<TABLE cellSpacing=0 cellPadding=0 width=452 border=0><TBODY><TR><TD vAlign=top width=452 colSpan=2>Published March 2, 2009
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Jobs Credit's impact on dividends seen muted
By LYNETTE KHOO
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THE Jobs Credit scheme may shore up - or even boost - companies' bottom lines, but the gains are unlikely to be translated into dividend payouts for shareholders.
'The chances of that happening are very slim,' said Ernest Kan, vice-president of the Institute of Certified Public Accountants of Singapore (Icpas).
Under the $4.5 billion Jobs Credit scheme, employers receive grants of 12 per cent of the first $2,500 salary of each employee on their CPF payroll. The tax authority has confirmed that the cash grants will be tax-exempt.
While this is aimed at reducing wage costs and saving jobs, it has occurred to some that the cash grants may be additional income for profitable companies that do not plan to retrench workers.
So one question that has popped up is whether this extra cash will eventually end up in the pockets of shareholders?
'It sounds logical from a technical perspective, but that argument has probably failed to take into account the real impact from the economic downturn,' said Mr Kan, who is also chief of operations at Deloitte. 'Even profitable companies today suffer, because this is a global credit crunch and a global economic downturn with a significant decrease in demand.'
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</TD></TR></TBODY></TABLE>Tham Sai Choy, head of audit at KPMG (Singapore), felt that dividends will generally be lower, even though the Jobs Credit scheme will help companies conserve cash.
In a recessionary environment, Jobs Credit could mean that many companies will have their losses reduced, he added. 'Some companies will still have profits, but almost all will have reduced profits.'
Companies with a large pool of local workers like SMRT and ComfortDelGro, ST Engineering and Singapore Airlines have been cited as key beneficiaries of Jobs Credit.
But the additional cash they will get is only a small proportion of their profits, according to CIMB-GK research head Kenneth Ng.
For instance, ST Engg will save about $20 million from a one percentage point cut in the corporate tax rate and the Jobs Credit scheme. Although this is not a small sum, the two Budget initiatives combined translate to only 4 per cent of the group's latest fiscal year net profit.
Tan Seng Choon, a partner at Ernst & Young, said that whether the scheme translates to higher dividends will depend on factors such as management's outlook of the company's cash needs, and the availability of distributable profits.
There are differing views on how Jobs Credit should be treated on the profit and loss balance sheet. For one, it could reduce staff costs, which comes under the heading 'expenses'. It may also fall under 'other income'.
If the Jobs Credit is material in comparison to earnings, it could be an exceptional item.
Most partners at the Big Four accountants, including Kok Moi Lre at PricewaterhouseCoppers, felt Jobs Credit should be accounted for as 'government grants' or 'grant-income' on the P&L, a tax-exempt item.
Some dividend-paying blue chip companies have already started mulling the use of the cash savings.
A SingTel spokeswoman told BT the group will use the Jobs Credit scheme and the skills upgrading programme SPUR to help with operational expenses, training and upgrading costs.
Transport operators have chosen to pass the savings from the Budget measures to commuters through train and bus fare cuts. SMRT is also recruiting more people in anticipation of higher public transport ridership and the opening of Circle Line, a spokesperson informed.
SBS Transit said last week the reduction in fares for SBS Transit bus and train services will exceed the sum it expects to receive from Budget 2009.
At Keppel Corp, about 5,000 employees are eligible. Its spokesperson said the cash will go towards managing costs, technology innovation and continued efforts in training its workforce.
Fraser & Neave deputy financial controller Hui Choon Kit told BT that while the group has not made specific plans for use of Jobs Credit, management's performance will hardly be measured against any earnings improvement led by the cash grants.
Other listed firms with no dividend policy said that Jobs Credit will go towards staff training, rather than their P&L. Among them are ecoWise Holdings and Penguin international, which expect cash grants of $120,000 and $250,000 this year respectively.
Penguin's managing director James Tham said that Jobs Credit is not material to the group's bottom line - and he plans to invest it in upgrading staff skills or equipment.
Old Chang Kee, which also has no plans to lay off workers, said it sees Jobs Credit adding to its annual training budget of about $100,000.
With the first quarterly payment of Jobs Credit due on March 31, any clue as to its impact and use will only start to show up in the P&Ls of companies reporting earnings after that.
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</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Jobs Credit's impact on dividends seen muted
By LYNETTE KHOO
<TABLE class=storyLinks cellSpacing=4 cellPadding=1 width=136 align=right border=0><TBODY><TR class=font10><TD align=right width=20>
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</TD><TD>Print article </TD></TR><TR class=font10><TD align=right width=20>
</TD><TD>Feedback</TD></TR></TBODY></TABLE>THE Jobs Credit scheme may shore up - or even boost - companies' bottom lines, but the gains are unlikely to be translated into dividend payouts for shareholders.
'The chances of that happening are very slim,' said Ernest Kan, vice-president of the Institute of Certified Public Accountants of Singapore (Icpas).
Under the $4.5 billion Jobs Credit scheme, employers receive grants of 12 per cent of the first $2,500 salary of each employee on their CPF payroll. The tax authority has confirmed that the cash grants will be tax-exempt.
While this is aimed at reducing wage costs and saving jobs, it has occurred to some that the cash grants may be additional income for profitable companies that do not plan to retrench workers.
So one question that has popped up is whether this extra cash will eventually end up in the pockets of shareholders?
'It sounds logical from a technical perspective, but that argument has probably failed to take into account the real impact from the economic downturn,' said Mr Kan, who is also chief of operations at Deloitte. 'Even profitable companies today suffer, because this is a global credit crunch and a global economic downturn with a significant decrease in demand.'
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</TD></TR></TBODY></TABLE>Tham Sai Choy, head of audit at KPMG (Singapore), felt that dividends will generally be lower, even though the Jobs Credit scheme will help companies conserve cash.
In a recessionary environment, Jobs Credit could mean that many companies will have their losses reduced, he added. 'Some companies will still have profits, but almost all will have reduced profits.'
Companies with a large pool of local workers like SMRT and ComfortDelGro, ST Engineering and Singapore Airlines have been cited as key beneficiaries of Jobs Credit.
But the additional cash they will get is only a small proportion of their profits, according to CIMB-GK research head Kenneth Ng.
For instance, ST Engg will save about $20 million from a one percentage point cut in the corporate tax rate and the Jobs Credit scheme. Although this is not a small sum, the two Budget initiatives combined translate to only 4 per cent of the group's latest fiscal year net profit.
Tan Seng Choon, a partner at Ernst & Young, said that whether the scheme translates to higher dividends will depend on factors such as management's outlook of the company's cash needs, and the availability of distributable profits.
There are differing views on how Jobs Credit should be treated on the profit and loss balance sheet. For one, it could reduce staff costs, which comes under the heading 'expenses'. It may also fall under 'other income'.
If the Jobs Credit is material in comparison to earnings, it could be an exceptional item.
Most partners at the Big Four accountants, including Kok Moi Lre at PricewaterhouseCoppers, felt Jobs Credit should be accounted for as 'government grants' or 'grant-income' on the P&L, a tax-exempt item.
Some dividend-paying blue chip companies have already started mulling the use of the cash savings.
A SingTel spokeswoman told BT the group will use the Jobs Credit scheme and the skills upgrading programme SPUR to help with operational expenses, training and upgrading costs.
Transport operators have chosen to pass the savings from the Budget measures to commuters through train and bus fare cuts. SMRT is also recruiting more people in anticipation of higher public transport ridership and the opening of Circle Line, a spokesperson informed.
SBS Transit said last week the reduction in fares for SBS Transit bus and train services will exceed the sum it expects to receive from Budget 2009.
At Keppel Corp, about 5,000 employees are eligible. Its spokesperson said the cash will go towards managing costs, technology innovation and continued efforts in training its workforce.
Fraser & Neave deputy financial controller Hui Choon Kit told BT that while the group has not made specific plans for use of Jobs Credit, management's performance will hardly be measured against any earnings improvement led by the cash grants.
Other listed firms with no dividend policy said that Jobs Credit will go towards staff training, rather than their P&L. Among them are ecoWise Holdings and Penguin international, which expect cash grants of $120,000 and $250,000 this year respectively.
Penguin's managing director James Tham said that Jobs Credit is not material to the group's bottom line - and he plans to invest it in upgrading staff skills or equipment.
Old Chang Kee, which also has no plans to lay off workers, said it sees Jobs Credit adding to its annual training budget of about $100,000.
With the first quarterly payment of Jobs Credit due on March 31, any clue as to its impact and use will only start to show up in the P&Ls of companies reporting earnings after that.
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