About the Report Ceylon Tobacco Company PLC formulates its strategy and manages industry, value creation model and strategy. We have also clearly its business in an integrated manner, taking full cognisance of the identified how our material aspects correspond to the disclosures requirements of its diverse stakeholders and capital resources. In recommending by GRI, as detailed in page 149 of this Report. The complementing our integrated thinking, we adopt a similar approach Report has been prepared in accordance with GRI G4-Core criteria. towards corporate reporting and through this Annual Report strive to present a balanced and cohesive assessment of the Company’s REPORTING PRINCIPLES strategy, performance and outlook in relation to our economic, social This integrated report conforms to the requirements of several local and and environmental goals. In preparing this Report, we have adopted international mandatory and voluntary frameworks including the Sri the Integrated Reporting Framework proposed by the International Lanka Financial Reporting Standards, Integrated Reporting Framework Integrated Reporting Council (IIRC). published by the IIRC, Companies Act No. 7 of 2007, Listing Rules of the Colombo Stock Exchange, Code of Best Practice on Corporate SCOPE AND BOUNDARY Governance issued jointly by the Institute of Chartered Accountants of This Report covers CTC's operations for the period from 01 January Sri Lanka and the Securities and Exchange Commission of Sri Lanka to 31 December 2015. Financial and non-financial information and the GRI G4 Guidelines. pertaining to material developments and issues that shaped the Company’s performance during the reporting period are discussed T HIRD PARTY ASSURANCE AND VERIFICATION comprehensively. Material aspects included in the Report were We believe that third party assurance is vital in establishing credibility selected through a systematic and comprehensive process which and transparency of our Report. We have engaged Messrs. involved robust stakeholder engagement at all levels, as elaborated PricewaterhouseCoopers, Chartered Accountants to provide assurance on page 10. We have adopted the reporting criteria prescribed by on the financial reports and the Director’s Statement of Internal the Global Reporting Initiative (GRI) G4 Framework for Sustainability Controls. Reporting and the material aspects included in this Report are a combination of those prescribed by GRI and those specific to our We seek to continuously improve the quality and readability of our Report and welcome your feedback, suggestions and comments on our reporting. Our contact details are as follows; Upul Abeywardane Assistant Company Secretary Ceylon Tobacco Company PLC Address: 178, Srimath Ramanathan Mawatha, Colombo 15 Telephone: +94 112496200, 2439651-4 Scan the QR Code with your smart device to view this report online. Contents About Us 2 Financial Highlights 3 Social Highlights 4 Environmental Highlights 5 Our Commitment to Excellence 6 Our Value Creation Model 7 Stakeholder Engagement 8 Determining Materiality 10 Chairman's Message 12 MD and Chief Executive Officer’s Statement 16 The Board of Directors 20 The Executive Committee 24 Corporate Governance 26 Assessment of Going Concern 40 Statement of Internal Controls 41 Report of the Directors 43 Statement of Directors’ Responsibilities 46 Report of the Audit Committee 47 Board Compensation and Remuneration Committee Report 49 Managing Risk 50 Industry insights and contextual trends 54 Our Vision and Strategy 58 Value Creation Report 61 Finance Director's Review (Financial Capital) 62 Social and Relationship Capital 66 Human Capital 77 Natural Capital 94 Financial Information Financial Calendar 100 Independent Auditor's Report 101 Statement of Comprehensive Income 102 Statement of Financial Position 103 Statement of Changes in Equity 104 Statement of Cash Flows 105 Notes to the Financial Statements 106 Statement of Value Added 135 Supplementary Information Shareholder Information 136 Notice of Meeting 139 Form of Proxy 141 Appendices GRI Content Index Tool 143 CTC's Material Aspects 149 Environmental Policy 150 SRTP Policy 151 Biodiversity Statement 152 Health and Safety Policy 153 Ingrained in our core is a consciousness that drives innovation, growth and responsibility. This cohesive consciousness strives for excellence across every aspect of our operations, always pursuing for outcomes that supersede the expected. This past year has seen excellence, born of this core, in every measure. A year in which our organisation has evolved, growing from strength to strength to record positive advancement in every sphere we have been involved in. A year which we will take as a foundation on which we will build future successes upon. Ceylon Tobacco Company PLC Annual Report 2015 About Us Ceylon Tobacco Company PLC (CTC) is one of Sri Lanka’s SWITCH heads our premium segment. As the only legal most economically impactful and respected corporates. As the manufacturer of cigarettes in the country we understand that country’s largest individual tax contributor, we contributed over the industry we operate in is a controversial one, which makes 7 % of the state’s total tax revenue in 2015, amounting to 88% it all the more important that we act in a responsible manner. of the value we generated. We are the 2nd most valuable We are proud to have the distinction of being one of the few listed company in Sri Lanka, with a market capitalisation companies in the British American Tobacco Group to operate of Rs. 186 billion as at 31 December 2015 and as an a fully integrated ‘crop to consumer’ supply chain which employer of choice, successfully developed a pool of 264 infuses value, creates employment and generates livelihoods to global professionals. Key brands in our portfolio include John the nation at large. Player Gold Leaf (JPGL), our most valuable brand while Dunhill Rs. 91.6 bn Contributed to Government revenue through excise and taxes. Rs. 5.7+ bn Infused to the rural economy through farming and retailing. 181,000+ Livelihoods generated through farming, manufacturing and retailing. 20,000+ Persons involved in tobacco farming use less than 0.01% of 110 the country's arable land. Years of operations in Rs. 1.0+ bn Sri Lanka Spent on corporate social investment projects over a decade. NOTHING SHORT OF ASTONISHING... 2 Financial Highlights 2015 2014 Rs. million Rs. million Gross Turnover (including VAT) 106,491 87,900 Government Levies 80,391 66,161 Net Revenue 26,099 21,739 Profit Before Tax 18,078 14,587 Profit After Tax 10,634 8,619 Net Assets 2,885 3,898 Interim Dividends 7,765 7,399 Proposed Final Dividend (subject to approval at the Annual General Meeting) 693 - Total Value Added 100,102 82,125 Capital Investment 563 311 Market Capitalisation 185,919 198,582 Value Added per Employee 379 308 Number of Permanent Employees 264 267 Dividend Payout Ratio 79.5% 85.9% Per Share (Rs.) Market Value 992.50 1,060.10 Net Assets 15.40 20.81 Earnings 56.77 46.01 Dividends (Interim and Proposed Final Dividend) 45.15 39.50 Dividend Per Share 4.5 2nd Most 4.1 3.7 Valuable Listed Company Based on Market Capitalisation 48.75 39.50 45.15 (31 December 2015). 2013 2014 2015 Dividend per share (Rs.) Dividend yield (%) Earnings Per Share (Rs.) Contribution to Government Revenue (Rs. billion) 2015 56.77 2015 91.6 23% 24% 2014 46.01 2014 73.6 2013 48.80 2013 76.5 3 Ceylon Tobacco Company PLC Annual Report 2015 Social Highlights Permanent Employees Winner of 379 294 308 Best Corporate Citizen Award for Employee Relations for 264 267 287 Three Consecutive Years. 2013 2014 2015 Permanent employees Value added per employee (Rs. million) Training & Development Beneciary Families of SADP 81.6 68.8 62.5 2015 18,064 3% 2014 17,464 2013 16,364 49.2 36.7 31.5 2013 2014 2015 Training investment (Rs. million) Training coverage (%) STAFF TURNOVER RATE INVESTMENT IN EMPLOYEE TRAINING 7.2% Rs.49.2mn SADP BENEFICIARIES JOBS CREATED ACROSS VALUE CHAIN 69,676 46,000+ 4 Environmental Highlights Total Energy Consumption Water Consumption 7.5 7.2 5.7 6.1 5.3 5.7 -2 44,739 47,273 43.341 42,450 41,648 41,102 43,118 38,962 41,610 2013 2014 2015 2013 2014 2015 Direct consumption (giga joules) Indirect consumption (giga joules) Water consumption (cubic metres) Energy intensity (giga joules per million cigarette equivalent ) Water intensity (cubic metres per million cigarette equivalent) Green House Gas (GHG) Emissions Waste Recycling (%) 0.7 0.5 0.6 2015 95 4% 2014 91 2013 89 4,518 4,218 4,439 2013 2014 2015 GHG emissions (tonnes of carbon dioxide) Emission intensity (tonnes of carbon dioxide per million cigarette equivalent) BARN AUTOMATION RATE RENEWABLE RESOURCE USAGE IN TOBACCO CURING 65% 100% REDUCTION IN ELECTRICITY CONSUMPTION REDUCTION IN WASTE SENT TO LANDFILL 5% 56% Note: The Company extended its scope of reporting coverage in 2015 to include more sites and processes. Therefore more data has been captured in 2015 as compared to previous years. Furthermore CTC’s performance at the Green Leaf Threshing Plant was impacted by the loss of tobacco leaf volumes due to adverse weather conditions, which in turn has impacted the overall resource intensity figures. 5 Ceylon Tobacco Company PLC Annual Report 2015 Our Commitment to Excellence Asia Responsible Entrepreneurship Award 2015 SADP recognised as one of the best in Asia Pacific Region in the ‘Social Empowerment Category’ LMD’s Most Respected Corporate Entities of 2015 CTC listed amongst Top 10 on this list for the 2nd consecutive year BT Top 25 Award 2015 Placed 4th on 'Business Today Top 25' Sri Lanka National Energy Efficiency Awards 2015 Won a merit award in the 'Large Scale Manufacturing' category Best Corporate Citizens Award 2015 Won category award for ‘Employee Relations’ for 3rd consecutive year 6 Our Value Creation Model INPUT CAPitals VALUE CreatinG ACTIVITIES OUTCOMES & IMPACTS PRIMARY ACTIVITIES Monetised Capital Products Financial Capital Cigarettes Produced: Equity: UnderstandinG ADUlt 4+ billion sticks Rs.