THE listed bakery Honey Bun Ltd on Tuesday defended its five-cent dividend payout amid criticism from noted minority shareholder Orette Staple, who wants some of the nearly $210 million in retained earnings.

Concurrently, the bakery aims to increase sales following the appointment of a new distributor for the western end of the island, indicated chief executive Michelle Chong, at the annual general meeting (AGM) held on Tuesday at the Knutsford Court Hotel in New Kingston.

The dividend comes within the context of the bakery posting double-digit sales growth but recording a negative net cash and equivalents position of $5.7 million for its Christmas quarter 2014.

“Where is the money to pay out higher dividends?” argued director Sushil Jain, at the AGM, in response to concerns voiced by Staple, who wanted higher dividends sourced from retained earnings. Jain, who is an accountant, added that cash fuels the payout of dividends rather than retained earnings.

“First, I am a little taken aback by Mr Jain’s comment on cash versus retained earnings,” Staple indicated at the AGM, arguing that Jain was using jargon to obscure a ‘low’ dividend. “I am still sticking to my point that dividends are paid out of retained earnings. Whether it is paper or actual money — it doesn’t matter.”

Despite the negative cash-flow position Honey Bun’s retained earnings stand at $208 million up to December. Jain and Chong argued that money was utilised to purchase properties in the financial year.

“The policy is that we pay dividends from the profits. Please share with us what you feel would be more appropriate in terms of a percentage of profit for shareholders,” reasoned Chong to Staple, who declined to offer an immediate percentage at that time.

Honey Bun posted $16.5 million in profit on $206 million in sales for its December first-quarter 2014 or 16 per cent less profit year-on-year.

“This reduction was mainly due to increased distribution cost resulting from the takeover of a large contract distributor to maintain our customer service and the lease of vehicles due to accidents of two of our main distribution vehicles. Improvements in this area will be seen in the next quarter. Further, a one-off cost was incurred during this period as the building on the property acquired was demolished,” stated Chong in her statement accompanying the first-quarter results.

Honey Bun, founded and led by the Chong family, acquired two properties in the company’s financial year ending September 2014. The acquisitions resulted in $145 million worth of additions to its property, plant and equipment during the financial year or three times higher than a year earlier. As a consequence, the net value of its property, plant and equipment rose to $296 million.

The greatest additions came from the building assets which rose to $134 million from $40 million one year earlier, followed by land at $20 million from nil a year earlier, the financials indicated.

The company bought a 20,000-square foot property that joins its existing operations on Retirement Crescent to another piece it bought last October. Its three properties combined — numbers 22, 24 and 26 Retirement Crescent — total 1.3 acres, or 57,000 square feet.

Honey Bun posted $23.4 million in profit from $741 million in sales for its September year end or one-third less profit year-on-year. The bakery previously told the Caribbean Business Report that the dip in profits was caused by reduced consumer spend, inflation and higher input costs.

Honey Bun’s principal activities comprise the manufacture and distribution of baked products to the local and export markets. It was listed on the Jamaica Stock Exchange Junior Market in June 2011.