Haycarb posts Rs. 574 m profit midst challenging 2010/11

Haycarb PLC, the Hayleys Group’s multi-national activated carbon manufacturing business, has reported turnover of Rs. 6.4 billion and profit before tax of Rs. 724 million for the year ending 31 March 2011, 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 resulting in a 26 per cent increase in revenue. However shortages of coconut shell charcoal and the consequent higher prices, saw cost of sales increase by 34 per cent over the 12 months.

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

Haycarb reported after tax profits of Rs. 574 million and attributable profit of Rs. 505 million, for the 12 months ending 31 March 2011.

 “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,” Haycarb’s Managing Director Rajitha Kariyawasan said.

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 responded to the situation positively by passing a portion of the cost increases into final market prices, maximising throughput of all factories to spread its overhead and focusing 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 MT per annum.

 “It is also encouraging to point out that our purification systems arm, Puritas (Pvt.) Ltd. recorded a stronger performance making use of the significant turnaround in the local hospitality industry,” he said.

Operationally, initiatives to improve the company’s working capital position and reduce inventories have been launched, Kariyawasan added.

Additionally, an increased focus on quality, regulatory and environmental compliance had led to all Haycarb factories in Sri Lanka obtaining ISO 14001 certification and NSF International Certification, and REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals) compliance for its exports to Europe.

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 and in New Product Development while embarking on a re-branding initiative during the period under review.

“Capacity expansion and product portfolio rationalisation, 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.

He added that a strong emphasis on the supply chain activity to ensure coconut shell charcoal procurement process is well structured to establish a wider and stronger supply network, along with strengthening of the Group’s pioneering green charcoal venture at Recogen will enable Haycarb to consolidate its leadership position in the coconut shell activated carbon business.

The pioneer manufacturer of activated carbon in any coconut producing country, Haycarb is also the world’s largest producer of coconut shell-based activated carbon.

The Group, whose manufacturing facilities in Sri Lanka, Thailand and Indonesia are supported by marketing offices in the UK, Australia and USA, produces standard, washed, and impregnated carbons in granular, pellet and powder form.

The Board of Directors of Haycarb PLC comprises A. M. Pandithage – Chairman, H. S. R. Kariyawasan - Managing Director, R. P. Peris, L. K. B. Godamunne, A. M. Senaratna, R. Seevaratnam, K. D. D. Perera, S. C. Ganegoda, M. J. A. S. Abeyratne and D. E. Ranaraja.