Wednesday, May 11, 2011

Sri Lanka Haycarb profits fall as high charcoal prices squeeze margins

May 11, 2011 (LBO) - Sri Lankan coconut shell-based activated carbon manufacturer Haycarb has reported a fall in profit in the March 2011 quarter and full financial year owing to high charcoal prices caused by shortages.

Group net profit fell 53.6 percent to 111 million rupees in the March 2011 quarter although sales rose 24.7 percent to 1.7 billion rupees from a year ago, the company said in a stock exchange filing.

The firm, a subsidiary of the Hayleys conglomerate, said basic earnings per share for the quarter fell to 3.74 rupees from 8.07 rupees the previous year.

In the financial year ending March 31, 2011, Haycarb's group net profit fell 20 percent to 505 million rupees while sales rose 26 percent to 6.4 billion rupees from the previous year, Basic annual EPS fell to 17 rupees from 21.30 rupees the year before.

A company statement described the year as "a period of challenge as a result of worsening raw material shortages."

The continuing strong demand for activated carbon and a greater focus by the company on value addition had enabled it to increase sales volumes.

"However shortages of coconut shell charcoal and the consequent higher prices, saw cost of sales increase by 34 percent over the 12 months," it said.

"As a result, Haycarb’s gross margins contracted significantly, exerting pressure on profit."

Haycarb’s Managing Director Rajitha Kariyawasan said raw material shortages were being felt in the firm's overseas plants as well.

“The biggest challenge for Haycarb is the scarcity and very high prices of coconut shell charcoal, which has become a world-wide issue, now extending to Sri Lanka, India, Thailand, Indonesia, Philippines and Vietnam,” he said.

But the most affected location has been Haycarb’s largest manufacturing base in Sri Lanka where the annual point-to-point increase in the price of coconut shell charcoal was in the region of 50 per cent.

The significant drop in coconut crops, increasing domestic consumption and the widening gap between charcoal supplies and installed activated carbon capacity in Sri Lanka has compelled Haycarb to increase its imports of charcoal year on year.

“In this regard, the urgent attention of the policymakers and relevant authorities to devise a long term strategic framework to protect and grow the coconut plantations and its high value adding industries like activated carbon is of paramount national interest,” Kariyawasan said.

He noted that significant appreciation of Asian currencies against the US dollar, increases in oil prices, the continued pressure on labour costs and higher freight charges were among the other adverse factors that impacted on margins.

Haycarb, which owns activated carbon manufacturing plants in Sri Lanka, Indonesia and Thailand, had had managed to pass on part of the cost increases in to final market prices.

It also maximized throughput of all factories to spread its overhead and focused on higher value added carbons along with finding new applications for its current product portfolio, Kariyawasan said.

“Our overseas manufacturing and marketing operations have performed well, compensating for the shortfalls in Sri Lanka, justifying an expansion of capacity overseas to strategically respond to raw material and market trends,” Kariyawasan said.

He disclosed that capacity increases in the company’s plants in Indonesia and Thailand had enabled Haycarb to increase its production of activated carbon to 25,000 tonnes a year.

Despite the pressure on margins, the Haycarb group has taken a "long term strategic view" of its core business by committing a significant level of capital expenditure at all locations, the statement said.

It also allocated funds for new product development while embarking on a re-branding initiative during the period under review.

“Capacity expansion and product portfolio rationalization, broadening of the product range using alternative raw materials such as wood and coal, continued focus on new product and market developments for high value adding products combined with continued emphasis on Haycarb brand building will gear the company to face the challenges ahead,” Kariyawasan said.

The interim accounts filed with the stock exchange revealed that in August 2010, PT Mapalus Makawanua Charcoal Industry, the Indonesian subsidiary of Haycarb has been served with a tax decree in relation to taxes payable for 2007/08 amounting to 40 million rupees.

An appeal had been submitted in November 2010, Haycarb said.

 source - www.lbo.lk

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