Sheng Siong’s net profit down 2.9% in H1 as operating costs weigh on earnings

Utility expenses and staff costs increased.

Supermarket chain Sheng Siong Group has reported a net profit for the first six months of 2023, a 2.9% decrease from last year’s S$67.5m, due to higher operating costs. Revenue rose 2% to S$690m from S$678.8m a year prior.

The increase in revenue was thanks to a 3.3% higher sales contribution from 5 new stores, Sheng Siong’s latest financial statement said.

Sheng Siong reported higher operating expenses for the first six months of 2023, driven by a 9.8% increase in administrative expenses. Staff cost increased by S$6.1m as salaries were raised amidst a tight labour market. Utility expenses also rose by S$5.8m in line with the group‘s electricity supply agreement, which was renewed at a higher prevailing market rate at end-2022.

The board has proposed an interim dividend of 3.05 cents per share, a dividend pay-out ratio of 70%.

Gross profit remained stable at S$205.1m in H1 compared to S$199.1m a year earlier, Sheng Siong said. Gross margin improved by 0.3% percentage points to 29.7%, which the supermarket chain said was due to improved sales of products with higher margins.

Other income declined to S$4.2m, a result of reduced government grants and scrap material sales.

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Looking forward, Sheng Siong Group said that there is a chance that consumers may choose to eat at home, noting economic uncertainty resulting from high inflation, geopolitical tensions, debt vulnerabilities and supply chain challenges. Furthermore, the group noted that the risk of recession still looms.

“In light of these tight economic conditions, consumers may choose the relatively budget-friendly alternative of buying groceries and dining at home as compared to eating at restaurants. This may drive house brand sales going forward and improve margins as consumer preferences lean towards more value offerings,” the group said in a statement.

Supermarket retailers also receive a boost from the government’s inflation offset measures, such as the GST voucher scheme and the Assurance Package.

“Competition in the supermarket industry is expected to remain keen with higher operating expenses in terms of energy and staff costs affecting margins negatively,” Sheng Siong said, adding that it will explore potential technologies to improve productivity and focus on strengthening its core competencies in order to improve its overall operational efficiency.