Chart of the Day: F&B firms ride on strong earnings growth despite mounting costs

The average net profit of listed F&B companies grew 5.3% in 2018.

This chart from DBS Group Research reveals that the average net profit of SGX-listed F&B companies rose by 5.3% in 2018, although slightly lower 5.5% average in 2015.

Also read: F&B sector set to grow as mass-market segment sizzles

In the past four years, the earnings of listed F&B companies grew at a compound annual growth rate (CAGR) of 3.3%, with revenue expanding at 4.1% CAGR. Growth was driven by new outlets, new concepts, same-store sales and acquisitions.

Overall, the net margins of these companies average around 5-6%, with larger players capable of generating up to 8-12% net margins, the report added.

Average operating margins of foodservice peers range from 8-9%, with larger players such as Jumbo and Koufu registering up to 12-15%. For profitable companies, ROE can trend above 10% and in excess of 20% at the top end.

“F&B companies continue to grow, overcoming cost pressure,” DBS analyst Alfie Yeo said in a report. Inflation for food services averaged 2.2% over the past ten years.

“Gross margins for food remain attractively high and stable, averaging 62-63% for Singapore-listed F&B companies over the past four years. Singapore’s food inputs are largely imported from various markets, which help to keep inflation down. Gross margins can typically be preserved since higher food prices can easily be passed on to customers,” he added.