The company's revenue fell seven percent to 4.3 billion rupees in the year compared with the previous year, according to the annual report filed with the stock exchange.

Global recession and a slowdown in the domestic economy caused a slump in the construction sector which reduced sales, forcing the firm to temporarily stop production, Royal Ceramics Lanka chairman A M Weerasinghe said.

" . . . we enhanced our storage facilities at the main delivery points in 2008/09," he told shareholders in the annual report.

"However, due to lower demand in 2009 and the ever increasing cost of production and stock build up, we temporarily curtailed operations at some of our factories for two months in order to ensure healthy levels of working capital."

High energy costs earlier in the year and high interest payment on loans to build a sanitary ware plant along with a fall in the value of share investments also eroded the bottom line, Weerasinghe said.

Managing director Nimal Perera said that of the firm's current outstanding bank loans of 2.6 billion rupees, 800 million was invested in the bath ware plant and high rates meant it paid 420 million in interest during the year.

The new sanitary ware plant is not expected to breakeven for the next 2-3 years and more investments may be needed to improve economies of scale and efficiency.

Weerasinghe warned that the next financial year too will be difficult with lower demand anticipated as the firm experienced a fall in sales in the March quarter.

But he said the end of the ethnic war with the defeat of the Tamil Tigers could mean more demand for tiles in north and east because of reconstruction and development.

Royal Ceramics continued to expand its showroom network despite the slowdown in demand by opening five more around the country. It now has 40 showrooms.

Nimal Perera called for protection for the domestic ceramic industry because of concern over what he called cheap imports of lower standards which he alleged were under-invoiced by importers.

"One of the main concerns however, remains the stiff competition coming from the manufacturers in China, India and Thailand, whose products are mostly of lower standard, and are sold at a cheaper rate in the domestic market.

"As most importers tend to undervalue such goods, the government thereby stands to lose revenue in terms of import tax," he said.

"This also affects the local competitors with regard to revenue and sales."

Perera also said the company's proposed investment in a roofing tile factory was now not attractive given the economic downturn nor was its porcelain tile plant.

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