Major Maltese Supermarket Group Warns Energy Subsidies May Be Unsustainable In Long Term
One of Malta’s largest supermarket companies has warned that the government’s decision to absorb the cost of soaring energy prices may prove to be unsustainable in the long-term but said it is well-placed to weather a possible decline in consumer spending.
“Looking ahead at the current financial year, we have once again recorded a positive start,” the PG Group – which runs the Pama and Pavi supermarkets as well as the Zara and Zara Home retail stores – said in its recent annual report.
“Overall, our sales between 1st May and 15th August 2022 show an encouraging increase over the comparable period in 2021.”
“As with all businesses, however, the group is experiencing severe cost pressures across its operations. Our target for the coming year will remain that of repeating and possibly improving upon the results attained in the financial year to 30th April 2022.”
“Much will depend of course on macro economic events that are beyond the group’s control. Global supply and logistical issues, the war in Ukraine, and rising interest rates are all factors that will have a negative impact on disposable incomes.”
“This impact has to date been partly mitigated in Malta by the Government’s decision to absorb the cost of rising energy prices, but this may not remain sustainable indefinitely if the current energy crisis is a prolonged one.”
Maltese consumers have been shielded from the effect of soaring global energy prices due to the government’s decision to absorb price increases and keep electricity and fuel prices stable.
Although the government hasn’t published official details on how much money it is spending, Times of Malta recently reported that around €250 million in public funds could be spent by the end of the year, with the bill for 2023 estimated at anywhere between €300 and €400 million.
The Energy Ministry also recently confirmed with MaltaToday that it has issued new air-conditioning temperature limits and public building lighting rules to contain energy costs.
Decorative façade lighting on public buildings and monuments will be switched off late at night, while public sector entities, with the exception of hospitals, have been ordered to keep air conditioning at a minimum of 24°C in cooling mode and a maximum of 21°C in heating mode.
The crisis hasn’t badly impacted the bottom line of the PG Group, which announced a post-tax net profit of €12 million for the financial year up to April 2022, an increase of 14% when compared to the previous year.
Out of this profit, it paid out €5.85 in shareholder dividends, up from €5.2 million last year.
In a recent interview on NET TV’s Flusek, the PG Group’s deputy CEO Malcolm Camilleri linked this higher profit to the supermarket group attracting new clients, a higher shopping frequency of its existing clients, and its offer of a “more complete shopping experience”.
Indeed, he said that while the group faced significant inflationary pressures, it took a strategic decision to absorb cost increases in certain essential food products, thereby ensuring prices remained relatively fixed for consumers throughout the year.
However, in its annual report, the group said it is taking into account the possibility that people could spend less money if the government is forced to roll back its energy subsidies.
“In situations such as these, shopping priorities and patterns will necessarily change,” it said.
“Having said this, your board remains confident on the group’s outlook in the years ahead. PG Group is particularly well placed to weather a possible decline in consumer spending with its core focus on foodstuffs and on two franchise brands that offer excellent value for money at affordable prices.”
Do you think energy subsidies are sustainable in the long term?