Financial Times

Haycarb profits recover, drought may hit future earnings
Haycarb, the Hayleys subsidiary making coconut shell charcoal-based activated carbon, has reported a phenomenal increase in net profit for the first quarter of this financial year but future earnings could be affected by the prevailing drought that will sharply reduce the coconut crop.

The company, which plans to set up another overseas plant to reduce dependence on local supplies, said consolidated net profits for the three months ended June 30 were up 781 percent to Rs 36.7 million. Turnover for period increased 18 percent to Rs 674 million with the bulk of it coming from its activated carbon and coir fibre pith operations both of which have now been affected by the drought.

The company, which anticipates increased demand and higher prices for its product, largely driven by growth in China, had earlier reported recovering from the lagged effects of the last drought that caused a charcoal shortage and resulted in a sharp dip in profits."We still see a recovery," a company official said. "The latest drought has not affected the market yet. Some parts of the coconut triangle have had rain, some have not had rain. But we could be affected if the drought is prolonged."

The latest drought has reduced nut availability for coconut shell charcoaling and created water shortages for the plants in Madampe."We're now importing water into the Madampe factory from surrounding areas. We're tapping other water resources such as streams but we're not sure for how long we can do that," the official said.

The company is continuing to import charcoal in order to be able to fulfil orders. Activated coconut shell carbon is used in the gold mining industry to recover gold from ore, as well as in air and water purification areas such as gas masks, protective military suits, cigarette filters, odour removal and tap water filters.

The drought has also affected production of coir fibre pith used as a growing media and for which the company has to maintain standards related to salt concentrations which affect plant growth.

"Because of the drought pits used for soaking coconut husks have got depleted," the official said, "As a result the salt concentration is increasing. If the salt concentration is high some plants may not grow."

Evaporation has also resulted in an increase in the salt content. In an effort to maintain the niche it has carved for itself in the activated carbon market, Haycarb is trying to increase production in other coconut producing countries to reduce dependence on local supplies which get affected by what appear to be regular droughts.

The company is also increasing capacity in its Thai plant and adding one more kiln to make new carbon. Haycarb's pre-tax profits in the year ended March 31, 2004 fell sharply to Rs 84 million - a downturn of 63 percent - largely owing to the shortage of charcoal caused by the lagged effects of drought which reduced the coconut crop. The company was forced to reduce sales and import charcoal.

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