SINGAPORE - Shareholders of supermarket chain Sheng Siong have asked the company for, among other things, more details on its view on mergers and acquisitions (M&A) and its capital allocation priorities, given that it has $324 million in cash on hand.
These were among the queries the company had received from its shareholders ahead of its annual general meeting. Sheng Siong on April 19 posted a list of these questions and its responses in a filing to the Singapore bourse.
A shareholder expressed concern that the company, with $324 million in cash on hand as at end-December in 2023, might not be using these finances as efficiently as possible, especially since the company’s working capital requirements appear to be “much less”.
The shareholder asked the company what its “main capital allocation priorities” are, and whether the group is looking at the likes of new geographies or “more aggressive bids for heartland spaces”.
In its response, Sheng Siong said it was “reserving cash as its war chest for various opportunities” , such as the potential acquisition of new stores, warehouse space, and investments in technology to drive operational efficiency.
“By allocating these funds strategically, the group can position itself to take advantage of emerging opportunities and further expand its operations,” it added.
Another shareholder noted that Sheng Siong has kept mum about M&A opportunities, and asked the company why it has not actively pursued the acquisitions of smaller supermarkets.
Sheng Siong said that while it remains open to M&A opportunities to drive growth, the decision to pursue them depends on “careful analysis” of benefits and risks such as growth potential, cultural differences, and acquisition costs.
“It takes time to nurture these opportunities, and we think it is more strategic that Sheng Siong focuses more on organic growth – expanding our network of stores, improving customer service, and exploring ways to attract new customers,” the company said.
Shareholders also asked about Sheng Siong’s growing profit margin, and whether this could be sustained.
The company said its higher gross profit margin was attained by a combination of its attempts to continually improve the sales mix and drive supply chain efficiency, as well as its efforts to address rising staff costs and utility expenses in a high inflationary environment.
“While the group remains committed to driving efficiency gains, we will continue to ensure that our products are competitively priced and affordable,” it added.
In response to a query on its core strategy seeming to target heartland malls rather than bigger ones, and how it differentiates itself from its competitors, Sheng Siong said it competes in terms of “service, price and quality”.
The group said that it also works on supply chain diversification, adopting new technologies and streamlining its operations – all of which result in greater efficiency and cost-savings, which are then passed on to customers and shareholders.
Shares of Sheng Siong closed flat at $1.50 on April 19. THE BUSINESS TIMES
