Higher raw material costs dim SL’s largest poultry firm’s Dec. profits

• Grain Elevators says managed to secure licence to import maize 

Sri Lanka’s largest poultry operator, Ceylon Grain Elevators PLC (GRAN), reported weaker financial performance during the December quarter as the rise in production costs surpassed the virtually flat growth in the top line. 

The interim results for the poultry group, which engages in feed milling, broiler farming, processing and distribution of chicken, reported revenues of Rs.3.77 billion for the quarter, up just 2.0 percent year-on-year (YoY).

The glut in the market for chicken and table eggs prevailed throughout the year caused the extremely slow growth in the top line, an earnings release from the company said. 

“The introduction of customized dairy feed range to the emerging local dairy industry further strengthened its position as the market leader”, said GRAN CEO Cheng Chih Kwong Primus. 

The demand for chicken is also based on the disposable incomes of the people, which weakened significantly during 2017, due to higher taxes, interest rates and inflation. 

Chicken is pricy in Sri Lanka mainly due to higher raw material prices caused partly by the protectionist policies for years.   

However, as real incomes of the people grow, it’s natural that the demand for chicken increases. According to 2016 data, the per capita consumption of chicken has risen from 6.9Kg up to 7.3 Kg. 

Meanwhile, GRAN’s cost of sales rose by a faster 3.0 percent YoY to Rs.3.23 billion. 

This weighed on the gross profit which declined by 2.0 percent YoY to Rs.538.8 million. But the profit before tax rose by a strong 28 percent YoY due to rigorous management of operating costs throughout the group.

The rise in the production cost has been caused by the shortage of local raw materials due to adverse weather conditions and unavailability of import permit for maize at the right time. 

Sri Lanka last November liberalized the importation of maize to bridge any gap in the local market. 

Earlier a handful of third parties were allowed to import maize under the state patronage but such imports were of low quality and expensive.             
Maize is the primary raw material input in poultry, which accounts for 60 percent of the total raw material.  

“The group was able to recover from the challenging situation to a certain extent in the last quarter of 2017 when it managed to obtain a permit to import maize”, Primus said.  

For the December quarter GRAN reported earnings of Rs.6.10 a share or Rs.366.1 million, against Rs.6.93 a share or Rs. 416 million in the same period last year.  

There was a tax charge of Rs.152. 1 million for the quarter against a tax credit of Rs.66.7 million in the corresponding period last year. 

Meanwhile, for the year ended in December 31, 2017, the group which manufactures and distributes a wide range of poultry products under the Prima and Farmers’ Choice brands reported earnings of Rs.13.17 a share or Rs.790.2 million compared to Rs.22.23 a share or Rs.1.33 billion in total earnings. 

The group top line grew by a modest 4.0 percent YoY to Rs. 15.2 billion amid the 11percent YoY growth in the cost of sales to Rs.13.6 billion. 
The gross profit fell by a steeper 33 percent YoY to Rs.1.54 billion for the full year. 

GRAN’ subsidiary Three Acre Farms PLC, which has the market leadership in broiler and day-old chicks in Sri Lanka, saw its top and bottom lines falling by 6.0 percent and 20.0 percent YoY to Rs.2.4 billion and Rs.653.8 million, respectively. 

As of December 31, 2017, Singapore’s Prima Limited held 45.45 percent stake in GRAN followed by Employees’ Provident Fund with 8.92 percent stake.