Integrated Annual Report 2019/20 – Dilmah
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A CUP OF KINDNESS Fulfilling a Founding Commitment to Quality & Integrity, with Taste, Goodness & Purpose DILMAH CEYLON TEA COMPANY PLC ANNUAL REPORT 2019/20 Dilmah Ceylon Tea Company PLC | Annual Report 2019/20 A Cup of Kindness More than anything at Dilmah, we believe in being kind, and kindness is at the heart of everything we do. We spread kindness by doing everything with care and respect. That means: Caring for and respecting nature with growing only the finest ingredients and protecting the environment. We are tea growers, and our commitment is to great taste with tea that is garden fresh, single origin and of the finest quality. While we grow tea, we use our profits to support restoration and conservation of ecosystems, species conservation, climate change research & adaptation, and environmental education and advocacy. Caring for and respecting our customers we do not blend our teas. We uphold the highest standards and do not compromise quality to make a profit. Our infusions are made from ingredients that are authentic. Our tea is grown, handpicked, handmade, and freshly packed at source to ensure that natural antioxidant goodness is nurtured and protected for your enjoyment. Caring for and respecting our people we go beyond providing our employees with good working conditions and fair wages for their efforts; Dilmah was formed around our Founder’s sincere wish to make business a matter of human service, thus earnings from Dilmah Tea are shared with less privileged people. That means vulnerable women, men, girls and boys are given the opportunity to control their future and give back to their communities, in our tea gardens and across Sri Lanka. Our programmes are designed to empower the most marginalised amongst us, with dignity. This is our ethical purpose. Not only do we make the best tea in the world, but we use our profits to support those that need that little bit of kindness the most. 1 Dilmah Ceylon Tea Company PLC | Annual Report 2019/20 Contents Performance Highlights to 2019/20 06 About Dilmah 08 Board of Directors 12 Our Team 15 Chairman’s Review 17 CEO’s Report 21 Value Creation Model 22 Determining Material Issues 24 Risk Management 26 Sustainability at Dilmah 28 Stakeholder Engagement 30 Operating Environment 36 Capital Management Financial Capital 39 Manufactured Capital 42 Human Capital 44 Social and Relationship Capital 52 Intellectual Capital 62 Natural Capital 68 Corporate Governance 79 Report of the Board of Directors 89 Report of the Audit Committee 96 Report of the Remuneration Committee 97 Report of the Related Party Transactions Review Committee 98 Statement of Directors’ Responsibilities in Relation to the Preparation of Financial Statements 99 2 Dilmah Ceylon Tea Company PLC | Annual Report 2019/20 Financial Reports 101 Independent Auditor’s Report 102 Statement of Financial Position 106 Statement of Profit or Loss 107 Statement of Comprehensive Income 108 Statement of Changes in Equity 109 Statement of Cash Flows 111 Notes to the Financial Statements 113 Five Year Summary - Company 162 Information to Investors 163 GRI Context Index 165 Notice of Meeting 170 Form of Proxy 171 3 Dilmah Ceylon Tea Company PLC | Annual Report 2019/20 DILMAH CEYLON TEA COMPANY PLC Annual Report 2019/20 Welcome to our nd 2 Integrated Annual Report Scope and Boundary Dilmah embarked on an important milestone in The Report covers the operations of Dilmah Ceylon Tea our corporate reporting as we steered our journey Company PLC (“DCTC”) and its subsidiary MJF Beverages towards Integrated Reporting, last year. This year (Private) Limited (collectively referred to as the “Group”) we publish our second Integrated Report. Since for the period from 1st April 2019 to 31st March 2020. The inception, the Group has been deeply committed Group adopts an annual reporting cycle and its latest to social and environmental sustainability and the annual report for the financial year ending 31st March adoption of Integrated Reporting has enabled 2020 is available to download at www.dilmahtea.com. us to highlight this in a coherent and structured There were no significant changes to the Group’s size, manner. Through this Report, we are building structure or supply chain during the year, nor any material on the foundations laid last year by providing restatements of non-financial information published in a balanced and concise assessment of how we previous years unless specifically mentioned. utilize our capital inputs in the creation of value, for our diverse stakeholders. This Annual Report Materiality has been prepared based on the guidelines issued by the Integrated Reporting Framework published In determining the content to be included in this by the International Integrated Reporting Council Integrated Report we have adopted the principle of (IIRC). materiality. The material topics listed on page 24 and 25 form the anchor of this Report and have been selected following feedback received from Dilmah’s stakeholders, the Group’s strategic aspirations, risks and opportunities stemming from the operating landscape. 4 Dilmah Ceylon Tea Company PLC | Annual Report 2019/20 Applying the <IR> Principles Reporting Standards • Financial Statements: Sri Completeness Materiality Lanka Financial Reporting The scope of material topics Standards have been widened to include Content included in the Report • Narrative Report: <IR> factors specific to the Group is determined and structured Framework and the industry, in addition to based on the principle of the topics prescribed by the materiality • Sustainability Reporting: GRI GRI Framework Standards, In accordance ‘Core’ • Sustainable Development Strategic Orientation Connectivity Goals Reporting of the Sign posting and navigation Colombo Stock Exchange Dedicated chapter on icons throughout the Report the Group’s Strategic to show connectivity of Orientation information External Assurance • Assurance on the financial statements have been Reporting Format provided by Messrs. Ernst Last year, the Annual Report and the Sustainability Report was combined to and Young form one Integrated Report which included all material information relevant to stakeholders; providing a balanced, concise and clear assessment of Dilmah’s • We have not sought value creation. This year our second Integrated Report of Dilmah Ceylon Tea assurance on our Company PLC further strengthens our commitment. sustainability reporting this year • Increased disclosure of quantitative information relating to the Group’s non-financial performance • Improved structure of the narrative report to present information in a clear Print available on request and meaningful manner Available online as a PDF Feedback We understand that Integrated Reporting is a journey and a process of continuous improvement. We welcome comments, suggestions and feedback on our Report. Kindly direct your feedback to, [email protected] The first Integrated Annual Report was awarded Bronze in the Food and Beverages category at the 55th Annual Report Awards organized by the Institute of Chartered Accountants of Sri Lanka 5 Dilmah Ceylon Tea Company PLC | Annual Report 2019/20 Performance Highlights 2019/20 Metric 2019/20 2018/19 Y-O-Y Financial Performance Revenue Rs. Mn 11,610 10,713 8% Operating profit Rs. Mn 1,975 1,582 25% Profit before tax Rs. Mn 1,989 1,694 17% Profit after tax Rs. Mn 1,559 1,591 -2% Return on equity % 13.08 14.50 -10% Return on capital employed % 13.08 14.50 -10% Working Capital Ratios Inventory days Days 57 57 - Debtor days Days 142 133 7% Payable days Days 24 24 - Current ratio Times 3.4 9.5 -64% Quick asset ratio Times 3.0 8.3 -64% Financial Position Total assets Rs. Mn 17,305 12,805 35% Total liabilities Rs. Mn 4,969 1,283 287% Shareholders’ funds Rs. Mn 12,336 11,522 7% Non-controlling interest Rs. Mn - - - Total debt Rs. Mn - - - Shareholder Information No of shares in Issue Number 20,737,500 20,737,500 - Earnings per share Rs. 75.19 76.71 -2% Dividends per share Rs. 25.00 35.00 -29% Net asset value per share Rs. 594.88 555.65 7% Closing price Rs. 531 .00 619.90 -14% Market capitalisation Rs. Mn 11,012 12,855 -14% P/E ratio No. of times 7.06 8.08 -13% Dividend pay out % 47 26 81% Dividend cover No. of times 2.15 3.84 -44% Dividend yield % 5.0 6.0 -17% 6 Dilmah Ceylon Tea Company PLC | Annual Report 2019/20 Metric 2019/20 2018/19 Y-O-Y Human Capital Total employees – permanent No. 587 644 -9% Payments to employees Rs. Mn 1,199 1,099 9% New recruits – permanent No. 52 56 -7% Employee retention rate % 85 82 4% No. of promotions No. 13 10 30% Female representation % 43 44 -2% Investment in training Rs. Mn 34 36 -6% Total training hours Hours 21,584 5,850 269% Average training hours/employee Hours 37 9 309% Workplace injuries No. 4 7 -43% Union representation % N/A N/A - Instances of disruption to work No. Nil Nil - Manufactured Capital Investment in capex Rs. Mn 4,100 3,944 4% Property, plant and equipment Rs. Mn 3,246 2,994 8% Highest performing equipment efficiency % 96 91 5% Capacity utilisation % 80 77 4% Intellectual Capital R&D investment Rs. Mn 32.6 39.8 -18% New products launched No. 45 65 -31% Tea standards No. 360 208 73% Social and Relationship Capital No. of distributors No. 108 97 11% Payments to suppliers Rs. Mn 9,538 8,117 18% Proportional spending to local suppliers Rs. Mn 6,012 5,542 8% Investment in CSR Rs. Mn 260 170 53% Natural Capital Material - tea, flavours & herbs MT 5,639 5,190 9% Energy consumption GJ 16,473 13,574 21% Energy intensity GJ per unit 2.9 2.6 12% Water consumption m3 23,928 21,420 12% Water consumption per unit m3 per unit 4.2 4.1 3% Solid waste generation MT 287 267 7% Carbon footprint tCO2e 28,393 31,315 -9% Spending on environmental initiatives Rs .Mn 29.7 40.1 -26% 7 Dilmah Ceylon Tea Company PLC | Annual Report 2019/20 About Dilmah Business Overview As a globally renowned tea company, Dilmah has an distribution network, Dilmah products are sold in over 100 unparalleled reputation for natural and ethical production countries.