The Annual Report 2019

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The Annual Report 2019 The Annual Report 2019 REALDEAL INSIDE: AN IN-DEPTH VIEW INTO THE SHOCKING ILLEGAL CIGARETTE TRADE IN MALAYSIA, AND ITS NEGATIVE IMPACT TO THE LEGAL TOBACCO INDUSTRY, ECONOMY AND SOCIETY British American Tobacco Malaysia ANNUAL REPORT on our journey through a challenging year and the Company’s resilience to come out stronger for a better tomorrow. BATM PEOPLE RESILIENT IN THE FACE OF ADVERSITY p109 1,000 PACKS ILLEGAL CIGARETTES SOLD EACH MINUTE p11 BATM THE S.E.E.D FUTURE OUR COMMITMENT TO MALAYSIANS OF TOBACCO p130 p99 OUR Ethos At British American Tobacco, our efforts in securing a better tomorrow requires the organisation to adopt new ways of working to be simpler, stronger and faster. To that effect, our ethos are rooted in the following five behaviours. BOLD • dreaming big and developing innovative ideas • making tough decisions quickly and proudly, while standing accountable for them • being resilient & fearless FAST • setting a clear direction and moving fast to achieve them • keeping it simple, and focusing on outcomes • learning quickly and always sharing knowledge EMPOWERED • set the context for our teams and trust their expertise • challenge each other and once in agreement, we commit collectively • collaborate and hold each other accountable to deliver British American Tobacco Malaysia has invested heavily in this country for over a century, building a business that has created value for shareholders, employees, business partners and society as a whole. Today, the Company faces an unprecedented threat from DIVERSE a growing illegal cigarette trade. The Real Deal • value different perspectives aims to establish an honest narrative about • build on each other’s ideas, knowledge and operating in this highly regulated industry and experiences our efforts in ensuring the sustainability of our • challenge ourselves to be open-minded recognising business for a better tomorrow. unconscious bias RESPONSIBLE • take action to reduce the health impact of our business • ensure the best quality products for our consumers, the best place to work for our people and the best Scan and download the results for our shareholders full copy of the • act with integrity, never compromising our standards Annual Report 2019 here and ethics 59th BRITISH AMERICAN TOBACCO (MALAYSIA) BERHAD ANNUAL GENERAL MEETING Venue Connexion Conference & Event Centre Nexus 2 & 3, Level 3A, Nexus Bangsar South City No. 7, Jalan Kerinchi 59200 Kuala Lumpur Date & Time Tuesday // 21 April 2020 // 9.30 a.m. Website www.batmalaysia.com BRITISH AMERICAN TOBACCO (MALAYSIA) BERHAD 01 OVERVIEW Annual Report 2019 CONTENTS 01 03 Overview Performance 02 Editor’s Letter 35 Management Discussion & Analysis 03 Corporate Profile 35 2019 Performance Overview 05 Corporate Structure 41 Vision, Mission and Strategy 06 Overview of British American Tobacco Malaysia 42 Products and Services 06 Results at a Glance 42 Operating Facilities 07 Message to Shareholders 43 Review of Financial Results FEATURE STORY: 47 Five Year Performance History How Malaysia Became the World’s Largest Consumer of Illegal 48 Five Year Performance Highlights Cigarettes 49 Awards and Achievements 51 Corporate Highlights 02 53 BATM in the News Leadership 14 Corporate Information 04 15 Board of Directors Governance 24 A Conversation with Jonathan Reed 56 Corporate Governance Overview 26 Leadership Team 73 Standards of Business Conduct Statement 76 Other Compliance Information 77 Nomination and Remuneration Committee Report 81 Audit Committee Report 84 Risk Management Committee Report 85 Statement on Risk Management and Internal Control 0D BRITISH AMERICAN TOBACCO (MALAYSIA) BERHAD OVERVIEW 01 Annual Report 2019 05 09 Growth Financial Statements 95 Premium Segment 162 Directors’ Responsibility Statement 96 Aspirational Premium Segment 163 Directors’ Report 97 Value For Money Segment 168 Income Statement 98 Potentially Reduced-Risk Products 169 Statements of Other Comprehensive Income FEATURE STORY: 170 Balance Sheets The Future of Tobacco for a Better Tomorrow 171 Consolidated Statement of Changes in Equity 101 Trade Marketing 173 Statement of Changes in Equity 175 Statements of Cash Flows 06 176 Notes to the Financial Statements Productivity 233 Statement by Directors 234 Statutory Declaration 104 Productivity Highlights 235 Independent Auditors’ Report 105 Supply Chain 108 Future Fit Information Technology 10 07 Other Information Winning Organisation 240 Analysis of Shareholdings 245 Particulars of Property 111 Attract the Best 246 Corporate Directory 112 Invest in Leaders 247 Notice of Annual General Meeting 117 Celebrating and Recognising Our People 253 Administrative Details Proxy Form 08 Sustainability 122 Sustainability Statement 123 British American Tobacco Malaysia’s Sustainability Framework 124 Stakeholders FEATURE STORY: Fighting Back Against Illegal Cigarettes 128 Marketplace 130 Community 133 Workplace 135 Environment 136 Disclosure Scope 137 GRI Standards Guidelines 2019 0E BRITISH AMERICAN TOBACCO (MALAYSIA) BERHAD 01 OVERVIEW Annual Report 2019 01 Overview 02 Editor’s Letter 03 Corporate Profile 05 Corporate Structure 06 Overview of British American Tobacco Malaysia 06 Results at a Glance 07 Message to Shareholders FEATURE STORY: How Malaysia Became the World’s Largest Consumer of Illegal Cigarettes 01 BRITISH AMERICAN TOBACCO (MALAYSIA) BERHAD OVERVIEW 01 Annual Report 2019 EDITOR’S Letter This has eroded the legal market share of tobacco players, and consequently, the Company’s revenue and profitability took a severe hit in 2019. The Company’s share price closed the year at Dear Shareholders less than half its price at the beginning of 2019. British American Tobacco (Malaysia) Berhad (“the The Real Deal Laid Bare In this year’s annual report, we are laying bare The Real Deal for shareholders. We will zoom into Company”) is at a critical the realities of the Company operating as a legal player in a market where almost seven out of 10 juncture. The Company is cigarettes sold are illegal. The Chairman and Managing Director reinforced this reality when they operating in a pressurised sat down with us to share their message to shareholders. environment caused by the Our conversation with the Managing Director in the Management Discussion and Analysis section rising levels of cheap contraband will also give shareholders a clear picture of the challenges we faced during the year, which led the Company to make difficult decisions in ensuring sustainability. This is the Real Deal, and it cigarettes and illegal vaping. was necessary to preserve profitability and dividend pay-outs, while investing in new skills and processes in order to secure a sustainable future for the Company. Rounding up the discussion on illegal cigarettes, the feature, “How Malaysia Became the World’s Largest Consumer of Illegal Cigarettes,” sets out how the Company has fought hard against the illegal cigarette trade throughout 2019. Tobacco Hall of Shame The Real Deal also includes a feature story of how Malaysia gained the dubious honour of being the #1 global market for illegal cigarettes. We delve into how these syndicates operate and the threat they pose to our society. Shockingly, Malaysia has also gained an international reputation of being an “exporter” of illegal cigarettes and can now also claim the ‘honour’ of being the #1 supplier of illegal cigarettes sold in Australia. Future of Tobacco Sometimes challenges bring out the best in us. This was certainly the case for the Company and was evident in our commitment to find new and innovative ways to propel the business to a better tomorrow. This is at the centre of the “The Future of Tobacco for a Better Tomorrow” feature which offers an overview into the Company’s efforts to turnaround its business to ensure long- term sustainability. The piece explains the Company and British American Tobacco p.l.c Group’s efforts to lead change in the tobacco industry through next generation products. Despite the business challenges faced, the Company continues to have an unwavering commitment to attracting the best talents and nurturing leaders. We have also been passionate about giving back to society through meaningful community investments. Our efforts in these areas are set out in the “Winning Organisation” and “Sustainability” sections. Join The Fight The Real Deal provides you with a front-row seat of our journey throughout 2019. It is meant to offer an eye-opening perspective of the operating conditions, constraints, challenges and opportunities faced by a legitimate player in a market. We urge shareholders to join us in our fight against illegal tobacco. Help us spread the word of the realities and dangers that the illegal tobacco trade poses to the Company, consumers, investors and Malaysians as a whole. We look forward to your support in helping us move the needle against illegal cigarettes. Thank you. The Editorial Team 02 BRITISH AMERICAN TOBACCO (MALAYSIA) BERHAD 01 OVERVIEW Annual Report 2019 CORPORATE Profile British American Tobacco (Malaysia) Berhad (“the Company”) is Malaysia’s most established tobacco company with approximately 54 percent market share in the legal market. The Company envisions to be the “world’s best at satisfying consumer moments in tobacco and beyond”. Established in 1912, the Company’s legacy The Company and its Subsidiaries has social engagement, empowerment and fair spans more than 100 years. The Company’s leveraged on the Group’s research and opportunities to disenfranchised communities. high-quality tobacco brands cater to a development
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