Durrant Pate/Contributor

Blue Power Group saw its finances impacted by new accounting standards in which its investment in Lumber Depot changed from equity accounting to a share of an associate company.

With this change, total comprehensive income for the July 2022 first quarter plummeted to J$7 million when compared to J$69 million in the prior year. Blue Power Group generated revenues of J$214 million and earned net profit of J$7 million for the first quarter.

The Jamaican soap manufacturing company delivered outstanding growth in sales volumes and revenues, in line with its plan to develop and diversify its customer base. Earnings in the quarter were affected by disruptions to the supply chain and unprecedented increases in raw material prices, which the management is expecting to normalise during the current year.

Revenues grew 85 per cent during the period under review relative to the comparable period in 2021 with the company experiencing revenue growth in all of its main product categories including the bath soap lines, speciality soaps and its laundry soap business. Revenue growth came from existing and new customers and saw the group gaining market share locally and re-enforcing its reputation as a leading private label manufacturer.

Many challenges encountered

Despite the strong overall revenue performance, the group faced challenges in the first quarter with its gross margins suffering as a result of dramatic increases in raw materials prices, challenges to the actual availability of products from some of its sources. This is in addition to a spike in logistics costs (particularly for products originating in Asia). The market for vegetable oils – a basic input in soap production – was disrupted in the early part of the calendar year due to the war in Ukraine.

Logistics costs were affected by the impact of COVID on the global supply chain. Blue Power Group’s key inputs have long lead times for procurement and shipping but although the market has now clearly shown signs of normalising, the first quarter margins were adversely affected.

The combined effect of these challenges was a reduction in net profits from J$46 million last year to J$7 million this year. Importantly the company made a one-off gain on the sale of investments and foreign exchange gains that formed part of its finance income last year which was not repeated this year.

Capital investments continuing

During the quarter the management continued its capital projects to expand capacity and productivity and to give its manufacturing plant more flexibility in the sources of raw material. According to the management, “we expect to see the results of this investment in the second half of 2023. We also secured the long-term expansion prospects for the business with the acquisition of a two-acre plot of land that is adjacent to our existing facility.”

The site includes a building that is suitable for renovation as well as land space with excellent development potential for a purpose-built industrial facility. Chairman Jeffrey Hall is expecting to complete this development plan for the property during the course of the year.

He bragged that “the Blue Power Group’s balance sheet, investment portfolio and liquidity remain strong. This has allowed us to increase our inventory levels to manage some of the supply chain disruptions. Our investment in Lumber Depot Limited, which is a significant part of our holdings, performed satisfactorily in the first quarter.”

The management continues to be optimistic about the competitive position and growth prospects for its business in Jamaica, as well as the opportunity to develop new export markets. In addition, the company says it is well prepared to diversify the business through opportunistic investments in related businesses and in real estate.