Higher char­coal prices con­tinue to plague Hay­carb in sec­ond quar­ter

Daily Mirror (Sri Lanka) - - BUSINESS NEWS -

Hay­carb PLC ap­pears to be caught up in a pro­longed sup­ply chain is­sue as the com­pany known for ac­ti­vated car­bon mak­ing is now strug­gling to source con­tin­u­ous sup­ply of char­coal and its at­tempt to pass on the in­creased cost to the buy­ers has had only lim­ited suc­cess so far.

Hay­carb, the pi­o­neer man­u­fac­turer of co­conut shell-ac­ti­vated car­bon in any co­conut grow­ing coun­try, re­ported Rs.130.1 mil­lion in earn­ings for its Septem­ber quar­ter (2Q18) com­pared to Rs.146.6 mil­lion re­ported in the same pe­riod last year.

The earn­ings per share was Rs.4.38, against Rs.4.94, a de­cline of 11.3 per­cent from a year ear­lier.

Al­though the top line in­creased by 27.3 per­cent year-on-year (YOY) to Rs.3.82 bil­lion, the gross mar­gin and gross profit nar­rowed due to higher prices it had to pay for co­conut char­coal in both Sri Lanka and Thai­land.

The group also has op­er­a­tions in Indonesia and the raw ma­te­rial sup­ply chain there had re­cov­ered from the se­vere set­back it suf­fered and is ex­pected to im­prove fur­ther dur­ing the re­main­ing two quar­ters, the com­pany said in a press re­lease.

The cost of sales, which mainly con­sists of co­conut char­coal, rose by a sharp 35.5 per­cent or slightly over Rs.800 mil­lion to Rs.3.13 bil­lion dur­ing the 12 months to Septem­ber 30, 2017. “The cur­rent trend of short­ages and re­sul­tant in­creases in prices of co­conut char­coal is likely to con­tinue into the sec­ond half of the fi­nan­cial year in Sri Lanka and in In­dia in par­tic­u­lar.

The com­pany is in the process of ne­go­ti­at­ing fur­ther ad­just­ments nec­es­sary to its sales pric­ing to the ex­tent per­mis­si­ble based on the com­pet­i­tive mar­ket con­di­tions,” Hay­carb Man­ag­ing Di­rec­tor Ra­jitha Kariyawasan said.

The ne­go­ti­a­tions to pass on the higher cost to its in­dus­trial buy­ers in the United States, United Kingdom and Aus­tralia had lim­ited suc­cess as only part of the costs could be passed while the bal­ance hav­ing to be ab­sorbed by the com­pany.

Fur­ther, the lag ef­fect of these price re­vi­sions also had an ad­verse im­pact on the group’s mar­gins.

The com­pany has suc­cess­fully im­ple­mented ini­tia­tives to strengthen the raw ma­te­rial sup­ply chain net­works in Sri Lanka and Thai­land dur­ing the pe­riod un­der re­view through its ‘Haritha An­gara’ pro­gramme of as­sist­ing to build more en­vi­ron­ment friendly char­coal pits in Sri Lanka and by strength­en­ing its own char­coal­ing op­er­a­tions in Thai­land.

Mean­while, the ad­verse cur­rency move­ments also had neg­a­tive im­pact on the mar­gins of the group.

“The ad­verse cur­rency move­ments ex­pe­ri­enced in Thai­land and Indonesia, where the com­pany has a sig­nif­i­cant pres­ence, can fur­ther ag­gra­vate the im­pact on mar­gins,” Kariyawasan added.

Kariyawasan con­fided that its en­vi­ron­men­tal en­gi­neer­ing arm Pu­ri­tas (Pvt.) Ltd, would con­trib­ute pos­i­tively to the top and bot­tom lines in the sec­ond half of the year.

As of Septem­ber 30, Hay­leys PLC held a 67.73 per­cent stake in Hay­carb while the Em­ploy­ees’ Prov­i­dent Fund and Em­ploy­ees’ Trust Fund held 4.77 per­cent and 2.63 per­cent stakes, re­spec­tively be­ing the sec­ond and third largest share­hold­ers.

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