Blue Power Group has told shareholders not to expect a large dividend payout this year.

The company is saving its cash to invest in expanding the soap operation, starting next year.

How much is invested depends on the amount of profit made, said Chairman Dhiru Tanna.

"If we are going to expand the soap business, we will definitely have to reinvest the profits to help manage our cash flow," said Tanna.

Blue Power has paid out a 10.5 cent dividend on September 6, but is now signalling that additional distributions are unlikely for this year and the next.

"There are some of the directors who believe that no dividend should be paid and that we should reinvest the monies back in the company to help it mature faster and pay for our raw materials; and then there are others who believe that the shareholders should get something - so we will have to look at it closely and then vote on it ...," said Tanna at the October 10 annual general meeting in Kingston.

Blue Power paid dividends of 10 cents in 2011 from profits of J$55 million. Profits fell 14 per cent to J$47 million in 2012.

Blue Power's soap operation currently earns just 28 per cent of revenue and contributes 38 per cent of net profit.

Sales at Blue Power Group at year ending April 2012 amounted to J$863 million, of which J$620m was earned by the lumber depot and J$243m from soap.

The soap division, however, had more momentum: sales increased by 22 per cent compared to the 4.7 per cent improvement for lumber, while profits rose 73 per cent compared to a 34 per cent decline in lumber profit.

As a result, the management team said the company will focus energies on expansion in the soap division to exploit what they see as a growing market.

Tanna said the soap industry has a wholesale value of about J$4 billion, with Blue Power occupying less than 10 per cent of the market. Additionally, he said that over 90 per cent of soap products used locally are imported.

"Now, if you were in the business and you are looking to expand, would you look to increase in an area where everybody is expanding or where you see a market in which most of the products are imported?" he asked. "We see where we can produce soap effectively and at a good price to compete with the imported ones, and that is what we plan to do," Tanna said.

"Everybody is expanding their hardware business but we will leave that one alone."

Biggest challenge

The biggest challenge, he said, is the sourcing of raw materials.

Blue Power currently sources inputs from Far East Asia for which it pays cash up front. It means the company's money can be tied up for up to five months, Tanna said.

"We have not established a relationship with them as yet because we are a small buyer. Until we establish ourselves as a good customer we will just have to pay up front," he said.

Other sources of raw materials tend to be controlled by competitors, he told shareholders.

"We are small and Jamaica is a country that the Far East people do not know. So they are lenient enough to give you as much as loading the goods on the ship, but you have to pay them before it leaves."

Blue Power closed its last financial year with J$58 million in cash, up from J$11 million in 2011.

marcella.scarlett@gleanerjm.com