Rising labour costs hit company earnings

PHOTO: Rising labour costs hit company earnings

SINGAPORE - Rising labour costs, due mainly to higher foreign worker levies, are denting the earnings of companies across the board in this financial reporting season.

A check on the financial statements of listed companies - from the largest conglomerates to small and medium-sized enterprises - also revealed that the manpower crunch is not letting up.

Companies in labour-intensive sectors such as food and beverage, logistics, and retail and construction continue to be the hardest hit.

In the construction sector, companies such as Hiap Seng Engineering, Hor Kew Corporation and UE E&C said higher foreign worker levies are contributing to escalating operating costs.

At Poh Tiong Choon Logistics, employee compensation rose 12 per cent in the three months ended June 30 from a year earlier due to the "impact of the increased foreign worker levy".

In comparison, its revenue increased 7 per cent over the same period.

"The performance of the group will continue to be affected by diesel prices, tightening of the labour market and pressure on wage costs," the company said in its financial statements, echoing sentiments expressed by many of its industry counterparts.

Those in the food and beverage sector have also been hit hard.

Soup Restaurant, for example, has had a dismal first-half showing, with net profit plunging 90 per cent to $150,000.

The company spent 35.3 per cent of its revenue on employee benefits, which rose 13.7 per cent from a year earlier, as a result of wage revisions, higher Central Provident Fund contributions and foreign worker levies.

The food and beverage industry "will continue to face dire constraints in finding manpower", Sakae Holdings said in its half- year financial statement.

Operating costs such as rental, utilities and food costs are also on the rise, further squeezing profits in the industry.

CIMB economist Song Seng Wun said government policies put in place in an attempt to raise wages are part of long-term efforts to boost domestic demand.

While this means that manpower costs will continue to top companies' list of concerns, those which are experiencing an erosion of their margins will also "have opportunities for revenue growth".

"The underlying economic growth story is intact, and this is supportive of businesses searching for new opportunities, and those who are able to utilise their resources more efficiently," Mr Song added.


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