2016 Annual Report (15.0
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British American Tobacco (Malaysia) Berhad (4372-M) British American Tobacco (Malaysia) Berhad (4372-M) Virginia Park, Jalan Universiti, 46200 Petaling Jaya, Selangor, Malaysia +60 (3) 7956 6899 / 7491 7100 +60 (3) 7955 8416 Annual Report 2016 www.batmalaysia.com TRANSFORMING TODAY FOR TOMORROW 2016 Annual Report th Annual General Meeting (AGM) of British American Tobacco (Malaysia) Berhad 56Venue | Date | Time Information Online: Ballroom 2, 1st Floor, Sime Darby www.batmalaysia.com Convention Centre 1A Jalan Bukit Kiara 1, 60000 Kuala Lumpur Date: Tuesday, 18th April 2017 at 10.30 a.m. Winning Leadership Growth Productivity Sustainability Organisation TRANSFORMING TODAY FOR TOMORROW Our continued success is built on the Company’s diverse strengths – our strong brands, our innovation in new products and product categories and our talented people. As a corporate citizen with more than a hundred years of proud legacy in Malaysia, the Company remains committed to evolving to continue delivering value for our shareholders whilst investing in the possibilities of tomorrow. RESULTS AT A GLANCE... Shareholders’ Profit Revenue fund before tax 3,756 (RM million) 613 908 (RM million) (RM million) Net returns on Net dividend Net profit shareholders’ fund per share 721 (RM million) 118 278 (%) (sen) OVERVIEW OF BRITISH AMERICAN TOBACCO MALAYSIA over 57.1% 668employees 100 market share years of history in Malaysia Top 252.6 30 earnings per share in Bursa Malaysia in terms of market capitalisation Performance 07 Management Discussion and Analysis • 2016 Performance Overview • Business and Operations • Our Vision and Strategic Focus • Review of Financial Results • 2017 Outlook • Five Year Performance History 16 Corporate Profile 17 British American Tobacco Malaysia in the News 18 Awards and Achievements 20 2016 Corporate Events Highlights Overview 2Leadership 01 Overview of British American 23 Corporate Information Tobacco Malaysia 24 Corporate Structure 01 Results at a Glance 26 Profile of Directors 04 Chairman’s Letter 33 Profile of Leadership Team Members 3Governance 1 39 Standards of Business Conduct Statement 42 Statement on Corporate INSIDE Governance this report... 57 Other Compliance Information 58 Audit Committee Report 61 Nomination Committee Report 64 Statement on Risk Management 4and Internal Control Winning Organisation Growth 114 Developing a Winning 71 Key Highlights in 2016 Organisation 72 Premium Brand: DUNHILL 114 Recognising Long Service 74 Aspirational Premium Brand: Employees PETER STUYVESANT and 115 Rewarding Outstanding PALL MALL Performance and Leadership 75 Trade Marketing Activities Behaviours in 2016 115 Employees’ Benefits 117 Employees’ Wellbeing 118 High Performance Leadership 122 Learning and Organisational Development 125 Developing our Talent Across the Globe 125 Employee Pulse-Check 2016 Financial Statements 5Productivity 8 127 Directors’ Responsibility 77 Supply Chain Performance Statement 79 People Development 128 Directors’ Report 81 Transformation and 133 Income Statements Enhancement of Business 134 Statements of Other Technology Comprehensive Income 135 Balance Sheets 136 Consolidated Statement of Changes in Equity 138 Statement of Changes in Equity 140 Statements of Cash Flows 142 Notes to the Financial Statements 189 Statement by Directors 190 Statutory Declaration 191 Independent Auditors’ Report 6Sustainability 9Other Information 83 Sustainability Agenda 84 Sustainability Framework 196 Analysis of Shareholdings 85 Community 200 Particulars of Properties 87 Workplace 201 Corporate Directory 92 Environment 202 Notice of Annual 94 Marketplace General Meeting 96 Global Reporting Initiative 205 Administrative Details (GRI) G4 Indicators 2016 7 10 • Proxy Form CHAIRMAN’S LETTER Dear Shareholders, “It is a pleasure and a privilege for me to be able to address you in my inaugural year as Chairman of British American Tobacco Malaysia (the Group).” TAN SRI DATO’ SERI (DR.) ASEH BIN HAJI CHE MAT CHAIRMAN 2016 The Group has a long-standing legacy and presence within the Malaysian economic landscape. Whilst there are many challenges faced by the tobacco industry, the Group has in place very clear vision and strategies to navigate the business. On behalf of the Board of Directors, I present the Group’s Annual Report and Financial Statements for the financial year ended 31 December 2016. PERFORMANCE REVIEW At the heart of this transformation is the Group’s continued promise to satisfy the needs of our consumers by delivering The financial year under review was challenging as British leading relevant brands to the Malaysian consumers at American Tobacco Malaysia registered an 18 percent reduction international quality standards. Given this uncompromising of revenue due to the decline in domestic legal volume, stance, we have chosen to source our supply from BRITISH AMERICAN TOBACCO (MALAYSIA) BERHAD ANNUAL REPORT principally driven by steep excise increase in November 2015, state-of-the-art British American Tobacco (BAT) factories that which in turn resulted in a sharp increase in illegal cigarettes. have the best reputation in the BAT group in delivering pg consistently high quality products at more competitive cost. 04 On the back of this challenging business environment, the Group has taken a bold step in making a transformative Our leading brands and products have been developed for change to our business model that will sharpen our Malaysian consumers based on solid consumer insights, which commercial capabilities whilst optimising our supply chain and will continue to be our key driver for sustaining our leadership transactional activities. in the legal tobacco market in Malaysia irrespective of where our brands are sourced from. CHAIRMAN’S LETTER As a corporate citizen with more than a hundred years of DIVIDENDS proud legacy in Malaysia, the Group remains committed to Despite the challenging year, the Group is fully committed in our investments in the country and effective from August returning value to its shareholders with the Board of Directors 2017, the Group will extend our legacy from our new recommending a fourth interim dividend of 77 sen per share. corporate office in Wisma Guocoland in the area of Bukit The Group has also announced a special dividend of 46 sen per Damansara, Kuala Lumpur. share in relation to the utilisation of the sale proceeds from the sale of the land and building upon which the factory operations On a corporate governance front, we firmly believe that are located, after deducting the restructuring expenses, making excellence in corporate governance coupled with strong ethics the total net dividend declared for the financial year to be 278 and uncompromising integrity is a vital component for the sen per share. Group’s growth and development. As such, we are extremely proud and honoured to have been awarded the Winner of the CG Awards 2016 for Industry Excellence in the Consumer OUTLOOK FOR 2017 Goods category at the MSWG-ASEAN Corporate Governance Awards 2016 for the second year in a row which speaks The Group remains concerned that the legal domestic market volumes of the hard work put in by the Group in upholding continues to suffer due to the escalating illegal cigarette trade in - SUSTAINABILITY WINNING ORGANISATION FINANCIAL STATEMENTS OTHER INFORMATION transparency and compliance to corporate governance practices. the country against the backdrop of a challenging economic - environment and poor consumer sentiment. OVERVIEW Our people are without a doubt the cornerstone of our success and in 2016, in line with the Group’s commitment to The high level of illegal cigarette trade forms the main - provide an inclusive working environment, the Group has challenge for the legal tobacco industry. The outlook of the PERFORMANCE - LEADERSHIP - GOVERNANCE - GROWTH - PRODUCTIVITY PERFORMANCE - LEADERSHIP GOVERNANCE GROWTH PRODUCTIVITY revamped the family benefits available to all employees to legal market will very much depend on how effectively the produce healthier, happier and a more productive workforce. illegal cigarette trade is addressed by the Government through its enforcement efforts. LEADERSHIP The Group’s Board and Leadership Team went through quite a few changes in the year and I am happy to note that there was smooth transition of the changes. At the Board level, Tan Sri Mohamad Salim bin Fateh Din stood down as Chairman of the Board in December 2016 after having ably served the Board for four years and on behalf of the Group, I would like to extend our deepest appreciation and thanks to Tan Sri Mohamad Salim for his commitment at the helm. We would also like to give our most profound thanks to our long serving Director, Mr. James Richard Suttie who stood down as Non-Independent Non-Executive Director in December 2016. pg 05 At the Leadership Team level, the Group saw a change in its Managing Director, when in May 2016, Mr. Stefano Clini stood down after having served his term for four years and was replaced by Mr. Erik Stoel. Our appreciation to Mr. Stefano Clini for his contribution and I wish a very warm welcome to Mr. Erik Stoel as the Group’s new Managing Director. CHAIRMAN’S LETTER On behalf of the Group, we also welcomed Mr. Ricardo Guardo I am mindful that the challenging journey ahead is not over in who replaced Mr. Pablo Sconfianza in September 2016 as the 2017 and with the support of all our stakeholders, I look 2016 new Finance Director to the Board and Leadership Team. In forward to continue the stellar legacy left behind by my addition, we also