ANNUAL REPORT 2016 CEYLON TOBACCO COMPANY PLC ABOUT THIS REPORT Ceylon Tobacco Company PLC (CTC) and material issues that may potentially Sri Lanka and the Securities and Exchange first embraced the principles of Integrated have an impact on our ability to create Commission of Sri Lanka and the GRI Reporting in 2015, and this year we hope value. The material issues included herein G4 Guidelines. The financial information to build on the foundation put in place were selected through a structured and presented herein is in compliance with the last year to clearly and comprehensively comprehensive process as detailed on Sri Lanka Financial Reporting Standards, articulate our commitment to creating value pages 64 and 65 of this Report. For and external assurance on the same for all our stakeholders. As our primary sustainability reporting, we have adopted has been provided by Messers KPMG report to stakeholders, this Integrated the criteria prescribed by the Global (Chartered Accountants). Annual Report demonstrates the Company’s Reporting Initiative (GRI) G4 Framework, commitment to developing and directing building on the previous report for the year REPORTING ENHANCEMENTS strategy in a manner that balances the ending 31 December 2015. We understand that Integrated Reporting competing interests of our stakeholders and is a continuously evolving journey, and this provides details on emerging risks and REPORTING PRINCIPLES AND year we have sought to further improve opportunities, successes and challenges ASSURANCE the meaningfulness and readability of our in delivering value and our strategies and This report has been prepared based Report through, targets going forward. on the guidelines of the Integrated Reporting (IR) Framework published by • Enhanced connectivity of information SCOPE AND BOUNDARY the International Integrated Reporting through linking the narrative to our The Company’s Integrated Report is Council. It also conforms to the reporting strategy and material issues. published annually, and this Report covers requirements of the Companies Act No.7 it’s operations for the period from1 January of 2007, Listing Rules of the Colombo • Improved disclosure on the to 31 December 2016. The boundary Stock Exchange, Code of Best Practice on interdependencies and trade-offs of our of the report extends beyond financial Corporate Governance issued jointly by capital inputs. reporting to include non-financial indicators the Institute of Chartered Accountants of FEEDBACK We value your comments, feedback and Upul Abeywardena suggestions on our Report. For further Assistant Company Secretary information, please contact, Ceylon Tobacco Company PLC Address: 178, Srimath Ramanathan Mawatha, Colombo 15 Telephone: +94 112496200, 2439651-4 Navigation Icons Capitals Strategic focus areas Stakeholders Financial capital Growth Shareholders Human capital Productivity Employees Social and relationship capital Winning Organisation Government Manufactured capital Sustainability Business partners Intellectual capital Consumers Natural capital ANNUAL REPORT 2016 BEYOND THE SMOKE CEYLON TOBACCO COMPANY PLC LOOK BEYOND THE SMOKE. For over a century, our role in Sri Lanka's economic development has been catalytic. We have fostered growth across the nation, adding value to national wealth creation, year on year. We have stood by the nation, lending a hand at every one of its junctures, we have pioneered ecological preservation, innovated sustainable economic livelihood projects and invested into the national industry, in ways that are indisputable. We embrace balanced and evidence based regulation and ensure compliance with all relevant laws in the country. Sri Lanka - Look Beyond the Smoke. CONTENTS 9121626 PERFORMANCE CHAIRMAN’S MD AND CHIEF LEADERSHIP AND HIGHLIGHTS MESSAGE EXECUTIVE OFFICER’S GOVERNANCE STATEMENT About This Report Delivering Value Our Vision and Mission/6 Business Environment/70 An Overview of Our Business/7 Strategic Performance/72 Our Products/8 Financial Capital/76 Performance Highlights/9 Manufactured Capital/80 Operational Highlights/10 Social and Relationship Capital/82 Chairman’s Message/12 Human Capital/93 MD and Chief Executive Officer’s Statement/16 Natural Capital/104 Contributing to Communities/109 Stewardship Board of Directors/20 Financial Information The Executive Committee/24 Financial Calendar /120 Leadership and Governance/26 Independent Auditors’ Report /121 Assessment of Going Concern/40 Statement of Profit or Loss and Other Statement of Internal Controls/41 Comprehensive Income/122 Report of the Directors/43 Statement of Financial Position/123 Statement of Directors’ Responsibilities/46 Statement of Changes in Equity/124 Report of the Audit Committee/47 Statement of Cash Flows/125 Report of the Related Party Transaction Review Committee Notes to the Financial Statements/126 (RPTRC)/49 Statement of Value Added/153 Board Compensation and Remuneration Committee Report/50 Managing Risk/51 Our Approach To Value Creation Our Integrated Business Model/58 Engaging with Our Stakeholders/60 Determining Material Issues/64 Vision and Strategy/66 Sustainability at CTC/68 Our Commitment to the Sustainable Development Goals/69 72 119 DELIVERING VALUE FINANCIAL INFORMATION Supplementary Information Shareholder Information/154 Notice of Meeting /157 Form of Proxy/159 Appendices GRI Content Tndex Tool/161 Material Aspects Mapped to GRI-G4 Disclosures/166 Environmental Policy Statement/167 Sustainable Tobacco Programme (STP) Policy/168 Biodiversity Statement/169 Health & Safety Policy Statement/170 Scan this QR Code with your smart device to view this report online. www.ceylontobaccocompany.com CEYLON TOBACCO COMPANY PLC OVERVIEW OF OUR BUSINESS ANNUAL REPORT 2016 OUR VISION WORLD’S BEST AT SATISFYING CONSUMER MOMENTS IN TOBACCO AND BEYOND. OUR MISSION Delivering our commitments to society, while championing informed consumer choice. 6 OVERVIEW OF OUR BUSINESS CEYLON TOBACCO COMPANY PLC ANNUAL REPORT 2016 AN OVERVIEW OF OUR BUSINESS Ceylon Tobacco Company PLC (CTC) is exchequer. Our total tax contribution responsible way our operations are run. the only legal manufacturer of cigarettes amounted to 7% of the state’s total tax The Company’s flagship corporate social in Sri Lanka, and one of the country’s most revenue and 76% of the value generated investment (CSI) initiative, the Sustainable dynamic and progressive organisations. by the Company. We have continued to Agricultural Development Programme The Company’s position as the country’s invest in strengthening the value proposition (SADP), has enabled us to empower and largest individual tax contributor, 2nd offered to our team of 273 high-performing facilitate socio-economic progress for most valuable listed company and deep employees and are resultantly one of the 72,964 beneficiaries in 16 districts over rooted relationships with over 178,000 country’s most preferred employers. As an the past decade. livelihoods supported through farming, organisation operating in a controversial manufacturing and retailing is testimony industry, we understand the added Our continuing success is founded upon to its undeniable impact on the country’s responsibility placed on us to maintain the several distinctive strengths, our talented economy. In 2016, CTC contributed Rs. highest standards of corporate conduct, team, a strong portfolio of brands and our 87.4 billion in excise taxes to the national and take pride in the sustainable and strategic approach to sustainability. Our People Our Sustainable Approach We employ 273 talented and highly motivated Sustainability thinking and practices are proactively professionals who are empowered to drive our embedded at every level of our business. Three focus ambitious strategies. areas of our sustainability agenda are, We also partner more than 20,000 tobacco • Harm reduction farmers island-wide, who are a vital part of our • Sustainable agriculture and farmer livelihoods value creation process. • Corporate behaviour 7 CEYLON TOBACCO COMPANY PLC OVERVIEW OF OUR BUSINESS ANNUAL REPORT 2016 OUR PRODUCTS DUNHILL Fine Cut DUNHILL Switch DUNHILL Blue DUNHILL Grey BENSON & HEDGES (B&H) JOHN PLAYER GOLD LEAF (JPGL) JOHN PLAYER GOLD LEAF (JPGL) 20’s Pack 12’s Pack BRISTOL Gold BRISTOL Original CAPSTAN 8 OVERVIEW OF OUR BUSINESS CEYLON TOBACCO COMPANY PLC ANNUAL REPORT 2016 PERFORMANCE HIGHLIGHTS Metric 2016 2015 STRATEGIC PRIORITY- GROWTH Gross Turnover (including VAT) Rs. million 121,525 106,491 Government Levies (Excise and other) Rs. million 89,777 80,391 Net Revenue Rs. million 31,747 26,099 Profit Before Tax Rs. million 21,219 18,078 Profit After Tax Rs. million 12,559 10,634 Net Assets Rs. million 3,485 2,885 Interim Dividends Rs. million 11,389 7,765 Proposed Final Dividend (subject to approval at the Annual General Meeting) Rs. million 1,124 693 Total Value Added Rs. million 112,615 100,102 Capital Investment Rs. million 420 563 Market Capitalisation Rs. million 151,076 185,919 Financial Highlights Value Added per Employee Rs. million 413 379 Permanent Employees Number 273 264 Dividend Payout Ratio % 99.6 79.5 Per Share (Rs.) Market Value Rs. 806.50 992.50 Net Assets Rs. 18.60 15.40 Earnings Rs. 67.05 56.77 Dividends (Interim and Proposed Final Dividend) Rs. 66.80 45.15 STRATEGIC PRIORITY: PRODUCTIVITY Revenue per employee Rs. million 445 403 Profit per employee Rs. million 46 40 Overall Equipment Efficiency (OEE) % 75 71 Productivity Savings Rs. million 189 219 Net profit margin % 10.3 9.9 Return on assets % 60.9 62.3 STRATEGIC PRIORITY: