BLUE Power Limited, the soap manufacturer and hardware distributor, released its first financial statements as a publicly listed company recently. The company, which earns revenue from the sale of soaps, construction and related hardware supplies was listed on the Junior Stock Exchange (JSE) in April this year. The company recorded net profit after tax of $30 million, at its financial year end April 2010 up from $14.8 million in the previous financial year.

The 95 per cent increase in net profit was achieved without the benefit of the tax credit to which the company has become eligible as a member of the JSE Junior Market.

“Up to April we did very well compared to the previous year. We are hoping this year we will maintain the same kind of performance,” Dr Dhiru Tanna, director of the Blue Power Group told the Business Observer.

The initial public offer, which saw the company raise $87.9 million in March 2010 grew its stockholder’s equity from $41 million last year, to $151 million in 2010.

Cash from financing activities, was also bolstered by this infusion of capita, which moved from negative $3.1 million in 2009 to $13.5 million in 2010, although cash from operating activities, the day to day running of the business, declined 37 per cent year on year from $15.7 million to $9.7 million.

The company has turned around its capital structure from a heavy reliance on debt financing, approximately $101 million in 2009 as a private entity, to $33.7 million at year end April 2010.

The move signalled a commitment to maintain an “optimal capital structure to reduce the cost of capital”, according to Tanna, and significantly reduce the company’s dependence on borrowing to sustain operations. The gearing ratio decreased from 246 per cent of equity in 2009 to 22 per cent of equity in 2010.

Tanna noted that the reduction in the debt would also enable the Group to seek other forms of financing, in which case the financial statements of the company would look better to potential lenders, including commercial banks.

However, despite being renowned for its soap production, Blue Power has shown more turnover and relative profit, from its lumber division year on year. In both years, profit from the operations of the lumber division exceeded that of the soap division. However Tanna explained that while the lumber division has a high turnover — as much as 81 per cent more — and higher value items, the margins on those items are smaller than they are on soaps.

“The lumber division has four to five thousand items. There are more items as well as bigger items but they move. So for example you can make a few dollars from the sale of a bag of cement, but they move quickly so the sales build up, but manufacturing always has better margins,” Tanna said.

In the chairman’s report, Tanna indicated that although both divisions showed improved performance, the improvement in after tax profit of the soap division was 240 per cent, in part due to the recovery of the a

There are other benefits to be gained from the manufacture of soaps. Tanna revealed that 33 per cent of the sale from the soap division is exported, about half of which is sent to the United States. The remainder is exported to the UK, Cayman, Guyana, St Vincent, Barbados and St Kitts. The increase in exports to the US is as a result of what Tanna said was the introduction of the Carbolic soap which is very popular in that country.

In the meantime, Blue Power is in the process of developing new soaps for the local and export markets to be ready within the coming months. “In terms of sales we wouldn’t see any effect (on the financial results) until August- September,” Tanna noted.

The manufacturer is also producing laundry and bath soaps for commodities supplier Lasco, which is expected to roll out the new products beginning in July. Blue Power also manufactures soaps for other companies, but Tanna said these items are not expected to cannibalise the Blue Power branded soaps.

“Each one has a different distribution channel. There are places we can’t reach with our distribution where they can reach,” he explained. He said that as a contract manufacturer, Blue Power is less concerned about competition among its products than about offering its services to the benefit of its clients.