SATS Ltd. (S58.SI) Earnings Call Transcript & Summary

I hope all of you enjoyed the video. And some of you would have, in fact, had the chance to experience our digital capability showcase next door as well as some of our breakfast offering. So rest assured, there's more exciting things lined up on the food front. So I will now take this time to introduce our President and CEO, Alex Hungate, to give the opening address. Alex, please.

Thank you, [ Sally ], and welcome, everybody. Thanks for joining us today. I know there are a lot of competing events. It just so happens that 10:00 a.m. this morning is like the peak of the peak of all the various earnings announcements, especially for transport companies for some reason. So we're really pleased that you came to join us. We have the extra magnet of the food later and for breakfast. So maybe that was the clinching factor. We like to think it's also to do with our relationship with you over the years, many familiar faces, and it's been great that so many of you know SATS really, really well at this point. Because then we can talk to you in a very meaningful way this morning about where we are today, where the company stands, and that's what I'm going to cover. But then Kerry is going to do most of the work this morning because he's going to talk about -- along with Bob -- where the company is going and then Spencer will talk about sustainability, which is a very important theme for the future as well. So I'll be doing less work than normal. But I want you to know that I'm equally excited about the prospects ahead of SATS. My decision to leave SATS is really more about my belief that CEOs shouldn't overstay their welcome. It's been 8 years for me. So nothing to do with a lack of opportunities at SATS, as you'll hear about in lots of detail this morning. So let's get started. I think any follower of SATS obviously needs to read the tea leaves around the aviation volumes because that's one of the key drivers for our business. So let's start with that and start with the passenger side. These are the IATA forecasts. So IATA is forecasting and these were done in July, these forecasts that by 2023, global aviation will have reached the same levels as it was pre-COVID and that Asian passenger volumes will only reach that level 1 year later in 2024. And the reason being, of course, in Asia, we have a lot of big markets like China, for example, which is a very big driver of Asian volumes, who are taking a more kind of contained, cautious approach towards opening up. The assumptions that they made for Asia was that there will be limited international flight volumes in Asia before the beginning of 2022. And so back in July, that looked like a reasonable assumption. I think now there are signs of hope that we might restart a bit sooner than that with some of the vaccinated travel lanes that we're seeing here in Singapore. So that's a positive. Obviously, the announcements out of Australia, the announcements out of Malaysia, et cetera. So we'll see whether IATA revises that. But I think it's a fair base case that we would look at something between '23 and '24 in the Asian context. Now cargo has been a lot more positive throughout. We've been updating you every quarter on this. Cargo has given us a really kind of solid baseload business that has grown very consistently over the period of the pandemic. It was obviously impacted at the start, but it turns out that air cargo is a critical part of any resilient supply chain. Therefore, there's an overdemand still for the air cargo market, which has resulted in an increase in yield for airlines. Singapore Airlines, yesterday when they announced their results, were talking about the fact that their cargo business was generating positive earnings and cash flow for them. And I think all of the cargo airlines -- all of the passenger airlines and all of the specialist cargo airlines basically are sold out and their rates are very healthy. That's because the global demand is already 9% higher than it was pre-COVID. So unlike passenger, it's already rebounded and is beyond where it was driven by a number of factors, e-commerce, where many people -- even though they may be working from home and not moving around so much are -- have shifted across to the habit of buying more and more online. And then the other thing is the medical industry. So pharmaceuticals, in particular, and the vaccines, obviously, as a core of that with increased demand for the cold chain aspects of air cargo which, of course, will outcompete for those high-value relatively lighter, more dense products that you tend to find in the pharma medical area. That has been beneficial for SATS and all of our associates, except for one, which I think is the Oman Associate, which is losing -- which lost just marginally a couple of hundred thousand dollars in the last quarter. But everything else is positive. In Oman's case, it's because Oman Airlines was grounded for a period of time during the quarter, but that's -- they've now restarted. So I think we'll be able to safely say that those cargo associates will continue to contribute well to SATS as well as, of course, our cargo subsidiaries as well. So our cargo revenue jumped up 45% in the quarter year-on-year. And our volumes of both pharmaceutical and e-commerce cargo north of 40% year-on-year as well. So those 2 higher value components, e-commerce because of its track and trace and the express nature of the handling, and then pharmaceutical because it's cold chain and therefore, has higher handling standards, are both driving that growth in revenue. We, here -- some of the detail that we've been disclosing. At the half year, we gave a lot of detail. You can see here, there's the quarterly evolution of each of these. It's probably worth me just talking you through this because I know you're all trying to draw trend lines and work out what's going to happen next. So I'll give some context. A year ago in the second quarter last year, you remember, there was a bit of a false dawn. We had a surge in flights and a surge in passengers after the first round of vaccination but before the delta variant. And that's what you see here in terms of flights handled and passengers so the first column and the third column there was a spike. We're still below that in both cases of flights and passengers. But you can see after the correction, there's been a more steady increase. These numbers end, obviously, in September, so it's before the first vaccinated travel lane to Germany. But you would -- again, you would have heard Singapore Airlines last evening announced that the vaccinated travel lanes made a major difference for them in terms of their load factors. And since then, there have been announcements of more than a dozen new vaccinated travel lanes to add to the German one and the Brunei one. So those vacated travel airlines are not in these numbers and should start to show through in the October, November, December quarter. Meals served, you can see -- ought to be correlated -- if we were a pure aviation caterer, it would be correlated directly with passengers traveling. In this case, we've actually outperformed because passengers traveling has been on a successive decline since the second quarter last year. But in our case, the meals catered have actually been on a successive rise. The difference, of course, is the nontravel-related catering businesses that we've been investing in over the last several years. And in fact, we accelerated the investment into those new areas during COVID as we redeployed thousands of people to support the growth in those areas. So you can see that, that continues to climb and in the quarter, it continued to climb again, and we expect that non-aviation food business to grow, not just over the successive quarters, but over the successive years. And I'm going to let Kerry talk about that later because he'll give you some idea of how big we think that can become. Then the fourth column, cargo, I mentioned earlier, has been consistently growing. 421,000 tonnes in the quarter is a good number. It's not the highest number we've ever done. I think the third quarter -- third quarter typically is our -- so this -- the quarter that we're currently going through, is typically our largest cargo quarter because it includes Singles Day, 11/11, which was just yesterday and of course, the pre-Christmas ramp-up as well. So the third quarter, before the COVID pandemic, we hit 489,000 tonnes in that quarter, which was the highest ever until that point. So we're still not quite at the peak that we've seen in cargo, but we expect to continue the growth in cargo because there -- as I mentioned earlier, there's more demand than supply in the market. And as the passenger flights come back, the belly hold capacity from those flights can be used by the airlines to sell this high-yielding cargo product that they have. And then on the far right-hand side, you'll see the number of employees. Unfortunately, obviously, we had to make some difficult decisions and cut back on the staffing as the pandemic hit. We did that very rapidly starting in the first -- in the fourth quarter of the year. So starting right after the issues in China. Because of our operations there, we realized it was going to go very, very quickly across the region. So probably among Singapore companies, we were the first to make those cuts. We used to have at the peak, before COVID, 17,500 employees. So you can see that's way beyond this time series. And so the couple of quarters before this, we actually cut the most, then down to 14,000. And now we've been steady at about 11,000 for the last couple of quarters. And we should expect that to increase now as we get more and more flights coming in, and we're gearing up for that. But we like to think that because some of the productivity improvements and fundamental changes that we've made during the pandemic, investing in technology and process changes, that the ramp-up of employees will be more productive than it was in the past before COVID, and we'll talk a bit more about that. So the other key aspect that I want to emphasize this morning and the reason why I'm very confident about the future at SATS, is that we have enhanced our market leadership position in Asia during the COVID pandemic. We were already the market leader in cargo with about 9% market share and in catering with about 12% market share across the region. But we've been taking this opportunity because we were relatively better capitalized and more confident about our liquidity than some of our competitors, we were able to win market share during the pandemic. And we've done that in 2 areas. One is aviation catering, where we've been able to win contracts steadily. Some of our international global competitors have pulled out of the region. So for example, in India, the global -- 2 global competitors pulled out, we were able to win those new contracts from them. So as the ramp-up comes back, we expect our steady-state market share to be at a higher level than it was pre-COVID. And the other thing we've done is we've continued to invest in the cargo operations. So we've been building out in Saudi Arabia even during the pandemic. And we now have 3 locations in Saudi Arabia as an example of our longer-term view in terms of enhancing our market share. And that's not all. You shouldn't look at these as just stand-alone sites, you should look at them as a network of sites, which are linked together through technology. So we talk about the quality corridors, which have digital linkages between them using our new [ Costa ] system in the cloud, which we call -- we rebranded cargo insights, which shares data between ourselves, the airlines, the freight forwarders and the agents in each market. And in fact, in 9 markets also linked into last mile providers that come to the airport, collect the e-commerce packages and then go to the last mile. So you can see that SATS is now creating a network across the region to add value to the individual operational excellence it brings to each cargo terminal and then linking those into last mile. That's very real. And then on the cold chain side, we've got additional certifications that distinguish us from our competitors in terms of our reputation and the excellence of our handling. So HASSA, for example, IATA certification, CEIV for pharmaceuticals and then most recently, CEIV for fresh because there's been an increase in the demand for perishables as well. So the first few corridors for CEI Fresh (sic) [ CEIV Fresh ] were between Singapore and Hong Kong, which you can imagine is a very active route as well. So you should think of this as not only a picture of the leading market share provider for Asia, but also as a network that we've invested in to create value around the network. We've invested a lot in innovation, too. We acquired Monty's in March, April of the first year of the pandemic. And a lot of people said, "Wow, that's quite bold of you to continue to do acquisitions during this period. But we did it because we knew that the future is about innovation. And you can see the picture underneath that is actually Kerry, proudly, actually demonstrating some of the products from the ventures initiatives that we've launched. So there was a press release this week about our ventures co-founded by EDB, so very grateful to EDB for that. But this is like corporate venturing, which is already, in our case, spun off a lot of very powerful capabilities and new products. So next to that of the bottom, you can see some of our Farmpride products that we've co-branded in a brand accelerator program. So people like Boon Tong Kee, Bismillah, and this is KEK's Seafood, I think, in here as well. So these have gone on to Singapore Airlines to help them showcase their local favorites, which has been very popular. It's also going into retail outlets in Singapore as well. Above that, you -- this is a part of -- this is a snapshot of the highly automated frozen capabilities that we've acquired in Food City in Thailand, which gives us more scope. And in fact, we have won the onboard hospitality prize for both sustainable packaging, which was Monty's, and then also for innovation -- using sustainable packaging from Monty's for Singapore Airlines. In fact, they were those -- the sealable sustainable boxes that you might have seen if you had breakfast here this morning. So this is recognized not just in Asia but on a global basis by these awards. Next to that, the Indian dish is signaling another announcement we made this week that we've done, the groundbreaking on our new kitchen in Bengaluru. This will be the largest central kitchen ever constructed in India by anybody. So we hope to have that operational before March 23. And then we've got -- below that, that's our cold chain facility in Saudi Arabia. We started in Dammam in the Eastern province and then now we have both Jeddah and Riyadh. So we have -- we're the only international operator to be allowed to do cargo handling in Saudi Arabia. Up until now, it's been only the 1 local company doing that. So that's a recognition of our reputation and the fact that we can link Saudi Arabia to this big network that we mentioned earlier. In Security Services, we did a pivot during the pandemic. Most of our security services have come from aviation in the past. And we realized that the combination of technology and people that we've been already espousing for our aviation customers was very valuable to non-aviation as well. So we've made big inroads in winning new contracts for non-aviation contracts, and we'll continue to do that. . And then this is our new digital control tower where we bring customers in and we show them how we can help them optimize decision-making using Industry 4.0 techniques like IoT monitoring and making -- helping making our people more productive as well, as you saw in the video from Vincent talking about the Mosaic launch that we've just done, which is a dynamic rostering system, which allows our people to be rostered in real time. So the big message on this slide is that we haven't been standing still during the pandemic, we've actually made major investments in our capabilities, in productivity and in service levels, which should help us as the volumes rebound. Here is the quarterly evolution of revenue and operating profit and expense. You can see the impact of the pandemic was most severe in the first quarter last year, and has been recovering since then. You can also see that there have been some increases in expenses as the job support scheme starts to taper off because this is net of those. And also, as we've had to engage with the authorities in terms of some quite time-consuming and delicate operations at the airport where we have to handle the operations in a very different way during the period of the 0-COVID type approach to travel. The good news is that actually, the authorities are now starting to relax some of those requirements in terms of handling. And as the volumes come up in this current quarter with the vaccinated travel lanes, there are some easier ways of operating. So that should allow us to ramp up and acquire -- bring the manpower in at the right rate going forward. And here's the result in terms of the profit after tax miscellaneous items. We've been trying to show you the core PATMI, so that's without the one-off impairments and provisions. You can see where core PATMI in the middle and the PATMI diverge. During the period of pandemic, we were making quite large provisions. And you can see that, that actually that has ceased now, and there's a convergence of core PATMI and PATMI. And then you can also see the EBITDA. So we are positive EBITDA. And in fact, the EBITDA has continued to be positive. You can see here for now for 5 quarters. So it shows the cash flow generation capability of SATS remains strong even under these very difficult circumstances. Still not quite positive without the government relief. You can see that gap is closing, but still not quite positive, but it's getting quite close now in terms of being EBITDA positive even after government relief. So that's an important milestone because -- so it influences our dividend policy. As we've said in the past, we would need -- we feel that it's appropriate that we should be EBITDA positive after government relief and then also profitable after government relief. So without including government relief before we can -- it's right that we begin to start paying dividends again. That's still our policy. And you can see, as I mentioned just earlier, that the EBITDA even not including government relief is almost in the positive territory. A bit more work to do on the PATMI side, but hopefully, with the new volumes that will not be too far off as well. We still got a very strong balance sheet. Manfred took on additional liquidity during the crisis to make sure that we didn't have any issues. And as I said, that was a really good decision because that gave us strength that our competitors don't have and allowed us to execute on some of these market share gains that I talked about earlier. We're still net cash by about SGD 150 million. So we have a lot of capacity still to -- for our growth strategy, which is really what it's all about. So the main message I have today is that SATS is in a relatively stronger position than it was at the start of the pandemic. Our market share is higher. Our capabilities are stronger. And relative to our competitors, we're also stronger. So we see many opportunities ahead of us. I personally am very confident in the leadership team. I'm delighted that Kerry is taking over from me. I think he'll make a really good President and CEO going forward. And so it's appropriate now that I let him do most of the work. I hand over to Kerry. Thank you very much. .

Thank you, Alex. You will now hear from our President and CEO-designate, Kerry Mok.

Good morning, everyone. I guess, unlike Alex, I don't know many of you guys, but I hope over the next few months, I get to know you better and I can share a bit more about what we're going to do going forward. Let me quickly just share a bit about the overall strategy going forward for both food as well as gateway. And later on, I'll dive deeper into the Food Solutions side, and then I'll pass on to Bob to talk a lot more about the gateway portion. This slide encapsulates exactly what we're going to go and focus on going forward in terms of SATS strategy. So really, on the left-hand side, what you see in Singapore, we really want to establish market leadership. I think Singapore, us being a Singapore company, we must be very strong in our home market because being strong in the home market gives you the ability to drive growth overseas. And therefore, we will continue to invest -- and you heard from what Alex said earlier, we have been investing a lot in digital capabilities, not just in the gateway side, but also on the food side as well. This studio itself is 1 about consumer insights. It gives us a lot more know-how about how to come out with better food and types of food that consumers are looking for. And for us, in the past, we've always worked with airlines and all that. But increasingly, we are going more towards the consumer side. And this, as a food company, is important. Because if you understand trends and all that, you get early in the trends, you can actually help your customers succeed in food choices. So that portion is something that we will continue to invest and strengthen. Now in Singapore, on the food side, maybe many of you guys may not be aware of, we are the largest frozen food importer -- poultry -- in Singapore. So brands like Sadia and all that, you can actually see that in the supermarket. We are the largest in Singapore. We have a market share of about 40-plus to 50% in there. And that gives us scale in supply chain. And as part of our strategy, we will continue to invest in that. We also have Country Foods, which we bought 100% of it just before COVID, and that has been really good for food because it allow us channels that we probably had struggled to get in, in the past. But with Country Foods, we are distributing in food services company. We are distributing to retail channels. So we have trucks that deliver stuff to all our customers. So from a supply chain standpoint, we really have that flow going. Now adding on more products into the supply chain is the way to actually increase share of wallet, but at the same time, improve your profitability as well. So that is something that we'll continue to invest in, and we have plans to actually scale up our operations here in Singapore as well. Food innovation, as I mentioned, this is something that's important. But innovation is not just the inside side of things, it's also about the food technology. We are very, very conscious that food technology, long shelf life extension is going to be a critical component for Asia. When you look at the Asia market itself, we talked about cold chain a lot, but the last mile cold chain is actually not very well developed still. And for some of the food safety and all that, the cold chain component is actually important. So we are investing quite a bit in terms of long shelf life extension through ambient. We think ambient food technology is going to be very important for Asia going forward, particularly in Southeast Asia, where the cold chain may not be as mature as places like Australia and Japan. And of course, in Singapore, during the pandemic, we have extended our Security Services. We have moved into non-aerial security, and that has been a big help to our revenue growth as well as profitability. So that will continue to drive that. We have got a license to do training as well in security services. So we intend to expand on that and grow that part of the services here in Singapore. On the overseas side, and clearly, with our market leadership here, with the know-how, domain know-how we have here in Singapore, we are able to then take this know-how and be more successful overseas, right? So just -- I mean, I don't know if we have a chance to see some of the digital solutions we have in place, but those digital assets will allow us to go to market and differentiate ourselves and how we work with our partners and all that will be very different because we're bringing real domain knowledge and assets that we can share with our joint venture partners. And that's something that we believe is important for us as we develop our overseas growth. So food, you would have heard Alex mentioned that we have invested quite a bit in food capacity. But the one that I want to highlight very critically is actually the 1 that we made in Thailand. You may ask,"Why Thailand?" Actually, we took a long time to decide whether it's Thailand or elsewhere -- Malaysia, Indonesia -- but Thailand is actually the kitchen of the world. And we picked Thailand because Thailand has a lot of licenses, agreements that can export to European countries and all that. And for food, the exportability is actually very important. So we actually use Thailand as our main -- will be our main production factory going forward. It's going to help us drive scale. We've bought the company that gives us the ability to scale up the facility to be a much bigger capacity than we have today. And that Thai factory is going to help us serve both aviation and non-aviation business as well, right? Now once you have put production, what's next? You actually need channels. And we have that channel here in Singapore through Country Foods. So one of the key focus for us is actually expand on that channel distribution across Asia. So when you have the ability to develop good food, cost effective as well as delicious food that people would like to have, but you need to have the distribution channel. So we are very focused in developing that channel going forward. And this is, again, something that will drive the food strategy as we look to expand across Southeast Asia. And the last but not the least, the adjacent services. Again, cargo is a very important aspect, but not just a general cargo but in particular, the e-commerce side as well as the perishable. These are the segments where we believe we have an advantage to the hub position we have here in Singapore. But I think importantly, we've been building a lot of relationship with both -- and you'll hear that from Bob later, we have built relationships with the e-commerce players, with the postal guys as well as integrators. And we think we can continue that model to actually drive that growth going forward. And having the network connectivity plus the system will put us in a very different position compared to our competitors. And of course, at the end of the day, we underpin by core capabilities that we have here in Singapore. So around the culinary authenticity, and I hope you have a chance taste some of the food later on as well. The safety standard, I cannot overemphasize the safety standards that we emphasize a lot -- not just on the food side, but also on the aviation side as well. This is something that will hopefully set us apart from our competitors. And of course, we have invested a lot in supply chain. I think the last -- since I've been here, we've said we have been investing a lot in supply chain. In fact, our supply chain system just went on live a couple of weeks ago. And we now have the basis to actually take that forward to our overseas unit as well. So Thailand will be next where we'll start to launch our new supply chain system into Thailand. So what's our priorities going forward? You heard me talk about aviation side, hub handling is very important. Again, Singapore is a key hub. We are -- I've always said this to my colleagues as well. Best airport in the world. We're one of the best airlines in the world. We have to be the best in the world. And we've got to set ourselves the standard to actually bring those standards to markets that we choose to compete in and differentiate ourselves. So this is something that we will continue to focus on and take this forward. Aviation catering is an important part of our business. And I will say this, although it's been in the doldrums for the last couple of years, we believe when it comes back is important. And that channel for us is important to showcase product. Earlier, Alex mentioned about how we have now brought branded products on to the aviation sector. You think about it for the last, what, 40 years, we have always had the same casserole and all that. I mean, you guys travel as well. But in future, we're going to bring more branded products to interact with the consumer. And I think that will be something that is a differentiating factor for us as an airline caterer, because the days where you just serve a normal meal and all that, I think the consumers, as we know, are getting more and more -- they demand a lot more. And now you have social media and all that, they want to have the latest food and trends. And we want to be able to partner to bring some of these brands on board as well. And that's why we launched the announcement a couple of days ago around our ventures: The ventures component is going to work with a lot of branded companies. And we're going to help them utilize our know-how to actually develop the business going forward. So those are things that not only affects the aviation side, but also gives us the ability to penetrate the other segments. So whether we are serving food in the institutional catering or even in some of the retail channels, bringing branded product is going to be something that's important for us. And of course, all these are supported, but like I said, supply chain as well as our tiered production. Maybe I'll give a little bit of update a tier production later on in my food segment. But for cargo itself, I just want to highlight that, like I said, cold chain, e-commerce and security are things that we will continue to invest in and take that forward. Key enabler for us is very simple. The people and the culture is very important. And I think over this pandemic, we have spent a lot of investment in our people. And a lot of our people are now multi-trained so that when the volume comes back, we have a much better way to deploy our folks. We are looking at technology. I think technology is something that will differentiate us. But I think I want to highlight 1 point, which is partnership. As we expand overseas, whether that's India, that's China, that's Vietnam, we believe working with our local partners there is going to help differentiate us. But I think importantly, we can bring synergies into the local partnership, and that's going to help us have the market access on ground. This is a bit of a breakdown on our numbers, right? As you can see in the first half, our travel versus nontravel is almost on par -- nontravel went up to about 47%. And if on the food side, you can see a lot of nontravel revenue. right? Over 70% is actually nontravel. Large part of it is, frankly, our Country Foods business that has been driving a lot of revenue growth for us. We've been able to -- despite the pandemic, as you would have heard, food -- getting food supply sometimes was a big challenge. Because of our dominant position, we were able to increase our supply sources and therefore maintain that flow coming to Singapore. So that, I think, helped us to get some of the market share from competitors. Now Aviation side used to be the largest now is at about 30%. We will see that grow as long as passenger traffic comes back. And once that grows, you will start to see the shift as well in terms of our margins as well. And on the gateway side, 1 of the highlight for us, frankly, has been security and the cruise side as well. And of course, cargo without a doubt, has been the star for us. I think for many airlines know that cargo has always been -- cargo has been a shining like for them. We have seen that in [ SA's ] result yesterday as well. Now going forward, what are we going to do? Like I said, we are going to focus a lot on channel development. We want to reach out to more channels right across Asia. I'll talk a little bit later about what we have done with Monty's and how the collaboration between Asia and Europe is starting to bear fruit as well. And of course, you will see cold chain is something that we will continue to invest in our joint ventures going forward. We'll bring the know-how, the certification into the places that we operate in. And you'll see for food, Country Foods is going to be the tip of the spear for us because it's going to represent our consumer-facing brand going forward. House of brand approach is what we're going to focus on, and we'll be working with partners to drive more distribution products through Country Foods. I'll talk a little bit about how we're going to drive that kind of growth. If you look at the slide here, we have spent about $7-plus million, $100-plus million, $700-plus million over the last 5 years, both in terms of CapEx and investments, which is M&A and all that. And you can see Singapore continues to take a large part of that, primarily actually in the Singapore hub [ zone ], it is very asset-heavy, and investments we put in is all to drive productivity gains. So a lot of the systems investments and all that is actually to help us get there. So that's why we're spending quite a fair bit in Singapore. You can see in terms of where we are focusing on investments is outside of Singapore. ASEAN is just leading about $138 million. And of course, China is the next one, right? India will be -- India, I think we are very bullish about India. Because our partner, the Tata Group has just bought Air India, and we believe that's going to give us a lot of leverage as well as opportunity to be even bigger than what we are today in India. So we have targeted $1 billion over the next 3 years. You see quite a bit of that. We hope it will be more for M&A investments that will help expand our operations overseas. Just in terms of -- I guess it's the first time we're sharing this, this is a target we set for ourselves, right? By FY '22, we want to be about $3 billion in terms of revenue. And we have set ourselves, we'll say that by '25, we think aviation is going to come back to where we were in the past. The nontravel component will continue to drive that growth. There's questions around, oh, if aviation comes back, do we still want to invest in nontravel? The answer is absolutely yes. Because in 5 years' time, our portfolio of our business must be one that is well represented and one that gives us the diversity, resiliency in terms of numbers. We have learned from the pandemic that we need to utilize our market-leading position in aviation to try and drive growth elsewhere. So we, as a team, have decided that we are going to continue to focus on nontravel side. And in terms of investments, there's a split between food and gateway of about 60-40. But that's something that we have in our plans. Of course, when target comes on board, that ratio may change. But by and large, we have set aside some investment to drive our growth. So $3 billion is a target that we set for ourselves. Can we do better? Can -- that's something that I think as a leadership team, we'll continue to evolve and move that along. But by then, you'll see that both for food and gateway will be something where it's a bit more spread out as well. In terms of travel, nontravel, you can see the shift from 14% to about 35% for nontravel. Of course, not forgetting that, by then, aviation will come back and therefore, aviation will be at full steam. So I hope that gives you a bit of idea of general strategy of where we are going, where we're going to focus on. Let me jump straight into the Food Solutions side, right? I mean, obviously, I've spent the last 3 years working very much with my team and with the management team to drive this. If I may, when you look at the food side, individually in the past, we are very focused on 1 segment. But actually, when you tie all that together, we actually play across the full value chain. From the time we bring proteins coming in, we do the processing value add to the time we convert them to meals, all these are value-adding steps that actually allows us to take a clip on the profits, right? And in the food business, it's about scale. If you do not have scale, then you're going to struggle. And frankly, we have seen many SMEs struggle to get scale, struggle to invest in the right technology to drive the scale. Why is it that the CPs of the world is able to generate product at a certain price point? It's because they have scale. They have a lot of channels out there. And of course, we're not going to compete directly with these guys. But we're going to bring our own flare to this, right? Ours is about the right food technology, the right culinary skills that we have. And of course, food safety is very, very important. And the food technology we're going to put in place is going to differentiate us from the market. And that's something that we believe is an advantage that most manufacturers do not have. We're not a food manufacturer. We are actually more of a food solutions company, and therefore, utilizing our know-how across the value chain to differentiate ourselves. So I will give you an example. In terms of raw materials, if you just do it [ in Natura, ] which is a commodity play. But if we're able to do some value adds in terms of putting the spices, and putting the flavorings, the value goes up. So we are going to focus a lot more on such value adding in the full value chain to take a clip more of the value that's generated. So that allows us to then go into channels that we probably have not done in the past. And also, it allows us to be responsive to the market, so places like this and Monty's allows us to understand consumer side much better. I'll give you a bit of a case study later when I move on to the next few slides. But China expansion in Singapore today, if you go to some of the Cheers outlet, you start to see Country Foods, Europastry. So the bakery segment is something that throughout the pandemic, we have focused on trying to build that category. We believe the bakery category, again, leveraging on what we have done in the aviation side, we have expanded that into the retail channel, and we'll continue to do that as well. This is the network that we have. And 3 key components in there, right? The strategic sourcing supply. We believe this is actually an advantage for SATS. And the 3 tier processing, as I mentioned, 3 tier, meaning the Tier 1 being Thailand, high-volume, lesser SKU, central kitchen being more of a large batch, but able to customize the food product. And the third tier really is just assembly. And that's how we're going to drive scale through this model going forward. And this is something that we are already starting to work on here also in Singapore because by redoing the whole supply chain, we can drive scale and get better efficiency going forward. And this was in China, Southeast Asia, China, India and Singapore, is what we looked at. Now you can see all the production capacity that we have put in place or going to put in place -- it's quite a lot, right? And you heard India is going to be the largest central kitchen in India with modern technology as well. We believe that's going to set us ourselves apart from the other players that's out there in the market. And the Singapore Global Innovation Center -- SAT's Global Innovation Center is made up of Singapore and U.K., and that's something that I'll explain next slide, how it works. So I'm pleased to announce as well because of the setup that we have with Monty's in U.K. as well as in Asia, and we have been investing quite a fair bit together with Temasek on alternate protein. In fact, next week is the Agri Food Week. We're going to host an event here for alternate protein. We have worked with Monty's and we have developed a product that we -- relationship we've built in Singapore. We've brought the alternate protein into U.K. Monty's worked very hard to create a new product using the same raw material. And I'm pleased to say that in April next year, we will be supplying to Marks & Spencer, across all of U.K., alternate protein product that was developed by Monty's. You just imagine, because we're able to utilize insight -- and the U.K. retail market is not easy. But we found that actually alternate protein has a white space in there. And handheld [ hip ] snacks for alternate protein is something that is not as well developed. Asia is actually leading in terms of a lot of alternative protein products in Singapore. We're able to take the product, work with our team, both teams in Singapore and U.K. develop the design of it, the taste profile and Marks & Spencer has agreed to take on those products. And so we are in the midst of looking for the production right now. In April next year, we're going to launch that across U.K. You just think about if I can do it in U.K., I can do it in Australia, I can do it in many places. So we want to use food innovation as a means to drive more products going forward. And you can see house of brands is going to be something that's important for us because branding is going to set us apart from just being a commodity play. And by utilizing all our production facility, we're going to try and target the various channels through the consumer side, right? Food is food, and if I can utilize the same food to supply into multiple channel, that's how you're going to get scale. And innovation is going to be key. And I just want to say a few things, future food is important for us. We will focus on future foods, which is new technology and alternate protein. We think that's going to be critical. Digitalization, we are spending quite a bit of time and effort on digitalization. Our supply chain will have digital control tower as well as we manage our production across the region. Sustainability is going to be very critical. We have a chance to actually reset some of our assets here in Singapore to be more sustainable. So that's something that we will continue to invest in to make sure that when it comes to food waste and all that, we will be in a market-leading position. And last but not the least, corporate venturing, we believe this is going to help us differentiate ourselves. And when we do venturing, it's not just [ sets ] a loan, but it's about creating an ecosystem, working in startups, working with other companies to come together to drive new business concepts. And this is something that I personally believe is going to help differentiate against SATS and find new opportunity for us. With that, I took a bit of your time, Bob. So I'll pass it on to you.

Thank you, Kerry. We now have Bob, our Chief Operating Officer of Gateway Services. Bob, please?

Okay. Good morning, ladies and gentlemen. It's a pleasure to be here. I think we have quite a lot, [ it adds up ], so I'll try to make it short and sharp for the gateway services side. So essentially, this is a net snapshot of our imperatives that the gateway services will be focusing on. Very simple strategy. Number one, we need to continue to build our capability, the foundation. We need to strengthen our core competencies, and we need to develop new unique selling points to be able to cater to a new customer base. So how we do it is by leveraging on technology, obviously, digitization and also our people, which is most important in our industry. So how are we going to accomplish this goal, 3 goals that we want to accomplish? Number one, market leadership as what Kerry has mentioned, is so important. Singapore Airlines is our base carrier; we need to prepare for the rebound. And therefore, this is our key priority. We are focusing on that because this is most important for us. Secondly, we need to modernize our operation and one of the ways of modernizing is none other than as you can see, is digitization. Despite the pandemic, as you can see, the show and tell outside there, we've done lots of projects from manpower deployment to cargoes, insights and so on and so forth. All of them is for our future to be able to provide more visibility better decision-making. And ultimately, we also want to ensure that we can drive productivity through our use of digitization. And finally, when we have all these new capabilities and unique selling points, the idea is to be able to replicate them -- replicate them to all our JVs overseas and wherever we are present. The next strategy, obviously, is to focus, to nurture and to propel the growth and investments that we've made overseas. That is another growth strategy that we have. And I'm pleased to let you know that there have been several developments, especially in the cargo space. We are building a new terminal facilities in Riyadh as well as in Jeddah that will be completed in 2022 and 2024. And over and above that, we are also going to expand our CTO presence in Malaysia beyond just KL, but also in Penang and also in Kota Kinabalu. Because these are international airports, one at the north part of West Malaysia and the other one in East Malaysia. So these are some of the key developments. . Finally, the third strategy is none other than can we expand our repertoire to include other businesses. And that's where the cargo verticals come in. E-commerce. Everybody talks about e-commerce. It's just booming, and we have a piece to play in that. Similarly, for medical products, perishables, it is also moving, transport -- the vaccines and so on and so forth. And we are also part of that whole value chain, logistics. And finally, we spoke a little bit about the opportunity that's available at the security space. . Let me just give a bit more detail on how we plan to grow in these new cargo verticals. First and foremost, I think traditionally, we have always been -- who is our core customer? Has always been the airlines. But actually, throughout the air cargo value space, similar for food. I think we are following quite similar to food. Are we able to expand our value chain, our customer base by serving and providing value-added services to the players in the air cargo value chain? For instance, the e-commerce platform players, as you know, they are rather big at the current moment. How about the brand owners, also the integrators? They are now doing booming business nowadays carrying a lot of e-commerce products. And finally, the freight forwarders. So how are we planning to do it? This is the capability that we have. Number one, where we are positioned, we are in the Singapore hub. Over and above that, we are also in a network where all these centers are growth centers for e-commerce, growth centers for pharmaceutical. So we are in the right location. Secondly, we are also unique, unique because we are at the air site. And being at the air site means 1 advantage, we will be the first to be able to intersect any shipment that comes in. And when we can intersect that shipment, we will be able to provide what we call quick transfers, be able to do value-adding services at the airport itself. And the benefit to the customers is none other than #1. We are able to reduce cycle time. Number two, we'll be able to reduce duplication of work and therefore, costs. And number three, we'll be able to provide track and trace, which currently many are unable to provide in the middle mile. So that is the key advantages. And therefore, are critical for the success of the e-commerce market. So ladies and gentlemen, what has happened is that's not just talk. We have been able to do some work. We have got -- we are working with CAINIAO. As you know, is the key logistic arm for TaoBao, Lazada and TIMO. We are doing some sortation work and scanning work for them here in Singapore. We're also beginning to do some work for Shopee, another big e-commerce player. And I'm also pleased to say that we have developed a collaborative relationship with Shunfeng, and we are now handling their flights here in Singapore, carrying most likely e-commerce product and express products. So at the end of the day, what we are going to do is we're going to replicate this all over the place because Singapore cannot be operating in isolation, and we would need to have that network synergy. So that's where I'm coming from. We are able to harness. We need to then harness this network strategy across where we are present. And how we do it is very simple. We replicate what we have in Singapore overseas. We developed what we call quality corridors wherever we are present, not only in our network, but we are working with the hub carriers like Singapore Airlines and talk to their partners overseas to be able to develop this quality corridors. And this will be categorized by number one, high-quality infrastructure. That's what Alex has mentioned, we're going to build facilities with the right certification and be able to provide track and trace capabilities. And that's -- at the end of the day, this network strategy has got 1 goal. It is to promote, to aggregate and to drive volumes through our CTOs. Finally, for security, we've already mentioned that it's been the most resilient together with cargo. And this has opened our eyes to the opportunity that security offers in the non-aviation space. I'll let the video do the talking. Thank you very much. [Presentation]

Thank you, Bob. I'd now like to invite our Strategy and Sustainability Officer, Spencer. Spencer, please.

Good morning, ladies and gentlemen. Before providing you with details on how SATS is endeavoring to become a more sustainable business, I'd like to share with you, if I may, how SATS has refreshed our purpose, vision, mission and values, which you see summarized on this slide here. Sustainability is fundamental to our purpose to feed and connect communities and also to our vision to be the market leader by delighting customers with innovative food solutions and seamless connections. So SATS monitors and provides disclosure on a wide range of ESG-related topics as part of the GRI framework. However, in support of our purpose, vision and mission, our sustainability framework calls out 3 overarching themes, which represent areas which are where SATS can make a distinctive and material impact and are closely aligned with our strategic priorities. They are firstly, developing smart infrastructure; second, reducing food and packaging waste; and third, nurture skills for the future. These 3 themes support 4 United Nations sustainable development goals, which are relevant to SATS' business, and we have set and are reporting on quantified goals for 2030 or earlier. Now the first 2 themes relate directly to our responsibility to prepare for a low carbon future. Our Scope 1 and 2 emissions according to the GHG protocol, have gone down by 45% in the most recent fiscal year, but we are cognizant of the fact this is due to the drop in volume during the COVID endemic. So to stay focused on our commitment to decarbonize by 50% by 2030, when volumes are expected to have recovered, we are focused on carbon intensity as a management KPI. We are also in the midst of engaging external advisers to assess and manage our Scope 3 emissions, especially along our food business supply chain. On the third theme, nurture skills for the future, we aim to develop and share our culinary nutritional service and technological expertise that will -- we aim to develop and share these to enable our people and the communities we serve to develop to their fullest potential. [ Singapore ] is present in over 55 locations across 14 countries. However, as a Singapore-based company, our carbon footprint is still primarily in Singapore, accounting for almost 80% of our use of energy and our emissions. So while our efforts -- the bulk of our efforts are therefore on our environmental footprint in Singapore, we are coordinating our initiatives and best practices across the network through our sustainability council. SATS has committed to reducing our Singapore origin carbon emissions by 50% by 2030 as measured against a baseline in 2018 of 11 -- of 90,000 tonnes of carbon dioxide equivalent. Scope 1 and 2 represent approximately half of this baseline. Now by electrifying 100% of our ground support equipment by 2030, we expect to reduce 11,000 tonnes of CO2 equivalent in direct scope 1 emissions. By intensifying the deployment of solar panels across the rooftops of our facilities, we will reduce over 5,000 tonnes of CO2 equivalent in Scope 2 emissions. Another 11,000 tonnes will be reduced through smart infrastructure, for example, high-efficiency cooking equipment as well as the deployment of advanced building management systems. At this current point in time, our carbon reduction road map has a gap of 17,000 tonnes of CO2 equivalent. The SATS management team and the Sustainability Council are working on identifying the pathways to address this gap. Now some of the pathways will have a degree of dependency on an ecosystem approach such as with the aviation partners at Changi Airport. And in terms of the planned reductions in the emission factor in the National Grid. Now SATS has made important progress with our environmental initiatives that you see on this slide here. These are described in detail in our latest sustainability report. Now the highlight would be the expansion of our renewable energy infrastructure, which will actually see the 11 -- sorry, 10,000 megawatt hours of solar energy being generated annually. This represents over 50,000 square meters of solar panels, which will be -- which is actually the equivalent of more than 7 soccer fields across the rooftops of our facilities at Changi Airport. This power is able to supply almost 60% of our building electricity needs across our air freight terminals 1 to 4. SATS was also the first in Singapore to install hybrid solar thermal panels. And this prototype on the rooftop of our in-flight catering center #1 is able to not only convert solar energy into electricity, but also preheat water for use in our production kitchens. To operationalize our drive to reduce our carbon footprint, SATS has adopted carbon intensity as a key metric that is tied to management compensation. The 3 areas of focus are the carbon intensity for meals produced, for flight turnarounds and for cargo tonnage handled. In each of these areas, key projects are being implemented this fiscal year to reduce carbon intensity. And in addition to electrification and solarization, these projects extend to waste to energy applications as well as the optimization of the cooling infrastructure at our food court. In addition to our environmental responsibilities, SATS aims to promote and advance sustainable and inclusive economic growth, full and productive employment and decent work for all. This relates to the United Nations SDG #8. To this end, our ambition is to increase by 50% the average value-added per employee across our subsidiaries globally, even as SATS expands our business outside of Singapore. To this end, our ambition is to increase by 50% the average value-added per employee across our subsidiaries globally, even as SATS expands our business outside of Singapore. The baseline for this goal is the SGD 27,000 achieved in 2020. SATS also strives to touch lives by sharing our expertise in culinary, nutritional service and technology areas with the communities in which we operate. We are donating our human capital to encourage the building of capabilities, to embed citizenship in our business operations, to empower healthier communities and to enable collaborations. Now in addition to these 2 commitments, engaging employees, growing internal talent and promoting diversity at SATS are also important aspects of being a sustainable business. Finally, on the governance front, SATS is very honored to have been recognized by the Singapore Governance and Transparency Index and the CS in this past year for our corporate governance. The SGTI is a collaboration between the Singapore Institute of Directors, the National University of Singapore Business School and CPA Australia and is the leading index for assessing the corporate governance performance of listed Singapore companies. CS is the Securities Investors Association Singapore, which represents retail investors and is the largest organized investor group in Asia. So in conclusion, SATS continues to make -- to accelerate our ESG progress to carry out our purpose to feed and connect communities. We realize the importance of sustainability to our stakeholders, including our shareholders. So with that, I'd like to introduce SATS' Chief Financial Officer, Mr. Manfred Seah, to take us through our group financial review. Thank you.

Thank you, Spencer. Good morning, all of you, and it's good to see you. Some of you have not met for almost 2 years in person. Yes. Oh sorry, yes. Okay. I always like our CM, Capital Markets Day because I've got all my colleagues here to answer all the difficult questions for me afterwards. Yes. Okay. Nonetheless, okay, SATS' revenue improved by about 27% to about SGD 294 million for the second quarter. And this compare against last year, now mainly due to nontravel, cargo, as mentioned by Alex earlier, as well as security services. Our PATMI came in slightly higher at about SGD 6.8 million. This is the third consecutive quarter that we are having a positive result. We recognize a total relief of about SGD 39 million post-tax for the quarter, without which, our loss would have been about SGD 30 million. Our share of results actually came in SGD 15 million better than same time last year to register a profit of about SGD 2.1 million compared to losses of the last 2 quarters. EBITDA remained positive at about 32.8% and EPS improved $0.036 to about $0.06 per share. Okay. As mentioned, our revenue expanded by about SGD 63 million, and this contributed mainly by travel. Travel came in at about $36 million, $37 million more, grew about 31%. And then nontravel grew also about 30%, 27% to be exact to about $29 million. The OpEx wise, our OpEx increase was mainly due to staff costs, #1, and raw material costs because of the expanded volume business. The staff cost increase was largely due to a lower grant that we have received and also contract services that we have to engage for the implementation of higher safety measures in Changi. And then our -- as I mentioned earlier, our share of results came in about $15 million better to about $2.1 million positive, and PATMI of about 6.8%. PATMI, if you look at the core PATMI, last year, if you recall, we actually have a one-off impairment of about $31 million. Nonetheless, our PATMI actually -- core PATMI actually increased about $9 million, $8.4 million to be exact, okay? First half results, our first half results, revenue expanded by about 29%. Gateway, both gateway and food actually grew. Travel revenue grew about 36%, and nontravel about 25%. Likewise, similar to second quarter, the staff cost featured as the largest increase in OpEx. That is about $57 million more. This is due to 84% of that is actually due to a lower relief that we received for the first 6 months, right? Share results, share results actually reversed a loss of about $44 million in the first half of last year. So there's a swing factor of about $45 million. And our PATMI, we look at the core PATMI came in about 12 -- $13.2 million. This is about $60 million better off than FY '21 -- first half of FY '21. Okay. I thought I'd show you a time series of 6 quarters. If you look at the revenue, revenue stepped up, kind of improved gradually. And it's not a hockey stick. We know that the aviation is still quite badly affected. And then we were able to reverse the loss of the share of results from associates. What's interesting here, which we actually track very closely, is actually on the right-hand side in the middle, the middle time series here called Core PATMI ex relief. Without relief, at the start of the pandemic, the first quarter of FY '21, we actually lost about $106 million. And that gradually, quarter-by-quarter, actually, improved. We registered a loss of about $30.1 million this year without relief. EBITDA wise, as Alex has mentioned, this is the fifth quarter that we are recording positive EBITDA, yes. Just maybe just a note. I think the results were due to 3 key factors. One is the, obviously, the gradual recovery of aviation, and then Kerry and team looked at -- together with Bob, looked at what else can we do in the nontravel side. So the expansion of the non-travel business has actually yielded results. And the third one is actually management has always constantly been intensely involved in looking at ways of resizing the operation, rationalizing group wide, basically not just Singapore, all our JVs and associates overseas as well, to look at cost measures to implement. On the segmental side, I won't spend too much time here. You look at the revenue-wise by business. Food and gateway grew. Food grew 16.8%. Gateway actually grew about 48.4%. This is actually a year-on-year for second quarter growth. Gateway grew faster simply because of the cargo component and the security component, whereas food is more on the nontravel food side. Today, the distribution is about 55% food and 45% food (sic) gateway ], this is actually quite similar to pre-COVID kind of percentage. Now we have also added the segmentation by industry, instead of looking at aviation, nonaviation, we look at travel, nontravel. Travel here actually comprises the aviation business plus the cruise business. Nontravel is everything else. So you look at the travel for the second quarter is about $155 million. I just wanted to maybe remind you that this portion, 2 years -- exactly 2 years ago, this was about $420 million. So there was a very severe drop because of the pandemic; to be exact, about 77% drop, right? So what we have been doing is really to look at how to pivot out -- how to very quickly gear up the nontravel side. Today, the nontravel contributes about 47%. If you recall the earlier slide that Kerry has presented, what we are looking at is actually to create a certain [ tension ], to continue to grow the nontravel, right? To keep it as close to the travel as possible. I think we'll do very well when travel resumes back to its original level. So we are looking at maybe 35% to 40% nontravel going forward. And then if -- when travel comes back, that basically will expand the revenue. So our concentration then will not be so much on the aviation side. I won't go through this slide. It's more or less the same profile as the second quarter data. Okay. Just a quick word on the group expenditure. You see that, in the second quarter, our expenditure grew about 27%, 63 -- $62 million. I think some of you will be concerned this thing is expanding very, very fast. Actually, this is attributed to 3 key ones, right? Staff costs, raw material -- raw material and license fees is correlated to business volume. Certain parts of staff cost it is as well, but maybe the next slide will -- sorry, yes, of the staff cost increase here of about 40 -- $39 million, a lot -- about $24 million of this was due to the lesser relief in this year compared to last year. So on the -- if you look at it, what does it mean for the first 6 months, I think the first 6 months, we are talking about a difference of almost $66 million total relief short of last year, right? For the first 6 months. For the first -- for the quarter is about $40 million, yes? And raw materials is -- as I said, is actually correlated to business volume. Now the OOE here, the increase was due to fuel costs and some professional fees. A quick slide on associates and JV. We mentioned earlier that for the second quarter, there was a favorable variance compared to same period last year of about $15 million. And for the first 6 months, it will be about $45 million favorable variance. So indeed, all our associates and JVs are generally improving in results, and we are confident that this momentum will go -- will continue and this is largely also due to the cargo units doing much better than others, as Alex has mentioned earlier. So what we'd like to see is actually when travel restrictions are lifted and more people are traveling, then the food side will come back. So the food was the worst affected of the 3 segments; between food, cargo and ground, actually cargo did best. Food will be languishing until the recovery comes back. Okay. This slide basically shows the consol revenue relative to the SATS share of revenue, both sets of revenue actually grew about 27%. And for consol, it's about SGD 294. And then the SATS share of revenue when we take into consideration all -- tot up all our share of the revenue of associates and JVs, it will increase to about $378 million. You can see that year-on-year growth, all these are showing positive results with the exception of ASEAN ex Singapore. That is more because of the [ GTR ] effect in Malaysia, the MCO. On the right-hand side is the share of PATMI. And some of you may be wondering why is Singapore showing a decline. The reason here, as I mentioned earlier, was because of the relief -- lower relief received this quarter compared to last year, okay? So here, at the bottom right-hand side, you see that Singapore continue to be profitable. I think there's an improvement in India. This is largely because of the cargo units doing better. But nonetheless, you look at the results performance, you see that we are seeing improvement across the region. Okay. From balance sheet, I won't go into this very much because Alex has already touched on this. Cash position is positive. If you back out the total loans and borrowing, we have about $540 million of that, and our net cash position is still about $150 million. Gearing, gearing is about 0.47. This is a gross gearing and total assets dropped about 130 -- $140 million. This is because of the -- and that is in tandem with the total reduction of debt as well. This was because we repaid a term loan of $150 million, okay? I won't go through this balance sheet. I'll leave you to read this. And cash flow, our net cash actually declined by about $194 million. This is due to basically a repayment of the term loan of $150 million. We had some capital investment for the period of about $30 million. And then you'll see that, actually, we have a negative operating outflow. Some of you may be concerned, why is this negative? This is because of some delayed collection of ARs, which came in a little bit late. So that is -- as a result of that, we actually registered a free cash flow of about $40 million negative, but this is simply because of timing. With that, I'm going to hand you back to Kerry, who will take us through the outlook. We're privileged today because we have 2 PCOs in the room today.

Let me jump straight into the outlook statement. Look, so with the vaccinated travel lanes coming back, definitely is good news for us. I think 2 things. One is from a passenger load standpoint, we can see some increase. And of course, it's pent-up demand from all our Singapore folks here all wanting to travel. So that detail will be useful for us, although it's not going to be the 1 that gives us the best benefit because of the capacity limit each of the VTR lanes. So the best news will be when the VTR restrictions removed, then I think you can see a lot more. But having said that, we have more passenger flights coming, I think Alex alluded to it as well, the belly space for cargo will be increased. And with that, our yield for cargo should be better. So we believe that, that will help us going forward. Now we continue to invest a lot in the whole innovation. And you saw from the video earlier, we believe that's going to help us be more efficient. It's going to give us better relationship with our customers as well, create a more sticky relationship, which is obviously very, very important. And the investments we made in both Saudi -- especially Riyadh and Jeddah is going to help us expand going forward. And that's going to be very important for us. We continue to invest a lot more on the food side of it. The whole food accelerator innovation will continue to drive, hopefully, new products as we expand our channels. And that -- the branded component, as I mentioned, for us, is very critical because it actually differentiates our product and it gives us a lot more -- well, a lot more customer satisfaction, which is important, which means our customers will be more linked to buy our services. And of course, new segments, the investments we are making in China as well as India is going to help bring new revenue growth. Of course, that's going to take time for the [ vessy ] come on board. But we're not stopping. In India, we're not just relying our own capacity. We are already working with outsourced partners to help drive some of our products going forward. We are looking at opportunities now to actually accelerate that whilst we are building our kitchen. So we're not standing still waiting for the business to come whilst we build our capacity. And hopefully, that will continue to help us drive our nontravel-related growth numbers going forward. And it's something, I think Manfred alluded as well, as a team, we are very, very focused to 1 thing to drive that part of the revenue because over the next few years, while Aviation comes back, we need the nontravel revenue to be a strong growth for us going forward. So maybe with that, it's more for Q&A.

Thank you, Kerry. I'd now like to invite our management team to join Kerry on stage for the Q&As.

Okay. So we will now take questions on the floor. Please state your name and your brokerage or company for the record.

I'm Terence from Phillip Securities Research. I was hoping you could give us a little bit more insight on your $3 billion revenue target for 2025, just 2 questions. How much of these do you see will come from M&A? And the second question is, does the management team have any margin target for 2025 as well? Grateful for any insights.

Yes. Now in terms of the -- I think if you just bring back the slide, if you -- the -- in terms of the revenue side, you can see we are assuming that the travel side will come back to about [ $1. ] billion. Then the growth of the nontravel will be another about 300 to 400. The rest of it will be the M&A side.

Yes. The second one, we're not giving margin guidance. We haven't been doing that and we won't start to do that. But you can see that the -- on the -- on the airline catering side, which has traditionally had margins in the mid-teens, it's way below that currently. A lot of that is volume based because the kitchens are -- have high operating leverage. So you would expect that the margin there should start to recover as the operating leverage returns. And Kerry's food strategy, as you heard, is very much focused on scale and operating leverage. So for the nontravel food we have said in the past that if you look at industry comparables, the industry operates some -- around high single-digit margin. But it also operates at a high asset turn level, higher asset turns than aviation catering. So what we would focus on as investors, and you're investors, too, so what we focus on as we invest our capital is that the return on invested capital can be as good as the aviation catering, as long as we keep the asset turns high. And so because of the large-scale focus of the food strategy, we do expect higher asset turns in the new nontravel-related food business, despite the fact that the margins will tend to be a bit lower, as I mentioned.

I think just to add on, on the nontravel side, the scaling is very important for us, and therefore, market access and then driving that through the production scale that we've built, is going to help us get the kind of profits going forward. And that's what we are hoping to push going forward. And that also have a knock-on effect on our travel business because there are things that we can take from some of these production capacity, we can feed that into our location without spending additional CapEx to actually do on-site production.

And maybe I can just add for avoidance of doubt, this is purely a target, right, $3 billion. So this is not a kind of a -- there's no exact science to this. What we are -- the assumption here is aviation comes back to what it was before. And then EBITDA then is about 1.8, and then we step up roughly 30%, 40% of that and then the remaining is M&A that we are targeting.

Any other questions from the floor?

Thank you for having us today and [ setting us ya min fut ]. I am Siew Khee from CGS CIMB. I just have like 3 questions to begin with. What is your ROE target by 2025? That's the first one. And also maybe just touch on your $1 billion investment. Maybe just give us some color on the geography? Or is it going to be just building new kitchens like -- or taking over new kitchens? Just more color on the investment. That's the second one. And the second one, 2b, would be the returns that you expect from this investment? And also for recovery, now that we're having more details, do you actually have a sense of when do you think food travel will be in terms of percentage of where it will be versus pre-COVID in the next 12 months? I know that you actually have some like gradual recovery, but what is a sensible recovery for travel food in the next 12 months?

All right. Maybe I can take a couple these questions and then maybe Alex and Kerry can add to it. In terms of ROE, I think the ROE before pre-pandemic days, we were ranging between 15 -- 13% to 15% thereabouts. There's no reason to believe that we can't achieve that. Although the revenue expansion that we are targeting make the quality of a margin of some of these segments that may be lower. But what we hope to do is actually to ensure that the asset turn is there, that the ROE, the return side is not compromised. So I think we are -- given the initiatives that both food and cargo has put out, we believe that we are able to have that kind of productivity and operating leverage to generate that kind of a return. Now with respect to the $1 billion investment, if you just track our maintenance CapEx, it's generally about $60 million to $70 million on a yearly basis. So if you do 3x of that, it will be $200 million to -- anything between $200 million to $240 million. And then the balance would be on the M&A. Again, on the M&A side, I would say that there's no exact science there. There's a pipeline of deals that we are looking at. We have always guided the market to say that, "Look, we are pivoting into the segments that we believe will actually build our regional competitiveness and market share." One is on the food. The other one is actually on the cargo side. So there's no specific proportion, but we -- as Kerry has guided, we are looking at maybe 40%, 60%, roughly, yes. I don't know whether...

Well, just to end, I think the quality of the earnings, I think we are very conscious of the fact that ROE is a measure that we put in our mind, but the asset turn in our new business is going to be critical. As you drive more scale in those segments that we choose, the asset turn has to be much better than what we do in the aviation side. So if you look in the past, our aviation business used to be obviously good margins in a sense, but then our CapEx to manage those business is actually pretty high. And when you compare against the asset turn, it's actually not as good as what it can be, but then that's the nature of the business that we do. Which is why it's very important as we move forward, we have to balance that in terms of the margin versus the asset, and therefore, maintain the ROE that we're going to try and achieve. And then the third question is about...

The VTR.

Yes, the VTR question. Sorry, I can't really hear properly. Could you just repeat that 1 more time?

[ so what do you see for food travel ]

Okay. Okay, look, we are obviously crystal ball gazing in terms of VTL. Firstly, we welcome the VTLs coming back because I think, as I mentioned, it's good that it gives us the -- it will help in our cargo business as well. On the food side, primarily because of the capacity limit, we've got to be careful because there's a limit to the number. And that limit actually prevents us from doing more, right? Just for example, recently, I think the -- I think when we launched the whole Germany thing, it was only 3,000 a day, although the flights were there, but it's a limited number that's coming in. But we are very hopeful that with the Australia side of things opening up, we are quite hopeful because Australian side is more for the Australian citizens going back. And that is traditionally a very key route for us in the past. And we're hoping that, that will give us some benefit over the next few months as well. But going forward, we are cautiously optimistic. Now I think the news around in Europe, where we are removed from the white list, we've got to watch that, right? Because if they're going to put quarantine orders on Singaporeans going over or people from Singapore going over, that is going to put a damper to the travel. But if Singapore continues to recover and there's no major changes to the numbers, then I think we can hopefully see the releasing of more VTLs, which we believe will come, and we're ready for the growth, right? Because we've set our team in place. And when it comes back, we're ready take on the growth. So fingers crossed in terms of how we're going to move forward.

Yes, I think just 1 aspect that Kerry didn't cover is Malaysia. Malaysia is very important for us. We have a subsidiary, GTR there, where the base carrier is AirAsia, and we operate across more than a dozen airports. Before COVID, the volumes in Malaysia were becoming almost as large as those in Singapore. So I think the relaxation of measures in Malaysia is also very important for us financially. And then the other one to look at is Japan, where we have TFK SATS over in Japan. And of course, as the Japan measures start to relax that will also benefit the margins as well.

Maybe I'll just touch on Japan a little bit. Pre-COVID, we actually invested in additional capacity in Haneda. And we believe Haneda's growth will have a beneficial impact to our business in Japan. We have [ ASA ] access and the second facility we have is just right beside our current facility. And frankly, pre-COVID, with all the airlines, international airlines moving from Narita into Haneda, there was actually going to give us a lot of that scale. And we needed -- frankly, we needed the capacity in order to fit -- get those business on site. So when Japan recovers, and we believe Japan will recover, we are well placed to actually take on a lot more volumes out of Haneda Airport.

If I may add, the 1 wild card geography would be China, both for the domestic business as well as the very large international flights. We are watching this very carefully. There's a lot of news about the Chinese government position on this. But for now, our expectations are still muted.

Maybe since you brought China, I'll touch a little bit on China. How I think we have pivoted a little bit in China. You'll recall that we made an investment in an aviation frozen meal company called Nanjing Weizhou. So that company has been benefiting quite a fair bit from the growth of the domestic air. Of course, now with the recent surge in China, we are a little bit cautious. But when it comes back, we are well placed to take on that growth because that's primarily focused on China domestic. In fact, during the pandemic, that unit has been the 1 that's been most resilient. We were able to turn in profits for our food site, and that's the only one that we were benefiting from the aviation growth, but within the China domestic market. And when it comes back, we -- in fact, during this time, we have also expanded the Tier 2, Tier 3 airports as well. So we started to establish some of these locations during this pandemic because of the fact that we have this frozen new factory that we can supply around China without increasing CapEx within those airports.

Thank you, Kerry. We have a follow-up question from Siew Khee from CIMB followed by Louis Chua from Credit Suisse.

Just to touch on the asset turns. So what are the key measures that you'll be looking at? Because you said that you'd be looking at asset turn for non-aviation business, but what are the indicators that we should be looking at or you will be giving to us?

So asset turns, right. Yes. So basically, it's very simple. The CapEx that we put in and the returns that we get from the CapEx that we put in for that segment of the business is what we look at. And we're looking more for -- if I put in, say, $100 million, we're looking for more returns generated, right? Although the margins may be lesser, but we're looking at the absolute component, right? That it generates from the CapEx investment. So it's really about investment -- return on investment for that CapEx, ROIC.

If I may, a major driver of that would be large batch production because the larger the batches, the better the turn. So that would be 1 internal metric that we'll be looking at.

I think to begin with -- and just to add to what my 2 colleagues saying, the businesses that we're going in has got to be of a certain scale, critical scale for operating leverage to come into play. So it is important that all the investments that we do going forward, it has to be scrutinized to look at how it fits into our general strategy. Kerry mentioned about the hubbing, that's important. And then if we go into a particular market, are those segments big enough? Otherwise, it will not be worthwhile.

Thank you. We now have Louis from Credit Suisse.

It feels good to be back in this environment again. I have 3 pretty long-winded questions, if I may. The first is more in relation to staff costs. If I look at the numbers comparing a year-on-year basis, it seems that the staff cost has been relatively comparable, even though the headcount has actually come down quite significantly from about 13,000, 14,000 to about 11,000. So as you move towards your next calendar year, and also back towards -- back to 2019 levels in terms of us thinking about the headcount that you require, they are budgeting for next year and for a full recovery, what would that headcount level be? Since I think Alex in the past has always talked about doing more with less people, given productivity investments? But also from a dollar staff cost perspective, given that you may need to pay your people a bit more, how should we think about the so-called staff cost to income ratio when it comes to -- back to a full recovery? That's the first one. Second, in terms of the revenue targets, I think in the past, you gave some breakdowns for Food Solutions business and the gateway. So food in the past used to be 70%, 80% being travel related. And within gateway, I think it was 2/3 ground handling, 1/3 cargo. So FY '25, some sense of what that mix would be like? And thirdly, if I think back at 2019's Capital Markets Day, I think there was a similar $1 billion investment over the next 3 year target. And obviously, COVID derailed everything. But if I were to think about, let's say, in FY '20, I think the investments was relatively modest, I think just about close to $100 million or so of new investments, excluding maintenance CapEx. So if an investor were to ask me, this time why is it different in terms of this $1 billion in 3 years target, how should we respond to that?

Thank you, Louis.

Okay. So the first 1 is on the staff costs. I think, Louis, if you look at staff costs ex-RELIEFs, it gives a more accurate picture of the ramp-up trends that you should expect going forward. In particular, you can see that staff costs in this first and second quarter, although they've increased, they've increased at a lower rate than the revenue. This is the trend that we expect to continue on an underlying basis. In the second quarter and first quarter, we had extra safety measures at Changi Airport. I think Bob mentioned this earlier and so did Manfred. That meant that we couldn't be as productive as we should be under normal operating conditions. Those operating conditions are now being relaxed so that we can start to handle more volumes with more closer to a steady state sustainable level of manpower. So that's why the trend line should look more attractive going forward than it did in the last 2 quarters. Maybe, Kerry, you should talk about the FY '25 picture?

Yes. Maybe I just want to tackle so the staff cost component. Look, in Singapore, we're going to face inflationary pressure. I think that is -- I think almost every company is faced with that, inflationary pressure. And we have been very conscious of the fact that, that's going to come and hit us, and, hence the investment into technology to mitigate it. And I think also, more importantly, we have been looking at cross-training skill set as a means to justify the productivity gains. And something is a measure that [ both side as well ] the food side we're very, very conscious of. So I think the base salary numbers, I think, will continue to have pressures to grow. I think we are -- there's a shortage of manpower. It's particularly in the blue collar side that we are faced with. So we have to manage that portion very carefully. Now back to forecasting the '25. If we've got our strategy correct in terms of what we're going to do on the food side, where we're going to rely a lot more on offshore production and then have a bit more productivity here in Singapore, plus what we're also going to do in the cargo side, where we're going to digitalize the process, from a cost percent, we would like to try and at least maintain the pre-COVID number despite having all these cost pressures that's coming on board. That's what we're going to look to try and do because we know we're going to increase the cost. And you look in Singapore, we are progressive wages and all that. Even cleaners and all that, the numbers are going to go up. You can't stop that. There will be an increase. But we've got to utilize technology and job redesign as a means to manage our cost for us. And I think technology is going to be very critical for us. So if we can maintain what we have done in the past with all these challenges, I think we would be in a very good position.

Maybe I'll just like to add in the sense that, frankly speaking, as a result of COVID, we had reshaped and resized our organization quite a bit. I think you've seen that the staff count numbers have come down. But it is also important, as I mentioned earlier, that we need to build capacity for the rebound, and therefore, maybe in the short term, there might be obviously a need for us to bring in the resources. We have to [ debt kia ]. So short term, maybe there may be an increased spike. But the important thing is that we can now calibrate the numbers that's coming in. And we have to calibrate it, align with the business that we think we project that will come in and also with all the productivity initiatives that we have put in. So I think we might be in a stronger position, but we need to invest.