The firm, which says it is the world's largest manufacturer of coconut shell-based activated carbon, said distribution and administration costs were sharply higher.

Earnings per share were 4.96 rupees in September 2010 compared with 6.06 rupees the year before.

"Local manufacturing operations posted a net profit growth of 10 percent for the half year, but profit for the second quarter reflected a decline of 11.6 percent over the corresponding quarter, principally as a result of higher charcoal prices," the company said.

Net profit for the first six months of the year rose 13.5 percent to 305 million rupees from the year before while group sales rose 22 percent to 3.1 billion rupees.

“Charcoal purchase prices in Sri Lanka have increased by more than 16 percent in comparison with the first six months of last year,” Haycarb Managing Director Rajitha Kariyawasan said.

Higher raw material prices and appreciating currencies are expected to remain a challenge through the second half of the year, during which the impact of an increase in furnace oil prices would also be felt, Kariyawasan said.

The difficult economic environment in the US and Europe, along with intense competition makes it extremely difficult to pass on cost increases to customers, he said.

Haycarb's strategy of overhead recovery through higher capacity utilisation supported by growing demand for activated carbon and a focus on higher value products enabled it to mitigate to some extent the effect of increasing raw material and other production costs and the appreciation of local currencies, Kariyawasan said.

The company has also launched a new marketing campaign in international markets aimed at a strategic re-positioning of the firm as a top supplier of eco-friendly purification solutions for which Haycarb has developed a new corporate logo.