Financial Times

Calgon ousts Haycarb in battle for rival

Haycarb, the Hayleys subsidiary making coconut shell charcoal-based activated carbon, has been outbid by one of the world's biggest carbon companies, Calgon Carbon Corporation, in an attempt to acquire another supplier in the US, Barnebey Sutcliffe Corporation, that went bankrupt.

However, Haycarb has started talks with Calgon on continuing its supply contract with Barnebey Sutcliffe and does not anticipate any disruption of sales of activated carbon to the US, its biggest market.

Haycarb last week reported a sharp fall in pre-tax profits for the nine months ended December 31, 2003, largely owing to high charcoal prices, but chairman Sunil Mendis said that a turnaround was in sight in the fourth quarter.

Managing director Rajan Yatawara said charcoal supplies were improving and prices coming down. The company was also installing a new kiln at its Thai subsidiary.

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. Haycarb, which pioneered manufacture of coconut shell-based activated carbon here, has had a long-term contract to supply activated carbon to Barnebey Sutcliffe, the US-based subsidiary of Waterlink, Inc.,

an international provider of water purification and wastewater treatment solutions.

Barnebey Sutcliffe was among the assets acquired by Calgon when its bid of $35.2 million, which was made at an auction held in Cleveland on January 30, 2004, was approved by Waterlink Inc., which last June had sought protection under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.

"We were outbid by Calgon," said Yatawara. "Their bid was about 50 percent more than our bid."

Haycarb has had a supply deal with Barnebey Sutcliffe since 1994, which is to end in April 2005 or could be terminated with nine months' notice.But it expects sales to continue owing to the growing needs of the new owner of Barnebey Sutcliffe and Haycarb's availability of activated carbon supplies in the required volumes and quality.

"They will continue to buy the previous volumes," Yatawara said. "So we see no disruption in our sales." Barnebey Sutcliffe came under the Waterlink Specialty Products division which had sales of $66.9 million in fiscal year 2003.

Calgon Carbon Corporation, headquartered in Pittsburgh, Pennsylvania, is a global provider of services and solutions for making air and water cleaner and safer.

Market analysts have forecast increased sales of activated carbon owing to greater environmental concerns over industrial and vehicle emissions. Heightened concern over possible terrorist biological attacks could also boost demand for activated carbon in nuclear, bacteriological and chemical filters for gas masks and personnel protection clothing. Haycarb's profit before tax fell sharply to Rs 20 million for the nine months ended December 31, 2003 from Rs180 million in the same 2003 period. It reported a Rs 8.8 million loss after tax compared to a profit of Rs 133 million.

Turnover rose to Rs 1.7 billion from Rs 1.5 billion over the same period. Pre-tax profit in the third quarter was Rs 7.8 million compared to Rs 31 million in the same 2002 quarter. Chairman Mendis said that a turnaround was in sight in the fourth quarter.

"As predicted in my statement in the previous quarter's report, the shortage of coconut shell charcoal continued to hamper the third quarter's performance as well, but the expected improvement at the beginning of the fourth quarter is already apparent.

"The strong rupee and even stronger baht also made inroads into profit levels. The overseas companies performed up to expectations in the last quarter."

Managing director Rajan Yatawara said the poor performance in the period under review was a result of the shortage of charcoal owing to a low coconut crop caused by the lagged effects of drought in 2001/2002. "But now supplies of coconut and charcoal are improving and prices coming down," he said. The loss was largely owing to high charcoal prices and other costs. The average price of charcoal in last nine months was Rs 20,300 a tonne compared to Rs 16,900 in 2002. Electricity and oil prices had also gone up as had wages while the exchange rate remained stable."We can't increase our dollar prices even to European countries because the competition is holding their dollar prices."

Haycarb's Thai associate, Carbokarn, had done very well and the company planned to install a fifth kiln with a capacity of 1,100 tonnes a year. Its current capacity is around 4,000 tonnes.Haycarb is one of the few local firms that has set up overseas operations and is seeking to expand abroad. Another Hayleys group company, Dipped Products Ltd, has also been successful in setting up manufacturing and marketing operations overseas.

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