LS 2 Holdings faces earnings pressure as wage subsidies phase out

Singapore-listed cleaning services firm LS 2 Holdings expects its earnings to face moderation as the government’s Progressive Wage Credit Scheme (PWCS) is phased out, the company said on April 19. While core operations are expected to remain resilient, the removal of PWCS support is likely to result in “some moderation of reported earnings going forward,” LS 2 said in response to questions from the Securities Investors Association (Singapore) ahead of its annual general meeting on April 24.

Progressive Wage Credit Scheme Phase-Out

Under the PWCS, the Government co-funds wage increases for lower-wage workers covered by the Ministry of Manpower’s Progressive Wage Model (PWM). The scheme was originally slated to end in 2026 but was extended to 2028 in Budget 2026. Co-funding support will drop from 40 per cent in 2025 to 30 per cent in 2026 and 2027, with a further reduction to 20 per cent in its final year.

LS 2 recognised $1.2 million in grant income from the PWCS in FY 2024 and $1.6 million in FY 2025. The group’s profit was $2.5 million in FY 2024 and $3.1 million in FY 2025.

Impact Assessment and Cost Management

LS 2 stated it expects the phasing out of the PWCS to have “a manageable impact” on its underlying operations, with margins not expected to be significantly affected. The company said it has already priced in the higher labour costs associated with PWM wage adjustments into existing and renewed contracts. However, the group did not disclose the number or value of its contracts, making it difficult to assess how effectively it can pass on higher costs, although its annual report noted it serves more than 200 clients.

Employee wages, excluding grant income from various schemes, had risen 7 per cent to $45 million in FY 2025, due to higher foreign worker levy expenses and performance-based bonuses. Around 1,150 employees, making up about 62 per cent of LS 2’s staff, are covered under the PWM.

LS 2 executive chairman Tan Hoo Kiat said in the annual report that demand for cleaning and maintenance services across public infrastructure, commercial buildings, hospitality establishments and educational institutions in Singapore is expected to remain stable over the next 12 months. However, he added that the operating environment is expected to remain challenging as the industry will continue facing cost pressures arising from progressive wage increases, foreign worker levy adjustments and manpower constraints.

Productivity and Technology Initiatives

LS 2 replied to questions about workforce productivity improvements that it is focusing on sustainable productivity improvements to offset rising labour costs. The company has deployed advanced cleaning equipment to reduce reliance on manual labour and improve productivity per worker. Its digital workforce management system enhances scheduling efficiency, reduces idle time and optimises manpower allocation across contracts.

The company will also invest in workforce upskilling and multi-skilling programmes to enable employees to perform a wide range of tasks, thereby improving labour flexibility and efficiency. “The Group will continue to invest in productivity enhancements to mitigate the impact of the withdrawal of government support,” LS 2 said.

LS 2 has progressively reduced its reliance on manpower through adoption of technology and mechanisation. For example, it has introduced exoskeletons to ease the physical demands on its ageing workers and extend their working ability. The company said deployment of new technologies enhances the attractiveness of roles to bring in a younger pool of workers, while it views automation as a complement to, rather than a replacement for, human labour.

“Overall, management believes that while manpower will remain a core component of operations, technology adoption will continue to optimise workforce utilisation and support sustainable productivity improvements,” the company stated.

Artificial Intelligence Strategy

Despite its focus on technology, LS 2 revealed that artificial intelligence has yet to play a meaningful role in its business strategy. The company is still undertaking feasibility studies to assess how AI can be effectively integrated into its operations. Although it has begun adopting some technologies to raise productivity, the group has yet to develop a strategy to integrate artificial intelligence into its operations, which remain reliant on manual labour.

LS 2 plans to focus on several potential “high impact areas” for AI, including workflow optimisation, predictive maintenance, resource planning, and service quality monitoring. The company said it intends to first establish a strong foundational platform before introducing AI capabilities. “This approach ensures that any future AI deployment is built on accurate, consistent and scalable operational data, thereby maximising its effectiveness and sustainability,” LS 2 said.

LS 2, which listed on the Catalist board in 2022, was trading on April 21 at 8.2 cents.

FAQ

What is the Progressive Wage Credit Scheme (PWCS)?

Under the PWCS, the Government provides transitional wage support for employers by co-funding wage increases for lower-wage workers covered by the Ministry of Manpower’s Progressive Wage Model (PWM). The scheme was extended to 2028 in Budget 2026, with co-funding support declining from 40 per cent in 2025 to 30 per cent in 2026 and 2027, and 20 per cent in its final year.

How much grant income did LS 2 receive from PWCS?

LS 2 recognised $1.2 million in grant income from the PWCS in FY 2024 and $1.6 million in FY 2025. The company’s profit was $2.5 million in FY 2024 and $3.1 million in FY 2025.

What strategies is LS 2 implementing to offset rising labour costs?

LS 2 is focusing on sustainable productivity improvements including deployment of advanced cleaning equipment, digital workforce management systems, workforce upskilling and multi-skilling programmes, and technology adoption such as exoskeletons. The company is also undertaking feasibility studies on artificial intelligence integration, focusing on potential areas including workflow optimisation, predictive maintenance, resource planning, and service quality monitoring.