Higher charcoal prices continue to plague Haycarb in second quarter

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.