Blue Power merges production outfit of rival soap firm to boost sales
Blue Power Group Limited invested more than $124.5 million to more than double the value of its soapmaking plant and machinery in the 2022 financial year which ended April 30, in the process absorbing the production outlay of another soapmaking business and placing the company in a position to make products for an adititional brand, which was not named.
“As part of this project, Blue Power acquired plant and equipment from a local player who elected to consolidate production in Jamaica at Blue Power. This also allowed Blue Power to upgrade and modernise its production line,” the company’s Chairman Jeffrey Hall said, in response to questions from the Financial Gleaner.
The rival firm in the soap maker, whose production equipment Blue Power bought out, was not named. Blue Power makes soaps under contract for various clients.
Hall said the new relationship also comes with a wider distribution network and should result in expanded sales locally. The company expects to see the results of the investment in 2023.
“There will be continued challenges, but we expect our plan to show improved revenues in the first half of 2023 and improved operating results by the end of the 2023 financial year,” said Hall, who assumed chairmanship of the listed company on May 1 this year following the retirement of founding Chairman Dr Dhiru Tanna.
The group invested $124.5 million on additions to its plant and machinery, and $29.8 million in the transfer of assets during the year. These plant additions pushed the total value of its plant and machinery to $252 million, compared to $99 million a year earlier. The group anticipates that the latest investment will drive sales for itself and the third-party brands it makes.
Hall said Blue Power also acquired a two-acre plot of land that is adjacent to its existing facility in Kingston. He said that the site includes a building that is suitable for renovation, as well as land space with excellent development potential for a purpose-built facility for light manufacturing, warehousing, and distribution. The company results showed a $13.4-million spend on land and building acquisitions in the year.
During the financial year, the company was negatively affected by the rising costs of raw materials as a result of the supply chain bottlenecks and inflation. Additionally, the company was affected by the decision within the Caribbean Community, Caricom, trading bloc, to apply a 40 per cent duty to soap manufactured in Jamaica using imported raw materials. The Caricom trade rules are now interpreted to protect primary production, rather than to support value-added manufacturing using intermediate goods, Hall explained.
The decision arose from a challenge to the previous duty-free regime, mounted by member state Dominica.
“As a result, in 2022 we lost market opportunities in Caricom that we had built up steadily over the last decade. Our response will be to rebuild revenues in the local Jamaican market in the first instance, and ultimately to seek export opportunities outside of Caricom,” stated Hall.
Since February, the war in Ukraine resulted in actual shortages of products made from vegetable oils, including those used in the production of soap, he said. This in turn led to further cost increases and, ultimately, to export restrictions being placed on countries in Asia that traditionally supplied raw materials to Blue Power. Those nations were ‘forced’ to divert volumes to supply their home markets.
Increases in prices were not fully passed on to customers, the chairman said, explaining that the company recognised the inflationary pressure on consumer spending.
“During the year, we adjusted selling prices to recover some of the margin lost due to cost price increases. However, after some consideration, we concluded that it was not in the best interest of the company to seek to pass along the full impact of these significant price hikes to our most significant customers – particularly those that had supported our growth in the local market,” Hall said.
During the financial year the company generated $526 million in sales, down from $534 million a year earlier. It made $194 million in profit, or 80 per cent more than the previous year. The growth in profit came mainly from the sale of its retail and warehouse store at Papine in St Andrew to affiliated company Lumber Depot for some $145.6 million. Without the sale of the property, the Blue Power Group profit would have been roughly $48 million, or about half of the $106 million profit earned a year earlier.
The rise in profit, however, added to the company’s reserve, which inched up shareholders’ equity by 14 per cent during the year to $1.4 billion.