Building on our foundation of over 170 Years Cargills (Ceylon) PLC Annual Report 2016/17 Contents About This Report 02 / Vision and Mission 04 / Our Progress 05 / Vision to Transform 06 The Group Structure 07 / Financial Highlights 10 / Our Businesses 12 Chairman’s Review 20 / Profile of Directors 23 / Management Discussion and Analysis 28 Financial Review 38 / Corporate Governance 44 / Enterprise Risk Management 67 Sustainability Report 77 Financial Report Annual Report of the Directors’ on the Affairs of the Company 119 Statement of Directors’ Responsibility 123 / Independent Auditors’ Report 124 Financial Highlights 125 / Statement of Profit or Loss and Other Comprehensive Income 126 Statement of Financial Position 127 / Statement of Changes in Equity 128 Statement of Cash Flows 130 / Notes to the Financial Statements 132 Over Cargills has relentlessly pursued change in its quest to respond to the call of an evolving country. Today, it’s not just a dream. Our mission is purposefully being brought to life. Our reach embraces the grassroots linking every step of the food and agriculture value chain to make a balanced meal more accessible to everyone in a sustainable manner. We empower and nurture youth across our value Building on a solid chain to tackle the challenges that impact our country and deliver innovative solutions that make a meaningful foundation of trust impact. We are a conduit that moves resources and and consistent investments to generate opportunities in both rural and transformation urban Sri Lanka. We collaborate to link people and ideas, products and services, information and markets. We strive to unite people because our focus is not just a business plan. From a colonial trading legacy that catered to the elite to a social-centric Sri Lankan enterprise, our 173 year old foundation has consistently been centered on how our business impacts our people and the strengthening of our legacy of trust and transformation. About This Report Scope and Boundaries In a progressive journey towards integrated reporting Cargills (Ceylon) PLC presents its Annual Report for the year ended 31March 2017 covering the operations of Cargills (Ceylon) PLC and its subsidiaries as listed out in the inner back cover of the compilation. All financial and non-financial reviewing is within the scope of sectoral operations and where necessary and material the report details out business units within sectors. The information covered is for the period from 1 April 2016 to 31 March 2017 which is the annual reporting cycle of the Cargills Group. Financial Reporting The financial information have been prepared and presented in accordance with the Sri Lanka Accounting Standards (SLFRS and LKAS) laid down by the Institute of the Chartered Accountants of Sri Lanka in compliance with the requirements of the Companies Act No. 07 of 2007 and the listing rules of the Colombo Stock Exchange and have been audited by M/s KPMG. Non-Financial Reporting We present our non-financial information for the finacial year 2016/17 with the aim of informing our stakeholders of our role in society related to our Vision of being a “Global Role model in community-friendly National Development” the core foundation of our business and sustainability strategy and objectives. We define ‘non-financial information’ as information pertaining to the non-financial issues emerging from our determination of materiality. The Report is based on the Integrated Reporting Framework published by the International Integrated Reporting Council (IIRC) and the Global Reporting Initiative (GRI) G4 Guidelines 'In Accordance – Core' criteria published by GRI. This is our 2nd Report presenting information in accordance with the GRI Guidelines and where applicable we have compared performance with our previous report published as at March 31st 2016. There were no re-statements of previously reported economic, social or environmental information. The Report also adheres with the requirements of the Code of Best Practice on Corporate Governance issued jointly by the Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka. Reporting Structure The Reporting structure enables the Group’s businesses to be reviewed by Sector in terms of operations, strategy and performance while GRI reporting is compiled herein at Group level through a process of data gathering and review by operation and by sector. Therefore the main entity for which the social and environmental information is presented in the narrative reports unless otherwise stated at the Group level. 02 Cargills (Ceylon) PLC Annual Report 2016/17 The material aspects boundaries are based on internal assessments covering the Group’s operations in Sri Lanka. Cargills remains We have provided both quantitative and qualitative data and it has been our intention to provide quantitative data where on a continued possible to facilitate comparisons and further analyses. journey to enhance Integrated Reporting Approach our reporting Cargills remains on a continued journey to enhance our reporting process in order to provide maximum transparency process in order to and visibility on the way in which we engage in business in provide maximum a complex and dynamic business environment influenced by a range of macro-economic factors, rapid technology transparency and developments, dynamic stakeholder requirements and various context driven environmental and social conditions. visibility on the way in which we Traditionally our approach to corporate annual reports focused on financial performance and statutory engage in business requirements. In the process of adopting an Integrated Reporting format we have incorporated financial and non- financial information – governance, environmental and social - in a manner that can help stakeholders understand how your Company creates and sustains value over the long-term. This report is an attempt to align to the principles of International Integrated Reporting Framework developed by The International Integrated Reporting Council (IIRC), which is a global coalition of regulators, investors, companies, standard setters, the accounting profession and NGOs promoting communication about value creation as the next step in the evolution of corporate reporting. Accordingly greater details and insights are provided on the strategic focus and future orientation, connectivity of information, stakeholder relationships, materiality and comparability. This report provides a consolidated perspective of economic, social and environmental aspects material to our strategy and our ability to create and sustain value to our key stakeholders. Through this compilation the Group anticipates taking the reporting framework towards a ‘Capitals’ approach in the near term wherein review based on financial capital, manufactured capital, intellectual capital, human capital, social and relationships capital and natural capital would form the crux of future Annual Reports. Cargills (Ceylon) PLC Annual Report 2016/17 03 Vision To be a global corporate role model in community – friendly national development. Mission Serve the rural community, our customers and all other stakeholders, through our core business – food with love – and other related businesses, based on the three main principles of; reducing the cost of living enhancing youth skills bridging regional disparity by enhancing local and global markets. 04 Cargills (Ceylon) PLC Annual Report 2016/17 Our Progress In 1844, William Miller and David Sime Cargill commenced a general warehouse, its interests in the dairy sector by import and wholesale business in Colombo, Fort. The establishment was named acquiring Kotmale Holdings PLC and the ‘House of Cargills’. A successful bid by Sir Chittampalam A. Gardiner saw the entered another growing category with House of Cargills being incorporated as a Public Limited Liability Company on 1 the acquisition of Diana Biscuits now March 1946. marketed under the Kist brand. In 1981 Ceylon Theatres acquired controlling interest of the Company and Mr. Albert In 2011, the Company secured a A. Page was appointed the Managing Director. Mr. Albert Page went on to become provisional commercial banking license the Chairman of Cargills on 26 November 1982. from the Central Bank of Sri Lanka. Under the new management, Cargills explored the potential of innovating on its In 2013, Cargills acquired the franchise trading legacy. As a result, in 1983 Cargills established the first supermarket chain in license for TGIF and opened its first Sri Lanka with the opening of its first outlet at Staple Street. restaurant at Fort in October 2013. Cargills ventured into the production of processed meats in 1993 when the Company Cargills Bank commenced formal invested in its first manufacturing facility Cargills Quality Foods, in Mattakkuliya. operations in 2014 and has since In 1996 Cargills acquired the franchise license for KFC and innovated on its secret expanded it branch network to15. recipe to deliver products that suited the local palate. In the same year the Company Cargills began sourcing fruits and vegetables directly from farmers in 1999 when commenced operations of Cargills it established its first collection centre in Hanguranketha. In 2002 it invested in a Square mini mall in Jaffna. dairy processing plant and thereby expanded its outgrower network to include dairy farmers. Cargills Magic ice cream was the outcome of this endeavor. In the same In 2016, Cargills Agrifoods Limited year Cargills diversified into agri-processing