acquisition of the Nanjing Food Company, if you could provide some indication on what's the acquisition PE or [ EBITDA to ] EBITDA multiple, that will be very much appreciated. These are the two questions from me.
Okay. Ajith, thanks for the questions. I will take question one. I've got Eugene here, he will be able to take question 2. Now GTR, for the fourth quarter, I may have missed it out when I was going through the financials, we consolidated revenue and OpEx of $21.3 million and $19.4 million. $19.4 million for the OpEx, $21.3 million for the revenue. This is for 4Q. All right?
All right.
Eugene?
Okay. On the second question, on the valuation multiples, Ajith, clearly, it is not disclosed, but we have transacted multiples at a meaningful discount where we are treating that.
Okay. One follow-up question. When is the acquisition expected to be completed?
Acquisition is expected -- targeted to be completed in August of this year.
Our next question, we have Rachael from UBS.
I'd just like to -- maybe I missed it, could you explain why you.
[Audio Gap]
intangibles is related to consolidation?
Rachael, we didn't get the full question.
So the first part was, could you remind us why you consolidated GTR and perhaps what's your current stake just to remind us? And the second point, is this consolidation why your intangibles went up so much?
Yes. So the second question, yes, the intangible went up, this is because of the -- in a consolidation, we basically do a line-by-line addition, group plus GTR, whereas in a JV, we basically just book it under investment in associates or joint venture. We consolidated GTR. This was from the beginning our intention to consolidate as a subsidiary of SATS and we proceeded to consolidate in the 4Q after we were able to clear certain regulatory hurdles.
Okay. So could you remind us your current stake in the JV is 49.9%?
Yes. So our stake in the joint venture company, GTR Holdings is 50%, yes, but our effective stake in GTR, being the Malaysian operating company, is 49%.
Okay. So you are consolidating GTR or GTRH?
Yes.
Okay. Could I check why you wanted to consolidate this?
Well Rachael, we actually run the operations. So from accounting standpoint, it is only right that we consolidate because we have management responsibility and control over the entire operation.
Our next question, we have Louis from Crédit Suisse.
I just got a couple of related questions on the SIA contract. I think firstly, in terms of the contract, I mean, previously, Alex mentioned that there isn't like a master contract per se. So maybe you can share with us some color on the discussions behind this new side-by-side contract, which, as you pointed out, is much longer than previously.
And secondly, in terms of like-for-like comparison, say, for your in-flight catering or say the handling of a particular aircraft type, what would be the difference in the terms and the rates? And lastly for Scoot, noticed they are providing aviation security services and how about the other services like passenger and ground handling, et cetera?
Okay. Louis, thanks for the question. Yes. Until this time, there had not been a master contract, but actually, this represents a new master contract, which unites most of the business that we have with SIA into one contract. This has allowed us to streamline terms and conditions and simplify the whole billing process as well, which, I think, is very positive. That in itself, obviously, doesn't change the commercial terms that much, but the -- I think, it reflects the strategic importance of the contract to both sides. So in the past, there wasn't a master contract, now there is. However, there is still some parts of the SIA Group, which are outside, and that's why in the press release, we were very specific that it includes a Scoot security contract, but doesn't currently include the rest of the Scoot business, which is contracted separately.
We can't give any commercial information about what's in the contract, I'm afraid, that will be considered commercially sensitive and subject to nondisclosure.
Our next question, we have Wei Ming from Macquarie.
Just two questions from me. The first one is just would like to get an update on how PT CAS and Brahim’s are doing. I think in the previous quarter, for operations, you guys talked about [ Chongqing ] management into the -- into Brahim’s and volumes picking up and just for PT CAS pertaining to whether the higher concession fees, have you guys started passing over the price increases over to the -- to your clients? That's the first question.
Okay. Thanks, Wei Ming. Let me take PT CAS and then I'll hand over to Manfred who's been on Brahim’s so he'll take up that.
Yes. PT CAS, the concession -- increase in the concession fees have started to be handed over to the -- passed on to the market. However, there were some nonrecurring items in this quarter, which -- and there were some other associates as well, which I'll ask Manfred to talk about kind of in sum, but PT CAS was included in that. So I would say that this quarter doesn't reflect the kind of the base performance of the business very well because of those nonrecurring items. But the business is still healthy and still the pricing power is relatively good and they have managed to pass it on now I think probably the majority of those concession fee increases.
Manfred, do you want to pick up Brahim’s operating performance and then maybe cover the entire question about the nonrecurring items in the joint ventures and associates?
Okay. So as I mentioned earlier, there was a one-off gain, substantial one-off gain reported last year totaling $25.4 million. This year, it was $7 million. Maybe I'll start with Brahim’s first. Brahim’s operation, we are happy to report that the situation has been stable. So we were able to turn around and our GM -- the CEO that we actually posted in has basically helped rationalize the operations, and also, the efficiency has picked up with productivity gains. So as a result, for the last couple of months, we see positive results.
Given that Brahim’s is actually a listed company, I can't reveal too much of that so maybe I'll just leave it at that.
Now in terms of PT CAS, as Alex has alluded, there was some remnant of concession fee and also weaker foreign currency that has affected the results for the full year. In addition to that, for the fourth quarter, we also have people that we sent in and have taken a look at some of the assets, condition of the assets. So we have taken the opportunity to look at -- working with the local management there to take some provision of some of these assets. So for the fourth quarter, in PT CAS itself, we have taken some provision that has also affected our 4Q results.
And now, if you look at the core earnings, by the way, we have redefined underlying profit to core earnings, which is more in line with what the market does. So we have now redefined underlying profit to become core earnings or core PATMI. Our core PATMI for the quarter today actually reported a dip of about 5.4%. Now if we were to take away all the nonrecurring item, in fact, we do end up with a more positive core PATMI compared to the fourth quarter of last year. So total nonrecurring items amounted to about $3.3 million for the quarter. Does that answer your question, Wei Ming?
Yes. So this $3.3 million, that is just pertaining to the JVs and associates?
Yes. More or less, JV associates, correct.
Okay. And just one follow-up question is, you also mentioned something about the doubtful debts. That is also coming from PT CAS or...
Yes. So we don't actually go into specific entity, suffice to say that some of the doubtful debts actually from the JVs associates.
Yes. Not -- yes, so Wei Ming, just to clarify, not all from PT CAS. Essentially, some of the doubtful debts are from other parts of the JVs and associates as well.
[Operator Instructions] Next, we have Siew Khee from CIMB.
Can I just have a follow-up question on the $2.3 million (sic) [ $3.3 million ] provision that you made on associates, can all of this be attributable to the Gateway line?
No, actually -- Yes. Siew Khee, morning. No, some of it is from the food services joint ventures and associates as well.
Okay. Can we be -- split it? I just want you to explain the drop in your Gateway associates. I mean, yes, Gateway line.
Okay. Well, I'll come back to you on that one maybe with -- yes, I'll work it out effective, yes.
Okay. Also, can I just confirm that staff costs increase, other costs increase, all the expenditure increase is pertaining to consolidation of GTR?
Yes, that's correct.
Okay. Do you have the operating profit split for the group between Gateway and food?
Yes, we do. It's in the full year announcement. Yes. It's in the full year announcement, let's -- we'll try and we'll bring that out to you in a second.
Okay. No if it is there, it's okay. I may have missed it, sorry, I will just have a look. I just couldn't find it. It's okay, don't worry. I'll look at it.
Siew Khee, this -- pertaining to your earlier question, 48% is actually food. Yes, you can say about half. It's some of the same customers in terms of doubtful debt. And so obviously, in some JVs and associates, we serve them for food, catering and others, we serve them for Gateway Services.
Okay. Can I just check also whether you have any concerns on Jet Airways and how it actually impacts your business in India the last quarter and also going forward?
Yes. So I'd prefer not to talk specifically about individual accounts because that wouldn't be appropriate, but suffice it to say that we look at all of those situations very carefully and we have tried to evaluate the receivables across every one of our group companies, including the JVs and associates and worked with the local, the Boards of those companies in each location to make what we feel are prudent assessments in each case. But I'd prefer not to talk about specific situations, particularly as many of them are still evolving. So actually, it's hard to make -- certainly, hard to make any kind of a forecast going forward about the outcome of the different workouts that are underway.
I think there's plenty being written about those things and I'm sure maybe you have some insights as well. We have our own insights, but we'd better not share them at this point.
Okay. And also, lastly, you mentioned that because of the provisions, so this quarter, the associates do not reflect the baseline of what you expect. So can we just assume that in the near 3 to 6 months, there isn't anything that we should be concerned of that the base should be higher without the provisions?
Well, commenting on the environment, I think the JVs and associates continue to be exposed to fast-growing markets. So you were talking about strong position in India, strong position in China, made even stronger by the acquisition that we've announced this morning and a strong position in Indonesia as well.
So arguably, the 3 most interesting fastest-growing aviation markets and food markets in Asia, we have good exposure. And I think our associates will continue to benefit from exposure to that growth and that's why you see both the consolidated group and also the -- what Manfred shared earlier about combined revenue, both growing healthily.
In terms of the near-term headwinds, it's clear that the trade wars are putting pressure on cargo flows across Asia. Some of the trajectory, if you like, in the short term, might be less buoyant because of that. And I think that our ground handling associates do have exposure to some of that and you see a little bit of that coming through in this quarter as well.
On the food side, I don't see the same short-term challenges. Obviously, there is ongoing pricing pressure from the airlines that we talked about in the -- for the last couple of years. That's not going away, but I don't see that -- I don't see the same kind of cyclical issues that we see in cargo related to the trade war. That's not impacting our food business. So probably, the most pressure would be on the cargo side of the business at this time, and the cargo associates would be, therefore, those that are more impacted.
Okay. And the last question is pertaining to your latest acquisition. Is the target [ call ] profitable?
Yes, it is profitable. So once the acquisition closes, it will be immediately accretive.
Siew Khee, relating to your earlier question on segmental operating margin and is that -- you can find that in Page 20 of the SGX announcement.
[Operator Instructions] Next, we have Rachael from UBS.
I have a couple of follow-up questions. So the first would be on provisions. This is probably something that you've not mentioned before. Could I check if this is the result of a current deterioration in the health of some of your customers or is this an exercise that you've just decided to undertake in the fourth quarter? Yes. So I'll ask the first question and then I'll ask the second one.
Okay. Rachael, this is Manfred here. It's a combination of both. In some situations, we have put in our people to basically tighten the controls element of the operations. So when we do that, we usually like to look at from the governance aspects, are there assets which are recoverable in nature or does it require to write-down. So it's part and parcel of the rationalization plan to tighten up control in each of the entities that we have invested in.
There could be some that is related to long dated receivables, and that doesn't mean that they are no good. It's just for prudence's sake, we take some provision at legal entity level. So as a result, we -- when we take it in, the equity account, those JVs and associates, there is a decrease in the share of earnings.
Yes. Usually, Rachael, it wouldn't be as large as the 3.3% number that Manfred mentioned. So we thought that because it had become material in this particular quarter, we thought that we should just share that with you.
Okay. The second question I have is that earlier, you mentioned that for GTRH, you consolidated earnings [ and you have ] management control over the entity. On the flip side, could I see that or -- for companies under your JV basket, these entities where you do not have management before?
Yes. So it is a requirement from the accounting standard standpoint. If you have operational or management control over your entity, notwithstanding, you don't have majority of the entity, you ought to consolidate, right? So when we -- basically, when we got into the transaction, we knew from day 1 that we actually have management and operational controls. So what we wanted to do is actually have all the regulatory issues clear before we embark on the consolidation, that's how we have done it.
So GTRH is actually a holding company that holds, if you recall, holds 98% of GTR. Why 98%? Because there are 2% that requires to be held by a Malaysian citizen or Malaysian entity. So if you like our partner, AirAsia has 50% of 98% and then they also have a
[Audio Gap]
interest of 2%. So that gives them a 51% of [ vested] interest and we, 49%. But all said, we run the operations. So from a management responsibility standpoint, we have that. Yes.
Okay. And my final question was on BGS. How is the turnaround proceeding?
So Rachael, BGS, for the others, is the ground handling company that operates at Capital Airport in Beijing. Are you referring to that specifically or are you referring to the new entity in Daxing?
Yes. No, I'm referring to this.
Okay. Yes. So from history here, this is quite an old joint venture, it's between ourselves, Capital Airport Holdings, who owns the airport, China Eastern and China Southern Airlines. There's another company, which does air catering also in Beijing with the same shareholder structure. We manage the entity at the outset, this is a long time ago, and then the management of the entity rotated to the 2 airlines and then also, there were price caps in place in the Beijing market. There were regulatory price caps on the rates that could be charged. In the meantime, of course, the costs were going up in the big cities in China, including Beijing and therefore, they started to lose money.
A few years ago, by agreement with Capital Airports and the other 2 airline shareholders, they agreed that SATS should take over again as the management of the entity, which we did. Subsequently, it returned to profit. The government agreed that the price caps were no longer appropriate for the -- considering the operating costs in Beijing and those were removed and the investment in technology, et cetera, and so this meant that the company resumed its growth path and also, managed to reassert pricing power.
So the entity is now making money. We expect Capital Airport to -- and the new airport in Daxing to share the growth in the aviation market in Beijing going forward.
On the last call, I mentioned that they were creating a 3-airport air traffic zone over Beijing, so the third airport being Tianjin where we also operate a catering facility. I also shared that there was some flux in the decisions by the CAAC about which airlines would operate at which airports. Originally, the plan was for Air China to remain at Capital Airport and then for China Eastern and Southern to move to the new airport at Daxing. But actually, it seems to be the case that the airlines will maintain some flights at each airport. So there won't be a clear divide like that going forward.
We don't know all of the details currently because the CAAC is still in discussion with the 3 big airlines. But as I mentioned to you last time, and we announced the last time, we are actually starting up a ground handling company in partnership with Capital Airport who also owns Daxing. In this case, it will be just SATS and Capital Airport. We will own 40% and they will own 60% majority. So we will actually be able to -- no matter where the business goes, we will actually get -- we'll have a core operating unit in both of the new airports -- both the new airport and the old airport.
So as we -- as the different airlines that allowed, I think, that we're well positioned to make sure that we maintain our important role in Beijing, which of course, strategically, is probably the most important hub in Asia in the future. Capital Airport itself, the old airport, is on track to reach something like 100 million passengers and then Daxing airport will probably surpass that as it reaches the future phases. So as a combined operation, including Tianjin, we're talking about 0.25 billion people flying out of a single air traffic hub and SATS is the only international player that has a foothold-ing in that 3-airports hub. So I think it's very strategic for our strategy of feeding and connecting Asia because the Chinese airlines going out of China are probably the single greatest force in global aviation in the next decade. And so, it's a very important piece of our connectivity strategy, both for cargo and passenger, and also will be a key part of our Chinese supply chain capability for food.
So we are very comfortable, even though there is some ambiguity about where the airlines will end up, we're very comfortable that the overall demand in Capital Airport for BGS and the overall demand for the new Daxing airport will be very healthy.
Okay. So just a last follow-up on that. You mentioned that you also have another associate with a similar shareholding structure, is that Beijing, BAIK?
Yes. That's correct. Yes. So those are almost like twin companies. They were founded within 12 months of each other more than a decade ago, something almost 2 decades ago.
Okay. Then I know this is a little bit in the past, but could you remind us the circumstances in which capital and -- no, China Eastern and China Southern came in to be shareholders as well?
Yes. So that group of shareholders were there from the start. So China Eastern and China Southern came in as, if you like, base providers of baseload demand, and then Capital Airport came in as the owner of the airport and SATS came in as the -- with the operator with experience in ground handling and flight catering. That division of contribution, if you like, is still valid for BGS and BAIK because Capital Airports is still the owner of the airport and the 2 airlines still provide large baseload.
But since then, of course, because of its reputation, BGS and BAIK both thankfully can bolster a large roster of international airlines of customers as well. Both international airlines are familiar with that, and that's part of our role is to manage the service levels and also to market to those international airlines who work with us in other locations.
Okay. No. I'm probably referring to the event in which your shareholding [ signified ] value of 40%.
Oh. The 40% is for the new entity that we are forming in Daxing airport. So in the case of BGS and BAIK, it's 28% shareholding because the airlines also have a shareholding in the entity. In the new entity in Daxing, it's just ourselves and Capital Airports. So therefore, it's just the two-way shareholding 40-60.
Okay. Sorry for this again. Could you remind us on how -- why your stake in BAIK was decided from [ 40% ]? It was -- it happened a few years ago, I think.
Yes. It happened a few years ago, but actually, it was an arrangement that was agreed with the airlines, I think, even a few years before that related to their contribution of additional baseload flights. And it took a couple of years, I think, for the paperwork to work its way through the Chinese system. So I think that 28% was the original intent, and it just took a while to get there.
Okay. We'll take the last 3 questions Siew Wai from Saga Tree. He has 3 questions. The first one is on the new acquisition. How did we come across the business? Does SATS have management control of the business? I think this is already the press release. How does SATS intend to help the company grow? And will the cold chain network and the acquired business help our non-aviation business in China as well?
The question -- the second question is on SIA agreement. Does it allow SATS to have more certainty in pricing and margin over the next few years? And does this cover the majority of our revenue with SIA?
The third question is on GTR. The margin for GTR business seems to be lower than the Gateway business. Is there room for improvement on that? Over to you in Shanghai.
Thanks, Carolyn, and thanks, Siew Wai for some 3 good questions. Let me pick those up. We are active in the Chinese -- China market. I was just talking to Rachael about spending several decades that we've been present in the market. And as we sold to the airlines from a -- the kind of more conventional perspective of -- you sell in an airport from a kitchen that's in that airport, which is the way that most airline catering is done, and started to develop our own strategy about thinking more about central kitchens and then complementing the food that is produced in the airport with additional food that might be produced in a central kitchen outside the airport, and then transported and assembled and uploaded into many airports.
We started to look at the China market and realized that there are a few companies who are doing that in China. We identified the Nanjing Weizhou Food Company as the largest of those and started to discuss with the airlines, what they thought of their products and quality. We realized that actually, this was a really good opportunity for us to accelerate our strategy by acquiring the company and allowing us to get access to some of the domestic airlines and domestic airport opportunities that we ourselves have not been developing, because we are still concentrating on the very large airports like Beijing.
And also, time to market in terms of access to a production facility that's already producing frozen food at high volume with a very cost-effective price point. So this is -- this gives us -- we identified it that way proactively. We worked through the customers to verify that it was producing good quality food, and then we realized that it would fit very nicely with our approach to feeding and connecting Asia because it already represented our central kitchen with good distribution.
The cold chain facilities that they operate are indeed very helpful for both the aviation and the non-aviation aspects of our strategy if they are primarily located though at locations which make the most practical for aviation customers. The big non-aviation customers that we're targeting are these food service chains. We've talked about this on prior calls. And in fact, on the 30th of May, we are going have a Capital Markets Day, and I hope you have received your invitations for that, that will allow us to talk in more depth about the opportunity that we see for serving the food service chains in the big cities in China and indeed in India. So the cold chain facilities that Nanjing Weizhou has will be helpful for that and also some of that product capability and -- that they have, the production capability will also be helpful for that.
Our scale of ambition is much larger, of course. So we will continue to build our own kitchens. We announced that we have a kitchen in Tianjin that we -- where we created a company there and we will -- we're actually securing land currently to allow us to start construction. This will be similar to the kitchen that we built in Kunshan about 2 years ago, which is now starting to grow the business and has contributed to some of the growth you see this quarter. That kitchen still has further capacity, but it's growing very fast. So we've now moved up to the kind of Bohai region that -- which is developing very fast and we want to have a Tianjin kitchen up there as well. So this new kitchen is just outside of Nanjing, so it's in the Jiangsu province. And so it will cooperate together with the Kunshan capacity to help us to expand our aviation and non-aviation footprint and cold chain facilities will be a part of that. So that's the first question of 2 of the questions.
The second question is about to the SIA agreement. You're absolutely right. A 5-year agreement, well a 5-plus 5-year agreement is very, very helpful for us because it gives us certainty of the relationship with the vast majority of the SIA Group. I mentioned earlier that some parts of the Scoot agreement was still outside that, but the vast majority of the SIA Group business is now under 1 contract. And we've got that ability now to look out 5 years and to invest together in the hub to make sure that it's a big contribution to their own transformation strategy. And we can have more certainty [ arise ] over our margins and our revenue going forward.
We hope that this will -- this partnership will help SIA to be even more successful. They have an ambitious growth plan as they described to the market, and we hope that making the hub in better will make those growth plans even more successful.
And then the last question is about GTR. GTR is currently lower margin than [ other ] business. The -- part of that is because it's very fast growing. In fact, in -- currently, it is expanding into doing cargo handling in KL, and that it -- that means it's incurring some costs to actually build out those facilities. So I think as the business grows, and those facilities start to get higher utilization, hopefully, in the future, we will see that business maturing and also some margin improvement as well.
Okay. Just to add up to this for Siew Wei, just to add to what Alex has explained on question 3, the GTR margin, there are a couple of things there. One is we're resourcing up for the cargo business, the new cargo business. So as a result of that, there's some additional cost that we are loading up in preparation for the rollout of the cargo business.
And the second aspect of it is also, because we made an acquisition of this, there is an intangible asset related to customer contracts. Now we are required to amortize this over the cost of the contracts. So if you -- and this is not a cash flow item. So if you back that out, our margin is actually very significant for that business.
Okay. Thanks, Manfred and thanks, Siew Wei.
Just to end up by thanking you all for your time today. I hope we've given you a little bit more color on the quarterly results. We haven't talked about strategy because we're deferring that to the Capital Markets Day. And I think it's clear that SATS is becoming a growth company. It was -- the quarterly growth number of 11.3% is something that SATS, I don't think, has seen for a very long time. We need to explain to you more about how we're investing shareholder money to generate that growth. Some of it doesn't immediately drop to the bottom line, growth sometimes involves investment. So buried within our total earning number, there is some amount of it, which is related to investment in future growth, but it's important that we help our shareholders to understand the pattern of those investments and how we feel that they will mature over time.
So that's what we'll be attempting to do on Capital Markets Day on the 30th of May, and we look forward to seeing you all there. Thank you very much.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.