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Welcome to SATS Fourth Quarter Financial Year 2019-2020 Earnings 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 shall now hand over the call to Carolyn Khiu of SATS. Please go ahead.
Thank you, Aaron. Good evening, everyone. Welcome to another SATS broadcast. We apologize for the delay in releasing the results. But due to COVID-19, compliance with safe distancing measures makes it difficult for auditors to complete the audit earlier. We have got an extension from SGX to release our results 2 months later. So we have released our results earlier this evening. And with me now are Alex Hungate, President and CEO; as well as Manfred Seah, CFO, to take you through the results.
I'll hand you over now to Alex to start about...
Thanks, Carolyn, and thanks, everybody, for joining us this evening on the eve of the election here in Singapore. I'm sure you're all excited about tomorrow's events. So we'll try and keep this on focus and on message, and look forward to your questions later.
It's an important quarterly announcement because it's the first quarter which has been impacted by COVID-19 pandemic. So I plan to give my normal executive summary and strategic update, but also do a special section on COVID, and I'm sure you all have questions on that. And then I'll hand over to Manfred to look at the financial review for the fourth quarter, and then I'll pick it up again when we come to look -- talk about the outlook.
So if I can turn to the first slide, which shows you some of the volume statistics. It's actually Slide 4 in the deck. You can see that in the full year, we did actually benefit from passenger growth. It seems very distant now. But if I can just remind you, January statistics were still growing. At Changi, they were growing at 5.2% for the month of January. And it was really only at the end of January, we started to see China slowing down with the first impact from the pandemic. Changi started to shrink year-on-year in February, dropping 32.8% for passengers. And by March, it was 70.7% down on passengers. Similar pattern on flights, not quite so dramatic, but flights went from a 2% growth in January down through a 12% shrinkage in February, and then March, the Changi numbers dropped by 50% from the same month last year.
Cargo has been relatively resilient. You remember, in the run-up to the year, though, it was also suffering from a soft year. So the Changi numbers in January were about 8% down year-on-year, and that was typical of the prior 9 months as well. February, there was a spike related -- plus 7% related to a lot of the COVID preparations and supply chain adjustments. And then March, it dropped 19% year-on-year for Changi. April is down 38%, and March -- May was down 40% year-on-year. So you can see that of the 3 volume statistics for aviation, the cargo is more resilient, and that's true across the region, not just in Singapore. Pax has suffered the most and the number of flights is somewhere in between.
In our case, we exceeded the numbers for the year for a couple of reasons. One is the consolidation of GTR in Malaysia, where we have a large market share of the ground-handling market through our joint venture with AirAsia. And then the number of meals served increased partially because of aviation growth, but also because of our significant growth in non-aviation food, which we've been talking to you about over the last year or so and it's starting to come through in the meal volumes here, and indeed come through in the revenue numbers that we'll talk about later.
You can see the cargo is slightly softer because of the trade war impact through the beginning of the year and hasn't dropped as much in the last couple of months. So that gives you an idea of the overall volume stats for -- think for SATS and also some of the context in the market as the year ended.
I also wanted to talk about the growth initiatives that we executed in 4Q. One of the acquisitions that we made was Monty's Bakehouse. Monty's specializes in handheld snacks for aviation and in particular, is very well-known for its leadership in the field of sustainable packaging. And this is an acquisition that we're very glad that we've made at this time because we are now using the Monty's low-touch packaging to -- in line with what the airlines need now as the flights resume, to be able to serve food but to minimize the contact between the flight crew and the passengers. So Monty's sustainable packaging is helping us to do that, not only here in Singapore but also across the region. Monty's design people are engaged from -- all the way from Japan across to India and different projects.
In Greater China, we continued to build on our acquisition of the Nanjing Weizhou Airline Food Company, which is a market leader in the hub-and-spoke model of tiered-kitchen distribution of aviation food, using their central kitchen in Nanjing and then going out to 85 airports across China. This allows us to minimize the capital investment in the airports and maximize the unit cost productivity of cooking in large batches in the central kitchen. The Huizhou investment is focused on assembly and uplifting of the food, and it works on the same supply chain from Nanjing. So it allows us to penetrate slightly larger airports where an assembly and uplift operation is required, but obviates the need to invest in large-scale capital to do the cooking as well at that site. And that's very much our strategy for the 3-tier kitchen that we talked about with you over the course of the last year. So you can see that coming through with the Huizhou expansion.
On the cargo side, the cargo has been relatively resilient, and we're pleased that we won a 25-year concession to operate a cargo terminal at the King Khalid International Airport at Riyadh. This builds on the win that we had in 2016 at the King Fahd International Airport at Dammam, which is also a 25-year concession. So it strengthens our footprint in the Kingdom of Saudi Arabia, which, as you know, is the largest economy in the GCC group of countries. It will take us about 2 years to build the full-scale 600,000 ton per year facility in Riyadh. But we have actually begun to start operations already through cooperation arrangement with NAQEL. NAQEL, some of you may know, is the e-commerce subsidiary of Saudi Post. So we're using their existing facility to serve our first customer in Riyadh, which is Air France-KLM.
Now I wanted to talk about COVID-19, and I'm sure this will be the subject of many questions later on. But if you look at Slide 6 in the pack, you can see the dramatic drop in global aviation traffic. Air passenger volumes, in particular, have been very hard hit, as we were talking about earlier. And you can see these global numbers from IATA showing more than 90% drop worldwide. Obviously, a much, much bigger impact than either the global financial recession or the SARS incidents that we've had earlier, which both show up as relative blips on the graph on the bottom left. And then you can see how load factors have dropped across the world according to the IATA numbers. And I just mentioned some of our numbers here in Singapore to give you a more specific Singapore example. Cargo is not on this slide, but as I said, cargo is more resilient. Worldwide, it's running at about 50%, and there is constrained capacity for cargo because most cargo is carried in the belly hold of passenger planes. And since there are so few passengers planes flying now, most of the cargo has to go into freighters, which are scarce, and therefore, the freight rates have increased.
I guess the important thing is not this historical backward-looking data on COVID-19, but what happens next. And I'm afraid I'm not going to answer your question about what happens next because it's very hard to predict. There's a lot of uncertainty. I will share with you the IATA forecast that 2019 volumes will not be reached again until 2023. And that seems to tie in with our discussions with some of our airline customers. Some are more optimistic than that and some are more pessimistic than that. But I think that's a reasonable baseline for you to assume in your own analysis.
Moving on to the next slide. We have, therefore, suffered a big drop in demand in our aviation businesses around the region. But we haven't stood still during that time. We've spent a lot of time serving essential workers like health care and logistics across the region with food and other services as well. Here in Singapore, we've been feeding hospital workers. We've been feeding the drivers to go backward and forward to Malaysia as well as the foreign worker dormitories. And we've also been doing a lot of work here and in other countries on ensuring that the shelves remain full in the supermarkets; in particular, addressing the potential shortage of proteins during this time. So we've been working on protein stockpiling. So that has helped us to generate revenue growth in the current quarter, a little bit towards the end of the last -- the fourth quarter, but certainly in this current first quarter from those activities, which have a lower asset intensity than our normal catering business, but also a lower margin than catering.
We've also been supporting the community across our footprint of operations. In Greater China, we were heavily involved in moving cargo, 14,500 tonnes of cargo, which is mainly critical medical supplies to reach those in need. In India, over 2 million meals feeding the migrant workers, which has been quite a well-publicized cause in the Indian context, and then in the U.K., feeding the NHS health workers as well.
If you turn to the next page, we've used this opportunity while operating volumes were lower to take some of our operational teams and to train them on the technologies that we know will be critical for the future. So you're aware that we've been digitalizing different aspects of SATS operations over the last couple of years, and we've taken this opportunity to accelerate the digitalization through the SATS Academy programs that will train people on deep domain skills and process changes necessary to implement the digital technologies.
They also have been cross-training our colleagues. So to give you an example of what I mean by that, we have passenger handling teams who will be specialized in, in particular, DCS reservation systems that the airlines use and that can limit the flexibility that we have to redeploy them from one airline to another. During this downtime, they've been multi-skilled on multiple DCS systems so that as we rebound from this COVID, we should be able to get much more productivity and flexibility from our passenger services deployments.
Similarly, we've been working with our customers to accelerate integrations of digital systems between SATS and their operations, in particular, our digital cargo system, [ cosys plus ], where we've been building interfaces that will allow us to eliminate manual data entry, which will improve productivity, but it will also help us to improve operational excellence and safety. We've been helped in that through various government support schemes, not just here in Singapore but across the region from Japan all the way to U.K. And that has benefited our ability to retain key capabilities and also helped us to generate revenue from our training operations, not just from training SATS people, but also we've been training thousands of people from other companies like airlines and other members of the ecosystem as well to generate revenue through SATS Academy.
And then finally, you may have seen this in the news, but there are 2 cruise ships from Genting Cruise Lines that are stationed at the Singapore -- the Marina Bay Cruise Center, which we operate. So we are hosting those ships. We are also feeding the people on board the ships as well. So it's a good combination of our activities in the cruise ship management space and also in the catering space that allow us to be the manager of that facility during this important period.
If you turn to the next slide, Slide 9, that gives you an idea of the SATS share of revenue in PATMI by region. So you can see that China has been impacted in terms of both revenue and PATMI. We've made some assessments of impairments in our China operations as well as in our Indonesian operations. You can see those coming through. Manfred will talk about the totals of those assessments of both the provisions and also the asset write-downs as well later on.
The growth in ASEAN is largely from Malaysia, where GTR comes in. But also, we've seen good growth in PT CAS in Indonesia as well, as well as from our operations and associates in India.
Overall, you can see the share of revenue from overseas continues to outstrip that in Singapore. And as we've talked about on prior calls, we expect that to be the shape of the company going forward. So this quarter has continued with that trend.
So now I'm going to hand over to Manfred, who will take you through the numbers, including some of those items that I mentioned earlier. Thanks, Manfred, over to you.
Thanks, Alex. Good evening to all of you, and I shall take you through the financials. And first, perhaps to start with the executive summary. As Alex has mentioned, we -- our business, the aviation business has been severely affected by COVID-19. This actually started out from February onwards. And in spite of that, our group revenue increased 6.2% to $1.94 billion. If you recall, the first 9 months of our result, this was pre-COVID, we have registered about 11% growth top line. So we're happy to say that we continue -- our revenue continues to be strong for the full year.
This is also helped by a consolidation of new subsidiaries in the Country Foods, Nanjing Weizhou and offset by disposal that we did for FASSCO. Now PATMI came in 32% less compared to same time last year, at $168.4 million. We have actually issued a profit warning to this effect at 30th of April, stating that our profit will come down, guiding that profit will come down as a result of the COVID. In fact, what we have done is since 30th of April, there was a
[ discount ] guidance. This is still simple [ chart of accountant ], and that issued a guideline on how the grants should be accounted for. And as a result of that, we kind of -- we complied with that and we spread the grant recognition over extended 11-months period. And as a result of that, profit came in a bit lower compared to what was issued on the 30th of April.
In combined with our core business here in Singapore, all our regional businesses were similarly affected by the aviation volume drop caused by COVID. We actually -- the share of earnings actually dropped by 80% to $11.8 million for the year. EBITDA decreased by 7.3% to $356 million. Our free cash flow -- as a result that, free cash flow reduced from $208 million last year to $168.4 million. As a result of the lower profit -- operating profit, our EBIT dropped by 1.8 percentage points to 11.7%. EPS came in 32% lower at $0.15 and ROE dropped by 5 percentage points to 10.3%.
I'll take you through the 4Q financial highlights. We are on Slide 12. Group revenue decreased $38.4 million in the fourth quarter to $433.1 million. All aviation entities are significantly affected by COVID-19. Our BRIC revenue from Gateway was lower, but Food Solutions increased because of the consolidation of Country Foods and Nanjing Weizhou.
Correspondingly, OpEx decreased by $29 million due to lower volume as well as higher allowance of doubtful debt taken for the quarter. This partially offset the consolidation effect of Country Foods and Nanjing Weizhou of $50.3 million. Excluding the consolidation effects, reduction in OpEx would have been higher at about $73 million. EBIT decreased by 11.3% to $9.3 million as the decline in revenue outpaced OpEx. As mentioned earlier, our share of losses reached about $31.2 million as all our JVs and associates in the regions were also affected by the COVID-19 impact. As a result, group reported loss of $6.3 million while core PATMI decreased to $5.6 million. For full year results, group revenue grew 6.2% to $1.94 billion, with growth in both Food and Gateway. Food Solutions revenue grew 8.3% due to the consolidation of Country Foods, Nanjing Weizhou, which is partially offset by lower aviation volume in the fourth quarter.
Gateway revenue increased 3.1% due to the consolidation of GTR and a strong performance pre-COVID period. OpEx is higher by $134 million at $1.72 billion. Excluding the consolidation effect, OpEx would have been -- would have recorded a lower increase at $229 million. As a result, EBIT decreased by 8.4% to $226 million. Share of losses for the year reduced by 80% to $11.8 million, due primarily to provisions and impairment for -- because of COVID. For the year, PATMI has declined to $168 million, $80 million lower than last year.
Turning to Slide 14. This is on group segmental revenue. I'd like to point out that if you look at the aviation sector for Column 3, you will see that there's a 17.8% drop in 4Q because of COVID.
Now if you also look at by business, Food Solutions increased by 0.8% while Gateway reduced by 17.8%. This is for reasons that I've mentioned earlier, Food Solutions, the revenue drop in aviation was buffered by the acquisition of Country Foods as well as Nanjing Weizhou.
On group OpEx, Slide 15. If you look at the bar chart, yes, staff cost is lower. This is due to government relief, reduced contract services and over time because of the low aviation activities. Our raw material here increased because of consolidation of Country Foods and Nanjing Weizhou, and increase in the other operating expenses is mainly due to higher allowance for the food debt and high maintenance and operating costs of GSEs and IT expenses. Slide 16 and 17, I'll leave it for your reading. This basically shows SATS' share of revenue by region, and this was partly also covered by Alex earlier.
Going to balance sheet. Slide 18, both total assets as well as total liabilities have increased by $600 million. This is primarily due to increase in cash and increase in right-of-use assets in compliance with SFRS 16, which we adopted since April of this financial year. And inventory increased by -- inventory and AR increased by about $120 million. This was due to the consolidation of the both aviation food business that I spoke about, Country Foods as well as Nanjing Weizhou. And as a result of that, total assets increased by about $600 million.
And then on Slide 19, total liabilities also increased by a similar amount for the loan that we drew down amounting to about $320 million, and also, the right-of-use assets booking of the lease liabilities.
Moving on to financial indicators. Slide 20, here you will see that our margin has been significantly affected because of the COVID-19, and debt equity ratio increased to about 0.26 from our regular 0.06. This is before taking into account that these liabilities are through the adoption of SFRS 16.
Moving on to the cash flow statement. Net cash from operating activities for the current period came in at about 241 -- $244 million, which is $51 million lower than previous year. Net cash used in investing activities was higher at $117.4 million. This is due to the acquisition of Country Foods, Nanjing Weizhou and our investment in [indiscernible].
I think that's my last slide. And I'd like to pass this back to Alex to take you through the outlook statement.
Okay. Thanks, Manfred. So just to pick up the key themes from Manfred's presentation. Our profit warning suggested that we would make a small profit in Q4, a reduction of around 50% to 70% of what we made last year. Because of the way that we extended the job support funding across the 11 months out to December, the amount that we ended up recognizing in this fourth quarter was considerably lower than what was initially estimated.
This is following an update in the guidance from [ ISCAR ] on how to do the recognition. So subsequent to the profit warning, the guidance came out and in line with that guidance, we decided to spread out over 11 months. Other than that, the trading performance in the fourth quarter was very similar to what we had anticipated at the time of the profit warning. So the first significant takeaway is that although we're below the profit warning, it's because we spread the JSS money further out across the year.
The second important bit of information is also reflected in relation to the profit warning. So we did give guidance that the first quarter -- so the current quarter would entail a loss of between SGD 50 million and SGD 70 million. The spreading of the JSS across the 11 months also reduced the expected allocation of the JSS until the first quarter period. But despite that, we can tell you that we will do better than the $50 million loss. So we'll do slightly better than the $50 million loss based upon our current trading performance. So that's an update on the profit warning that we gave last time. So despite the fact that we're going to recognize less JSS in Q1, our trading performance has been better than we anticipated.
At the same time, we strengthened our balance sheet. So as Manfred mentioned, we have approximately $550 million in cash at the end of the fourth quarter, the period in question, and that's because we raised debt capital as we saw the crisis approaching.
And then the last thing I want to point out is that you can see from Slide 15 on Manfred's presentation, the staff costs even in the fourth quarter have started to fall very rapidly, something like a 25% reduction year-on-year already, even though the quarter began very well and arguably, the crisis was like a mid-quarter phenomenon. Because we are operating in China, we saw very quickly what was happening. We started to reduce costs. I think you remember, there was something in the press about -- in the public domain about us volunteering to take management pay cuts as early as February and then the cost reduction programs have been ongoing ever since then. So that's one of the reasons why we are able to exceed our initial estimate for the Q1.
Another reason is because we have generated new revenues. If you look in the media release, we highlight that we've generated a quite considerable growth in the non-aviation revenue. So we're now up to something like $334 million, which is a 29% growth in the year from the prior year. Some of that is because of the acquisition of Country Foods. But a good chunk of it is also organic growth in places like China where we've been building out our kitchen capacity. So that's a good lead-in to the outlook statement, which we can now review together.
So we know that the coronavirus pandemic continues to threaten public health and slow the world economy and sharply reduce aviation passenger volumes. There is still much uncertainty about how the pandemic will develop and the longer-term impact on the economy and travel-related business. So the first message is there's still a lot of uncertainty, as I was mentioning earlier.
At the same time, there's no doubt that the way that we will fly will change. So we are working very closely with our customers to reimagine travel in a post-pandemic world. I mentioned we were very happy to have the Monty's Bakehouse sustainable packaging capability on board at this time because there's a lot of work we're doing around increasing the safety of the flying process.
We're also working with airlines on the aircraft interior cleaning, using hospital level hygienic cleaning methods and new technologies involving things like ultraviolet light, et cetera, to really try to eliminate any traces of virus that might be on the planes and to increase the confidence in travelers in the reassumption of travel as an everyday activity. And we've also been developing, as I mentioned earlier, digital solutions linking in with our airline systems to increase stickiness and to improve quality and safety at the same time as productivity.
So I think we talked earlier about the redeployment of our people. So I am impressed with the agility and flexibility of our people and pay tribute to that. I think that will serve us very well as a more resilient company going forward, hopefully helping SATS and the industry to rebound more strongly from the crisis. And I did mention earlier also, but I put it in the outlook statement, that we expect our food trading and distribution business to continue to grow as we build up our non-aviation food revenue.
Okay. Aaron, thanks very much. If you wouldn't mind, let's see what questions we have, if you can open it up to Q&A. Thank you.
[Operator Instructions] Our first question, Rachael from UBS.
I have a question on your current revenue streams, especially on the non-aviation side. If we look at it now, how much would you say comes from government or government agency related contracts versus what you are earning on organic or business as usual scenario?
Rachael, I can't disclose the total from government. But I think every -- it's generally well-known that SATS is the leading supplier to the Singapore Armed Forces here in Singapore, and that was a contract that came with the acquisition of Singapore Food Industries in 2010. I'm happy to say that since that time, SATS has managed to improve our market share in that contract, and we have added other government contracts as well. So I won't tell you the exact split, but I'll just say that is one of the reasons why our non-aviation food business is growing. The part that is non-government is growing fastest, though, particularly when you look across the group and include China.
We have no government revenue in China at all, but we are growing our non-aviation food very fast in that market. We intend to do the same thing in India. And in fact, the COVID-19 pandemic has really accelerated our pivot to that source of new revenue, as you can imagine. And we are very pleased that over the last couple of years, we've been putting in place the building blocks to make that possible.
It is -- in some cases, there are different food preparation processes that need to be mastered. In other cases, there are sales and marketing channel contacts which are important for us to be able to make that pivot. And SATS is glad that over the last couple of years, we've put those kinds of things in place that have allowed us to accelerate that part of our revenue stream and move more resources that way for the future.
Okay. Maybe the next question, could you elaborate on some of the allowance for doubtful debts and provisions? I was wondering also, going forward, do you foresee that you might have to make impairments on your investments, either on your own assets or in your GVA side?
Yes. Manfred is going to take that one, Rachael.
Rachael, if you -- unfortunately, I don't think you have the time to go through the SGX announcement that we have done. In fact, included in the full year results, we have actually impact about $12 million worth of investments. This one is actually investments in overseas associates and joint ventures. Now in respect to doubtful debts, because of the COVID-19 situation, we -- management wants to be prudent to basically look at holistically all the -- all our receivables group-wide across the whole region and we have taken some provision. And at various places, both at SATS level, associates level, JV levels, subsidiaries level, so we've combed through it. We believe that we have done enough for now. And obviously this will be -- we will continue to monitor.
Yes. So it's a big impact on our Q4 numbers. The total of the write-downs and the provisions is $51 million. So you can see that has a massive impact on our fourth quarter numbers. But we do it because we understand that we want our earnings quality to remain high, and we've taken a view that the pandemic has impaired the value in certain cases and has created the possibility of credit losses in other cases. So as Manfred said, we've gone through it with a toothcomb, and we've decided to put a focused $51 million in total in this quarter.
Are you able to just elaborate on maybe the larger items that you've impaired or taken doubtful debt for? I'm looking through the presentation -- through your financial statement also.
Okay. Rachael, it's not a single entity. It is made up of a few. So with respect to the investment in associates joint venture, we -- what we have done is we looked through what's value in use when compared to our carrying value. And we worked with our auditors and we decided to reduce some of these carrying values and to be more prudent. As Alex has mentioned, it's not -- the receivable side is we look through everything. I can't disclose the specific, but it's fair to say that the doubtful debt would be the bigger portion.
So you can -- go ahead, Rachael.
I was just wondering what's the potential for further impairment. So maybe you could just like run through what were some of the assumptions that you and the auditors kind of use when you're valuing some of the assets.
Yes. We generally look at DCF approach, anything between 3 to 5 years cash flow, and then we apply our weighted average capital cost, and we run through and work out that [ PBE ] side. So that would be the general methodology. But if there's any specific event that will cause us to doubt it will be severely a factor, that also we will take that into consideration for reduction.
So those DCF forecasts, they obviously take into account our view as management of a whole bunch of things which we don't disclose externally, including the likely -- the evolution market-by-market of passenger volumes, flight volumes, cargo volumes, et cetera. We don't give external guidance on that looking forward. You'll just have to take our word for it that we've done our best to look at every market and make those cash flow forecasts realistic.
And in addition to that, Rachael, we also look at the operability of some of the assets, right? And those assets we feel that are no longer of value in use, then we will similarly write it down. So there is a combination of provision for debt, credit losses, provision for assets and provision for impairment of investments.
Yes. So if the markets evolve as we forecast, then there'll be no further provisions. But if it is a worsening, of course, there may well be future provisions. If things are better than we anticipate, then there could be write-backs. So that's the way it looks.
Okay. So you said right at the start that when you were talking with your airline customers and based on what IATA was guiding, said that the volumes will not recover to pre-COVID levels by 2023, is this something that is -- that I can say is like fairly consistent with your internal assumptions?
Yes. We're basing our base case on what the airlines are telling us. So the IATA base case, which I guess, in their case, averages out the predictions of their different member airlines, is that 2023 date. As I mentioned to you in individual conversations, sometimes our airline customers, some of them are more optimistic than that and some are less optimistic. So we're using this 2023 assumption as an average across Asia.
Our next question, Lim Siew Khee from CIMB Research.
I'll just go one-by-one, the questions. In terms of the guidance that you have for first Q, you mentioned that it's going to be better than what you had originally guided of 50% for the year. Why is that so?
The main reason is because our cost management, which started very early in February, is having a big impact. We were able to get traction as early as the Q4 numbers. As you can see, the employment expense dropped by 25% in Q4 year-on-year and the momentum of that carried on, and there are still initiatives going on now, and there are further initiatives over the next quarter, too. So cost management is the main driver of the beat on the initial profit warning range.
The other one is that we have generated non-aviation revenues that were higher than we anticipated. So the pivot for non-aviation has been stronger and faster than we anticipated at the time. And of course, there have been some community support activities like the cruise center activity that we didn't anticipate. I don't think anybody would have thought that we would be hosting foreign workers in cruise ships at the Marina Bay Cruise Center back in April, but that has eventuated and that's generated revenue as well. So it's a combination of those factors, Siew Khee.
Okay. Can you share with us the number of staff as of now and versus last year, non -- Food and also Gateway?
We can't share that. We're not disclosing the number of staff. But I will point to the number I mentioned earlier from Slide 15, which is if you look at the 4Q staff cost, even though we didn't start the cost initiatives until mid, late February, when we announced the pay cut to the management, you can see that the 4Q staff costs, nonetheless, on a full quarter basis dropped 25%. So that gives you an idea of the run rate going into the first quarter was successfully quite a bit lower on employment costs.
And there are other cost categories which have come down as well. In my presentation, I mentioned some of the concessions on tax -- property tax rebates. There have been rental rebates as well in various locations for the group. And then a waiver of farm worker levy and rebates, of course, contributes to the reduction in employment cost as well.
Okay. Do you have any visibility in terms of 2Q, whether what you are going to expect in first Q in terms of cost [ moving ] will remain in 2Q? So I would expect that 2Q might be better. In terms of cost management, probably it's going to be similar or if not better because you say that it will continue. And should we just be a bit more positive in terms of your 2Q outlook? I know you have guided well for 2Q.
[indiscernible] Q2, but maybe a good way for you to look at it is, as you were saying, our cost-saving initiatives will continue -- are continuing. And then if you look at the volumes week-by-week and I guess you'll get the month-by-month from Changi. So you will -- in July, you've seen that the opening of transit passengers through Changi. Across Asia, you're starting to see some green lanes being established. Until the reversal in Beijing, the China volumes were starting to increase as well. So all of these numbers are available for the airports in which we operate.
So you can tell that some of the revenue will start to recover in the second quarter. But as I mentioned to you earlier, we expect the full recovery to be quite extended. So although it's recovering, you can see from those numbers it's not bounding back. It's incrementally recovering so far. So we'll have to -- along with you, we'll have to monitor how the markets start to reopen. There are a number of things to look for. One is the kind of government-to-government establishment of green lanes or travel procedures which are less onerous, either because the quarantine period, stay-at-home period is less, which is what happened between China and Singapore, or because the testing procedures are less onerous in terms of the waiting times, et cetera. So those kinds of things will clearly facilitate a return of flights.
And then we believe there's a certain pent-up demand of people who need to travel. A lot of those are business travelers. Some of them are trying to reunite with their families. So those people need to travel and they're pent-up demand. A lot of the discretionary travel, we think, will take a lot longer to return. So there's still a level of anxiety and concern in the markets from the data that we've seen from passenger surveys, which suggests that although there's a proportion of the demand, which will rebound as soon as the flights are available and the travel restrictions are lifted, there's still another big proportion, which is discretionary and won't come back immediately. And that's why the IATA forecasts are very extended.
Okay. On the impairment of $12 million in associates, can you split between Gateway and Food?
A lot -- you can see when -- in the share of associates' numbers that Gateway has taken a relatively larger hit. If you look at -- what slide is that Manfred? I know in the media there's sort of a share of associates breakdown. Yes. So if we look at Slide 16, there's a breakdown, share of associates for Gateway took a relatively larger hit in the quarter, and a lot of that is down to these provisions.
So every month, it's about 50-50. Both our overseas -- both for Food as well as Gateway, our overseas business is primarily aviation-related.
On Slide 12, actually. If you look on Slide 12, in the commentary we give the [ breakdown ].
Okay. And the $51 million, we include some credit losses that is not separately disclosed, right?
No. We don't disclose that. Yes, that's inclusive of the credit losses, yes, across the group. So we would take our [indiscernible].
I understand. So those credit losses is in set, and also in [indiscernible]?
That's right. So for the [ SR ], we have taken our share of it.
Yes. Okay. And do you -- so just a few more questions for me, I have. The JSS in 4Q of $21.9 million, so that would be the rough amount that will be applied in first Q-to-Q, right?
No. So that will be applied to, if you like, for -- we've extended over 11 months, right?
Okay. So this will -- this similar -- we should use this as a guide, yes?
It will [indiscernible] the only way to end...
Okay. Also for just last 2 questions, can you share the revenue for Country Food in 4Q?
Well, Country Food, actually -- this is the 2 non-aviation entities, right? SFS as well as Country Foods, today, these are, generally speaking, pre-COVID. Our non-aviation is only about 50%, 20%, right? But now, this will be a bigger chunk. So the acquisition of Country Food or the step-up acquisition of Country Food is very timely. Because of that vehicle, we were also able to do more during this period. So that has also accounted for why the first quarter will come in better. In respect to the proportion, we don't -- we actually don't disclose that specific.
So Siew Khee, if you look on Slide 14, the segmental revenue, you can see the Q4 non-aviation in -- our industry non-aviation revenue increased from $66.8 to $100.4 million in the quarter, so that's a 50% improvement. But that is not only Singapore, of course. That includes the fast-growing activities that we have in places like China.
Okay. Also, in terms of dividend, maybe just touch on what should investors be expecting going forward or interim or even just next year on dividend?
Yes. The dividend decision was a difficult one because we want to be prudent as a management team and as a Board about our dividend policy. And we felt there was so much uncertainty over the external conditions. Even notwithstanding the fact we have $550 million of cash on the balance sheet, we felt that we should be prudent and not pay a final dividend. That leaves the total for the year at $0.06, of course, from the interim earlier.
Going forward, if the flight volumes and the passenger volumes start to improve ahead of our expectation, then of course, it's more and more likely that we'll come to see that we have -- that we do have cash available to pay dividends. However, because of the uncertainty, there's still a possibility that we will be worse than our expectations, and in that scenario it's better and more prudent for us to keep the cash.
Our next question, Wong Yew Kiang from CLSA Singapore.
Alex, I think most of my questions are asked by Siew Khee. Maybe can you just update on your CapEx plans for this year? That's the first question. And then secondly, I think you would agree that most investors look at SATS as a new play and then a new stock. So given that first quarter, you are already doing better than guidance, and I believe that second quarter should be much better given that all the green lanes arrangements are in place, would there be a possibility that dividend should be at least flat year-on-year?
Well, I can't give any guidance other than what I just mentioned to Siew Khee, that our dividend policy is a prudent one. We have to retain cash in the organization until there's more certainty about the external environment. I think you're pointing to the right external triggers that will determine whether or not we can re-implement the dividend. It will be about the green lane establishment, the traffic volumes, the flight volumes, et cetera, which are the underlying drivers of the aviation part of our business.
Okay. But the $550 million cash looks pretty high versus the previous financial year. And I guess I want to know whether there's any additional plans for that. Or is it just something that the market will keep...
Yes. We raised the money at the start of the pandemic because we didn't -- we wanted to prepare for the worst. Hopefully, you're right, and that will turn out to be excessive. But in the worst-case scenario, we'll be pleased to have that cash in the company because that will ensure that we can continue to retain the capabilities that will allow us to be a market leader when things come back. But we -- in these situations, it's our responsibility to prepare for the worst. And so the $550 million is there. It was raised for the pandemic and it's there for us to get through the pandemic.
Now you can -- in respect to your CapEx question, now last year we did about $76 million, right? Now what we could do this year is really to look at what are the essential critical projects we will spend on those. We probably will be deferring some of those less important ones. We -- I think it's probably going to be a little bit less than what we spent this year. Having said that, we have committed to some of the transformational projects, utilization projects, technology projects. Those will still go on because those are critical to our enhancement of the productivity.
Will you provide a number for that?
[indiscernible]
Will be the confirmational CapEx, how much would that be for maybe a rough number or how you're going to split it over the next 3 years?
We don't generally guide because that includes some of the systems improvement type of technology project, IT-related. So those are quite substantial.
Our next question, Ajith from UOB Kay Hian.
Alex and Manfred, several questions from me. First, I'll just start with the balance sheet side. I noticed that borrowings have increased, an increase of roughly about $300 million in the current quarter. Is this part of the existing MTN or the MTN that you announced, the $500 million that you announced earlier? So that's my first question. Second question is on, do you expect to recapitalize any of your associates? Third question relates to the government grants. Are these entirely the JSS? And if so, is this deducted from the staff costs? And also follow up -- following up on that, how many months of JSS have you recognized in this quarter? So that should be it for me, yes.
Ajith, okay, so maybe I'll start with the simple one, the JSS. The JSS, we -- the way we have accounted for it is we took guidance from the [ ISCAR ]. We start from the month that, that said business was affected. So that was February, and we have taken 11 months of it. So if you would like the answer to your question, 2 out of 11 has been recognized, okay?
With respect to your question on the MTN. Yes, the debt financing that we've taken at 31st March amounted to about $300 million. And I think while following that, post year-end, we drew down another $200 million of short-term loans as well as MTN. So we have a total debt of about $500 million today. Now with respect to whether we could -- did you ask about the issuance of equity and things like that? That's not in the plan. There's no need for the company to go in that way.
I was referring to the associates, as in any possibility of issuing equity?
Yes. We are constantly reviewing the cash needs of all our JVs associates, which was, which also part and parcel of the review process of looking at the recoverability of all the debt and things and then looking at their cash flow. There will be some. What we always do is our modus operandi is really to allow the JV associate to raise their own money rather than come to us every time they need money. It will probably be the last resort, if you like, and we're currently reviewing some of them. It will not be of a very material amount, safe to say, if any.
Okay. Okay. If I may ask another question, this on Greater China. In terms of the share of revenue of PATMI, so there's a $25 million loss that was recognized. Is this partly to do with the impairment that you have recognized or mix of debt as well as organic losses?
Yes. It's partly to do with the impairment, Ajith, yes.
And also, if you recall, we actually invested in 2 start-up situations in [indiscernible]. So there's a start-up mobilization cost, development part. So in the earlier years, there will be higher charge to us.
Our next follow-up question, Rachael from UBS.
Can you hear me now?
Yes. We can, Rachael, go ahead.
Great. A question on your non-aviation business. I mean it's grown very well, and how quickly can this business continue to grow? And do you expect -- what's the runway until it sort of hits the capacity -- maximum capacity?
Okay, Rachael. All I will say on this is that what I -- repeat what I said earlier, which is the pandemic has caused us to put more resources into non-aviation than we would have done under normal circumstances. So even though the last year or 2, we have been talking about non-aviation and investing in kitchens to -- the commissary kitchens for central kitchen, for example, I would say all of that is intact and growing. But I would say that we'll be doing even more than that, particularly around the area of supply chain and food trading. Now that we own 100% of Country Foods, we have that capability, and we found that during the crisis when food supply chain became a very important skill set, we were able to grow that company faster than we would have been able to. And so we intend to invest behind that concept and also to link it with our central kitchens that we're building for commissary for non-aviation in places like China and India. So you will expect -- if we were to look out 5 to 10 years in the future, you would expect the material part of our revenue stream to be from non-aviation food, with a strong backbone of a digitally-integrated supply chain and food trading linking it all together.
Okay. And I guess as we are waiting for travel to resume in general, how are you utilizing your existing aviation assets to drive new revenue streams?
Yes. We have re-purposed our flight kitchens to take a proportion of the capacity and use it for this pivot to non-aviation. In some cases, that's been by way of supporting community-essential services like health care workers. In Singapore, we have the foreign workers. We have the drivers that I mentioned. But in all markets, as restaurants were closed down, there was more and more demand for food delivery and for retail sales of convenience meals. And so we have -- in most of our kitchens, we've used some of the capacity to increase our sales through retail. In some cases, we've been selling through the food delivery outlets as well. So the 3 big ways we've been doing it is community feeding, second one is retail and the third one is the home delivery market.
Could you elaborate on the second and third one? Because I'm not too familiar with that.
Okay. Country Foods itself has a large proportion of its revenue that comes from the distribution of further-processed proteins, in particular, into the retail chain. So they have a whole sales force that goes through modern retail, traditional retail, et cetera, calling on the retailers on a daily basis to provide marinated chicken, et cetera, from our processing and also importing container loads of proteins, et cetera.
So that sales force can also be used to distribute catered, ready-to-eat meals. And during the lockdown circuit-breaker period, there was a lot of demand for ready-to-eat meals, people working from home that they need something to quickly eat, ready-to-eat. And so we started to produce -- using our catering facilities in the flight kitchens, to produce those meals and distribute them through the Country Foods sales teams.
In other markets like Japan, we have -- we do actually have relatively smaller sales efforts ongoing anyway to those channels, not as large as Country Foods, but relatively smaller. But during the pandemic, we decided to bulk up those sales teams by moving people across from the catering side. So we also managed to increase our retail sales by bolstering the sales teams in places like Japan. And also in China, it was an existing business plan that I know you're very familiar with, for us to penetrate that market in China where there's no leading supplier yet. So we provide ready-to-eat meals in places like [ Homa Shenzhen ] and we've been able to increase the sales by working with places like [ Homa ] to meet this demand during the circuit-breaker period. In India, we've not yet started selling into retail, but that will be part of our plan in India also.
On the third -- the other category is home delivery. Home delivery market is going through a massive transformation. The total size of that market is growing very fast. The initial business model of taking food from traditional bricks-and-mortar retail outlets and then delivering it from there to -- using the app to do the ordering and the delivery and management of the drivers is still an area that's attracting capital, and that market is growing.
But in parallel to that, there are other models which are developing. Cloud kitchen famously is one of the new models. That has been a supplier to some of those entities using our scale in our central kitchen and then feeding into some of the satellite kitchens, call them cloud kitchens. So minimizing the amount of work that's being done in the cloud kitchen in favor of a more productive central kitchen model. So it's very similar to the 3-tier kitchen model that SATS has been talking about over the last 12 months or so. But then we don't have to own all of the smaller kitchens. We can also supply to those kitchens. So we've been doing some work like that with the food delivery cloud kitchen investments, which are starting to grow very rapidly.
Okay. Okay. Do you foresee that if the event that aviation travel doesn't really return, if you were to transform your existing assets to cater to the non-aviation side, would you be able -- you mentioned earlier that you will not be able to generate the same kind of operating margins. Can I confirm that?
I was referring to the supply chain and food trading operations. Those are different in nature than catering because they involve very high asset turns, but relatively low margin. So on a return on invested capital, they can amount to the same thing, but they have very different characteristics. I think what you're talking about now, that your question is about will catering to non-aviation have to carry the same margins as catering to aviation has been carrying. Is that right?
Yes. That's correct.
Yes. So answering that question, which is a slightly different question, I would say that the -- if you look at comparables across the world and in Asia, catering to non-aviation has slightly lower margins than catering to aviation, but can also be less capital-intensive because the batch sizes can be larger for things like central kitchen for commissary, whereas in aviation, you -- there are assets associated with smaller batch sizes for different airlines, different process of service, different routes. And also you need assets to do the warewash and also the cabin services for uplifting the flights into the planes, which require investments in high lift assets. So the asset intensity of airline catering is higher than institutional catering. So you have slightly different characteristics, not as extreme as the supply chain one, slightly different.
One of the areas that Monty's takes us into is not just the packaging part, but of course, they're involved in the creation of snacks, packaged snacks and health snacks. This is an area that will -- is likely to take off faster than the full meal rebound of airline catering. There's no real equivalent to Monty's in Asia. So the business plan is to bring the Monty's handheld snack concept into Asia, manufacturing in Asia using some of our flight kitchen capacity and some of our central kitchens that we've been growing, but using their design and productization skills to help us to win market share and win new contracts based on their successful business model in Europe. So that's another answer to your question about the type of catering and kitchen capacity expansion that we expect to work on going forward.
Okay. So maybe I can -- a final sign or point of clarification for me. Based on your existing kitchen capacity for SATS catering, so excluding SFS one, how much of it is currently being utilized in general? And how much of it is being utilized for non-aviation purposes?
It's hard to give a single number, but obviously with the passenger volumes only running at about 5% or less of what they would normally run at, there's a lot of capacity available to us from the aviation kitchen in general. And while we've pivoted and managed to generate demand to soak up some of that capacity, there's still a lot of room there. So we -- if the flights are recovering more slowly, as I mentioned, our intent is to pivot faster to non-aviation to try to fill up the capacity and start to get utilization up to more profitable levels.
Okay. So are you able to comment on the utilization for non-aviation?
Again, it depends on which country you're talking about because here in Singapore, we have...
Yes. Singapore.
Yes, in Singapore, we have 3 facilities which are non-aviation kitchens. It's fair to say that they've been running very successfully and profitably during this last quarter, and we expect that to continue. There is additional capacity, but I think we would now look to use some of the aviation capacity to enhance their sales efforts.
Okay. So sorry, I was referring to the SATS catering, the facility in Changi Airport, not the -- not for non-Changi, yes.
Oh, in Changi Airport. Yes. That's referring to my earlier comment then, there's a lot of spare capacity at -- in the aviation catering facilities in general, including the 2 at Changi Airport. To minimize fixed costs, in fact, and give you an indication of how much spec capacity there is with only less than 5% of passengers flying, we do intend to put all of the catering activities into ICC2 shortly, which will help us save additional fixed costs and also save utility costs from mothballing the ICC1 part of operation. So that will allow us to minimize costs until such time as the sales efforts in the non-aviation food space allow us to bring the ICC1 kitchen back online and/or, of course, the possibility that the flight volumes will come back faster, which will allow us to reopen sooner.
Our last question, Lim Siew Khee from CIMB Research.
Just wanted to check on M&A, whether you are -- because now you do have quite plenty of cash so there you are on -- at cheap lookout for any earnings-accretive M&A? And do you consider M&A over dividend?
Okay. Thanks, Siew Khee. It's clear that in this environment, there will be value opportunities for us to invest in businesses that we know well and could add value to, but we will take a prudent approach to those. The value opportunities would have to be significant for us to proceed at this point in time with so much uncertainty. So we take a similar philosophy that I described we had towards dividends in this regard. So we will -- we're unlikely to complete any major acquisitions until the trajectory of the aviation volumes is more clear. We might do some very small ones, but nothing significant until the trajectory is clear.
Thank you, everyone, for joining us on this call. I guess that's all the time we have questions for. If you do have questions that we are unable to answer here today, please send it to us, and we'll get back to you as soon as possible. Thank you, and have a good evening, everyone. Bye.
Thank you. Ladies and gentlemen, this concludes this evening conference call. Thank you for your participation. You may now disconnect.