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Ceylon Grain Elevators PLCAnnual Report 2008

Our corporate philosophy is centred upon the 3H principles of building a Healthy Organisation, being an Honourable Winner and making an Honest Fortune. This business philosophy is derived from our Parent Company, Prima Limited of Singapore.

Healthy OrganisationDeveloping a sound, effective and efficient organisation system. Promoting team sprit and reaching out to create a “PRIMA FAMILY” identity.

Honest FortuneEstablishing trust, fairness and mutual benefits with all within our business circle. Contributing to the well-being of society.

Honourable WinnerAchieving success through fair competition.Striving towards excellence.

Our Corporate GoalsIn line with our Chairman’s directives and Prima Group corporate philosophy, we will continue to grow steadily in our primary activities with the ultimate goal of reaching the status of an integrated feedmilling business.

Our future expansion plans shall be within our management capability and financial resources.

To establish “PRIMA” and “FARMERS’ CHOICE” as a brand name synonymous with the very best in high quality products.

To establish high standards of good corporate governance, improve transparency and the standards of accountability to shareholders.

Our Vision Our Mission“To achieve complete poultry integration synergies, ultimately gaining export market competitiveness”

To tap and harness business opportunities by expanding into various vertical integration projects.This will lead to increase in Agriculture, Aquaculture and Livestock production, thus encouraging nationalprogress through nutritious protein-rich food to the people of this Nation.

Brief HistoryLife began for Ceylon Grain Elevators PLC (CGE) way back in December 1982, when the Government of Sri Lanka and Prima Limited of Singapore inked an agreement beginning a partner-ship that has endured two decades of yeoman service to the poultry industry in the country.

Today, CGE is the largest operator in the poultry industry of Sri Lanka, establishing 6 subsidiary companies operating not only in the field of poultry, but also offering products and services in diverse fields.

CGE and the companies under its umbrella manufacture & distribute a wide range of feeds under the “PRIMA” and “FARMERS’ CHOICE” brands.

They operate poultry and hatchery breeder farms, commercial poultry and livestock farms. They also engage in the processing,

packaging and retailing of poultry and other meat products, the import and sale of poultry equipment, veterinary products, produce fish and shrimp feed and provide a state-of-the-art laboratory and consultancy service to customers and farmers throughout the island.

Ceylon Grain Elevators PLC subsidiaries are:■ Three Acre Farms PLC■ Ceylon Pioneer Poultry Breeders Limited■ Ceylon Livestock & Agrobusiness Services (Pvt) Limited■ Ceylon Warehouse Complex (Pvt) Limited■ Ceylon Aquatech (Pvt) Limited■ Millennium Multibreeder Farms (Pvt) Limited

Ceylon Grain Elevators PLC associate companies are:■ Ceylon Agro Industries Limited■ Prima Management Services (Pvt) Limited

Ceylon Grain Elevators PLC Annual Report 2008

2

Chairman and Chief Executive’s Review

On behalf of the Board of Directors, it gives me great pleasure to present to you the annual report and the audited financial statements of Ceylon Grain Elevators PLC and its subsidiaries for the year 2008.

The Group demonstrated strong execution in 2008, marking another year of growth and progress in spite of a volatile economy and challenging market conditions for the animal feed and poultry industry. Nevertheless, Ceylon Grain Elevators PLC (CGE) managed to increase its market share and further consolidate its position as the market leader, a reinforcement of our good business practices and commitment to quality.

The Global Economic Crisis

2008 began with escalating prices of many commodities, notably crude oil and food. In January 2008, oil prices surpassed $100 a barrel for the first time, and in July, peaked at $147.30 a barrel. The higher oil prices had a direct bearing on most commodity prices with maize peaking at $320 per ton in September 2008.

By the second quarter of 2008, a series of life-threatening problems within many of the world’s great financial institutions was unveiled. As a result, global stock markets have fallen, large financial institutions have collapsed or been bought out, credit markets have frozen, consumer consumption has sharply fallen and governments the world over were forced to come up with rescue packages to bail out their financial system and economies.

In 2008, and continuing into 2009, much of the industrialised world has entered into a deep recession. According to the International Monetary Fund (IMF) world growth reduced from 5.2 percent in 2007 to 3.2 percent in 2008. The complex vicious circles which contributed to this crisis include high oil prices, high food prices and the collapse of a substantial sub-prime housing bubble centred in the United States, which sparked an interrelated and ongoing financial and economic crisis.

In 2009 the IMF projects that world growth will fall to 0.5 percent, its lowest rate since World War II. Furthermore they state that despite wide-ranging policy actions, financial and economic problems will remain severe. It is estimated that it may take till early or mid 2010, at the earliest, to see an economic recovery.

Sri Lanka by no means has been spared by the devastating effects of the global economic crisis. The country’s economic growth rate fell to 6 percent in 2008, from an expected forecast of 6.5 to 7 percent. In the last quarter of the year prices of major commodity exports like tea and rubber collapsed and

Sri Lanka’s main foreign exchange earner, garments, is facing falling demand amidst a bursting global commodity bubble and a strong rupee. In the fourth quarter, the country grew at only 4.3 percent according to Sri Lanka’s Department of Census and Statistics.

A high inflation rate added to the country’s economic woes. At the beginning of the year the inflation rate stood at 22 percent and hit a record high of 28.2 percent in June, making it the highest inflation rate of any country in Asia. Although the rate of inflation came down during the course of the year, the rate remained relatively high, negatively affecting savings, purchasing power and interest rates.

Our Challenges

Escalating fuel prices in the first two quarters of the year and the depreciation of the rupee by 6.5 percent in the third quarter had a direct bearing on CGE’s cost of production for feed milling, which makes up the core of the Group’s revenue. With most of the material used to manufacture feed, including maize, being sourced from overseas, fluctuating forex markets and the unprecedented spike in world oil prices seriously affected the Group’s margins this year.

Going hand in hand with the world oil crisis, was the exponential increase in demand for bio-fuel. The worldwide demand for maize which is used to convert into bio-fuel resulted in a shortage of the product for use in human and animal feed production. Producers of maize were choosing instead to sell their crops to large Ethanol manufacturers. The extraordinary situation drove maize prices up compelling CGE and other feed millers to import the crop at a much higher cost. The price increases induced by demand for maize affected the cost of imported raw materials used to mill formulated feed. And while world crude oil prices declined dramatically in the latter part of the year easing this demand for maize crops somewhat, India imposed a ban on the export of maize produced in the country, which has since been lifted, temporarily shutting off CGE’s primary and cheapest source of maize imported for feed milling.

Most recently, however, the Government has imposed a ban on import of maize. In the light of this and the weakening SLR, the Group is looking increasingly at local sources of raw materials and re-formulating its feeds.

Processed chicken sales were significantly affected by the overall economic gloom prevalent in the country and the resultant decrease in purchasing power of the consumer. Stringent government pricing controls intensified the problem together with restrictive state levies on imported raw material. The government’s budget for the year 2009 increased the

3


Chairman and Chief Executive’s Review Cont.

CESS on imported maize raised from 20 to 25 percent and a further 10 points to 35 percent two months later. The government also imposed a Ports Authority Levy on imported products from 3 to 5 percent, further increasing the burden on the industry. Several other relevant taxes and tariffs were increased during the year, contributing to higher costs for the Group.

With the global economic crisis badly affecting the banking industry, the local banks tightened its lending facilities in mid 2008. This saw interest on borrowings rise from 17 to 21.5 percent. The interest hike resulted in the Company being compelled to pay an additional Rs.40 million as interest on borrowings.

In light of these tough conditions, the Group decided to hold back on major investments during the year under review, focusing instead on streamlining and optimising our newly commissioned integrated management and accounting system and the ongoing modernisation of our farms.

2008 Financial Results

The Group recorded an increase in turnover of Rs. 1,453 million from Rs.5,757 million in 2007 to Rs.7,210 million in 2008. This is an increase of 25 percent. However, the increase was dampened by sharp increases in the cost of raw materials. Cost of sales increased by 31 percent in 2008 to Rs.6,931 million. As a result the Group’s gross profit fell to Rs.279 million from Rs.462 million in 2007. Due to the tightness in credit markets and high interest rates, the Group saw its financing costs increase by 152 percent to Rs.218 million. In addition, the Group experienced a significant exchange loss of Rs.83 million due to fluctuations in the exchange rate significantly affecting the Group’s profit margins. As a result of the multitude of external global and local economic challenges the Group made a net loss of Rs.125 million for the year ended 2008.

However, we are confident that the Group’s strong fundamentals will help us to ride this rough patch and effect a turnaround in the year ahead. The Company and its subsidiaries have a strong balance sheet with assets totalling Rs.4.9 billion. Of this Property, plant and equipment constitute Rs.1.5 billion. Longterm liabilities represent only 24 percent of Group’s assets, while shareholders equity is worth Rs.1.34 billion.

Opening New Doors of Opportunity

Despite the disappointing year we have faced, the Group remains convinced that adversity offers seeds of opportunity for the future. The extraordinary events of the past year have clearly demonstrated that companies with strong basic, sound

business models are able to remain stable even through immensely challenging times. During this difficult time, CGE has returned to the basics of running a business by attempting to minimise costs, make our operations more efficient and integrated and being consistent about the quality of our products. We believe that these tough times will result in the consolidation of the market, with small competitors stepping out of the fray and creating the space required for large, integrated companies like CGE to lead the industry towards a better day.

As for the future, we remain cautiously optimistic. Government taxation and global markets remain unpredictable and volatile and it remains to be seen if the softening of commodity prices will be a long term phenomenon. Locally, we look forward to the conclusion of military operations in the north of the island, in the hope that the end of violence will usher in a new era and opportunities for the corporate world. The North and East of Sri Lanka remains a vast untapped agricultural hotspot and hopefully, with the dawn of peace, your Company and its subsidiaries will be able to break ground in the region, further expanding our operations.

Dividends

The board believes it would be prudent to refrain from declaring a dividend for the financial year ended December 31, 2008. We trust our decision will be understood and appreciated by shareholders as being one that will bode well for the Group in the future.

Acknowledgements

As will be reflected in this year’s financial results, CGE has proven its ability to operate at the top of our industry even in challenging times. When we speak of the Group’s progress over the past year, we must also recognise the extraordinary efforts that many people – our employees, customers and growers – who contribute to our ongoing success. The dedication and commitment of everyone involved with the Group provide us with a solid foundation and, more importantly, give us the ability to look confidently to the future.

Cheng Chih Kwong, PrimusChairman & Chief Executive Officer

Colombo, Sri Lanka31 March 2009

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Management Discussion and Analysis Cont.

starch-rich crops such as maize also grew significantly during the year, pushing prices up. The government also continues to levy a heavy CESS on imported maize, increased from 20-25 percent in the latter part of the year, further driving costs up.

Correspondingly, the price of feed was increased over the course of the year, but even this increase was unable to offset the effects of the much higher cost of production. Although global oil prices reduced towards the second half of the year, the benefits were not tangible because of a corresponding depreciation of the local currency which drove import costs up. During the year under review the feed milling segments cost of sales increased by 28.23 percent to Rs.1,348 million. In spite of this increase, the Group’s loss before interest and taxes (EBIT) decreased by 2% to Rs.39 million. This is a testimony to the CGE’s operational success.

Despite the challenges faced over the course of the year, the company remains optimistic about its feed mill operation. CGE’s feed mill remains one of the largest in Sri Lanka,supplying up to 30 percent of the local feed market, a quarter of which is used in our own breeder and contract broiler farms. CGE mills produce formulated feed for poultry, cattle, swine and shrimp industries.

Enhancements of the Group’s feed mill undertaken a few years ago has contributed to enhanced productivity with the entire operation now being more than 90 percent automated. CGE now also operates a fully integrated in-house quality assurance mechanism for its manufactured feed to ensure the highest quality, best of the market feed. This is a notable achievement that CGE was able to increase product quality even under such trying circumstances.

With world oil prices remaining below US$ 50 per barrel in the first quarter of 2009 prospects for the year look better for the industry. CGE which consolidated its firm grip on the feed market during 2008, may look to the future optimistically, towards growth in 2009.

Poultry Breeder Farming Operations

The breeding and sale of day old chicks (DOC’s) is an important segment of the Group’s operations, contributing almost 11 percent of total turnover. There was an overall decline in

the production of DOC’s in 2008 compared to previous year. Sales value in this segment decreased by 5 percent in comparison to 2007. The global economic slowdown, a lack of business confidence and escalating inflation, were some of the main factors affecting sales growth.

Countrywide, production fluctuated between 5.8 – 6.3 million per month in 2008, amounting to about half a million DOC’s produced per month compared to 2007, which had an average monthly production of 6.5 million DOC’s. The same trend was observed in the production of Layer chicks, with average production for 2008 amounting to 420,000 per month which was a significant decrease from 525,000 in 2007. This decrease in production is a reflection of a shrinking appetite for poultry consumption in the country. Poultryconsumption in Sri Lanka declined in 2008 after steadily increasing since the 1980s. The per capita consumption which stood at 4.2 kilograms in 2007, decreased to 3.8 kilograms in 2008, according to the Department of Animal Productionand Health.

This consumption trend is a reflection of the economic hardships faced by the average local consumer. However, the low per capita chicken consumption leaves much room for future growth, especially in rural areas.

The sharp decline in demand for poultry and poultry products compelled many producers including CGE to destroy a portion of its DOC stock to reduce storage costs.

Sri Lanka was fortunate to have avoided any avian influenza contagion in 2008, despite India and several other Asian neighbours having to face that challenge during the year.

Broiler Farming and Processed Chicken Sales

The broiler farming and processed chicken segment was a bright spot for the Group. Revenue increase by 27 percent year-on-year to Rs.1,890 million. This increase was achieved in spite the economic downturn, government price controls, tensions in the northern part of the country and steep inflation rates affecting the purchasing power of the consumer. Due to these challenges, CGE’s production dropped marginally in 2008 compared to the previous year, from 7200 metric ton per month to 7000 metric ton per month in the year under review.

Feedmilling

(Rs.’000) 2008 2007 Change%

Sales volume 5,366,534 4,026,968 33%

EBIT (39,216) (40,378) 3%

Total assets 4,196,224 4,003,151 5%

Return on total assets employed

(1)% (1)%

Poultry Breeder Farming Operations

(Rs.’000) 2008 2007 Change%

Sales volume 874,981 924,547 (5%)

EBIT (193,370) 89,972 NM

Total assets 1,620,161 1,480,514 9%


(12%) 6%


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Management Discussion and Analysis Cont.

In light of the challenges faced, the Group launched several innovative marketing strategies and promotional campaign in order to encourage sales. The overall strategy primarily focused on marketing value added products of cut pieces instead of the whole chicken. Cut pieces provide a higher margin and also offer consumers greater choice in their purchases. As a result of this shift, the segment was able to achieve a profit margin of 5 percent for 2008. In addition, the Group was been able to retain its market leader position in a competitive industry comprising 12 main players.

Reduction in consumption forced the Group had to bear the additional burden of higher storage costs. CGE incurred Rs. 19 million cost for renting cold storage rooms in year 2008 due to the higher stock levels. The Group continues to face the challenge of chicken being classified an essential item by the Consumer Affairs Authority, and having to contend with a pricing ceiling being placed on processed whole chicken.

Broiler farming and processed chicken sales contribute to about 24 percent of group turnover.

Poultry Equipment

This area of the Group’s operation serves to supply equipment and drugs to the industry and aims to add extra value to its customers at little extra cost.

The year under review saw an increase in sales of 12 percent to Rs. 17 million. Poultry equipment trading is the smallest segment of the Groups operations. Notably, the segment saw 70 percent increase in its total value of assets.

The company continues to market some of the best known brand names in the poultry industry such as “TAD-LohmannAnimal Health” range of vaccines from Germany.

Silo and Warehouse Complex and Trans-Shipment

The strategic advantage of CGE’s silos and warehouses were underscored in the year 2008 because of higher stock levels. Revenue from rental income increased by 2% in the year under review. The Group’s large silo capacities continue to provide heightened flexibility particularly when purchasing key ingredients from international commodity markets. This advantage is further emphasised in the year 2008 when each shipment of materials used in the Group’s operations cost significantly higher than the last due to constant appreciation in world market prices.

Broiler operation

(Rs.’000) 2008 2007 Change%

Sales volume 1,890,900 1,487,502 27%

EBIT 60,212 132,552 (55%)

Total assets 497,917 532,662 (7%)


12% 25%

Poultry Equipment Trading

(Rs.’000) 2008 2007 Change%

Sales volume 16,840 15,097 12%

EBIT (773) 3,015 NM

Total assets 24,398 14,347 70%


(3)% 21%

Silo Warehouse Complex

(Rs.’000) 2008 2007 Change%

Sales volume 68,664 67,635 2%

EBIT 25,004 18,159 38%

Total assets 452,896 468,438 (3%)


6% 4%

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Human Resources Review

At Ceylon Grain Elevators PLC, we continue to believe that people are the cornerstone of our success. The present and future of the Group depends on the professional and personal development of our employees. We recognize that the quality of our products and services is the result of the combination of talents and technologies, brought together in a cohesive organizational structure.

Our Human Resources philosophy is based on promoting flexibility and teamwork. Human Resources policies are designed to select and promote individuals based on their professional abilities, leadership and commitment. A work environment that rewards innovation, initiative and teamwork reinforces those policies.

Staff Empowerment and Career Growth

A programme initiated in 2007, to bring about a performance based culture within the Group is currently being implemented through a comprehensive performance appraisal system for all employees. This scheme provides opportunities for peer and supervisor performance reviews upon which would be based the employees’ prospects for increments and promotions. The Group envisions greater employee empowerment and motivation through this merit-based scheme and believes it will contribute to increased productivity and goodwill within the corporate environment.

CGE is using these Key Performance Indicators to ensure that the optimum employee head count is maintained, especially in these tough economic conditions. It is a testimony to the Group’s efficient human resources management that labour relations have been good even in a difficult fiscal year.

The Group has also focused strongly on succession planning in the year 2008. CGE has identified critical employee positions and made it a policy to ensure there are successors being groomed for each of the positions. While the Group has relied on new recruitments to appoint successors in some cases, wherever possible we have begun grooming existing staff in specific departments to assume greater responsibility in the future.

In order to assist employees with career planning, the Group’s Human Resources Division has introduced a grading system within departments which is based on responsibilities assigned to each position. The system will enable employees to envision their career progress and obtain the necessary training and skills gathering required for advancement.

Going a step further

The Group provides a comprehensive welfare package and benefits to its employees. But going even further, CGE also provides assistance in numerous ways that make the Group a leader in the industry. Such as scholarship opportunities for employees children at a School & University level, and financial assistance to employees who wish to engage in industry oriented training.

Earning and maintaining the trust and respect of our more than 240 employees, means improving our customers’ experience and our success as well. Our goal is to create the best possible work place environment for our employees, one that attracts and retains the most talented individuals and to be regarded by them as a wonderful place to work.


8

Corporate Social Responsibility Review

At Ceylon Grain Elevators, our commitment to good governance, ethical conduct and social responsibility is core to our way of doing business, and strongly aligned with our drive to create and increase shareholder value.

We work together on a daily basis with employees, suppliers, farmers and others to help create a more sustainable approach to high-quality production, to help build stronger local communities, to minimise our environmental footprint, to create a great work place, to promote diversity and to be responsive to our customers’ health and wellness needs.

High Standards

CGE places the highest priority on the safety and well-being of our customers and our partners. Our quality assurance (QA) process is extremely rigorous and extends throughout our entire supply chain. Commencing in 2008, CGE conducts its QA testing on its processed feed immediately after manufacture and before the product leaves the company premises, to ensure the quality of the product being delivered to the market. Our commitment to product safety means that we not only comply with government regulations as per the Animal Feed Act and operate with full transparency in our QA processes, but ultimately, we seek to do the right thing – for customers, partners and the environment – going above and beyond basic regulations whenever possible and appropriate.

We continually strive to understand our environmental footprint and reduce our impacts. Throughout the years, CGE has remained committed to protecting the environment in and around our factories and especially our poultry farms. The Company’s poultry farms operate under a Central Environmental Authority licence which demands that we conform to stipulated standards and subject ourselves to constant monitoring and inspection by that state agency. All of CGE’s farms conform to stringent waste management protocols and international hygiene and sanitation standards.

Supporting Local Communities

The Group believes in contributing positively to local area development, no matter where in Sri Lanka we operate. Villages surrounding our farms in Bulathsinghala, Attanagalla and Beruwala have been provided assistance to repair and upgrade roads as part of a CGE’s initiative to work towards the betterment of communities we work in close proximity with.

Support Systems

In keeping with our promise to ensure farm health and safety throughout our supply chain, CGE offers its outgrower farmers clinic and laboratory facilities free of charge, island wide. The Group’s health clinics are fully equipped with modern medical facilities and comprise qualified veterinary surgeons for disease diagnosis and treatment of sick birds. Farmers gain access to these facilities by contacting the Group’s Area Managers who direct them to the clinics. We hope that these medical centres will prove beneficial to farmers and the poultry industry at large by assisting in the early identification of disease that might be a potential risk to farm health. Such CGE initiatives and efforts have ensured that outgrower farmer standards remain high.

During the first quarter of 2008, the Group also conducted farmer training seminars in the districts of Kurunegala, Ampara and Anuradhapura. These technical seminars were aimed at a technology transfer that would heighten awareness of local farmers about best practices for efficient and profitable farm management. Farmers are trained to achieve maximum sustainability and profitability by upgrading their techniques and using the modern scientific methods that yield better results.

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Corporate Governance

In adherence to the key tenants of Corporate Governance, Ceylon Grain Elevators (CGE) has been structured internally to ensure the business is run in a lawful manner, in keeping with the code of best practices on Corporate Governance published by the Institute of Chartered Accountants of Sri Lanka.

Throughout its operations, CGE has strived to maintain transparency when reporting on financial and non-financial information and the Group’s Board of Directors remains accountable to its shareholders and employees for good governance.

A comprehensive set of rules and guidelines for ethical conduct has been established for both Directors as well as employees with a view to sustain the corporate culture of the Company.

Board of Directors

The responsibilities of the Board of Directors include the setting out of strategic aims, providing leadership to put them into effect, supervising the management of the business and reporting to the shareholders.

Control over the Group is exercised collectively by the Board of Directors. The Board is responsible to ensure that shareholder value is maximized while protecting their rights and interests at all times. Moreover the Board sets strategic direction, corporate policies and procedures and a decision making framework within which their vision and mission can be achieved.

Ceylon Grain Elevators PLC is committed to having a balanced board of directors to ensure long term value addition for all shareholders. The firm believes the correct mix of executive, non-executive and independent non-executive directors with an intimate knowledge of the industry and business will enable the company to make better decisions. With this aim, the current board comprised of the following directors

Mr. Cheng Chih Kwong, Primus - Executive DirectorMr. Tan Beng Chuan - Executive DirectorMr. Cheng Chih Cheng, Robert - Non-Executive DirectorMr. Cheng Chih Hui, Peter - Non-Executive DirectorDr. Wickrema Sena Weerasooria - Independent

Non-Executive Director

Section 6 of the new listing rules of the Colombo Stock Exchange, which came into effect in 2008, sets out minimum corporate governance requirements for listed companies and require listed companies to confirm compliance or explain the non-compliance.

During the year under review, the company was unable to appoint the required number of Independent Non-Executive Directors to the board due to the extensive time needed for selecting suitable candidates with appropriate industry knowledge and skill set.

As a result of not being able to appoint the required number of Independent Non-Executive Directors to the board, the company was not in a position to appoint the Audit Committee and Remuneration Committee. As per Section 6 of the new listing rules, both these committees require a composition of a minimum of two independent directors. CGE hopes to appoint these committees before the end of second quarter 2009.

Dr. Wickrema Sena Weerasooria was appointed to the board with effect of 2 February 2009. As per declaration filed by the individual director, Dr. Wickrema Sena Weerasooria is classified as an Independent Non-Executive Director on the Board of the Company.

Mr.Cheng Chih Cheng, Robert and Mr.Cheng Chih Hui, Peter, are classified as Non-Executive Directors, as per declaration filed by them.

To further enhance the board balance, the company is currently in the process of evaluating candidates to serve as an additional Independent Non-Executive Director. CGE hopes to have made this appointment before the end of second quarter 2009.

The Management Committee, headed by the Chief Executive Officer is empowered by the Board and is an integral part of management, and the other members of the Management Committee are the Group General Manager, the General Manager, Deputy General Manager, and the Assistant General Managers of each Department.

The Chairman

With a view to have a proper balance of power on the Board, the posts of Chairman and Executive Director have been separated with clear roles defined for each. The Chairman is responsible for leadership of the Board ensuring its effectiveness on all aspects of its role. The Chairman also facilitates the effective contribution of Non-Executive Directors in particular and ensures positive relations between Executive and Non-Executive Directors.

Role and Functions of the Board of DirectorsThe Board formulates corporate policies and procedures and the overall business strategy and monitors the segmental performance of the group against the set goals and objectives. They also evaluate the business risks and make decisions on optimum measures in order to avoid such risks.

There is a laid down schedule of issues and decisions which may only be approved by the Board as monitoring controls. These include the board approvals on overall strategy, annual budget, business plan, management information, reported financial statements, dividends, investments, and business acquisitions.

The Board has delegated adequate authority to the Management Committee in order to implement the Board decisions and the Committee exercises this authority within


10

Corporate Governance Cont.

the policy framework stipulated by the Board and in line with the ethical, professional and statutory standards applicable to the industry. The Management Committee is responsible of implementing the group strategy, monitoring business performance, approving budgets and capital expenditure for recommendation to the Board and ensuring efficient management of the Group.

The Management Committee meets once every two weeks to discuss and evaluate the segmental performance of the group, business development plans, financial and operating budget and forecasts, capital expenditure proposals, management issues and key performance indicators (KPI). Reports from the Management Committee on segmental performance are reviewed by the Board. The Board also receives regular reports from executives and sectional heads on key risk areas.

Below the Board level, there are clearly defined authority limits for individuals to make financial commitments. In addition we have policies setting out minimum standards in important risk areas, such as product safety, financial reporting, treasury, employee matters, health and safety and the environment.

Apart from the corporate guidelines mentioned, the Management Committee has freedom to run the business as they see fit to meet the demands of our customers and the strategic and financial targets that have been set. We believe that this devolved structure is essential to enable us to take decisions quickly, to innovate at a speed demanded by the customer and to give our customers a product and service that is tailored to their requirements.

Legal Compliance

The Board of Directors is responsible to shareholders to report with timely and accurate information. Thus it ensures that transparency is maintained at all times through the keeping of proper books of accounts and preparation of financial statements that give an accurate and fair picture of the status of Group.

Monthly, quarterly and annual results are prepared and presented in accordance with the Sri Lanka Accounting Standards, the Companies Act No. 07 of 2007, Colombo Stock Exchange and Securities & Exchange Commission, regulations.

Risk Management ProcessThe Board oversees the setting up of a Risk Management Process so that there is an ongoing system in place for identifying, evaluating and managing the significant risks faced by the Group in protecting its assets and processes. This risk management process is regularly reviewed by the Board on the basis of the guidelines set by the relevant regulatory bodies.

Internal Control Framework

The Board is ultimately responsible for the Group’s system of internal control and for reviewing its effectiveness. However such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and provides only reasonable and not absolute assurance against material misstatement or loss.

The Board, whilst maintaining its overall responsibility for managing risk within the Group, has delegated the detail, design and operation of the system of internal controls to the Management Committee.

The Group maintains a well established control framework comprising clear structures and accountabilities, well understood policies, procedures and budgeting and review processes.

Each segment has a formal management structure with clear definition of responsibilities which operates within well defined policies, covering the areas of product safety, financial matters, health and safety, the environment, human resources, operations matters, purchasing and engineering.

Going Concern

After making enquiries the Board has a reasonable expectation that the Group has adequate resources to continue operating for the foreseeable future. For this reason, the going concern basis was adopted in preparing the accounts.

Information and Professional Development

The Board is supplied with timely information in a form and quality appropriate to enable it to discharge its duties effectively. The Directors seek clarification or amplification where necessary.

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Risk Management

Risk management ensures that an organization identifies and understands the risks to which it is exposed. Risk management also guarantees that the organization creates and implements an effective plan to prevent losses or reduce the impact if a loss occurs.

The Group’s risk management plan includes strategies and techniques for recognizing and confronting these threats.

Risk management at Ceylon Grain Elevators PLC (CGE) provides a clear and structured approach to identifying risks. Having a clear understanding of all risks allows the Group to measure and prioritize them and take the appropriate actions to reduce losses. Risk management has other benefits for the Group, including saving resources such as time, assets, income, property and people, protecting the reputation and public image of the organization and preventing or reducing legal liability and increasing the stability of operations.

The Group’s risk management structure, its planning and reporting systems and review processes provide a basis for integrating risk management into the management of its business.

Reporting plays a key role in monitoring economic risks. The business performance of the segments and individual companies of the Group are periodically compared with budgets and key economic and performance indicators to alert management to possible risks. Group accounting and control functions seek to increase the responsiveness and efficiency of the reporting system.

The Group’s system of internal control covers policies and procedures, enabling significant strategic and operational risks to be managed. This includes the system of financial controls in operation through the Group and processes and system for monitoring and reporting on the continuing effectiveness of the system of internal controls.

The principal risks associated with the Group’s activities are:

Foreign Exchange Rate, Inflation and Borrowings

The Group has substantial bank loans denominated in foreign currencies. In the event of a decline in the value of the Rupee against foreign currencies or local banks increase their interest rates on borrowings the Group’s debt burden will increase. Typically, changes in the international prices of raw materials are passed on to the selling prices of the Group’s products in the domestic market. This in effect provides a natural hedge against changes to global prices and fluctuations in the value of the Rupee. A substantial fall of the Rupee against the US Dollar however can have a negative impact on the Group’s operations and finances. Although the Group is able to increase its product selling prices, these adjustments may require time depending on severity of the currency fall and existent government price controls. There is also a possibility that a steep currency decline

or very high inflation could depress demand causing a drop in sales.

Customers

The Group recognises the importance of sustaining mutually beneficial relationships with its customers, poultry farmers, dealers and out growers. Providing customers the products with quality, as and when they require is the basis of customer satisfaction. In the event of failing the same, the Group runs a risk of losing market share incurring financial losses.

Individual companies of the Group and segments manage such risks through a process that monitors and predicts customer purchasing behaviour. We capture customer feedback on future needs, track social and cultural trends that influence consumer demand and build customer loyalty to ensure continuance of repeat purchasing trends.

A number of indicators such as product return data, customer complaint indices, the number of interactions between the Group and its customers, the churn rate amongst the top twenty percent of customers and revenue growth factors amongst targeted customer groupings, help to measure our progress in managing these risks effectively. Customer satisfaction in terms of products and services is also monitored carefully, through initiatives to establish customer satisfaction as the Group’s number one priority and to use customer feedback as a catalyst for improvement.

Farmers and Out Growers

Poultry farmers and out growers constitute a key segment of our business mix. The Group’s success is closely tied to their performance. The risks associated with this group directly affect our core product. If yields are low or livestock does not meet the Group’s stringent quality standards, the business could be seriously impacted. Key management personnel work closely with the farmers and the out growers to ensure the highest quality birds. This involves various activities including sharing with them our technical know-how, guiding them in setting up their farm infrastructure in accordance with the latest rearing techniques.

Outbreaks of Disease

Outbreaks of communicable animal diseases can result in significant losses to poultry flocks within a very short period of time. In the past few years, the possibility of Avian Influenza transmitting to human beings has caused some concerns among the public about consuming poultry products.

The management of the Group extends the services of our staff in providing training to the farmers and out growers and also other services such as veterinarian services. This is invaluable to both the farmer and the Group in monitoring the development of the birds and mitigating the risk of disease.


12

Risk Management Cont.

Products

Introduction of alternative products by competitors or variances in product quality can lead to buyers ceasing to purchase the Group’s products. To counter these risks, CGE has put in place the industries best quality standard and ensures, via its quality assurance systems, that the high level of quality is maintained in all products and services marketed by the Group.

Procurement

Availability of raw materials of the right quality is essential to the operations of the Group. Any supply shortfall will adversely affect the ability of the Group to fulfill the demand of our customers, which will in turn impact the bottom line. Adverse price fluctuation may also cause decline in margins. The Group strives to address these risks through long term relationships with its suppliers, contractual agreements and establishing multiple sources of supply.

The Market and The Competition

The Group continuously focuses on increasing productivity to reduce overall costs. Rapid increases in energy, other overhead and wage costs, and the inflexibility of labour laws, are serious obstacles in managing cost of goods sold. Trading companies in the Group also encounter strong price competition. The Group has addressed this matter through trade chambers and regulatory authorities and also adopts marketing strategies to leverage the strong brand image inherent in its product portfolio. The poultry industry in Sri Lanka is beset with cyclical changes and regular periods of “peaks and valleys” where times of glut are followed by times of scarcity.

The poultry feed division utilizes a number of raw materials of which maize and soyabean meal are the main ingredients. The prices for raw materials sourced locally are influenced by weather, harvest yields as well as domestic supply and demand forces. In addition, the Group’s production costs and prices are also influenced by the fact that it procures raw materials on the international market, exposing it to global price fluctuations. The prices of imported raw materials are also affected by foreign currency exchange rates and a number of supply and demand factors, including world-wide production levels the global level of consumption of the commodities and economic development throughout the world. Such issues impinge on CGE’s viability and require careful management to minimise the adverse implications on the Group.

The Group employs several measures towards developing an optimum pricing strategy to maintain its competitiveness amidst these very volatile conditions. Determining true unit costs of products and services, realistic cost cutting, improving sales and marketing strategies and adhering to a pricing policy are the key thrust areas.

We are also seeking greater accuracy in sales forecasting, employing multiple forecasting methods to reduce bias and boost accuracy. In this regard the Group has broad based its data sourcing to benefit from the widest range of information that makes for more informed and accurate decision making.

Government Regulations

The Government’s policies and regulations can affect the business activities of the Group. CGE will take all the necessary steps to comply with these requirements and make changes accordingly.

Human Resources

A comprehensive and ongoing career development programme has been initiated throughout the Group to help our employees to achieve their optimum potential. CGE lays great emphasis on training and development of staff, providing them with know-how and avenues for personal development so as to improve the productivity of the Group as a whole.

In developing and training staff, we accomplish a two-fold objective of aligning the development of the individual with that of the organisation as well as equipping them with the skills required to function in a highly competitive industry. We simultaneously manage and minimise risks from down time as a consequence of trade union action since the HR strategy endeavours to maintain industrial peace within the Group by enhancing employee satisfaction.

13


Report of the Directors on the State of Affairs of the Company

The Board of Directors is pleased to present their Report and the Audited Financial Statements of the Company for the year ended 31 December 2008. The details set out herein provide pertinent information required by the Companies Act, No.7 of 2007 the Colombo Stock Exchange Listing rules and are guided by recommended best accounting practices.

1. Principal Activities

The principal activities of the Company are

• manufacture and sale of poultry feed and other animal feed

• manufacture and sale of aquatic feed• import and sale of poultry equipment and vaccines• operating of poultry breeder farms, raising grand parent

and parent stock and hatcheries• hatching and selling of day old chicks• operation of commercial farms; and• poultry processing and distribution

2. Review of Performance for the year ended 31 December 2008 and Future Developments

A review of the Company’s performance during the year, with comments on financial results for the year ended 31 December 2008 and future developments is contained in the Chairman’s and Chief Executive’s Review (page 02 to 03) and Management Discussion and Analysis (pages 04 to 06). These reports, together with the financial statements reflect the state of affairs of the Company.

3. Financial Statements

The financial statements of the Company are given on pages 18 to 50.

4. Independent Auditor’s Report

The Independent Auditor’s Report on the financial statements is given on page17.

5. Accounting Policies

The accounting policies adopted in preparation of financial statements are given on pages 22 to 27. There were no material changes in the Accounting Policies adopted.

6. Interest Register

The Company maintains an Interest Register and the particulars of those Directors who were directly or indirectly interested in contract of the Company are stated there in.

7. Directors’ Interest

None of the Directors had a direct or indirect interest in any contracts or proposed contracts with the Company other than as disclosed in the Note 32 to the financial statements.

8. Directors Remuneration and Other Benefits

Directors’ remuneration in respect of the Company for the financial year ended 31 December 2008 is given in Note 32.1 to the financial statements.

9. Corporate Donations

Donations made by the Company amounted to Rs. Nil (2007 - Rs. 550,000/-). No donations were made for political purposes.

10. Directorate

The names of the Directors who held office during the year are given below.

Mr. Cheng Chih Kwong, Primus Chairman & Chief Executive Officer

Mr. Tan Beng Chuan Executive Director &Group General Manager

Mr. Cheng Chih Cheng, Robert Non Executive DirectorMr. Cheng Chih Hui, Peter Non Executive Director

Dr. Wickrema Sena Weerasooria was appointed as a Director of the Company with effect from 2 February 2009.

All other Directors held office for the entire year ended 31 December 2008.

In accordance with the provisions of Article 102 of the Articles of Association of the Company, Mr. Cheng Chih Cheng, Robert retires by rotation and offers himself for re-election.

In accordance with the provisions of Article 109 of the Articles of Association of the Company, Dr. Wickrema Sena Weerasooria retires and offers himself for re-election.


14

Report of the Directors on the State of Affairs of the Company Cont.

11. Directors’ Shareholdings

As at As at31/12/2008 31/12/2007

Mr. Cheng Chih Kwong, Primus - 397 397Mr. Tan Beng Chuan - Nil NilMr. Cheng Chih Cheng, Robert - 397 397Mr. Cheng Chih Hui, Peter - 397 397

12. Auditors

The financial statements for the year ended 31 December 2008 have been audited by Messrs KPMG Ford Rhodes Thornton & Co., Chartered Accountants, who express their willingness to continue in office. In accordance with the Companies Act No.07 of 2007, a resolution relating to their re-appointment and authorising the Directors to determine their remuneration will be proposed at the forthcoming Annual General Meeting.

The Auditors Messrs KPMG Ford Rhodes Thornton & Company were paid Rs. 1,700,000/- (2007 - Rs. 1,450,000/-) as audit fees by the Company. In addition they were paid Rs. 93,553/- (2007 - Rs. Nil) by the Company for audit related work which consists mainly of certifications issued to BOI.

As far as the Directors are aware, the Auditors do not have any relationship (other than that of an Auditor) with the Company other than those disclosed above. The Auditors also do not have any interest in the Company.

13. Group Turnover

Group turnover amounted to Rs.7,210/- Million (2007 - Rs.5,757/- Million)

14. Dividends

The Directors do not recommend the payment of a dividend for the financial year ended 31 December 2008.

15. Investments

Details of investments held by the Company are disclosed in Note 13 & 14 to the financial statements.

16. Intangible Assets

An analysis of the intangible assets of the Company, additions and impairments during the year and amortisation charged during the year are set out in Note 12 to the financial statements.

17. Property, Plant and Equipment

An analysis of the property, plant and equipment of the Company, additions and disposals made during the year and depreciation charged during the year are set out in Note 10 to the financial statements.

18. Capital Commitments

Capital expenditure contracted for as at 31 December 2008 for which no provision has been made in the accounts are set out in Note 27 to the financial statement.

19. Stated Capital

The issued and fully paid up stated capital of the Company is Rs.1,017,996,000/- divided into 60,000,000 ordinary shares. There was no change in the stated capital of the Company during the year.

20. Reserves

Total reserves as at 31 December 2008 amounted to Rs. 211.9M (2007 - Rs. 326.3M) The movement of reserves is shown in the statement of changes in Equity on page 20.

21. Events subsequent to the Balance Sheet date

No significant events have occurred since the Balance Sheet date other than those disclosed in Note 33 to the financial statement.

22. Employment Policies

Company identifies human resource as one of the most important factors contributing to the survival and growth of the Company in the current competitive business environment. While appreciating and valuing the service of our employees, a greater effort is made to hire the best talent from external sources, to bolster week areas and continue to maintain the highest standards of the industry. Human Resource Head Count is considered as a key indicator and recruitment is based on annual manpower planning and the Company provides equal opportunities. Greater emphasis is given to the area of training, professional development and ethical business practices. All rewards and career opportunities are based on merit and on performance.

23. Taxation

The tax position of the Company is given in Note 8 to the financial statements.

15


Report of the Directors on the State of Affairs of the Company Cont.

24. Share Information

Information relating to earnings, dividend, net assets and market price per share is given on page 51 Information on share trading is given on page 51.

25. Disclosure as per CSE Rule No.8.7 (i) (5)

2008 2007Rs. Cts. Rs. Cts.

Market price per share as at 31 December 6.50 13.00Highest/lowest share price 13.50/6.25 16.75/12.50Earnings per share (1.91) 0.07Dividend per share - -Net assets per share 22.29 22.41

26. Shareholding

The number of registered shareholders of the Company as at 31 December 2008 was 3065. The distribution and analysis of shareholdings are given on page 54.

27. Major Shareholders

The twenty one largest shareholders of the Company as at 31 December 2008, together with an analysis are given on page 54.

28. Statutory Payments

The Directors to the best of their knowledge and belief are satisfied that all statutory payments in relation to the Government and the employees have been made on time.

29. Environment, Health and Safety

Company policy continues to ensure that all environmental, health and safety regulations are strictly adhered to, minimizing any adverse effects to the environment. Recycling of waste is carried out wherever possible. Employees are provided with all personal protective equipment as Health and well being which are our prime concerns. Fire fighting and safety systems are in place to safeguard the Company interest. Plans are in progress to introduce emission free machinery for in-house operations to eliminate air pollution.

30. Corporate Governance / Internal Control

The Corporate Governance and internal control policies of the Company are given on pages 9 to 10.

31. Contingent Liabilities

Contingent Liabilities as at 31 December 2008 are set out in Note 26 to the financial statements.

32. Annual General Meeting

The 26th Annual General Meeting of the Company will be held at ICASL Auditorium, 30A, Malalasekera Mawatha, Colombo 07 on Friday 22 May 2009 at 10.00 a.m.

By Order of the Board ofCeylon Grain Elevators PLC

(Sgd.) Cheng Chih Kwong, Primus (Sgd.) Tan Beng ChuanChairman & Executive Director & Chief Executive Officer Group General Manager

(Sgd.) S S P Corporate Services (Private) LimitedSecretaries

Colombo31 March 2009


16

Statement of the Director’s Responsibility

The responsibility of the Directors in relation to the financial statements of the Company and the Group, is set out in the following statement. The responsibility of the auditors, in relation to the financial statements, is set out in their report appearing on page 17.

The Companies Act No. 07 of 2007 requires the Directors to prepare financial statements for each financial year which give a true and fair view of the status of affairs of the Company and the Group and of the profit or loss for that year.

In preparing these financial statements the Directors are required to:

* Select suitable accounting policies and then apply them consistently;

* Make judgments and estimates that are reasonable and prudent;

* State whatever applicable accounting standards have been followed, subject to any material departures and explained in the financial statements; and

* Prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Group will continue in business.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy of any time the financial position of the Company and the Group and to ensure that the financial statements comply with the Companies Act.

The Directors are also responsible for taking such steps as are reasonably open to them to safeguard the assets of the Company and the Group and in this regard to give proper consideration to the establishment of appropriate internal control systems with a view to prevent and detect fraud and other irregularities.The Directors are required to prepare the financial statements to provide the auditors with every opportunity to take whatever steps and undertake whatever inspections they may consider to be appropriate to enable them to express their audit opinion.

Compliance Statement

The Directors are of the view that they have discharged their responsibilities as set out in this statement. They also confirm that to the best of their knowledge, all statutory payments payable by the Company and its subsidiaries as at the Balance Sheet date have been paid or where relevant, provided for.

Ceylon Grain Elevators PLC

(Sgd.) Cheng Chih Kwong, Primus (Sgd.) Tan Beng ChuanChairman & Executive Director & Chief Executive Officer Group General Manager

Colombo31 March 2009

17


Independent Auditor’s Report

TO THE SHAREHOLDERS OF CEYLON GRAIN ELEVATORS PLC

Report on the Financial StatementsWe have audited the accompanying financial statements of Ceylon Grain Elevators PLC, and the consolidated financial statements of the Company and its subsidiaries as at December 31, 2008 which comprise the balance sheet as at December 31, 2008, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes as set out on pages 18 to 50 of this Annual Report.

Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Scope of Audit and Basis of OpinionOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation.

We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion.

OpinionCompanyIn our opinion, so far as appears from our examination, the Company maintained proper accounting records for the year ended December 31, 2008 and the financial statements give a true and fair view of the Company’s state of affairs as at December 31, 2008 and its loss and cash flows for the year then ended in accordance with Sri LankaAccounting Standards.

GroupIn our opinion, the consolidated financial statements give a true and fair view of the state of affairs as at December 31, 2008 and the loss and cash flows for the year then ended, in accordance with Sri LankaAccounting Standards, of the Company and its subsidiaries dealt with thereby, so far as concerns the members of the Company.

Emphasis of MattersWithout qualifying our opinion, we draw attention to

The disclosure made in Note 26(a) to the financial statements which states the position regarding the charge made against the Company by the Director General of Custom. The outcome of this matter can not presently be determined.

Ceylon Aquatech (Private) Limited, a fully owned subsidiary, incurred a net loss of Rs. 3,627,669/- during the year ended December 31, 2008, with the aggregate losses increasing to Rs. 68,712,844/- as at the year end and as of that date total liabilities exceed total assets by Rs. 8,712,844/- as at December 31, 2008. The investment by Ceylon Grain Elevators PLC is Rs. 60 Million. Further, the Company has ceased the entire operations during the financial year 2006. These factors raise doubt that the Company will be able to continue as a going concern.

No provision for any effect on the Company that may result has been made in the company/consolidated financial statements

Report on Other Legal and Regulatory RequirementsThese financial statements also comply with the requirements of Sections 153(2) to 153(7) of the Companies Act No. 07 of 2007.

(Sgd.) KPMG Ford, Rhodes, Thornton & Co.Chartered AccountantsColombo.31 March 2009

KPM G Ford, Rhodes, Thornton & Co Tel : +94 - 11 242 6426(Chartered Accountants) +94 - 11 542 642632A, Sir Mohamed Macan Markar Mawatha Fax : +94 - 11 244 5872P. O. Box 186, +94 - 11 244 6058Colombo 00300 +94 - 11 254 1249Sri Lanka +94 - 11 230 7345

Internet : www.lk.kpmg.com

KPMG Ford, Rhodes, Thornton & Co., a Sri Lankan Partnershipand a member rm of the KPMG network of independent member rms afliated with KPMG International a Swiss cooperative. All rights reserved

A. N. Fernando FCA S. Sirikananthan FCAM. R. Mithular FCA Ms. M. P. Perera FCAP. Y. S. Perera FCA C. P. Jayatilake FCAT. J. S. Rajakarier FCA W.W. J. C. Perera FCAMs. S. Joseph ACA


18

Income Statement

All amounts in Sri Lanka Rupees thousands

Notes Consolidated Company

For the year ended 31 December, 2008 2007 2008 2007

Revenue 1 7,209,585 5,756,856 7,257,434 5,514,470

Cost of sales (6,931,000) (5,295,190) (6,897,045) (5,270,832)

Gross profit 278,585 461,666 360,389 243,638

Other operating losses 5 (75,786) (91,771) - -

Other income 6 32,107 16,748 23,206 14,992

Selling & distribution expenses (54,526) (40,949) (54,526) (40,949)

Administrative expenses (143,434) (132,789) (224,839) (112,297)

Operating profit 2 36,946 212,905 104,230 105,384

Net finance expenses 7 (217,972) (86,437) (218,563) (86,969)

Share of profit of associate 13 34,787 11,825 - -

(Loss) / profit before tax (146,239) 138,293 (114,333) 18,415

Income tax expense 8 20,804 (43,546) (121) (13,988)

(Loss) / profit for the year (125,435) 94,747 (114,454) 4,427

Attributable to:

Equity holders of the parent (52,595) 68,446 (114,454) 4,427

Minority interest 29 (72,840) 26,301 - -

(Loss) / profit for the year (125,435) 94,747 (114,454) 4,427

Basic (loss) / earnings per share (Rs) 9 (0.88) 1.14 (1.91) 0.07

The accounting policies and notes on pages 22 to 50 form an integral part of these financial statements.

19


Balance Sheet


As at 31 December, 2008 2007 2008 2007

ASSETSNon-current assetsProperty, plant and equipment 10 1,513,838 1,471,652 223,317 174,091Leasehold right over land & buildings 11 621,083 628,596 190,425 194,695Intangible assets 12 2,652 4,455 - -Investment in associate companies 13 163,613 128,826 128,484 128,484Investments in subsidiary companies 14 - - 361,625 361,625Livestock 15 221,112 153,540 - -Other investments 16 7,322 7,322 7,322 7,322Amount due from Affiliated Companies 17 - - 1,649,301 1,438,696Total non-current assets 2,529,620 2,394,391 2,560,474 2,304,913

Current assetsInventories 18 1,789,745 1,528,101 1,643,565 1,429,648Trade and other receivables 19 515,529 532,543 457,792 507,300Current tax receivable 55,211 42,346 1,444 1,409Cash and cash equivalents 20 34,847 302,198 30,866 292,543Total current assets 2,395,332 2,405,188 2,133,667 2,230,900Total assets 4,924,952 4,799,579 4,694,141 4,535,813

EQUITYStated capital 28 1,017,996 1,017,996 1,017,996 1,017,996Share premium of subsidiaries 213,133 213,133 - -Revaluation reserve 30 61,237 62,407 38,639 39,809Retained earnings 44,899 96,324 173,256 286,540Total equity attributable to equity holders of the parent 1,337,265 1,389,860 1,229,891 1,344,345

Minority interest 29 46,958 119,798 - -1,384,223 1,509,658 1,229,891 1,344,345

LIABILITIESNon-current liabilitiesDeferred tax liabilities 24 24,961 46,393 17,801 17,801Defined benefit obligations 25 22,563 33,190 15,775 24,106Amount due to affiliated Companies 22 1,150,618 1,700,226 1,150,618 1,700,226Total non-current liabilities 1,198,142 1,779,809 1,184,194 1,742,133

Current liabilitiesTrade and other payables 21 309,268 216,122 246,737 152,426Amount due to affiliated Companies 22 1,210,660 327,971 1,210,660 340,590Interest bearing borrowings 23 822,659 966,019 822,659 956,319Total current liabilities 2,342,587 1,510,112 2,280,056 1,449,335Total liabilities 3,540,729 3,289,921 3,464,250 3,191,468Total equity and liabilities 4,924,952 4,799,579 4,694,141 4,535,813

The accounting policies and notes on pages 22 to 50 form an integral part of these financial statements.These financial statements are in compliance with the requirements of the Companies Act No. 07 of 2007.

(Sgd.) K. A. R. S. PereraAssistant General Manager - Finance

These financial statements were approved by the Board of Directors on 31 March 2009.

(Sgd.) Cheng Chih Kwong, Primus (Sgd.) Tan Beng ChuanChairman & Chief Executive Officer Executive Director & Group General Manager



20

Statement of Changes in Equity


CONSOLIDATED

For the year ended 31 December, Stated Share Revaluation Retained Minority Totalcapital premium of reserve earnings interest equity

subsidiaries

Balance as at 1 January 2007 1,017,996 213,133 63,577 26,708 93,497 1,414,911

Depreciation transfer - - (1,170) 1,170 - -

Profit for the year - - - 68,446 26,301 94,747

Balance as at 31 December 2007 1,017,996 213,133 62,407 96,324 119,798 1,509,658

Depreciation transfer - - (1,170) 1,170 - -

Loss for the year - - - (52,595) (72,840) (125,435)

Balance as at 31 December 2008 1,017,996 213,133 61,237 44,899 46,958 1,384,223

COMPANY

For the year ended 31 December, Stated Revaluation Retained Totalcapital reserve earnings equity

Balance as at 1 January 2007 1,017,996 40,979 280,943 1,339,918

Depreciation transfer - (1,170) 1,170 -

Profit for the year - - 4,427 4,427

Balance as at 31 December 2007 1,017,996 39,809 286,540 1,344,345

Depreciation transfer - (1,170) 1,170 -

Loss for the year - - (114,454) (114,454)

Balance as at 31 December 2008 1,017,996 38,639 173,256 1,229,891

The accounting policies and notes on pages 22 to 50 form an integral part of these financial statements.

21



For the year ended 31 December, 2008 2007 2008 2007

Operating activities

Cash generated from operations 31 523,674 181,909 79,767 (64,904)

Interest received 7 1,862 5,249 1,271 4,717

Dividend received 6 1,155 310 1,155 310

Interest paid 7 (136,600) (78,631) (136,600) (78,631)

Defined benefit obligations paid 25 (4,007) (4,021) (2,400) (3,285)

Tax paid (13,492) (4,570) (156) (13,733)

Net cash generated/(used in) from operating activities 372,592 100,246 (56,963) (155,526)

Investing activities

Purchase of property, plant and equipment 10 (137,505) (146,155) (71,096) (36,650)

Proceeds from disposal of PPE 42 51,551 42 2,217

Purchase of livestock 15 (359,120) (201,803) - -

Net cash used in investing activities (496,583) (296,407) (71,054) (34,433)

Financing activities

Net borrowings (121,320) 341,321 (111,620) 331,619

Net cash generated / (used in) from financing activities (121,320) 341,321 (111,620) 331,619

(Decrease) / increase in cash and cash equivalents (245,311) 145,160 (239,637) 141,660

Movements in cash and cash equivalents

At the start of the year 118,499 (26,661) 108,844 (32,816)

(Decrease) / increase in cash and cash equivalents (245,311) 145,160 (239,637) 141,660

Cash and cash equivalents as at 31 December 20 (126,812) 118,499 (130,793) 108,844

The accounting policies and notes on pages 22 to 50 form an integral part of these financial statements

Cash Flow Statement



22

Accounting Policies

1. REPORTING ENTITY.

1.1 GeneralCeylon Grain Elevators PLC (CGE) is a company incorporated and domiciled in Sri Lanka. The registered address is No.15, Rock House Lane, Colombo 15, Sri Lanka. The consolidated financial statements of the company as at and for the year ended 31 December 2008 comprise the Company and its subsidiaries and the Group’s interest in associates. The company is in the agriculture industry.

Ceylon Grain Elevators PLC (CGE) was incorporated in 1982, when the government of Sri Lanka & Prima Limitedof Singapore signed an agreement.

The Company was listed on the Colombo Stock Exchange on 27th January 1992 in the Food & Beverage Sector. Prima Limited, Singapore, holds 45.45% of the issued share capital of the Company.

SubsidiariesThree Acre Farms PLCCeylon Pioneer Poultry Breeders Limited.Ceylon Livestock & Agrobusiness Services (Private)

LimitedCeylon Warehouse Complex (Private) LimitedCeylon Aquatech (Private) LimitedMillennium Multibreeder Farms (Private) Limited

AssociatesCeylon Agro Industries Limited

Prima Management Services (Private) Limited

1.2 Principal activities and nature of the operationThe main business of the Group is feed milling, broiler farming, poultry processing and distribution, poultry breeder farming operations, manufacture and sale of aquatic feed, buying and selling of poultry equipment and provision of silo and warehouse facilities and transshipment.

1.3 Number of employeesThe average numbers of employees of the group and company for the year are as follows.

GroupFull time 473 (2007-481)

Part time 967 (2007-949)

CompanyFull time 198 (2007-168)

Part time 277 (2007-292)

1.4 Date of authorization for issueThe financial statements were authorized for issue by the Board of Directors on 31 March 2009.

2. BASIS OF PREPARATION

2.1 Statement of complianceThe consolidated financial statements have been prepared in accordance with Sri Lanka Accounting Standards (SLAS),adopted by the Institute of Chartered Accountants of Sri Lanka (ICASL) and the requirements of the Companies Act No.7 of 2007.

2.2 Basis of measurementThe financial statements have been prepared on the historical cost convention as modified by the policies on property, plant and equipment (Note 4.2), and live stock held for sale (Note 4.67. The accounting policies set out have been consistently applied to all periods presented in these consolidated financial statements and the accounting policies have been applied consistently by group entities.

The preparation of financial statements in conformity with Sri Lanka Accounting Standards (SLAS) requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Functional and presentation currencyItems included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying transactions, events and conditions relevant to that entity (the “functional currency”). The financial statements are presented in Sri Lankan Rupees, which is the Group’s functional currency, rounded to the nearest thousand, unless otherwise stated.

3. SIGNIFICANT ACCOUNTING POLICIES

3.1 Basis of consolidationSubsidiariesSubsidiary undertakings, which are those companies in which the Group, directly or indirectly, has an interest of more than one half of the voting rights or otherwise has power to exercise control over the operations, have been consolidated. In assessing control, potential voting rights that presently are exercisable or convertible are taken in to

23


Accounting Policies Cont.

account. Subsidiaries are consolidated from the date on which effective control is transferred to the Group and are no longer consolidated from the date of disposal. Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the Group.

Minority InterestThe total profit and loss for the year of the Company and its subsidiaries included in consolidation are shown in the consolidated income statement with the proportion of profit and loss after taxation pertaining to minority shareholders of subsidiaries being deducted as “minority interest”

All assets and liabilities of the Company and of its subsidiaries included in consolidation are shown in the consolidated balance sheet. The interest of minority shareholders of subsidiaries in the fair value of net assets of the Group are indicated separately in the consolidated balance sheet under the heading “minority interest”.

AssociatesAssociates are entities in which the Group has significant influence, but not control, over their financial and operating policies. The consolidated financial statements include the Group’s share of the gains and losses of associates on an equity accounted basis, after adjustments to align their accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an associate, the Group carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an associate.

Transactions eliminated on consolidationIntra-group balances, and any unrealized gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

Accounting for Investment in subsidiaries and associatesWhen separate financial statements are prepared, investments in subsidiaries and associates are accounted for using the cost method.

Investments in subsidiaries and associates are stated in the Company’s balance sheet at cost less accumulated impairment losses.

3.2 Foreign currenciesForeign currency transactionsTransactions in foreign currencies are translated to the Sri Lankan Rupees at the foreign exchange rates prevailing at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the Sri Lankan Rupees at the exchange rates on that date.

Foreign exchange differences arising on retranslation are recognized in the income statement.

3.3 Events occurring after the balance sheet dateAll material post balance sheet events have been considered and where appropriate adjustments or disclosures have been made in respective notes to the financial statements.

3.4 Comparative figuresWhere necessary, comparative figures have been reclassified to conform to the current year’s presentation.

3.5 Commitments and contingenciesContingencies are possible assets or obligations that arise from a past event and would be confirmed only on the occurrence or non-occurrence of uncertain future events, which are beyond the Company’s control. Contingent liabilities are disclosed in Note 26 to the financial statements. Commitments are disclosed in Note 27 to the financial statements.

4 ASSETS AND BASES OF THEIR VALUATION

4.1 Recognition and measurementAssets classified as current assets on the balance sheet are cash and bank balances and those which are expected to be realized in cash during the normal operating cycle or within one year from the balance sheet date, which ever is shorter.

4.2 Property, plant and equipment Property, plant and equipment is measured at cost less

accumulated depreciation and accumulated impairment losses except for land and buildings, which are stated at their revalued amounts. The revalued amount is the fair value at the date of revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.


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Revaluations are carried out by independent professional valuers regularly such that the carrying amount of these assets does not differ materially from that which would be determined using fair values at the balance sheet date.

Any increase in the revaluation amount is credited to the revaluation reserve unless it offsets a previous decrease in value of the same asset that was recognised in the income statement. A decrease in value is recognised in the income statement where it exceeds the increase previously recognised in the revaluation reserve. Each year the difference between depreciation based on the revalued carrying amount of the assets (the depreciation charged to the income statement) and depreciation based on the asset’s original cost is transferred from revaluation reserve to retained earnings.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the cost of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Gains and losses on disposalGains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised net within “other income” in profit or loss. When revalued assets are sold, the amounts included in the revaluation surplus reserve are transferred to retained earnings.

Subsequent costsThe cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognized in the income statement as incurred.

DepreciationDepreciation is recognised in income statement on a straight-line basis over the estimated useful lives of each

part of an item of property, plant and equipment. Leasedassets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. No depreciation is provided on assets under construction.

The principal annual rates used for this purpose are:Freehold building 50 years

Plant and machinery 16 2/3 yearsElectrical and factory equipment 2 - 5 - 10 - 20 yearsFarm equipment 5 - 20 yearsFurniture and fittings and office equipment 10 yearsMotor vehicles 5 years

Land is not depreciated as it is deemed to have an indefinite life.

Where the carrying amount of an asset is greater than its estimated recoverable amount it is written down immediately to its recoverable amount.

Capital work in progressCapital expenses incurred during the year which are not completed as at the Balance Sheet date are shown as capital work-in-progress, while the capital assets which have been completed during the year and put to use have been transferred to property, plant and equipment.

4.3 Leased assets Leases of assets under which all the risks and benefits

of ownership are effectively retained by the lessor are classified as operating leases. The lease hold rights under operating leases are charged to the income statement on a straight-line basis over the period of the lease.

When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

The cost of improvements to or on leased property is capitalized, and depreciated over the unexpired period of the lease or the estimated useful lives of improvements, which ever is shorter.

4.4 Intangible assetsGoodwillGoodwill and negative goodwill arise on the acquisition of subsidiaries and associates. Goodwill represents the excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative (negative goodwill), it is recognized immediately in the consolidated income statement.

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Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cash generating units and is no longer amortised but annually tested for impairment. In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment in the associates. Goodwill on the acquisition of subsidiaries is presented as intangible assets.

Goodwill is tested for impairment as described in accounting policy (3.10).

4.5 InvestmentsOther investments include investments in marketable securities which are listed on the Colombo Stock Exchange. These investments are valued at cost or market price which ever is lower. Any diminution in value is provided for in the financial statements.

On disposal of an investment, the difference between the net disposal proceeds and the carrying amount is charged or credited to the income statement.

4.6 Livestock Livestock represents the unamortized parent and

grandparent livestock, used to breed day old commercial chicks. Parent and grand parent birds include the growing birds and the laying birds.

The growing birds are valued at directly attributable cost incurred up to the commencement of laying period. The laying birds are valued at cost less subsequent amortizations. The amortization is made on straight line basis over the laying period after making due allowances for carcass value.

4.7 InventoriesInventories are measured at the lower of cost and net realizable value after making due allowances for obsolete & slow moving items.

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale.

The cost incurred in bringing inventories to its present location and conditions are accounted as follows.

Compounded feedCost is calculated using the weighted average cost formula and the cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads, but excludes interest expenses.

Processed Chicken Processed Chicken inventory is valued at direct cost together

with a directly attributable proportion of overheads.

EggsEggs are valued at estimated realizable values, net of direct selling expenses, which ever is lower.

Live Stock held for sale (Parent birds)The value of livestock held for sale is based on the market price of livestock of similar age, breed and genetic merit.

Poultry equipment, drugs, vaccine and sundry inventories Poultry equipment, drugs, vaccine and sundry inventories

are valued at actual cost on weighted average basis after making due allowance for obsolete and slow moving items.

4.8 Trade and other receivablesTrade receivables are carried at anticipated realizable value. An estimate is made for doubtful receivables based on a review of all outstanding amounts at the year end. Bad debts are written off during the year in which they are identified.

4.9 Cash & cash equivalentsCash & cash equivalents comprise cash in hand, deposits held at call with banks, and investments in money market instruments.

For the purposes of the cash flow statement, cash and cash equivalents comprise cash in hand, deposits held at call with banks, and investments in money market instruments, net of bank overdrafts. In the balance sheet, bank overdrafts are included in borrowings in current liabilities.

4.10 Impairment of assetsThe carrying amounts of the Group’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amounts are estimated. For goodwill, recoverable amount is estimated at each balance sheet date and impairment loss is recognized whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount.

An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognized in the income statement. Impairment


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losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

Calculation of recoverable amountThe recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash-generating unit.

Reversal of impairmentAn impairment loss in respect of goodwill is not reversed.

In respect of other assets, impairment losses recognized in prior periods are assessed at each balance sheet date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.

An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Reversals of impairment losses are recognized in the income statement.

5 LIABILITIES AND PROVISIONS

5.1 Employee benefits

Defined contribution plansObligations for contributions to a defined contribution plan are recognised as an expense in the income statement as incurred.

The Group contributes 12% and 3% of gross emoluments of employees as provident fund and trust fund contribution respectively.

Defined benefit plans Provision has been made in the financial statements for

retiring gratuities. This has been based on an actuarial valuation carried out on a projected unit credit method as recommended by Sri Lanka Accounting Standard 16- Employment Benefits. The actuarial valuation was carried out by professionally qualified actuary, Piyal S Gunathilake of P&G Associates.

The actuarial valuation was made on 31 December 2008.The liability is not externally funded.It is proposed that a valuation is obtained at least once in every three years.

5.2 Interest bearing borrowingsBorrowings are recognized initially at the proceeds received, net of transaction costs incurred.

5.3 ProvisionsA provision is recognized in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an out flow of economic benefits will be required to settle the obligation.

5.4 Income tax expensesIncome tax expense comprises current and deferred tax. Income tax is recognized in the income statement except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

5.4.1Current tax Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

5.4.2Deferred taxDeferred tax is recognized using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

The principal temporary differences arise from depreciation on property, plant and equipment, tax losses carried forward and provisions for defined benefit obligations. Deferred tax assets relating to the carry forward of unused tax losses are recognised to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilized.

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A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reviewed at balance sheet date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Additional income taxes that arise from the distribution of dividends are recognized at the same time as the liability to pay the related dividend is recognized.

6 INCOME STATEMENT

6.1 Revenue recognition

Sale of goodsRevenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer. Revenue excludes value added taxes or other sales taxes and is arrived at after deduction of trade discounts. No revenue is recognized if there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods also continuing management involvement with the goods.

Rental incomeRental income is recognized in the income statement on a straight-line basis over the term of the lease. Leaseincentives granted are recognized as an integral part of the total rental income.

Interest incomeInterest income from time deposits and other interest-bearing assets is accrued on a time-apportioned basis on the principal outstanding and at the rate applicable unless collectibility is in doubt.

Dividend incomeDividend income is recognised in the income statement when the right to receive payment is established.

Other operating incomeGains/losses on the disposal of investments held by the Group have been accounted for in the income statement.

Gains/losses on the disposal of property, plant & equipment determined by reference to the carrying amount and related expenses, have been accounted for in the income statement.

6.2 ExpensesOperating lease paymentsWhere the Company has the use of assets under operating leases, payments made under the leases are recognised in the income statement on a straight line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense over the term of the lease. Contingent rentals are charged to the income statement in the accounting period in which they are incurred.

Net finance costsNet financing costs comprise interest payable on borrowings calculated using the effective interest rate method, interest receivable on funds invested and foreign exchange gains and losses that are recognised in the income statement.

6.3 Earnings/(Loss) per shareThe Group presents basic earnings/(loss) per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period.

6.4 Segment reportingA segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products and services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.


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(In the notes all amounts are shown in Rupees thousands unless otherwise stated)

(1). Segment information

1 (a). Business segments Feed Poultry Shrimp Poultry Silo and milling and breeder farming equipment warehouse Elimination Consolidated broiler farming complex and /adjustment operations transshipment

Year ended 31 December 2008

Sales to outsiders 6,562,036 630,741 - 16,808 - - 7,209,585

Inter segment sales 695,398 244,240 - 32 68,664 (1,008,334) -

Total revenue 7,257,434 874,981 - 16,840 68,664 (1,008,334) 7,209,585

Segment results 104,230 (193,370) (3,628) (773) 25,004 105,483 36,946

Finance (expenses) / income (218,563) 591 - - - - (217,972)

Non-operating income - - - - - - -

Profit / (loss) before tax (114,333) (192,779) (3,628) (773) 25,004 105,483 (181,026)

Income tax expenses (121) 22,556 - (1,722) 91 - 20,804

Share of results of associate company - - - - - 34,787 34,787

Net profit / (loss) (114,454) (170,223) (3,628) (2,495) 25,095 140,270 (125,435)

Year ended 31 December 2007

Sales to outsiders 4,962,252 711,872 - 15,097 67,635 - 5,756,856

Inter segment sales 552,218 212,675 - - - (764,893) -

Total revenue 5,514,470 924,547 - 15,097 67,635 (764,893) 5,756,856

Segment results 105,384 89,032 (6,348) 1,823 18,159 - 208,050

Finance (expenses) / income (86,969) 508 24 - - - (86,437)

Non-operating income - 940 2,722 1,193 - - 4,855

Profit / (loss) before tax 18,415 90,480 (3,602) 3,016 18,159 - 126,468

Income tax expenses (13,988) (29,013) - (454) (91) - (43,546)

Share of results of associate company - - - - - 11,825 11,825

Net profit / (loss) 4,427 61,467 (3,602) 2,562 18,068 11,825 94,747

Notes to the Financial Statements

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(1). Segment information (Contd)

1 (a). Business segments (Contd) Feed Poultry Shrimp Poultry Silo and milling and breeder farming equipment warehouse Elimination Consolidated broiler farming complex and /adjustment operations transshipment

As at 31 December 2008

Segment assets 2,916,357 1,620,161 88,689 24,398 452,896 (341,162) 4,761,339

Associate 128,484 - - - - 35,129 163,613

Inter segment assets 1,649,300 - - - - (1,649,300) -

Total assets 4,694,141 1,620,161 88,689 24,398 452,896 (1,955,333) 4,924,952

Segment liabilities 3,464,250 73,920 719 360 1,185 - 3,540,434

Inter segment liabilities - 1,436,497 96,686 12,615 287,665 (1,833,168) 295

Total liabilities 3,464,250 1,510,417 97,405 12,975 288,850 (1,833,168) 3,540,729

Capital expenditure 71,096 66,409 - - - - 137,505

Depreciation/amortization 26,020 56,622 4,301 - 3,260 - 90,203

Amortization of intangible asset - 1,803 - - - - 1,803

As at 31 December 2007

Segment assets 2,968,633 1,480,515 92,661 1,728 468,438 (341,222) 4,670,753

Associate 128,484 - - - - 342 128,826

Inter segment assets 1,438,696 - - 12,619 - (1,451,315) -

Total assets 4,535,813 1,480,515 92,661 14,347 468,438 (1,792,195) 4,799,579

Segment liabilities 2,977,570 305,921 2,092 664 3,674 - 3,289,921

Inter segment liabilities 213,898 894,627 95,655 - 325,813 (1,529,993) -

Total liabilities 3,191,468 1,200,548 97,747 664 329,487 (1,529,993) 3,289,921

Capital expenditure 36,650 65,173 - - - - 101,823

Depreciation/amortization (20,218) (49,779) (4,337) - (15,769) - (90,103)

Amortization of intangible asset - (1,803) - - - - (1,803)

Notes to the Financial Statements Cont.


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(1). Segment information (Contd)

(a). Business segments (Contd)The Group is organized into five main business segments:

• Feed milling and broiler operations - manufacture and sale of poultry feed, poultry broiler farming, packing and distribution of chicken.

• Poultry breeder farming operations - operation of grand parent, parent poultry breeder farms and hatcheries and commercial farms.

• Shrimp farming - Rental of shrimp farm• Poultry equipment - import and sale of poultry equipment and vaccine.• Silo warehouse complex and transshipment operations - operation of ultra modern silo and warehouse complex.

Segment assets consist primarily of property, plant and equipment, intangible assets, inventories, receivables and operating cash, and exclude investments in subsidiaries. Segment liabilities comprise current and non-current liabilities. Capital expenditure comprises additions to property, plant and equipment.

(b). Sales are made up as follows:Consolidated Company

2008 2007 2008 2007

Process chicken 2,175,169 1,711,964 2,175,169 1,711,964

Feed milling 6,055,411 4,594,384 6,055,411 4,594,348

Poultry breeder farming 1,065,381 1,095,444 - -

Parent birds 4,798 3,656 4,798 3,656

Aquatic feed / shrimp farming - - - -

Poultry equipment & vaccine 103,350 37,498 86,340 22,284

Silo warehouse complex and transshipment 78,964 77,780 - -

9,483,073 7,520,726 8,321,718 6,332,252

Elimination / adjustment (1,008,334) (764,893) - -

8,474,739 6,755,833 8,321,718 6,332,252

Sales taxes (1,265,154) (998,977) (1,064,284) (817,782)

7,209,585 5,756,856 7,257,434 5,514,470

Sales taxes consist of Group - Turnover Tax Rs 170,101/- (2007 - Rs 152,550/- ) and Value Added Tax Rs 1,264,983,899/- (2007 - Rs.998,824,450/-), Company - Value Added Tax Rs.1,064,284,000/-(2007 - Rs 817,782,000/-).

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2. Operating profit

The following items have been charged / (credited) in arriving at operating profit:

Consolidated Company 2008 2007 2008 2007

Auditors’ remuneration Audit 2,810 2,445 1,700 1,450 Audit related 93 - 93 -Depreciation on property, plant and equipment (Note 10) 85,933 77,852 21,750 20,218Amortization of leasehold right (Note 11) 16,779 16,270 4,270 4,018Amortization of livestock (Note 15) 291,548 152,733 - -(Reversal) / provision for stock differences (Note 18) (3,500) 3,500 (3,500) 3,500

Provision for bad and doubtful debts (Note 19) 5,000 (14,269) 5,000 (9,675)Operating lease rentals - property 47,827 47,827 42,596 42,596Staff expenses (Note 4) 389,730 359,332 204,107 183,147

3. Discontinued operation

On 1 November 2004 the directors discontinued the operation of breeding, hatching and growing of prawns and sea cucumber of Ceylon Aquatech (Private) Limited, a subsidiary of the Company.

The Management of the Company is of the view that the commercial operations of the Chilaw Farm could be recommenced.

The assets and liabilities as at the balance sheet date of the discontinued division were as follows:As at 31 December

2008 2007

Property, plant and equipment 51,388 52,679Other receivables 2,368 2,368Total assets 53,756 55,047

Total liabilities - -Net assets 53,756 55,047


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4. Staff expensesConsolidated Company

2008 2007 2008 2007

Salaries and wages 376,397 341,427 197,332 172,935Social security costs 2,538 1,373 1,901 760Defined contribution plans 17,415 12,095 10,805 5,129Defined benefit obligations (Note 25) (6,620) 4,437 (5,931) 4,323

389,730 359,332 204,107 183,147

Average monthly number of persons employed by theCompany and Group during the year: - Full time 473 481 198 168 - Part time 967 949 277 292

1,440 1,430 475 460

Part time employees include contracted labourers hired from third parties and those who work on shift basis.

5. Other operating lossesOther operating losses wholly consist of losses arising from out grower operations carried out at the Bulathsinhala Farm and HijraFarm of Three Acre Farms PLC, and at the Nilambe Farm of Ceylon Pioneer Poultry Breeders Limited, which are subsidiaries of the company.

6. Other incomeThe other operating income of the Group consists of sundry income of Rs 28,347,806/- (2007 - Rs 13,717,280/- ), dividend income Rs 1,154,825/- (2007 - Rs 310,000/-) and income earned by renting the Chilaw Farm and providing lab test services to outsiders of Rs 2,604,369/- (2007 - Rs 2,720,720/-).

7. Net finance expensesConsolidated Company

2008 2007 2008 2007

Interest income (1,862) (5,249) (1,271) (4,717)Net foreign exchange transaction losses/(gains) 83,234 13,055 83,234 13,055Interest expense - bank borrowings 136,600 78,631 136,600 78,631

217,972 86,437 218,563 86,969

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8. Income tax expensesConsolidated Company

2008 2007 2008 2007

Current tax (628) 17,937 121 8,564Deferred tax release (Note 24) 21,432 25,609 - 5,424

20,804 43,546 121 13,988

Under an agreement dated 12 February 2004, entered into by the Company and the Board of Investment of Sri Lanka (BOI), the Company is entitled to an additional tax holiday of 3 years and a further additional tax exemption period of 5 years commencingfrom 17 December 2005 on profit and income earned by the Company from transshipment and bulk cargo operations and the operations of the feed mill and the animal husbandry project.

The Company is liable to pay 15% as income tax on interest income earned by the Company.

Three Acre Farms PLC is liable to pay income tax on profits and income earned at 15%. The tax losses available to carry forwardas of 31 December 2008 amounted to Rs. 400,291,000/- (2007 - Rs 110,876,231/-).

Ceylon Livestock and Agrobusiness Services (Private) Limited is liable to pay income tax at 15% on the profits and income earned by the Company.

Ceylon Pioneer Poultry Breeders Limited is liable to pay income tax at 15% on the profits and income earned by the Company. The tax losses available to carry forward as of 31 December 2008 amounted to Rs. 228,517,000/- (2007 - Rs 214,295,799/-).

Millennium Multibreeder Farms (Private) Limited has obtained a five year tax holiday under section 17jj of Inland Revenue Act, No.24 of 1997 (amended), with effect from 12 March 2004, and hence no income tax is payable on the profit for the year of assessment 2008/2009 by the Company. However the Company is liable for income tax for other income for the year of assessment 2008/2009 at the rate of 15%. The tax losses available to carry forward as of 31 December 2008 amounted to Rs. 110,838,356/- (2007 - Rs 71,404,048/-).

Ceylon Aquatech (Private) Limited is liable to pay income tax at 15% on the profits and income earned by the Company. However, the tax losses available to carry forward as of 31 December 2008 amounted to Rs.12,212,624/- (2007 - Rs 11,683,271/-)

Ceylon Warehouse Complex (Private) Limited is exempt from income tax on trading profits for a period of seven years reckoned from the year in which the Company commences to make profits in relation to its transactions or any year of assessment not later than five years from the date of its commercial operations, whichever is the earlier. The Company commenced commercial operations on 1 October 2000. Hence the tax holiday commenced from 30 September 2004. However the Company is liable for income tax for other income for the year of assessment 2008/2009 at the rate of 15%.


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8. Tax (contd)

Reconciliation of effective tax rate.

The tax on the results of the Group’s operations and the Company’s profit/(loss) before tax differs from the theoretical amountthat would arise using the basic tax rate as follows:


Profit/(Loss) before tax (146,239) 138,293 (114,333) 18,415Consolidation adjustments (196,365) (53,595) - -

Profit before tax, after adjustments (342,604) 84,698 (114,333) 18,415

Tax calculated using current tax rate of 15% (51,391) 12,705 (17,150) 2,762(2007 - 15%)Income not subject to tax (1,145,505) (871,350) (1,092,165) (830,127)Expenses not deductible for tax purposes 1,197,802 866,634 1,109,437 827,365Tax losses not recognized as deferred tax assets - 5,461 - -ESC write off (91) 8,655 - 8,564Temporary differences recognized (21,430) 25,609 - 5,424Utilization of previous unrecognized tax losses (189) (4,168) - -Tax (release) / charge (20,804) 43,546 121 13,988

Further information about deferred tax is presented in Note 24.

Effective tax rates Consolidated Company 2008 2007 2008 2007

Income tax using the current tax rate 15.00% 15.00% 15.00% 15.00%Income not subject to tax (334.35%) (1028.77%) (955.25%) (4507.85)%Expenses not deductible for tax purposes 349.62% 1023.21% 970.35% 4492.85%Tax losses not recognized as deferred tax assets - 6.45% - -ESC write off (0.03%) 10.21% - 46.51%Temporary differences recognized (6.26%) 30.23% - 29.45%Utilization of previous unrecognized tax losses (0.06%) (4.92%) - -Tax (release) / charge (6.07%) 51.41% 0.11% 75.96%

9. Basic (loss) / earnings per shareBasic (loss) / earnings per share is calculated by dividing the net (loss) / profit attributable to shareholders by the weightedaverage number of shares in issue during the year.


Net (loss)/profit attributable to shareholders (52,595) 68,446 (114,454) 4,427Weighted average number of ordinary shares in issue(thousands) 60,000 60,000 60,000 60,000

Basic (loss) / earnings per share (Rs) (0.88) 1.14 (1.91) 0.07

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10. Property, plant and equipment

(a) Group Freehold Plant and Furniture Motor Capital Total land & machinery, and fittings, vehicles work in buildings factory, electrical and office progress and farm equipments equipments

Cost /valuationAs at 1 January 2008 1,212,604 887,482 90,044 93,514 61,847 2,345,491Additions - 8,785 10,937 13,595 104,188 137,505Transfer from WIP 33,802 18,604 - - (61,672) (9,266)Disposals/write off - - (2,375) - - (2,375)As at 31 December 2008 1,246,406 914,871 98,606 107,109 104,363 2,471,355

DepreciationAs at 1 January 2008 131,185 590,021 71,067 81,566 - 873,839Charge for the year 16,629 59,506 5,759 4,039 - 85,933Disposals/write off - - (2,255) - - (2,255)

As at 31 December 2008 147,814 649,527 74,571 85,605 - 957,517

Net book valueAs at 31 December 2008 1,098,592 265,344 24,035 21,504 104,363 1,513,838

Net book valueAs at 31 December 2007 1,081,419 297,461 18,977 11,948 61,847 1,471,652

(b). Property, plant and equipment include fully depreciated assets, the cost of which as at 31 December 2008 amounted to Rs 425,584,459 /- (2007 - Rs. 414,106,310/-).

(c). The recoverable amount of property (excluding land), plant and equipment is determined based on value-in-use calcula-tion. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. The growth rate does not exceed the long-term average growth rate for the business in which the Three Acre Farms PLC group operates.

Key assumptions used for value-in-use calculations: %

Gross margin 15 Growth rate 5 Discount rate 20

These assumptions have been used for the whole Three Acre Farms PLC group. Management determined budgeted gross margin based on past performance and its expectations for the market development. The weighted average growth rate used is consistent with the forecasts included in industry reports. The discount rates used are pre-tax and reflect specific risks relatingto the industry.

(d). Capital work in progress at the balance sheet date includes value of work not certified for farm buildings amounting to Rs 31,522,000/- (2007 - 19,272,444/-) and the purchase of capital equipment in the process of being installed Rs 75,996,600/- (2007 - Rs 36,463,075/-).

(e). Property, plant and equipment include assets of the discontinued division of Ceylon Aquatech (Private) Limited , the net bookvalue of which as of the balance sheet date amounted to Rs 51,387,729/- (2007-Rs 52,679,000/-). The property belonging to Ceylon Aquatech (Private) Limited was valued at Rs 96,168,765/- in 21st July 2004 by L.C.B Rajapakse.(F.S.I, LicenceSurveyor and Leveller, Court Commissioner and Valuer)


36


(f). Company Plant and Furniture Motor Capital Total machinery, factory, fittings, and vehicles work in electrical and farm office progress equipments equipments

Cost / valuationAs at 1 January 2008 367,350 80,105 36,708 36,463 520,626Additions 6,064 10,937 13,595 40,500 71,096Transfers 967 - - (967) -Disposals / write off - (2,375) - - (2,375)As at 31 December 2008 374,381 88,667 50,303 75,996 589,347

DepreciationAs at 1 January 2008 259,648 50,940 35,947 - 346,535Charge for the year 14,814 5,703 1,233 - 21,750Disposals / write off - (2,255) - - (2,255)As at 31 December 2008 274,462 54,388 37,180 - 366,030

Net book valueAs at 31 December 2008 99,919 34,279 13,123 75,996 223,317

Net book valueAs at 31 December 2007 107,702 29,165 761 36,463 174,091

(g). Property, plant and equipment include fully depreciated assets, the cost of which as at 31 December 2008 amounted to Rs.232,734,383/-(2007 - Rs 224,268,590/-).

(h). The Company has disposed office equipments costs Rs 2,375,076/- during the year and the loss from disposal amounting to Rs 77,661/- have been recognized under other operating expenses.

11. Leasehold right over land & building


Balance as at beginning of the year 628,596 644,866 194,695 198,713Transfer from capital working progress 9,266 - - -Amortization for the year (16,779) (16,270) (4,270) (4,018)Balance as at end of the year 621,083 628,596 190,425 194,695

The Company has a agreement to mortgage for Rs. 495mn over leasehold land & building, land & machinery equipment at No.15, Rock House Lane, Colombo-15 to Sampath Bank Limited as security for credit facilities.

The leasehold land and building which was recognized previously as finance lease are accounted as operating lease based on substance of lease agreement.

The management represents that the previous treatment was in accordance with Accounting Standards prevalent at that time and this amount will be treated similar to lease prepayment and amortized over the remaining period of the lease.

10. Property, plant and equipment (Contd)

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11. Leasehold right over land & building (Contd)

The lease period of the leasehold land expires on 19 September 2012 and the Company has the option of renewing the lease for a further period of 30 years.

The Company’s leasehold land and buildings were revalued in 1992, by independent valuers. Valuations were made on the basis of the market value for existing use. The book values of the property were adjusted to the revalued amount and the result-ant surplus was credited to the revaluation reserve and annual transfers of realized amounts are made to retained earnings, in shareholders equity (Note 30).

If the leasehold land and buildings were stated on the historical cost basis, the amounts would be as follows:

2008 2007

Cost 115,980 115,980Accumulated depreciation (59,096) (56,776)Net book value 56,884 59,204

12. Intangible assetsConsolidated

2008 2007

GoodwillCostBalance as at beginning of the year 17,938 17,938Additions during the year - -Balance as at end of the year 17,938 17,938

ImpairmentBalance as at beginning of the year 13,483 11,680Impairment for the year 1,803 1,803Balance as at end of the year 15,286 13,483

Carrying Amount 2,652 4,455


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13. Investment in associate companies

(a) Consolidated Consolidated2008 2007

Opening net book amount 128,826 117,001Transfer of unamortized goodwill balance - -Share of results after tax 34,787 11,825Closing net book value 163,613 128,826

(b) Company Company2008 2007

Balance as at beginning of the year 128,484 128,484Additions during the year - -Balance as at end of the year 128,484 128,484

(c) Share movement No. of Shares 2008 Movement 2007

Ceylon Agro Industries Limited (CAIL) 22,832 - 22,832Prima Management Services (Private) Limited (PMS) 3,334 - 3,334

26,166 - 26,166

The associate company, Ceylon Agro Industries Limited (CAIL), is a company incorporated in Sri Lanka. It is engaged in the manufactureof noodles and bread, and buying and selling of flour and vegetable oils. The Company holds 33% of CAIL’s stated capital. However,CAIL has Rs 300 million of convertible preference shares, the conversion of which is delayed due to pending litigation against suchconversion. If such conversion takes place, the percentage holding of the Company will reduce to 23%. The Group’s share of (loss) / profit, net assets and goodwill on consolidation, has been accounted for on the basis that the Company’s share is 23%.

The Company has invested Rs. 33,334/- in Prima Management Services (Private) Limited (PMS) acquiring 33% stake during 2006. However, this was not equity accounted during the year due to its insignificant operations.

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14. Investment in subsidiary companies

(a) Company No. of Shares Value

2008 Movement 2007 2008 Movement 2007

Listed sharesThree Acre Farms PLC 13,469,980 - 13,469,980 148,625 - 148,625

13,469,980 - 13,469,980 148,625 - 148,625Unlisted sharesCeylon Warehouse Complex (Private) Limited15,000,002 - 15,000,002 150,000 - 150,000Ceylon Aquatech (Private) Limited 6,000,000 - 6,000,000 60,000 - 60,000Ceylon Livestock & Agrobusiness Services(Private) Limited 300,002 - 300,002 3,000 - 3,000

21,300,004 - 21,300,004 213,000 - 213,000

Aggregate net book value of listed and unlisted shares 361,625 - 361,625

Market value of listed shares 74,085 134,700

(b) Details of the companies incorporated in Sri Lanka, in which the Company held an interest of 50% or more areset out below:

Name of Company Proportion of ordinary shares held Business

2008 Movement 2007

Ceylon Livestock & Agrobusiness Services(Private) Limited 100% - 100% Import and sale of poultry equipment

and vaccinesCeylon Warehouse Complex (Private)

Limited 100% - 100% Infrastructure developmentCeylon Aquatech (Private) Limited 100% - 100% Integrated shrimp businessThree Acre Farms PLC 57.21% - 57.21% Hatching and sale of day old chicks

and commercial farmingCeylon Pioneer Poultry Breeders Limited 57.21% - 57.21% Operation of poultry breeder grand

parent and parent farms and hatcheries and commercial farming

Millennium Multibreeder Farms (Private) 57.21% - 57.21% Operation of modern poultry Limited and hatcheries utilizing advanced

technologies.

The financial year of all above companies are ended on 31 December and they are audited by Messrs KPMG Ford Rhodes Thornton & Co. These companies were incorporated in Sri Lanka.


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15. Livestock


Opening net book value 153,540 104,470 - -Additions 359,120 201,803 - -Amortization (Note 2) (291,548) (152,733) - -Closing net book value 221,112 153,540 - -

16. Other investments

Listed investments No. of shares Consolidated/Company 2008 2007 2008 2007

Hatton National Bank (non-voting ordinary shares) 137,500 137,500 7,322 8,750Appreciation in value - - - (1,428)Market value of other investments 137,500 137,500 7,322 7,322

17. Amount Due from Affiliated Co.

Consolidated Company2008 2007 2008 2007

Three Acre Farms PLC - - 901,612 868,047Ceylon Aquatech (Private) Limited - - 96,686 95,656Ceylon Pioneer Poultry Breeders Limited - - 341,355 201,278Ceylon Warehouse Complex (Private) Limited - - 287,665 325,813Ceylon Livestock Agrobusiness Services - - 12,615 -Millennium Multibreeder Farms (Private) Limited - - 193,530 26,581

- - 1,833,463 1,517,375 Less-Provision for receivables - - (184,162) (78,679)

- - 1,649,301 1,438,696

Provision have been made for receivables from Three Acre Farms PLC, Ceylon Aquatech (Private) Limited and Ceylon PioneerPoutry Breeders Ltd amounting to Rs. 73,850,000/-, Rs. 74,312,000/- and Rs 36,000,000, respectively. These receivables are unsecured, interest free and have no fixed repayment terms. The Ceylon Aquatech (Private) Limited has revalued the land and buildings together with equipments of its Chilaw farm to Rs.96,168,765/- from its original net book value of Rs. 54,005,607/-. The valuation was done by independent qualified valuer on 21 July 2004, on the basis of the market value for existing use. The relevant adjustments has not been made in the accounts however, it shows the recoverability of investment made by the parent company.

41



18. Inventories Consolidated Company 2008 2007 2008 2007

Raw materials and consumables 1,478,100 1,218,300 1,394,571 1,141,178Work in progress 47,731 16,728 46,132 16,728Hatching eggs 61,052 21,331 - -Finished goods - Feeds 22,484 30,448 22,484 30,448 - Chicken 65,178 162,955 65,178 162,955Out grower stock 133,047 99,686 133,047 99,686

1,807,592 1,549,448 1,661,412 1,450,995 Less: provision for slow moving and obsolete items (17,847) (17,847) (17,847) (17,847) Less: provision for stock differences - (3,500) - (3,500)

1,789,745 1,528,101 1,643,565 1,429,648

Inventories are on an “agreed to mortgage” condition, against short term bank borrowings from the bank.

19. Trade and other receivablesConsolidated Company

2008 2007 2008 2007

Trade receivables 579,610 532,024 560,036 525,205 Less: provision for bad & doubtful debts (232,623) (228,573) (225,754) (221,703)

346,987 303,451 334,282 303,502 Prepayments 30,998 33,178 21,771 19,313

Other receivables [Note (a)] 137,544 195,914 101,739 184,485515,529 532,543 457,792 507,300

Trade receivables have been pledged as securities for short term bank borrowings

(a). Other receivables Consolidated Company 2008 2007 2008 2007

Deposits and advances 15,770 18,287 15,310 18,287Staff loans 901 903 901 903Other receivables 120,873 176,724 85,528 165,295

137,544 195,914 101,739 184,485

20. Cash and cash equivalents Consolidated Company 2008 2007 2008 2007

Cash at bank and in hand 34,697 288,013 30,866 278,450Short term bank deposits 150 14,185 - 14,093

34,847 302,198 30,866 292,543

The weighted average effective interest rate on short term bank deposits was Group 14.5% (2007- 14.25%) and company 13%. (2007-14.25%)For the purposes of the cash flow statement, the year-end cash and cash equivalents comprise the following:


Cash and bank balances 34,847 302,198 30,866 292,543Bank overdrafts (Note 23) (161,659) (183,699) (161,659) (183,699)

(126,812) 118,499 (130,793) 108,844


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21. Trade and other payables Consolidated Company 2008 2007 2008 2007

Trade payables 81,757 41,589 79,136 38,362Accrued expenses 136,010 95,370 81,818 62,550Dividend payable 561 561 561 561Other payables 90,940 78,602 85,222 50,953

309,268 216,122 246,737 152,426

22. Amount Due to Affiliated Co Consolidated Company 2008 2007 2008 2007

Non currentHapiways Management Services (Pvt) Ltd 1,150,618 1,700,226 1,150,618 1,700,226

1,150,618 1,700,226 1,150,618 1,700,226

CurrentCeylon Agro Industries Limited 54,117 20,462 54,117 20,462

Prima Ceylon PLC 447,201 292,430 447,201 292,430Ceylon Livestock Agrobusiness Services (Private) Limited - - - 12,619

Prima Management Services (Private) Limited 37,647 12,439 37,647 12,439Hapiways Management Services (Pvt) Ltd 669,055 - 669,055 -Colombo Sea Foods Limited 2,640 2,640 2,640 2,640

1,210,660 327,971 1,210,660 340,590

23. Interest bearing borrowings Consolidated Company 2008 2007 2008 2007

Bank overdraft 161,659 183,699 161,659 183,699Bank borrowings 661,000 782,320 661,000 772,620

822,659 966,019 822,659 956,319

The interest rate exposure of the borrowings of the Group and the Company was as follows:


Total borrowings: - at fixed rates 353,000 705,819 353,000 705,819 - at floating rates 469,659 260,200 469,659 250,500

822,659 966,019 822,659 956,319

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Consolidated/Company2008 2007

Weighted average effective interest rates:- bank overdrafts AWPLR+0.75% 14.25%- bank borrowings - fixed 20% 15.26% - floating AWPLR+1% AWPLR+1%

Current bank borrowings were obtained to finance the import of raw materials relating to the production of poultry and animal feed. Security for these borrowings are inventories and receivables and agreement to mortgaged for Rs. 495mn over leasehold land & building, machinery equipment at No.15, Rock House Lane, Colombo-15.

24. Deferred taxation

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against taxliabilities and when the deferred income taxes relate to the same fiscal authority. The offset amounts are as follows:


Deferred tax assets 24( b) (58,584) (23,707) (5,899) (5,899)Deferred tax liabilities 24 (a) 83,545 70,100 23,700 23,700

24,961 46,393 17,801 17,801

The gross movement on the deferred income tax account is as follows:


As at beginning of the year 46,393 20,784 17,801 12,377Income statement release (Note 8) (21,432) 25,609 - 5,424As at end of the year 24,961 46,393 17,801 17,801

The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balanceswithin the same tax jurisdiction, is as follows:

23. Interest bearing borrowings (Contd)


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(a) Deferred tax liabilities:

Deferred tax liabilities of the Group and the Company wholly arose from accelerated tax depreciation. The deferred tax liabilityof the Group and the Company as at 31 December 2008 are Rs.83,545,000/- and Rs.23,700,000/- respectively.

(b) Deferred tax assets:

Consolidated Provision Tax Defined Total on assets losses benefit

obligations

As at beginning of the year (3,226) (16,631) (3,850) (23,707)Credited to income statement - (35,947) 1,070 (34,877)As at end of the year (3,226) (52,578) (2,780) (58,584)

Provision Tax Defined Total on assets losses benefit

Company obligations

As at beginning of the year (2,701) - (3,198) (5,899)Credited to income statement - - - -As at end of the year (2,701) - (3,198) (5,899)

(c) Tax losses of Rs.228,517,000/- and Rs. 12,242,624/- as disclosed in the note 8 to the financial statements have not been recognised as deferred tax assets due to uncertainty regarding availability of future taxable profit in the respective companies.

25. Defined benefit obligations Consolidated Company 2008 2007 2008 2007

Present value of unfunded obligations 22,563 33,190 15,775 24,106 Present value of funded obligations - - - -

Total present value of obligations 22,563 33,190 15,775 24,106Fair value of plan assets - - - -Recognized liability for defined benefit obligations 22,563 33,190 15,775 24,106Total employee benefits 22,563 33,190 15,775 24,106

Movement in the present value of the defined benefit obligations

Defined benefit obligations as at 1 January 33,190 32,774 24,106 23,068Benefits paid by the plan (4,007) (4,021) (2,400) (3,285)Current service costs 2,334 4,437 1,375 4,323Interest cost 3,452 - 2,582 -Actuarial gain during plan year (4,515) - (4,267) -Transition obligation/(asset) recognized in Income statement (7,891) - (5,621) -Defined benefit obligations as at 31 December 22,563 33,190 15,775 24,106

Expense recognized in profit or loss

Current service costs 2,334 4,437 1,375 4,323Interest on obligation 3,452 - 2,582 -Transition obligation/(asset) recognized in Income statement (7,891) - (5,621) -Actuarial gain during plan year (4,515) - (4,267) -

(6,620) 4,437 (5,931) 4,323

24. Deferred taxation (Contd)

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25. Defined benefit obligations (Contd)

Actuarial assumptions

Principal actuarial assumptions at the reporting date (expressed as weighted averages):Discount rate as at 31 December 2008 13%Expected return on plan assets as at 1 January 2008 0Future salary increases 12%

Assumptions regarding future mortality are based on published statistics and mortality tables.The average life expectancy of an individual retiring at age 55.Staff turnover sliding scale by the age of employee retiring from 10%-1%.The provision for retiring gratuity for the year is based on the actuarial valuation made on 31 December 2008.

26. Contingent liabilities

(a). After an inquiry the Director General of Customs by Order dated 22 July 1998 has imposed on the Company a forfeiture under the provisions of the Customs Ordinance of approximately Rs. 1,198 million. This sum comprises of Rs 548 million being treble the value of a quantity of maize supplied by the Company to the Thriposha Program allegedly without any specific approval or authority being granted by the Ministry of Finance and a sum of Rs. 650 million being treble the value of quantities of maize converted and categorized as special feeds “C” and “CC” and sold in the open market, allegedly in contravention of the declaration made in respect thereof to the Controller of Imports and Exports and the Sri Lanka Customs and also in breach of the Agreement between the Company and the Government of Sri Lanka.

The Company has totally denied the alleged contraventions and has instituted actions in the Court of Appeal (Case No. CA 839/98) on 27 August 1998 by way of an application for writs of certiorari and prohibition to quash the Order imposing the forfeiture and to prohibit any steps being taken in pursuance of the said Order, and in the District Court (Case No. 5195/Spl) of Colombo on 21 September 1998 for a declaration that the said Order is wrongful, unlawful, null and void and of no force or avail in law.

The Honorable Attorney General has filed objections in the Court of Appeal Case No.CA 839/98 and the Company has been granted permission to file its counter objections and accordingly the Company has filed same. When the case was called on 31 January 2005, the Attorney General took up preliminary objections about the maintainability of this action and after hearing both sides, Court dismissed the preliminary objections of the Hon. Attorney General and fixed the matter for argument. Being aggrieved of the said order the Hon. Attorney General appealed to the Supreme Court seeking leave to appeal against the said order (SC Appeal 01/2006). When the case was taken up on 18 January 2008, the Honorable Chief Justice laid aside the Case in view of a possible settlement but the Honorable Attorney General filed a motion, supported on 26 November 2008, to re-open the case. The Case is now fixed for hearing on 26 June 2009.

After several postponements and both parties having tendered their respective written submissions, the case No. 5195/Spl was fixed for Order for 21 February 2007 and on that date Order was delivered stating that the issues would be answered at the end of the case after hearing the evidence. On the advise of the Company’s legal counsel, the Company appealed against this Order to the High Court of the Western Province (Case No. WP/HCCA/07/2007), which was supported on 19 July 2007. In view of a possible settlement, the case was postponed on many occasions and has now been fixed for Support for Leave on 19 March 2009 since the attempt for settlement failed. The Order of the Provincial High Court on the LeaveApplication is due on 2 April 2009.

The Attorney General’s Department has filed a Debt Recovery Action in the District Court of Colombo (Case No 866/DR) on behalf of Sri Lanka Customs for the recovery of the said sum together with interest. The Company promptly filed papers denying the State’s claim.

After an inquiry the District Judge made an order on the 29 March 2005 granting permission for the Company to defend the action upon depositing a sum of Rs. 400 million before 29 May 2005 .On the advice of the Company’s legal counsel, Company has filed action in the Court of Appeal bearing No. CA/LA 142/2005 to set a side or vary the said order in DC Colombo Case No. 866/DR. The Court of Appeal has granted Leave to Appeal to the Company and stayed proceedings in 866/DR and on an application made by the Hon Attorney General fixed the matter before a Divisional Bench and was to be taken up for argument on 09 May 2006. However, it was not taken up for argument on that date and the Case was postponed on several occasions to re-constitute the Bench. The Case is now due to be called on 5 May 2009.


46


27. Commitments

Capital commitments outstanding as at the balance sheet date except the followings

Within one 1-5 years More than Total year 5 year

Company

( a ) Hapiways Management Services (Private) Limited - for the management services rendered outside Sri Lanka. 2,260 9,040 67,800 79,100

( b ) Operating lease commitment - The Ministry of Finance and planning for the use of land and buildings at 15, Rock house lane, Colombo 15. 15,604 62,416 468,120 546,140

Group

( c ) Ceylon Agro Industries Limited - hire of sales room space. 1,183 4,732 35,490 41,405

( d ) Ceylon Warehouse Complex (Private) Limited operating lease rentals to Sri Lanka Ports Authority for the use of land. 10,350 41,400 310,500 362,250

( e ) Sri Lanka Ports Authority - operating lease rentals for the use of Woodland Warehouse. 3,743 14,972 108,547 127,262

( f ) Sri Lanka Ports Authority - operating lease rentals for the use

of Woodland Warehouse. 3,743 14,972 112,290 131,005

33,140 132,560 994,200 1,159,900

(g) Amount due from the Three Acre Farms PLC is Rs. 901,611,937/- which is classified as non-current receivable in the company’s financial statements.

The company is the parent company of Three Acre Farms PLC, and confirms their commitment, in present circumstances to continue financial support in the business operations of Three Acre Farms PLC, and to meet financial obligations. As the major share holders in Three Acre Farms PLC, the company has no intension or inclination of withdrawing their support or reducing the scale of operations of the Three Acre Farms PLC in the forth coming 12 months.

(h) The Company has provided a corporate guarantee of Rs. 45,000,000/- to its associate Ceylon Agro Industries Limited for a banking facility obtained from Sampath Bank PLC.

28. Stated capital

In accordance with Section 58 of Companies Act No 7 of 2007, which became affective from 3 May 2007, share capital and share premium of the Company have been reclassified as stated capital. The comparative information has also been reclassified accordingly

(b). The Civil case : 284/08/MR a written issues in this case have been filed on 3 March 2009 and the issues will be consider on 20 May 2009. Trial is not taken up yet.

(c) There is an Industrial Court Case pending where the dispute is whether the fermentation of 277 workmen by the Company is justified. Similarly these workmen have filed Labour Tribunal applications with regard to the same dispute. The Company has filed statements of answer and cases are pending.

Pending the outcome of all the above cases, no provision has been made in the books of account of the company. Other than above, there were no material contingent liabilities existing as at the balance sheet date.

26. Contingent liabilities (Contd)

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30. Revaluation reserve

The revaluation reserve relates to property, plant and equipment.Revaluation reserve can be analyzed as follows:


As at beginning of the year 62,407 63,577 39,809 40,979Depreciation transfer (1,170) (1,170) (1,170) (1,170)As at end of the year 61,237 62,407 38,639 39,809


29. Minority interestConsolidated

2008 2007

As at beginning of the year 119,798 93,497Additions - -Share of net (loss)/profit of subsidiaries (72,840) 26,301As at end of the year 46,958 119,798

31. Cash generated from operations

Reconciliation of profit before tax to cash generated from operations:


(Loss) / profit before tax (146,239) 138,293 (114,333) 18,415

Adjustments for:Depreciation (Note 2) 85,933 77,852 21,750 20,218Amortization of leasehold right (Note 11) 16,779 16,270 4,270 4,018Impairment of intangible assets (Note 12) 1,803 1,803 - -Amortization of livestock (Note 15) 291,548 152,733 - -Depreciation in value of listed investments (Note 16) - 1,428 - 1,428Profit / (loss) on disposal of property, plant and equipment (Note 2) 78 3,478 78 (1,926)(Reversal) / provision for inventories (Note 2) (3,500) 3,500 (3,500) 3,500Interest expense (Note 7) 136,600 78,631 136,600 78,631Interest income (Note 7) (1,862) (5,249) (1,271) (4,717)Dividend income (Note-6) (1,155) (310) (1,155) (310)Share of associate profit [Note13(a)] (34,787) (11,825) - -

Changes in working capital - trade and other receivables 17,014 (28,848) (161,096) 73,854 - inventories (258,144) (698,252) (210,416) (674,825) - payables 426,226 447,968 414,771 412,487

Defined benefit obligations (Note 25) (6,620) 4,437 (5,931) 4,323Cash generated from operations 523,674 181,909 79,767 (64,904)

Company2008 2007

60,000,000 Ordinary shares 600,000 600,000Share premium 417,996 417,996Stated capital as at 31 December 1,017,996 1,017,996

28. Stated capital (Contd)


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32. Related party transactions

32.1 Key management personnel informationKey management personnel include all the members of the Board of Directors of the Company having authority and responsibility for planning, directing and controlling the activities of the Company as well as the subsidiaries, directly or indirectly. No remuneration was paid during the year.

Mr. Cheng Chih Kwong,Primus, Mr. Cheng Chih Cheng,Robert, Mr. Tan Beng Chuan, Mr. Cheng Chih Hui, Peter and Dr. Wickrema Sena Weerasooria, the directors of the Company are also directors of the following companies as set out below and with transaction in note number 32.2 have been carried out.

Name of the related party Name of the director Nature of transaction

Three Acre Farms PLC Mr. Cheng Chih Kwong, CGE sells feeds, veterinary drugs and medicine Subsidiary Primus and poultry equipment to TAF. Also company Mr. Cheng Chih Cheng,Robert purchases broiler DOC and culled birds from TAF. Mr. Tan Beng Chuan

Mr. Cheng Chih Hui, Peter Dr. Wickrema Sena Weerasooria

Ceylon Pioneer Poultry Breeders Mr. Cheng Chih Kwong CGE sells feeds, veterinary drugs and medicine Limited Primus, and poultry equipment to CPPBL. Also company

Subsidiary Mr. Cheng Chih Cheng, Robert purchases broiler DOC and culled birds from CPPBL. Mr. Tan Beng Chuan

Ceylon Aquatech (Private) Limited Mr. Cheng Chih Kwong, No inter-company transactions has been recorded Subsidiary Primus, during the year.

Mr. Tan Beng Chuan

Ceylon Livestock and Agrobusiness Mr. Cheng Chih Kwong, CLAS supplies local poultry equipments to the Services (Private) Limited Primus, company’s own farms. Subsidiary Mr. Tan Beng Chuan

Ceylon Warehouse Complex Mr. Cheng Chih Kwong, CWC supplies the service of modern multi-storied (Private) Limited Primus, offices, housing and car complexes, industrial estates Subsidiary Mr. Tan Beng Chuan and warehouse complexes. (Operating 12 silos and ware house).

Ceylon Agro Industries Limited Mr. Cheng Chih Kwong, The company is hiring the poultry processing plant Associate Primus, and feedmill and storage facilities from CAI. Mr. Tan Beng Chuan

Millennium Multibreeder Farms Mr. Cheng Chih Kwong, CGE sells feeds, veterinary drugs and medicine (Private) Limited Primus, and poultry equipment to MMFL. Also company Subsidiary Mr. Tan Beng Chuan, purchases broiler DOC and culled birds from MMFL

Prima Ceylon Limited Mr. Cheng Chih Kwong, The CGE purchases raw materials like Wheat, Group Company Primus, Wheat Pollard and Wheat Flour. Mr. Cheng Chih Cheng, Robert Mr.Tan Beng Chuan,

Hapiways Management Services Mr.Cheng Chih Kwong, Purchase of all kind of import raw materials, feed (Private) Limited Primus, additives, spare parts and other significant imports.Group Company Mr. Cheng Chih Cheng, Robert Mr. Cheng Chih Hui, Peter

Prima Management Services (Private) Limited is an associate company of CGE and has provided IT related services to group companies during the year. The Company has outsourced the IT function to PMS and pays an agreed fee. Further, PMS is implementing the new ERP system on behalf of the Company and charged according to the phase of implementation. (See note number 32.2 for related party transactions)

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32.2 Related party transactions (Contd)

The Group has a related party relationship with its subsidiaries, associates and related group companies as disclosed in note number 32.1 Companies within the Group engage in trading transactions. The following transactions were carried out with related parties during the year ended 31 December 2008.


(a) Sales of goods and servicesSales of goods:

Three Acre Farms PLC - - 487,171 338,670 Ceylon Pioneer Poultry Breeders Limited - - 90,740 55,327 Millennium Multibreeder Farms (Private) Limited - - 185,613 110,205 Ceylon Livestock and Agrobusiness Services - - 31,635 - (Private) Limited - - - - Prima Ceylon Limited 2,060 - 2,060 - Ceylon Agro Industries Limited 26,091 26,291 26,091 26,291 28,151 26,291 823,310 530,493

Sale of services: Ceylon Agro Industries Limited 583 692 583 692 Ceylon Warehouse Complex (Private) Limited - - 1,725 431 Ceylon Livestock and Agrobusiness Services - - 414 (Private) Limited - - 104 Three Acre Farms PLC - - 2,415 604 Prima Ceylon Limited 597 - 597 - 1,180 692 5,734 1,831

(b) Purchases of goods and services


Purchase of goods: Three Acre Farms PLC - - 170,280 87,152 Ceylon Livestock and Agrobusiness Services - - (Private) Limited - - 32 281 Ceylon Pioneer Poultry Breeders Limited - - 18,663 2,171 Millennium Multibreeder Farms (Private) Limited - - 91,937 179,601 Hapiways Management Services (Private) Limited 4,553,731 3,657,759 4,553,731 3,657,759 Prima Ceylon Limited 306,977 219,026 306,977 219,026 Ceylon Agro Industries Limited 22,801 11,221 22,801 11,221 4,883,509 3,888,006 5,164,421 4,157,211

Purchases of services: Ceylon Warehouse Complex (Private) Limited - - 78,963 77,780 Hapiways Management Services (Private) Limited 20,063 26,572 20,063 26,572 Ceylon Agro Industries Limited 219,630 191,000 219,630 191,000 Prima Ceylon Limited 7,101 9,473 7,101 9,473 Prima Management Services (Private) Limited 46,575 - 46,575 - Ceylon Aquatech (Private) Limited - - 2,006 - 293,369 227,045 374,338 304,825


50


32. Related party transactions (Contd)

(c ) The receivables from related companies and payables to related companies on sale/purchase of goods/services are set out in note 17 and 22 respectively. These receivables and payables are unsecured, interest free and have no fixed repayment terms.

(d) The subsidiary companies use some facilities of the Company free of charge and part of the accounting and administrative functions of the subsidiary companies are also performed by the Company for which no charges are made.

33. Post balance sheet events

No events have occurred since the balance sheet date which would require adjustments to, or disclosure in, the financial statements.

34. Comparative information

Comparative information in the financial statements have been restated as follows:

Income statement for the year ended 31 December 2007 Consolidated

Gross profit as per last year financial statements 397,604Gross profit restated in 2008 financial statements 461,666

64,062

The restatement was due to reclassification of commercial farm cost.

Balance sheet as at 31 December 2007

Current Liabilities Consolidated

Current Liabilities as per last year 1,711,391 Current Liabilities restated in 2008 1,510,112

201,279

The above amounts were reclassified due to related company payable being treated as non-current liabilities.

Non-Current Liabilities Consolidated

Non-Current Liabilities as per last year 1,578,530 Non-Current Liabilities restated in 2008 1,779,809

201,279

The above amounts were reclassified due to related company payable being treated as non-current liabilities.

51


Five Year SummaryAll amounts in Sri Lanka Rupees thousands

For the years ended 31 December 2008 2007 2006 2005 2004

OPERATING RESULTS FOR THE PERIOD

Group revenue 7,209,585 5,756,856 4,563,003 4,834,334 4,232,237

Operating profit 36,946 212,905 259,737 409,705 (213,997)Fall in value of intangible assets - -Non operating income -Finance costs (217,972) (86,437) (172,625) (110,662) (255,264)Share of results of associate 34,787 11,825 (11,483) (26,699) (55,661)(Loss) / profit before taxation (146,239) 138,293 75,629 272,344 (524,922)Taxation 20,804 (43,546) 1,519 23,101 (7,857)Profit from ordinary activities (125,435) 94,747 77,148 295,445 (532,779)Minority interest 72,840 (26,301) (1,394) 10,736 85,345Profit attributable to the company (52,595) 68,446 75,754 306,181 (447,434)

BALANCE SHEET

Stated capital & share premium of subsidisers 1,231,129 1,231,129 1,231,129 1,231,129 1,231,129Revaluation reserve 61,237 62,407 63,577 64,747 65,917Revenue reserves 44,899 96,324 26,708 (50,216) (357,567)Minority interest 46,958 119,798 93,497 92,103 102,839Non - current liabilities 1,198,142 1,779,809 1,258,181 1,144,479 107,841

2,582,365 3,289,467 2,673,092 2,482,242 1,150,159

Intangible assets 2,652 4,455 6,258 6,258 32,407Property, plant and equipment and investments 2,134,921 2,100,248 2,103,244 2,161,546 2,213,940Investment in an associate company 163,613 128,826 117,001 128,450 133,639Other investments 228,434 160,862 113,220 72,692 63,436Non current receivables - - 24,851 12,786 21,136Current assets 2,395,332 2,405,188 1,465,655 1,539,378 1,878,665Current liabilities (2,342,587) (1,510,112) (1,157,137) (1,438,868) (3,193,064)

2,582,365 3,289,467 2,673,092 2,482,242 1,150,159

RATIOS AND OTHER INFORMATION

(Loss) / earnings per share (Rs)* (1.91) 0.07 1.64 5.15 (7.37)Market price per share (Rs)* 6.50 13.00 13.50 12.75 10.75Price earnings ratio - 185.71 8.23 2.48 (1.46)Net dividend pay out (Rs 000) - - - - -Bonus issue (Ratio) - - - - -Rights issue (Ratio) - - - - -Rights price (Rs) - - - - -Debt / equity ratio 0.67 0.71 0.38 0.45 1.71Interest cover (No of times) 0.16 1.23 1.97 2.66 0.00Net assets per share (Rs) 20.50 22.41 22.33 20.69 15.54Current ratio (No of times) 0.94 1.54 1.16 0.98 0.55Shares traded 5,303,700 13,435,100 13,804,800 29,944,300 10,343,600US $ Exchange rate - average 108.60 110.72 104.24 100.56 101.52US $ Exchange rate - year end 113 108.65 107.72 102.15 105.10


52

Group Structure

33%

33%

100%

100%

100%

CeylonAgro-Industries Limited.

Ceylon Livestock &Agrobusiness Services

(Private) Limited.

Ceylon Aquatech(Private) Limited.

Three AcreFarms PLC

Ceylon WarehouseComplex

(Private) Limited.

Prima Management Services (Private)

Limited .

ActivitiesInfrastructure development of silo, warehouse and

reclamation of sea-bed.

ActivitiesPoultry grandparent

operation.

ActivitiesPoultry Breeder

Farming & Hatchery(Application of

AdvancePoultry Technologies)

ActivitiesIntegrated shrimp operation including feed milling,

breeding, processing and culture of shrimp.

ActivitiesImport & sale of poultry equipment, vaccines,

pet foods and vet. pharmaceutical.

ActivitiesPoultry processing & allied food, chicken processing,

retailing outlets,noodle processing, bread making and pre-mix flour.

ActivitiesICT solution & services

ActivitiesPoultry breeder

farms, hatcheries & commercial

farms.

Feedmilling Transshipment

C G

E

CeylonPioneer PoultryBreeders Ltd.

MillenniumMultibreeder

Farms(Pvt) Ltd.

57.21%

53


Milestones

20 September 1982

Date of Agreement between Prima Limited of Singapore and the Government of Sri Lanka.

19 November 1982

Date of Incorporation.

27 April 1984

First Annual General Meeting. All 15,000,000 shares of Rs 10/- each had been fully allotted. The Company’s shares were granted a listing by the Colombo Stock Exchange.

17 December 1984

First invoiced sale of Animal Feed. This date is significant because it marks the start of the tax holiday.

01 February 1987

Breeder Farm Project at Kosgama started production of Commercial Day-Old Chicks.

01 January 1991

Acquisition of Colombo Seafoods (Pvt) Limited with 23 acres of developed Shrimp Farm Land and Hatchery in the Chilaw area.

22 January 1991

GCEC grants permission for CGE to invest in the equity of Ceylon Livestock & Agrobusiness Services (Pvt) Limited. C.L.A.S.undertakes trading activities.

31 December 1991

CGE prepares Consolidated Group Accounts for its sharehold-ers.

27 January 1992

CGE Shares introduced to the Central Depository System at the Colombo Stock Exchange.

30 June 1992

Bonus Issue of 1-for-3 share capitalizing Rs 50 million from capital Reserve. Rights Issue of 10 million ordinary shares at a premium of Rs 35 per share raising CGE’s Capital to Rs 300 million.

02 September 1992

Acquisition of Three Acre Farms Limited with 33 acres of freehold land and buildings with poultry breeding farms at Panagoda,Meegoda and Kottawa.

24 September 1993

Incorporation of Ceylon Pioneer Poultry Breeders Limited, a wholly-owned subsidiary of TAF

04 April 1994

Incorporation of Ceylon Warehouse Complex (Pvt) Limited, a wholly-owned subsidiary of CGE.

08 July 1994

Bonus Issue of 1-for-2 shares capitalizing Rs 150 million from share premium. Rights Issue of 15 million ordinary shares at a premium of Rs 15 per share to raise CGE’s Issued Capital to Rs 600 million.

21 December 1995

Ceylon Aquatech (Pvt) Limited or “CAT” was incorporated to venture further into integrated shrimp business.

30 December 1997

Invested Rs. 140 million into the ordinary shares of Ceylon Agro-Industries Limited. The 22% stake allows for CAI to be ‘eq-uity-account’ for in the Consolidated Accounts of CGE begin-ning in FY 1998.

9 December 1998

Agreement signed with the SLPA for CWCL to reclaim 01A-01 R-07P land from the seabed at Mutwal, adjacent to CGE factory. The lease period follows that of CGE’s Main Agreement with the Government of Sri Lanka.

31 December 1998

Stepped up investment by subscribing Rs 70 million in the ordi-nary shares of Ceylon Agro Industries Limited.

10 August 1999

Date of Incorporation of Millennium Multibreeder Farms (Private)Limited, a wholly-owned subsidiary of TAF.

16 September 1999

First Commercial shrimp feed plant established in Sri Lanka.Launched ‘PRIMA SUPER SHRIMP FEEDS’.

05 March 2001

Poultry Feed Export to Bangladesh under the brand “PRIMA”.

10 October 2001

Export of PRIMA Broiler Whole Chicken to Male - Republic of Maldives.


54

Shareholder Information

ANALYSIS OF SHAREHOLDERS ACCORDING TO THE NUMBER OF SHARES AS AT 31 DECEMBER 2008

RESIDENT NON RESIDENT TOTAL

Share holding Number of Number of Percentage Number of Number of Percentage Number of Number of Percentage shareholders shares (%) shareholders shares (%) shareholders shares (%)

01 - 1,000 1926 659,191 1.10 28 11,591 0.02 1954 670,782 1.12

1,001 - 5,000 683 1,791,504 2.99 15 46,030 0.08 698 1,837,534 3.07

5,001 - 10,000 187 1,507,918 2.51 10 88,064 0.15 197 1,595,982 2.66

10,001 - 50,000 149 3,184,709 5.31 6 128,600 0.21 155 3,313,309 5.52

50,001 - 100,000 29 2,205,588 3.68 1 53,800 0.09 30 2,259,388 3.77

100,001 - 500,000 17 3,067,600 5.11 4 571,000 0.95 21 3,638,600 6.06

500,001 - 1,000,000 3 2,299,726 3.83 2 1,872,300 3.12 5 4,172,026 6.95

over 1,000,000 1 1,743,700 2.90 4 40,768,679 67.95 5 42,512,379 70.85

2,995 16,459,936 27.43 70 43,540,064 72.57 3,065 60,000,000 100.00

Categories of Shareholders Number of shareholders No. of shares

Individual 2,890 9,336,321Institutional 175 50,663,679

3,065 60,000,000

31 December 2008 31 December 2007

No Name Number of shares Percentage Number of shares Percentage

1 Prima Limited Singapore 27,270,800 45.45 27,270,800 45.452 Japfa Comfeed International Pte Ltd, Singapore 6,052,829 10.09 6,052,829 10.093 Supra Limited, Hong Kong 5,179,797 8.63 5,179,797 8.634 Eka Limited, Singapore 2,265,253 3.78 2,265,253 3.785 National Savings Bank 1,743,700 2.91 1,743,700 2.916 Employees Trust Fund Board 956,926 1.59 956,926 1.597 Elgin Investments Limited 943,300 1.57 943,300 1.578 Sandwave Limited 929,000 1.55 929,000 1.559 Asia Asset Finance Ltd 722,800 1.20 722,800 1.2010 H H Abdulhusein & Co. (Private) Limited A/C No. 1 620,000 1.03 751,500 1.2511 Mr. H A Pieris 450,500 0.75 450,500 0.7512 Waldock Mackenzie Limited/Mr. L P Hapangama 434,600 0.72 434,600 0.7213 Mrs. V R Jayasinghe 206,500 0.34 - -14 HSBC International Nominees Ltd-SSBT-

Deustche Bank AG Singapore A/C 01 200,000 0.33 200,000 0.3315 Dr. R M Peiris 200,000 0.33 200,000 0.3316 DPMC Financial Services (Pvt) Ltd. Account No.02 192,800 0.32 181,300 0.3017 Mr. L S I Perera 180,300 0.30 188,200 0.3118 Mr. S N C W M B C Kandegedara 179,900 0.30 - -19 Miss. A M Udeshi 150,100 0.25 150,100 0.2520 Mr. R A De Silva 150,000 0.25 150,000 0.2521 HSBC International Nominees Ltd-UBS AG Branch (EX SBC) 150,000 0.25 150,000 0.25

Total 49,179,105 81.94 48,920,605 81.51

The percentage of shares held by the public 2008 - 44.46%The percentage of shares held by the public 2007 - 44.46%

LIST OF 21 MAJOR SHAREHOLDERS BASED ON THEIR SHAREHOLDING AS AT 31 DECEMBER 2008

55


Statement of Value Added

Consolidated Value Added Statement

In Rs. 000 2008 2007 2006 2005 2004

Revenue 7,209,585 5,756,856 4,563,003 4,834,334 4,232,237

Adjustement for

other income / Expenses) 32,107 16,748 18,130 13,043 13,178

7,241,692 5,773,604 4,581,133 4,847,377 4,245,415

Less: Cost of materials and

services purchased 5,327,251 4,147,795 3,238,484 3,122,213 3,317,797

from external sources

Value Added 1,914,441 1,625,809 1,342,649 1,725,164 927,618

Distributed as follows:

In Rs. 000 2008 % 2007 % 2006 % 2005 % 2004 %

To employees as remuneration 389,730 20.36 359,332 19.29 303,678 22.62 363,059 21.04 298,910 32.22

To the government as taxes 1,265,154 66.08 998,977 66.46 768,205 57.22 785,960 45.56 742,931 80.09

To the Providers of capital

as Interest on Loans 136,600 7.14 78,631 4.44 103,150 7.68 158,467 9.19 158,728 17.11

as Minority Interest 72,840 3.80 26,301 1.51 1,394 0.10 10,736 0.62 85,345 9.20

To Shareholders as Dividends - - - - - - - - - -

Retained within the business

as Depreciation & Amortization 102,712 5.37 94,122 4.40 90,468 6.74 100,761 5.84 89,138 9.61

as Reserves (52,595) (2.75) 68,446 3.90 75,754 5.64 306,181 17.75 (447,434) (48.23)

1,914,441 100.00 1,625,809 100.00 1,342,649 100.00 1,725,164 100.00 927,618 100.00


56

Notice of Meeting

NOTICE IS HEREBY GIVEN that the 26 Annual General Meeting of the Company will be held on Friday 22 May 2009 at the ICASLAuditorium, 30A Malalasekera Mawathe, Colombo 07 at 10.30 a.m. and the business to be brought before the Meeting will be:

1. To receive and consider the Report of the Board of Directors on the State of Affairs of the Company and the Statement of Accounts for the year ended 31 December 2008, with the Report of the Auditors thereon.

2. To re-elect Mr. Cheng Chih Cheng, Robert a Director who retires by rotation at the Annual General Meeting in terms of Article 102 of the Articles of Association of the Company.

3. To re-elect Dr. Wickrema Sena Weerasooria a Director who retires at the Annual General Meeting in terms of Article 109 of the Articles of Association of the Company.

4. To re-appoint Messrs KPMG Ford Rhodes Thornton & Company, Chartered Accountants as Auditors and to authorise the Directors to determine their remuneration.

5. To authorise the Directors to determine contributions to charities.

BY ORDER OF THE BOARDS S P CORPORATE SERVICES (PRIVATE) LIMITEDSECRETARIES

Colombo 03

Date : 31 March 2009

Note:- (a) A member entitled to attend and vote at the above mentioned meeting is entitled to appoint a Proxy to attend and vote instead of him/her. Such Proxy need not be a member of the Company.

(b) A Form of Proxy is annexed to this notice.

(c) The completed Form of Proxy should be deposited at the Registered Office of the Company, No. 15, Rock House Lane, Colombo 15 not later than 48 hours before the time appointed for the holding of the meeting.

57


Form of Proxy

I/We ……………………………………………...........................................…………………..………….………………………… of

………………...……………………………….........................................………………….………….…………being a member/s of

Ceylon Grain Elevators PLC, hereby appoint ……..………….........................................……………………..……………………….

……………………..............…………….. of ……………………………...………………………….or failing him

Mr. CHENG CHIH KWONG, PRIMUS of Colombo or failing himMr. TAN BENG CHUAN of Colombo or failing himMr. CHENG CHIH CHENG, ROBERT of Colombo or failing himMr. CHENG CHIH HUI, PETER of Colombo or failing himDr. WICKREMA SENA WEERASOORIA of Colombo

as my/our Proxy to represent me/us and vote on my/our behalf at the Annual General Meeting of the Company to be held on Friday22 May 2009, and at any adjournment thereof and at every poll which may be taken in consequence of the aforesaid meeting and to VOTE as indicated below:

FOR AGAINSTOrdinary Business

1. To receive and consider the Report of Board of Directorson the State of Affairs of the Company and the Statement ofAccounts for the year ended 31 December 2008, with theReport of the Auditors thereon.

2. To re-elect Mr. Cheng Chih Cheng, Robert a Director whoretires by rotation at the Annual General Meeting in termsof Article 102.

3. To re-elect Dr. Wickrema Sena Weerasooria a Director, whoretires at the Annual General Meeting in terms of Article 109.

4. To re-appoint Messrs KPMG Ford Rhodes Thornton &Company, Chartered Accountants as Auditors and to authorisethe Directors to determine their remuneration.

5. To authorise the Directors to determine contributions to charities.

As witness my/our hand/this ………………..day of ………………………… Two Thousand and Nine.

Signature: …………………………….

Note : Please delete the inappropriate words.

1. Instructions for completion of proxy are noted on the next page2. A proxy need not be a member of the Company3. Please mark “X” in appropriate cages, to indicate your instructions as to voting


58

Form of Proxy Cont.

INSTRUCTIONS TO COMPLETION OF FORM OF PROXY

1. Kindly perfect the Form of Proxy by filling in legibly your full name and address, your instructions as to voting, by signing in the space provided and filling in the date of signature.

2. Please indicate with a ‘X’ in the cages provided how your proxy is to vote on the Resolutions. If no indication is given the Proxy in his/her discretion may vote as he/she thinks fit.

3. The completed Form of Proxy should be deposited at the Registered Office of the Company at No. 15, Rock House Lane, Colombo 15, at least 48 hours before the time appointed for holding of the Meeting.

4. If the form of proxy is signed by an attorney, the relative power of attorney should accompany the completed form of proxy for registration, if such power of attorney has not already been registered with the Company.

Note:

If the shareholder is a Company or body corporate, Section 138 of the Companies Act No.7 of 2007 applies to Corporate Shareholders of Ceylon Grain Elevators PLC.Section 138 provides for representation of Companies at meetings of other Companies. A Corporation, whether a Company within the meaning of this act or not, may-where it is a member of another Corporation, being a Company within the meaning of this Act, by resolution of its Directors or other governing body authorise such person as it thinks fit to act as its representative at any meeting of the Company. A person authorised as afore-said shall be entitled to exercise the same power on behalf of the Corporation which it represent as that Corporation could exercise if it were an individual shareholder.

Company NameCeylon Grain Elevators PLCCompany Registration No. PQ 161

Registered OfficeNo. 15, Rock House Lane, Colombo 15, Sri Lanka.Tel : 2522556 or 8/2523580/2526378 to 2526383Fax : +(94) (11) 2524163E-mail : [email protected]

Subsidiary CompaniesThree Acre Farms PLCCeylon Livestock & Agrobusiness Services (Pvt) LimitedCeylon Pioneer Poultry Breeders LimitedCeylon Warehouse Complex (Pvt) LimitedCeylon Aquatech (Pvt) LimitedMillennium Multibreeder Farms (Pvt) Limited

Associate CompaniesCeylon Agro Industries LimitedPrima Management Services (Pvt) Limited

BankersDeutsche AG Bank Hatton National Bank PLCNations Trust Bank PLCNational Development Bank PLCSampath Bank PLCUnion Bank of Colombo LimitedBank of CeylonCommercial Bank of Ceylon PLCStandard Chartered Bank

LawyersVarners Lanka Law OfficeD L & F De SaramH E Nevil Joseph

AuditorsKPMG Ford, Rhodes, Thornton & Co.

Company SecretaryS S P Corporate Services (Pvt) LimitedNo. 101 Inner Flower Road, Colombo 3.

Name of DirectorsMr. Cheng Chih Kwong, Primus - Chairman & Chief Executive OfficerMr. Tan Beng Chuan - Executive Director

& Group General ManagerMr. Cheng Chih Cheng, Robert - Non Executive DirectorMr. Cheng Chih Hui, Peter - Non Executive Director Dr. Wickrema Sena Weerasooria - Independent Non Executive Director

ManagementMr. Tan Hoe Lai - General ManagerMr. Xie Sheng Gang - Deputy General ManagerMr. K A R S Perera - AGM (Finance)Mr. Chng Sun Tick - AGM (Farms)Mr. Ang Kian Huat - AGM (Farms)Mr. M C M De Costa - AGM (Personnel, Logistic, Security & General Affairs)Mr. Neil Jayaweera - AGM (Processing)

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