SATS Ltd
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Ladies and gentlemen, welcome to SATS Fourth Quarter Financial Year 2020/2021 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 statements as a result of many factors that may be outside the company's control, including, but not limited to, changes in the business environment. The company does not undertake any obligation to update these forward-looking statements.
I will now hand over the call to Carolyn Khiu of SATS. Please begin.
Hi, good evening, everyone. Welcome to another SATS webcast. I hope everyone is keeping well. A while ago, we released our results for the fourth quarter and the full year. I hope you have some time to take a look at it. This would traditionally have been a face-to-face meeting. But due to the current situation, we are converting this to a webcast.
With me here are Alex Hungate, President and CEO; and Manfred Seah, CFO, to take you through the results. So I'll hand you over now to Alex to get the show going. Alex, please?
Thank you, Carolyn, and thanks for joining us, everybody. It's obviously a very interesting time because with the new variants coming in and the vaccine being rolled out at the same time, there are some interesting dynamics market-by-market impacting the travel market. And then, of course, SATS itself is in the midst of a transformation, reshaping its cost base and also moving into new segments in food, cargo and in security.
So with all those dynamics, we hope to be able to take you through the quarterly and full year results and explain how they're all interacting and manifesting in the results. So a good place to start is the operating statistics. Let's move to the operating statistics slide.
What we've shown here is the year-on-year quarter, so fourth quarter related to the fourth quarter last year, which was mainly prepandemic, although in China, we were already seeing impact to pandemic and other parts of Asia as well. And you can see the massive reduction in both flights handled and in passengers handled, passengers seeing the steepest decline.
Well, when you see the quarterly evolution of the numbers, it actually shows quite a different pattern. In fact, you may be surprised to see that the number of flights handled actually reduced in the fourth quarter relative to last quarter. For our statistics, which include both Singapore and Malaysia, this is primarily driven by the Malaysian MCO, but there's a 9% decline you can see there in terms of the flights handled.
Similarly, there's a 9% decline in the passengers handled as well from third quarter to fourth quarter. So the recovery has not continued into the fourth quarter universally in aviation. And I think you understand that that's very much due to some of these new variants and to additional measures and restrictions being put in some of the large Asian markets.
Cargo is a somewhat different picture. The decline in cargo year-on-year in the fourth quarter is only 12%, so a much more resilient part of the business. And in fact, if you look quarter-on-quarter, it has continued to grow in a sequential way from third quarter into fourth quarter. We will get onto that later on with some information from IATA about the global picture, but we believe that the cargo market is currently supply-constrained, and that air cargo would grow faster if there was more available capacity.
Meals served is an interesting picture because it includes both the aviation volumes, which are largely correlated to passenger, passengers handled. And then also the non-aviation or nontravel related growth in food that we have been pursuing for the last couple of years, and which we've accelerated over the last 12 months. So you can see that despite the drop in passengers over the period between third quarter and fourth quarter, we've managed to maintain level of the number of meals served, and that's been basically filled up by our growth into nonaviation opportunities.
And then finally, pointing your attention to the right-hand column, this is the number of employees employed by SATS and its subsidiaries. I mentioned at the start that we have been reshaping our aviation cost base. You can see how dramatically that has impacted the total number of employees shrinking from 17,000 just 1 year ago down to 11,000.
Many have also been redeployed from aviation into some of these new opportunities. And I take this opportunity to salute my colleagues who have been brave enough to be -- to go through reskilling and retraining and then agile enough to take up jobs in new sectors with SATS that are growing faster.
Quarter-on-quarter, you can see that the number of employees continued to drop. I did flag this last quarter when we spoke that it would continue to decline into the fourth quarter. You can see that reduction of almost 1,000 into the fourth quarter. So this is the environment which is shaping our financial results.
So we move now to look at the quarter-on-quarter group revenue and OpEx slide. You can see some very clear pattern. So the black line is the OpEx for last year, and the dark red bar is the revenue for last year. So you can see the impact of the pandemic as the revenue starts to shrink, going into the current orange bar, which is the revenue in the height of the pandemic, you can see it drops right down. And then starts to rebuild over the next 4 quarters.
And then the OpEx line is the orange line. And you can see the operating losses up until the first -- the last 3 quarters, basically. So you can see that in the final quarter, we've got operating profit of $22.5 million. So it's the largest operating profit to date. And its third quarter in a row that we've managed to record a positive operating profit since the pandemic started with the breakeven in 2Q that you can see quite clearly there.
I'd also like to point out, just to remind you, that the revenue line from last year, you can see the darker maroon-colored bars at the top, those were growing quite well before the pandemic hit us. So that reflects not just stable and growing aviation business prepandemic, but also, if you recall, we were also growing the nontravel-related revenue even then. And in fact, in that third quarter, we had hit a 17.6% growth year-on-year, so some quite respectable double-digit revenue growth numbers. And for the quarters 1 through 3, cumulatively, we were at 11.2% year-on-year growth.
Now moving to the next page. You can see the quarter-on-quarter evolution of PATMI and EBITDA. So starting with PATMI on the left-hand side, this is the first quarter, the current quarter, where we've had positive PATMI since the pandemic started. It's only marginally positive at $0.8 million, but it marks another milestone in our recovery from the pandemic.
It is the second quarter in a row of positive core PATMI, however; core PATMI removing the one-off impairment numbers. So you can see that those core PATMI numbers are growing steadily. However, we would still be making losses were it not for the government reliefs that have been extended because of the pandemic. So the red line underneath shows the profit without any government relief. So that's still not profitable.
However, I would point to the gradient of that line. You can see very clearly it's a steeper rate of recovery than the core PATMI number. So in other words, even though our government relief, the government support in the various countries around the region is decreasing quarter-on-quarter, we are still managing to more than make up for that with the improvements in our cost profile and then the growth of the new revenue from nontravel-related opportunities.
Moving to the right-hand side of the page, you can see the EBITDA picture. EBITDA, obviously, is important because it's a good proxy for cash flow. And that has historically been a highly cash-generative business, and we want to return to that situation. In fact, in this quarter, we produced more EBITDA than we did 1 year ago. So we exceeded EBITDA of $42.9 million a year ago with an EBITDA performance of $46.2 million.
And so in many ways, we -- you can show -- you can see here that we are getting traction from a perspective of the cash flow generation capability of the business. And in fact, even on a full year basis, and probably the worst year that SATS has ever had to contend with in terms of the environment in which we operate in, we did produce a positive EBITDA of SGD 72.3 million. And this marks the third quarter in a row in which we produced positive EBITDA.
Let's turn to the next slide to look at the global cargo picture. International air cargo volumes for Asia Pacific grew by 7.1% in February versus last year. That's the most recent number that they have been published for. And in fact, we are now already above the precrisis March 2019 levels on a seasonally adjusted basis.
IATA remains bullish on air cargo volumes, expected to rise 13.1% year-on-year and exceed even the 2019 levels, which were already at a historic high. This has benefited SATS, of course. This is the most resilient of the aviation-related businesses that we have.
And it's also benefited our cargo associates in Hong Kong, Mumbai and Ho Chi Minh, which were all positive. And in fact, on a core PATMI basis, our India cargo associates in AI-SATS would also have been profitable as well. So we're still bullish about cargo, and you should expect our strategy to continue to focus on growth in the cargo business, exploiting the -- pursuing the macro trends of growth in e-commerce and the growth in temperature-sensitive cargoes like medical supplies and perishables, which we believe will continue to be high-value growth segments.
And then on this last -- next slide, you'll see some pictures. Let me explain what you're looking at. We have started to distribute bakery and other products through retail chains in Singapore, including FairPrice in this picture. You can see how the -- we've actually taken over sections of the stores that are dedicated to the bakery products we're providing. Those bakery products are provided in central kitchens that we operate, and therefore, are highly efficient. And in some cases, we also redistribute products from others to fill in gaps in our product lines. And the picture here shows the Europastry example.
We operate the same process of benefiting from our scale of our central kitchens when we serve some of the food service contracts that we have. But of course, we also are innovating into low-contact ways of delivering food to our customers. And this example on the right-hand top side is of a locker system, which is digitally controlled, where customers order online through their mobile devices and then unlock the lockers to retrieve their food, their heated food at their leisure. And obviously, we don't have to have person-to-person contact during that process. So this is an innovation which SATS has developed, which helps us to continue to gain more scale from our central kitchen operations and minimize the costs of -- staff costs of operating at remote sites serving our foodservice contracts.
Moving to the bottom row. We have continued to win new contracts in our security business here in Singapore during the last quarter. We will continue to grow that business. We believe that there's an opportunity for us to grow market share. And we believe that the technology and the way that we integrate data and enable our people using data to become more productive than other players in the market will continue to be a point of differentiation.
In the center, you'll see the bright red box branded Farmpride, which is a SATS brand, and that's being distributed in Singapore also. But you will also notice that this is a co-branded product, where we work with SMEs in the F&B market, in this case, KEK Seafood, leveraging on their brand equity to increase our ability to price up with a price premium related on the brand equity and also to improve our volumes and gain shelf space from the retailer.
And then the next 2 pictures are examples out of our China business of ready-to-eat meals. The chicken -- the Hainanese chicken rice, you can see on the left-hand side of the 2 is one of the products that we sell into Aldi supermarkets in China. It's, in fact, the bestseller for them. And then in the bottom right is a selection from the healthy meal range that we are distributing through Hema. In the quarter, we also won 2 new customers, which we will continue to grow market share in. One is Dingdong Online and the other is Yike.
So I now end the slide by pointing to the headline, which I think is a very important headline. We have grown our nontravel-related revenue in the quarter by 32% year-on-year. And in the year, our nontravel-related revenue grew by 38%. So we are very pleased with this. We think it's a proof point for our transformation.
So hopefully, the takeaways that you've got are that we have reshaped our cost base quite significantly. We continue to reshape it, and we continue to redeploy our talented people into some of these fast-growing areas. And at the same time, we are getting traction selling into these new areas, and we believe that we can continue to generate fast-paced organic and acquisitive growth in this space.
So with that, I will end my section and then hand to Manfred, who will take you through some of the details of the financial results. Thanks, Manfred.
Thank you, Alex. Good evening to all. This is Manfred, and I shall take you through the 4Q financials, starting with the executive summary. Fourth quarter revenue dropped by 35.7% to $279 million, while group recorded PATMI of $800,000 for the quarter. This is the first positive PATMI results in 5 consecutive quarters for SATS.
In the fourth quarter's results, we have taken a one-off impairment charges totaling $12.4 million for our overseas investments and also included government reliefs totaling $51.1 million. Without the reliefs and one-off charges, our core 4Q core PATMI would have been a loss of $33 million. Share of losses from associates and joint venture have improved to $7.3 million compared to a loss of $31.2 million in the same quarter last year. Included in this 4Q share of losses, we have taken a sizable credit provisions of $11.8 million at the associates and joint ventures level.
SATS 4Q EBITDA has improved, as Alex has mentioned, compared to the 4 -- previous 4 quarters and remained positive at $46.2 million. I mentioned that our 4Q revenue has declined 35.7%. This is mainly due to low aviation volume. While cargo volume continued to improve Q-on-Q, the recovery of flight packs and aviation meals volume remained lackluster.
Aviation revenue is lower by 54%, mitigated by nontravel growth of 32%. OpEx for 4Q fell 34.6%, net of reliefs led by staff costs, which dropped 43% due to government JSS, lower salary costs and contract services due to management cost measures and reduction of manpower. In line with lower aviation revenue, raw material costs, license fees and premise costs are lower for the quarter. And the lower other operating expenses was the result of cost-containment measures and government grants and reliefs obtained.
SATS continued to record EBIT of $22.5 million in this quarter. We have also taken an additional impairment of $31 million relating to investments, PPE and intangibles in this quarter. To date, the group has taken a total of $160 million of impairment charges and credit provisions since pandemic started in early 2020, of which $51 million was taken in the fourth Q of FY '20 and a further $109 million in the current year. As reported, SATS posted a small PATMI of $800,000 for the quarter. And excluding the one-off charges of $12.4 million, SATS 4Q core PATMI was $13.2 million.
Turning over to Slide 12. For the full year, revenue declined by 50% to $970 million. Aviation revenue fell almost 67% with Gateway and Food revenue decreased by 55% and 46%, respectively. Consistent with 4Q, revenue decline surpassed the fall in OpEx of 42.9%, net of government reliefs of $272 million. OpEx was lower across all categories, except for depreciation and amortization.
Share of losses of associates and joint ventures recorded for the full year was $48 million as the pandemic has affected all the associates and joint ventures across the region, more severely the aviation catering and ground services units with cargo ventures faring much better. PATMI dropped by $247.3 million year-on-year to a loss of $78.9 million for the full year. SATS recorded a positive EBITDA of $72.3 million for the year.
Next, we look at the quarterly trend of the financial results, and some of these have been covered by Alex earlier. As you can see from the bar charts, the first quarter of FY '21 was the worst-hit quarter. And it's apparent that Q-on-Q, SATS has been able to improve its results across all parameters, starting with revenue from $209.4 million in Q1, all the way to about $278.5 million this quarter.
Likewise, for EBIT, we are recording the second profitable operating profit for the quarters. And share of associates and joint venture have recovered except for this quarter, where we have taken a sizable provision of about 18-point -- $11.8 million of impairment. PATMI and core PATMI likewise have improved across the 4 quarters, ending with EBITDA, we are recording 3 consecutive quarters of positive EBITDA ending with $46.2 million for the fourth quarter.
Moving on to segmental revenue. Food and Gateway revenue fell by 37% and 32%, respectively. Food contributed about 55% of SATS consol revenue this quarter, similar to last year.
By industry, aviation revenue fell 53.5% and accounted for 55% of group revenue this quarter compared to 76.7% in the same quarter of last year. The change in the mix is due to the lower aviation volume caused by the pandemic impact and growth in -- and combined with the growth in nonaviation food revenue.
For the full year, on Slide 15, segmental revenue for the full year trended the same way as the 4Q. So I shall leave you to read this slide on your own.
Now moving on to group expenditure for 4Q FY '21. Group OpEx for the 4Q dropped by 34.6% led by the reduction in staff costs, which fell 700 -- 71.1 -- $74.1 million. The reduction in staff costs was due primarily to government relief received, lower contract services as well as lower head count for the quarter. Cost of materials was lower due to lower aviation volume, partly offset by business activities of our Country Foods.
In line with lower aviation revenue, license fees decreased by about 63% to $6.2 million for the quarter. Premise cost and other costs decreased due to group-wide cost-containment measures as well as training grants and reliefs received for from the government agencies.
For Slide 17 and 18, these are -- these deal with the SATS share of revenue. I shall leave you to read this, except to mention that for this quarter, SATS' share of revenue declined by 37.8% to $360 million. This is on Slide 18. The year-on-year changes show the significant impact that the pandemic has on the financial performance of SATS Group in the region.
At the PATMI level, Singapore remained profitable at 29.7% -- $29.7 million for the quarter, helped by government relief. And you can see that all our overseas entities have incurred losses for that quarter.
Moving on to balance sheet. I want to cover 2 points here. Assets cash position remained robust. We closed the year with $879.8 million of cash. This is out of -- against a total borrowing of about $873.4 million, including lease liabilities. If we back out the lease liabilities, our total debt would have been $678 million, and this suggests that we are in a net cash position of about $201 million. Our gearing ratio, this is the debt over equity, stood at 0.44 at the end of the year.
On Slide 20, this is the group balance sheet. I shall leave you to -- in the interest of time, I shall leave you to read this slide. And I move on to financial indicators.
SATS recorded positive EBIT and PATMI in the current quarter, resulting in margin of 8.1% and 0.3%, respectively. You will notice that our EBITDA margin recorded for the quarter was 16.6%. And for -- however, for the full year, the EBIT and PATMI margin remained negative because of the annual losses, whereas the EBITDA margin for the year stood at 7.5%. Net asset value per share is lower at $1.38 per share as at March of 2021.
As for the statement of cash flow, our net cash from operating activities is lower at $117.7 million. This is due to lower EBITDA. Now net cash used for investing activity was lower at $28.3 million. This is because of lower CapEx as well as no -- absence of M&A transactions done for the year.
Net cash from financing activities increased to $239.5 million. This is due to additional drawdowns of loans and credit facilities net of repayment. Our total net cash increase was $328.9 million, and we end the year with $879.8 million cash position. This is -- this would generate a free cash flow of about $56.2 million for the year.
With that, this is my last slide, I shall hand it back to Alex to cover the outlook statement.
Thanks, Manfred. So in the outlook statement, we're recognizing what I was saying at the outset of this call that although the vaccines are being rolled out around the world, it's clear that it's not a straight-line recovery. So new COVID variants continue to create uncertainty over the reopening of international borders, and that's delaying the rebound of international air travel.
During this time, SATS is innovating because we want to support our aviation customers during this difficult crisis, with products and services that enable them to operate both safely, efficiently and sustainably in the current restricted travel environment, but also thinking forward to how travel will reestablish itself as a safe activity with some of the innovations that we've been working on with them.
During the pandemic, we're very proud that we've established ourselves as an essential service, keeping supply chains open, for example, and supporting efforts to protect public health, both in the airport and outside the airport. We are enhancing our cargo capabilities to meet increased demand for temperature-sensitive supplies, like vaccines and medical supplies, for example, and also to support the inexorable growth of e-commerce, which has only been accelerated during the pandemic.
Our food business continues to grow in these new nontravel-related market segments across Asia. I gave you some examples of that earlier. And now we have a very substantial proof point of the 32% growth, both in this segment, but also supported by the growth of security services business here in Singapore as well.
So with that, I will open up the question -- for questions now. Serena, over to you.
[Operator Instructions] Our first question, we have Louis from Crédit Suisse.
A few questions. So firstly, in terms of the headcount reduction, very steady progress there. So what would be the guidance for the coming FY 2022? And just now you mentioned in terms of the headcount reduction, but yet, I think if I look at it on a quarter-on-quarter, the -- I think, OpEx was up. So just wanted to get some color there.
Louis, yes, I did mention last quarter on the call that we will continue to see some reductions in headcount into this current quarter. And that's exactly what we've seen, almost 1,000 further reduction.
Going forward, as long as the -- there's no further kind of step back in terms of aviation volumes, I do not expect there to be significant reductions in headcount going forward. If there's a continued lack -- slow recovery and the government reduces or the government reduced the government relief, then of course, I might have to revisit that. But we don't -- we expect that at the current volumes, we're -- with the support that we're receiving, that we're about the right level of headcount now.
Okay. And quarter-on-quarter OpEx increased, notwithstanding the decline of about 1,000 headcount?
Louis, the -- sorry, this is pertaining to the earlier question. And the other OpEx -- the other one is actually raw materials. It is volume related. It fell in tandem with the lower business volume. However, this is actually offset by increase in activities of our nonaviation food side, particularly Country Foods, right?
Okay. And secondly, in terms of the associates wise, I understand that the Indian cargo associates in Mumbai would have seen improvement in profitability. But if I look at the share of earnings on an associate -- on a quarter-on-quarter basis, again, it looks like India and Greater China have declined. So if you can share with us the reasons for that.
Yes. We had -- we took some -- those associates took some impairments and made some provisions. So you're seeing some one-offs items in the fourth quarter, just as they did some value renews and these kinds of adjustments at the end of the calendar year.
Yes. Just to add on to that, Louis, for the fourth quarter, we took quite a sizable impairment for -- this is more on the credit provisions, for 2 of our associates. This amounted to almost about $11.8 million, without which, I think the fourth quarter share of earnings would have been much better.
Got it. That's very clear. And maybe last one is more in terms of the plans for the next 12 months. I know previously, Alex, you also guided about how you are trying to start looking at acquisitions, partnerships. And right now, if you look at your net cash, it has continued to grow. So in terms of acquisition, M&A activity, what should we be expecting? And should there not be a meaningful deal that materialize, should we be thinking about resumption of dividend?
Okay. We do have a pipeline of attractive acquisitions and hopefully be able to talk about some of those in the near future. One of the constraints that we've had to operate under -- during COVID is that the due diligence of those acquisitions has been delayed in some cases. So that is constraining the pace at which we can execute on some of them. But we're very confident that they are value-creating opportunities.
SATS is relatively much better capitalized than a lot of the other players in our markets across Asia. And therefore, there are some value opportunities available to us to consolidate the market. I don't know if Manfred mentioned this, but we have paid down some of our debt subsequent to the end of the reporting period. So we did pay down $150 million of our term loan just last month. So that's something that you should be aware of.
We are conscious of the fact that we're now generating quite substantial positive cash flows. And therefore, some of the debt that we took on at the start of the crisis out of caution and to manage the uncertainty that we then faced, we are starting to pay back. However, we want to keep the balance sheet strong. And we'll continue to monitor the situation and look at what the right balance of debt versus the opportunities that we see.
In terms of dividend, I think I mentioned over the last couple of quarters that we have a view that we should not be paying dividends while we still need government support to remain profitable and to generate positive cash flows. As you can see, our EBITDA is approaching positive territory even without government relief. And therefore, that particular criteria is now looking within our grasp. But we also said that we must be profitable without government relief as well. And as you can see, we still have a little way to go with that. The government reliefs in the fourth quarter were SGD 51.2 million in total across the region. And so we still have some way to go to meet that second criteria.
Next, we have Rachael from UBS.
A couple of questions on your food side. So in Singapore, how are you organizing your food production across the various facilities you have? So an example would be like, what is the utilization rate of the Changi inflight catering center? Have you opened it? Are you allocating different facilities to produce different types of food, et cetera?
Rachael, thanks for the question. In fact, we have mothballed one of the facilities, one of the 2 facilities in Changi for the time being. Because by mothballing, we were able to save what would have been considered to be fixed cost in the past. So we've actually now been cutting into not just variable costs, but actually some of the so-called fixed costs.
There was only one of the 2 kitchens operating, and that kitchen is handling all of the airline business. It is also handling nonaviation business as well. So we are serving some of the nonaviation growth that we talked about earlier from the -- that flight kitchen because the growth has been such that the nonaviation kitchens are also very busy. So that's an interesting situation for us. We're obviously going to evaluate whether or not longer term we think that we can operate that way. And that will depend on the trajectory of the recovery of aviation volumes.
Okay. I guess another -- hold on, I just forgot the question that I had on food. I'll ask my second question. So you talked about the Singapore government grant being at about $51 million this quarter. Do you expect the level of relief to remain stable going forward?
I think it's hard to predict. Obviously, that's up to the government. What they will take into account is what kind of recovery that we see in terms of aviation volumes. So in a way, it's kind of maybe a self-solving equation. If volumes recover, then they'll be less likely to extend. If they remain subdued, then I guess they'll be more likely to extend.
But maybe a fuller answer would also include some clarification on how we've accounted for the existing already announced relief. And I'll hand over to Manfred for that because we haven't recognized all of it. We still got some accrued that we can recognize in the coming quarters.
Yes. Rachael, this is also an opportune time for me to answer some of the questions that came on regarding grants and the accounting treatment of which. Now we have actually accounted for $272 million of total government relief for the year. Now the biggest chunk of this would be actually the job support scheme that we received from Singapore as well as -- Singapore government as well as from Japan, right?
And how we have accounted for the Singapore portion is actually, we follow the ISCA guideline. ISCA actually published a guideline sometime in October last year that states that these ought to be accounted for over 17 months period. And -- but subsequent to that, the government also issued -- basically announced that there's extended JSS. Now how we have done that is we have actually accounted it over the period that is -- that our business has been affected and what the relief was meant to set up -- to help defray salary cost.
So we have taken -- before the extended JSS, we have taken it all the way to June of FY '20 -- June of this year, meaning covering FY '21, plus another 3 months of this FY '22. Subsequent to that, there was also a budget announcement saying that there's going to be an extension for another 6 months. So what we have done is we have used the additional 6 months, and we have spread it over the entire -- the remaining 9 months of FY '22.
For all intents and purposes, every quarter, we will be accounting for a portion of the job support scheme for -- in FY '22, albeit the quarterly amount is actually on the decline. And the results that we have shown you on a Q-on-Q improvement on the profitability is notwithstanding there is a declining relief that we received. I hope that is clear enough, Rachael?
Yes. That's very clear. I've just remembered my follow-up question on food. So you've introduced quite a lot of products, quite a lot of revenue streams for your nonaviation food business. Could you perhaps talk about some of the largest contributors in terms of earnings?
Yes, we can. You know that we have a large contract with the Singapore military that was preexisting. But we've actually grown our government business, so we've added further contracts in the -- for the Ministry of Home Affairs and the various services that they need to support.
Our retail distribution business is contributing well. That's the Country Foods business that we acquired the remaining 49% of in September 2019 for only SGD 17 million from BRF. That business is generating quite substantial margins at this point. It's been very active during COVID with its food distribution business and has been able to help its various customers to maintain access to sources of protein from around the world and, as a result, has grown its margins quite well. So I'd say that was the third that I would mention.
And then the last one, which we've been talking about for a couple of years now, but which is now starting to contribute is the China business. So the growth in top line and now contributing on the bottom line, too, is our Chinese food business, which has kitchens in both Kunshan and Nanjing. And we're building a third kitchen in Tianjin, which is already under construction.
And what's the status of the kitchen that you are looking to build in India?
Yes, we have secured the land. So the lease now has been secured. Construction has not started work, but there is work now on the design of that kitchen. And we've already started discussions with various customers about their interest in the potential product. So we're trying to build a pipeline well ahead of time.
And in the meantime, we can serve some of those customers from the spare capacity we have in the flight kitchens for TajSATS. So TajSATS itself has grown its nonaviation business. And SATS is also bringing contracts to TajSATS to subcontract. And eventually, those contracts can be transferred to the new kitchen when we -- when it's constructed and operational.
Question on JSS, I think it's the most popular question for this particular call. So thank you, Manfred, for answering that. We have a question from [ Jeffrey ] from The Edge. He said, "I recall in the previous briefing that SATS was ready to transport vaccines. How did that contribute to the company's revenue and earnings in FY '20/'21? And how will this contribute going forward?
Jeffrey, thanks for your question. The transportation of vaccines is part of the cargo business. And as I mentioned earlier, the volumes for air cargo are almost up to the pre-COVID levels. On a global basis, they are up to pre-COVID levels. And in our case, they are something like 90% of what they were already.
Vaccine shipments have contributed to that. So we've been involved in the inbound transport of vaccines and also the transshipment of vaccines across the region. I would say that it's -- although it's a high-value segment within the cargo business, because it has very exact same standards of temperature control all the way through, end-to-end, to keep the vaccines alive, it is still a relatively small part of the overall cargo business. We do expect it to remain a contributor though, because I think you're aware that most experts are now saying that not only will we all need to get vaccinated with 2 shots or 1 shot in some cases, but all vaccinated with regimens this time around. But we'd also need additional regimens probably on an ongoing basis going forward.
So I guess you would say, although it's not the main component of our cargo business, it will -- it is expected to remain an important contributor to the, what we think was an, ongoing growth in the demand for air cargo because of temperature-sensitive goods like vaccines, but also because of the growth of e-commerce.
Okay, Alex, thank you. I think that also in a way answers David's question, David from [indiscernible] Advisors about a question on cargo. Wanted Alex to share some broad details on the strategy to grow the cargo segment of the business over the next 2 to 3 years, given the headwinds of reduced cargo flights, raising cost and likely strong resistance by SATS' largest customers of any suggestion of price increase.
Yes. Well, I think I mentioned earlier that we believe, at this point, the air cargo market is supply constrained. So there's a lot more demand for air cargo from vaccines, other temperature-sensitive goods, from e-commerce, from high-value products transported across the region. Then there is capacity.
Before COVID, just to remind you, that something like 60% of the world's air cargo traveled in the belly hold of passenger jets. So what we have today is a situation where most of passenger jets are grounded. And therefore, the entire world's freighter fleet is extremely busy. The utilization is very, very high, and there's only limited passenger flights available to complement that.
Some airlines have been converting passenger aircraft into cargo aircraft, and that does continue. But that still doesn't make up the gap. So the result of that is that yields on cargo for airlines have gone up considerably. And therefore, the cargo operations of our airline customers are making a lot more money than they were just a year ago. And that obviously makes them less price sensitive. And hopefully, that's something that SATS can benefit from because they should, in theory, not be driving down prices so much, but more interested in the efficiency of the cargo handling operations that support their aircraft so they can turn those aircraft around rapidly and start to benefit from some of those higher yields.
Okay, Serena. Over to you.
Our next question, we have Rachael from UBS.
This time, it's on cargo. The question is on the nature of your cargo volume. So are you able to kind of break down what tonnage was attributable to SATS Coolport and eCommerce out of your total cargo volume?
Rachael, we -- I can give you an idea, actually, because if you look at the press releases at the time of the opening of Coolport, we talked about a cargo capacity of 250,000 tonnes per year of temperature-sensitive cargo. And at this point, we are operating closer to 350,000 tonnes per year. And that's -- I mean, including the increased demand from the vaccines that Jeffrey asked about.
So the total tonnage on a normal year is something like 2 million tonnes through the Singapore hub. And so you've got -- and I said earlier that we were operating at about 90% -- almost 90% of that as we come towards the end of the year, yes. And so you can expect, although it was lower than that at the start of the year, you can see kind of on a run rate basis where -- how much the temperature-sensitive cargo is contributing.
Okay. And I guess you talked about focusing on eCommerce as well. How does the pricing of eCommerce for you, how is it different from, I guess, the regular airfreight that you handle? Like how is it different and what are -- are there differences in revenue, yes?
Yes. e-commerce is a higher-value product than general cargo. It commands a premium in terms of the space that it takes up in the -- from an airline perspective as well. So it will supercede general cargo in prioritization if a flight is full. The e-commerce cargo will go ahead, and it commensurately has a higher pricing associated with it, too.
Our handling of e-commerce also has higher pricing. There are a number of value adds that we provide for e-commerce customers, which are not necessary for general customers. For example, the real-time track and trace of e-commerce packages and mailbags as they go through our system is something that requires more technology and not everybody can do. So that's one of the reasons why we're able to charge more for that product.
Those data are taken by the DHLs of the world and the e-commerce [indiscernible], et cetera. And they are transferred to their customers. So as a consumer, as you know, one can see the whereabouts of what's on track and trace of the e-commerce packages. And those data quite often will originate with SATS. So it's part of the value-add and therefore, part of the reason why we can charge more for e-commerce.
For your current SATS eCommerce hub, which you are in -- where SingPost is a major base customer, have you already hit capacity? Or do you have to expand capacity? And where else -- sorry, and where -- which other markets do you think e-commerce offers a very interesting value proposition?
Yes. We still have capacity in that facility. Although actually, the plans are a bit more exciting than just adding capacity. We intend to enhance the facility to allow more automated piece-level sortation. Piece-level sortation will allow us to charge an even higher price. It's the kind of capability that people like Amazon have built for themselves in their big hubs.
We believe that we can do that inside the airport facility, maybe on a smaller scale than Amazon, but for the e-commerce players that don't have their own sortation facilities in Singapore or perhaps not even in Southeast Asia. That will allow us to target new segments of some of the brand owners that go direct, so-called DTC, direct-to-consumer and don't sell across the ubiquitous e-commerce platforms. So there's a little insight there for you in terms of how we see the opportunity in e-commerce of continuing to add layers of value so that we can capture more of the total retail value of that service.
You mentioned about -- your question -- second part of the question was about other markets. We think that any of the major air hubs around Asia should have the same opportunity because by doing the sortation in the airport, you're automatically advantaged from a time and cost basis over doing the sortation off airport because you avoid the double inventorying, you avoid the towing on and off airport, and you obviously can turn around much faster if you're doing it all on site.
So we think any of the major hubs should have that advantage. And we, in fact, will explicitly try to add that layer of value on top of some of our cargo terminal operations that we have in those big hubs. And I don't have any plans to announce now, but I think you'll hear about those in the coming months and years because that's a very clear part of our strategy, to build layers of value on top of our cargo terminal operations in this way, whether it be through temperature-sensitive handling or through track and trace, piece-level handling for e-commerce.
Next, we have Ajith K. from UOB Kay Hian.
A couple of questions from me. One, in terms of the opening up of the -- opening of the Tianjin kitchen, what's the status of that? When is it expected to be completed?
Second question is relating to the nontravel-related revenue. How much of that is that from China? If you could give it for -- an estimate for this year, that will be very much appreciated.
Final question is on the cargo operations again. Just would like to have a sense on in terms of whether margins were stable on a Q-on-Q basis. Given that you mentioned that volumes have declined, I just want to get a sense on how the margins were for the current quarter.
Okay. Ajith, thank you for your questions. Tianjin is hopefully going to open in the middle of 2022. We obviously had some challenges in the early stages of the COVID crisis when parts of China were locked down, and there was delay in a lot of the construction projects.
At this point, actually, it is running normally. So credit to the authorities in Tianjin, who are able to create a safe environment so that the project can continue without further delays. We don't -- nontravel-related revenue is a new category for us. We're disclosing it today for the first time actually. So we don't actually break it down further than that. It's just to give you an idea of the diversification that we have outside of the travel-related revenues, which all analysts and shareholders will understand are muted at the moment and subject to the uncertainty that we talked about earlier. So we wanted to show you that actually we have a substantial and growing portion of our business, which is not travel-related and therefore, not subject to the same uncertainty relating to COVID.
Ajith, this is Manfred here. Maybe just to help you a little. It is not a substantial portion as yet, yes. The China contribution is not a substantial portion as yet to the nontravel. But we can't give you the details. And that goes to show that actually, we are -- in China, we're expanding quite aggressively on the nonretail side -- nontravel side.
Okay. Okay. My final question was on the cargo operations, the margins on the cargo operations, yes.
Yes. So cargo operations, as I mentioned earlier, are running almost back up to pre-COVID levels now. So that means that the utilization is good. We have -- we've -- in fact, we've redeployed -- retrained and reskilled and redeployed numbers of people from other parts of the business to support cargo as well. And so you can consider the cargo margins to be normalizing back to where they were in terms of pre-COVID. I hope that's helpful.
That is helpful.
Our last question, we have Siew Khee from CIMB.
Can you hear me?
Yes.
I'll just go through one by one, the questions, it's easier, I guess. I'm not sure whether you did mention it earlier, I could have missed it. Did you mention how much was the cargo contribution to group's revenue?
It's about 14%.
And so I think earlier on, you did mention about the -- there was some impairment on the associates totaling about $12 million. Can you actually split that out into Food and also Gateway? Just wanted to see how the core operations have been for the respective divisions?
So the one-off impairments associated with investments, these are both Gateway.
Okay. And this is recorded in Gateway line or is it recorded in the group before associates line -- non-associate line?
No, this is actually taken in a nonoperating charges line.
Oh, okay. Okay. So that -- okay. Okay. So then I like to say that the -- so Gateway associates and Food Solutions were in losses in fourth quarter. Is that right? I could be wrong.
Can you repeat your question, sorry?
The contribution from Gateway Solutions and Food Solutions associates in 4Q, are they in losses?
No, if not for the -- okay, so the credit provision that we have taken at the associate level amounted to about $11.8 million, yes, and -- taken at the associate level. Now if you back that out, then our share of earnings for associates would have to be in profit, yes. So that's the credit provision [ thing on the impairment ].
All right. Okay. And the credit is actually split between Gateway and Food line or mainly in Food?
Yes. Actually, we don't guide as such, but for you, yes, it is one of each.
Okay. No problem. Also, just moving on. I just look at Japan revenue, it has also dropped from third quarter. Is there anything that had happened that you want to actually elaborate?
Well, the Japan revenue is JFK's flight kitchen. So that's highly correlated with flight volumes in Japan. In the past quarter, the one before this, you remember there was some opening up of the domestic market in Japan, so there was more -- relatively more flights. The current quarter and leading up to the Olympics, in particular, the government has really constrained travel in -- even domestically within Japan. And therefore, the flight volumes have dropped.
Okay. Understand. And also in your discussion with the government, I take it that you are in discussion with the Singapore government in terms of how we manage our borders reopening. Is there any talk about what is a reasonable proper borders reopening that we should be targeting? Like is it end of this year or only more realistic in 2022?
On that question, I'd just point you to the statements made by the various ministers. I think it's a very complex situation they're trying to balance. But they have talked publicly about their desire to reopen Changi, but only when they're confident that certain air travel bubbles won't bring risk to the public health in Singapore. So I'm not going to add anything to what the ministers have said publicly.
Okay. And my last question is nonaviation revenue grew, and that was because of some contracts from the government. Can I check how long are these contracts going to be lasting? Can we use this as a good sustainable base going forward for nonaviation revenue?
Yes. Nonaviation revenue includes new contracts from government and nongovernment entities. A lot of the retail distribution, new contracts with -- for food services contracts that we've won and indeed, the security contracts are not with government entities at all, they're with commercial entities. Those contracts can be 2 to 3 years normally. The government contracts that we have won, similar time lines. Some of them a bit longer than that. So you can take all of that information into account.
Thank you, everyone, for joining the call. We hope to meet you in person at the same meeting next year. Have a good evening. Bye-bye.
Thanks, everybody.
Thank you.
Goodbye.
Thank you. Ladies and gentlemen, this concludes our conference call. You may now disconnect. Thank you.