Financial Times

Hayleys focussed on year-end target despite 1Q downturn
Raw material shortages in activated carbon and fibre businesses caused a marginal fall in first quarter profits at Hayleys but its transportation sector more than doubled profit from operations and the group said it is maintaining its year-end target.In results released to the Colombo Stock Exchange last week, Hayleys reported pre-tax profits of Rs 320 million for the first quarter of 2005-06, down marginally from the Rs 322.3 million of the first quarter of the previous year.

Profit after tax and minority interest was down 10 per cent to Rs 102.3 million but gross turnover grew 27 per cent to Rs 5.1 billion."We look towards a much improved result in the second quarter, and remain focused on a whole year result within reach of the target set," Hayleys chairman Rajan Yatawara said in a statement accompanying the results.

The statement said that fibre and coconut shell shortages and the exchange rate eroded gains of high performing sectors. “An inflation rate disproportionate to the strength of the rupee, and shortages of charcoal and fibre which affected the bottom lines of the Group's activated carbon and fibre segments, took the shine off an otherwise healthy overall performance,” it said.

Conceding that historically, the first quarter results have been lower than those of the quarters that follow, Yatawara has acknowledged that these results may yet create anxiety in the context of expectations expressed in the last annual report of a 50 per cent improvement in group results in 2005-06.
”If my projections are to hold good, inflation must be curtailed in line with the strength of the rupee. It has not been so in the year so far."

Yatawara said that while productivity and capacity increases, innovative products and new markets have enabled survival over the many years this imbalance has endured, "these solutions are not elastic perpetually."

In segments not affected by raw material shortages and the resultant increased costs of production, Hayleys has reported results ranging from exceptional to satisfactory.

Profit from operations in the transportation sector (recently re-branded Hayleys Advantis) grew 171 per cent to Rs 166.3 million. The company has bought two second hand cargo ships which are giving good returns given the strong charter and freight markets.

Hayleys Agri Inputs sector profit from operations grew by 130 per cent to Rs 75.6 million, Consumer Products by 47 per cent to Rs 61.5 million, Plantations by 30 per cent to Rs 65.8 million, and Hand Protection by 11 per cent to Rs 98.2 million.

The share of pre-tax profits from associates grew 78 per cent to Rs 77.6 million in the quarter under review, with Hayleys MGT Group, Dimo and Talawakelle Tea Estates being notable contributors.

Elaborating on the raw material shortages that affected the activated carbon and fibre sectors, Hayleys Finance Director Richard Ebell said a drop of 20-30 per cent in coconut production in the first six months of 2005 had depressed the supply of the fibre and shell used by these sectors.

The group's activated carbon company was compelled to vastly increase its imports of charcoal from Indonesia at high freight costs to feed its capacity, and the increased cost of production had to be absorbed as producers in other countries get their raw material at less than half the price, he explained.

This situation is expected to reverse in the rest of the year and coconut production in 2005 is expected to be on par with production in 2004, Ebell said.

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