Ceylon Grain Elevators Limited (CGE), the largest player in Sri Lanka’s poultry industry and also the biggest domestic manufacturer of animal feed, has completed a challenging year ended December 31, 2007 posting a group profit of Rs.94.7 million, up from Rs.77.1 million a year earlier while at company level, the profit was down to Rs.4.4 million from the previous year’s Rs.98.4 million.

Mr. Primus Cheng, the company’s Chairman/CEO, said that the year had begun well for the CGE with significant profits recorded in the first quarter attributed to strategic management and foresight in the face of rising raw material cost. But this had been eroded as a result of negative developments later in the year.

Cheng reported that an acute global maize shortage had sent raw material prices for feed milling up by 36% over the previous year with prices reaching unprecedented levels.

"Although the government is trying to promote local cultivation of maize, the output is far from adequate to fulfill the requirement of the industry," Cheng said. "As a result, the year 2007 saw price increases that were unprecedented in the history of feed milling in Sri Lanka."

As a result of these developments local farmers have taken to mixing their feed requirements themselves reducing demand for formulated feed milled by companies such as CGE.

From May last year, a demand for chicken and chicken products had begun falling due to what Cheng called the "socio economic conditions" in the country and this downturn had seriously affected the sales of processed chicken during the rest of the year.

""The declaration of chicken as an essential item by the Consumer Affairs Authority further intensified the problems faced by the industry, which then had to contend with a ceiling on the price of chicken despite constantly rising production costs," he said.

CGE had faced this challenge by focusing on increased productivity and reduced cost and also strengthened their distribution network and after-sales services to increase sales.

While group revenue was up 26% to Rs.5.8 billion during the year, increased raw material and operating cost had grown to Rs.5.6 billion from Rs.4.3 billion the previous year pushing down group operating profits to Rs.212.9 million from the previous year’s Rs.259.7 million.

"The government’s tax regime had an overwhelmingly negative impact on the group’s performance. The poultry industry continues to be burdened with a 15% VAT while the 20% CESS imposed on imported maize remains despite continuous lobbying by the industry for its removal," Cheng said.

Several other relevant taxes and tariffs had also increased during the year pushing up cost, he said.

"The fact that poultry products were burdened with this taxation whilst beef and fish were exempt increased the challenges the industry faced during 2007," he noted.

In the context of such factors, posting a profit during the year was a "notable feat," Cheng said. However, the board believed that it would be prudent to refrain from declaring a dividend for the year under review.

"We trust our decision will be understood and appreciated by shareholders as being one that will bode well for the group in the future," he said.

He was confident that despite the present drop in the demand for poultry products among consumers, the trend will be reversed in the coming months. With fishing restrictions now in force due to the war driving up fish prices, and mutton, beef and pork prices too remaining fairly high, Cheng said that chicken is the cheapest and most widely available source of protein for Lankans.

CGE has a stated capital of Rs.1 billion, Rs.213.1 million share premiums of subsidiaries, a group revaluation reserve of Rs.63.4 million and retained earnings of Rs.96.3 million in its books. At company level the revaluation reserve was Rs.39.8 million and retained earnings Rs.286.5 million.

Prima Limited Singapore with 45.5%, Japfa Cornfeed International Pte Ltd, Singapore (10.1%), Supra Ltd., Hong Kong (8.6%), Eka Ltd., Singapore (3.8%), National Savings Bank (2.9%) and Employees Trust Fund Board (1.6%) are the major shareholders of CGE.

The company’s share had a market price of Rs.13 during the year under review against Rs.13.50 the previous year.

A 5-year performance summary in the annual report indicates that no dividends had been paid during these five years.