BPOW warns raw material prices will hit profits
Published:Friday | January 21, 2011 | 12:00 AM
Newly listed company Blue Power Group Limited, the soap manufacturer and building materials distributor, is being bothered by a current trajectory of rising raw material prices, which its chairman believed could result in profits being negatively affected this year.
Dhiru Tanna, chairman and managing director of the soap and lumber group, told the Financial Gleaner this week that the issue was a cause for concern.
"One major blip on the horizon, if I may mention that, is that the raw material prices are increasing at a very rapid rate - palm oil, soya oil, all of those items - and the freight rates from the Far East are also increasing at a very rapid rate, as far as soaps are concern," he said.
Tanna said raw material prices and freight rates have jumped 65 per cent within the last six months, forcing the company to raise the price of its products on the market.
"The problem arises if we have to raise prices, we are a little worried in terms of our sales."
He noted that while the company was trying to limit the increases on its products, this was affecting its margins. Still, Tanna is hoping for a reversal of the price trend.
"It would be very exciting if those prices go down in the next year, then the profitability of the company would improve dramatically," he said.
The company's latest financial statement showed that it posted a 77.3 per cent increase in net profit for the second quarter ended October 31, 2010, resulting in a gain of J$3.7 million over the corresponding second quarter of 2009.
The six-month results also recorded an 87 per cent drop in taxes paid, which fell to J$990,000, from J$7.4 million in the corresponding period one year prior, a consequence of the junior listing which comes with 10 years of tax breaks. The company trades under the symbol BPOW.
Net profit in this period rose from J$14.8 million to J$16.6 million at October 2010.
While the company had to pay out more in expenses, it managed to boost sales revenue at the same time.
Revenue for the three months to the end of October increased by 18 per cent to J$180 million, from J$152 million in the previous period, but administrative and other expenses climbed even more sharply, by 21 per cent, from J$19.4 million to J$23.6 million.
Cost of sales grew by 17.5 per cent to J$147.6 million, up from J$125.7 million.
Tanna said for this year, the company would be focusing on improving its latest market addition, a line of soaps produced under contract for Lasco.
"Having tested them in the market, we are going to tweak them a little bit," he said.