Integrated Annual Report 2013 ABOUT THIS integrated annual REPORT
Background and scope This is our third integrated annual report. It provides a high-level overview and performance review of the Distell Group Limited, its subsidiaries, associates and joint ventures (collectively referred to as ‘Distell’, ‘we’ or ’our’) for the period 1 July 2012 to 30 June 2013. One exception to the standard reporting period used in this report is the Broad-based Black Economic Empowerment (B-BBEE) statistics measured for the period July 2011 to June 2012. These are valid until December 2013. While the majority of our products are manufactured within South Africa, we have a worldwide distribution network and investments in countries that include; Tanzania, Kenya, Namibia, Zimbabwe, France, Scotland and Mauritius. Most notably, we acquired the scotch whisky producer Burn Stewart Distillers in April 2013. The financial data presented in this report has taken this acquisition into account. However, similar to previous years, the non-financial data and statistics in this report CONTENTS relate to Distell’s operations within southern Africa only, unless otherwise stated.
There have been no significant changes from the 2012 Integrated Highlights and financial results 1 Annual Report that would affect or alter our reporting for this year. A number of minor restatements of past statistical data have been Seven-year financial review 2 made. These are clearly marked and explained in this report. Cash value added statement 4 Reporting in accordance with the Global Reporting Initiative About Distell 5 The contents of this report are based on the Global Reporting Initiative’s (GRI) G3.1 reporting guidelines. In determining the issues Group structure 6 presented, we applied the principles of materiality, stakeholder inclusiveness and sustainability. Our GRI (G3.1) content index table Where we operate 7 can be found on the Distell website at www.distell.co.za. Based on the information available in this report and our online sustainability Overview of our brands 8 report, Distell achieved a self-declared Level C compliance. Awards, certification and accreditation 10 Report assurance Following the principles of combined assurance, we have introduced Distell directorate 12 an audit trail for non-financial disclosures and performance data and validated this information through an internal audit process. Distell executive team 14 Additionally, Distell’s audit and risk committee reviewed the report. While the Group has not sought third-party assurance over this Chairperson and managing report, certain information, such as that relating to B-BBEE, has also director’s report 17 been independently assessed and verified. We continue to develop Group reporting standards and will Corporate strategic risk and mitigation 28 make our disclosures increasingly meaningful and measurable for Distell’s stakeholders. Corporate responsibility review 32
Further information Corporate governance 48 As in the past, our online sustainability report provides interested readers with additional information. Please visit us online at Consolidated financial statements 58 www.distell.co.za. Definitions and ratios 129 For any comments or queries regarding our annual reports, contact our corporate affairs department. Dates of importance to shareholders IBC E-mail: [email protected] Tel: +27 (0) 21 809 7000
All products mentioned in this integrated annual report are not for sale to persons under the age of 18 years. Enjoy our products responsibly. highlights
Total sales Headline earnings volumes grew 7,2% per share up 11,7% Total revenue Normalised headline increased 11,9% earnings per share up 13,7% Normalised operating Annual dividends per profitup 8,3% share increased 13,6% Successful acquisition and integration of Burn Stewart Distillers
Financial RESULTS
2013 2012 % Change R’000 R’000
Revenue 11,9 15 858 158 14 176 047
Operating profit 26,6 1 787 687 1 412 325
Normalised operating profit 8,3 1 852 559 1 710 086
Headline earnings 12,0 1 086 109 969 946
Normalised headline earnings 14,0 1 350 722 1 184 334
Total assets 44,6 14 246 486 9 854 770
Share performance (cents) Headline earnings 11,7 535,7 479,7
Basic earnings 12,8 540,8 479,3
Dividends 13,6 335,0 295,0
Net asset value 17,0 3 581,2 3 059,6
Cash flow from operating activities (59,7) 228,1 566,8
Closing share price 35,5 12 194,0 9 001,0
Financial statistics Return on equity 18,6 15,6
Seven-year compound growth per annum (%) Total return to shareholders 15,5 16,1
Distell share price index 17,7 19,4
1 Seven-year financial review for the years ended 30 June
Seven-year compound 2013 2012 2011 2010 2009 2008 2007 growth % p.a. IFRS IFRS IFRS IFRS IFRS IFRS IFRS Statements of financial position (R’000) ASSETS Non-current assets Property, plant and equipment 3 547 278 2 647 304 2 349 699 2 157 912 1 773 480 1 546 159 1 330 516 Biological assets 118 446 122 638 131 827 138 915 146 375 122 024 114 675 Financial assets and investments in associates 204 948 199 296 166 505 133 159 112 768 117 537 96 092 Intangible assets 1 513 056 230 404 221 331 205 680 244 685 39 373 34 060 Retirement benefit assets 273 000 47 504 42 391 49 656 58 150 114 588 187 052 Deferred income tax assets 70 645 74 571 74 915 47 122 24 861 21 870 28 762 Total non-current assets 5 727 373 3 321 717 2 986 668 2 732 444 2 360 319 1 961 551 1 791 157 Current assets Inventories 6 338 274 4 489 281 3 961 917 3 818 661 3 681 022 3 235 895 2 703 336 Trade and other receivables 1 805 685 1 436 255 1 242 200 1 344 701 1 155 381 954 036 809 024 Financial assets – – – – – – 361 152 Current income tax assets 33 659 145 088 62 945 62 187 74 381 62 968 – Cash and cash equivalents 341 495 462 429 229 850 243 038 178 472 193 673 332 426 Total current assets 8 519 113 6 533 053 5 496 912 5 468 587 5 089 256 4 446 572 4 205 938 Total assets 14,6 14 246 486 9 854 770 8 483 580 8 201 031 7 449 575 6 408 123 5 997 095 EQUITY AND LIABILITIES Total shareholders’ equity 7 280 550 6 205 979 5 694 009 5 238 301 4 809 374 4 432 200 3 940 680 Non-current liabilities Interest-bearing borrowings 447 143 347 932 423 336 422 467 422 386 2 938 2 629 Retirement benefit obligations 22 604 80 954 73 790 21 099 18 300 15 623 12 842 Deferred income tax liabilities 483 722 231 067 234 732 230 380 198 288 168 266 164 033 Total non-current liabilities 953 469 659 953 731 858 673 946 638 974 186 827 179 504 Current liabilities Trade payables and provisions 3 221 731 2 803 208 2 042 347 1 932 591 1 659 814 1 533 268 1 489 940 Interest-bearing borrowings 2 786 773 180 501 865 336 657 324 267 226 027 329 264 Current income tax liabilities 3 963 5 129 14 501 19 536 17 146 29 801 57 707 Total current liabilities 6 012 467 2 988 838 2 057 713 2 288 784 2 001 227 1 789 096 1 876 911 Total equity and liabilities 14 246 486 9 854 770 8 483 580 8 201 031 7 449 575 6 408 123 5 997 095 Income statements (R’000) Revenue 12,7 15 858 158 14 176 047 12 327 786 11 808 884 10 863 728 9 409 597 8 200 559 Operating expenses (14 081 320) (12 762 506) (10 889 439) (10 413 146) (9 454 968) (8 107 434) (7 085 826) Trading income 10,4 1 776 838 1 413 541 1 438 347 1 395 738 1 408 760 1 302 163 1 114 733 Dividend income 6 279 7 645 5 180 1 493 1 552 1 503 1 284 Net financing costs (240 704) (31 905) (42 584) (68 652) (23 224) 6 384 7 969 Share of profit of associates 57 668 37 160 37 950 32 412 30 058 23 523 14 255 Profit before exceptional items and taxation 9,0 1 600 081 1 426 441 1 438 893 1 360 991 1 417 146 1 333 573 1 138 241 Exceptional items 10 849 (1 216) (1 756) (2 821) 1 273 11 667 73 876 Profit before taxation 1 610 930 1 425 225 1 437 137 1 358 170 1 418 419 1 345 240 1 212 117 Taxation (518 356) (454 365) (477 557) (417 655) (464 707) (416 705) (367 243) Non-controlling interest 3 935 (1 790) 1 093 1 041 – 453 2 979 Net profit attributable to equity holders 10,8 1 096 509 969 070 960 673 941 556 953 712 928 988 847 853 Statements of cash flows (R’000) Cash generated from operations 1,8 1 020 184 1 728 426 1 771 957 1 555 285 1 030 406 824 911 1 188 101 Dividend income 6 279 7 645 5 180 1 493 1 552 1 503 1 284 Net financing costs (186 478) (31 644) (42 868) (70 764) (10 810) (46 132) (23 179) Taxation paid (377 446) (558 505) (491 875) (394 737) (451 523) (476 654) (365 380) Cash generated from operating activities 462 539 1 145 922 1 242 394 1 091 277 569 625 303 628 800 826 Exceptional items – – – – – 65 934 11 006 Net cash generated from operating activities 462 539 1 145 922 1 242 394 1 091 277 569 625 369 562 811 832 Cash outflow from investment activities (2 337 902) (479 410) (410 872) (542 516) (591 749) (6 551) 50 800 Proceeds from ordinary shares issued 30 789 15 573 20 723 21 992 4 094 15 098 13 435 Non-controlling interest 12 982 – – – – – 2 692 Proceeds from interest-bearing borrowings 1 881 516 104 232 848 16 419 386 (327 942) (325 472) Dividends paid (616 281) (556 023) (516 304) (514 931) (513 727) (426 194) (342 729) Cash inflow from financing activities 1 309 006 (436 218) (494 733) (492 923) (90 247) (739 038) (652 074) Decrease in net cash, cash equivalents and bank overdrafts (566 357) 230 294 336 789 55 838 (112 371) (376 027) 210 558
2 Seven-year compound 2013 2012 2011 2010 2009 2008 2007 growth % p.a. IFRS IFRS IFRS IFRS IFRS IFRS IFRS Performance per share (cents) Earnings attributable earnings basis 10,4 540,8 479,3 476,2 468,1 475,3 464,6 425,9 headline basis 8,3 535,7 479,7 476,8 469,1 475,2 471,0 391,5 cash equivalent basis 14,0 852,2 848,9 619,8 622,1 561,9 536,8 472,2 EBITDA basis 11,0 1 018,3 821,3 832,8 800,8 796,0 752,0 674,0 Dividends 11,8 335,0 295,0 256,0 256,0 256,0 236,0 196,0 Cash flow (5,6) 228,1 566,8 615,8 542,5 283,9 184,8 407,8 Net asset value 11,5 3 581,2 3 059,6 2 813,3 2 596,1 2 391,6 2 208,8 1 972,7 Liquidity and solvency Financial gearing ratio 0,40 0,01 0,03 0,10 0,12 0,01 0,00 Total liabilities on total equity Avg 0,6 0,96 0,59 0,49 0,57 0,55 0,45 0,52 Interest-free liabilities on total assets 0,23 0,29 0,25 0,24 0,23 0,25 0,26 Dividend cover (times) 1,6 1,6 1,9 1,8 1,9 2,0 2,0 Current ratio 1,42 2,19 2,67 2,39 2,54 2,49 2,24 Acid test ratio 0,36 0,68 0,75 0,72 0,70 0,68 0,80 Returns (%) Trading income on turnover 11,2 10,0 11,7 11,8 13,0 13,8 13,6 Pre-tax return on equity Avg 26,7 22,1 23,0 25,2 25,9 29,5 30,4 30,8 Effective tax rate 32,2 31,9 33,2 30,8 32,8 31,0 30,3 Return on equity Avg 18 14,9 15,6 16,9 18,0 19,8 21,3 19,8 Attributable earnings on total assets 7,7 9,8 11,3 11,5 12,8 14,5 14,1 Attributable earnings on turnover 6,9 6,8 7,8 8,0 8,8 9,9 10,3 Dividend yield 3,1 4,1 3,6 4,0 5,4 4,1 4,1 Productivity Cash value added (R million) 10,0 6 043,6 5 940,9 5 329,3 4 877,8 4 063,5 3 636,6 3 743,1 Net asset turn (times) 2,2 2,3 2,2 2,3 2,3 2,1 2,1 Net assets per employee (R’000) 8,4 1 411,0 1 315,1 1 214,3 1 144,2 1 074,0 1 020,5 926,3 Revenue per employee (R’000) 9,2 3 073,3 3 004,0 2 629,1 2 579,5 2 426,0 2 166,6 1 927,7 Number of employees 5 160 4 719 4 689 4 578 4 478 4 343 4 254 JSE Price per share (cents) highest during the year 13 226 9 001 8 100 7 000 6 000 6 500 5 500 lowest during the year 8 699 5 699 6 510 5 500 3 850 3 960 3 605 closing at year-end 12 194 9 001 7 150 6 550 5 500 4 595 5 415 weighted average 10 736 7 214 7 036 6 394 4 703 5 732 4 738 Price-earnings ratio 22,8 18,8 15,0 14,0 11,6 9,8 13,8 JSE Actuaries’ price index at year-end (2006: 100 cents) Distell Group Limited 313 231 183 168 141 118 139 Closing price/net asset value per share 3,4 2,9 2,5 2,5 2,3 2,1 2,7 Weighted average number of shares in issue (’000) 202 752 202 185 201 742 201 143 200 667 199 974 199 079 Number of shares traded (’000) 6 988 5 771 5 454 6 791 10 079 4 190 6 575 Shares traded/shares in issue (%) 3,4 2,9 2,7 3,4 5,0 2,1 3,3 Value of shares traded (R’000) 721 825 416 339 383 721 434 248 474 024 240 224 311 556 Number of transactions 8 332 3 112 2 701 3 814 4 814 1 813 1 259 Number of shareholders 5 118 4 364 4 398 4 278 3 775 3 576 3 478 Market capitalisation (R million) 24 790 18 257 14 471 13 216 11 060 9 220 10 817 Net asset value/market capitalisation 0,29 0,34 0,39 0,40 0,43 0,48 0,36 For definitions of financial abbreviations and a description of terms refer to page 129.
3 Cash value added Statement for the years ended 30 June
GROUP 2013 2012 R’000 R’000 Cash generated Cash derived from sales 15 488 728 13 981 992 Net financing costs paid (186 478) (31 644) Income from investments 6 279 7 645 Cash value generated 15 308 529 13 957 993 Cash payments to suppliers of materials and services (9 264 900) (8 017 124) Cash value added/wealth created 6 043 629 5 940 869
Cash utilised to: Pay excise duty to the State 3 603 334 2 793 682 Pay tax on income to the State 377 446 558 505 Remunerate employees for their services 1 600 310 1 442 760 Provide shareholders with a return on the use of their risk capital 616 281 556 023 Cash disbursed among stakeholders 6 197 371 5 350 970 Net cash utilised in operating activities (153 742) 589 899
Reconciliation with cash generated Cash value added (above) 6 043 629 5 940 869 Less: remuneration to employees for their services (1 600 310) (1 442 760) net financing costs paid 186 478 31 644 payment of excise duty to the State (3 603 334) (2 793 682) Cash generated from operating activities 1 026 463 1 736 071
State taxes Excise duty 3 603 334 2 793 682 Tax on income 377 446 558 505 Value added tax 636 964 495 800 Employees’ tax deducted from remuneration 251 589 146 493 Property taxes 38 067 30 804 Channelled through the Group 4 907 400 4 025 284
2013 2012
64% State 63% State 26% Employees 27% Employees 10% Other 10% Other
4 About Distell
Who we are What we do Distell Group Limited is Africa’s leading producer and Distell creates exceptional brands with strong consumer marketer of spirits, fine wines, ciders and ready-to-drinks. focus offering real value for money across the Distell employs over 5 000 people worldwide and has an pricing continuum. annual turnover of R15,9 billion. Our values Our vision • A sense of ownership A great company rooted in South Africa, crafting leading • Entrepreneurial spirit liquor brands for people to enjoy responsibly at every occasion the world over. • Performance-driven culture • Customer and consumer market orientation Our aspirations • Respect for the individual • Consolidating our position as a domestic market leader • A global mind-set responsive to change. • Continuously building on our position as a profitable Our guiding principles and leading South African wine exporter • We will only craft brands in which we have equity • Expanding our global footprint through exploring • We will keep our core brands new markets • We will act in a responsible way • Creating shareholder value • We will care for our brands • Accelerating transformation • We will delight our consumers • Continuing on our path as a responsible corporate citizen. • We will maximise value for all stakeholders.
Our key strengths Our key strengths are: • Local market leadership • High brand awareness levels • An extensive distribution network • Local market knowledge • Strong trade relationships • The structural capacity to rapidly introduce new products across categories and channels.
5 GROUP STRUCTURE
58% 29% 13% Remgro-Capevin Other Beverage Interests Other Investors Investments Limited Proprietary Limited (SABMiller)
Distell Group Limited B-BBEE Consortium Listed on the JSE 85% ordinary shares 100% preference shares 100% ordinary shares
WIPHOLD Beverages (RF) Proprietary Limited
15% ordinary shares
South African Distilleries and Wines (SA) Limited
Subsidiaries Joint ventures and associates Manufacturers and distributors of branded Manufacturer and distributor of alcoholic beverages maturation vats • Distell Limited (100%) • Tonnellerie Radoux (SA) Proprietary Limited (50%) • Stellenbosch Farmers Winery Limited (100%) • Bisquit Dubouché et Cie (France) (100%) Manufacturers and distributors of branded • Burn Stewart Distillers Limited (Scotland) (100%) alcoholic and other beverages (associates) • Grays Inc. Limited (Mauritius) (26%) Manufacturers of wine • Papkuilsfontein Vineyards Proprietary Limited (49%) • Durbanville Hills Wines Proprietary Limited (72%) • Tanzania Distilleries Limited (Tanzania) (35%) • Nederburg Wines Proprietary Limited (100%) • Afdis Holdings (Private) Limited (Zimbabwe) (50%) • Lomond Wine Estates Proprietary Limited (84%) Manufacturers of branded alcoholic beverages Farming (joint ventures) • Nederburg Wine Farms Limited (100%) • Lusan Holdings Proprietary Limited (50%)
Wholesale distributors of branded alcoholic and other beverages • Distell Botswana (Proprietary) Limited (100%) • Distell Namibia Limited (100%) • Distell Swaziland Limited (100%) • Distell Wine Masters Limited (Kenya) (100%)
Our group structure has not changed substantially, except for the increase in the number of subsidiaries we have due to the acquisition of Burn Stewart Distillers Limited. We discuss the acquisition in detail on page 18.
6 WHERE WE OPERATE
North America Europe total exports total exports 6% 24%
Asia total exports 8% Latin America total exports Africa 3% total exports 57%
Year-on-year growth Trend Amarula Wine Our strong, appealing brands and our Europe capacity to trade across a spectrum Volume (1) 3 of markets enable us to pursue our Value 12 13 strategic course. % of total exports 22 32 North America Our head office is situated in Stellenbosch. Trading Volume (13) (15) depots in South Africa total 17, with a further four in Value (1) (1) Namibia. There are 27 TradeXpress distribution outlets in % of total exports 12 7 South Africa and one each in Swaziland and Botswana. Africa (including Botswana, Lesotho, Namibia and Swaziland) Furthermore, there are two independent distribution agents Volume (14) (6) in South Africa. Value (5) 2 Distribution in the rest of Africa consists of regional offices % of total exports 34 50 with staff in Kenya (Nairobi) and Tanzania (Dar es Salaam). Latin America Distell employs sales staff in Angola, Mozambique, Ghana, Volume (12) (32) Nigeria, Uganda and Zambia, with agents in these and Value 2 (21) other African countries. % of total exports 25 1 Asia Pacific Distell has joint ventures and investments in Tanzania, Volume 38 30 Kenya, Zimbabwe and Mauritius and wholly-owned Value 59 53 subsidiary companies in countries that include Namibia, % of total exports 6 11 Botswana, Swaziland and now Scotland. Total exports Outside Africa, Distell has offices in France, Germany, UK, Volume (8) (1) Taiwan, USA, Brazil and Singapore. These provide support Value 3 9 and direction to a network of agents in 82 countries. % of total export volumes 5 50
7 Our long-term success depends on our ability to continue to build and develop brands to satisfy consumer needs.
OVERVIEW Our approach is to improve our knowledge of market segmentation, enhance consumer understanding, refine OF OUR brand positioning and apply appropriate investment decisions. This approach is backed by effective market execution. Constant innovation underpins our focus on BRANDS marketing renewal in a programme that seeks to deliver new excitement and agility to our brands.
Amarula Richelieu Klipdrift Three Ships Spirits Our spirit portfolio consists of super premium and premium brandies and cognacs, white spirits, whiskies and liqueurs. The Burn Stewart Distillers acquisition has improved our product portfolio and will allow us to capitalise on the growing demand for whisky globally. Burn Stewart’s quality brands are well-recognised, sold in over 60 countries worldwide and have been making impressive inroads into developing markets.
Bisquit Scottish Leader Oude Meester
Bain’s Cape Collison’s White Flight of the Black Bottle Bunnahabhain Mainstay Viceroy Van Ryn’s Mountain Whisky Gold Fish Eagle
8 Ciders and ready-to-drinks Our cider and RTD portfolio includes a comprehensive range of low- alcohol (3% to 6% by volume) flavoured alcoholic beverage (FAB) products
which include spirit coolers to suit all tastes and lifestyles. Hunter’s
Savanna Dry Savanna Light Klipdrift & Cola
Durbanville Hills Fleur du Cap Nederburg J.C. Le Roux Wines Distell’s wine portfolio boasts a wide spread of well-known brands. Our portfolio includes ultra/super premium wines, premium wines, wine apéritifs, basic wines, perlé wines, sparkling wines and Méthode Cap Classique wines.
Autumn Harvest Chateau Allesverloren Alto Cellar Cask Drostdy-Hof Earthbound Graça Le Bonheur Lomond Neethlingshof Obikwa Crackling Libertas
Sedgwick’s Paarl Perlé Plaisir de Merle Pongrácz Place in the Sun Stellenzicht Tassenberg Theuniskraal Two Oceans Uitkyk Zonnebloem 4th Street Old Brown
9 Awards, CERTIFICATION AND ACCREDITATION at 30 June 2013
Awards Our brands are recognised and awarded the world over. We present our top performers of 2012/2013 below.
2012 Michelangelo international wine awards 2012 International Wine and Spirits Golden oldie trophy Competition La Bonheur Prima 1999 Worldwide best brandy trophy Brandy trophy Van Ryn’s 12 YO Distillers Reserve Oude Meester Reserve 12 YO The Denbies Trophy for Bottle Fermented Sparkling Wine Gran D’Or Pongrácz Desiderius Brut 2003 Alto Shiraz 2010 The IWSC trophy for Sauvignon Blanc Le Bonheur Prima 1999 Nederburg Private Bin D234 Sauvignon Blanc 2010 Oude Meester Reserve 12 YO SA wine producer of the year Oude Meester Souverein 18 YO Nederburg Gold Gold outstanding Allesverloren Fine Old Vintage 2008 Van Ryn’s 12 YO Distillers Reserve Neethlingshof Maria 2012 Van Ryn’s 15 YO Fine Cask Reserve Hill and Dale Pinotage 2011 Klipdrift Gold Stellenzicht Golden Triangle Shiraz 2009 Oude Meester Souverein 18 YO Oude Meester Reserve 12 YO Mellow-Wood 5 YO 2012 Veritas awards Viceroy Double gold Fleur du Cap Noble Late Harvest 2011 Nederburg Winemaster’s Reserve Noble Late Harvest 2010 Nederburg Private Bin D234 Sauvignon Blanc 2010 Nederburg Private Bin Edelkeur Chenin Blanc Noble Late Harvest Nederburg Private Bin Eminence 2007 (NLH) 2008 Nederburg Private Bin Eminence 2008 Nederburg Private Bin Edelkeur Chenin Blanc NLH 2004 Nederburg Private Bin R181 Merlot 2007 Nederburg Private Bin Edelkeur 2009 Durbanville Hills Chardonnay 2011 Pongrácz Desiderius Brut 2003 Fleur du Cap Unfiltered Chardonnay 2011 Gold Pongrácz Desiderius 2003 Bain’s Cape Mountain Whisky Lomond Sugarbush Sauvignon Blanc 2011 Amarula Van Ryn’s 10 YO Vintage Brandy Van Ryn’s 10 YO Vintage Brandy Van Ryn’s 15 YO Fine Cask Reserve Collison’s White Gold Flight of the Fish Eagle Klipdrift Export Klipdrift Gold Oude Meester Demant Oude Meester Reserve 12 YO Commando Gold Mellow-Wood Standard Nederburg II Centuries Cabernet Sauvignon 2007 Three Ships Premium 5 YO Nederburg Private Bin Edelkeur Chenin Blanc NLH 2010 Three Ships Bourbon Cask Nederburg Private Bin Edelkeur Chenin Blanc NLH 2009 Alto Shiraz 2010 Nederburg Private Bin Eminence 2009 Lomond Pincushion Single Vineyard Sauvignon Blanc 2011 Nederburg Private Bin Eminence 2008 Nederburg Private Bin Eminence 2009 Nederburg Private Bin S316 Weisser Riesling NLH 2004 Nederburg Private Bin Edelkeur 2007 Nederburg Private Bin Sémillon NLH 2002 Nederburg Private Bin Edelkeur 2008 Nederburg Solera Potstill Brandy Nederburg The Anchorman Chenin Blanc 2011 Nederburg Winemaster’s Reserve Riesling 2012 2012 International Spirits Challenge Nederburg Winemaster’s Reserve Special Late Harvest (SLH) 2011 Best brandy trophy Woolworths Winemaster’s Reserve Grenache (Nederburg) 2010 Van Ryn’s 12 YO Distillers Reserve Durbanville Hills Biesjescraal Sauvignon Blanc 2012 Gold Durbanville Hills Luipaardsberg Merlot 2010 Van Ryn’s 12 YO Distillers Reserve Durbanville Hills Luipaardsberg Merlot 2009 Klipdrift Gold Fleur du Cap Unfiltered Merlot 2010 Richelieu Export J.C. Le Roux MCC Scintilla 2003 Lomond Cape Agulhas Sauvignon Blanc Semillon Viognier (SSV) 2012 Neethlingshof Short Story Collection The Maria Noble Late Harvest 2012 Le Bonheur Cabernet Sauvignon 2000 Van Ryn’s 12 YO Distillers Reserve 2012 Five nations wine challenge Van Ryn’s 20 YO Collectors Reserve Trophy for the best non-fortified dessert wine Collison’s White Gold Fleur du Cap Noble Late Harvest 2010 Oude Meester 18 YO Souverein Double gold Oude Meester VSOB Fleur du Cap Laszlo 2006 Richelieu Desiderius Pongrácz 2003 Nederburg Brandy Nederburg Private Bin Eminence NLH Muscadel 2007 Nederburg Private Bin Eminence NLH Muscadel 2008 Nederburg Noble Late Harvest 2010
10 2013 Whisky Magazine’s world whisky 2013 Platter’s Wine Guide awards 5 star wines World’s best grain whisky trophy Fleur du Cap Laszlo 2008 Bain’s Cape Mountain Whisky Best Islay single malt “21 years and over” category trophy Fleur du Cap NLH 2011 Bunnahabhain 25 YO Nederburg Ingenuity 2011 Nederburg Sauvignon Blanc-Semillon Private Bin D252 2012 Nederburg Winemaster’s Reserve NLH 2011 2012 Amorim Méthode Cap Classique Challenge Best MCC overall and best blend 2013 Sélections Mondiales des Vins Canada J.C. Le Roux Scintilla 2003 Gold Best rosé Stellenzicht Golden Triangle Pinotage 2010 J.C. Le Roux Pinot Noir Rosé 2008 Stellenzicht Golden Triangle Cabernet Sauvignon 2010 Fleur du Cap NLH 2010 2013 San Francisco World Spirits Competition Fleur du Cap Unfiltered Chardonnay 2012 Double gold Fleur du Cap Chardonnay 2012 Bunnahabhain 25 YO Black Bottle 2013 Decanter world wine awards Gold South African sweet, over £15 trophy Oude Meester Souverein Nederburg Eminence 2009 Bain’s Cape Mountain Whisky South African sweet, under £15 trophy Three Ships 10 YO Single Malt Whisky Fleur du Cap NLH 2011 Bunnahabhain 18 YO Gold Uitkyk Carlonet 2009 2013 Old Mutual trophy wine show Zonnebloem Laureat 2010 Trophy for best sparkling wine Nederburg Eminence 2009 J.C. Le Roux Scintilla 2003 Fleur du Cap NLH 2011 Gold Lomond Cat’s Tail Syrah 2011 Nederburg Private Bin Eminence 2008 Plaisir de Merle Sauvignon Blanc 2012 Nederburg Winemaster’s Reserve NLH 2012 Zonnebloem Laureat 2010
We only highlight our top awards here. For a more comprehensive list of all our award winner brands visit www.distell.co.za.
Accreditation and certifications
International Organisation for Standardisation (ISO) 9001:2008 Integrated Production of Wine (IPW) certified certified All Distell and LUSAN farms, winemaking cellars, and wine-bottling All Distell’s distilleries, wineries, secondary production sites facilities at J.C. Le Roux, Port Elizabeth and Green Park are and distribution centres in the Republic of South Africa are IPW certified. ISO 9001:2008 certified. Distell’s Namibian facilities in Windhoek, Walvis Bay, Oshakati and Keetmanshoop are also ISO 9001:2008 Certified organic wine producer certified. Our ISO 9001:2008 certification includes corporate Nederburg cellar, Adam Tas, and selected vineyards at functions, namely: quality management and research, group Papkuilsfontein have been certified to produce organic wines. purchasing, logistics, technical services, export logistics, marketing, product development and group human resource management. WWF SA Biodiversity and Wine Initiative (BWI) certified Uitkyk and Neethlingshof Estate have achieved BWI champion Hazard Analysis and Critical Control Points (HACCP) certified status, while Durbanville Hills wines, Fleur du Cap wines, Groenhof Our secondary sites producing for the Southern African market (Port Elizabeth, Springs and Wadeville) are HACCP certified. farm, Alto estate, Lomond wines, Nederburg wine estate, Tukulu (Papkuilsfontein) – now known as Earthbound – and Plaisir de Merle ISO 17025 accredited are all BWI members. Our central laboratory at Adam Tas cellar is fully accredited. Wine Industry Ethical Trade Association (WIETA) certified International Food Standards (IFS) certified All of Distell’s farms, winemaking cellars and wine-bottling facilities Our Adam Tas, Bergkelder and Nederburg facilities are all IFS are WIETA certified. The LUSAN farms Stellenzicht, Neethlingshof higher-level certified. and Uitkyk are also certified, while Alto and Le Bonheur are in the process of implementing WIETA standards and aim to be fully British Retail Consortium (BRC) food safety certified certified in the last quarter of 2013. Our Adam Tas, Bergkelder, J.C. Le Roux, Nederburg, Durbanville Hills, Plaisir de Merle and Stellenzicht wineries, as well Fairtrade certified as Paarl and Green Park facilities are all BRC certified. Papkuilsfontein, as wine grapes producer and Distell Corporate, as manufacturer, processor and wine exporter (specifically the ISO 14001:2004 certified Adam Tas and Nederburg facilities) are Fairtrade certified. Durbanville Hills, Nederburg, Plaisir de Merle, Bergkelder, Green Park, Monis and Adam Tas are all ISO 14001:2004 certified. The GOST certified ISO 14001:2004 system has been fully implemented at Goudini Our Amarula, Nederburg, Durbanville Hills and Allesverloren brands and Worcester distilleries. In the new financial year we plan to are all certified and produced according to the GOST Russian food externally certify Worcester, and implement the standard at our safety system. Wellington distillery.
11 DISTELL DIRECTORATE
Duimpie Bayly* (73) Piet Beyers (63) Merwe Botha# (60) Johan Carinus* (64) BSc, MSc, PMD BCom LLB, MBA BCom Hons (Taxation), BCom Director of Duimpie Bayly Formerly a director of, inter BCompt Hons, CA(SA) Wine farmer and director of & Associates, technical alia, Remgro, Richemont Het Jan Marais fund. consultant and adviser to the Société Anonyme and British Appointed to the Distell board wine industry. American Tobacco. in 2000. Appointed to the Distell board Appointed to the Distell board in 2000. in 2000.
Gugu Dingaan* (37) Jannie Durand (46) Dr Edwin Hertzog (64) Joe Madungandaba* (55) BCom (Accounting), H Dip BAcc Hons, MPhil (Oxon), MB ChB, MMed, FFA CFA(SA) Acc, CA(SA) CA(SA) Chairperson of Mediclinic Group chief executive officer Investment executive at Chief executive officer of International and non- of Community Investment WIPHOLD and non-executive Remgro and a director of, executive deputy chairperson Holdings Group, non-executive board member and audit amongst others, Rainbow of Remgro. chairperson of Schneider committee member of Chicken, RMB Holdings, Electric, non-executive ABB SA, MCG Industries, Appointed to the Distell board Capevin Holdings, Discovery in 2000. deputy chairperson of Jasco Landis+Gyr and SA Corporate Holdings, Grindrod, Mediclinic Electronic Holdings and Real Estate Fund Managers. International, RMI Holdings non-executive director of She is also a non-executive and Unilever SA Holdings. Air Liquide Healthcare and of board member of Adcorp Holdings Limited. Appointed to the Distell board Afrocentric Limited. Appointed to the Distell board on 1 July 2012. Appointed to the Distell board in 2005, as member of the in 2000. audit and risk committee in 2006 and as chairperson of the social and ethics committee in 2012.
12 Louisa Mojela* (57) David Nurek* (63) Chris Otto* (63) André Parker* (62) BCom Diploma in Law, Graduate BCom LLB MCom A founder and group chief Diploma in Advanced Founder director of PSG Chairperson of Tiger Brands. executive officer of Women Company Law Group, Capitec Bank Holdings Retired managing director Investment Portfolio Holdings Chairperson of the board. and Zeder Investments. Also of SABMiller Africa & Asia, (WIPHOLD). Serves on the Regional chairperson of non-executive director of Kaap served on several boards of boards of Sun International Investec Western Cape, Agri Investments, Agri Voedsel SABMiller subsidiaries in these and Life Health, amongst chairperson of Clicks Group, Beleggings, Capevin Holdings territories and was also an others. TFG, Lewis Group and, and Capespan Group. executive committee member Appointed to the Distell board amongst others, also a Serves on selected audit and of SABMiller plc. in 2005 and as member of director of Trencor. remuneration committees. Appointed to the Distell board the remuneration committee Appointed to the Distell Appointed to the Distell board in 2008 and as member of in 2006. board, audit and risk, and in 2011. the remuneration committee remuneration committees in 2012. in 2000.
Jan Scannell# (62) Catharina Sevillano- Ben van der Ross* (66) Lucas Verwey (38) BCom LLB Barredo* (50) Dip Law BCom Hons, CA(SA), CFA Managing director of Distell. BCom Hons, CA(SA) Director of FirstRand, Naspers, Investment manager at Founder, director and Pick n Pay Stores, Lewis Remgro and director of chief financial officer of the Stores and MMI Holdings, as amongst others, Remgro- Universal Healthcare group well as several other non-listed Capevin Investments, Capevin of companies. Director and companies. Holdings, Britehouse Holdings, honorary treasurer of the Appointed to the Distell board PembaniRemgro Infrastructure Johannesburg Chamber of in 2008. Managers and Western Commerce. Province Rugby. Appointed to the Distell board Appointed to the Distell board in 2008 and as chairperson of in 2013. the audit and risk committee in 2009.
The board is satisfied that the independence of character and judgement of Messrs FC Bayly, JG Carinus, * Independent MJ Madungandaba and DM Nurek is not in any way affected or impaired by the length of service. # Executive
13 DISTELL executive team Executive Management
Jan Scannell (62) Merwe Botha (60) Wim Bührmann (47) Pieter Carolin (58) Managing director Financial director Chief executive officer: Distribution director: BCom LLB BCom Hons (Taxation), Southern Africa Southern Africa Jan joined the Group in 1979. BCompt Hons, CA(SA) BAcc Hons, CA(SA) Pieter joined the Group in He was appointed a director in Merwe joined the Group in Wim joined the Group in 1994, February 1977. In 2001 he 1988 and managing director 1980. He was appointed was appointed head of new was appointed Group general in 1994. Jan’s role is to ensure financial director in 1997 business development in manager: Distribution and in that the company delivers on and to his present position 2007 and took up his present September 2010 to his current its key objectives. He is also at Distell in December 2000. position in July 2010. He is position, with responsibility responsible for building a high He is responsible for financial responsible for our business for the distribution function performance culture within the planning and control, functions in South Africa and in South Africa and BLNS company. information technology, BNLS countries, including countries. statutory reporting and sales, distribution and internal auditing. marketing operations.
Vernon de Vries (55) Don Gallow (55) Carina Gous (49) Donovan Hegland (39) Director: Corporate affairs International director Business director: wine Marketing director: BA Hons, MBA Don joined the Group in MSc (Chemistry), MBA Southern Africa Vernon joined Distell in 2007 1986. He was appointed Carina joined the Group in BCom Hons Business as general manager: corporate Distell’s international director 1998. She took up her present Economics affairs. He was appointed as in 2005 and is responsible for position in September 2010 Donovan joined Distell a director in 2011. Corporate the international and Africa and is responsible for the as marketing director affairs is responsible for business. profitability and sustainability of for Southern Africa in communication, social Distell’s global wine business. October 2010, after 12 years responsibility (via the Distell in the tobacco industry. His Foundation), stakeholder role is to lead the development relations and reputational and execution of effective issues and functions and consumer engagement events. strategies across the portfolios in South Africa and BLNS countries.
14 Schalk Klopper (52) Dr Marius Lambrechts (45) Nantha Moodley (54) Kay Pillay (46) Operations director Quality management and Sales director: Southern Africa Business director: ciders and BAcc Hons, CA(SA) research director BA, NDip RTDs Schalk joined the group in MSc Agric, PhD Agric Nantha joined the Group in Kay joined the Group in 1995 1993 as cost accountant. Marius joined Distell in 2001 1989 and has experience in and was appointed to his He took up his present as research manager and sales, training and distribution. current position in May 2008. position in October 2009 was appointed as director He was appointed as sales Kay is responsible for the and oversees the operations in August 2009. His role director in May 2008. Nantha’s profitability and sustainability of of the Group, which include is to ensure total quality role is to ensure that we retain Distell’s business in the cider bottling, distribution, technical management is implemented and improve our market and ready-to-drink categories services, procurement, supply throughout the Group and leadership in southern Africa. globally. chain management and risk that ongoing research and He oversees all our sales management. innovation lead to new forces in South Africa and products and processes. BLNS countries.
Dr Caroline Snyman (38) Johan Venter (54) Business director: spirits Primary production director BEng (Chemical), MSc, PhD, MSc CWM Johan joined the Group in Caroline joined Distell in 1990 and took up his present January 2000 as technical position in January 2009. manager: spirits and was He is responsible for our appointed to her current farms; grapes, wine, brandy position in November 2004. and other raw material She is responsible for the procurement; distillation, profitability and sustainability winemaking and blending. of Distell’s spirits interests globally.
15 David Nurek Jan Scannell
16 REPORT BY THE CHAIRPERSON AND MANAGING DIRECTOR
Corporate overview We measure our ability to maximise stakeholder value Our single most important objective is to maximise value within a value-based management framework that for key stakeholders: shareholders, employees, suppliers, comprises four pillars: revenue growth, profitability through customers and the communities where we do business. operating margin improvement, asset efficiency, and sustainability and corporate responsibility. We do so by crafting, marketing and selling a broad and balanced range of appealing and leading alcoholic The report aims for a balanced view of our performance in beverage brands for the responsible enjoyment of the context of these four criteria. consumers in many markets. Our pursuits bring returns to shareholders; create jobs; develop skills, enterprises Strategic focus and entrepreneurship; and generate taxes and Sustainable revenue and profit growth depend on an foreign earnings. ongoing focus on building and maintaining a well- We drive profits but also seek to advance people, balanced portfolio of leading brands that appeal to a broad promote socio-economic stability, curb alcohol abuse spectrum of consumers. Such growth demands an ability and minimise our impact on the physical environment. to manage a diverse range of products in each of the Our focus on social and environmental sustainability is an markets where we trade. expression of our values and recognises the key concerns of material stakeholders. We have integrated sustainable We must also continually raise the performance and development into our business strategy, which is aligned cost-efficiencies of our operations across the business to with the Group’s risk management process. improve our competitive advantage and succeed in an increasingly competitive global market. The value a company generates for its shareholders is best measured by total shareholder return (TSR), a combination These key imperatives form the basis of our strategic of share price appreciation and dividends over the medium direction and while priorities may evolve or emphasis shifts to long term. Internally, we assess our progress in this from time to time, fundamentally they remain unchanged regard by measuring the key components of value, namely and continue to guide our short- and medium-term growth in earnings before interest, tax, depreciation and business plans. amortisation (EBITDA), investment and free cash flow. To comprehensively monitor our performance in Over a 10-year period Distell has delivered a TSR of maximising value in line with our strategic objectives, we 21,1% per annum, compared to the JSE’s Top 40 10-year compound annual growth rate (CAGR) of 16,4%. Over use a range of financial and non-financial key performance the same period we have contributed R41,6 billion to the indicators to monitor progress and to adapt to changes in country’s economy. A total of R38,4 billion was distributed the external environment. in cash to stakeholders, the main beneficiaries being the The strategic financial goals we have set and against government, who received 64,1% or R24,4 billion by way of taxes, and our employees, who were allocated 25,7% which we measure ourselves, are to: of the distribution by way of emoluments. Shareholders • Deliver a return to shareholders that exceeds the received R4,1 billion. Top 40 Index of the JSE over the longer term
17 REPORT BY THE CHAIRPERSON AND MANAGING DIRECTOR (continued)
• Achieve annual returns that exceed the weighted Progress achieved in terms of strategic priorities average cost of capital by at least 5% We report on our position in the domestic market from • Improve EBITDA margin to 16,5% page 20. • Achieve an annual free cash flow conversion rate The increased contribution of our international operations of 6,5%. (including BLNS countries) can be seen in a five-year CAGR in volume and revenue of 11,4% and 15,6% Our priorities to achieve these strategic financial goals respectively. We cover our performance in these markets are to: on page 22. • Sustain our strong position in the domestic market. We do so by continuing to offer a desirable Our approach to matters of risk and corporate responsibility is dealt with on pages 28 and 32 respectively. and versatile selection of brands across a range of alcoholic beverage categories. We price our brands During the year we undertook a number of initiatives reasonably to represent fair value. To address any gaps to build our geographic profile and presence in many in our portfolio, we also innovate when necessary and emerging markets. They are the following: make acquisitions so we retain relevance and reach new consumers. Burn Stewart Distillers Limited We made significant progress in strengthening our product • Increase the contribution of our international portfolio, our global reach and our Southern African operations. We do so by continually driving growth leadership of the spirits industry in a move that also allows in revenue and value in key alcoholic beverage us to benefit from changing consumption patterns. In April markets across the world. We grow exports, further we acquired Burn Stewart Distillers Limited (Burn Stewart) entrenching the presence, awareness and availability from the Scottish-based CL World Brands Limited and the of our brands. We expand our geographic footprint in Trinidad and Tobago-based Angostura Limited. developed and developing markets through organic growth, alliances, mergers and acquisitions. We The R1,9 billion purchase of the fully integrated producer also strengthen our local presence in key emerging of both blended scotch and single malt whiskies allows us markets, where appropriate, to participate more to capitalise on the continuing global growth in whisky. It actively in the value chain of our products. gives us access to scarce blended and single malt stocks from prime whisky-producing regions in Scotland, while • Institutionalise continuous business improvement. also enhancing our global footprint. We enhance our effectiveness, efficiency and profitability and advance our marketing and consumer- According to Scotch Whisky Association (SWA) data, the facing activities without sacrificing margins. global whisky market has been one of the fastest-growing drinks segments and, after vodka, is the world’s biggest More specifically, we want to: spirit category by volume. Recent SWA figures show that • Fully capitalise on our strengths in the global for the ten years from 2002 to 2012, sales values rose by cider market 87% to £4,3 billion (R59,9 billion). Consumption has risen • Strengthen our status as a profitable and leading across both developed and emerging markets, notably the exporter of wines UK, the US, Latin America, Eastern Europe, many parts of Asia and key African markets. • Grow the presence and contribution globally of Amarula, Bisquit and the newly-acquired Burn Stewart The transaction includes brands such as Scottish Leader, whisky brands Black Bottle, the single malts Bunnahabhain, Deanston, • Lead the spirits industry not only in Southern Africa but Tobermory and Ledaig; three single malt whisky distilleries; across the African continent a blending and maturation facility; a bottling hall; a dry and finished goods storage site; and the company’s in-house • Address the decline in domestic brandy sales by marketing and distribution functions. All scotch whisky building new markets. stocks currently in maturation form part of the deal.
To ensure the sustainability of Distell as we conduct our A key benefit of the acquisition is the presence of business in a socially responsible manner, we need to: Burn Stewart brands across 60 markets, particularly in • Protect our licence to trade developing economies. Scottish Leader, the biggest brand in the stable, is the pre-eminent leader in its blended • Promote the responsible enjoyment of our products scotch category in Taiwan, the world’s fourth biggest and alcohol in general scotch whisky market by volume. The marketing and • Drive transformation within our own business and sales arm that already exists to serve this region also amongst our strategic partners gives us a valuable entrée for a range of other products in • Build employee skills and manage talent and expertise our portfolio. to enhance our competitive advantage The purchase marks the second time in recent years that • Benefit communities where we trade Distell has invested in a major global spirits acquisition. • Reduce our impact on the physical environment. Since our 2009 purchase of cognac brand Bisquit, the
18 brand has gone on to deliver double-digit volume growth, stake. The sales, distribution and manufacturing operation making good inroads into developing economies. allows us to effectively bring to market some of our key brands, as well as a range of locally produced spirits and We look forward to building Burn Stewart whiskies in the RTD products. same way, while introducing other Distell brands into some of its already well-established markets. In Kenya we are advancing with plans to establish a joint venture, where we enjoy well-entrenched support for Africa brands such as Viceroy, Castle Brand Apéritif, Clubman In Africa, excluding the BLNS countries, over a five-year Punch, Amarula and wine brands Drostdy-Hof and period, we delivered compound annual growth of 34,7% in Cellar Cask. sales volumes and 32,7% in value. In Nigeria we have established Distell Beverages Nigeria To further build on our impressive track record in Africa Limited (DBNL), in which we hold a 70% stake. The we are investing significantly to enhance management, remaining 30% is held by Nigerian investors. We are operational and in-market capabilities on the continent. currently developing the infrastructure to be able to We are also establishing a well-resourced business unit produce for the local market within the next two years. devoted to unlocking opportunities in Africa. We are also a significant shareholder in the Zimbabwean We continue to partner in joint ventures with local players listed company, African Distillers Limited. During the year in appropriate markets as far as possible to enhance our we co-operated with another strategic shareholder in price-competitiveness, at the same time countering high restructuring the operations of the business and initial import costs and government tariffs. To this end, we have results are promising. made good progress in the key markets of Angola, Ghana and Kenya. We are also encouraged by the ongoing trade negotiations to establish free trade areas between the members of In Angola we have established Distell Angola Limitada in which we have a 51% stake, with experienced partners the Common Market for Eastern and Southern Africa who have operated in this market for many years. We (COMESA), the Southern African Development Community produce a range of spirits here and will be expanding (SADC) and the East African Community (EAC), with the operations to include ready-to-drinks (RTDs). intention of creating a single market for goods and services by 2017. Should this materialise, it could ultimately lead We have also created Distell Ghana Limited, a joint the way for a continental customs union that would venture with local partners, in which we have a 60% facilitate trade significantly.
19 REPORT BY THE CHAIRPERSON AND MANAGING DIRECTOR (continued)
Strategic risks we face Headline earnings and operating profit as reported increased by 12,0% and 26,6% respectively, while Overview and context operating margin, on the same basis, improved from Conducting business in an increasingly complex global 10,0% to 11,3%. environment poses numerous risks and, as such, risk management remains integral in the day-to-day operations On an organic basis, asset turn decreased marginally from of the business. 1,44 times to 1,37 times.
Our objective is to generate attractive returns for our Revenue and profit performance per product shareholders. However, business opportunities often category present risks. It is our responsibility to minimise the threat The strong growth in the sales of Three Ships and that any given risk presents. other brands in our South African-produced whisky portfolio, Bisquit’s growth and Amarula’s continued We have developed a well-structured process for good performance off-set the decline of the local identifying, monitoring and managing the principal risks brandy segment. As a result our global spirits business that Distell faces. (See corporate governance report.) recorded reasonable value growth. While brandy is sold The board of directors reviews these risks on an annual predominantly in the domestic market (dealt with in more basis. The recent review reveals no significant change in detail below), we are seeing a promising uptake of certain these risks, which pertain to: brandy brands elsewhere in Africa. • Trademarks Our wine portfolio also delivered solid value growth. • Geographic diversity and international expansion We are expecting this trend to accelerate now that we • Route-to-market have restructured our marketing and sales functions to • Regulatory issues better reflect the differing dynamics of the mainstream and specialty markets, each with its own specific set • Competition of demands. • Management capacity and talent • Procurement and the supply chain. It is worth noting that while bulk wine exports accounted for 64,8% of South Africa’s wine export for the period How we mitigate the risks involved is tabularised on under review, which was broadly in line with global trends, page 28. our focus remained on packaged wines. Despite the more competitive environment, we increased our share of Current performance South Africa’s packaged wine exports to 27,3%. This is a most encouraging development, as not only do packaged Overview wines offer bigger and more stable margins, they are also To maximise value for shareholders we have to generate critical in protecting brand equity. We have maintained the necessary free cash flows over the long term. To pricing across all our drive brands, despite the fact that track our progress annually, we measure our ability to some competitor producers have used the declining value deliver economic profit. Our aim is to deliver a return that of the rand to lower prices. is at least 5% above the Group’s weighted average cost of capital. Once again, ciders recorded excellent growth to benefit our RTD business. Growth occurred domestically, This year we acquired Burn Stewart. The results of this and across a number of African markets. The recent entity are consolidated with effect from 12 April 2013 appointment of new distribution partners for Savanna in only. As a result its contribution to Group profits is not the UK will enhance our route-to-market for the brand in material, but the acquisition resulted in a 65,0% increase this important market. in net operating assets. The performance of the Group, in terms of economic profit generated, is therefore best Revenue and profit performance per market assessed by excluding the incremental investment from Domestic market the calculation. Net operating assets, excluding the The tough economic conditions of recent years show no Burn Stewart acquisition, increased 24,4% to R7,6 billion. signs of abating. Muted consumer spending contracted On an organic basis, we delivered 11,8% return on net further in an environment of close to 26% unemployment, assets, compared to the Group’s weighted average cost of according to official statistics. Continued labour unrest, capital of 10,2%. falling export demand amongst many of the country’s trading partners, and a lowering in business confidence We also measure our performance in terms of the have all been features of the trading landscape. Rising underlying drivers of value, which are revenue, profitability inflation also negated the benefits of increased wages. and the efficient use of assets. Private consumption expenditure on non-durables, The Group delivered strong revenue growth of 11,9% on including alcohol, slowed substantially, with real growth for a volume increase of 7,2%. Our performance by region is the 12 months to March 2013 declining to 2,3% from 3% discussed in more detail below. the year before. In contrast, inflation averaged close to 6%.
20 For the reporting period, the alcoholic beverage market sophistication and relevance and succeed in reaching a was hampered by annual excise duty increases that broad spectrum of urban professionals. exceeded inflation. Year-on-year sales volumes increased by 1,6%, while value rose 9,2%, according to Nielsen At the same time we continue to access new consumers data for the off-trade. It is important to note that the steep through celebrity endorsements and sports sponsorships. increase in excise duties contributed to increased prices At the super premium level, our brandy, cognac and and therefore sales value. whisky brands delivered very healthy growth. Volume Distell’s domestic sales volumes grew by 6,1%, while increases were almost 50%, helped by a growing revenue rose 8,6% to R11,5 billion. awareness of quality credentials, as well as by successful consumer engagement initiatives and innovative The continued pressures on disposable consumer gifting solutions. income saw volume growth driven largely by lower-priced products. Cider and RTD brands delivered double- In South Africa alone the whisky market was worth digit growth, whereas wine and spirit brands showed R5,5 billion for the 12 months to March 2013, according to mixed results. AC Nielsen data, and recorded a 14% year-on-year value increase. South Africa is now the sixth-largest market by The modern trading environment calls for new and volume and seventh by value for scotch whisky, according more focused ways of engaging with customers and to the SWA’s report of December 2012. consumers. We are steadily building our skills and technological capabilities to strengthen our relationships The acquisition of Burn Stewart in its entirety places us with these key stakeholders and the way we manage and in an even better position to expand our share of this maintain them. Our carefully tailored propositions include lucrative segment. new levels of retail engagement, sponsorships, events At the same time there is a growing demand for management, as well as ongoing innovation in product locally produced whiskies, as evidenced by the strong and packaging. Our activities to date have enhanced our performance of our domestic brands. Three Ships, performance across the product categories. awarded the title of World’s Best Blended Whisky in 2012, Ciders and RTDs maintained its very positive growth trajectory, as did Bain’s Both Hunter’s and Savanna were able to maintain an Cape Mountain Whisky, judged the World’s Best Grain already strong growth momentum, thanks to highly Whisky at this year’s World Whisky Awards. successful communications campaigns, augmented by Amarula, which featured on the top-ten list of the most ongoing pack innovations. Hunter’s, which celebrates its popular and talked about liqueur brands in a global 25th anniversary this year, not only outperformed the fruit survey for Drinks International, also delivered a sterling alcoholic beverages category but its growth contrasted performance, building volumes and strengthening equity. dramatically with the premium beer category’s virtually flat year-on-year growth. The brand’s new 440 ml can offering Wines was very well received by the market. Savanna’s excellent According to South African Wine Industry Information and performance was further boosted by the launch of its Systems (SAWIS), domestic natural wine volume sales 500 ml bottle and 330 ml can formats. increased by 1% for the period June 2012 to May 2013.
Spirits Despite mostly flat volumes across our wine portfolio, Our spirits brands were particularly hard hit by excise duty we made good profit gains. This achievement is hikes, with brandy proving most vulnerable. Nevertheless, noteworthy in a highly contested market, characterised by leading brandy brands, Richelieu, which launched aggressive discounting. its 10 Year Old, and Klipdrift, delivered reasonable performances in a declining brandy category. We are also pleased to report several highlights. 4th Street almost doubled its volumes and has become a significant As the market leader, we continue our long-term player. Its sweet taste profile, intensive activation commitment to revive the entire category. We are doing programme and innovative pack offerings have all helped so by developing leading offers that are continually to build the brand. rewarded with accolades for excellence on international competitive platforms, such as the International Nederburg, judged South Africa’s most successful Wine & Spirit Competition. The increasingly successful producer at the 2012 International Wine & Spirit Van Ryn’s Collection Reserve luxury range is a case in Competition in London, is another wine brand that point. It brought home both the 2012 International Wine enhanced profitability. It further raised its profile as the & Spirit Competition’s Worldwide Best Brandy and the official wine sponsor of MasterChef South Africa, now in its 2012 International Spirits Challenge Best Brandy titles. second season. The brand received another major boost Both were awarded to the 12 Year Old, the first time when cellar master Razvan Macici earned the coveted title that any single brandy has won these two trophies in the of Diners Club Winemaker of the Year for 2012. same year. Established brands, such as Drostdy-Hof, Paarl Perlé, We also actively support the Brandy Fusion showcases Autumn Harvest Crackling, Tassenberg, Sedgwick’s in Johannesburg and Cape Town. These contemporary- Old Brown and Overmeer, all managed to hold their own. themed, aspirational events imbue brandy with excitement, However, wine apéritifs continued to decline in the face of
21 REPORT BY THE CHAIRPERSON AND MANAGING DIRECTOR (continued)
the particularly high excise duty hikes that were imposed In Namibia, the biggest of the four, we performed well with over the past two years. 7,9% volume growth, driven mostly by our cider brands. Our business in Lesotho reflected good growth across To better exploit opportunities for the super and ultra- a range of product categories. In Swaziland our ciders premium wines in our range, we recently strengthened delivered marginal volume growth. However, performance our Cape Legends portfolio and augmented marketing across other categories was generally impeded by and business management capabilities to accommodate poor economic conditions and a volatile tax regime. In the move. Early results in both on- and off-consumption Botswana the already high alcohol levy, raised to 45% last are encouraging. October, continued to deter consumer spending.
We have also been innovating actively in our bid to Business transacted via cross-border channels is, by its reach a broader audience. Two Oceans has introduced very nature, extremely volatile. Volumes for the review South Africans to a low-alcohol 5,5% range. It sells period declined by 10,4%. under the Quay 5 label and has been developed to take advantage of the growing demand for low- International markets alcohol alternatives. Since its launch last spring, Our international business, that excludes the neighbouring it has been building custom in both off- and on- BLNS countries but includes the rest of Africa, once again consumption channels. showed good growth. Volumes rose by 12,1% and value by 18,1%, helped by a weakening rand that depreciated J.C. Le Roux’s Le Domaine non-alcoholic sparkling option by 11,9% against the key weighted currencies in which has exceeded all expectations since its launch last year. we trade. Its success clearly demonstrates the demand for non- alcoholic beverages with the taste and image of their EBITDA derived from international operations was up alcoholic counterparts. It fulfils the needs of consumers 56,2% and contributed 28,2% to normalised Group who elect not to consume alcohol in an environment EBITDA. Most of the volume growth was derived from the where alcoholic beverages are normally consumed. RTD segment, notably ciders. Excluding Africa, wine sales rose by 4,2%. Spirits held up well, despite depressed Also extending the sparkling spectrum is Carioca, a conditions in established markets. However, we were not sparkling cooler range that has met with a positive successful in meeting growth targets in emerging markets. response from the market. Sub-Saharan Africa markets BLNS market Although we fell slightly short of ambitious targets for (Botswana; Lesotho; Namibia; Swaziland) the region, we managed to achieve strong volume and value increases on the previous year. This was despite The four countries bordering South Africa remain important slower economic growth on the continent, stepped up markets for us. This year they collectively delivered a sales competition from many of the multi-national producers and volume increase of 2,2% and revenue growth of 6,9%. the availability of cheap Indian imports.
22 Sales volumes increased by 18,1% and revenue by margins. In Zimbabwe, African Distillers also performed 17,3%. Gross margins narrowed marginally due to a less well. Sales volumes increased by 19% and operating profit favourable sales mix. Brand investment increased in line by 43%. with revenue growth, while we continued to expand sales and marketing representation in selected countries. As European markets a result EBITDA rose 20,0%.The region now contributes We delivered a solid performance in Europe despite 13,3% to normalised Group EBITDA. the protracted recession. Sales volumes increased by 3,1% and revenue, reflecting the impact of a favourable As a whole, the RTD portfolio performed well across all exchange rate, by 16,6%. The region’s EBITDA regions, except in the north eastern part of the continent, contribution grew by 58,1%. where high duties and parallel trading in Tanzania disrupted the business. Wines showed an encouraging 2,8% volume growth in an exceptionally tough market for the sector, while spirits Amarula remains a key spirit brand in our African portfolio grew by 1,1%. Cider volumes rose by 9,3%, albeit off a and we continued to invest substantially in focus markets. low base. Solid growth was achieved in Nigeria, Mozambique and Zimbabwe, with market leadership maintained in Angola Across the region, wine brands which delivered good and Kenya. growth included Drostdy-Hof, African Rock, Cape Heritage Performance in the wine category did not meet our and Zonnebloem. expectations. This was the result of lower sales in Kenya While many wine producers have eschewed the very and the poor performance of non-core trading brands demanding UK wine market, we have believed for some in Nigeria and Zambia. However, markets such as Mozambique, Zimbabwe and Democratic Republic of the time that it offers good opportunities. We continue to make Congo delivered very satisfying growth. great progress here, thanks to our 2011 investment in Brand Phoenix that has given us improved access to the We were also greatly encouraged to see how well drive major multiple retailers. Profitability in trading has been brands such as J.C. Le Roux, Nederburg, Drostdy- substantially enhanced with the improved route-to-market, Hof and Cellar Cask responded to continued brand while wine sales volumes rose 32,0%. Brands to show the investment, recording good increases in key markets. greatest benefit were Cape Heritage and J.C. Le Roux. As a result we were able to grow our share of the South African To the south west of the continent, notably Angola, where bottled market in the UK to 16,6% from 8,3% a year ago. economic growth has been robust, brands which benefited included Hunter’s, Savanna, J.C. Le Roux and Esprit. However, these results were dimmed by disappointing To the north west, Nigeria, an economic powerhouse, has performances in Sweden and The Netherlands. begun to yield very encouraging results, thanks to our recent efforts. Savanna, Amarula, Three Ships, Drostdy- We look forward to the positive outcome of the continuing Hof and J.C. Le Roux all are showing excellent growth. negotiations between the EU and SADC, as part of the The introduction of Bisquit to the Nigerian market was also Economic Partnership Agreement, which could afford the met with a very positive response. In Ghana, Nederburg South African wine industry increased market access and and Two Oceans performed particularly well. enhance the price-competitiveness of our own wines in In Kenya the route-to-market and logistical challenges the region. posed by a dispute with Kenya Wine Agencies Limited Amarula delivered outstanding growth in Germany, where (KWAL) resulted in a drop in volumes of Viceroy, Amarula, it is already a well-entrenched brand and Bisquit continued Drostdy-Hof and Cellar Cask. The five-month dispute its positive growth trajectory on the continent. has since been resolved and these brands are beginning to recover. Viceroy, produced locally, also fell prey to In a major move for Savanna, the brand recently counterfeiting, which further impacted sales. However, the outsourced production offshore to Belgium to service Kenyan authorities are now addressing this issue. the UK market. This is the first such offshore initiative for To the south east, both Zimbabwe and Mozambique Savanna. It not only enhances profitability and price- delivered exceptional results across all drive brands. competitiveness, but also boosts service efficiencies. We are also very encouraged by the recovery of brands we Its presence in the UK has been strengthened by the produce in Zimbabwe. recent appointment of new distribution partners, SHS. Also As multi-national producers continue to enter African a shareholder in Brand Phoenix, SHS Group Ltd (SHS) has markets, it has become increasingly important for us to excellent trade relationships. add new mainstream and premium spirits offerings to Asia Pacific markets appeal to consumers. To this end we recently launched a range of spirit products in Angola and have established our The region showed exceptional growth off a relatively production facilities in Ghana to do the same. small base, leading to double-digit growth in EBITDA contribution for the year. Supported by substantial Our joint venture in Tanzania again delivered outstanding marketing investment, volumes rose by 39,0% and results. Revenue grew by 29% whilst maintaining profit revenue by 41,5%.
23 REPORT BY THE CHAIRPERSON AND MANAGING DIRECTOR (continued)
We were greatly encouraged by the gains made by consumers, with the brand losing some of its momentum Amarula, as well as Nederburg’s super premium in Mexico and the Brazilian triangle. Amarula, however, did wines. Other brands to perform well were Drostdy-Hof, maintain its market leadership in Brazil. Two Oceans, Cellar Cask and Overmeer. Several of our drive wine brands performed very well, In China the national austerity measures, introduced to notably Nederburg, J.C. Le Roux, Obikwa and, off a curb luxury spending, inter alia, on gifts, banqueting and small base, Drostdy-Hof, while response to Bain’s Cape in restaurants, did impact negatively on sales. So did a Mountain Whisky has been most encouraging. disruption in the route-to-market created for Bisquit and Amarula. However, measures are under way to ensure Duty free improved control of distribution, as after buying a 60% stake Bisquit, Amarula and Nederburg performed well within the in CJ Wine & Spirits last year, we have now acquired further channel. We are beginning to realise the potential of the shares. This allows us to consolidate our management and brands within our newly acquired Burn Stewart portfolio, marketing role in the country. where further market investment is planned. Our Burn Stewart acquisition and access to a range of whisky brands across the pricing spectrum should also Operating profit give us improved market penetration in China, as well as in On a reported basis, operating profit improved by 26,6% other Asian markets, notably Taiwan, the world’s fourth- to R1,8 billion. In the previous financial year the Group biggest scotch whisky market where Scottish Leader is a provided R297,8 million for additional excise duties dominant brand. payable on wine apéritifs, relating to prior years. This was North American markets regarded as a non-recurring, abnormal expense. On a Whilst the region’s EBITDA contribution improved by normalised basis, excluding the additional excise duty 15,4%, the results in North America were disappointing, provision in the previous year, operating profit improved by considering the potential of the market and the growth 3,7% to R1,8 billion. we anticipated. Volumes declined by 14,1%, with revenue on a par with the previous year. A weaker rand during the This year the results of the Group include the contribution latter part of the reporting period contributed significantly of Burn Stewart, consolidated with effect from to profit growth. 12 April 2013. Operating profit, on an organic, normalised basis, grew 8,3% to R1,9 billion. The complexity of the three-tier system in the US that largely prohibits direct trade between ourselves and our Sustained revenue growth, improved operating margins customers remains a challenge and we continue to explore and the efficient use of assets are the key drivers of different avenues to optimise our performance. value. It is therefore pleasing to see that we continued to deliver strong revenue growth under challenging trading In Canada, Nederburg recorded healthy growth, while Amarula sales were flat. The volume decline in some drive conditions. Revenue, this year, increased by 11,9% wine brand sales was partially off-set by the sales growth (organically 10,4%), achieving CAGR of 12,7% over a of several super-premium wine ranges, as well as by some seven-year period. of our Fairtrade offerings, such as Place in the Sun and Earthbound. As a result we succeeded in showing revenue Our continuous focus on building a balanced portfolio of growth in this market. leading brands to satisfy consumer needs across a broad spectrum is fundamental to driving sustainable revenue Australasian markets and profit growth. At the same time, strategies and Australia and New Zealand together delivered 26,9% initiatives designed to achieve and entrench a sustainable volume and 48,0% revenue growth. The weak rand saw competitive cost advantage remain top priorities in EBITDA contribution increase by 85,4%. The region is a our goal to participate successfully in competitive market mostly for our wines but also for Amarula. global markets. Latin American markets The benefits flowing from improved efficiencies also allow Volumes declined by 16,1%, but revenue remained flat. us to reinvest in strategic areas of the business, particularly EBITDA contribution rose by 66,7%. in support of brands, stepping up marketing initiatives and The region is a focus area for Amarula, but also extending marketing and sales capabilities in key markets. increasingly for our drive wine brands. Nederburg, Distell’s We have entrenched the principle of managing by project second-largest brand in the region, posted double-digit to drive continuous business process improvements that volume and revenue growth. deliver measurable and sustainable benefits. We have Latin America’s GDP rise of 2,7%, the lowest since 2009, formalised this initiative by establishing a central enterprise came after two years of exceptional growth. The slowing project office. We identify specific areas for business economy and inflation put the brakes on consumer improvement projects and set financial and operational spending and on Amarula sales. In addition, increased free targets for each. This year we were able to bring about on board pricing and the weakening of local currencies savings of R176,4 million as we made further advances, pushed up prices beyond the reach of a broad range of especially to reduce the cost of goods sold.
24 We adjusted certain product intrinsics and redesigned in the Mauritian company, Grays Inc. Limited. Tanzania some packaging without in any way compromising quality Distilleries continued to deliver excellent results, while or appearance. We reduced transport costs through Grays also showed strong growth. improved logistical planning and process redesign. We made additional process improvements and applied new The share of profits from these associated companies technology to further reduce waste, improve product increased by 55,2%. recovery and enhance the fuel and energy efficiency of our plants. We also stepped up plant throughput through Finance cost and cash flow business process improvements. The acquisition and consolidation of Burn Stewart resulted in net cash outflow of R1,7 billion, adding to an Gross margin (normalised) contracted from 33,9% increase in operating profit (R29,0 million), working capital to 33,3%. The favourable results of these business (R883,4 million), fixed assets R( 345,7 million), trademarks improvement projects and the beneficial impact of a (R392,9 million) and goodwill (R717,0 million). weaker rand on international revenue and earnings, were partially off-set by steeper increases in trade incentives and Net cash generated from operations before working capital excise duties in the domestic market. movements rose to R2,4 billion, up 9,4% on last year’s R2,2 billion. In a highly competitive trading environment such as ours, efficient procurement and sustainable supply Working capital, excluding the impact of new business chain management are critical business imperatives. We acquisitions, increased by 29,7%, resulting in a cash collaborate closely at all times with our suppliers to ensure outflow of R1,4 billion (2012: R443,8 million), reflecting the continuous product availability, adherence to quality repayment of the abnormal excise duty liability provided for standards and ongoing cost reductions throughout the in the previous year. value chain. As a result cash generated from operations amounted Cost of materials increased 8,5%, compared to volume to R1,0 billion. growth of 7,2%, resulting in a 1,2% increase per unit sold. This compares favourably with a revenue per litre increase Taxation paid decreased from R558,5 million to of 4,4%. While increases in the prices of packaging R377,4 million and reflects taxation refunds from materials and intrinsic components were kept mostly revenue authorities. below inflation, the prices of commodities such as apple juice, after steep increases the previous year, started Fixed capital investment spend to maintain and expand to normalise. operations amounted to R742,1 million, compared with R490,8 million last year. Despite challenging trading conditions we continued to invest in strategic areas of the business, particularly in Cash outflow before financing activities amounted to support of brands, stepping up marketing initiatives and R1,9 billion (2012: R666,5 million cash generated). extending sales and marketing capabilities in key markets, including South Africa. As a result, sales and marketing This year the Group provided for interest to the amount of expenses rose by 11,5%. R171,7 million in respect of additional excise duty provided in the previous financial year. Overheads in distribution rose 8,2% compared to an increase in volumes of 6,1%, resulting in a 1,1% increase As a result finance cost amounted toR 240,7 million in cost per unit, which is substantially below inflation. (2012: R31,9 million).
During the financial year the rand weakened substantially Taxation against all major currencies, reaching R12,98 and R9,93 The effective tax rate increased from 31,9% to 32,2%. to the euro and dollar respectively at year-end. Foreign currency translation gains, not reflected in revenue, amounted to R62,5 million (2012: R110,8 million). Headline earnings Headline earnings, as reported, increased 12,0% to Operating expenses, as reported, increased 10,3%. R1,1 billion. Normalised headline earnings, namely Normalised operating expenses, excluding the prior year reported headline earnings which excludes the impact incremental excise provision, rose 13,0% to R14,1 billion. of the additional excise duty provision the previous year, Revenue increased 11,9% to R15,9 billion and operating as well as the interest provision and the full impact of the margin, as a result, narrowed from 12,1% to 11,2%. new business acquisitions in the current year, increased by 14,0% to achieve CAGR of 12,2% over a seven-year Share of profit of associates period. The acquisition of Burn Stewart, consolidated only Our investment in associated companies includes a 35% with effect from 12 April 2013, had no material impact on share in Tanzania Distilleries Limited and a 26% interest headline earnings.
25 REPORT BY THE CHAIRPERSON AND MANAGING DIRECTOR (continued)
Investment and funding The extraordinary growth of the RTD market in which Total assets increased by R4,4 billion to R14,2 billion, a Distell is a significant player, has necessitated incremental 44,6% increase on the previous year. At the same time investment to meet the greater demand for ciders, in net operating assets (i.e. fixed assets, intangible assets, particular. Over the past year we expanded both cider inventory and receivables less payables) increased 65,0% production capacity at our primary production plant in to R10,1 billion. Paarl and bottling facilities at our secondary production site in Springs. Through the consolidation of Burn Stewart, a total investment of R2,5 billion was brought on to the balance Our locally manufactured whisky brands have gained sheet, being fixed assets (R382,2 million), intangible assets market share and shown significant and consistent volume (R1,2 billion) and net working capital of R872,9 million. growth over a number of years. Our medium-term project This year, due to the fact that this acquisition was to expand production capacity at our Wellington distillery, consolidated only with effect from April 2013, its operation continued during the year under review. This investment is expected to give us a competitive advantage, but the had no material impact on revenue and profits. As a benefits of the project will only materialise in later years result important performance indicators such as asset when matured spirits are released for bottling. turn and return on net assets are being distorted. The performance of the Group, in terms of economic profit In line with our strategy to expand our footprint in generated, is therefore best assessed by excluding this developing markets and to participate more actively in incremental investment. the value chain of our products, we continued to invest in production and distribution facilities in selected countries in Total assets, on an organic basis, increased R1,5 billion to sub-Saharan Africa. R11,3 billion, a 15,2% increase on the previous year. Net operating assets, on the same basis, increased by 24,4% These investments will allow us to better service our to R7,6 billion, resulting in CAGR of 12,7% over a seven- markets and improve the profitability of our business in the year period. This compares to a 12,7% CAGR in revenue longer term. over the same period, therefor maintaining asset turn, an important driver of shareholder value. Net working capital, excluding Burn Stewart, and including provisions, increased by R927,0 million, an increase of Total capital expenditure, excluding the acquisition of 29,7% on the previous year. Burn Stewart, amounted to R742,1 million, of which R277,5 million was spent on the replacement of assets, Inventory, the main component, rose 17,7%. While while R464,6 million was directed to capacity expansion. bottled stock and packaging material increased 25,0%,
26 our investment in bulk stock in maturation, planned Note from the chairperson in accordance with the Group’s longer-term view of Jan Scannell is retiring after 34 years in the South African consumer demand for our spirit brands, increased 14,1%. alcoholic beverage industry that he helped shape, sharing We finance our operations through cash generated by the his belief in its global potential. business and a combination of short- and medium-term Appointed managing director of Distillers Corporation in bank credit facilities, and seek to mitigate the impact of 1994, the company that he joined in 1979, he successfully currency exposures by borrowing in rand, when deemed cost-effective. Future funding flexibility is ensured by the merged the business with Stellenbosch Farmers’ Winery existence of a R4,4 billion unutilised borrowing capacity. in 2001 to create Distell. He brought together two long- The Group remains in a strong financial position, with established, formerly competitive companies, each with interest-bearing debt, net of cash and cash equivalents, its own distinctive corporate culture, and forged a new, far at R2,9 billion and a debt/equity ratio of 39,7%. With debt stronger entity to participate in South Africa and beyond, in capacity in excess of R4,5 billion, we are well placed to established and newer markets. take advantage of investment opportunities as they arise. He and I have worked together since Distell’s formation and during this time he has always demonstrated strong Dividends and ethical leadership, a disciplined strategic focus, a The directors have resolved to declare a final gross cash commitment to building brands and a recognition of and dividend number 50 of 183,0 cents per share, bringing support for talent. These are all qualities that have helped the total dividend for the year ended 30 June 2013 to to build Distell into a highly successful organisation. 335,0 cents per share (2012: 295,0 cents). The total dividend represents a dividend cover of 1,6 times He has balanced his global vision for the company with (2012: 1,6 times) by headline earnings. a meticulous approach to business. He has instilled a culture of exemplary corporate governance and promoted Prospects the importance of social and environmental sustainability. While there are early signs of economic recovery in the He has also built enduring relationships with employees, US, the countries in the eurozone remain in recession. customers, suppliers and consumers and inspired a Emerging and developing countries, hit by the sluggish focus on quality and innovation that has resulted in many economies of their developed trading partners and lower international awards. The ultimate Brandcrafter, he has commodity prices, are also growing at a slower rate than envisioned, created and nurtured many brands that have in the past. become household names.
In the domestic economy high unemployment and limited He recognised the potential of Africa and initiated the process to tap its value to the benefit of all the company’s disposable income continue to curtail consumer spending. stakeholders, not just by bringing brands to new markets Therefore, we believe challenging trading conditions will but by investing on the continent and its people via a persist in the year ahead. range of joint ventures. He has encouraged trade in a range of new markets and had the foresight to recognise However, we are encouraged by the strength, appeal and the value in acquiring historic global brands and the belief diversity of our brands, our enhanced capacity to trade in his team to enhance their profile and profitability. across a spectrum of markets and the security of our financial position. It is these advantages that allow us to He has unlocked enormous shareholder value through the continue to pursue our strategic course. creation of viable, enduring brands and networks to enable them to cost-effectively and efficiently reach their markets. Corporate responsibility Under his leadership Distell has become the second- biggest producer of ciders worldwide, one of the top ten This review and the corporate risk and mitigation table that contenders in brandies and cognac combined, and a follows summarise our performance this year in dealing leading producer and marketer of wines. with our strategic business issues. A more comprehensive review of our corporate responsibility issues, also We shall miss his wisdom, experience and integrity, identified through stakeholder engagement and our risk but look forward to welcoming Richard Rushton as his management process, is discussed on pages 32 to 46. successor to lead us in the next phase of our strategic path, contributing his own fine insights and expertise. Acknowledgements We wish to thank all our colleagues for their focus, dedication and support over the past year and for their valued contributions to delivering a strong performance under exceptionally demanding trading conditions. DM Nurek JJ Scannell Chairperson Managing director We also extend our gratitude to Duimpie Bayly, who will be retiring on 16 October 2013, for his contributions made Stellenbosch during his time. 21 August 2013
27 Corporate Strategic risk and mitigation Distell has identified the following seven strategic risks which occur during our business operations. In order to continue to create sustainable returns for our shareholders, we have contextualised these risks and have developed corresponding risk mitigation techniques to combat them. These can be seen in the table below:
Context Risks Risk mitigation Trademarks • Intensified competition in the alcoholic market with • Failure to identify consumer needs and to enhance our • Improving our marketing capacity and processes to at least match world-class standards international players entering the South African and Sub- capacity to innovate and deliver brands that are relevant • Maintaining superior production quality standards to match international best practice Saharan markets and attractive to consumers across a broad spectrum • Staying abreast of market developments in terms of changing consumer needs and competitor activity to take early • Evolution in the sophistication of consumer preferences • Failure to invest effectively and responsibly to ensure the advantage of new opportunities and tastes continued strength and appeal of key brands • Maintaining the skills for appropriate new product development • Growth in illicit trade, exacerbated by rising excise duties. • Loss of market share to lower-priced illicit alternatives. • Continuous assessment of our portfolio composition to ensure brands remain attractive and relevant to consumers • Building the equity of our brands through responsible investments, innovation and marketing programmes • Acquiring brands in relevant categories to address any gaps in our brand portfolio • Engaging with the authorities to develop strategies to combat illicit trading and working with all industry players to monitor its impact.
Geographic diversity and international expansion • Developed and emerging economies with as yet • Too great a dependency on the domestic market • Establishing a new business research and development function, supported by external advisers and service providers untapped potential for incremental growth either • Failure to identify and take advantage of opportunities in • Clear identification of acquisition objectives, supported by underlying business plans and ongoing monitoring of progress organically or through acquisitions. new markets, either through exports or acquisitions against acquisition objectives and integration plans. • Failure to deliver on acquisition objectives and to successfully integrate newly-acquired operations, such as Bisquit and brands in the Burn Stewart portfolio.
Route-to-market • Developed markets characterised by increasing trade • Inadequate access to retailer and monopoly gatekeepers • Ensuring a portfolio of appealing trademarks (through innovation and brand investment) desired by trade and consumers consolidation and the increasing power of retailers • Inadequately selected or developed agency networks and that add value to Distell • State-run liquor monopoly systems in certain markets • Failure to achieve product listings, availability, visibility and • Establishing sound key account management principles • A variety of agency networks affording access to market. interaction/activation with consumers. • Establishing market structures in key countries that work closely with our agents to ensure product availability, visibility and market activation • Resourcing agents to support the sales and marketing of our brands in foreign countries.
Procurement and supply chain • Efficient procurement and supply chain management are • Unavailability of grapes and bulk wine to meet demand • Establishing and protecting long-term relationships with grape and wine producers whose viability, financial stability and important business imperatives to ensure continuous for our wine brands across the quality and cultivar success are of critical importance to us product availability of suitable quality at competitive spectrum • Close collaboration with our suppliers to ensure the sustainability of the supply chain at cost-competitive levels prices. The nature of our products and activities • Unavailability of bulk wine for the distillation of brandy • Identifying areas for higher yielding grape production with lower input costs necessitates a long-term view of the market and • Unavailability of apple juice for the production of ciders. consumer demand for our products, requiring close • Establishing a global supply network that gives us access to better product, service and pricing options and that also collaboration and planning with our suppliers. helps to counter local supplier capacity constraints.
28 Distell has identified the following seven strategic risks which occur during our business operations. In order to continue to create sustainable returns for our shareholders, we have contextualised these risks and have developed corresponding risk mitigation techniques to combat them. These can be seen in the table below:
Context Risks Risk mitigation Trademarks • Intensified competition in the alcoholic market with • Failure to identify consumer needs and to enhance our • Improving our marketing capacity and processes to at least match world-class standards international players entering the South African and Sub- capacity to innovate and deliver brands that are relevant • Maintaining superior production quality standards to match international best practice Saharan markets and attractive to consumers across a broad spectrum • Staying abreast of market developments in terms of changing consumer needs and competitor activity to take early • Evolution in the sophistication of consumer preferences • Failure to invest effectively and responsibly to ensure the advantage of new opportunities and tastes continued strength and appeal of key brands • Maintaining the skills for appropriate new product development • Growth in illicit trade, exacerbated by rising excise duties. • Loss of market share to lower-priced illicit alternatives. • Continuous assessment of our portfolio composition to ensure brands remain attractive and relevant to consumers • Building the equity of our brands through responsible investments, innovation and marketing programmes • Acquiring brands in relevant categories to address any gaps in our brand portfolio • Engaging with the authorities to develop strategies to combat illicit trading and working with all industry players to monitor its impact.
Geographic diversity and international expansion • Developed and emerging economies with as yet • Too great a dependency on the domestic market • Establishing a new business research and development function, supported by external advisers and service providers untapped potential for incremental growth either • Failure to identify and take advantage of opportunities in • Clear identification of acquisition objectives, supported by underlying business plans and ongoing monitoring of progress organically or through acquisitions. new markets, either through exports or acquisitions against acquisition objectives and integration plans. • Failure to deliver on acquisition objectives and to successfully integrate newly-acquired operations, such as Bisquit and brands in the Burn Stewart portfolio.
Route-to-market • Developed markets characterised by increasing trade • Inadequate access to retailer and monopoly gatekeepers • Ensuring a portfolio of appealing trademarks (through innovation and brand investment) desired by trade and consumers consolidation and the increasing power of retailers • Inadequately selected or developed agency networks and that add value to Distell • State-run liquor monopoly systems in certain markets • Failure to achieve product listings, availability, visibility and • Establishing sound key account management principles • A variety of agency networks affording access to market. interaction/activation with consumers. • Establishing market structures in key countries that work closely with our agents to ensure product availability, visibility and market activation • Resourcing agents to support the sales and marketing of our brands in foreign countries.
Procurement and supply chain • Efficient procurement and supply chain management are • Unavailability of grapes and bulk wine to meet demand • Establishing and protecting long-term relationships with grape and wine producers whose viability, financial stability and important business imperatives to ensure continuous for our wine brands across the quality and cultivar success are of critical importance to us product availability of suitable quality at competitive spectrum • Close collaboration with our suppliers to ensure the sustainability of the supply chain at cost-competitive levels prices. The nature of our products and activities • Unavailability of bulk wine for the distillation of brandy • Identifying areas for higher yielding grape production with lower input costs necessitates a long-term view of the market and • Unavailability of apple juice for the production of ciders. consumer demand for our products, requiring close • Establishing a global supply network that gives us access to better product, service and pricing options and that also collaboration and planning with our suppliers. helps to counter local supplier capacity constraints.
29 Corporate strategic risk and mitigation (continued)
Context Risks Risk mitigation Regulatory issues • Global focus amongst regulators and governments on • Growing power of anti-alcohol lobby • Constructive engagement with governments and external stakeholders on alcohol-related issues and supporting reducing non-communicable diseases, including alcohol • WHO following 2011 UN Summit on Non-Communicable educational measures to curb the harmful use of alcohol as a lead contributor Disease Prevention and Control in its Global Action • Support for the principle of self-regulation • South Africa’s Inter-Ministerial Committee on Substance Plan recommending that member states restrict or ban • Close co-operation with industry bodies to address alcohol abuse Abuse Programme of Action inter alia proposing the alcohol marketing • Building evidence-based policy advocacy within South Africa banning of alcohol advertising. Focus areas addressed • Inability to participate in alcohol policy development • Establishing and monitoring responsible commercial governance principles within the company by the programme include overall reduction in alcohol following the WHO Director-General’s assertion: “In the consumed, binge drinking, youth drinking, drinking and view of WHO, the alcohol industry has no role in the • Establishing a corporate social responsibility strategy that aims to minimise and mitigate the negative impacts of our driving, the correlation between HIV-infection and alcohol formulation of alcohol policies, which must be protected operations on society through a variety of education initiatives linked to reducing the harmful impact of alcohol abuse. and illicit trade. from distortion by commercial or vested interests” Refer to page 36 for further details. • SA Government’s increase of excise duties as a measure to curb alcohol abuse • South Africa’s National Drug Master Plan targeting a 10% reduction in the availability of alcoholic beverages • Legislative changes placing restrictions on sales, marketing, distribution and availability of alcoholic beverages.
Competition • Intensification of competition, particularly in the domestic • Failure to invest responsibly in our brands to ensure their • Improving our marketing capacity and processes to at least match world-class standards market and Sub-Saharan Africa, with international strength and relevance • Maintaining superior production quality standards to match international best practice players entering the market with new product offerings. • Failure to fill gaps in our portfolio, either through • Staying abreast of market developments in terms of changing consumer needs and competitor activity to take early innovation or brand acquisitions advantage of new opportunities • Failure to deliver superior product and service at • Maintaining the skills for appropriate new product development competitive price points. • Continuous assessment of our portfolio composition to ensure brands remain attractive and relevant to consumers • Building the equity of our brands through responsible investments, innovation and marketing programmes • Acquiring brands in relevant categories to address any gaps in our portfolio.
Management capacity and talent management • The quality of our people provides a competitive • Failure to recruit, identify, develop and retain a sufficient • Securing a pool of leadership and specialist skills and talents through our formal Talent Management Programme advantage. To recruit, develop and maintain talented talent pool that enables the Group to pursue current and • Promoting and establishing key values such as employees who can enhance our management capability future strategies and business initiatives – an entrepreneurial spirit throughout the organisation is a key business imperative. • Failure to build skills in line with South Africa’s – a sense of ownership Refer to page 40 for further details. employment equity requirements. – a performance-driven culture • Growing and expanding our business in a way that provides exciting opportunities for our talented employees • Increasing the focus on training and development • Offering attractive remuneration and other incentives • Accelerating transformation.
30 Context Risks Risk mitigation Regulatory issues • Global focus amongst regulators and governments on • Growing power of anti-alcohol lobby • Constructive engagement with governments and external stakeholders on alcohol-related issues and supporting reducing non-communicable diseases, including alcohol • WHO following 2011 UN Summit on Non-Communicable educational measures to curb the harmful use of alcohol as a lead contributor Disease Prevention and Control in its Global Action • Support for the principle of self-regulation • South Africa’s Inter-Ministerial Committee on Substance Plan recommending that member states restrict or ban • Close co-operation with industry bodies to address alcohol abuse Abuse Programme of Action inter alia proposing the alcohol marketing • Building evidence-based policy advocacy within South Africa banning of alcohol advertising. Focus areas addressed • Inability to participate in alcohol policy development • Establishing and monitoring responsible commercial governance principles within the company by the programme include overall reduction in alcohol following the WHO Director-General’s assertion: “In the consumed, binge drinking, youth drinking, drinking and view of WHO, the alcohol industry has no role in the • Establishing a corporate social responsibility strategy that aims to minimise and mitigate the negative impacts of our driving, the correlation between HIV-infection and alcohol formulation of alcohol policies, which must be protected operations on society through a variety of education initiatives linked to reducing the harmful impact of alcohol abuse. and illicit trade. from distortion by commercial or vested interests” Refer to page 36 for further details. • SA Government’s increase of excise duties as a measure to curb alcohol abuse • South Africa’s National Drug Master Plan targeting a 10% reduction in the availability of alcoholic beverages • Legislative changes placing restrictions on sales, marketing, distribution and availability of alcoholic beverages.
Competition • Intensification of competition, particularly in the domestic • Failure to invest responsibly in our brands to ensure their • Improving our marketing capacity and processes to at least match world-class standards market and Sub-Saharan Africa, with international strength and relevance • Maintaining superior production quality standards to match international best practice players entering the market with new product offerings. • Failure to fill gaps in our portfolio, either through • Staying abreast of market developments in terms of changing consumer needs and competitor activity to take early innovation or brand acquisitions advantage of new opportunities • Failure to deliver superior product and service at • Maintaining the skills for appropriate new product development competitive price points. • Continuous assessment of our portfolio composition to ensure brands remain attractive and relevant to consumers • Building the equity of our brands through responsible investments, innovation and marketing programmes • Acquiring brands in relevant categories to address any gaps in our portfolio.
Management capacity and talent management • The quality of our people provides a competitive • Failure to recruit, identify, develop and retain a sufficient • Securing a pool of leadership and specialist skills and talents through our formal Talent Management Programme advantage. To recruit, develop and maintain talented talent pool that enables the Group to pursue current and • Promoting and establishing key values such as employees who can enhance our management capability future strategies and business initiatives – an entrepreneurial spirit throughout the organisation is a key business imperative. • Failure to build skills in line with South Africa’s – a sense of ownership Refer to page 40 for further details. employment equity requirements. – a performance-driven culture • Growing and expanding our business in a way that provides exciting opportunities for our talented employees • Increasing the focus on training and development • Offering attractive remuneration and other incentives • Accelerating transformation.
31 Corporate responsibility review Corporate responsibility Material issues In our industry issues relating to corporate responsibility are as important to our future prosperity as the financial and other business issues reported on pages 28 to 31. By understanding the legal environment, managing our risks and engaging with our various stakeholders, we have identified seven key issues contributing to the corporate responsibility pillar of our value-based management approach: responsible drinking, excise and illicit trade, sustaining our communities, our people, economic equity, and preserving our environment.
Our performance across these areas, as well as in terms of our governance of the Group, is summarised in the following table. In-depth information can be found at ww.distell.co.za/sustainability.
Responsible drinking Our response Stakeholders Performance for 2013 Actions and initiatives • Fetal alcohol syndrome (FAS) • Promote only the responsible • Government: Ministries and Departments of • Refined our responsible drinking positioning statements to 11 issues of • Engage with government departments and other • Underage and binge drinking among enjoyment of alcohol, discourage Trade and Industry (including the National Liquor concern to both government and Distell’s business. stakeholders and explored co-operative ventures to the youth consumption by pregnant women Authority), Agriculture, Forestry and Fisheries, • Actively collaborated with industry and partners on a range of effective address alcohol abuse, illicit trade and develop suitable • Responsible advertising and discourage selling to minors or Social Development, Arts and Culture, Police, initiatives. excise policy for South Africa. • Driving while intoxicated (DWI) intoxicated individuals. Health and Transport at national, provincial and • Assisted with the ARA-commissioned Econometrix study into possible • Focused on supporting communities in three areas: • Continue to be active members of local level. causal links between alcohol advertising and volume of alcohol consumed. children aged four to 11 years, youth aged 12 to 18 Industry Association for Responsible • Parliamentary portfolio committees and select • Improved the alignment between our corporate social investment initiatives years and pregnant women. We will continue to support Alcohol Use (ARA). committees. and our responsible drinking aims. FAS education and prevention, youth education, life skills • Observe the contents of the Substance • Communities programmes, and complementary art, drama and music Abuse Programme of Action • NGOs Concern remains around the proposed regulatory and legislative therapy programmes. 2012—2016 and the National Drug • ARA and the South African Liquor Brandowners amendments and the future of alcoholic beverage advertising. • Vigorously monitored all brand advertisements to Master Plan 2013 – 2017, and align our Association (SALBA) ensure compliance with ARA Code of Commercial interventions and initiatives with these, • Liquor wholesalers, retailers and smaller outlets Communication and Conduct. or invest in initiatives that complement or support these. • Engage stakeholders regularly and invest in inclusive initiatives aimed at preventing or minimising alcohol abuse.
Excise and illicit trade Our response Stakeholders Performance for 2013 Actions and initiatives • Economic impact of high excise duties • Collaboratively work with industry • National treasury • Participate in the Southern African Customs Union’s (SACU) excise policy • Continue to advocate that further increases in excise tax • Rise in illicit trade associations and government on a • Industry associations reviews. is unlikely to reduce the misuse of alcohol products and local, provincial and national level to • Communities may lead to serious unintended consequences. solve concerns related to excise and We remain concerned about exorbitant excise levies that are likely to lead to • Build relationships and work collaboratively to find illicit trade. undesirable consequences. These include dwindling margins for legitimate appropriate solutions to curb both alcohol abuse and farmers and an increase in illicit and potentially dangerous alcohol trading. illicit trade.
Sustaining our communities Our response Stakeholders Performance for 2013 Actions and initiatives • Service to communities • Address the welfare of our • Government: Departments of Trade and • Supported a total of 48 art and culture projects consisting of five arts • Increased our support to educational initiatives by • Addressing unemployment communities, helping them protect Industry, Health, Social Development, Transport, awards, seven festivals and other platforms such as Oude Libertas Centre focusing on three distinct levels: higher education, the themselves against abusive practices Labour, Arts and Culture, Agriculture, and to strengthen the creative arts industry. unskilled and unemployed, and illiterate farmworkers. and develop the skills required for Forestry and Fisheries. • Made social investments to combat unemployment through 19 projects • Incorporated more life skills programmes and alcohol- meaningful employment. • Various organisations including educational in higher education, skills development and employment creation, 13 in specific programmes into our project portfolio. institutions, research institutions and arts life skills and responsible alcohol use. We support a total of 32 community • We will continue to allocate more than 50% of our CSI practitioners. integrated CSI projects. budget to arts and culture-related initiatives and plan to • Communities • Employees participated voluntarily in a total of 16 social investment further increase our support of arts, drama and music • NGOs projects during the year. therapy initiatives in communities affected by FAS and • Employees alcohol misuse. Our key concern remains the social ills within our wider community that in turn lead to abusive practices, such as the abuse of alcohol.
32 Responsible drinking Our response Stakeholders Performance for 2013 Actions and initiatives • Fetal alcohol syndrome (FAS) • Promote only the responsible • Government: Ministries and Departments of • Refined our responsible drinking positioning statements to 11 issues of • Engage with government departments and other • Underage and binge drinking among enjoyment of alcohol, discourage Trade and Industry (including the National Liquor concern to both government and Distell’s business. stakeholders and explored co-operative ventures to the youth consumption by pregnant women Authority), Agriculture, Forestry and Fisheries, • Actively collaborated with industry and partners on a range of effective address alcohol abuse, illicit trade and develop suitable • Responsible advertising and discourage selling to minors or Social Development, Arts and Culture, Police, initiatives. excise policy for South Africa. • Driving while intoxicated (DWI) intoxicated individuals. Health and Transport at national, provincial and • Assisted with the ARA-commissioned Econometrix study into possible • Focused on supporting communities in three areas: • Continue to be active members of local level. causal links between alcohol advertising and volume of alcohol consumed. children aged four to 11 years, youth aged 12 to 18 Industry Association for Responsible • Parliamentary portfolio committees and select • Improved the alignment between our corporate social investment initiatives years and pregnant women. We will continue to support Alcohol Use (ARA). committees. and our responsible drinking aims. FAS education and prevention, youth education, life skills • Observe the contents of the Substance • Communities programmes, and complementary art, drama and music Abuse Programme of Action • NGOs Concern remains around the proposed regulatory and legislative therapy programmes. 2012—2016 and the National Drug • ARA and the South African Liquor Brandowners amendments and the future of alcoholic beverage advertising. • Vigorously monitored all brand advertisements to Master Plan 2013 – 2017, and align our Association (SALBA) ensure compliance with ARA Code of Commercial interventions and initiatives with these, • Liquor wholesalers, retailers and smaller outlets Communication and Conduct. or invest in initiatives that complement or support these. • Engage stakeholders regularly and invest in inclusive initiatives aimed at preventing or minimising alcohol abuse.
Excise and illicit trade Our response Stakeholders Performance for 2013 Actions and initiatives • Economic impact of high excise duties • Collaboratively work with industry • National treasury • Participate in the Southern African Customs Union’s (SACU) excise policy • Continue to advocate that further increases in excise tax • Rise in illicit trade associations and government on a • Industry associations reviews. is unlikely to reduce the misuse of alcohol products and local, provincial and national level to • Communities may lead to serious unintended consequences. solve concerns related to excise and We remain concerned about exorbitant excise levies that are likely to lead to • Build relationships and work collaboratively to find illicit trade. undesirable consequences. These include dwindling margins for legitimate appropriate solutions to curb both alcohol abuse and farmers and an increase in illicit and potentially dangerous alcohol trading. illicit trade.
Sustaining our communities Our response Stakeholders Performance for 2013 Actions and initiatives • Service to communities • Address the welfare of our • Government: Departments of Trade and • Supported a total of 48 art and culture projects consisting of five arts • Increased our support to educational initiatives by • Addressing unemployment communities, helping them protect Industry, Health, Social Development, Transport, awards, seven festivals and other platforms such as Oude Libertas Centre focusing on three distinct levels: higher education, the themselves against abusive practices Labour, Arts and Culture, Agriculture, and to strengthen the creative arts industry. unskilled and unemployed, and illiterate farmworkers. and develop the skills required for Forestry and Fisheries. • Made social investments to combat unemployment through 19 projects • Incorporated more life skills programmes and alcohol- meaningful employment. • Various organisations including educational in higher education, skills development and employment creation, 13 in specific programmes into our project portfolio. institutions, research institutions and arts life skills and responsible alcohol use. We support a total of 32 community • We will continue to allocate more than 50% of our CSI practitioners. integrated CSI projects. budget to arts and culture-related initiatives and plan to • Communities • Employees participated voluntarily in a total of 16 social investment further increase our support of arts, drama and music • NGOs projects during the year. therapy initiatives in communities affected by FAS and • Employees alcohol misuse. Our key concern remains the social ills within our wider community that in turn lead to abusive practices, such as the abuse of alcohol.
33 Corporate responsibility review (continued)
Our people Our response Stakeholders Performance for 2013 Actions and initiatives • Employee relations • We aim to provide a healthy and • Government: Departments of Labour, and Trade • Staff turnover decreased to 7,4%. • Finished the roll-out of our ‘Full Circle’ internal • Employee satisfaction conducive working environment and Industry • Training spend increased by 15% (2012: 3%), with 67% of our training communications model to a fourth production site. • Talent management that nurtures career development, • Educational institutions spend allocated to previously disadvantaged individuals (PDI). • Engaged employees through various channels, including • Skills training and career development innovative thinking and develops an • Employees • Lost time injuries decreased by 15% to 139, but the number of lost days in-house magazine, work teams, forums, surveys and • Employee wellness engaged workforce that is committed • Learners and graduates more than doubled. collective bargaining agreements. • Ethics to the Distell business. • We experienced no significant industrial action and union membership • Increased the number of training programmes on decreased to 34,9%. offer to staff and other individuals through internships, • Our ethics hotline received 26 calls; 13 of which related to human learnerships and apprenticeships. resources grievances. No material control breakdowns or financial losses were identified.
Distell is mindful of South Africa’s skills shortage, and we aim to attract top talent by improving our reputation as an employer of choice, equip individuals with the skills we require, and look after the talent we have.
Upholding human rights and Our response Stakeholders Performance for 2013 Actions and initiatives economic equity • Human rights • Support the ten principles of the United • UNGC • Became a member of the UNGC, committed to uphold human rights. • Regaining a Level 4 B-BBEE rating by improving our skills • Broad-based Black Economic Nations Global Compact (UNGC). • Government: Departments of Labour, and Trade • Dropped to a B-BBEE Level 5 rating after a revision of the dti compliance development and socio-economic activities. Empowerment (B-BBEE) • Advocate Wine Industry Ethical Trade and Industry. targets in 2012. • Increase the number of education and skills training Association (WIETA) requirements in • Businesses • Strongest improvement shown in the areas of equity ownership, skills opportunities that address unemployment in certain parts of our supply chain. • Suppliers development and socio-economic development. South Africa. • We invest strongly in education and • Employees • 71,15% of our South African staff are historically disadvantaged individuals • Review and align existing socio-economic development skills development as a strategy • Communities (HDI), and of these 17,64% are female. projects that were not recognised under the dti Codes. for improving our transformation • 86,94% of all new appointments were PDIs, and 89,31% of all promotions • Work with suppliers to help them align their records with performance in the medium and long were awarded to PDIs. the dti Codes. term. • 18% of our wine producers are accredited by the WIETA (targeting a 100% • Implement our new five-year employment equity plan, by 2014). that includes strategic recruitment, succession planning, senior and middle-management development and Following the introduction of the dti’s new B-BBEE compliance targets retention strategies. in February 2012, we have to improve our employment equity, skills • Continued to drive ethical trade by advocating WIETA development and preferential procurement scores to regain our B-BBEE accreditation to all our wine producers. Level 4 status.
Preserving our environment Our response Stakeholders Performance for 2013 Actions and initiatives • Climate change and carbon footprint • We are committed to reducing our • Government: Departments of Environmental • Achieved the following against our 2018 per-product reduction targets • Finalised Distell’s resource reduction targets for 2018. • Energy efficiency impact on the environment through our and Water Affairs, and Agriculture, Forestry and (using 2009 as base year): • Expanded our Greenhouse Gas reporting database to • Water usage and sustainable water five-point policy. Fisheries. – 18% reduction in on-site fossil fuel energy usage (target 25%); include some Scope 3 categories and submitted our supplies • Reduce Distell’s risk associated with • Municipalities – 13% reduction in electricity usage (target 15%); and second report to the Carbon Disclosure Project (CDP). • Waste management climatic changes through product • Businesses – 11% reduction in water usage, resulting in us reaching our stated target • Continued to implement and embed the use of a ‘site • Effluent and waste water diversification. • Suppliers five years ahead of target (target 10%). services’ database for detailed measurement and
• Conservation of biodiversity • Reduce Distell’s resource usage, with • Employees • Scope 1, 2 and 3 carbon footprint: 160 531 tonnes CO2e. reporting at all fully owned Distell sites. specific focus on water, electricity and • NGOs • Seven sites fully ISO 14001 certified, while three more sites are advancing • Established and embedded ISO 14001-compliant fossil fuel energy. • Society well towards certification. management structures and systems at three fully owned
• Communities • Captured 5 087 tonnes (2012: 4 393 tonnes) of CO2 at our cider Distell sites. production facility in Paarl. • Piloted and evolved new waste-to-energy technology. • Saved 2 239 tonnes of glass through light weight of bottles • Ongoing development of alternative cultivars suited to (2012: 7 991 tonnes). changing climatic conditions. • Reused 139,9 million bottles, up 5% from 2012. This represents 23,8% of our total glass requirements in weight this year. • A total of 2 017 hectares, or 39% of the total area owned or part-owned by Distell, is now set aside for conservation (2012: 1 184 hectares, or 24%). • 166 hectares are certified organic and 209 hectares farmed conventionally but using sustainable farming practices.
With the cost of energy escalating, we have to explore all viable opportunities to improve our energy efficiency across our operations.
Corporate governance Our response Stakeholders Performance for 2013 Actions and initiatives • Board and committees • The board is committed to applying the • Shareholders • In accordance with the requirements of the new Companies Act, the board • Continue to apply our systematic and integrated • Risk management highest standards of professionalism, • Employees established a social and ethics committee and approved our Memorandum enterprise-wide risk management process that focuses • Regulatory environment integrity, ethics, fairness and social • Wider society of Incorporation (MOI) at our October 2012 AGM. on identifying, assessing, managing and monitoring all • Stakeholder engagement and investor responsibility to the way Distell • The board, to the best of its knowledge, has applied or is embedding known forms of risk across the Group. relations conducts its business. processes in support of the relevant principles of King III. Cases of partial • The audit and risk committee, in line with the • The board considers itself fully compliance and/or non-compliance have been reported in the governance requirements of King III, annually assesses and reports accountable to stakeholders in its report. on the effectiveness of internal financial controls. ongoing commitment to applying the • Sustainability reporting – self-declared application Level C according to the • External legal advisers assisted and continue to assist principles laid out in the King III Code of GRI (G3.1). management with the implementation of the new Governance (King III). • Following principles of combined assurance, achieved validation of Companies Act. information disclosed in the sustainability report by internal audit. • Ethical leadership – no material control breakdowns or financial losses were identified during investigations into calls received from the ethics line. • During the year under review nothing came to the attention of the board, external or internal auditors to indicate any material lapse in the functioning of internal financial controls.
Strengthen compliance with King III and the Companies Act. Focus on IT challenges, notably data link failures at external service provider and data security on mobile devices.
34 Our people Our response Stakeholders Performance for 2013 Actions and initiatives • Employee relations • We aim to provide a healthy and • Government: Departments of Labour, and Trade • Staff turnover decreased to 7,4%. • Finished the roll-out of our ‘Full Circle’ internal • Employee satisfaction conducive working environment and Industry • Training spend increased by 15% (2012: 3%), with 67% of our training communications model to a fourth production site. • Talent management that nurtures career development, • Educational institutions spend allocated to previously disadvantaged individuals (PDI). • Engaged employees through various channels, including • Skills training and career development innovative thinking and develops an • Employees • Lost time injuries decreased by 15% to 139, but the number of lost days in-house magazine, work teams, forums, surveys and • Employee wellness engaged workforce that is committed • Learners and graduates more than doubled. collective bargaining agreements. • Ethics to the Distell business. • We experienced no significant industrial action and union membership • Increased the number of training programmes on decreased to 34,9%. offer to staff and other individuals through internships, • Our ethics hotline received 26 calls; 13 of which related to human learnerships and apprenticeships. resources grievances. No material control breakdowns or financial losses were identified.
Distell is mindful of South Africa’s skills shortage, and we aim to attract top talent by improving our reputation as an employer of choice, equip individuals with the skills we require, and look after the talent we have.
Upholding human rights and Our response Stakeholders Performance for 2013 Actions and initiatives economic equity • Human rights • Support the ten principles of the United • UNGC • Became a member of the UNGC, committed to uphold human rights. • Regaining a Level 4 B-BBEE rating by improving our skills • Broad-based Black Economic Nations Global Compact (UNGC). • Government: Departments of Labour, and Trade • Dropped to a B-BBEE Level 5 rating after a revision of the dti compliance development and socio-economic activities. Empowerment (B-BBEE) • Advocate Wine Industry Ethical Trade and Industry. targets in 2012. • Increase the number of education and skills training Association (WIETA) requirements in • Businesses • Strongest improvement shown in the areas of equity ownership, skills opportunities that address unemployment in certain parts of our supply chain. • Suppliers development and socio-economic development. South Africa. • We invest strongly in education and • Employees • 71,15% of our South African staff are historically disadvantaged individuals • Review and align existing socio-economic development skills development as a strategy • Communities (HDI), and of these 17,64% are female. projects that were not recognised under the dti Codes. for improving our transformation • 86,94% of all new appointments were PDIs, and 89,31% of all promotions • Work with suppliers to help them align their records with performance in the medium and long were awarded to PDIs. the dti Codes. term. • 18% of our wine producers are accredited by the WIETA (targeting a 100% • Implement our new five-year employment equity plan, by 2014). that includes strategic recruitment, succession planning, senior and middle-management development and Following the introduction of the dti’s new B-BBEE compliance targets retention strategies. in February 2012, we have to improve our employment equity, skills • Continued to drive ethical trade by advocating WIETA development and preferential procurement scores to regain our B-BBEE accreditation to all our wine producers. Level 4 status.
Preserving our environment Our response Stakeholders Performance for 2013 Actions and initiatives • Climate change and carbon footprint • We are committed to reducing our • Government: Departments of Environmental • Achieved the following against our 2018 per-product reduction targets • Finalised Distell’s resource reduction targets for 2018. • Energy efficiency impact on the environment through our and Water Affairs, and Agriculture, Forestry and (using 2009 as base year): • Expanded our Greenhouse Gas reporting database to • Water usage and sustainable water five-point policy. Fisheries. – 18% reduction in on-site fossil fuel energy usage (target 25%); include some Scope 3 categories and submitted our supplies • Reduce Distell’s risk associated with • Municipalities – 13% reduction in electricity usage (target 15%); and second report to the Carbon Disclosure Project (CDP). • Waste management climatic changes through product • Businesses – 11% reduction in water usage, resulting in us reaching our stated target • Continued to implement and embed the use of a ‘site • Effluent and waste water diversification. • Suppliers five years ahead of target (target 10%). services’ database for detailed measurement and
• Conservation of biodiversity • Reduce Distell’s resource usage, with • Employees • Scope 1, 2 and 3 carbon footprint: 160 531 tonnes CO2e. reporting at all fully owned Distell sites. specific focus on water, electricity and • NGOs • Seven sites fully ISO 14001 certified, while three more sites are advancing • Established and embedded ISO 14001-compliant fossil fuel energy. • Society well towards certification. management structures and systems at three fully owned
• Communities • Captured 5 087 tonnes (2012: 4 393 tonnes) of CO2 at our cider Distell sites. production facility in Paarl. • Piloted and evolved new waste-to-energy technology. • Saved 2 239 tonnes of glass through light weight of bottles • Ongoing development of alternative cultivars suited to (2012: 7 991 tonnes). changing climatic conditions. • Reused 139,9 million bottles, up 5% from 2012. This represents 23,8% of our total glass requirements in weight this year. • A total of 2 017 hectares, or 39% of the total area owned or part-owned by Distell, is now set aside for conservation (2012: 1 184 hectares, or 24%). • 166 hectares are certified organic and 209 hectares farmed conventionally but using sustainable farming practices.
With the cost of energy escalating, we have to explore all viable opportunities to improve our energy efficiency across our operations.
Corporate governance Our response Stakeholders Performance for 2013 Actions and initiatives • Board and committees • The board is committed to applying the • Shareholders • In accordance with the requirements of the new Companies Act, the board • Continue to apply our systematic and integrated • Risk management highest standards of professionalism, • Employees established a social and ethics committee and approved our Memorandum enterprise-wide risk management process that focuses • Regulatory environment integrity, ethics, fairness and social • Wider society of Incorporation (MOI) at our October 2012 AGM. on identifying, assessing, managing and monitoring all • Stakeholder engagement and investor responsibility to the way Distell • The board, to the best of its knowledge, has applied or is embedding known forms of risk across the Group. relations conducts its business. processes in support of the relevant principles of King III. Cases of partial • The audit and risk committee, in line with the • The board considers itself fully compliance and/or non-compliance have been reported in the governance requirements of King III, annually assesses and reports accountable to stakeholders in its report. on the effectiveness of internal financial controls. ongoing commitment to applying the • Sustainability reporting – self-declared application Level C according to the • External legal advisers assisted and continue to assist principles laid out in the King III Code of GRI (G3.1). management with the implementation of the new Governance (King III). • Following principles of combined assurance, achieved validation of Companies Act. information disclosed in the sustainability report by internal audit. • Ethical leadership – no material control breakdowns or financial losses were identified during investigations into calls received from the ethics line. • During the year under review nothing came to the attention of the board, external or internal auditors to indicate any material lapse in the functioning of internal financial controls.
Strengthen compliance with King III and the Companies Act. Focus on IT challenges, notably data link failures at external service provider and data security on mobile devices.
35 Corporate responsibility review (continued)
Responsible drinking Leading practice starts at Distell. Many of our employees As a major producer of alcoholic beverages, it is have access to, or are exposed to, alcohol within the incumbent upon Distell to do its utmost to encourage workplace during the production of wine, spirits and RTDs. a culture of responsible drinking. By this we mean the We have a strict company-wide alcohol policy, enforced moderate consumption of alcohol as a socially acceptable by management, and we supplement employee education and training programmes with practical interventions to and enjoyable way to celebrate and relax. In contrast, ensure responsible employee behaviour. where alcohol is abused it can harm people who drink irresponsibly, as well as others around them. Distell’s programmes, outlined in the sections below, are aimed at three main life stages: in the womb to protect The South African Government’s thinking is summarised unborn babies during the mother’s pregnancy, children in its ‘Anti-substance Abuse Programme of Action, that can be easily influenced, and vulnerable adults 2011 – 2016’, which was released after the Inter- in society. Ministerial Committee’s Biennial Summit on Substance Abuse in Durban in March 2011. Concerns raised by Fetal alcohol syndrome (FAS) is a preventable mental government include South Africa’s abnormally high rate disability, caused when a mother consumes alcohol of fetal alcohol syndrome (FAS), driving while intoxicated during pregnancy. The neurological damage it causes (DWI), underage and binge drinking among the youth, and is irreversible and can worsen many of the social ills irresponsible advertising. communities face, including unemployment, crime and violence. Awareness, prevention and treatment We support the Department of Trade and Industry’s programmes for women addicted to alcohol can (dti) acknowledgement that society wishes to live in an dramatically reduce the incidence of FAS. environment where alcohol is available to adults who make an informed choice to drink responsibly and in moderation. We have increased our corporate social investment spend The dti also recognises the significance of the economic on projects that reduce the impact of alcohol abuse by contribution of the alcohol beverage industry, both in pregnant mothers. Apart from our involvement with the terms of its contributions to the treasury as well as to ARA’s initiatives, we support the Foundation for Alcohol job creation. Related Research (FARR), FASfacts and the Goedgedacht Trust’s FAS prevention programme, which works with By the end of the period under review, we had engaged pregnant women and at-risk youth in the Swartland region. with all the key government stakeholders mentioned above. The core message that has emerged from Our support has allowed an additional 54 pregnant women these engagements is that political, administrative and to join FARR’s FAS prevention programme in the Kimberley community leaders urgently want to prevent, or at least area. This year two-thirds of the 36 pregnant women who reduce, alcohol-related harm. A secondary, but important took part in FASfacts’ mentoring programme managed to message is that too many young people, the leaders of abstain from using alcohol during their pregnancy. Further, tomorrow, are indulging in underage or binge drinking. the Chrysalis Academy, the Anna Foundation and the Pebbles Project Trust specifically focus on youth affected In identifying with these concerns, we direct many of our by alcohol abuse by creating awareness around alcohol community initiatives at preventing harm or minimising use within their life skills programmes. harmful exposure to youth and pregnant women. Our intention is to maintain our present portfolio of FAS One of government’s dilemmas is that, when it legislates initiatives and we will increase funding to those that deliver to prevent health or social harm, it should not inadvertently the best results. We will continue to look for opportunities cause economic harm through the unforeseen where we can link our life skills, art, music and drama consequences of its actions. Thousands of workers in the therapy projects to FAS prevention and responsible Western Cape are dependent on the health of the industry. drinking awareness programmes. Our overall aim is to We are in full support of efforts by government to develop systematically establish a more holistic support framework for communities at risk. interventions that integrate social, health and economic considerations. However, the government’s progress in Distell works closely with the ARA to address alcohol developing legislation concerning alcohol abuse is slow, abuse amongst teenagers, focusing on the importance of being managed at all three tiers of government and across parents and guardians as role models for teenagers. Three nine provinces. Government’s aim to harmonise legislation projects stand out: remains hampered by a lack of consensus. Distell contributes to the life skills education element of A constructive initiative this year was a set of commitments the Chrysalis Academy, a youth development programme by the Global Alcohol Producers Group (GAP-G) aimed at supported by the Western Cape Provincial Government. reducing alcohol-related harm. Although not a committed This year the academy provided 501 young people GAP-G member, Distell has expressed support for the with basic technical and life skills in an effort to provide commitments made by some of the existing alcohol alternatives to substance abuse and crime. The Academy producing groups. During the period under review, Distell successfully placed 77% of its graduates in employment, also participated in a GAP-G run Africa-wide workshop, and 388 graduates of the total 501 were assisted, either where these commitments were analysed and discussed in terms of job placement, internships, or opportunities to with a view to local implementation during 2013/14. study further.
36 We also funded the Pebble Project Trust and the literature review of key international studies supported Anna Foundation, both of which provide support and these findings. The ARA’s full report is available at skills training to local farmworker’s children and township www.ara.co.za. From this research we conclude that crèches. Their life skills programmes focus on the policy efforts to reduce per capita alcohol consumption dangers of alcohol abuse among the youth and include levels by means of regulating or banning liquor advertising special education projects for children affected by FAS. will prove ineffective. Distell supported the Pebble Project’s After-school Clubs where 255 children from nine wine farms are involved Distell’s advertising is aimed at persuading consumers who in sport, art, life skills activities and supplementary have chosen to drink alcohol to choose its products over academic assistance. those of its competitors.
Our contribution to the Anna Foundation helped provide Industry Association for Responsible Alcohol academic and social support, and job opportunities to use (ARA) 580 children and 28 women from disadvantaged primary The ARA is a registered non-profit organisation focusing schools and communities respectively. We also contribute on the prevention of the negative consequences of 50% of the foundation’s project costs for the work they do alcohol abuse. Established in 1989, the ARA has been at the Neethlingshof and Stellenzicht wine farms. combating the misuse and abuse of alcohol beverages and promoting responsible use to reduce alcohol- More detail regarding the various life skills programmes we related harm. support is available at www.distell.co.za. ARA has more than 200 members, which include Advertising is an effective method to raise brand the majority of South Africa’s alcohol beverage awareness and influence consumers in making informed manufacturers, brand owners as well as a number purchasing decisions. Irresponsible alcohol advertising of distributors. can create false impressions of alcohol, increasing social problems. On the other hand, responsible advertising can ARA focuses on creating awareness through a variety of inform consumers about the dangers associated with projects and campaigns, targeting vulnerable youth and alcohol abuse and influence consumers to switch from adults that are at highest risk of suffering the negative illicit, unregulated and potentially dangerous substances to consequences of alcohol abuse. legal, safe and regulated products. Distell is actively involved with the ARA. Our manager of Distell’s advertising strategy is aligned with the ARA’s Code regulatory affairs currently serves as ARA’s chairperson of Commercial Communication and Conduct and we only and many of our social investment projects are linked to ARA initiatives. support outlets that comply with the ARA Retail Code of Conduct. We ensure that all relevant people involved in As a member we subscribe to stringent rules on distribution are properly trained. advertising, packaging, promotions and media use. This code is available online at Our work in this regard is proving effective. We have http://www.ara.co.za/industry-tips/code-of-conduct. noticed a drop in the number of advertising complaints we receive when compared to prior years. All advertising Any suspected failure to comply with the code complaints are investigated and ARA members found can be reported to ARA’s toll-free complaints line deviating from the code are reported to the ARA for further 0860 272 237. investigation. If required the ARA will refer cases of non- compliance for independent arbitration or legal action. This Distell maintains that people should not drive while year none of our advertisements were withdrawn. intoxicated (DWI). We recognise that keeping road users and pedestrians safe requires a multi-stakeholder A leaked draft of the Control of Marketing of Alcoholic approach that focuses on effective law enforcement. Beverages Bill, which effectively proposes a complete ban on alcohol advertising, was expected to appear before Going beyond our support for the ARA, we communicate Parliament during 2013. While this did not materialise, the dangers associated with both alcohol abuse and uncertainty remains. In response to conflicting opinions drinking and driving by putting warnings on our product regarding cause and effect, the ARA commissioned labels and in our advertising and marketing material. Econometrix to conduct research into the relationship Billboards and pamphlets carry responsible drinking between advertising expenditure and the consumption of messages and distribution staff are trained to discourage alcohol in South Africa. patrons from excessive consumption and driving while intoxicated. According to the ARA the ‘econometric research by Econometrix proves empirically that there is no statistical When hosting company-related events, sales staff have relationship between advertising expenditure and the access to a driver service to ensure they do not drink and consumption of alcohol in South Africa’. Econometrix’s drive, and to set an example for their clients to follow.
37 Corporate responsibility review (continued)
Excise and illicit trade Beyond the negative economic impact of increasingly high In 2010 National Treasury announced a review of the excise duties, the latest increases in excise tax will provide SACU excise policy. Among the key issues was the yet another catalyst for illicit trading that results in tax benchmarking of South Africa’s alcoholic beverage excise evasion on a large scale. According to the World Health tax against international norms. The review process led Organisation (WHO), illicit trade in alcoholic beverages to the announcement, in February 2012, of new tax in South Africa is estimated to be 26% of total alcohol incidence targets of 48% and 35% for spirits and beer volumes per capita (in litres of pure alcohol) consumed respectively. Wine remains at 23%. To achieve this target, over the period 2003 – 2005. an increase of 10% excise tax on spirits was announced in the 2013 budget. Illicit trade in alcohol results not only in foregone revenue to the government, it also poses serious health risks, The South African Government, supported by some since producers of illicit products seldom adhere to concerned stakeholder organisations, advocates for the South Africa’s manufacturing regulations, designed continued increase in excise tax to tackle harmful drinking. to ensure products are safe for human consumption. Although we strongly support the objective of reducing The larger the unregulated, informal alcohol sector, the misuse of alcohol, we question the use of excise tax the more difficult it is for government to reduce alcohol to achieve this goal. Excise increases generally fail as abuse. We maintain it is crucial that issues linked to non- a punitive measure and penalise all alcoholic beverage commercial alcohol are addressed by government, law consumers for the behaviour of the minority that abuse enforcement and the alcohol industry. alcohol. This latter group, meanwhile, are significantly less responsive to price increases. Any assessment of the effectiveness of excise increases, Employment in the local wine industry will be severely as a policy intervention to curb alcohol abuse, needs affected by increases in excise tax. Considering it takes an to take into account the above-mentioned economic average of five litres of wine to produce one litre of brandy, and socio-economic considerations, as well as the a small loss of international market share resulting from the government’s capacity and determination to effectively tax burden on South African spirits, will have a significant contain probable increases in illicit trade. knock-on effect on the South African wine industry. In the domestic market high excise duties are causing retailers Distell, along with its industry peers and the South African to curtail suppliers’ margins in an effort to keep products Liquor Brandowners Association (SALBA), continues to affordable, further depressing the agricultural industry. participate in the government’s review of SACU’s excise policy, with the aim of providing constructive inputs that South Africa has among the highest income inequalities objectively consider all the consequences of excise policy, in the world, with a large proportion of the population unintended as well as intended. living in poverty. Low-income households spend a significantly larger proportion of their disposable income We also work as an industry to develop, in collaboration on consumables, including alcoholic beverages. Tax with key government and non-government stakeholders, increases on alcoholic beverages therefore hit low- a coherent framework of action to mitigate the strategic income households significantly harder than their higher- risk to the industry posed by the illicit liquor trade income counterparts. in South Africa.
‘We commend government’s recent policy changes to streamline excise duties on alcoholic beverages. The change effectively prevents producers from attempting to sell higher-alcohol content beverages at a lower tax rate typically associated with beers and ciders.’
38 Sustaining our communities Our approach to education is multifaceted, and ranges We provide assistance to the communities in which from supporting candidates in higher education to we serve and operate, because strong and healthy addressing the needs of unskilled and unemployed communities offer a measure of protection or prevention candidates and combating illiteracy among farmworkers. against abusive practices, including alcohol abuse. With In support of employee volunteerism, Distell matches investments and in-kind support for more than 60 projects, funds raised by employees, up to a maximum of R5 000 Distell aligns with the United Nations’ Millennium per employee. This year, our employees participated in a Development Goals and the 12 key outcomes of the total of 16 social investment projects, either individually or South African Government’s ‘Programme of Action’. in teams. Distell has been involved with the South African art world for over 47 years, and arts and culture makes up more than 50% of our CSI budget. We also focus on specific social issues such as education, unemployment, health and awareness of responsible drinking. We are including more life skills and alcohol-specific programmes to achieve better alignment between our business and our affected communities. 2013 CSI We have been particularly active in supporting arts and spend culture outreach programmes, including seven festivals around South Africa. At home, our Oude Libertas Centre in Stellenbosch plays an important role in the development of the local creative arts and entertainment industry. We sponsor five annual awards recognising excellence in arts and support the develop of classical, jazz, contemporary and African music through a number of festivals 53% Arts and culture and projects. 25% Education 6% Social and community development We continue to link the arts with life skills education by 16% Other* supporting organisations such as Chrysalis Academy, Goedgedacht Trust, Vision A, Kohin International Agencies and the South African Life College Group. We also * other includes Enterprise development, employee supported other skills development projects such as volunteerism, and non-sector-specific donations and grants. the Pebble Project Trust, the Anna Foundation and the Trauma Centre.
Ten of our wine estates own buildings of historical importance. In 2012 we restored the Plaisir de Merle manor house (left) and De Oude Drostdy (right).
39 Corporate responsibility review (continued)
Our people Our employee value proposition (EVP) is aimed at Total training spend (Rm) attracting and retaining talented and motivated staff who 14,5 find career fulfilment in delivering outstanding quality 12,2 12,6 product for Distell. Most indicators show a positive trend 10,0 and we make use of employee surveys to guide our people development programmes.
This year Distell’s staff complement remained stable at just over 5 000, with the majority (95%) located in South Africa. 2010 2011 2012 2013 Staff turnover decreased marginally to 7,4% (2012: 7,6%), and appointments were slightly up, at 10,1% of our total permanent headcount for the year.
Breakdown Number of employees* of training spend 4 784 4 883 4 921 5 066
4 342 4 433 4 464 4 592 21% Learnerships 13% Internships 2010 2011 2012 2013 11% Leadership SA permanent 54% Other* SA temporary * other includes training spend throughout our operations International and regions. It consists mainly of statutory training such as occupational health and safety, team effectiveness * Figures include LUSAN. workshops, behavioural skills training and skills programmes.
A major focus area is training and development. This year Percentage employees unionised* our training spend increased by 15% to over R14,5 million. 37,5% 36,0% 35,6% 34,9% At the entry level we continue to increase both internships and learnerships, with particular emphasis on skills 13,9% 12,3% 11,7% programmes and apprenticeships for scarce artisan skills. 10,8% The foundation of our succession planning is our middle- 21,1% 21,3% 21,7% 18,5% management development programme, introduced in 2010, which prepares high-potential employees for 2010 2011 2012 2013 management roles and provides them with both theoretical FAWU and practical training. Since the programme’s induction, NUFBWSAW 50 employees have participated in the programme. BAWUSA Eighty-eight per cent were HDIs and half were female. Other Eight employees are currently enrolled. On completion candidates are tracked and supported by continued * only our South African-based operations, including LUSAN. interventions to enhance their individual development.
This year we introduced a senior leadership development programme to speed up transformation at strategic levels within Distell. Six employees are partaking in the Distell’s employee base in South Africa is 35% unionised programme, five of whom are HDIs. and management regularly meets with the respective union representatives at plant level. Despite tough Following an increase in injuries last year, attributable to economic and labour market conditions, the company has renovation activities associated with expansion projects, not been affected by any industrial action and all wage we identified the causes of accidents and put preventative negotiations were concluded successfully. The number measures in place. Consequently, we experienced a 15% of dispute cases referred to the CCMA is low at 1,6 per decrease in the total number of lost time injuries, although thousand employees, and all cases were found in favour of the severity of some of these resulted in a significant the company. increase in number of lost days.
40 We have a number of programmes and processes in Number of lost time injuries place to prevent human rights violations and to uplift farmworkers and their communities. All employees have 164 a contract of employment and the benefits provided to 139 employees exceed the standard requirements stipulated 117 101 in South Africa’s Basic Conditions of Employment Act. We also adhere to recommendations set out in the Code of Good Practice for the agricultural sector and abide by the South African Bill of Rights as enshrined in our 2010 2011 2012 2013 Constitution.
Depending on their employment grade, our farmworkers earn between 20% and 74% more than the amount Health and safety performance prescribed by law, as well as receiving an annual, 2010 2011 2012 2013 13th cheque bonus. In addition, we offer annual, Lost time family responsibility and maternity leave well beyond injuries 117 101 164 139 the provisions contained in the Basic Conditions of Occupational Employment Act. diseases 5 3 6 4 Employees from our wholly-owned farms as well as those Lost days 1 299 1 385 695 1 601 from LUSAN farms can participate in the Distell Provident Work-related Fund. The Fund’s board of trustees consists of ten fatalities 0 0 0 0 elected member employee trustees and four appointed Claim cost R112 932 R100 237 R58 734 R78 927 employer trustees. The objective of the Fund is to provide Incidents 433 436 429 293 benefits for the members upon their retirement (whether on account of age or ill health), or for their dependants or We promote occupational health and safety (OHS) through nominees upon the death of such members. various education initiatives across the business and offer health interventions to reduce the incidence of illness. Farmworkers can join subsidised medical funds, and We adhere to the principles as set out by the Fertilisers, mobile clinics provide additional health support to Farm Feeds, Agricultural Remedies and Stock Remedies labourers. Functional literacy programmes are also Act 36 of 1947 regarding training, protection against available to workers across all of our farms. Employment- toxic agricultural chemicals, testing and safe disposal or linked housing is made available and in some instances removal, and we subject ourselves to external third-party is available rent free, including water and electricity. Some audits as part of the IPW certification system. farms provide free transport to assist farmworkers with their weekend shopping and attending sports, school, This year nursing staff at our on-site clinics carried out religious and cultural events. nearly 30 000 consultations, addressing a variety of wellness issues, including voluntary counselling and testing All employees and farmworkers have the right to join or (VCT) for HIV/Aids. Their work is supported by Distell’s form a trade union. The majority of the farmworkers are peer educators. represented by the following five trade unions: BAWUSA, FAWU, UWF, SAEWA and NUFBWSAW. Upholding human rights and economic equity Independent suppliers produce the majority of our raw material and products. We have service level agreements Distell has long recognised that socio-economic in place with all our suppliers and service providers to transformation has to move beyond Broad-based Black ensure all our products are harvested and manufactured Economic Empowerment (B-BBEE) scores. While these to the same high ethical standards we have established indicate progress in economic equity, the agricultural and on the farms we own. These agreements include human related product processing industries have to improve rights standards. broader measurements of human rights throughout the supply chain. More accurate and transparent reporting WIETA, an external organisation, monitors the ongoing by responsible producers, benchmarked against globally commitment of suppliers to ethical labour practices recognised standards, will set the bar for transformation across our supply chain, especially wine farms. By across the industry. 2014 all our wine producers must be WIETA accredited to remain a Distell supplier. With one year remaining, This year Distell became a member of the UNGC. We have 30 of our 166 suppliers (2012: 21) have achieved WIETA- thereby formally committed ourselves to upholding the accreditation. UNGC’s ten principles, including to ‘support the protection of internationally proclaimed human rights’ and we are Broad-based black economic empowerment begins with committed to ensuring that we ‘are not complicit in human our farming operations. Together with a group of Gauteng rights abuses’. entrepreneurs and a local community trust, Distell is the joint owner of Papkuilsfontein Vineyards, a 975-hectare
41 Corporate responsibility review (continued)
farming venture. Established in 1998, the project is underpinned by an extensive transfer of skills, including Overall B-BBEE score wine-growing, wine farm management, winemaking 80% Level 4 Level 5 and marketing. Level 5 Level 6 The venture has its own label, Earthbound, which is fully Level 8 Fairtrade accredited, and supplies top-quality grapes to the Nederburg brand. The personnel policy applied to Papkuilsfontein is also applied to all our wholly- 33,25 45,30 58,36 65,32 62,87 owned farms and has again been given a clean audit by 2008 2009 2010 2011 2012 Department of Labour inspectors. Our labour practices on LUSAN farms are based on the same principles followed at all Distell wine farms.
A shared-ownership scheme has been part of the B-BBEE scores 2010 Durbanville Hills company structure since its inception, and 20 2011 includes all grape suppliers to Durbanville Hills. In addition, 2012 50 000 shares (five per cent of total shares) have been 15 issued to the Durbanville Hills Workers’ Trust. A director 10 elected by the employees represents the farmworkers on
the board of directors. The Workers’ Trust drives several 5 development initiatives within the farmworker community, including adult education programmes and the funding of Equity Manage- Employ- Skills Preferential Enterprise Socio- ownership ment and ment develop- procure- develop- economic high school fees for children on the supplier farms. control equity ment ment ment develop- ment Distell recently released a new Fairtrade-accredited range, under the ‘Place in the Sun’ label, while it produces Fairtrade-accredited wines for some of its larger brands, such as Nederburg (Growers’ Selection). regaining our B-BBEE Level 4 status by focusing on long- The premium paid to growers is used to accelerate term performance in areas such as skills development, upliftment among wine farmworkers and their families. employment equity and socio-economic development.
This year we improved our dti CoGP score for equity To improve our employment equity (EE) performance and ownership to 19,12 (2011: 18,70). As early as 2005, achieve our 2012 – 2017 transformation goals, we have Distell was among the first of the listed companies to a new EE strategy in place that focuses on enhancing include employees in its B-BBEE share deal through the our diversity culture, appointing, promoting and retaining employee share ownership programme. Every employee people from designated groups, growing tomorrow’s with more than one year’s service is a beneficiary in a trust talent, and making reasonable accommodation for women that holds units on behalf of the employees until the share and disabled persons. deal matures. We were this year able to use the dti’s flow- through principle, which recognises the stake in Distell This year we focused on our senior leadership and middle- businesses held by our B-BBEE shareholders, to calculate management development programmes through which we our dti CoGP score. develop our high-potential candidates to increase our pool of suitably qualified managers. As expected, our broad-based black economic empowerment (B-BBEE) score decreased to Level 5 Performance development plans and management (2011: Level 4) due to the revised dti compliance targets systems are key to ensuring that the right skills are being which came into effect in February 2012. Our overall developed for the future needs of the company. Individual score is down 2,45 points as we struggled to perform performance scorecards are agreed in consultation with against the new employment equity and preferential staff outside the bargaining unit and formal performance procurement targets. reviews are conducted at least twice a year.
In addition to our improved equity ownership score, For the fourth consecutive year we have received the an increase in training and development saw improved maximum score for enterprise development (ED) by performance in our skills and socio-economic exceeding the 3% NPAT spending benchmark on the development scores. We are actively working towards development of small and medium enterprises.
42 Preserving our environment Biodiversity and Wine Initiative (BWI) The production of wines and alcoholic beverages relies Distell wholly owns six farms totalling 2 657 hectares, heavily on the growing region’s climate. Environmental and has a share in a further seven farms, totalling an processes and resources such as the soil, climate, water additional 2 512 hectares. All these farms fall within the and energy form the basis of our products. From farm to Cape Floral Kingdom (CFK). consumer, Distell is wholly dependent on the long-term health of the environment. The Biodiversity and Wine Initiative (BWI), a partnership between the South African wine industry and the Specifically, changes in climate and the quality and supply conservation sector, was formed In 2004 to protect the of water have a major impact on our operations. We recognise these changes are at least partly a result of CFKs natural habitat affected by wine farms. A total of industrial activity, from the burning of fossil fuels to the 2 017 hectares, or 39% of the total area owned or partly negative effects of emissions, effluent and waste. owned by Distell, is set aside for conservation under the BWI or other conservancies. We are continually improving our production processes to combat the rising cost of energy. A major component Distell farms that are BWI members include: of this includes improving the energy efficiency of our production processes and substituting fossil fuel with BWI membership renewable energy solutions where possible. Farm Membership date Hectares We are also cognisant of society’s concerns with practices Plaisir de Merle November 2005 299 that are harmful to the environment. Our consumers Lomond May 2006 465 are increasingly more knowledgeable and demand Papkuilsfontein April 2006 150 that sustainable environmental practices be followed, Durbanville Hills September 2008 409 even as the South African Government debates various forms of legislation for the way companies interact with Neethlingshof July 2009 127 the environment. Uitkyk December 2009 365 Groenhof January 2010 102 In response, we reviewed and updated our environmental policy in January 2013 to guide the company towards Nederburg February 2011 10 reducing its impact on the environment. Our strategy is Alto September 2012 90 based on five key principles, whereby we recognise our Total 2 017 responsibility and commit to building and preserving the environmental resources we depend on. Our environmental In February and November 2011, Uitkyk and policy is available online at www.distell.co.za. Neethlingshof respectively were awarded BWI Championship status for their conservation actions. Scheme for the Integrated Production of Wine (IPW) Uitkyk and Le Bonheur are also members of the Greater All Distell farms are registered with the Scheme for Simonsberg Conservancy, while Plaisir de Merle has the Integrated Production of Wine (IPW), a voluntary applied to become a member. The conservancy focuses environmental sustainability scheme established by the specifically on the conservation of the Simonsberg South African wine industry in 1998. Mountain and the surrounding land.
IPW aims to reduce industrial inputs into the farming (in this case vine-growing) system, reduce carbon We are committed to removing alien species on our farms emissions, and introduce a more integrated approach to allow indigenous species to reclaim the land. Clearing to pest management, waste water management, solid alien species is labour-intensive and requires a number of waste recycling, health and safety of workers and follow-up clearing sessions to remove all the young alien biodiversity conservation. The scheme requires accurate saplings that regrow after the initial clearing. record keeping of all vineyard activities. During the year plant clearing took place in a cumulative However, as only a small proportion of the raw material area of 739,9 hectare. we use comes from wholly-owned and partly-owned Distell farms, our external producers must also comply with IPW for us to be able to certify our wines under the new South African wine industry sustainability seal. Therefore all farms and wineries that supply Distell are required to comply with the IPW. We have signed contractual agreements in place and all our suppliers are IPW compliant.
Since the 2010 vintage, all of Distell’s certified wines carry the IPW sustainability seal issued by the Wine and Spirit Board. The seal is displayed only on wines which comply with IPW principles throughout their entire production chain, from farm to cellar and eventual packaging. This guarantees full production integrity.
43 Corporate responsibility review (continued)
‘In 2011 we established a company-wide Go Green movement to create awareness around Distell’s environmental policies, standards and various ISO requirements.’
To adapt to our changing climate we are diversifying our supply chain by developing vineyards in new wine-growing On-site fossil fuel-based energy usage* areas. We pioneered wine-growing in Elgin over 30 years ago, and more recently established vineyards in Gansbaai 1,44 1,35 1,37 1,33 with great success. Our dedicated plant nursery in the 1,23 Cape Winelands develops superior plant material for our farms, as well as the farms of supplier growers. Newly developed and adapted Mediterranean varietals have the 675 060 690 451 802 315 836 507 potential to withstand the warmer growing conditions 2010 2011 2012 2013 2018 predicted for the southern African continent. With access target to supplies from regions as climatically diverse as Agulhas Energy usage (GJ) and the Northern Cape, we are confident that we will be Energy usage per litre of packaged product (MJ/l) able to effectively adapt to changing climatic conditions. * using 2009 as base year. We are progressively implementing ISO 14001 certification at all our primary and secondary production facilities. At the end of the reporting period 41% (2012: 35%) of our Our largest impact on climate change is caused by burning sites were externally certified, while in total, 59% (2012: fossil fuels on-site to generate steam for our boilers, as 47%) of our sites have the required structures in place and well as the purchase of mainly coal-based electricity from are operating in accordance with the ISO 14001 system. Eskom. To reduce our impact (off our 2009 usage as a We will continue to implement the ISO 14001 systems and baseline), we aim to achieve a 25% reduction in on-site structures at more than one site per annum where feasible. energy usage from fossil fuel and a 15% reduction in electricity usage per litre of packaged product.
The accompanying graphs show we are on track towards Carbon footprint* achieving these goals. Fossil fuel-based energy usage 258,9 fluctuates year on year according to both market demand 259,7 243,8 and forward planning stock management. This year we managed a 18% reduction in electricity usage per litre of packaged product.
126 678 145 161 160 531
2011** 2012** 2013
Total emissions (tCO2e) Carbon emissions per million litres of packaged
product (tCO2e/million litres) Electricity usage* * Scope 1 and 2 emissions only. ** revised figures, see www.distell.co.za for more detail. 0,1259 0,1302 0,1276 0,1295 0,1230
This year we submitted our third annual carbon footprint 64 388 773 66 267 095 72 372 784 78 090 306 report to the Carbon Disclosure Project (CDP). Our 2010 2011 2012 2013 2018 direct emissions (Scope 1 and 2) increased by 11% to target Electricity usage (kWh) 160 531 tonnes CO2e (2012: 145 161 tCO2e), in line with the increase in production volumes. If we include Electricity usage per litre of packaged product (kWh/l) Scope 3 emissions, our total GHG emissions amount to * using 2009 as base year.
578 236 tonnes CO2e (2012: 546 016 tCO2e).
‘Our Business Improvement office held the second round of our War on Waste campaign. This year 30% of the projects identified by staff focused on saving natural resources.’
44 Our three biggest distilleries, the Worcester, Wellington ownership. Redressing this situation could have a negative and Goudini facilities, implemented a number of projects impact on agriculture and agricultural industries if it is not to improve their energy efficiency and reduce the amount managed proactively and judiciously. of coal required. At Worcester the flash steam that was previously vented to the atmosphere is now being All water usage at the different Distell sites is measured recovered and lagging installed in the distilling columns and recorded on a continuous basis, to allow for improved to reduce heat loss to the atmosphere. At Wellington management and reporting of water usage at a corporate hot water rather than steam is now used for specific level. While our total water usage increased by four per applications, while at Goudini, a thermo compressor was cent to 2,3 million cubic metres, we have set a target to installed to improve the heat recovery. Together these reduce our water usage per litre of packaged product by projects are estimated to reduce our annual coal usage by 10% by 2018, using 2009 as the base year. Our progress approximately 660 tonnes. This represents approximately towards this target is presented below: two per cent of our total annual coal usage. With the continued decline in water usage intensity, we We recently undertook energy audits at six production facilities during the year as part of the Industrial Energy Water usage* Efficiency Project, a co-operative project between the United Nations Industrial Development Organisation 3,76 (UNIDO), UK Aid and the South African and Swedish 4,43 4,10 4,00 3,81 Governments. Energy-saving projects implemented have resulted in a significant electricity saving of approximately 887 000 kWh. The new financial year will see the 2 189 532 2 151 211 2 236 709 2 334 652 installation of a methane-to-electricity generator at the Wellington facility. 2010 2011 2012 2013 2018 target Water usage (m3) We are also able to reduce our non-energy-related GHG Water usage per litre of packaged product (l/l) emissions by capturing, purifying and then using the * using 2009 as base year. carbon dioxide (CO2) released during the fermentation of the apple juice to carbonate our products. This in turn reduces our CO2 purchases. This year, with the expansion of our Monis cider plant in Paarl, we installed additional have reached our original 10% reduction target five years cider fermentation tanks and CO2 capturing technology, ahead of schedule. We will continue monitoring our water resulting in the capture of 15% more CO2. usage and review our target in the next financial year.
War on Waste Emissions captured (Tonnes of CO ) The reduction in water usage is primarily the result 2 of a water recycling project identified by a team of employees. The project pumps hot water from pasteurisers through cooling towers so that it can be used again. The estimated volume of water saved as a result of this project is approximately 100 000 m3 per annum. The project and its team received first prize for 3 567 3 235 4 393 5 087 innovation in our internal War on Waste programme. 2010 2011 2012 2013 The majority of our waste consists of organic primary waste as well as inorganic waste like glass bottles and other packaging waste. This year saw a nine per Distell is dependent on water for the agricultural cent increase in the volume of organic waste recycled production of its raw materials, and for its production and recovered. processes. The importance of securing a reliable supply We are actively working to reduce, reuse and recycle of water – and ensuring that the quality of the water is our glass packaging. While our production volumes protected – is critical as climate variability becomes more increased by approximately 11% this year, the volume evident. The availability of good-quality water is already of new glass we bought in actually decreased by 0,9%, limiting agricultural expansion, and the situation is likely to 248 790 tonnes. This reduction is attributable to to deteriorate further, especially considering that water using lighter glass, collecting and reusing through our availability will be significantly affected by climate change. ‘Give back, Get back’ campaign, introducing ‘Bag in a The implementation of the National Water Act, 1998, box’ (BIB) packaging for wine and cans for ciders, and and specifically its compulsory licensing requirements, exporting our products in bulk containers for bottling could severely impact Distell’s long-term sustainability. overseas. This year we collected and reused 77 802 Competition for water for environmental, social and tonnes of glass bottles, representing 23,8% of our total economic needs is a complex issue, particularly in relation glass bottle requirements. to the historical distribution of water and its link to land
45 Corporate responsibility review (continued)
Waste water is generated primarily as a result of washing The amount of organic matter discharged, as measured by and cleaning in place (CIP) practices at the different sites. its chemical oxygen demand (COD), reduced significantly CIP is critical to ensure our products comply with product to 4 629 459 kg COD (2012: 5 436 127 kg COD), despite quality and health and safety standards. Waste water is also the fact that the volume of effluent waste water produced produced as a by-product of the brandy distillling process. increased. This improvement can largely be ascribed to The volume of waste water per litre of packaged product, upgrades in water treatment at Durbanville Hills, Goudini, expressed as an intensity value, decreased to 2,30 litres of Wadeville and Worcester production sites. effluent per litre of packaged product (2012: 2,48 l/l).
Our approach to waste water disposal is to look for Waste loading of effluent* ways to reduce the load on the local authorities and use 12,62 treated waste water for irrigation while minimising our 9,70 environmental impact. The accompanying graph shows 9,79 7,44 that while total effluent discharged has increased, our usage intensity is decreasing.
4 857 668 6 580 333 5 436 127 4 629 459
2010 2011 2012 2013 Effluent discharged* Waste loading of effluent (kg COD) Waste loading per litre of effluent (g COD/l) 2,48 2,30 2,60 2,39 * Includes LUSAN figures.
1 294 459 1 248 579 1 389 256 1 430 153 Distell is currently involved in two proposed waste water treatment facility EIAs: one at our Goudini Distillery and 2010 2011 2012 2013 the other at our Adam Tas site. Both EIAs are close to Effluent discharged (m3) completion and the final environmental impact report Effluent discharged per litre of packaged product (l/l) for the Adam Tas project has been submitted to the authorities for final approval. In the next financial year we * Includes LUSAN figures. plan to conduct EIAs for a new treatment facility at our Worcester site and the upgrade of our Wellington site’s treatment facility.
46 47 Corporate governance
Commitment The annual corporate planning cycle, including strategic The board of directors is committed to applying the highest planning, target setting, business plans, budgeting and standards of professionalism, integrity, ethics, fairness and performance management, is conducted through a formal social responsibility to the way Distell conducts its business. process known as the Distell Management Operating It considers itself fully accountable to stakeholders in its System (DMOS). Key risks facing the group are identified ongoing commitment to applying the principles laid out in in these work sessions and risk mitigating responses are the King III Code of Governance (King III). formulated as part of the company’s business plans. The formal risk register, which results from this process, is We continue to integrate sustainability into our business presented to the board for assessment and approval. Risk strategy as we are conscious of the importance of management is monitored and reported on in appropriate environmental, social and governance issues to our long-term prosperity. Our social and ethics committee forums throughout the year. monitors sustainability performance to ensure the Group’s As in 2012, we prepared this report using the Global continuous improvement towards the highest standards Reporting Initiative’s (GRI) G3.1 guidelines and the of governance. recommendations of King III. The information contained in We use independent external advisers to monitor regulatory the sustainability report is audited to a large extent by the developments, both locally and internationally, thus enabling internal audit department. management to make recommendations to the board on matters of corporate governance. The board is of the The validation of the report has been more thorough opinion that the requirements of the Companies Act (No. 71 than in previous years. Although it is not fully validated, of 2008) and the Listings Requirements of the JSE Limited we are confident in our internal control system’s capacity (JSE) have been met. In line with the overarching ‘apply or and processes to ensure the information it contains does explain’ principle of King III, the board has, to the best of its not contradict the financial aspects of the integrated knowledge, applied or is embedding processes in support annual report. of the relevant King III principles. Our corporate responsibility issues are summarised on The board’s audit and risk committee monitors compliance pages 32 to 35. with both the JSE requirements and King III. Our full King III compliance checklist is available online (www.distell.co.za), which indicates any non- or partial compliance with the Compliance with applicable laws and King III principles for the period under review. regulations The company secretary and legal counsel are responsible We aim to be transparent in our management process to for guiding the board in carrying out its regulatory assure our shareholders and other stakeholders that the responsibilities. Together they have established a legal company is managed within prudently determined risk compliance framework which maintains an inventory of parameters, and in accordance with international best laws and regulations relevant to our business and that set practice and ethical norms. out procedures to monitor compliance and mitigate risk.
Sustainability We employ external specialists where necessary and Distell’s governing objective is to maximise value for conduct compliance training and education to reinforce shareholders and other key stakeholders, while also ethical behaviour across the Group. Courses attended contributing to national prosperity. In striving for this during the year include training on the Companies Act, objective, we remain cognisant of Distell’s impact on POPI Legislative Compliance, Law Seminar Briefing, society and the environment. We follow a formal process Sustainability Training for Managers, Transformation to identify and assess the major risks that could threaten Workshop and JSE Monitoring of Financial Planning. the sustainability of our operations. Management accepts the responsibility for implementing In the year under review we continued to integrate the controls necessary to ensure compliance with the law sustainability into our business strategy assisted by the and convergence with the values of the Group. social and ethics committee, which held its first meeting on 15 October 2012. The committee is chaired by an This year we established a social and ethics committee independent, non-executive director and comprises the and presented the newly required memorandum of managing director, the director for corporate affairs, the incorporation (MOI) at the annual general meeting, sustainability manager, company secretary and three thereby fulfilling the latest compliance requirements of executive management members. More information on the the Companies Act. Shareholders approved the MOI on committee appears on page 51. 17 October 2012.
48 Business ethics and organisational integrity We are committed to conducting our business with integrity and with proper regard for ethical business practices. The company expects all directors and employees to comply with these principles and to act in the best interests of the company at all times.
Our code of ethics and conduct is designed around a set of values. The code outlines standards of ethical behaviour that Distell requires of our employees in their dealings with one another, with customers, suppliers and society in general.
The code also covers areas of compliance with laws and regulations and provides an administrative process for communication and compliance.
Transparency and accountability through the ethics line All directors and employees are to avoid conflicts of interest and to refrain from insider trading, illegal anti-competitive activities, bribery and corruption. We encourage all staff members to remain vigilant and ‘blow the whistle’ on fraud, theft, corruption and other irregularities by anonymously reporting such acts to our independently operated 24-hour toll-free ethics line (Ethics hotline: 0800 004 822/[email protected]). Refer to page 35 in the ‘Our People’ section for statistics and results regarding the year under review.
Board of directors Independent non-executive directors Non-executive directors Executive directors DM Nurek (Chairperson) (5/6) PE Beyers (5/6) JJ Scannell (Managing director) (6/6) FC Bayly (5/6) Dr E de la H Hertzog (6/6) MJ Botha (6/6) JG Carinus (5/6) JJ Durand* (5/6) GP Dingaan (6/6) LC Verwey** (2/6) MJ Madungandaba (5/6) LM Mojela (4/6) The roles of the chairperson and managing director are separated, with CA Otto (4/6) responsibilities divided between them. AC Parker (6/6) The chairperson has no executive responsibilities. CE Sevillano-Barredo (6/6) Refer to pages 12 and 13 for more information on each board member. BJ van der Ross (5/6)
* appointed 1 July 2012. ** appointed 1 March 2013. (x/y) attended x number of meetings out of y number of meetings held.
Board role and responsibilities The board is ultimately responsible for the performance and affairs of the company, including corporate governance, the process of risk management and the overall success of approved strategies. Sub-committees established by the board assist in discharging its duties and responsibilities.
The board has adopted a charter setting out its responsibilities, accountability and duty towards Distell. It appreciates that strategy, risk, performance and sustainability are inseparable and that the strategic direction it sets for the company must integrate all these elements.
The board strives to act in the best interests of the company. The board assesses and authorises senior management’s plans and strategies, agrees on key performance indicators, and identifies key risk areas and responses. Executive management is then charged with the detailed planning and implementation of these strategies in accordance with appropriate risk parameters.
The main responsibilities of the board in terms of its charter are to: • Determine the company’s purpose and key objectives. • Provide strategic direction to the company. • Establish committees to assist it in discharging its responsibilities and duties. These are a remuneration and nominations committee, a social and ethics committee and an audit and risk committee (refer to separate sections for the roles these committees fulfil on behalf of the board). • Prepare annual financial statements that fairly represent Distell’s state of affairs by selecting and consistently applying suitable accounting policies.
49 Corporate Governance (continued)
• Implement internal controls to manage both financial In accordance with the memorandum of incorporation, and operational risks and periodically review its the board appoints a managing director annually. A notice adequacy and effectiveness. period of one month is specified in the employment • Evaluate the performance and effectiveness of contracts of all executive directors. No restraint of trade the directors, the board as a whole and its sub- agreements exist. committees on an annual basis. Individual performance standards have been set for both • Nominate and appoint new directors, including the executive and non-executive directors. Self-assessment chair of the board, chairs of committees and the against their individual and collective responsibilities is managing director. conducted annually, following the process laid out in the • Formulate the Group’s remuneration policy. board charter. • Consider and approve Distell’s annual business plan All directors have the expertise necessary to fulfil their and budget as submitted by management, including duties and enjoy significant influence at meetings. This sustainability initiatives. ensures a balance of authority and precludes any one • Retain full and effective control of the company, and director from exercising undue influence in terms of monitor management’s implementation of approved decision-making. business plans and budgets. Conflict of interest and director share trading • Oversee risk management and information technology It is incumbent on directors to act in the best interests governance. of the company at all times. All board members are • Consider significant financial matters such as required to sign a declaration disclosing the extent of investment proposals. their shareholdings in Distell, other directorships and any potential conflict of interest between their obligations to the • Monitor the company’s financial performance and company and their personal interests. progress on social and environmental issues. • Evaluate the viability of the company and the Group as Where a potential conflict of interest does exist, the a going concern. directors involved must recuse themselves from relevant discussions and decisions. Directors and the company • Ensure that the effectiveness of the company’s internal secretary are required to advise the chair and obtain controls is assessed and reported on. his clearance before dealing in Distell shares. Directors • Evaluate and approve the integrated annual report of subsidiary companies are required to advise the and interim financial statements, thereby ensuring that managing director and obtain his clearance, while other these reports fairly represent the business. senior employees require the approval and clearance of • Declare dividends to shareholders. the company secretary before dealing in Distell shares. Clearance is withheld during any closed period or where • Review annually the charters of all board committees. unpublished, price-sensitive information exists in relation to • Ensure sound governance. This includes compliance the company’s shares. with all applicable laws and regulations, codes and standards. Independent advice In appropriate circumstances individual directors may Appointment, orientation and development seek independent professional advice, at the expense of Board member appointments are transparently made the company, in order to enable them to discharge their and are a matter for the full board’s consideration. Our responsibilities as directors. formal appointment procedure is defined in our board charter which stipulates that every effort should be made Company secretary’s role, responsibilities and to ensure that the board’s composition adequately reflects competence the demographics of South Africa. The board is mindful The company secretary, Mr CJ Cronjé, is responsible to of the need to continuously infuse fresh thinking and a the board for ensuring that proper corporate governance relevant mix of skills and experience into the board. This principles are adhered to. He also assists with director ensures that it is adequately equipped to achieve the induction and ongoing training as necessary. His company’s objectives. qualifications include an MA degree and he was appointed to this role in 1990. Non-executive directors are appointed for their skills, knowledge and experience of other businesses and The company secretary prepares and circulates minutes sectors. They are expected to make effective and of board and committee meetings and is responsible for independent contributions to decision-making and policy ensuring that the board remains cognisant of its duties and formation. Generally, non-executive directors have no fixed responsibilities. He oversees the induction programme for term of appointment, but retire by rotation. At each annual new members of the board and key committees, including general meeting, at least a third of the directors (those subsidiary company directors. Directors receive ongoing longest in office) retire and, if available, may be considered training and are kept abreast of relevant changes in for reappointment. legislation and governance best practice. All directors have
50 unlimited access to, and may seek at any time the advice and services of, the company secretary. The company secretary attends all meetings of the board and its committees.
The board has considered and satisfied itself of the competence, qualifications and experience of the company secretary by way of completing a questionnaire regarding the competence of the company secretary and his role in the company. The company secretary demonstrates the requisite skills and knowledge of and experience with statutory and other requirements relevant to the company.
The company secretary maintains an arm’s-length relationship with the board and its directors as he is not a director of the company himself. He can therefore execute his responsibilities without influence or undue pressure.
Going concern Twice a year, the board reviews the Group’s current financial position, budgets and cash flow projections and decides whether, to the best of its judgement, there are adequate resources to continue with operations in the foreseeable future.
Board meetings and attendance The board meets at least every two months to review a formal schedule of matters, of which its members are fully briefed in advance. Effective chairing and a formal agenda ensures that all issues requiring attention are raised and addressed. This enables directors to discharge their responsibilities by determining whether prescribed functions have been carried out according to standards set within the boundaries of prudent, predetermined risk levels and in line with international best practice.
Board committees Audit and risk committee Remuneration and nominations Social and ethics committee committee CE Sevillano-Barredo (4/4) DM Nurek (3/3) GP Dingaan (2/2) GP Dingaan (4/4) AC Parker (2/3) JJ Scannell (1/2) DM Nurek (4/4) LM Mojela (2/3) MJ Botha (1/2) JJ Durand*** (3/3) Other non-board members include VC de Vries, CJ Cronjé, SW Klopper and W Bührmann. Chair: CE Sevillano-Barredo Chair: DM Nurek Chair: GP Dingaan
Role: The audit and risk committee Role: The committee also ensures Role: This committee is responsible plays an essential role in governing that the Group’s directors and senior for monitoring the company’s social the processes necessary to ensure executives as well as the non- and economic development, good that financial reporting throughout the executive directors are fairly rewarded corporate citizenship and labour Group is accurate and reliable. for their individual contributions to relations measured against various overall performance and in the best indicators. interest of the shareholders.
*** appointed 22 August 2012. (x/y) attended x number of meetings out of y number of meetings held. The above committees are responsible for the following business functions:
Group internal audit External audit Risk management
Sustainability IT governance Compliance with laws and regulations
While the board remains accountable for the performance and affairs of the company, it delegates specific responsibilities to committees which act within agreed mandates and written terms.
The board committees play an active oversight role in the guidance of the company strategy. They operate under board- approved charters, which are reviewed annually and updated when necessary to keep them aligned with current best practice. All committees are chaired by an independent non-executive director who attends the annual general meeting in order to respond to shareholder queries.
The audit and risk committee The audit and risk committee reviews the adequacy and effectiveness of the financial reporting process and the system of internal control. The committee also oversees the management of financial and operating risks, the audit process, and the company’s procedures for monitoring compliance with laws, regulations and Distell’s own code of business conduct. The committee makes recommendations to the board on all related matters.
51 Corporate Governance (continued)
From a risk perspective, the committee regularly evaluates Internal audit the Group’s exposure and response to significant • Review the organisational structure and qualifications business, strategic, statutory and financial risks, and of the internal audit function, and to be responsible ensures effective communication between directors, for the appointment, performance assessment and, if management and internal and external auditors. necessary, the dismissal of the Group internal auditor. • Review the effectiveness of the internal audit function The audit and risk committee is a statutory committee and approve the annual internal audit plan. under the Companies Act and King III. At each annual • Ensure no unjustified restrictions or limitations are general meeting the shareholders elect a new audit and made on executing the approved annual internal risk committee comprising at least three members. All audit plan. members are financially literate and have business and financial acumen. The board nominates a chair from time • Review internal audit reports submitted to the committee and monitor management’s response to to time. Catharina Sevillano-Barredo has chaired the audit recommendations made by the internal auditors. and risk committee since 2009. • Review the Internal Audit Charter annually and The internal and external auditors, the managing director, approve it before it is recommended to the board financial director and company secretary attend each for implementation. meeting. Members of the management team attend • Evaluate the annual review of internal financial controls as required. on behalf of the board and ensure that material weaknesses are reported to the board and are Audit and risk committee members, as well as the internal disclosed in the integrated annual report. and external auditors, have unlimited access to the chair and any information necessary to the discharging of Combined assurance their duties. • Ensure a combined assurance model (introduced by King III) is applied to all assurance activities, while Duties and responsibilities monitoring the relationship between internal and In accordance with its charter the audit and risk committee external auditors and other assurance providers. is required to: Other matters External audit • Receive and deal appropriately with any concerns • Nominate an independent and registered auditor to or complaints, whether from within or outside the be appointed as the Group’s external auditor under company, or on its own initiative, relating to: section 90 of the Companies Act. The committee must – the accounting practices and internal audit of the report on the auditor’s independence in the annual company; financial statements. – the content or auditing of the company’s financial statements; • Determine the fees to be paid to the auditor and the – the internal financial controls of the company; or auditor’s terms of engagement as well as the nature – any related matters. and extent of any non-audit services that the auditor may provide to the company, and to pre-approve any • Make submissions to the board on any matter proposed agreement with the auditor for the provision concerning the company’s accounting policies, of non-audit services to the company. financial controls, records and reporting.
• Review the audit scope and approach and ensure • Perform other functions determined by the board, including the development and implementation of a no unjustified restrictions or limitations are placed on policy and plan for a systematic, disciplined approach that scope. to evaluating and improving the effectiveness of risk • Receive all audit reports directly from the external management, control and governance processes auditor and review annually, and report on the quality within the company. and effectiveness of the audit process, including an • Report annually to the shareholders on: assessment of the external auditor’s performance. – the discharging of its statutory responsibilities; • Ensure a process for reporting any irregularities – its role and composition and meetings held; identified by the external auditor exists. – the adherence of financial statements to applicable • Ensure significant findings and recommendations accounting principles; and made by the external auditor are received and – the effectiveness of the internal financial controls. discussed on a timely basis, and to monitor • Review and approve the Group’s integrated annual management’s response to these recommendations. report, annual financial statements, interim reports and
52 other financial press releases, before final approval is Group reporting systems further in order to improve obtained from the board. accurate measurement and verification.
• Ensure that the board is aware of any matters, financial The social and ethics committee or legal, that may significantly affect the financial The Group established a social and ethics committee, condition or affairs of the Group. which held its first meeting on 15 October 2012, as • Satisfy itself of the effectiveness of the Group’s internal required by the new Companies Act. control system, including information technology security and control. The committee is responsible for monitoring Distell’s social and economic development, its corporate citizenship and • Review the effectiveness of the system for monitoring its labour relations, as measured against indicators which compliance with laws and regulations, and the include: effectiveness of management’s investigation of and action on any non-compliance or fraudulent acts. • The Broad-based Black Economic Empowerment Act • Evaluate annually the experience, expertise and • The Employment Equity Act performance of the financial director and the finance • The compliance with relevant legislation, including function and disclose the results in the integrated consumer protection laws annual report. • The Global Compact Principles of business conduct • Review compliance with Listings Requirements of the • The monitoring of the ethics line. JSE and King III principles. The committee meets bi-annually and is responsible for Independence of external auditor reporting to shareholders via the integrated annual report. Distell has a policy relating to the provision of audit, audit- related tax and other non-audit services by its independent The remuneration and nominations committee auditor. It clearly sets out the services that may and The remuneration and nominations committee ensures may not be performed by an independent auditor. The that the Group’s directors and senior executives, as well committee pre-approves audit and non-audit services to as the non-executive directors, are fairly rewarded for their ensure that neither the independence nor the objectivity of individual contributions to overall performance in a manner the auditors is impaired in the conduct of the audit. that serves the best interest of shareholders.
The committee is satisfied with the independence of the The remuneration and nominations committee comprises external auditor. four non-executive directors and is chaired by the chairperson of the board, DM Nurek. The analysis of audit fees and fees for non-audit services is provided on page 105. Duties and responsibilities • Determine and approve the Group’s general Expertise of the financial director and the finance remuneration policy, and table it at each annual general function meeting for approval by the shareholders. As required by the Listings Requirements of the JSE, the audit and risk committee considered the experience and • Review and approve annually the remuneration expertise of the Group’s financial director and is satisfied packages of the most senior executives, including that it is appropriate. The committee has also reviewed incentive pay and increases, ensuring they are and satisfied itself that the composition, experience appropriate and in line with the remuneration policy. and skills of the finance function meet the Group’s • Review annually the remuneration of the non- requirements. executive directors of the board and its committees and make proposals to the board for final approval by Discharge of responsibilities shareholders at the annual general meeting. The committee has determined that it has discharged both its legal and general responsibilities in terms of • Recommend the appointment of non-executive its charter during this financial year. Distell’s board is in directors to the board. agreement with this and has approved the interim and • Perform an annual self-assessment, and report on its year-end financial statements as well as the integrated findings to the board. annual report. • Approve amendments to the Group’s share-based The information contained in the integrated annual report incentive plans and subsequent share allocations to has been partially validated. In this regard, combined employees. assurance has been obtained from external and internal • Perform succession planning functions with regard to assurance providers. We are committed to developing senior management.
53 Corporate Governance (continued)
Remuneration policy Distell Limited has 14 executive directors, including the managing director and financial director, who are members Non-executive directors of the holding company board. We have disclosed their Non-executive directors receive a fixed annual retainer. compensation in total (refer to note 37 in the annual This remuneration is augmented by compensation for financial statements). We have not declared the salaries services on committees of the board. A premium is paid of the three most highly paid employees as required by to the chair of the board as well as the chair of the audit King III, for the following reasons: and risk committee. Remuneration is not linked to the • We consider it our competitive advantage to retain this company share price or performance and non-executive information. directors do not qualify for shares under the company’s • Some of our employees are paid in foreign currency share incentive scheme. The board annually reviews and overseas and their salaries are therefore not makes recommendations regarding the remuneration of necessarily comparable with domestic remuneration. non-executive directors for approval by shareholders.
Executive management Statement of internal control The board recognises the importance of systems Our remuneration strategy aims to attract, motivate of internal control that support the achievement of and retain competent, committed managers who have the Group’s policies and objectives, and is ultimately the ability to provide strategic direction and sustainably responsible for implementing and maintaining them. drive shareholder value. Accordingly, we seek to reward employees at market-related levels and in accordance It should be noted that these systems are designed to with their contribution to the Group’s operating and manage rather than eliminate the risk of overriding internal financial performance, by means of basic remuneration controls. They can provide reasonable, but not absolute, and additional short- and long-term incentives. Share assurance against misstatement or loss. incentives are considered a vital element of executive incentive pay to align their interests with those of the While the board of directors is responsible for internal Group’s shareholders. control systems and for reviewing their effectiveness, responsibility for their actual implementation and Distell usually structures packages on a total cost-to- maintenance rests with executive management. company basis, incorporating basic remuneration, car allowance, medical and retirement benefits. Remuneration The systems of internal control are based on established packages are reviewed annually and a formal system organisational structures, together with written policies of job evaluation, performance assessment and market and procedures, and provide for suitably qualified comparison ensures that remuneration is fair and sensible. employees, segregation of duties, clearly defined lines of authority and accountability. They also include standard All permanent employees participate in the Group’s cost and budgetary controls and comprehensive employee performance management system, where annual performance bonuses are determined based on management reporting. the level of achievement against financial and non-financial The effectiveness of, and adherence to, internal control objectives. Performance targets, aligned to the Group’s systems are monitored by the internal audit department strategies and business plans, are agreed on annually in through a process of control self-assessment (CSA). advance. If threshold performance levels are not achieved, The CSA programme supplements the existing audit no bonuses are paid. In addition, employees within the evaluation of internal control systems and is designed bargaining unit, by collective agreement, qualify for a fixed to assess, maintain and improve controls on an ongoing annual bonus equal to one month’s salary. basis. Internal control checklists formalise compliance with Long-term incentives critical internal controls and require management to report Long-term incentives are awarded in terms of the Distell on their own compliance on a monthly basis and provide Group Limited Equity Settled Share Appreciation Right an audit trail as proof thereof. Significant findings with Scheme (SARs). Employees are selected on individual respect to non-compliance with policies and procedures performance and retention criteria. The allocation is are highlighted in reports and brought to the attention of subject to the rules of the scheme which have been both management and the audit and risk committee. The approved by shareholders. audit methodology provides for independent validation of reported information to ensure reliability of the results. Recipients are entitled to Distell shares with a value equal to the increase in the market value of a Distell share over The Group’s treasury department is responsible for the period, multiplied by the number of SARs that were managing exposure to interest rate, liquidity and currency granted at inception and subsequently exercised by risks. Treasury functions and decisions are guided by each recipient involved. Employees are offered the share written policies and procedures, as well as by clearly appreciation rights at market value on the day of the defined levels of authority and permitted risk assumption. award. Therefore employees benefit only when additional While non-leveraged derivatives are purchased periodically value is created. to hedge specific interest rates or currency exposures, Group treasury does not undertake speculative financial Participants are entitled to exercise SARs granted to transactions. them in three tranches, i.e. on the third, fourth and fifth anniversaries of the SARs grant dates. All SARs granted In the period under review audit reviews did not indicate must be exercised by participants before the seventh any significant lapse in the functioning of internal controls. anniversary of the date on which the SARs were granted. The audit and risk committee and the board are satisfied
54 that control systems and procedures are suitably Internal audit implemented, maintained and monitored by qualified Internal audit provides assurance and consulting services, personnel, with an appropriate segregation of authority, involving an independent review of an organisation’s duties and reporting lines. records, operations and procedures to evaluate the efficiency, effectiveness, compliance and the existence of Internal financial controls adequate internal controls to mitigate risks in achieving the It is the responsibility of both the board and the audit organisation’s objectives. and risk committee to review and approve the annual financial statements. The external auditors, based on their Internal audit performs a key role in the Group’s audit, express an independent opinion of these annual assurance structure. The mandate of the internal audit financial statements. function is set out in the internal audit and audit and risk committee charters. The internal audit department Internal financial controls (IFC) are designed to mitigate the functions under the direction of the committee and has risk of material misstatement in the financial statements unrestricted access to its chair and a standing invitation and disclosures. to attend meetings of the executive committee. However, in order to protect its independence, it is not a member The audit and risk committee, in line with the requirements of these committees. Internal audit reports directly to the of King III, oversees a formal process that assesses committee chair and is also responsible to the financial and reports on the effectiveness of our IFCs annually. director on day-to-day matters. This entails identifying the risks of misstatement and the controls that address them, assessing the adequacy of the The department forms an integral part of the Group’s controls and confirming that they are properly maintained. combined assurance framework and, together with the facilitation role performed in the risk management The evaluation of the effectiveness of the IFCs entails process, establishes a robust, risk-based approach to both a top-down and bottom-up approach. Firstly, the identifying the risk management processes to be tested financial statement account balances disclosures that are and evaluated. This methodology enables internal audit deemed significant. These are analysed to determine the to provide assurance that the key strategic, statutory, systems and processes that contribute to the transactions financial and operational risks are understood, identified being recorded, accumulated and disclosed. Secondly, and effectively managed and mitigated. To ensure continuous control activities, carried out by employees that internal audit can fulfil its role within the changing on a daily basis, are evaluated by internal audit and are environment of the Group, the department appointed three mapped to financial statement accounts. additional employees during the year under review.
Combined assurance, adopted as a governance principle, The combined assurance framework forms the basis for considers all identified key risks and then determines how assessing potential risk areas to include in the yearly risk- assurance is best achieved and reported to the board based internal audit plan, which is approved in advance by the audit and risk committee. through the audit and risk committee. This co-ordinated approach to the execution of assurance activities Each audit assignment is followed by a detailed report to involves the participation of management, internal and executive management, including recommendations on external auditors, as well as other independent internal aspects requiring improvement. Internal audit provides an assurance providers. annual written assessment of the effectiveness of the system of internal controls to the audit and risk committee, which in The combined assurance model entails the following: turn reports the state of internal controls to the board. • Risk-based independent internal audits, covering all transaction cycles. A three-tier audit approach involves External audit independent audits by Group internal audit, regional The external auditors express an independent opinion on audits and continuous control self-assessment by the annual financial statements and provide reasonable, management. but not absolute, assurance on the accuracy and reliability of financial disclosures. • Embedded information technology system controls, tested by the external auditors and independent Information technology governance professional service providers. The board, through the audit and risk committee, is ultimately responsible for establishing frameworks • Comprehensive monthly management reporting that and processes to ensure adequate information follows standard cost and budgetary control systems. technology governance. • Special audit procedures regarding journal entries, reconciliations, manual interventions and year-end Information technology risks are governed by the Control processes. Objectives for Information and Related Technology (COBIT) governance framework. The framework provides an end- • Transparency of management estimates and to-end business view of the governance of enterprise IT judgements. that reflects the central role of information and technology • An effective complaint-gathering and management in creating value for the enterprise. The controls and system. procedures are identified and detailed in policy manuals. Compliance is measured against these standards by This year nothing came to the attention of the board and specialised independent service providers and internal the external or internal auditors to indicate any material audit. Management reports the progress of internal risk lapse in the functioning of internal financial controls. responses to the audit and risk committee.
55 Corporate Governance (continued)
Risk management • Human resource risks such as skills shortages and The board, through the audit and risk committee, is retention of talent. ultimately responsible for the governance of risk. The • Risk of environmental non-compliance. committee ensures that adequate frameworks and • Business interruption risks. methodologies are in place to identify risks, assess the probability of occurrence and review their impact. • Information technology risks. • Financial risks such as currency, interest rate and The committee reviews the effectiveness of the Group’s credit risk. risk management processes and plans. Risk registers of the Group’s significant risks are discussed, as are • Failure due to non-compliance with internal control management’s plans to control and mitigate these risks systems. within board-approved ranges of tolerance. The committee then reports to the board on the key risks facing the These risks and risk responses, which are also reported on Group and the responses adopted. A structured, formal in the sustainability report (www.distell.co.za), are included and planned approach to risk management determines in the Group’s integrated risk management structure. the Group’s risk profile. The identification, management The audit and risk committee is satisfied with the and reporting of risks are embedded in the Group’s formal effectiveness of the risk management process. management processes.
The Group has adopted a continuous, systematic and Stakeholder engagement and investor integrated enterprise-wide risk management process relations that focuses on identifying, assessing, managing and It is important that the board achieves an appropriate monitoring all known forms of risk across the Group. balance between its various stakeholder groups and the This includes economic, environmental, social impacts best interests of the company. The board is also aware of and opportunities. Management, assisted by external the growing demand for transparency and accountability consultants, continues to further develop and enhance its on sustainability issues and is therefore committed to comprehensive risk management framework and related providing timely and transparent information on corporate controls. This includes training and communication, strategy and financial performance. continuous control self-assessment by line management and comprehensive reporting. The Group manages communications with its key financial audiences, including institutional shareholders and financial A central risk manager is responsible for setting risk analysts. The goal is to pass timeous, relevant and management and associated financing policies and accurate information to all stakeholders in accordance with procedures. The central risk manager reports to the the Listings Requirements of the JSE. audit and risk committee. A work group supervises the activities of our decentralised risk management and loss Information sessions are conducted following the control departments. As a line function, the management publication of interim and final results. Executive directors, of operational risk is conducted in compliance with set as well as representatives from management, attend policies and standards. Performance is measured on these sessions. A broad range of public communication a regular basis through independent risk audits carried channels is also used to disseminate information. out by a central risk management function, assisted by independent consultants. The Group chairperson encourages shareholders to attend and actively participate in the annual general meeting. Major risks are the subject of ongoing attention by the The chairs of the Group’s audit and risk, remuneration board of directors and are given particular consideration in and nominations, and social and ethics committees are the Group’s annual board-approved business plans. The present to respond to questions from shareholders. Voting most significant risks currently faced by the Group include at annual general meetings is conducted by way of a those pertaining to: show of hands or a poll and the Group proposes separate • The building and protection of the image of our resolutions on each significant issue. The results of voting brands. and any issues raised at the meeting are released on the JSE’s electronic news service, SENS. • Change management to comply with new and changing laws and regulations. Closed periods • Legal compliance risks and governance. In line with its commitment to ethical business conduct, • Supply chain and procurement risks. the Group has in place personal account trading and directors’ dealings policies to restrict dealing in its • Excise risks. securities by directors and employees during closed • Illicit trading in alcohol. or price-sensitive periods. Compliance with policies is monitored on an ongoing basis. • Product tampering, sabotage or contamination risk and their impact on brand reputation. General investor interaction during this time is limited • The failure to achieve appropriate international to discussions on strategy and historical, publicly strategies and acquisitions. available information.
56 57 Annual FINANCIAL STATEMENTS
Consolidated ANNUAL FINANCIAL STATEMENTS
58 Annual FINANCIAL STATEMENTS
Directors’ responsibilities for financial reporting 60 Statements of financial position 64 Certificate by the company secretary 60 Income statements 65 Currency of financial statements 61 Statements of comprehensive income 66 Audit and risk committee report 61 Statements of changes in equity 67 Report of the board of directors 62 Statements of cash flows 70 Report of the independent auditor 63 Notes to the annual financial statements 71
59 Directors’ responsibilities for financial reporting
The South African Companies Act (No. 71 of 2008) requires The board of directors approves any change in accounting the directors to prepare annual financial statements for policy, with their effects fully explained in the annual each financial year which fairly present the state of affairs financial statements. of the company and the Group and the profits or losses for The directors have reviewed the Group’s budget and cash the period. In preparing these annual financial statements, flow projections for the period to 30 June 2014. Based they must: on these projections, and considering the Group’s current • select suitable accounting policies and apply them financial position and the financing facilities available to it, consistently; they are satisfied it has adequate resources to continue its operations in the foreseeable future. The annual financial • make judgements and estimates that are reasonable statements were prepared on a going concern basis. and prudent; • state whether set accounting standards have been No event, material to the understanding of this report, has followed, subject to any material departures disclosed occurred between the financial year-end and the date of and explained in the annual financial statements; and this report. • prepare the annual financial statements on the going A copy of the annual financial statements of the Group is concern basis unless it is inappropriate to presume the available on the company’s website. The directors are Group will continue in business. responsible for the maintenance and integrity of statutory and audited information on the company’s website. The directors are responsible for keeping proper accounting records, which disclose with reasonable accuracy at any The annual financial statements as set out on pages 62 to 128 were supervised by the financial director CA(SA), time the financial position of the company, to ensure the approved by the board of directors and are signed on financial statements comply with the Act. They have general its behalf: responsibility for taking such steps as are reasonably accessible to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
These annual financial statements are prepared in DM Nurek JJ Scannell accordance with International Financial Reporting Standards Chairperson Managing director and incorporate full and responsible disclosure in line with the accounting policies of the Group, supported by reasonable Stellenbosch and prudent judgements and estimates. 21 August 2013
Certificate by the company secretary
In my capacity as company secretary, I hereby confirm, in terms of the Companies Act (No. 71 of 2008), that for the year ended 30 June 2013, the Group has filed with the Commission all such returns as are required in terms of this act and that all such returns are true, correct and up to date.
CJ Cronjé Company secretary
Stellenbosch 21 August 2013
60 Currency of financial statements
The annual financial statements are expressed in South African rand (R).
The rand cost of a unit of the following major currencies at 30 June was:
2013 2012 US dollar 9,9 8,3 UK pound 15,2 13,0 Euro 13,0 10,5 Canadian dollar 9,5 8,1 Botswana pula 1,2 1,1 Australian dollar 9,2 8,5
Audit and risk committee report to the members of Distell Group Limited
The audit and risk committee has pleasure in submitting this report, as required in terms of the Companies Act (No. 71 of 2008). The audit and risk committee consists of three non-executive directors who act independently. During the year under review four meetings were held and the attendance of committee members is listed in the corporate governance report. At the meetings the members fulfilled all their functions as prescribed by the Companies Act. A detailed list of the functions of the audit and risk committee is contained in the corporate governance report. The audit and risk committee has satisfied itself that the auditors are independent of the company and are thereby able to conduct their audit functions without any influence from the company.
Catharina Sevillano-Barredo Chairperson of audit and risk committee
Stellenbosch 21 August 2013
61 Report of the Board of directors for the year ended 30 June 2013
The board has pleasure in reporting on the activities and Directors financial results for the year under review: The names of the directors, their attendance of meetings and their membership of board committees appear on Nature of activities pages 12 to 13, and 51. The company is an investment holding company with interests in liquor-related companies. Jannie Durand and Lucas Verwey were appointed as non-executive directors with effect from 1 July 2012 and The Group is South Africa’s leading producer and marketer 1 March 2013, respectively. of wines, spirits, ciders and ready-to-drinks.
Group financial review Share schemes Results There were no changes to the Group’s share schemes in the current financial year. 2013 2012 Year ended 30 June: R’000 R’000 Refer to note 10 to the annual financial statements for full Revenue 15 858 158 14 176 047 details on the Share Scheme as well as the Distell Equity Operating profit 1 787 687 1 412 325 Settled Share Appreciation Right Scheme (the SAR scheme). Attributable earnings 1 096 509 969 070 Directors’ interests and emoluments – Per share (cents) 540,8 479,3 Particulars of the emoluments of directors and their interests in the issued share capital of the company and Headline earnings 1 086 109 969 946 in contracts are disclosed in notes 37 to 39 to the annual – Per share (cents) 535,7 479,7 financial statements. Total assets 14 246 486 9 854 770 Total liabilities (6 965 936) (3 648 791) Events subsequent to statement of financial position date The annual financial statements on pages 62 to 128 set out The directors are not aware of any matter or circumstance fully the financial position, results of operations and cash arising since the end of the financial year that would flows of the Group for the financial year ended 30 June 2013. significantly affect the operations of the Group or the results Dividends of its operations. Total dividends for the year Holding company (R’000)* 681 049 598 372 The holding company of the Group is Remgro-Capevin – Per share (cents) 335,0 295,0 Investments Limited.
* The final dividend of 183 cents (2012: 152 cents) per share The Group structure appears on page 6. was declared after year-end and was therefore not provided for in the annual financial statements. Refer to note 28 to Secretary the annual financial statements for payment details. The name and address of the company secretary appears on the inside back cover. Subsidiary companies and investments The Group acquired an interest in the following subsidiaries Approval and joint ventures during the current financial year: The annual financial statements set out on pages 62 to 128 have been approved by the board. Business combinations – Burn Stewart Distillers Limited (United Kingdom) (100%) Signed on behalf of the board of directors: – Distell (Hong Kong) Limited (Hong Kong) (60%)
New companies – Distell Ghana Limited (Ghana) (60%)
Full details of the strategic investments listed under business DM Nurek JJ Scannell combinations are disclosed in note 35. Chairperson Managing director
Particulars of subsidiary companies, associated companies Stellenbosch and joint venture companies are disclosed in notes 41 to 43. 21 August 2013
62 Report of the independent auditor to the members of Distell Group Limited
We have audited the consolidated and separate financial of accounting policies used and the reasonableness of statements of Distell Group Limited set out on pages 64 accounting estimates made by management, as well as to 128, which comprise the statements of financial position evaluating the overall presentation of the financial statements. as at 30 June 2013, income statements, statements of comprehensive income, statements of changes in equity We believe that the audit evidence we have obtained and statements of cash flows for the year then ended, and is sufficient and appropriate to provide a basis for our the notes, comprising a summary of significant accounting audit opinion. policies and other explanatory information. Opinion Directors’ responsibility for the financial In our opinion, the financial statements present fairly, in all statements material respects, the consolidated and separate financial The company’s directors are responsible for the preparation position of Distell Group Limited as at 30 June 2013, and and fair presentation of these consolidated and separate its consolidated and separate financial performance and financial statements in accordance with International its consolidated and separate cash flows for the year then Financial Reporting Standards and the requirements of ended in accordance with International Financial Reporting the Companies Act of South Africa, and for such internal Standards and in the manner required by the Companies control as the directors determine is necessary to enable Act of South Africa. the preparation of consolidated and separate financial statements that are free from material misstatements, Other reports required by the Companies Act whether due to fraud or error. As part of our audit of the consolidated and separate financial statements for the year ended 30 June 2013, Auditor’s responsibility we have read the Directors’ Report, the Audit and Risk Our responsibility is to express an opinion on these Committee’s Report and the Certificate by the Company consolidated and separate financial statements based Secretary for the purpose of identifying whether there are on our audit. We conducted our audit in accordance with material inconsistencies between these reports and the International Standards on Auditing. Those standards audited consolidated and separate financial statements. require that we comply with ethical requirements and plan These reports are the responsibility of the respective and perform the audit to obtain reasonable assurance about preparers. Based on reading these reports we have not whether the consolidated and separate financial statements identified material inconsistencies between these reports are free from material misstatement. and the consolidated and separate financial statements. An audit involves performing procedures to obtain audit However, we have not audited these reports and accordingly evidence about the amounts and disclosures in the financial do not express an opinion on these reports. statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s PRICEWATERHOUSECOOPERS INC. preparation and fair presentation of the financial statements Director: H Zeelie in order to design audit procedures that are appropriate in Registered Auditor the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Stellenbosch An audit also includes evaluating the appropriateness 21 August 2013
63 Statements of financial position at 30 June
GROUP COMPANY 2013 2012 2013 2012 Notes R’000 R’000 R’000 R’000 ASSETS Non-current assets Property, plant and equipment 2 3 547 278 2 647 304 – – Biological assets 3 118 446 122 638 – – Financial assets 4 156 471 137 274 – – Investments in subsidiaries 5 – – 2 461 050 2 343 908 Investments in associates 5 48 477 62 022 – – Intangible assets 6 1 513 056 230 404 – – Retirement benefit assets 14 273 000 47 504 – – Deferred income tax assets 15 70 645 74 571 – – Total non-current assets 5 727 373 3 321 717 2 461 050 2 343 908
Current assets Inventories 7 6 338 274 4 489 281 – – Trade and other receivables 8 1 805 685 1 436 255 – – Current income tax assets 33 659 145 088 – – Cash and cash equivalents 341 495 462 429 – – Total current assets 8 519 113 6 533 053 – – Total assets 14 246 486 9 854 770 2 461 050 2 343 908
EQUITY AND LIABILITIES Capital and reserves Share capital 10 710 069 679 280 723 758 698 825 Non-distributable and other reserves 11 792 657 243 922 137 692 130 815 Retained earnings 12 5 747 491 5 267 263 1 599 600 1 514 268 Attributable to equity holders of the company 7 250 217 6 190 465 2 461 050 2 343 908 Non-controlling interest 30 333 15 514 – – Total equity 7 280 550 6 205 979 2 461 050 2 343 908
Non-current liabilities Interest-bearing borrowings 13 447 143 347 932 – – Retirement benefit obligations 14 22 604 80 954 – – Deferred income tax liabilities 15 483 722 231 067 – – Total non-current liabilities 953 469 659 953 – –
Current liabilities Trade and other payables 16 2 926 402 2 094 436 – – Interest-bearing borrowings 13 2 786 773 180 501 – – Provisions 17 295 329 708 772 – – Current income tax liabilities 3 963 5 129 – – Total current liabilities 6 012 467 2 988 838 – – Total equity and liabilities 14 246 486 9 854 770 2 461 050 2 343 908
64 Income statements for the years ended 30 June
GROUP COMPANY 2013 2012 2013 2012 Notes R’000 R’000 R’000 R’000 Revenue 18 15 858 158 14 176 047 702 659 645 689
Operating costs 19 (14 081 320) (12 762 506) – – Costs of goods sold (10 500 568) (9 557 842) – – Sales and marketing costs (2 040 205) (1 830 046) – – Distribution costs (989 124) (915 905) – – Administration and other costs (551 423) (458 713) – – Other gains 21 10 849 (1 216) – – Operating profit 1 787 687 1 412 325 702 659 645 689
Dividend income 22 6 279 7 645 Finance income 23 22 222 21 554 – – Finance costs 24 (262 926) (53 459) – – Share of profit of associates 25 57 668 37 160 – – Profit before taxation 1 610 930 1 425 225 702 659 645 689 Taxation 26 (518 356) (454 365) – – Profit for the year 1 092 574 970 860 702 659 645 689
Attributable to: Equity holders of the company 1 096 509 969 070 702 659 645 689 Non-controlling interest (3 935) 1 790 – – 1 092 574 970 860 702 659 645 689
Earnings per ordinary share (cents) 27 Basic 540,8 479,3 Diluted 496,1 447,4
65 Statements of comprehensive income for the years ended 30 June
GROUP COMPANY 2013 2012 2013 2012 Notes R’000 R’000 R’000 R’000 Profit for the year 1 092 574 970 860 702 659 645 689 Other comprehensive income (net of taxation) Items that may be reclassified subsequently to profit or loss: Fair value adjustments – available-for-sale financial assets 11 8 288 5 123 – – Currency translation differences 292 604 27 443 – – Items that will not be reclassified to profit or loss: Actuarial gains and losses 11 231 577 22 646 – –
Other comprehensive income for the year (net of taxation) 532 469 55 212 – – Total comprehensive income for the year 1 625 043 1 026 072 702 659 645 689
Attributable to: Equity holders of the company 1 626 512 1 024 282 702 659 645 689 Non-controlling interest (1 469) 1 790 – – 1 625 043 1 026 072 702 659 645 689
66 Statements of changes in equity for the years ended 30 June
Non- controlling Total Attributable to equity holders interest equity Share Non- capital distributable and Treasury and other Retained premium shares reserves earnings Total Notes R’000 R’000 R’000 R’000 R’000 R’000 R’000 Group 2013 Opening balance 698 825 (19 545) 243 922 5 267 263 6 190 465 15 514 6 205 979 Comprehensive income Profit for the year – – – 1 096 509 1 096 509 (3 935) 1 092 574
Other comprehensive income (net of taxation) Fair value adjustments: – available-for-sale financial assets 11 – – 8 288 – 8 288 – 8 288 Currency translation differences 11 – – 290 138 – 290 138 2 466 292 604 Actuarial gain on post- employment benefits 11 – – 231 577 – 231 577 – 231 577 Total other comprehensive income – – 530 003 – 530 003 2 466 532 469 Total comprehensive income for the year – – 530 003 1 096 509 1 626 512 (1 469) 1 625 043
Transactions with owners Employee share scheme: – proceeds from ordinary shares issued 10 24 933 (24 933) – – – – – – shares paid and delivered 10 – 30 789 – – 30 789 – 30 789 – value of employee services – – 11 855 – 11 855 – 11 855 BEE share-based payment 20 – – 6 877 – 6 877 – 6 877 Dividends paid 29.4 – – – (616 281) (616 281) – (616 281) Total contributions by and distributions to owners 24 933 5 856 18 732 (616 281) (566 760) – (566 760)
Changes in ownership interests in subsidiaries that do not result in a loss of control Transactions with non-controlling interests – – – – – 269 269 Contribution by non-controlling interest – – – – – 12 982 12 982 Non-controlling interest arising on business combination 35 – – – – – 3 037 3 037 Total transactions with owners 24 933 5 856 18 732 (616 281) (566 760) 16 288 (550 472) Balance at 30 June 2013 723 758 (13 689) 792 657 5 747 491 7 250 217 30 333 7 280 550
67 statements of changes in equity for the years ended 30 June
Non- controlling Total Attributable to equity holders interest equity Share Non- capital distributable and Treasury and other Retained premium shares reserves earnings Total Notes R’000 R’000 R’000 R’000 R’000 R’000 R’000 Group 2012 Opening balance 678 006 (14 299) 170 306 4 854 216 5 688 229 5 780 5 694 009 Comprehensive income Profit for the year – – – 969 070 969 070 1 790 970 860
Other comprehensive income (net of taxation) Fair value adjustments: – available-for-sale financial assets 11 – – 5 123 – 5 123 – 5 123 Currency translation differences 11 – – 27 443 – 27 443 – 27 443 Actuarial gain on post- employment benefits 11 – – 22 646 – 22 646 – 22 646 Total other comprehensive income – – 55 212 – 55 212 – 55 212 Total comprehensive income for the year – – 55 212 969 070 1 024 282 1 790 1 026 072
Transactions with owners Employee share scheme: – proceeds from ordinary shares issued 10 20 819 (20 819) – – – – – – shares paid and delivered 10 – 15 573 – – 15 573 – 15 573 – value of employee services – – 10 177 – 10 177 – 10 177 BEE share-based payment 20 – – 6 877 – 6 877 – 6 877 Dividends paid 29.4 – – – (556 023) (556 023) – (556 023) Total transactions with owners 20 819 (5 246) 17 054 (556 023) (523 396) – (523 396)
Decrease in ownership interests in subsidiaries that do not result in a loss of control Transaction with non-controlling interest 34 – – 1 350 – 1 350 7 944 9 294 Total transactions with owners 20 819 (5 246) 18 404 (556 023) (522 046) 7 944 (514 102) Balance at 30 June 2012 698 825 (19 545) 243 922 5 267 263 6 190 465 15 514 6 205 979
68 Non- controlling Total Attributable to equity holders interest equity Share Non- capital distributable and and other Retained premium reserves earnings Total Notes R’000 R’000 R’000 R’000 R’000 R’000 Company 2013 Opening balance 698 825 130 815 1 514 268 2 343 908 – 2 343 908 Comprehensive income Profit for the year – – 702 659 702 659 – 702 659 Total comprehensive income for the year – – 702 659 702 659 – 702 659
Transactions with owners Proceeds of ordinary shares issued 10 24 933 – – 24 933 – 24 933 BEE share-based payment 20 – 6 877 – 6 877 – 6 877 Dividends paid 29.4 – – (617 327) (617 327) – (617 327) Total transactions with owners 24 933 6 877 (617 327) (585 517) – (585 517) Balance at 30 June 2013 723 758 137 692 1 599 600 2 461 050 – 2 461 050
2012 Opening balance 678 006 123 938 1 425 800 2 227 744 – 2 227 744 Comprehensive income Profit for the year – – 645 689 645 689 – 645 689 Total comprehensive income for the year – – 645 689 645 689 – 645 689
Transactions with owners Proceeds of ordinary shares issued 10 20 819 – – 20 819 – 20 819 BEE share-based payment 20 – 6 877 – 6 877 – 6 877 Dividends paid 29.4 – – (557 221) (557 221) – (557 221) Total transactions with owners 20 819 6 877 (557 221) (529 525) – (529 525) Balance at 30 June 2012 698 825 130 815 1 514 268 2 343 908 – 2 343 908
69 Statements of cash flows for the years ended 30 June
GROUP 2013 2012 Notes R’000 R’000 Cash flows from operating activities Operating profit 1 787 687 1 412 325 Non-cash flow items 29.1 599 541 759 934 Working capital changes 29.2 (1 367 044) (443 833) Cash generated from operations 1 020 184 1 728 426
Dividend income 6 279 7 645 Finance income 22 222 21 554 Finance costs (208 700) (53 198) Taxation paid 29.3 (377 446) (558 505) Net cash generated from operating activities 462 539 1 145 922
Cash flows from investment activities Purchases of property, plant and equipment (PPE) to maintain operations 29.5 (277 447) (157 902) Purchases of PPE to expand operations 29.6 (464 608) (332 924) Proceeds from sale of PPE 24 327 4 768 Purchases of financial assets (11 287) (9 262) Proceeds from financial assets 64 956 19 516 Purchases of intangible assets (7 683) (3 606) Acquisition of subsidiaries, net of cash acquired (1 666 160) – Cash outflow from investment activities (2 337 902) (479 410)
Cash flows from financing activities Proceeds from ordinary shares issued 30 789 15 573 Proceeds from interest-bearing borrowings 1 881 516 104 232 Shares issued for cash to minority in subsidiary 12 982 – Dividends paid to company’s shareholders 29.4 (616 281) (556 023) Cash inflow from financing activities 1 309 006 (436 218)
Decrease in net cash, cash equivalents and bank overdrafts (566 357) 230 294 Cash, cash equivalents and bank overdrafts at the beginning of the year 462 429 229 850 Exchange gains on cash, cash equivalents and bank overdrafts 19 649 2 285 Cash, cash equivalents and bank overdrafts at the end of the year 29.7 (84 279) 462 429
70 Notes to the annual financial statements for the years ended 30 June
1. Significant accounting policies • IFRS 10: Consolidated Financial Statements 1.1 Basis of preparation (effective 1 January 2013) The annual consolidated financial statements of This standard builds on existing principles Distell Group Limited are prepared in accordance by identifying the concept of control as the with and comply with International Financial Reporting determining factor in whether an entity should Standards (IFRS) and the South African Companies Act be included within the consolidated financial (No. 71 of 2008). The annual financial statements are statements. The standard provides additional prepared on the historical cost convention, as modified guidance to assist in determining control where by the revaluation of certain financial instruments and this is difficult to assess. This new standard might biological assets to fair value. impact the entities that a group consolidates as its subsidiaries. These annual financial statements incorporate accounting policies that have been consistently • IFRS 11: Joint Arrangements (effective applied to both years presented, with the exception 1 January 2013) of the implementation of the following amendments to This standard provides for a more realistic published standards that became effective during the reflection of joint arrangements by focusing on the current financial year: rights and obligations of the arrangement, rather than its legal form. there are two types of joint • amendments to ias 1: presentation of financial arrangements: joint operations and joint ventures. Statements (effective 1 July 2012)* Joint operations arise where a joint operator has • amendments to ias 12: income taxes (effective rights to the assets and obligations relating to the 1 January 2012)* arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint * The relevance of these amendments to the published ventures arise where the joint operator has rights standards have been assessed with respect to to the net assets of the arrangement and hence the Group’s operations and it was concluded that, equity accounts for its interest. proportionate other than the additional presentational disclosures consolidation of joint ventures is no longer allowed. required, they did not have a material impact on the Group. • IFRS 12: Disclosure of Interest in Other Entities (effective 1 January 2013) Standards, interpretations and amendments to This standard includes the disclosure requirements existing standards that are not yet effective for all forms of interests in other entities including Management considered all new accounting standards, joint arrangements, associates, special purpose interpretations and amendments to IFRS that were entities and other off-balance sheet vehicles. issued prior to 30 June 2013, but not yet effective on that date. The standards that are applicable to the Group, • IFRS 13: Fair Value Measurement (effective but that were not implemented early, are the following: 1 January 2013) • IAS 19: Employee Benefits (effective This standard aims to improve consistency 1 January 2013) and reduce complexity by providing a precise The IASB has issued an amendment to IAS 19: definition of fair value and a single source of fair Employee Benefits, which makes significant value measurement and disclosure requirements changes to the recognition and measurement of for use across IFRS. defined benefit pension expense and termination benefits, and to the disclosure for all employee • Revised IAS 28: Investments in Associates benefits. and Joint Ventures (effective 1 January 2013) This standard now includes the requirements for • IFRS 9: Financial Instruments (effective joint ventures, as well as associates, to be equity 1 January 2015) accounted following the issue of IFRS 11. This IFRS is part of the IASB’s project to replace IAS 39. IFRS 9 addresses classification and • Revised IAS 27: Separate Financial measurement of financial assets and replaces the Statements (effective 1 January 2013) multiple classification and measurement models This standard includes the provisions on separate in IAS 39 with a single model that has only two financial statements that are left after the control classification categories: amortised cost and provisions of IAS 27 have been included in the fair value. new IFRS 10.
71 Notes to the annual financial statements for the years ended 30 June
• Amendments to IAS 32: Financial Instruments: c) Retirement benefits Presentation (effective 1 January 2014) The cost of pension benefits and post-retirement The iasB has issued amendments to the medical liability plans is determined using actuarial application guidance in IAS 32, that clarify some valuations. The actuarial valuations depend on a of the requirements for off-setting financial assets number of assumptions which include discount and financial liabilities on the balance sheet. rates, inflation rate, annual increase in health cost, expected retirement age, expected membership • Amendments to the transition requirements in continuance at retirement, expected rates of IFRS 10: Consolidated Financial Statements, return on assets, future salary increases, mortality IFRS 11: Joint Arrangements and IFRS 12: rates and future pension increases. Due to the Disclosure of Interests in Other Entities long-term nature of these plans, such estimates (effective 1 January 2013) are subject to significant uncertainty. further The amendments clarify that the date of initial details are provided in note 14. application is the first day of the annual period d) Biological assets in which IFRS 10 is adopted. Entities adopting The Group owns bearer biological assets in the IFRS 10 should assess control at the date of initial form of grapevines and certain assumptions and application; the treatment of comparative figures estimates are used to calculate the fair value of depends on this assessment. The amendments grapevines. Further details regarding assumptions also require certain comparative disclosures and estimates are provided in note 1.7 and note 3. under IFRS 12 upon transition. e) Available-for-sale financial assets 1.2 Critical accounting estimates and assumptions The Group follows the guidance of IAS 39 to The Group makes estimates and assumptions determine when an available-for-sale financial concerning the future and these accounting estimates asset is impaired. This determination requires are an integral part of the preparation of financial significant judgement. In making this judgement, statements. The resulting accounting estimates will, the Group evaluates, among factors, the duration by definition, seldom equal the related actual results. and extent to which the fair value of an investment The estimates and assumptions that have a significant is less than its cost; and the financial health of risk of causing a material adjustment to the carrying and short-term business outlook for the investee, amounts of assets and liabilities within the next financial including factors such as industry and sector year are as follows: performance, and operational and financing cash flow. a) Estimated impairment of goodwill and intangible assets f) Business combinations The Group tests annually whether goodwill and Where the Group acquires control of another the intangible assets with indefinite useful lives business, the consideration transferred has to have suffered any impairments, in accordance be allocated to the identifiable assets acquired, with the accounting policy stated in note 1.9. The the liabilities assumed and any non-controlling recoverable amounts of cash-generating units are interest in the acquired business, with any residual determined as being the higher of the value-in-use recorded as goodwill. This process involves or fair value less costs to sell. Calculation of these management making an assessment of the fair amounts requires the use of estimates. Further value of these items. management’s judgement details are provided in note 6. is particularly involved in the recognition and measurement of the following items: b) Income taxes • intellectual property: this includes patents, The Group is subject to income taxes in numerous licences, trademarks and similar rights for jurisdictions. significant judgement is required in currently marketed products determining the provision for income taxes. There • contingencies such as legal and environmental are many transactions and calculations for which matters the ultimate tax determination is uncertain. The • the recoverability of any accumulated tax Group recognises liabilities for anticipated tax audit losses previously incurred by the acquired issues based on estimates of whether additional company. taxes will be due. Where the final tax outcome of these matters is different from the amounts that In all cases management makes an assessment were initially recorded, such differences will impact based on the underlying economic substance the current tax and deferred tax assets and of the items concerned, and not only on the liabilities in the period in which such determination contractual terms, in order to fairly present is made. these items.
72 g) Property, plant and equipment is not remeasured, and its subsequent settlement is It is necessary for the Group to make use of accounted for within equity. judgement when determining the useful life of the property, plant and equipment. Details of these The excess of the consideration transferred, the estimates and assumptions are set out in the amount of any non-controlling interest in the acquiree relevant notes to the annual financial statements. and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the 1.3 Basis of consolidation Group’s share of the identifiable net assets acquired is Subsidiaries recorded as goodwill. If this is less than the fair value Subsidiaries are all entities (including special purpose of the net assets of the subsidiary acquired in the case entities) which are, directly or indirectly, controlled by of a bargain purchase, the difference is recognised the Group. Control is established where the Group has directly in the statement of other comprehensive power to govern the financial and operating policies income. Transactions with owners are recognised in of an entity, generally accompanying a shareholding of equity only when control is not lost. more than one-half of the voting rights, so as to obtain benefits from its activities. The existence and effect of Intercompany transactions, balances, income and potential voting rights that are currently exercisable or expenses on transactions between Group companies convertible are considered when assessing whether are eliminated. profit and losses resulting from the Group controls another entity. Subsidiaries are fully intercompany transactions that are recognised in consolidated from the date on which effective control assets are also eliminated. Accounting policies of is transferred to the Group. They are deconsolidated subsidiaries have been changed where necessary from the date that control ceases. to ensure consistency with the policies adopted by the Group. The acquisition method of accounting is used to account for business combinations by the Group. The investment of Distell Group Limited in the ordinary The consideration transferred for the acquisition of a shares of its subsidiary, South African Distilleries and subsidiary is the fair values of the assets transferred, Wines (SA) Limited, is carried at cost less impairment the liabilities incurred and the equity interests issued losses in the company financial statements. by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a Transactions and non-controlling interests contingent consideration arrangement. Acquisition- The Group treats transactions with non-controlling related costs are expensed as incurred. Identifiable interests as transactions with equity owners of the assets acquired and liabilities and contingent liabilities Group. For purchases from non-controlling interests, assumed in a business combination are measured the difference between any consideration paid and initially at their fair values at the acquisition date. On an the relevant share acquired of the carrying value of acquisition-by-acquisition basis, the Group recognises net assets of the subsidiary is recorded in equity when any non-controlling interest in the acquiree either at fair control is retained. Gains or losses on disposals to value or at the non-controlling interest’s proportionate non-controlling interests are also recorded in equity share of the recognised amounts of the acquiree’s provided control is retained. identifiable net assets. The determination of goodwill requires the previously held equity interest to be Associates adjusted to fair value with any gain or loss recorded in Associates are entities over which the Group has the income statement. between 20% and 50% of the voting rights, and over which the Group exercises significant influence, but If the business combination is achieved in stages, which it does not control. Investments in associates are the acquisition date carrying value of the acquirer’s accounted for using the equity method of accounting previously held equity interest in the acquiree is and are initially recognised at cost. The Group’s remeasured to fair value at the acquisition date; any investment in associates includes goodwill identified gains or losses arising from such remeasurement are on acquisition, net of any accumulated impairment recognised in profit or loss. loss. See note 1.9 for the impairment of non-financial assets including goodwill. Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. The Group’s share of post-acquisition profit or loss is Subsequent changes to the fair value of the contingent recognised in the income statement, and its share of consideration that is deemed to be an asset or liability post-acquisition movements in other comprehensive is recognised in accordance with IAS 39 either in profit income is recognised in other comprehensive income or loss or as a change to other comprehensive income. with a corresponding adjustment to the carrying amount Contingent consideration that is classified as equity of the investment. When the Group’s share of losses
73 Notes to the annual financial statements for the years ended 30 June
in an associate equals or exceeds its interest in the Foreign Group entities associate, including any other unsecured receivables, The results and the financial position of all Group entities the Group does not recognise further losses, unless it that have a functional currency that is different from the has incurred legal or constructive obligations or made presentation currency of the Group are translated into payments on behalf of the associate. the presentation currency as follows: • assets and liabilities for each statement of financial The Group determines at each reporting date whether position presented are translated at the closing rate there is any objective evidence that the investment in at the date of that statement of financial position. the associate is impaired. If this is the case, the Group • income and expenses for each income statement calculates the amount of impairment as the difference presented are translated at the average exchange between the recoverable amount of the associate rates (unless this average is not a reasonable and its carrying value and recognises the amount approximation of the cumulative effect of the rates adjacent to ‘share of profit/(loss) of an associate’ in the prevailing on the transaction dates, in which case income statement. income and expenses are translated at the rate on Profits and losses resulting from intercompany the dates of the transactions). transactions between the Group and its associate are • all resulting exchange differences are recognised recognised in the Group’s financial statements only as a separate component of equity in the foreign to the extent of unrelated investors’ interest in the currency translation reserve (FCTR). associate. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of When the foreign entity’s functional currency is the currency of a hyperinflationary economy the financial the asset transferred. Accounting policies of associates statements of these entities are restated for the have been changed where necessary to ensure changes in the general purchasing power of the consistency with the policies adopted by the Group. functional currency and, as a result, are stated in Dilution gains and losses arising on investment in terms of the measuring unit current at the statement associates are recognised in the income statement. of financial position date. All the line items in these inflation-adjusted financial statements are translated Joint ventures to the Group’s presentation currency at the closing Joint ventures are those entities over which the rate. The comparative amounts are those that were Group exercises joint control in terms of a contractual included in the Group’s results in the previous year. The agreement. the Group’s interests in jointly controlled resulting exchange rate differences are recognised in entities are accounted for by proportionate the income statement. consolidation. The Group combines its share of the joint ventures’ individual income and expenses, assets On consolidation, exchange rate differences arising from the translation of the net investment in foreign and liabilities and cash flows on a line-by-line basis with operations, and of borrowings and other currency similar items in the Group’s financial statements. The instruments designated as hedges of such investments, Group recognises the portion of gains or losses on the if applicable, are also taken to the FCTR. When a sale of assets by the Group to the joint venture that is foreign operation is partially disposed of or sold, all attributable to the other ventures. The Group does not related exchange rate differences that were recorded recognise its share of profits or losses from the joint in the FCTR are recognised in the income statement venture that result from the Group’s purchase of assets as part of the profit or loss on sale. The Group’s net from the joint venture until it resells the assets to an investment in a subsidiary or joint venture is equal to independent party. However, a loss on the transaction the equity investment plus all monetary items that are is recognised immediately if the loss provides evidence receivable from or payable to the subsidiary or joint of a reduction in the net realisable value of current venture, for which settlement is neither planned nor assets, or an impairment loss. likely to occur in the foreseeable future.
1.4 Foreign currency translation Goodwill and fair value adjustments arising on the Functional and presentation currency acquisition of a foreign entity are treated as assets and Items included in the financial statements of each of liabilities of the foreign entity and are translated at the the Group’s entities are measured using the currency of closing rate. the primary economic environment in which the entity operates (the functional currency). The consolidated Transactions and balances financial statements are prepared in South African Foreign currency transactions are translated into the rands (‘R’) which is the company’s functional and the functional currency using the exchange rates prevailing Group’s presentation currency. at the dates of the transactions or valuation where items
74 are remeasured. Foreign exchange gains and losses at rates appropriate to the various classes of assets resulting from the settlement of such transactions and involved, taking into account the estimated useful life from the translation at year-end exchange rates of and residual values of the individual items. Land is monetary assets and liabilities denominated in foreign not depreciated, as it is deemed to have an unlimited currencies are recognised in the income statement, useful life. Improvements to leasehold properties are except when deferred in equity as qualifying cash flow recognised as property, plant and equipment when it hedges and qualifying net investment hedges. is probable that future economic benefits will flow to the Group. Improvements to leasehold properties are Foreign exchange gains and losses that relate to shown at cost and written off over the remaining period borrowings and cash and cash equivalents are of the lease. presented in the income statement within ‘finance income or cost’. All other foreign exchange gains and Management determines the estimated useful lives losses are presented in the income statement within and the related depreciation charges at acquisition. ‘other (losses)/gains – net’. Useful lives: Changes in the fair value of monetary securities Buildings 5 – 60 years denominated in foreign currency classified as available- Stainless steel tanks 3 – 45 years for-sale are analysed between translation differences Other machinery and barrels 2 – 50 years resulting from changes in the amortised cost of the Equipment and vehicles 2 – 33 years security, and other changes in the carrying amount of Capitalised finance lease vehicles 4 years the security. Translation differences related to changes in amortised cost are recognised in profit or loss, and The assets’ residual values and useful lives are other changes in carrying amount are recognised reviewed, and adjusted if appropriate, at the end of each in equity. reporting period.
Translation differences on non-monetary financial assets Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as and liabilities such as equities held at fair value through appropriate, to the extent that it is probable that future profit or loss are recognised in profit or loss as part of economic benefits associated with the item will flow to the fair value gain or loss. Translation differences on non- the Group and the cost of the item can be measured monetary financial assets such as equities classified reliably. The carrying amount of the replaced part is as available-for-sale are included in the fair value derecognised. All other repairs and maintenance are adjustments reserve in equity. charged to the income statement during the financial 1.5 Segment reporting period in which they are incurred. Operating segments are reported in a manner An asset’s carrying amount is written down immediately consistent with the internal reporting provided to its recoverable amount if the asset’s carrying amount to the chief operating decision-maker (executive is greater than its estimated recoverable amount. The management team). Operating segments are individual recoverable amount is calculated as the higher of components of an entity that engage in business the asset’s fair value less cost to sell and the value activities from which it may earn revenues and incur in use. Also refer to note 1.9 for impairment of non- expenses, and whose operating results are regularly financial assets. reviewed by the entity’s chief operating decision-maker and for which discrete financial information is available. Gains and losses on disposal or scrapping of property, Operating segments which display similar economic plant and equipment, being the difference between characteristics are aggregated for reporting purposes. the net proceeds on disposals or scrappings and the carrying amount, are recognised in the income 1.6 Property, plant and equipment statement within ‘other (losses)/gains’. Property, plant and equipment are tangible assets held by the Group for use in manufacturing and distribution 1.7 Biological assets of its products and are expected to be used during Biological assets consist of grapevines and are more than one period. All property, plant and equipment measured on initial recognition and at the end of each are stated at historical costs less subsequent reporting period at its fair value less cost to sell. depreciation and accumulated impairment. The historical cost includes all expenditure that is directly Gains and losses arising from changes in fair value less attributable to the acquisition of the property, plant costs to sell are included in ‘administration and other and equipment and is depreciated on a straight-line costs’ in the income statement in the period in which basis, from the date that assets are available for use, they arise.
75 Notes to the annual financial statements for the years ended 30 June
Grapes harvested from the Group’s biological assets of identifiable and unique software controlled by are measured at its fair value less cost to sell at the point the Group, and that will probably generate future of harvest. Such measurement is the cost at that date economic benefits beyond one year, are recognised when transferring the harvest produce to inventory. as intangible assets. Direct costs include the software development employee costs and an appropriate The determination of fair value less costs to sell of portion of relevant overheads. biological assets requires significant management judgement and, amongst others, the following factors Computer software is depreciated on the straight-line are considered: the discount rate, productive life of method over its estimated useful life (three to five years) grapevines, rental value of farm land and expected when available for use. sales prices. 1.9 Impairment of non-financial assets 1.8 Intangible assets Assets that have an indefinite useful life – for example Goodwill goodwill or intangible assets not ready for use – are not Goodwill represents the excess of the cost of an subject to amortisation and are tested for impairment acquisition over the fair value of the Group’s share of annually. assets that are subject to amortisation are the net identifiable assets of the acquired subsidiaries, reviewed for impairment whenever events or changes in joint ventures and associates at the date of acquisition. circumstances indicate that the full carrying amount may Goodwill on acquisition of subsidiaries and joint not be recoverable. An impairment loss is recognised ventures is included in ‘intangible assets’. Goodwill on for the amount by which the asset’s carrying amount acquisition of associates is included in ‘investments exceeds its recoverable amount. The recoverable in associates’ and is tested for impairment as part of amount is the higher of an asset’s fair value less costs the overall balance. Goodwill denominated in a foreign to sell and value in use. For the purpose of assessing currency is translated at closing rates. Separately impairment, assets are grouped at the lowest level recognised goodwill is tested annually for impairment for which there are separately identifiable cash flows and carried at cost less accumulated impairment (cash-generating units). Non-financial assets, other losses. Impairment losses on goodwill are not reversed. than goodwill, that suffered impairment are reviewed for Goodwill is allocated to cash-generating units for the possible reversal of impairment at each reporting date. purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash- 1.10 Financial assets generating units that are expected to benefit from the Classification business combination in which the goodwill arose, The Group classifies its financial assets in the following identified according to operating segment. Gains or categories: losses on disposal of an entity include the carrying • financial assets at fair value through profit and loss amount of goodwill relating to the entity disposed. • Loans and receivables Trademarks • available-for-sale financial assets Separately acquired trademarks are shown at historical cost. Trademarks that have a finite useful life are carried The classification is dependent on the purpose for at cost less accumulated amortisation. Amortisation is which the financial asset was acquired. Management calculated using the straight-line method to allocate determines the classification of its financial assets at the cost of trademarks over their estimated useful lives. initial recognition. Trademarks are deemed as having an indefinite useful life when there is no foreseeable limit on the time the Financial assets at fair value through profit and loss trademarks are expected to provide future cash flows. Financial assets at fair value through profit and loss Trademarks that are deemed to have an indefinite are financial assets held for trading. A financial asset useful life are carried at cost less accumulated is classified in this category if acquired principally for impairment losses, and tested annually for impairment. the purpose of selling in the short term. Derivatives are also categorised as held-for-trading unless they Computer software are designated as hedges. Assets in this category are Acquired computer software (which is not an integral classified as current assets. part of computer hardware) and software licences and the direct costs associated with the development and Loans and receivables installation thereof are capitalised. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are Costs associated with developing or maintaining not quoted in an active market. They are included software are recognised as an expense when incurred. in current assets, except for maturities greater than Costs that are directly associated with the development 12 months after the statement of financial position
76 date. These are classified as non-current assets. The Interest on available-for-sale securities calculated using Group’s loans and receivables comprise ‘trade and the effective interest rate method is recognised in the other receivables’ and ‘cash and cash equivalents’ in income statement within ‘finance income’. Dividends the statement of financial position. on available-for-sale equity instruments are recognised in the income statement when the Group’s right to Available-for-sale financial assets receive payments is established. Available-for-sale financial assets are non-derivatives that are either designated in this category or not Offsetting financial instruments classified in any of the other categories. They are Financial assets and liabilities are off-set and the net included in non-current assets unless management amount reported in the statement of financial position intends to dispose of the investment within 12 months when there is a legally enforceable right to off-set the of the end of the reporting period. recognised amounts and there is an intention to settle Recognition and measurement on a net basis or realise the asset and settle the liability Regular purchases and sales of investments are simultaneously. recognised on trade date – the date on which Impairment of financial assets the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus Assets carried at amortised cost transaction costs for all financial assets not carried at The Group assesses at the end of each reporting fair value through profit or loss. Financial assets carried period whether there is objective evidence that a at fair value through profit or loss are initially recognised financial asset or group of financial assets is impaired. at fair value and transaction costs are expensed in the A financial asset or a group of financial assets is income statement. Financial assets are derecognised impaired and impairment losses are incurred only if when the rights to receive cash flows from the there is objective evidence of impairment as a result investments have expired or have been transferred and of one or more events that occurred after the initial the Group has transferred substantially all risks and recognition of the asset (a ‘loss event’) and that loss rewards of ownership. Available-for-sale investments event (or events) has an impact on the estimated future and financial assets at fair value through profit or cash flows of the financial asset or group of financial loss are subsequently carried at fair value. Loans assets that can be reliably estimated. and receivables and held-to-maturity investments are carried at amortised cost using the effective interest Evidence of impairment may include indications that rate method. the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in Gains or losses arising from changes in the fair value interest or principal payments, the probability that they of the ‘financial assets at fair value through profit or will enter bankruptcy or other financial reorganisation, loss’ category are presented in the income statement and where observable data indicate that there is a within ‘other (losses)/gains – net’ in the period in which measurable decrease in the estimated future cash they arise. Dividend income from financial assets at fair flows, such as changes in arrears or economic value through profit or loss is recognised in the income conditions that correlate with defaults. statement as part of other income when the Group’s right to receive payments is established. The Group first assesses whether objective evidence of impairment exists. Changes in the fair value of monetary securities denominated in a foreign currency and classified as The amount of the loss is measured as the difference available-for-sale are analysed between translation between the asset’s carrying amount and the present differences resulting from changes in amortised cost value of estimated future cash flows (excluding future of the security and other changes in the carrying credit losses that have not been incurred) discounted amount of the security. The translation differences in at the financial asset’s original effective interest rate. monetary securities are recognised in profit or loss, and translation differences on non-monetary securities are The carrying amount of the asset is reduced and recognised in other comprehensive income. Changes the amount of the loss is recognised in the income in the fair value of monetary securities classified statement. If a loan or held-to-maturity investment has as available-for-sale and non-monetary securities a variable interest rate, the discount rate for measuring classified as available-for-sale are recognised in other any impairment loss is the current effective interest comprehensive income. When securities classified as rate determined under the contract. As a practical available-for-sale are sold or impaired, the accumulated expedient, the Group may measure impairment on the fair value adjustments recognised in equity are included basis of an instrument’s fair value using an observable in the income statement as ‘other (losses)/gains’. market price.
77 Notes to the annual financial statements for the years ended 30 June
If, in a subsequent period, the amount of the Financial guarantee contracts are recognised initially at impairment loss decreases and the decrease can fair value and subsequently at the higher of the amount be related objectively to an event occurring after the in accordance with IAS 37 and the amount initially impairment was recognised (such as an improvement recorded, less appropriate cumulative amortisation in the debtor’s credit rating), the reversal of the recognised in accordance with IAS 18. previously recognised impairment loss is recognised in the consolidated income statement. 1.12 Current and deferred income tax The tax expense for the period comprises current and Assets classified as available-for-sale deferred tax. Tax is recognised in the income statement, The Group assesses at the end of each reporting except to the extent that it relates to items recognised in period whether there is objective evidence that a other comprehensive income or directly in equity. In this financial asset or a group of financial assets is impaired. case the tax is also recognised in other comprehensive For debt securities, the Group uses the criteria referred income or directly in equity, respectively. to in ‘Assets carried at amortised cost’ above. In the case of equity investments classified as available-for- Taxation rates The normal South African company tax rate used for sale, a significant or prolonged decline in the fair value the year ending 30 June 2013 is 28% (2012: 28%). of the security below its cost is also evidence that the Deferred tax assets and liabilities for South African assets are impaired. If any such evidence exists for entities at 30 June 2013 have been calculated using available-for-sale financial assets, the cumulative loss the 28% (2012: 28%) rate, being the rate that the – measured as the difference between the acquisition Group expects to apply to the periods when the cost and the current fair value, less any impairment loss assets are realised or the liabilities are settled. Capital on that financial asset previously recognised in profit gains tax is calculated as 66,6% of the company or loss – is removed from equity and recognised in tax rate. international tax rates vary from jurisdiction the income statement. Impairment losses recognised to jurisdiction. in the income statement on equity instruments are not reversed through the income statement. Current income tax If, in a subsequent period, the fair value of a debt The current income tax charge is calculated on instrument classified as available-for-sale increases the basis of the tax laws enacted or substantively and the increase can be objectively related to an event enacted at the statement of financial position date in occurring after the impairment loss was recognised in the countries where the company’s subsidiaries and profit or loss, the impairment loss is reversed through associates operate and generate taxable income. the income statement. Management periodically evaluates positions taken in tax returns with respect to situations in which Impairment testing of trade receivables is described in applicable tax regulation is subject to interpretation and note 1.15. establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities. 1.11 Derivative financial instruments and hedging activities Deferred income tax The Group is party to financial instruments that reduce Deferred income tax is provided in full at currently exposure to fluctuations in foreign currency exchange enacted or substantially enacted tax rates using the and interest rates. These instruments mainly comprise liability method. provision is made for all temporary forward foreign exchange contracts. The purpose of differences arising between the taxation bases of these instruments is to reduce risk. assets and liabilities and their statement of financial position carrying values. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and No deferred income tax is accounted for if it arises from are subsequently remeasured at their fair value. The initial recognition of an asset or liability in a transaction method of recognising the resulting gain or loss other than a business combination that at the time of depends on whether the derivative is designated as a the transaction affects neither accounting nor taxable hedging instrument and, if so, the nature of the item profit or loss. Deferred income tax is determined being hedged. using tax rates (and laws) that have been enacted or substantially enacted by the statement of financial Offsetting position date and are expected to apply when the Where a current legally enforceable right of set-off related deferred income tax asset is realised or the exists for recognised financial assets and financial deferred income tax liability is settled. liabilities, and where there is an intention to settle the liability and realise the asset simultaneously, or to settle Deferred income tax assets are recognised to the on a net basis, all related financial effects are off-set. extent that it is probable that future taxable profit will
78 be available against which the temporary differences Net realisable value is the estimated selling price in the can be utilised. management applies judgement to ordinary course of business, less the applicable costs determine whether sufficient future taxable profit of completion and selling expenses. will be available after considering, amongst others, factors such as profit history, forecasted cash flows Costs of inventories include any gains or losses and budgets. transferred from equity on qualifying cash flow hedges used in the purchase of raw materials. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, 1.15 Trade and other receivables associates and joint ventures, except where the timing Trade and other receivables are initially recognised at of the reversal of the temporary difference can be fair value and subsequently measured at amortised controlled by the Group and it is probable that it will cost using the effective interest rate method, less not reverse in the foreseeable future. provision for impairment. Fair value is the estimated future cash flows discounted at a market-related Deferred income tax assets and liabilities are off-set interest rate. when there is a legally enforceable right to off-set current tax assets against current tax liabilities and A provision for impairment of trade receivables is when the deferred income tax assets and liabilities established when there is objective evidence that relate to income taxes levied by the same taxation the Group will not be able to collect all amounts due authority on either the taxable entity or different according to the original terms of the receivables. Significant financial difficulties of the debtor, probability taxable entities where there is an intention to settle the that the debtor will enter bankruptcy or financial balances on a net basis. reorganisation, and default or delinquency in payments 1.13 Leases are considered indicators that the trade receivable is The Group leases certain property, plant and impaired. The amount of the provision is the difference equipment. Capitalised leased assets are assets between the carrying amount and the recoverable leased in terms of finance lease agreements where amount, being the present value of the expected cash the Group has substantially all the risks and rewards flows, discounted at the original effective interest rate. of ownership. Finance leases are capitalised at the The carrying amount of the asset is reduced through lease’s commencement at the lower of the fair value the use of an allowance account, and the amount of the leased item or the present value of the minimum of the loss is recognised in the income statement lease payments. Depreciation is provided on the within ‘operating expenses’. When a trade receivable straight-line method over the shorter of the lease term is uncollectible, it is written off against the allowance and its estimated useful life. Each lease payment is account for trade receivables. Subsequent recoveries allocated between the liability and finance charges so of amounts previously written off are credited against as to achieve a constant rate on the finance balance ‘operating costs’ in the income statement. outstanding. The corresponding rental obligations, net of finance charges, are included in other long-term 1.16 Cash and cash equivalents payables. The interest element of the finance cost is Cash and cash equivalents comprise cash on hand, charged to the income statement over the lease period deposits held at call with banks, other short-term so as to produce a constant periodic rate of interest on highly liquid investments with original maturities of three the remaining balance of the liability for each period. months or less, and bank overdrafts. Bank overdrafts are included in current interest-bearing borrowings in Leases of assets in terms of which all the risks and the statement of financial position. benefits of ownership are effectively retained by the lessor are classified as operating leases. payments 1.17 Share capital made under operating leases are charged to the Ordinary shares are classified as equity. Incremental income statement on a straight-line basis over the costs directly attributable to the issue of new shares lease term. or options are shown in equity as a deduction from proceeds, net of taxation. 1.14 Inventories Inventories are stated at the lower of cost and net Where entities controlled by the Group purchase the realisable value. Cost is determined by the first-in company’s shares, the consideration paid, including first-out (FIFO) method. The cost of finished goods attributable transaction costs net of income taxes, is and work in progress comprises raw materials, direct deducted from total shareholders’ equity as treasury labour, other direct costs and related production shares until they are sold or cancelled. Where such overheads (based on normal operating capacity), but shares are subsequently sold, any consideration excludes borrowing cost. received, net of any directly attributable incremental
79 Notes to the annual financial statements for the years ended 30 June
transaction costs and the related income tax effects, is incurred or when activities that are necessary to prepare included in equity attributable to the company’s equity the asset for its intended use or sale, are in progress. holders. Dividends received on treasury shares are Capitalisation is suspended during extended periods in eliminated on consolidation. which active development is interrupted. Capitalisation ceases when substantially all the activities necessary 1.18 Trade and other payables to prepare the qualifying asset for its intended use or Trade payables are obligations to pay for goods or sale are complete. services that have been acquired in the ordinary course of business from suppliers. Accounts payable are All other borrowing costs are recognised as an expense classified as current liabilities if payment is due within in profit or loss in the period in which they are incurred. one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non- 1.20 Provisions current liabilities. Provisions are recognised when the Group has a present legal or constructive obligation, as a result of past Trade and other payables are recognised initially at fair events, and it is probable that an outflow of resources value and subsequently measured at amortised cost embodying economic benefits will be required to settle using the effective interest rate method. the obligation, and a reliable estimate of the amount of the obligation can be made. Provisions are measured 1.19 Borrowings Borrowings are recognised initially at fair value, at the present value of the expenditures expected to net of transaction costs incurred. Borrowings are be required to settle the obligation using a pre-tax rate subsequently stated at amortised cost. Any difference that reflects current market assessments of the time between the proceeds (net of transaction costs) and value of money and the risks specific to the obligation. the redemption value is recognised in the income The increase in the provision due to passage of time statement over the period of the borrowings using is recognised as interest expense. Provisions are not the effective interest rate method. Borrowings are recognised for future operating losses. classified as current liabilities unless the Group has the 1.21 Employee benefits unconditional right to defer settlement of the liability Retirement funds for at least 12 months after the statement of financial position date. The Group provides pension, retirement or provident fund benefits to all employees. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the The schemes are generally funded through payments extent that it is probable that some or all of the facility to insurance companies or trustee-administered will be drawn down. In this case, the fee is deferred funds, determined by periodic actuarial calculations. until the drawdown occurs. To the extent there is no The Group has both defined-contribution and defined- evidence that it is probable that some or all of the benefit plans. facility will be drawn down, the fee is capitalised as a A defined-contribution plan is a plan under which the prepayment for liquidity services and amortised over Group pays fixed contributions into a separate entity. the period of the facility to which it relates. The Group has no legal or constructive obligations Borrowing costs that are directly attributable to the to pay further contributions if the fund does not hold acquisition, construction or production of a qualifying sufficient assets to pay all employees the benefits asset are capitalised as part of the cost of that asset relating to employee service in the current and until such time as the asset is ready for its intended prior periods. use. When funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount to The Group’s contributions to defined-contribution be capitalised is the actual borrowing costs less any plans in respect of services rendered in a particular temporary investment income on those borrowings. period are recognised as an expense in that period. General borrowing costs are capitalised by calculating Additional contributions are recognised as an expense the weighted average expenditure on the qualifying in the period during which the associated services are asset and applying a weighted average borrowing rate rendered by employees. to the expenditure. A defined-benefit plan is a plan that is not a defined- The borrowing costs capitalised do not exceed the contribution plan. This plan defines an amount of total borrowing costs incurred. The capitalisation of pension benefit an employee will receive on retirement, borrowing costs commences when expenditures for dependent on one or more factors such as age, years the asset have occurred, borrowing costs have been of service and compensation.
80 The liability recognised in the statement of financial settled share incentive scheme through The Distell position in respect of defined-benefit pension plans is Group Share Trust, as well as an equity-settled share the present value of the defined-benefit obligation at the appreciation right scheme (SAR scheme). statement of financial position date less the fair value of plan assets together with adjustments to unrecognised A share or SAR scheme is considered equity settled past service costs. The defined-benefit obligation is when it is settled by an issue of a Distell Group Limited actuarially valued every three years and reviewed every share. The share trust deed and the SAR rules, as year by independent actuaries using the projected unit appropriate, indicates whether it is to be settled by the credit method. The present value of the defined-benefit issue of Distell Group shares or not. obligation is determined by discounting the estimated The fair value of the employee services received future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in exchange for the grant of the scheme shares/ in which the benefits will be paid and that have terms SARs is recognised as an expense over the vesting to maturity approximating to the terms of the related period. The fair value is determined at grant date with pension liability. reference to the fair value of the scheme shares/SARs granted, including any market performance conditions Current service costs are recognised immediately in and excluding the impact of any service and non- income. market performance vesting conditions (for example, profitability, sales growth targets and remaining an Actuarial gains and losses arising from experience employee of the entity over a specified time period), adjustments and changes in actuarial assumptions are as well as including the impact of any non-vesting recognised outside profit or loss in the period in which conditions (for example, the requirement for employees they occur and are presented in the statement of other to save). Non-market vesting conditions are included comprehensive income. in assumptions about the number of scheme shares/ SARs that are expected to vest. At each statement of Past service costs are recognised immediately in the financial position date, the entity revises its estimates of income statement, unless the changes to the pension the number of scheme shares/SARs that are expected plan are conditional on the employees remaining in to vest. It recognises the impact of the revision of service for a specified period of time (the vesting period). original estimates, if any, in the income statement, In this case, the past service costs are amortised on a straight-line basis over the vesting period. and a corresponding adjustment to equity over the remaining vesting period. The proceeds received net of Post-retirement medical benefits any directly attributable transaction costs are credited The Group provides for actuarially determined to share capital (nominal value) and share premium future medical benefits of employees who remained when the scheme shares/SARs are exercised. in service up to retirement age and completing a minimum service period. The expected costs of these The grant by the company of scheme shares/SARs benefits are accrued over the period of employment relating to its equity instruments to the employees based on past services. This post-retirement medical of subsidiary undertakings in the Group is treated benefit obligation is measured as the present value as a capital contribution. The fair value of employee of the estimated future cash outflows based on a services received, measured by reference to the grant number of assumptions. These assumptions include, date fair value, is recognised over the vesting period as amongst others, healthcare cost inflation, discount an increase to investment in subsidiary undertakings, rates, salary inflation and promotions and experience with a corresponding credit to equity. increases, expected retirement age and continuation Long-service awards at retirement. Valuations of this obligation are carried Long-service awards are provided to employees who out every year by independent qualified actuaries, in achieve certain predetermined milestones of service respect of past service liabilities and actuarial gains or losses are recognised outside profit or loss in the period within the Group. The Group’s obligation is valued by in which they occur and are presented in the statement independent qualified professionals at year-end and of other comprehensive income. the projected unit the corresponding liability is raised. Costs incurred are credit method is used to determine the present value set off against the liability. Movements in the liability, of the post-retirement medical benefit obligation. including notional interest, resulting from the valuation are charged against the income statement upon Share-based compensation valuation. the projected unit credit method is used The Group grants scheme shares/share appreciation to determine the present value of the long-service rights (SARs) to its employees under an equity- awards obligation.
81 Notes to the annual financial statements for the years ended 30 June
Bonus plans BEE transactions where employees are involved are The Group recognises a liability and an expense for measured and accounted for on the same basis as bonuses and profit-sharing, based on a formula that share-based compensation in note 1.21. takes into consideration the profit attributable to the company’s shareholders after certain adjustments. Transactions, in which share-based payments are The Group recognises a provision where contractually made to parties other than employees, are measured obliged or where there is a past practice that has by reference to the fair value of equity instruments created a constructive obligation. granted if no specific goods or services are received. Vesting of the equity instrument granted occurs 1.22 Revenue recognition immediately and an expense and a related increase in Revenue comprises the fair value of the consideration equity are recognised on the date that the instrument received or receivable for the sale of goods and is granted. No further measurement or adjustments are services in the ordinary course of the Group’s activities, required as it is presumed that the BEE credentials are including excise duty, but net of value added tax (VAT), received upfront. general sales taxes (GST), rebates and discounts, and after eliminating sales within the Group. 1.24 Earnings per share Earnings, headline earnings and normalised headline Excise duty is not directly related to sales, unlike value earnings per share are calculated by dividing the net added tax. It is not recognised as a separate item profit attributable to shareholders, headline earnings on invoices, increases in excise duty are not always and normalised headline earnings, respectively, by the directly passed on to customers and the Group cannot weighted average number of ordinary shares in issue reclaim the excise duty where customers do not pay during the year, excluding the ordinary shares held by for products received. The Group considers excise the Group as treasury shares. duty as a cost to the Group and reflects it in ‘cost of For the diluted earnings per share, the weighted goods sold’ and consequently any excise duty that is average number of ordinary shares in issue is adjusted recovered in the sales price is included in revenue. to assume conversion of all ordinary shares with dilutive Revenue is recognised as follows: potential. Scheme shares and SARs have dilutive potential. for the scheme shares/SARs a calculation • Cash sales of goods are recognised upon is done to determine the number of shares that could delivery of products and customer acceptance and have been acquired, at the closing market price, based collectability of the related receivable is reasonably on the monetary value of subscription rights attached assured. to outstanding scheme shares/SARs in order to determine the ‘bonus’ element; the ‘bonus’ shares are • Sales of services are recognised in the accounting added to the ordinary shares in issue. No adjustment period in which the services are rendered, by is made to net profit, as the scheme shares/SARs have reference to completion of the specific transaction no income statement effect. assessed on the basis of the actual service provided as a proportion of the total services to be provided. 1.25 Dividend distribution Dividend distribution to the company’s shareholders • Interest income is recognised on a time-proportion is recognised as a liability in the Group’s financial basis using the effective interest rate method. statements in the period in which the dividends are When a receivable is impaired, the Group reduces approved by the company’s shareholders. the carrying amount to its recoverable amount, being the estimated future cash flow discounted at 1.26 Non-current assets held for sale the original effective interest rate of the instrument, Non-current assets held for sale are classified as and continues unwinding the discount as interest assets held for sale and are stated at the lower of the income. Interest income on impaired loans is carrying amount and fair value, less costs to sell if their recognised using the original effective interest rate. carrying amount is recovered principally through a sale transaction rather than through continued use. • Dividend income is recognised when the shareholder has an irrevocable right to receive 1.27 Related parties payment. Individuals or entities are related parties if one party has the ability, directly or indirectly, to control or 1.23 BEE transactions jointly control the other party or exercise significant BEE transactions, where the Group receives or influence over the other party in making financial and/ acquires goods or services as consideration for the or operating decisions. Key management personnel issue of equity instruments of the Group, are treated as are defined as all directors of Distell Limited, the main share-based payment transactions. operating company of the Group.
82 2. Property, plant and equipment Machinery, tanks and Equipment Assets under Properties barrels and vehicles construction Total R’000 R’000 R’000 R’000 R’000 2013 Opening balance 1 169 832 1 233 194 98 704 145 574 2 647 304 Additions 105 760 301 646 46 970 283 164 737 540 Acquisition of subsidiaries (note 35) 197 521 141 906 6 438 – 345 865 Disposals (490) (19 668) (2 272) – (22 430) Transfers 18 567 114 747 2 602 (135 916) – Exchange differences 22 954 18 875 194 (3) 42 020 Depreciation (7 264) (174 017) (21 740) – (203 021) 1 506 880 1 616 683 130 896 292 819 3 547 278
At cost 1 571 978 3 163 788 279 260 292 819 5 307 845 Accumulated depreciation (65 098) (1 547 105) (148 364) – (1 760 567) Net carrying value 1 506 880 1 616 683 130 896 292 819 3 547 278
2012 Opening balance 969 350 1 096 388 92 823 191 138 2 349 699 Additions 141 292 196 048 28 379 129 999 495 718 Disposals (34) (4 032) (1 807) (58) (5 931) Transfers 63 023 111 843 639 (175 505) – Exchange differences 1 154 1 981 (988) – 2 147 Depreciation (4 953) (169 034) (20 342) – (194 329) 1 169 832 1 233 194 98 704 145 574 2 647 304
At cost 1 224 943 2 658 738 226 336 145 574 4 255 591 Accumulated depreciation (55 111) (1 425 544) (127 632) – (1 608 287) Net carrying value 1 169 832 1 233 194 98 704 145 574 2 647 304
Included in equipment and vehicles are capitalised finance lease vehicles with a net carrying value of R2,0 million (2012: R3,1 million) (note 13). Depreciation of R142,6 million (2012: R137,0 million) is included in ‘cost of goods sold’, R14,2 million (2012: R11,4 million) in ‘sales and marketing costs’, R18,1 million (2012: R16,9 million) in ‘distribution costs’ and R28,1 million (2012: R29,0 million) in ‘administration and other costs’. Details of properties are available for inspection at the registered office of the company. Bank borrowings of Burn Stewart Distillers Limited are secured over land and buildings to a maximum value of R28,1 million (note 13).
83 Notes to the annual financial statements for the years ended 30 June
3. Biological assets The Group owns bearer biological assets in the form of grapevines. The grapes produced from these vines are mainly used in the production of wines and spirits of the Group’s own brands and products. The vines are cultivated on land either owned or leased by the Group. The total area under grapevines on 30 June 2013 amounted to approximately 1 544 ha (2012: 1 546 ha), of which approximately 1 439 ha (2012: 1 396 ha) can be classified as mature vines. The total output of grapes harvested during the current year amounted to 12 497 tons (2012: 10 155 tons). The fair value of the grapes harvested during the current financial year amounted to R57,1 million (2012: R45,0 million). The fair value was calculated with reference to arm’s length prices paid in an active market less estimated point-of-sale costs. The fair value of mature grapevines was calculated by discounting the net cash flows thereof over their remaining lives at a pre-tax discount rate of 17,0% (2012: 18,0%). The net cash flows were calculated with reference to grape varieties, expected yields based on normalised three years’ experience, estimated future sales prices and estimated future production costs. The average productive life of grapevines are estimated at 23 years (2012: 23 years).
2013 2012 R’000 R’000 Carrying amount Opening balance 122 638 131 827 Acquisitions 4 516 4 402 Disposals (295) (53) Net change in fair value (8 413) (13 538) – Decrease due to harvest (57 131) (45 025) – Gain due to price, yield, maturity and cost changes 48 718 31 487 Balance at the end of the year 118 446 122 638
An amount of R4,2 million (2012: R5,9 million) for vineyard development expenses is included in the total of capital commitments in note 31. The fair value of grapevines cultivated on land, of which the operating lease expires in 2018, amounts to R4,5 million (2012: R3,6 million). Short-term insurance cover, as part of an overall risk management strategy, is utilised to protect the Group against the replacement cost, and subsequent loss of income, of establishing new vineyards in the event of them being damaged by natural perils, such as fire and lightning.
84 2013 2012 R’000 R’000 4. Financial assets Loans and receivables at amortised cost – loans to producers and other unrelated parties, denominated in rand, at market- related interest rates 67 766 51 913
Available-for-sale financial assets – Equities, denominated in the following currencies: 88 705 85 361 Rand 18 224 17 232 Canadian dollar 9 975 8 972 u K pound 60 506 59 157 156 471 137 274
Movement in available-for-sale financial assets Opening balance 85 361 78 666 Additions 6 735 Disposals (9 617) – Exchange differences 320 – Net gains transferred to equity (note 11) 9 653 5 960 Acquisition of subsidiaries (note 35) 2 982 – Balance at the end of the year 88 705 85 361
The fair value estimation of equities are indicated in note 33.2. The maximum exposure to credit risk at the reporting date is the carrying value of the loans and receivables. None of these financial assets are past due or impaired. Financial assets consist of listed, which include over-the-counter trade, and unlisted shares and details thereof are available at the registered office of the company.
85 Notes to the annual financial statements for the years ended 30 June
2013 2012 R’000 R’000 5. Investments in subsidiaries and associates Company Investments in subsidiaries (note 41) 2 461 050 2 343 908
Group Investments in associates (note 42) Opening balance 62 022 47 964 Share of profit 57 668 37 160 Dividends received (64 662) (19 236) Exchange differences and withholding taxes (6 551) (3 866) Balance at the end of the year 48 477 62 022
Made up as follows: Cost and share of profits 39 401 52 946 Goodwill 9 076 9 076 48 477 62 022
Summary of goodwill Opening balance 9 076 9 076 Additions – – Balance at the end of the year 9 076 9 076
Impairment tests of investments in associates The investments in Tanzania Distilleries Limited and Grays Inc. Limited have been allocated to those cash-generating units and are each tested for impairment as a single asset, including goodwill. The recoverable amounts of the cash- generating units have been based on a value-in-use calculation. To calculate this, cash flow projections are based on financial budgets approved by management covering a five-year period. The growth rates used to extrapolate cash flow projections beyond the period covered by the most recent forecasts is 2% (2012: 2%). The discount rate applied to the cash flow projections is between 11% – 19% (2012: 12% – 19%). The discount rates used are pre-tax and reflect specific risks relating to the relevant business. These calculations indicate that there was no impairment in the carrying value of the investments in associates and related goodwill.
86 Trademarks Capitalised and other software Goodwill intangibles Total R’000 R’000 R’000 R’000 6. Intangible assets 2013 Opening balance 14 862 7 429 208 113 230 404 Additions 7 683 – – 7 683 Acquisition of subsidiaries (note 35) – 724 516 392 910 1 117 426 Exchange differences 3 77 009 90 407 167 419 Amortisation (9 876) – – (9 876) Balance at the end of the year 12 672 808 954 691 430 1 513 056
Cost 107 570 808 954 691 430 1 607 954 Accumulated amortisation and impairment (94 898) – – (94 898) Net carrying value 12 672 808 954 691 430 1 513 056
2012 Opening balance 20 269 7 429 193 633 221 331 Additions 3 606 – – 3 606 Exchange differences 1 – 14 480 14 481 Amortisation (9 014) – – (9 014) Balance at the end of the year 14 862 7 429 208 113 230 404
Cost 99 852 7 429 208 113 315 394 Accumulated amortisation and impairment (84 990) – – (84 990) Net carrying value 14 862 7 429 208 113 230 404
Amortisation is included in ‘administration and other costs’ in the income statement. The addition to goodwill and trademarks and other intangibles, including brand names and customer relationships, in 2013 relates to the acquisition of Burn Stewart Distillers Limited and Distell (Hong Kong) Limited (note 35). Management regards the trademarks as having an indefinite useful life as there are no foreseeable limits on the time the trademarks are expected to provide future cash flows. The trademarks are protected in all the major markets where they are sold and there is not believed to be any legal, regulatory or contractual provisions that limit the useful lives of these brands. The brands included in trademarks above are Bisquit, Scottish Leader, Black Bottle, Bunnahabhain, Tobermory, Deanston and Ledaig. Impairment tests for goodwill The goodwill acquired through the investments in Distell Wine masters Limited (Kenya), Distell (Hong Kong) Limited, Burn Stewart Distillers Limited and Lomond Wine Estates Proprietary Limited was allocated to those cash-generating units and are tested for impairment on an annual basis. The recoverable amounts of the cash-generating units have been based on a value-in-use calculation. To calculate this, cash flow projections are based on financial budgets approved by management covering a five- to fifteen-year period. The growth rates used to extrapolate cash flow projections beyond the period covered by the most recent forecasts is 2% – 3% (2012: 2%). The discount rate applied to the cash flow projections is between 6% – 16% (2012: 13% – 17%). The discount rates used are pre-tax and reflect specific risks relating to the relevant business. These calculations indicate that no impairment was necessary in the carrying value of the goodwill. Impairment tests for trademarks The trademarks are allocated to their respective cash-generating units and are tested for impairment on an annual basis. The recoverable amounts of the cash-generating units have been based on a value-in-use calculation. To calculate this, cash flow projections are based on financial budgets approved by management covering a five- to fifteen-year period. The growth rates used to extrapolate cash flow projections beyond the period covered by the most recent forecasts is 2% – 3% (2012: 2%). The discount rate applied to the cash flow projections is 6% – 10% (2012: 7% – 13%). The discount rates used are pre-tax and reflect specific risks relating to the relevant business. These calculations indicate that no impairment was necessary in the carrying value of the trademarks.
87 Notes to the annual financial statements for the years ended 30 June
2013 2012 R’000 R’000 7. Inventories Bulk wines, flavoured alcoholic beverages and spirits 3 934 094 2 718 942 Bottled wines, flavoured alcoholic beverages and spirits 1 989 813 1 484 804 Packaging material and other 414 367 285 535 6 338 274 4 489 281
The cost of inventories recognised as an expense and included in ‘costs of goods sold’ amounted to R9 391,0 million (2012: R8 651,8 million). No previous write-down was reversed during the year (2012: none). Excise duty of R418,1 million (2012: R389,8 million) is included in bulk inventories and R375,1 million (2012: R302,3 million) in bottled inventories. Bank borrowings are secured over inventories of Burn stewart Distillers Limited and Bisquit Dubouché et cie for a maximum value of R598,1 million (note 13).
2013 2012 R’000 R’000 8. Trade and other receivables Trade receivables 1 633 998 1 326 629 Provision for impairment of receivables (7 896) (28 460) Trade receivables – net 1 626 102 1 298 169 Insurance claims 5 097 972 Prepayments 39 650 75 291 Other receivables 121 279 53 209 Value added tax 13 557 8 614 1 805 685 1 436 255
Included in the Group’s trade receivables are debtors with carrying amounts of R77,4 million (2012: R38,5 million) which are past due at the reporting date but not impaired. These relate to a number of independent customers where there have not been any history of payment default or significant changes in credit quality and the amounts are still considered recoverable. The Group holds no collateral for these past due receivables. The ageing analysis of these receivables is as follows:
Ageing of past due but not impaired trade and other receivables 30 to 60 days overdue 52 288 19 993 Past 60 days overdue 25 125 18 455 77 413 38 448
At 30 June 2013 trade receivables of R7,9 million (2012: R28,5 million) were impaired and provided for. The individually impaired receivables mainly relate to customers who are in financial difficulty and where there are indications that the Group may not recover the full amount. In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date the credit was initially granted up to the reporting date. Concentration of credit risk is limited because of the large number of customers and their dispersion across geographical areas.
88 2013 2012 R’000 R’000 8. Trade and other receivables (continued) The analysis of trade receivables that are individually determined to be impaired are as follows:
Ageing of impaired trade and other receivables 60 to 120 days overdue 2 823 6 005 Past 120 days overdue 5 073 22 455 Total 7 896 28 460
The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies: South African rand 1 060 476 910 636 US dollar 207 409 173 008 Euro 170 005 142 281 UK pound 180 907 36 592 Canadian dollar 57 679 53 296 Other currencies 129 209 120 442 1 805 685 1 436 255
The movement of the Group’s provision for impairment of trade receivables are as follows: Opening balance 28 460 7 188 Provision for receivable impairment 4 355 25 931 Receivables written off during the year as uncollectible (8 985) (3 036) Unused amounts reversed (15 934) (1 623) Balance at the end of the year 7 896 28 460
The creation and release of provision for impaired receivables have been included in ‘sales and marketing expenses’ and ‘distribution costs’ in the income statement (note 19.1). The other classes within trade and other receivables do not contain impaired assets. Amounts charged to the allowance account are generally written off, when there is no expectation of recovering additional cash. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable as mentioned above. The fair values of trade and other receivables approximate their book values as shown above due to the short-term maturities of these assets. The Group does not hold any collateral as security. None of the payment terms of trade and other receivables that are fully performing or overdue have been renegotiated during the year.
89 Notes to the annual financial statements for the years ended 30 June
2013 2012 R’000 R’000 9. Derivative financial instruments The following amounts are included in ‘other receivables’ (note 8) and ‘accrued expenses’ (note 16): Current assets Forward foreign exchange contracts – held-for-trading 50 3 034
Current liabilities Forward foreign exchange contracts – held-for-trading (12 806) (62) Total (12 756) 2 972
Refer to note 33.2 for the fair value estimation of forward foreign exchange contracts. Forward foreign exchange contracts Material forward exchange contracts as at 30 June 2013 and 30 June 2012 are summarised as follows: Forward foreign exchange contracts – anticipated transactions These forward foreign exchange contracts do not relate to specific items on the statement of financial position, but were entered into to cover export proceeds not yet receivable or import commitments not yet payable. The forward foreign exchange contracts will be utilised for the purposes of trade within the following year.
Foreign currency Rand Fair value amount amount gain/(loss) Foreign currency ’000 R’000 R’000 2013 Forward foreign exchange sales Australian dollar 100 946 23 Canadian dollar 1 500 13 918 (377) Euro 13 250 162 770 (10 585) New Zealand dollar 450 3 531 27 US dollar 4 300 40 537 (1 844) 221 702 (12 756)
2012 Forward foreign exchange sales Australian dollar 120 1 007 (12) Canadian dollar 2 000 16 374 133 Euro 4 300 45 230 759 New Zealand dollar 315 2 047 (50) US dollar 3 200 25 770 43 UK pound 70 920 6 91 348 879 Forward foreign exchange purchases UK pound 2 251 27 840 2 093 27 840 2 093 119 188 2 972
The net uncovered trade proceeds at 30 June 2013 amounted to R297,2 million (2012: R353,1 million) and net uncovered trade purchases at 30 June 2013 amounted to R36,3 million (2012: R75,3 million).
90 2013 2012 Number Number ’000 ’000 10. Share capital Shares authorised Ordinary shares of 1 cent each 250 000 250 000
Shares issued Opening balance 202 838 202 396 Issue of shares – share scheme 460 442 Ordinary shares of 1 cent each issued and fully paid 203 298 202 838
Treasury shares Opening balance 430 366 Issue of shares – share scheme 460 442 Shares paid and delivered – share scheme (640) (378) Shares held by The Distell Group Share Trust 250 430
Company Company Group Ordinary Share Treasury shares premium shares Total R’000 R’000 R’000 R’000 2013 Opening balance 2 028 696 797 (19 545) 679 280 Issue of shares – share scheme 5 24 928 (24 933) – Shares paid and delivered – share scheme – – 30 789 30 789 Balance at the end of the year 2 033 721 725 (13 689) 710 069
2012 Opening balance 2 024 675 982 (14 299) 663 707 Issue of shares – share scheme 4 20 815 (20 819) – Shares paid and delivered – share scheme – – 15 573 15 573 Balance at the end of the year 2 028 696 797 (19 545) 679 280
Ten per cent of the unissued share capital is under the control of the board of directors until the next annual general meeting. Share and Share Appreciation Right Schemes The Distell Group Equity Settled Share Appreciation Right Scheme was established during the 2011 financial year to promote the continued growth of the Group and to provide selected employees and executive directors with rights to receive Distell ordinary shares in future, subject to certain employment-related conditions being met. No new allocations under the share scheme have been made during the year under review. The maximum number of shares that may be delivered to participants under the Share and Share Appreciation Right Schemes are limited to ten million shares, and the number of shares that may be delivered to any one participant is limited to one million shares.
91 Notes to the annual financial statements for the years ended 30 June
10. Share capital (continued) 10.1 Share scheme The trustees of The Distell Group Share Trust (the share scheme) offered to participants unissued ordinary shares which were reserved for the scheme. The details of the offers were as follows: The offers were made at the closing share price on the JSE on the preceding day and were open for acceptance for one year from the date of the offer. The scheme is a deferred purchase scheme and payment is made in three equal annual instalments of which the first instalment is only payable after three years after the offer date. Participants have no right to delivery, voting or dividends on shares before payment has been made. Participants may choose to pay on a later date with the resultant deferment of rights. Payment must, however, be made within seven years.
Number of Number shares paid of shares and Offer price Number of accepted delivered per share shares as at as at Date Participants (Rand) offered 30 June 2013 30 June 2013 19 March 2001 Executive directors 7,35 1 127 780 1 127 780 1 127 780 19 March 2001 Other participants 7,35 1 202 127 1 202 127 1 202 126 15 October 2002 Other participants 13,21 47 779 47 779 47 779 13 December 2002 Executive directors 14,60 953 320 953 320 953 320 13 December 2002 Other participants 14,60 1 639 069 1 639 069 1 639 069 3 June 2004 Other participants 15,05 219 570 219 570 219 570 25 October 2005 Executive directors 31,00 62 743 62 743 62 743 25 October 2005 Other participants 31,00 982 924 982 924 982 924 7 November 2006 Executive directors 40,00 227 233 227 233 227 233 7 November 2006 Other participants 40,00 265 225 265 225 256 401 8 October 2007 Executive directors 60,50 116 784 116 784 108 977 8 October 2007 Other participants 60,50 195 208 195 208 146 104 23 October 2008 Executive directors 45,50 164 086 164 086 108 538 23 October 2008 Other participants 45,50 563 368 563 368 304 063 22 October 2009 Executive directors 64,00 54 540 54 540 20 061 22 October 2009 Other participants 64,00 406 337 406 337 61 727 8 228 093 8 228 093 7 468 415
2013 2012 Average Average offer price offer price per share Number per share Number (Rand) of shares (Rand) of shares The current status of the share scheme is as follows: Ordinary shares due to participants Previous financial years 52,36 1 439 284 50,09 1 824 193 Offered and accepted in current financial year – – – – Shares paid for and delivered 48,07 (640 461) 41,27 (377 365) Resignations and other 55,99 (39 145) 60,64 (7 544) Outstanding at the end of the year 55,79 759 678 52,36 1 439 284
92 Exercise price Number Number per share of shares of shares (Rand) 2013 2012 10. Share capital (continued) 10.1 Share scheme (continued) Scheme shares outstanding at the end of the year have the following expiry dates and exercise prices:
Shares offered, not issued, not paid for and not delivered (Share Trust): 54,78 249 886 430 058 October 2012 60,50 – 87 069 October 2012 45,50 – 228 831 October 2012 64,00 – 154 832 October 2013 45,50 212 570 228 830 October 2013 64,00 148 611 154 832 October 2014 64,00 148 611 154 832 759 678 1 439 284
10.2 Equity Settled Share Appreciation Right Scheme (SAR scheme) The SAR scheme was approved by shareholders at the Annual General Meeting held on 20 October 2010. Participants of the SAR scheme are remunerated with shares to the value of the appreciation of a specified number of Distell Group Limited ordinary shares that must be exercised within a period of seven years after the grant date. The earliest intervals at which the Share Appreciation Rights (SARs) are exercisable are as follows: • One-third after the third anniversary of the grant date • Two-thirds after the fourth anniversary of the grant date • The remainder after the fifth anniversary of the grant date No specific performance criteria are stipulated. Number and exercise prices of all SARs offered to participants of the SAR scheme:
Number Number Exercise of SARs of SARs price Number accepted exercised per SAR of SARs as at as at Date Participants (Rand) offered 30 June 2013 30 June 2013 21 October 2010 Executive directors 72,00 70 188 70 188 – 21 October 2010 Other participants 72,00 438 860 438 860 – 25 November 2011 Executive directors 66,00 96 551 96 551 – 25 November 2011 Other participants 66,00 429 274 429 274 – 2 October 2012 Executive directors 93,35 190 794 190 794 – 2 October 2012 Other participants 93,35 526 608 526 608 – 1 752 275 1 752 275 –
93 Notes to the annual financial statements for the years ended 30 June
10. Share capital (continued) 10.2 Equity Settled Share Appreciation Right Scheme (SAR scheme) (continued) 2013 2012 Average Average exercise exercise price per price per SAR Number SAR Number (Rand) of SARs (Rand) of SARs The current status of the SAR scheme is as follows: Carried forward from previous financial years 68,99 1 068 225 72,00 530 705 Offered in current financial year 93,35 746 094 66,00 537 534 Offered in current financial year – – 72,00 2 950 Exercised during the year – – – – Resignations and other 80,88 (62 044) 69,12 (2 964) Outstanding at the end of the year 78,94 1 752 275 68,99 1 068 225
SARs outstanding at the end of the year have the following expiry dates and exercise prices:
Exercise Number Number price per SAR of SARs of SARs (Rand) 2013 2012 SARs offered and accepted, but not exercised: October 2013 72,00 169 689 177 377 October 2014 72,00 169 679 177 367 November 2014 66,00 175 275 178 704 October 2015 72,00 169 680 177 368 November 2015 66,00 175 275 178 704 November 2015 93,35 239 134 – November 2016 66,00 175 275 178 705 November 2016 93,35 239 134 – November 2017 93,35 239 134 – 1 752 275 1 068 225
The fair value of scheme shares and SARs granted after 7 November 2002 was valued at each grant date by using an actuarial binomial option pricing model. The model is an extension of the binomial model, incorporating employee behaviour. The significant inputs into the model were: share price at the grant date R14,60 to R94,00 exercise price shown above expected volatility 22,44% to 35,90% dividend yield 3,45% to 6,34% option life shown above annual risk-free interest rate 5,67% to 10,43%
The expected lifetime of each grant is estimated by considering separately each of the tranches within that grant. The risk-free rate was estimated by using the implied yield on a SA zero-coupon government bond and the yield curve over the expected contract lifetimes of five, six and seven years from the offer date. Share price volatility of ordinary shares in Distell Group Limited was determined with reference to movements in the share price on the JSE taking into consideration the expected lifetimes of each tranche of all grants over the vesting period. Dividend yield was calculated using the two-year moving average dividend yield at each offer date. The total expense recognised in the income statement in ‘employee benefit expense’ (note 19.4) relating to the above equity-settled share-based payments was R11,9 million (2012: R10,2 million).
94 2013 2012 R’000 R’000 11. Non-distributable and other reserves Group Reserves at formation of a previous holding company 15 199 15 199 Capital reduction 236 236 Transfer of share capital on cancellation of shares 13 226 13 226 Transfer of share premium 15 873 15 873 Capital redemption reserve fund 400 400 Reclassification of pallets to deposit value 5 773 5 773 Foreign currency translations 221 794 (68 344) Opening balance (68 344) (95 787) Currency translation differences for the year 290 138 27 443 Fair value adjustments 31 087 22 799 Opening balance 22 799 17 676 Fair value adjustments of available-for-sale financial assets 9 653 5 960 Deferred income tax on fair value adjustments (1 365) (837) BEE share-based payment option reserve 122 257 115 380 Opening balance 115 380 108 503 BEE share-based payment for the year 6 877 6 877 Employee share scheme reserve 69 842 57 987 Opening balance 57 987 47 810 Employee share-based payment for the year 11 855 10 177 Actuarial gains and losses reserve 295 620 64 043 Opening balance 64 043 41 397 Actuarial gains and losses for the year 322 394 31 113 Deferred income tax on actuarial gains and losses (90 817) (8 467) Gains and losses on disposals to non-controlling interests 1 350 1 350 Opening balance 1 350 – Gains and losses for the year – 1 350 792 657 243 922
Company BEE share-based payment option reserve 122 257 115 380 Opening balance 115 380 108 503 BEE share-based payment for the year 6 877 6 877 Reserves at formation of a previous holding company 15 199 15 199 Capital reduction 236 236 137 692 130 815
95 Notes to the annual financial statements for the years ended 30 June
2013 2012 R’000 R’000 12. Retained earnings Group Company 1 599 600 1 514 268 Consolidated subsidiaries 4 039 422 3 636 379 Joint ventures 80 293 74 895 Associated companies 28 176 41 721 5 747 491 5 267 263
Opening balance 5 267 263 4 854 216 Profit for the year 1 096 509 969 070 Dividends paid (616 281) (556 023) Balance at the end of the year 5 747 491 5 267 263
Company Opening balance 1 514 268 1 425 800 Profit for the year 702 659 645 689 Dividends paid (617 327) (557 221) Balance at the end of the year 1 599 600 1 514 268
96 2013 2012 R’000 R’000 13. Interest-bearing borrowings Non-current Unsecured rand loan, bearing interest at a fixed rate of 11,00% (2012: 11,04%) per annum, repayable in quarterly instalments of R18,8 million from July 2012, with a final redemption on 26 March 2014 345 000 420 000 Secured inventory facility, bearing interest at Bank of England base rate plus 1,45%, for a minimum period of five years from December 2011 429 597 – Secured real property facility, bearing interest at Bank of England base rate plus 2,25%, repayable in monthly instalments of £25 000, with a final redemption repayment of £300 000 in December 2016 20 528 – Secured rand loans on capitalised finance lease vehicles (note 2), bearing interest at a variable rate of 1,5% below prime per annum, payable monthly in arrears in instalments of R62 859 (2012: R84 585) for 48 months (note 31) 2 210 3 702 797 335 423 702 Less: Portion of loans repayable within one year, included in current liabilities (350 192) (75 770) 447 143 347 932 Current Unsecured euro loan, bearing interest at a fixed rate of 1,9% per annum, repayable on 1 December 2013 129 801 104 731 Secured euro loan, bearing interest at euribor plus 0,85% per annum, repayable on 1 April 2014 61 006 – Unsecured rand loans, bearing interest at a variable rate of 6,375% per annum, repayable on 8 October 2013 1 820 000 – Unsecured rand call accounts and bank overdrafts 425 774 – Short-term portion of non-current borrowings 350 192 75 770 2 786 773 180 501 Total interest-bearing borrowings 3 233 916 528 433
The interest rate repricing profile at 30 June 2013 and 30 June 2012 is summarised as follows: 2013 2012 Interest-bearing borrowings % of total R’000 % of total R’000 Fixed rate (unsecured loans) 10,7 345 000 79,5 420 000 Floating rate (secured loans) 15,9 513 341 0,7 3 702 Floating rate (unsecured loans) 56,3 1 820 000 – – Fixed rate euro loan (unsecured loans) 4,0 129 801 19,8 104 731 Floating call rate (2013: 6,4%, 2012: 6,0%) 13,1 425 774 – – Total interest-bearing borrowings 100,0 3 233 916 100,0 528 433 The maturity profile of the interest-bearing borrowings is indicated in note 33.1(c). The fair value and carrying amounts of non-current borrowings are as follows: Fair value Carrying amount 2013 2012 2013 2012 Interest-bearing borrowings R’000 R’000 R’000 R’000 Bank borrowings 427 041 353 759 445 574 345 000 Finance lease liabilities 1 569 2 932 1 569 2 932 428 610 356 691 447 143 347 932 The fair value of non-current borrowings is calculated using cash flows discounted at a rate based on the borrowings rate of 9,8% (2012: 9,1%). Total borrowings include secured liabilities of R513,3 million (2012: R3,7 million). These borrowings are secured by land and buildings and inventory (note 2 and note 7). The fair value of current borrowings equals their carrying amount, as the impact of discounting is not significant.
97 Notes to the annual financial statements for the years ended 30 June
2013 2012 R’000 R’000 13. Interest-bearing borrowings (continued) The Group’s unutilised banking facilities and reserve borrowing capacity are as follows:
Unutilised banking facilities Total floating rate banking facilities expiring within one year 1 852 000 1 552 000 Less: Current interest-bearing borrowings (425 774) – Unutilised banking facilities 1 426 226 1 552 000
Banking facilities are renewed annually and are subject to review at various dates during the next year.
Unutilised borrowing capacity In terms of the company’s articles of association the aggregate amount of the Group’s year-end interest-bearing borrowings is limited to 100% of total equity of the Group.
Maximum permissible year-end interest-bearing borrowings 7 280 550 6 205 979 Total interest-bearing borrowings (3 233 916) (528 433) Unutilised borrowing capacity 4 046 634 5 677 546 Cash and cash equivalents 341 495 462 429 Unutilised borrowing capacity and cash and cash equivalents 4 388 129 6 139 975
14. Retirement benefits Statement of financial position Assets Pension benefits (59 230) (47 504) Post-retirement medical liability (213 770) – (273 000) (47 504)
Liabilities Post-retirement medical liability 22 604 80 954 22 604 80 954 Net retirement benefit asset (250 396) 33 450
Income statement charge for: Pension benefits (5 800) (8 052) Post-retirement medical liability 45 288 42 022 39 488 33 970
Actuarial gains and losses Actuarial gains recognised in other comprehensive income (before taxation) 322 351 31 049 Cumulative actuarial gains recognised in other comprehensive income (before taxation) 407 654 85 303
98 14. Retirement benefits (continued) 14.1 Pension benefits Defined-benefit pension funds The Group operates two defined-benefit pension funds and three defined-contribution provident funds. All permanent employees have access to these funds. These schemes are regulated by the Pension Funds Act, 1956, as amended, and are managed by trustees and administered by independent administrators. Fund assets are held independently of the Group’s finances. The defined-benefit pension funds are actuarially valued every three years and reviewed every year using the projected unit credit method. The latest full actuarial valuation was performed on 31 May 2012 and indicated that the plans are in a sound financial position.
2013 2012 R’000 R’000 Statement of financial position Amounts recognised in the statement of financial position are as follows: Present value of funded obligations 230 460 199 828 Fair value of plan assets (349 230) (306 300) Funded position (118 770) (106 472) Asset not recognised in terms of IAS 19, paragraph 58 limit* 59 540 58 968 Net asset in statement of financial position (59 230) (47 504)
* The ‘IAS 19, paragraph 58 limit’ ensures that the asset to be recognised in the Group’s statement of financial position is subject to a maximum of the sum of any unrecognised actuarial losses, past service costs and the present value of any economic benefits available to the Group in the form of refunds or reductions in future contributions.
The movement in the defined-benefit obligation over the year is as follows: Opening balance 199 828 187 955 Current service cost 1 397 1 114 Interest cost 14 807 15 724 Contributions 365 338 Actuarial loss 25 012 7 395 Risk premiums (223) (201) Benefits paid (10 726) (12 497) Balance at the end of the year 230 460 199 828
The movement in the fair value of plan assets over the year is as follows: Opening balance 306 300 289 520 Expected return on plan assets 22 004 24 890 Actuarial gain 31 051 3 826 Employer contributions 459 424 Employee contributions 365 338 Risk premiums (223) (201) Benefits paid (10 726) (12 497) Balance at the end of the year 349 230 306 300
99 Notes to the annual financial statements for the years ended 30 June
2013 2012 R’000 R’000 14. Retirement benefits (continued) 14.1 Pension benefits (continued) Income statement Amounts recognised in ‘administration and other costs’ and ‘employee benefit expense’ (note 19.4) in the income statement are as follows: Current service cost 1 397 1 114 Interest on liability 14 807 15 724 Expected return on plan assets (22 004) (24 890) Total income (5 800) (8 052)
Actual return on plan assets (52 246) (28 716)
The Financial Services Board (FSB) approved the surplus apportionments within the Distell retirement fund, Distillers corporation pension fund and sfW Pension Fund and a liability and actuarial gain of R5,5 million was recognised at 30 June 2013 in this regard. The outstanding balance at 30 June 2013 which is available in the form of reductions in future contributions, amounts to R59,2 million.
Principal actuarial assumptions on statement of financial position date Discount rate 7,5% 7,8% Expected rate of return on plan assets 7,5% 5,8% – 7,5% Future salary increases 7,0% 6,0% Future pension increases 6,0% 5,0% Inflation rate 6,0% 5,0%
14.2 Post-retirement medical liability Statement of financial position Amounts recognised in the statement of financial position are as follows: Present value of funded obligation 719 798 820 492 Fair value of plan assets (910 964) (739 538) Net asset in statement of financial position (191 166) 80 954
The movement in the defined-benefit obligation over the year is as follows: Opening balance 820 492 729 288 Current service cost 46 220 42 093 Interest cost 63 022 63 056 Actuarial gain (192 134) 2 579 Benefits paid (17 802) (16 524) Balance at the end of the year 719 798 820 492
The movement in the fair value of plan assets over the year is as follows: Opening balance 739 538 655 498 Expected return on plan assets 63 954 63 127 Actuarial gain 124 750 36 991 Employer contributions – 446 Benefits paid (17 278) (16 524) Balance at the end of the year 910 964 739 538
100 2013 2012 R’000 R’000 14. Retirement benefits (continued) 14.2 Post-retirement medical liability (continued) Income statement Amounts recognised in ‘administration and other costs’ and ‘employee benefit expense’ (note 19.4) in the income statement are as follows: Current service cost 46 220 42 093 Interest on liability 63 022 63 056 Expected return on plan assets (63 954) (63 127) Total expense 45 288 42 022
Actual return on plan assets (187 267) (98 115)
The post-retirement medical liability is actuarially valued every year, using the projected unit credit method. Plan assets are valued at current market value.
Principal actuarial assumptions on statement of financial position date Discount rate 9,6% 7,8% Expected rate of return on assets 9,6% 8,8% Future salary increases 7,0% 6,0% Annual increases in health cost 8,6% 7,0% Expected membership continuation at retirement 100,0% 100,0% Expected retirement age 60 60
Decrease Increase The effect of a 1% movement in the assumed health cost trend rate is as follows: Effect on the aggregate of the current service cost and interest cost 23 148 30 333 Effect on the defined-benefit obligation 126 925 165 290
2013 2012 2011 2010 2009 Trend information R’000 R’000 R’000 R’000 R’000 Present value of funded obligation 719 798 820 492 729 288 596 318 528 432 Fair value of plan assets (910 964) (739 538) (655 498) (618 118) (561 015) Surplus in the plan (191 166) 80 954 73 790 (21 800) (32 583)
Experience adjustments on plan liabilities 148 515 37 594 6 431 (3 187) (15 542) Experience adjustments on plan assets 124 750 36 991 9 149 11 844 (68 880)
2013 2012 R’000 % R’000 % 14.3 Retirement benefits (pension and medical) Plan assets are comprised as follows: Cash 140 597 11,2 181 151 17,3 Bonds 148 429 11,8 172 599 16,5 Equity instruments 875 160 69,4 637 486 61,0 Property 6 053 0,5 3 361 0,3 International equities and cash 89 955 7,1 51 241 4,9 1 260 194 100,0 1 045 838 100,0
101 Notes to the annual financial statements for the years ended 30 June
14. Retirement benefits (continued) 14.3 Retirement benefits (pension and medical) (continued) Investments are diversified, with the largest proportion of assets invested in South African equities, although the Group also invests in property, bonds, cash and international investment instruments. The Group believes that equities offer the best returns over the long term with an acceptable level of risk. The expected return on plan assets is determined by considering the expected returns available on the assets underlying the current investment policy. Expected returns on equity and property investments reflect long-term real rates of return experienced in the respective markets. Expected yields on interest investments are based on gross redemption yields. Expected contributions to post-employment defined-benefit plans for the year to 30 June 2014 are R0,9 million. Assumptions regarding future mortality experience are set based on actuarial advice in accordance with published statistics and experience. Mortality assumptions for Southern Africa are based on PA(90) post-retirement mortality tables with a minimum annual improvement of between 0,5% and 1,0%.
15. Deferred income tax Deferred income tax assets and deferred income tax liabilities are off-set when there is a legally enforceable right to off-set and when the deferred income tax relate to the same fiscal authority.
2013 2012 R’000 R’000 The amounts disclosed on the statement of financial position are as follows: Companies in the Group with net deferred income tax assets Deferred tax asset to be recovered after more than 12 months (24 415) (21 931) Deferred tax asset to be recovered within 12 months (46 230) (52 640) (70 645) (74 571) Companies in the Group with net deferred income tax liabilities Deferred tax liability to be recovered after more than 12 months 483 722 226 747 Deferred tax liability to be recovered within 12 months – 4 320 483 722 231 067 Net deferred income tax liability 413 077 156 496
The net movement on the deferred income tax account is as follows: Opening balance 156 496 159 817 Income statement charge (note 26) Provision for the year 31 839 (12 625) Exchange differences 13 538 – Acquisition of subsidiaries (note 35) 119 022 – Charged to other comprehensive income (note 11) 92 182 9 304 Balance at the end of the year 413 077 156 496
102 15. Deferred income tax (continued) The gross movement in deferred income tax assets and liabilities during the year, without taking offsetting into account, is as follows: Allow- ances Intangible on fixed Biological Retirement assets assets assets benefits Total Deferred income tax liabilities R’000 R’000 R’000 R’000 R’000 2013 Opening balance – 278 779 26 665 (13 341) 292 103 Exchange differences 10 045 4 851 – – 14 896 Charged to the income statement 1 49 420 (2 216) (10 918) 36 287 Charged to other comprehensive income – – – 90 817 90 817 Acquisition of subsidiaries (note 35) 93 520 45 422 – – 138 942 Balance at the end of the year 103 566 378 472 24 449 66 558 573 045
2012 Opening balance – 237 257 29 693 (12 210) 254 740 Charged to the income statement – 41 522 (3 028) (9 598) 28 896 Charged to other comprehensive income – – – 8 467 8 467 Balance at the end of the year – 278 779 26 665 (13 341) 292 103
Impairment Unutilised Leave and of Assessed STC bonus receivables losses credits accruals Other Total Deferred income tax assets R’000 R’000 R’000 R’000 R’000 R’000 2013 Opening balance (6 089) (58 269) – (57 860) (13 389) (135 607) Exchange differences – (1 169) – – (189) (1 358) Charged to the income statement 4 958 (17 204) – 7 120 678 (4 448) Charged to other comprehensive income – – – – 1 365 1 365 Acquisition of subsidiaries (note 35) – (18 271) – – (1 649) (19 920) Balance at the end of the year (1 131) (94 913) – (50 740) (13 184) (159 968)
2012 Opening balance (1 494) (47 033) (27) (19 427) (26 942) (94 923) Charged to the income statement (4 595) (11 236) 27 (38 433) 12 716 (41 521) Charged to other comprehensive income – – – – 837 837 Balance at the end of the year (6 089) (58 269) – (57 860) (13 389) (135 607)
Deferred income tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the related benefit through future taxable profits is probable. Refer to note 26 for taxation losses and capital improvements available for off-set against future taxable income. Deferred income tax liabilities have not been recognised for the withholding tax and other taxes that would be payable on the unremitted earnings of certain subsidiaries.
2013 2012 R’000 R’000 16. Trade and other payables Trade payables 1 995 144 1 278 501 Accrued expenses 105 850 66 017 Accrued leave pay 72 565 66 271 Excise duty 745 469 664 532 Value added tax 7 374 19 115 2 926 402 2 094 436
103 Notes to the annual financial statements for the years ended 30 June
2013 2012 R’000 R’000 17. Provisions Bonuses Opening balance 151 011 10 528 Charged to the income statement Additional provisions 117 329 152 054 Unused amounts – reversed (6 111) (454) Interest cost 284 250 Utilised during the year (145 753) (11 367) Balance at the end of the year 116 760 151 011
Excise duty Opening balance 557 761 229 971 Payments made (537 000) – Charged to the income statement Reversal of provision (13 928) – Additional provisions 171 736 327 790 Balance at the end of the year 178 569 557 761
Summary Performance and other bonuses 113 036 147 769 Long-service bonuses 3 724 3 242 116 760 151 011 Excise duty 178 569 557 761 295 329 708 772
Performance and other bonuses The majority of employees in the service of the Group participate in a performance-based incentive scheme and a provision is made for the estimated liability in terms of set performance criteria. These bonuses are paid in October of every year.
Long-service bonuses The Group pays long-service bonuses to employees after 10, 25 and 35 years of service respectively. An actuarial calculation is done to determine the Group’s liability under this practice using the projected unit credit method. the calculation is based on a discount rate of 8,7% (2012: 8,8%) and an attrition rate of 7,0% (2012: 7,0%).
Excise duty The Supreme Court of Appeal (SCA) in May 2012 ruled in favour of the South African Revenue Service (SARS) that certain of our wine apéritif products should be classified as spirituous beverages under a higher rate of excise duty. Provision was made for the higher rate of duty on all our wine apéritif products, plus interest. Following the ruling by the SCA the amount of additional duty plus interest on the particular products has been paid to SARS. The correct tariff classification of the remainder of the wine apéritif products remains in dispute and papers have been filed for a hearing before the Supreme Court in Pretoria. The amount provided for herein is for such additional duty plus interest. Our matter before the courts is based on expert opinion and legal advice of Senior Counsel.
104 2013 2012 R’000 R’000 18. Revenue Group Sales 12 656 081 11 278 521 Excise duty 3 202 077 2 897 526 15 858 158 14 176 047
Sales volumes (litres ’000) 601 113 560 815
Company Dividends received Ordinary shares: South African Distilleries and Wines (SA) Limited 524 737 473 647 Preference shares: Wiphold Beverages (RF) Proprietary Limited 177 922 172 042 702 659 645 689
19. Operating costs 19.1 Costs classified by function Costs of goods sold 10 500 568 9 557 842 Sales and marketing costs 2 040 205 1 830 046 Distribution costs 989 124 915 905 Administration and other costs 551 423 458 713 14 081 320 12 762 506
19.2 Costs classified by nature Group Administrative and managerial fees 15 684 10 633 Advertising costs and promotions 1 506 715 1 314 014 Amortisation of intangible assets (note 6) 9 876 9 014 Auditors’ remuneration (note 19.3) 9 345 11 243 BEE share-based payment relating to employees 6 877 6 877 Depreciation (note 2) 203 021 194 329 Employee benefit expense (note 19.4) 1 600 310 1 442 760 Impairment of trade and other receivables 15 879 4 926 Maintenance and repairs 157 426 137 616 Net fair value adjustment of biological assets (note 3) 8 413 13 538 Net foreign exchange gains (62 527) (110 760) Operating lease expenses (notes 19.5 and 31) 164 405 138 328 Raw materials and consumables used 9 390 967 8 651 816 Research and development expenditure: trademarks and brands 32 623 24 553 Transportation costs 302 082 272 145 Other expenses 720 224 641 474 14 081 320 12 762 506
19.3 Auditors’ remuneration Audit fees 7 044 5 992 Audit fees in respect of previous year 164 108 Fees for other services Taxation 1 805 4 821 Other 228 200 Expenses 104 122 9 345 11 243
105 Notes to the annual financial statements for the years ended 30 June
2013 2012 R’000 R’000 19. Operating costs (continued)
19.4 Employee benefit expense Salaries and wages 1 400 296 1 262 146 Share Appreciation Rights and Scheme Shares granted to directors and employees 11 855 10 176 Pension costs – defined-contribution plans 85 230 76 725 Medical aid contributions 63 441 59 743 Pension benefits (note 14.1) (5 800) (8 052) Post-retirement medical benefits (note 14.2) 45 288 42 022 1 600 310 1 442 760
19.5 Operating lease expenses Properties 84 764 64 058 Vehicles 42 589 39 086 Equipment 18 147 16 070 Machinery 18 905 19 114 164 405 138 328
20. BEE share-based payment Employee portion – recurring 6 877 6 877 6 877 6 877
See note 36 for details about the BEE transaction. The BEE transaction has no impact on earnings other than the BEE share-based payment. See note 27.2 for the dilutive effect of the BEE transaction on earnings per share.
21. Other gains Gain on disposal of previously held interest (note 35) 9 247 – Profit on disposal of property, plant and equipment 1 602 (1 216) 10 849 (1 216) Taxation (449) 340 10 400 (876)
22. Dividend income Dividend income derived from unlisted investments 6 279 7 645 6 279 7 645
23. Finance income Interest received Cash and cash equivalents 18 531 20 428 Other 3 691 1 126 22 222 21 554
24. Finance costs Interest paid Borrowings (90 449) (52 663) Other (172 477) (796) (262 926) (53 459)
106 2013 2012 R’000 R’000 25. Share of profit of associates Share of profit before taxation 81 380 52 192 Share of taxation (23 712) (15 032) Share of profit for the year 57 668 37 160
26. Taxation 26.1 Normal company taxation Group Current taxation current year 483 379 492 186 previous year 3 138 (25 196) Deferred taxation 31 839 (12 625) 518 356 454 365
Composition Normal South African taxation 471 253 368 480 Foreign taxation 47 087 30 185 Secondary taxation on companies (STC) 16 55 700 518 356 454 365
The income tax charged to other comprehensive income during the year is as follows: Deferred taxation fair value adjustments of available-for-sale financial assets 1 365 837 actuarial losses and gains 90 817 8 467 92 182 9 304
26.2 Reconciliation of rate of taxation (%) Standard rate for companies 28,0 28,0 Differences arising from normal activities: non-taxable income (0,1) (0,1) non-deductible expenses 4,8 0,7 taxation losses utilised (0,6) – adjustments in respect of prior years 0,5 (0,4) foreign tax rate differential, withholding taxes and income from associates (0,4) (0,2) 32,2 28,0 Secondary taxation on companies – 3,9 Effective rate 32,2 31,9
The standard rate of tax for companies in South Africa is 28,0% (2012: 28,0%).
26.3 Taxation losses Calculated taxation losses and capital improvements available for off-set against future taxable income 316 670 223 968 Applied to reduce deferred income tax (316 134) (221 365) 536 2 603
The taxation losses have no expiry dates.
107 Notes to the annual financial statements for the years ended 30 June
2013 2012 R’000 R’000 27. Earnings per ordinary share 27.1 Basic, headline and cash equivalent earnings per share The calculation of earnings per ordinary share is based on earnings as detailed below and on the weighted average number of ordinary shares in issue.
Weighted average number of ordinary shares in issue (’000) 202 752 202 185
Earnings reconciliation Profit attributable to equity holders 1 096 509 969 070
Adjusted for (net of taxation): net other capital gains (note 21) (10 400) 876 Headline earnings 1 086 109 969 946
Adjusted for (net of taxation): abnormal excise duty and interest provision (note 17) 161 709 214 388 impact of new business acquisitions 102 904 – Normalised headline earnings 1 350 722 1 184 334
Basic earnings per share (cents) 540,8 479,3 Headline earnings per share (cents) 535,7 479,7 Normalised headline earnings per share (cents) 666,2 585,8
Cash equivalent earnings Profit attributable to equity holders 1 096 509 969 070 Adjusted for: deferred income tax (note 26.1) 31 839 (12 625) non-cash flow items (note 29.1) 599 541 759 934 Total cash equivalent earnings 1 727 889 1 716 379
Cash equivalent earnings per share (cents) 852,2 848,9
Cash equivalent earnings per share: Earnings attributable to equity holders, after taking into account the adjustments explained above, divided by the weighted average number of ordinary shares in issue. This basis recognises the potential of the earnings stream to generate cash.
27.2 Diluted earnings per share Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The company has two categories of dilutive potential ordinary shares: shares offered, but not paid and delivered, to participants in the Share and Share Appreciation Right Schemes (note 10) and the call option granted to the consortium participating in the BEE transaction (note 36). For the Share and Share Appreciation Right Schemes, a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the company’s shares) based on the monetary value of the subscription rights attached to outstanding shares. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share rights. For the BEE transaction, a calculation is done to determine the additional number of shares that could have been issued at fair value (determined as the average market share price of the company’s shares) based on the value of WIPHOLD Beverages (RF) Proprietary Limited at year-end.
108 2013 2012 R’000 R’000 27. Earnings per ordinary share (continued) 27.2 Diluted earnings per share (continued) Weighted average number of ordinary shares in issue (’000) 202 752 202 185 Adjusted for: Share and SAR scheme 507 308 BEE transaction 17 749 14 106 Weighted average number of ordinary shares for diluted earnings (’000) 221 008 216 599
Diluted earnings per share (cents) 496,1 447,4 Diluted headline earnings per share (cents) 491,4 447,8 Diluted normalised headline earnings per share (cents) 611,2 546,8 Diluted cash equivalent earnings per share (cents) 781,8 792,4
28. Dividends Paid: 152,0 cents (2012: 143,0 cents) 309 013 290 058 Declared: 183,0 cents (2012: 152,0 cents) 372 036 308 314 Total: 335,0 cents (2012: 295,0 cents) 681 049 598 372
A final dividend of 183,0 cents per share was declared for the financial year ended 30 June 2013. The dividend will be paid on Monday, 16 September 2013. The last date to trade cum dividend will be Friday, 6 September 2013. The share of Distell will commence trading ex dividend from the commencement of business on Monday, 9 September 2013 and the record date will be Friday, 13 September 2013. Since the final dividend was declared subsequent to the year-end, it has not been provided for in the annual financial statements.
29. Cash flow information 29.1 Non-cash flow items Depreciation 203 021 194 329 Net fair value adjustment of biological assets 8 413 13 538 Intangible assets amortisation 9 876 9 014 Profit on disposal of property, plant and equipment (1 602) 1 216 Profit on disposal of previously held interest in subsidiary (9 247) – Provision for impairment of receivables (20 564) 21 272 Provision for retirement benefits 38 548 33 164 Provision for leave and bonuses 115 230 146 666 Provision for excise duty 157 808 327 790 Share Appreciation Rights and Scheme Shares granted to directors and employees 11 855 10 176 BEE share-based payment 6 877 6 877 Other 79 326 (4 108) 599 541 759 934
Refer to note 34 for changes to the prior year number of ‘Other’ above.
29.2 Working capital changes Increase in inventories (948 435) (524 020) Increase in trade and other receivables (156 873) (205 137) Decrease in trade and other payables (261 736) 285 324 (1 367 044) (443 833)
109 Notes to the annual financial statements for the years ended 30 June
2013 2012 R’000 R’000 29. Cash flow information (continued)
29.3 Taxation paid Prepaid at the beginning of the year 139 959 48 444 Acquisition of subsidiary (note 35) (1 192) – Current provision for taxation (486 517) (466 990) Prepaid at the end of the year (29 696) (139 959) (377 446) (558 505)
29.4 Dividends paid Group Dividends declared (617 327) (557 221) Dividends paid to The Distell Group Share Trust 1 046 1 198 Unpaid at the end of the year – – (616 281) (556 023)
Company Dividends declared (617 327) (557 221) Unpaid at the end of the year – – (617 327) (557 221)
29.5 Purchases of property, plant and equipment (PPE) to maintain operations Properties (54 298) (20 362) Machinery, tanks and barrels (147 702) (111 766) Equipment and vehicles (17 261) (10 025) Assets under construction (58 186) (15 749) (277 447) (157 902)
29.6 Purchases of PPE to expand operations Properties (51 462) (111 636) Biological assets (4 516) (4 402) Machinery, tanks and barrels (153 944) (84 282) Equipment and vehicles (29 708) (18 354) Assets under construction (224 978) (114 250) (464 608) (332 924)
29.7 Decrease in net cash, cash equivalents and bank overdrafts Balance at the beginning of the year (462 429) (229 850) Exchange gains on cash, cash equivalents and bank overdrafts (19 649) (2 285) Balance at the end of the year (84 279) 462 429 Cash at bank and on hand 341 495 462 429 Call accounts and bank overdrafts (425 774) – (566 357) 230 294
110 30. Segment reporting Management has determined the operating segments based on the reports reviewed by the executive management team (chief operating decision-maker) for the purpose of assessing performance, allocating resources and making strategic decisions. The executive management considers the business from a geographic perspective with reference to the performance of South Africa and other international operations. Revenue includes excise duty. The reportable operating segments derive their revenue primarily from the production, marketing and distribution of alcoholic beverages and other non-alcoholic items. The Group is not reliant on any one major customer due to the large number of customers and their dispersion across geographical areas. The amendment to IFRS 8, which allows an entity to not disclose segmental assets, if not reviewed by management in that format, has been adopted. Therefore no assets are disclosed for segments. Financial liabilities are also not reviewed on a segmental basis and are not disclosed separately. The executive management team assesses the performance of the operating segments based on a measure of adjusted operating profit. This measurement basis excludes, for example, the effects of equity-settled share-based payments and unrealised gains/losses on financial instruments that are shown separately under ‘corporate services’. Interest income and interest expenditure are also not allocated to segments, as this type of activity is driven by the central treasury function, which manages the cash position of the Group. The segment information provided to the executive management team for the reportable segments are as follows:
2013 2012 R’000 R’000 Revenue from external customers Sales of alcoholic beverages Republic of South Africa 11 505 916 10 598 890 International 4 244 593 3 448 368 15 750 509 14 047 258
Other non-alcoholic items 107 649 128 789 Consolidated revenue 15 858 158 14 176 047
Operating profit Republic of South Africa 1 833 857 1 477 847 International 738 595 482 789 2 572 452 1 960 636 Corporate services (784 765) (548 311) Consolidated operating profit 1 787 687 1 412 325
111 Notes to the annual financial statements for the years ended 30 June
2013 2012 R’000 R’000 31. Commitments Capital commitments Capital expenditure contracted, not yet incurred 269 216 173 205 Capital expenditure authorised by the directors, not yet contracted 760 216 831 140 1 029 432 1 004 345
Composition of capital commitments Subsidiaries 1 013 239 998 247 Joint ventures 16 193 6 098 1 029 432 1 004 345
These commitments will be incurred in the coming year and will be financed by own and borrowed funds, comfortably contained within established gearing constraints. Operating lease commitments The Group leases various farming land, warehouses, machinery, equipment and vehicles under non-cancellable operating lease agreements. The leases have varying terms, renewal rights and escalation clauses. The majority of escalation clauses are linked to the CPI or equivalent inflation rate. The future minimum lease payments under non-cancellable operating leases are as follows:
Not later than one year 43 399 51 850 Later than one year and not later than five years 61 865 85 098 105 264 136 948
Finance lease commitments The Group entered into finance lease agreements with financial institutions for the lease of vehicles for a period of between 48 and 60 months. In terms of the lease agreements, instalments are payable at the end of each month. The Group sells the vehicles at the end of the lease agreements. The agreements have no contingent rents.
Later than 1 year and Not later not later 2013 2012 than 1 year than 5 years Total Total R’000 R’000 R’000 R’000 Minimum lease payments 770 1 757 2 527 4 356 Finance costs (121) (196) (317) (654) Present value of minimum lease payments 649 1 561 2 210 3 702
112 32. Financial instruments by category Financial instruments disclosed in the statement of financial position include interest-bearing borrowings, financial assets, cash and cash equivalents, trade and other receivables and trade and other payables. The following is a summary of financial instrument categories applicable to the Group:
Liabilities Assets at at fair Other fair value value financial through through liabilities at Loans and profit and Available- profit and amortised receivables loss for-sale loss cost Total Group R’000 R’000 R’000 R’000 R’000 R’000 2013 Available-for-sale financial assets (note 4) – – 88 705 – – 88 705 Other loans and receivables (note 4) 67 766 – – – – 67 766 Cash and cash equivalents 341 495 – – – – 341 495 Trade and other receivables (note 8) 1 752 428 – – – – 1 752 428 Derivative financial instruments (note 9) – 50 – (12 806) – (12 756) Interest-bearing borrowings (note 13) – – – – (3 233 916) (3 233 916) Trade and other payables (note 16) – – – – (2 088 188) (2 088 188) 2 161 689 50 88 705 (12 806) (5 322 104) (3 084 466)
2012 Available-for-sale financial assets (note 4) – – 85 361 – – 85 361 Other loans and receivables (note 4) 51 913 – – – – 51 913 Cash and cash equivalents 462 429 – – – – 462 429 Trade and other receivables (note 8) 1 349 316 – – – – 1 349 316 Derivative financial instruments (note 9) – 3 034 – (62) – 2 972 Interest-bearing borrowings (note 13) – – – – (528 433) (528 433) Trade and other payables (note 16) – – – – (1 344 456) (1 344 456) 1 863 658 3 034 85 361 (62) (1 872 889) 79 102
113 Notes to the annual financial statements for the years ended 30 June
33. Financial risk management 33.1 Financial risk factors The board of directors oversees the adequacy and functioning of the entire system of risk management and internal control, assisted by management. Group Internal Audit provides independent assurance on the entire risk management and internal control system. Regional and subsidiary company management are responsible for managing performance, underlying risks and effectiveness of operations, within the rules set by the board, supported and supervised by Group departments. The audit and risk committee reviews the internal control environment and risk management systems within the Group and it reports its activities to the board. The board members receive a monthly report on treasury activities, including confirmation of compliance with treasury risk management policies. The Group’s activities exposes it to a variety of financial risks: market risk (including interest rate risk and foreign currency risk), credit risk and liquidity risk. The board approves prudent treasury policies for managing each of the risks summarised below. The Group’s Corporate Treasury department is responsible for controlling and reducing exposure to interest rate, liquidity and currency transaction risks. Senior executives and advisers meet on a regular basis to analyse currency and interest rate exposures and re-evaluate treasury management strategies against revised economic forecasts. Group policies, covering specific areas such as foreign exchange risk, interest rate risk, credit risks, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity, are reviewed annually by the board. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and responsibilities. The Group Treasury department does not undertake speculative financial transactions.
33.1(a) Market risk The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group is not materially exposed to equity price risk on investments held and classified on the consolidated statement of financial position as available-for-sale. (i) Foreign currency risk management The Group operates internationally and has transactional currency exposures, which principally arise from commercial transactions, recognised assets and liabilities and investment in foreign operations. In order to manage this risk, the Group may enter into transactions in terms of approved policies and limits which make use of financial instruments that include forward foreign exchange contracts. Foreign subsidiaries do not have material transactional currency exposures as they mainly operate in their functional currencies. The Group does not speculate or engage in the trading of financial instruments. The Group is primarily exposed to the currency of the US dollar and euro. if the rand had weakened/ strengthened by 10% against the USD on 30 June 2013, with all other variables remaining constant, the post-tax profit for the year would have been R14,3 million (2012: R15,5 million) lower/higher, mainly as result of translating outstanding foreign currency denominated monetary items. Similarly, had the rand at 30 June 2013 weakened/strengthened by 10% against the euro, with all other variables remaining constant, post-tax profit for the year would have been R2,8 million (2012: R22,8 million) lower/higher.
114 33. Financial risk management (continued) 33.1 Financial risk factors (continued) 33.1(a) Market risk (continued) (ii) Price risk management The Group is exposed to equity securities price risk because of investments held by the Group and classified as available-for-sale on the consolidated statement of financial position. The Group is not exposed to commodity price risk. To manage the price risk the Group diversifies its portfolio. (iii) Interest rate risk management The Group’s interest rate risk arises from long-term borrowings. Borrowings at variable interest rates expose the Group to cash flow interest rate risk, while fixed rate borrowings expose the Group to fair value interest rate risk. The Group is exposed to interest rate risk arising from the repricing of forward cover and floating rate debt as well as incremental funding/new borrowings and the rollover of maturing debt/refinancing of existing borrowings. The management of the actual debt and investment portfolios is done by adjusting the repricing and maturity profiles of the debt and/or investment portfolios from time to time, relative to that of the benchmark portfolios as well as using derivative instruments to alter the repricing profiles of the actual portfolios relative to the benchmark portfolios. As at 30 June 2013, if the floating interest rates had been 100 basis points higher/lower and all other variables held constant, the Group’s post-tax profit for the year would have increased/decreased as a result of interest received/paid on cash and cash equivalents and borrowings by R4,8 million (2012: R1,7 million). The other financial instruments in the Group’s statement of financial position are not exposed to interest rate risk.
33.1(b) Credit risk management Potential concentrations of credit risk principally exist for trade and other receivables, cash and cash equivalents and derivative financial instruments. The Group only deposits cash with banks with high credit ratings. Trade receivables comprise a large, widespread customer base and the Group performs ongoing credit evaluations of the financial condition of these customers. The type of customers range from wholesalers and distributors to smaller retailers. The granting of credit is controlled by application and the credit limits assigned to each individual customer are reviewed and updated on an ongoing basis taking into consideration its financial position, past experience and other factors. The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. At year-end the Group’s cash was invested at financial institutions with the following Moody’s short-term credit rating:
2013 2012 R’000 R’000 P-1 229 299 154 695 P-2 109 611 305 435 Cash 2 585 2 299 341 495 462 429
115 Notes to the annual financial statements for the years ended 30 June
33. Financial risk management (continued) 33.1 Financial risk factors (continued) 33.1(b) Credit risk management (continued) The Group is exposed to credit-related losses in the event of non-performance by counterparties to hedging instruments. The counterparties to these contracts are major financial institutions. The Group continually monitors its positions and the credit ratings of its counterparties and limits the extent to which it enters into contracts with any one party. The carrying amount of the financial assets recorded in the financial statements, which is net of impaired losses, represents the Group’s maximum exposure to credit risk. The Group is also exposed to credit-related losses in the event of non-performance by counterparties to financial guarantee contracts relating to vineyard development loans to certain farmers of R31,5 million (2012: R33,6 million) and staff housing loans of R2,6 million (2012: R2,7 million). The guarantees relating to vineyard development loans are secured by mortgage bonds over farming property with a market value in excess of the loan obligations. The Group continually monitors its positions and limits its exposure with any one party. At 30 June 2013 the Group did not consider there to be a significant concentration of credit risk which had not been adequately provided for.
33.1(c) Liquidity risk management The Group manages liquidity risk through the compilation and monitoring of cash flow forecasts, as well as ensuring that adequate borrowing facilities are maintained. Refer to note 13 regarding the Group’s unutilised banking facilities and reserve borrowing capacities. Banking facilities are renewed annually and are subject to review at various dates during the next year. The table below analyses the Group’s financial liabilities and derivative financial instruments which will be settled on a gross basis into relevant maturity groupings based on the remaining period at the statement of financial position date to contract maturity date. The amounts disclosed in the table are the contracted undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.
0 – 12 1 – 2 3 – 5 Beyond 2013 2012 months years years 5 years Total Total R’000 R’000 R’000 R’000 R’000 R’000 Financial liabilities Forward exchange contracts held for trading – Outflow 234 458 – – – 234 458 116 216 – Inflow 221 702 – – – 221 702 119 188 Trade and other payables 2 088 188 – – – 2 088 188 1 344 456 Financial guarantees 31 522 – – – 31 522 33 588 Interest-bearing borrowings 3 165 445 770 1 757 – 3 167 972 607 067
116 33. Financial risk management (continued) 33.2 Fair value estimation The Group adopted the amendment to IFRS 7 for financial instruments that are measured at fair value in the statement of financial position. This amendment requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) Specific valuation techniques used to value financial instruments include: Cash and cash equivalents, trade and other receivables and loans: The carrying amounts reported in the statement of financial position approximate fair values due to the short-term maturities of these amounts. Available-for-sale financial assets: The fair value is based on quoted bid prices at the statement of financial position date. The fair value of financial instruments that are not trading in an active market is determined by using various valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument would be included in level 3. Forward foreign exchange contracts: Forward foreign exchange contracts are entered into to cover import orders and export proceeds, and fair values are determined using foreign exchange bid or offer rates at year-end as the significant inputs in the valuation. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. The following table presents the Group’s assets and liabilities that are measured at fair value at 30 June:
Level 1 Level 2 Level 3 Total R’000 R’000 R’000 R’000 2013 Available-for-sale financial assets 14 157 18 140 56 408 88 705 Derivative financial assets – 50 – 50 Derivative financial liabilities – (12 806) – (12 806) 14 157 5 384 56 408 75 949
2012 Available-for-sale financial assets 13 220 26 581 45 560 85 361 Derivative financial assets – 3 034 – 3 034 Derivative financial liabilities – (62) – (62) 13 220 29 553 45 560 88 333
The movement in level 3 instruments for the year ended 30 June 2013 is as follows: R’000 Opening balance 45 560 Acquisition of subsidiaries 3 309 Gains and losses recognised in the statements of comprehensive income 7 539 Balance at the end of the year 56 408
117 Notes to the annual financial statements for the years ended 30 June
33. Financial risk management (continued) 33.3 Capital risk management The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The board reviews the capital structure on an annual basis. As part of this review, it considers the Group’s commitments, availability of funding and the risks associated with each class of capital. There were no major changes in the Group’s approach to capital management during the year and the board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of business and acquisitions. Capital is herein defined as equity attributable to equity holders of the Group.
34. Transaction with non-controlling interest Change of interest in a subsidiary without loss of control On 30 May 2012, the Group issued additional shares in Lomond Wine Estate Proprietary Limited for a consideration of R9,3 million which resulted in a non-controlling interest of 16,1%. The transaction was concluded on a non-cash basis as assets were exchanged for the shares. The effect of the changes in ownership interest in Lomond Wine Estate Proprietary Limited on the equity attributable to owners of the Group during the year is summarised as follows:
2013 2012 R’000 R’000 Carrying amount of non-controlling interest – (7 944) Consideration received from non-controlling interest – 9 294 Gain on disposal recorded within parent’s equity – 1 350
The increase in assets were previously included under purchases of property, plant and equipment on the consolidated cash flow statement. The comparative figures have been changed to exclude the increase in assets from purchases of PPE on the cash flow statement with the corresponding adjustment in non-cash flow items. There were no transactions with non-controlling interest in 2013.
118 35. Business combinations 35.1 Acquisition of subsidiary On 12 April 2013, the Group acquired 100% of the issued share capital of Burn Stewart Distillers Limited (Burn Stewart) for r1,9 billion, of which r137,0 million is contingent upon the company achieving certain eBITDA (earnings before interest, tax, depreciation and amortisation) targets. The acquisition provides the Group access to the highly attractive and growing scotch whisky category and also fills a category gap in Distell’s product portfolio. It will allow the Group to offer its customers an even broader range of products. Burn Stewart’s strong presence in the United Kingdom, Taiwan and other countries provides Distell with enhanced sales capability and route-to-market opportunities. As a result of the acquisition, the Group is also expected to increase its presence in the markets where Burn Stewart operates as well as to reduce costs through economies of scale. The goodwill of R717,0 million arising from the acquisition is attributable to the acquired customer base, stock and economies of scale expected from combining the operations of the Group and Burn Stewart. None of the goodwill recognised is expected to be deductible for income tax purposes. The following table summarises the consideration paid for Burn Stewart, the fair value of assets acquired, liabilities assumed and the non-controlling interest at the acquisition date. 2013 R’000 Consideration Cash 1 634 171 Contingent consideration 136 998 Shareholders loan 90 605 Total consideration transferred 1 861 774 Fair value of equity interest in Burn Stewart Distillers Group held before the business combination 9 247 Total consideration 1 871 021 Recognised amounts of identifiable assets acquired and liabilities assumed Cash and cash equivalents 49 320 Trade and other receivables 156 560 Trademarks, trade names and customer relationships (included in intangibles) 392 910 Inventories 900 030 Property, plant and equipment 345 715 Available-for-sale financial assets 2 982 Deferred income tax liabilities (119 039) Trade and other payables (173 202) Interest-bearing borrowings (398 193) Total identifiable net assets 1 157 083 Non-controlling interest (3 068) Goodwill 717 006 Total 1 871 021 Acquisition-related cost of R34,9 million have been charged to ‘administration and other costs’ in the consolidated income statement for the year ended 30 June 2013. The contingent consideration is payable in cash to the former owners of Burn stewart, within 12 months of the closing of the transaction, subject to Burn stewart achieving a specified eBITDA target for the year to 31 December 2013. The full amount for the contingent consideration was provided at 30 June 2013. The potential undiscounted amount of all future payments that the Group could be required to make under this arrangement is between US$0 and US$15,2 million. The fair value of the acquired identifiable assets is provisional pending receipt of the final valuations for those assets. The Group recognised a gain of r9,2 million as a result of measuring at fair value its 50% equity interest in Scotch Whisky Sub-Sahara LLP, a joint venture with Burn Stewart, held before the business combination. The gain is included in ‘other gains’ in the consolidated income statement for the year ended 30 June 2013. The revenue of Burn Stewart included in the consolidated income statement since 12 April 2013 was R200,8 million and the company contributed profit of R22,0 million over the same period.
119 Notes to the annual financial statements for the years ended 30 June
35. Business combinations (continued) 35.2 Acquisition of controlling interest in subsidiary On 1 July 2012, the Group acquired 60% of the share capital of Distell (Hong Kong) Limited (previously named CJ (China) Wine and Spirits Company Limited) for RMB5,72 million. As a result of the acquisition, the Group is expected to increase its presence in the Chinese market. It also expects to reduce distribution cost. The goodwill of R7,5 million arising from the acquisition is attributable to the expected decrease in distribution cost and the acquired customer base. None of the goodwill recognised is expected to be deductible for income tax purposes. The following table summarises the consideration paid for Distell (Hong Kong), the fair value of assets acquired, liabilities assumed and the non-controlling interest at the acquisition date.
2013 R’000 Consideration Cash 3 718 Contingent consideration 3 745 Total consideration 7 463
Recognised amounts of identifiable assets acquired and liabilities assumed Cash and cash equivalents 13 014 Trade and other receivables 8 457 Inventories 19 402 Property, plant and equipment 151 Deferred income tax assets 17 Current income tax liabilities (1 192) Trade and other payables (39 927) Total identifiable net assets (78) Non-controlling interest 31 Goodwill 7 510 Total 7 463
The contingent consideration arrangement requires that if 75% or more of each of the first two years’ profit targets are achieved, the additional consideration payable per year will be RMB1,43 million multiplied by the percentage of that year’s target achieved. At 30 June 2013 it was estimated that the contingent consideration will not be payable and the full amount was reversed and it is included in operating costs in the consolidated income statement. The revenue of Distell (Hong Kong) included in the consolidated income statement since 1 July 2012 was R53,7 million and the company contributed a loss of R8,2 million over the same period.
120 36. BEE transaction In October 2005 the Group entered into a broad-based black economic empowerment (BEE) transaction with a consortium that includes investment group WIPHOLD Distilleries and Wines investments proprietary Limited (WIP Distilleries), all Distell’s employees and a corporate social investment trust. The consortium acquired an effective 15% investment in South African Distilleries and Wines (SA) Limited (SADW), the company in which all of Distell’s operations are held, for an amount of R869,4 million through Wiphold Beverages (RF) Proprietary Limited (WIP Beverages). WIP Beverages settled the purchase price by issuing variable rate (consumer price inflation index, excluding owner’s equivalent rent (CPI) plus 7%) cumulative redeemable preference shares in WIP Beverages to Distell Group Limited (Distell Group). After an initial eight-year term, which can be extended by two years, WIP Distilleries has the right to exercise a put option on behalf of all the ordinary shareholders in WIP Beverages whereby it can exchange its shares in SADW for shares in Distell Group. The first option period expires 30 days after the publication of Distell’s 2013 annual report. The preference shares do not have voting rights, except in respect of certain resolutions such as those affecting the rights of the preference shares, the disposal of any part of the undertaking or any asset of the company, the encumbrance of any part of the business or variation of ordinary shareholders’ rights. Distell Group has the power to govern the relevant activities of the company and WIP Beverages is therefore regarded as a subsidiary of Distell Group. The cost of this transaction to Distell’s shareholders, calculated by using a binomial option pricing model, equated to R122,3 million or R4,13 per share. In terms of IFRS 2: Share-based Payments the non-employee portion of the BEE transaction was expensed immediately and the employee portion is spread over a vesting period of eight years. Also see accounting policy note 1.23 and notes 20 and 27.2.
121 Notes to the annual financial statements for the years ended 30 June
37. Directors’ emoluments 2013 2012 Non- Non- Executive executive Total Executive executive Total R’000 R’000 R’000 R’000 R’000 R’000 Salaries and fees 5 440 2 692 8 132 4 842 2 599 7 441 Incentive bonuses 2 134 – 2 134 – – – Retirement fund contributions 1 129 – 1 129 1 005 – 1 005 Medical aid contributions 53 – 53 49 – 49 Vehicle benefits 599 – 599 569 – 569 Paid by subsidiaries 9 355 2 692 12 047 6 465 2 599 9 064
Retirement Medical fund aid Incentive contri- contri- Vehicle 2013 2012 Salaries bonuses butions butions benefits Total Total R’000 R’000 R’000 R’000 R’000 R’000 R’000 Executive JJ Scannell 3 643 1 589 756 27 323 6 338 4 245 MJ Botha 1 797 545 373 26 276 3 017 2 220 Subtotal 5 440 2 134 1 129 53 599 9 355 6 465
Retirement Medical fund aid Incentive contri- contri- Vehicle 2013 2012 Fees bonuses butions butions benefits Total Total R’000 R’000 R’000 R’000 R’000 R’000 R’000 Non-executive FC Bayly 148 – – – – 148 138 PM Bester (1) – – – – – – 172 PE Beyers 148 – – – – 148 138 JG Carinus 148 – – – – 148 138 GP Dingaan (2) 233 – – – – 233 200 JJ Durand (3) 166 – – – – 166 – E de la H Hertzog 148 – – – – 148 138 MJ Madungandaba 148 – – – – 148 138 LM Mojela (4) 185 – – – – 185 172 DM Nurek (5) 520 – – – – 520 487 CA Otto 148 – – – – 148 149 AC Parker (6) 185 – – – – 185 138 CE Sevillano-Barredo (7) 296 – – – – 296 263 BJ van der Ross 148 – – – – 148 138 LC Verwey 71 – – – – 71 – MH Visser (8) – – – – – – 190 Subtotal 2 692 – – – – 2 692 2 599 Total 8 132 2 134 1 129 53 599 12 047 9 064
1. Mr PM Bester was a member of the remuneration committee. 2. Ms GP Dingaan is a member of the audit and risk committee and chairperson of the social and ethics committee. 3. Mr JJ Durand is a member of the remuneration committee. 4. Ms LM Mojela is a member of the remuneration committee. 5. Mr DM Nurek is chairman of the board, a member of the audit and risk committee and chairman of the remuneration committee. 6. Mr AC Parker is a member of the remuneration committee. 7. Ms CE Sevillano-Barredo is chairperson of the audit and risk committee. 8. Mr MH Visser was a member of the audit and risk committee and the remuneration committee.
122 38. Interest of directors in share capital and contracts On 30 June 2013 and on 30 June 2012, as well as on the date of this report, the directors of the company held in total less than 1% of the company’s issued share capital. Interests of the directors in the number of shares issued Direct Indirect Non- Non- 2013 2012 Ordinary shares Beneficial beneficial Beneficial beneficial Total Total FC Bayly – – 1 949 – 1 949 1 949 MJ Botha 77 925 – – – 77 925 137 925 E de la H Hertzog 25 200 – – 11 000 36 200 36 200 DM Nurek – – 15 000 – 15 000 15 000 JJ Scannell 1 088 166 – – 1 100 1 089 266 1 089 266 1 191 291 – 16 949 12 100 1 220 340 1 280 340
The other directors of the company have no interest in the issued capital of the company. There was no change in these interests since the financial year-end. The directors of the company have each certified that they did not have any interest in any contract of significance to the company or any of its subsidiaries which would have given rise to a related conflict of interest during the year.
39. Share and Share Appreciation Right Schemes Share Scheme In the financial years ended 30 June 2013 and 30 June 2012 no additional shares were offered to directors.
Current status Number Number of shares Share Shares of shares paid and price on Balance Shares accepted paid and delivered date of of shares accepted in the delivered in the payment accepted prior to year to Offer prior to year to and Increase as at Ordinary shares 30 June 30 June price 30 June 30 June delivery in value* 30 June Participant 2012 2013 (Rand) 2012 2013 (Rand) R’000 2013 Executive JJ Scannell 589 823 – 7,35 589 823 – – – – JJ Scannell 537 605 – 14,60 537 605 – – – – JJ Scannell 59 494 – 31,00 59 494 – – – – JJ Scannell 129 515 – 40,00 86 344 43 171 97,00 2 461 – JJ Scannell 70 869 – 60,50 23 623 47 246 111,64 2 416 – JJ Scannell 96 967 – 45,50 – 64 645 111,64 4 276 32 322 JJ Scannell 38 718 – 64,00 – 12 906 126,35 805 25 812 MJ Botha 261 962 – 7,35 261 962 – – – – MJ Botha 205 461 – 14,60 205 461 – – – – MJ Botha 3 249 – 31,00 3 249 – – – – MJ Botha 49 212 – 40,00 49 212 – – – – MJ Botha 23 421 – 60,50 15 614 – – – 7 807 MJ Botha 34 839 – 45,50 11 613 – – – 23 226 MJ Botha 8 667 – 64,00 – – – – 8 667 Total 2 109 802 – 1 844 000 167 968 9 958 97 834
* Refers to the increase in value of the scheme shares of the indicated participants from the offer date to the date of payment and delivery during the current financial year. The scheme is a deferred purchase scheme (see note 10).
123 Notes to the annual financial statements for the years ended 30 June
39. Share and Share Appreciation Right Schemes (continued) Distell Share Appreciation Right Scheme In the current financial year 190 794 (2012: 96 551) share appreciation rights (SARs) were offered to directors.
Current status Number SARs Number of SARs Balance SARs accepted of SARs exercised Share of SARs accepted in the exercised in the price on accepted Share appreciation prior to year to Offer prior to year to exercise Increase as at rights 30 June 30 June price 30 June 30 June date in value* 30 June Participant 2012 2013 (Rand) 2012 2013 (Rand) R’000 2013 Executive JJ Scannell 62 012 – 72,00 – – – – 62 012 JJ Scannell 87 630 – 66,00 – – – – 87 630 JJ Scannell – 130 566 93,35 – – – – 130 566 MJ Botha 8 176 – 72,00 – – – – 8 176 MJ Botha 8 921 – 66,00 – – – – 8 921 MJ Botha – 60 228 93,35 – – – – 60 228 Total 166 739 190 794 – – – 357 533
* Refers to the increase in value of the SARs of the indicated participants from the offer date to the exercise date during the current financial year. See note 10 for details of the scheme.
2013 2012 R’000 R’000 40. Related-party transactions Distell Group Limited is controlled by Remgro-Capevin Investments Limited which owns 57,7% of the company’s shares. Other Beverage Interests Proprietary Limited (SABMiller) owns 28,9% of the company’s shares. Related-party relationships exist between the Group, associates, joint ventures and the shareholders of the company. Group The following transactions were carried out with subsidiaries of our major shareholders:
Purchases of goods and services Remgro Management Services Limited (management services) 8 898 8 304 Remgro Management Services Limited (interest on loans) 9 495 3 324 18 393 11 628
Year-end balances arising from purchases of goods and services Remgro Management Services Limited (including VAT) 1 690 1 578 1 690 1 578
The Group has access to loan funds from Remgro Management Services Limited. A limited amount can be borrowed at a market-related rate and is repayable on demand. The amount is included in current interest-bearing liabilities.
Key management compensation Directors of Distell Limited, the main operating company in the Group 31 272 23 040
Also refer to notes 37, 38, 42 and 43. Company Refer to notes 18 and 22 for dividends received from subsidiaries.
124 2013 2012 R’000 R’000 41. Interest in subsidiaries The total profits/(losses) after taxation of consolidated subsidiaries for the year are as follows: Profits 1 169 162 1 048 215 Losses (64 932) (101 784) Net consolidated profit after taxation 1 104 230 946 431
The company’s direct interests in its subsidiaries are as follows:
South African Distilleries and Wines (SA) Limited (85%) – Unlisted 971 630 939 820 Long-term loan – interest-free and repayable on demand 849 372 824 439 Share-based payment contribution 122 257 115 380 Shares 1 1
WIPHOLD Beverages (RF) Proprietary Limited 1 489 420 1 404 088 Variable rate cumulative redeemable preference shares (note 36) 869 411 869 411 Cumulative arrear preference shares dividend 620 009 534 677 Investments in subsidiaries 2 461 050 2 343 908
The company’s indirect interest in subsidiaries through South African Distilleries and Wines (SA) Limited is as follows:
Issued share capital Manufacturers and distributors Interest % R Bisquit Dubouché et Cie (France) 100 405 036 148 Burn Stewart Distillers Limited (United Kingdom) 100 360 205 109 Devon Road Property Limited 100 100 Distell Botswana (Proprietary) Limited (Botswana) 100 3 Distell (Hong Kong) Limited (Hong Kong) 60 19 520 165 Distell International Limited (Mauritius) 100 430 272 739 Distell Limited 100 1 000 Distell Namibia Limited (Namibia) 100 4 000 Distell Swaziland Limited (Swaziland) 100 10 000 Durbanville Hills Wines Proprietary Limited 72 981 700 Ecowash Proprietary Limited 100 100 Expo Liquor Limited 100 4 066 625 Lomond Development Company Limited 100 100 Lomond Wine Estates Proprietary Limited 84 2 975 Namibia Wines & Spirits Limited (Namibia) 100 100 000 Nederburg Wine Farms Limited 100 200 Nederburg Wines Proprietary Limited 100 218 870 SFW Financing Company Limited 100 70 000 SFW Holdings Limited 100 200 Stellenbosch Farmers Winery Limited 100 7
Other Henry C Collison & Sons Limited (United Kingdom) 100 82 792
Notes: 1. Information is only disclosed in respect of those subsidiaries of which the financial position or results are significant. 2. All subsidiaries are incorporated in South Africa, unless otherwise stated. 3. Cumulative arrear dividends relating to the preference shares in WIPHOLD Beverages on 30 June 2013 amounted to R620,0 million (2012: R534,7 million). The preference shares have a dividend rate of CPI (excluding owner’s equivalent rent) plus 7%.
125 Notes to the annual financial statements for the years ended 30 June
2013 2012 R’000 R’000 42. Interest in unlisted associates The Group’s interest in associates is as follows:
Tanzania Distilleries Limited (Tanzania) (35%) 27 697 43 136 Cost price 13 352 13 352 Equity-accounted retained earnings 14 345 29 784
Grays Inc. Limited (Mauritius) (26%) 20 789 18 966 Cost price 6 949 6 949 Equity-accounted retained earnings 13 840 12 017
Papkuilsfontein Vineyards Proprietary Limited (49%) (9) (80) Cost price – – Equity-accounted retained earnings (9) (80) Investments in associates 48 477 62 022
Share in net assets of associates 39 401 52 946 Goodwill 9 076 9 076 48 477 62 022
The aggregate statements of financial position of associates are summarised as follows: Property, plant and equipment 150 751 98 777 Financial and intangible assets 26 213 23 358 Current assets 210 246 139 286 Total assets 387 210 261 421
Interest-free liabilities 62 330 Interest-bearing liabilities 145 044 95 862 Total liabilities 145 106 96 192
Equity 242 103 165 230 Minority interest (202 702) (112 284) Group’s share in equity 39 401 52 946 Loans to associates 14 783 14 664 Group’s share in net assets of associates 54 184 67 610
Tanzania Distilleries Limited (35%) 21 119 36 558 Grays Inc. Limited (26%) 18 291 16 468 Papkuilsfontein Vineyards Proprietary Limited (49%) (9) (80) 39 401 52 946
The Group’s interest in the revenue and profit of the associates is as follows: Revenue 463 607 330 364 Profit for the year 65 478 44 613
Notes: 1. All associates are incorporated in South Africa, unless otherwise stated. 2. The interest in Grays Inc. Limited was acquired on 1 January 2006. 3. The statutory year-ends of Tanzania Distilleries Limited (31 March) and Grays Inc. Limited (31 December) are different to those of the rest of the Group. The unaudited results of these companies to 30 June 2012 and 30 June 2013, subsequent to their respective year-ends, have been included based on information prepared by management where applicable.
126 2013 2012 R’000 R’000 43. Interest in joint ventures The Group’s interest in joint ventures is as follows:
Total equity Afdis Holdings (Private) Limited (Zimbabwe) (50%) 29 650 21 236 Distell Angola Limitada (Angola) (51%) 4 992 1 419 Distell Ghana Limited (Ghana) (60%) (308) – Les Domaines de Mauricia Limitee (Mauritius) (50%) 149 (41) Lusan Holdings Proprietary Limited (50%) 71 367 66 154 Mirma Products Proprietary Limited (45%) 4 242 3 405 Scotch Whisky Sub-Sahara Limited Liability Partnership (United Kingdom) (100%) (2012: 50%) – 13 039 Solamoyo Processing Company Proprietary Limited (40%) (594) (263) Tonnellerie Radoux (SA) Proprietary Limited (50%) 8 763 8 313 Proportional interest in joint ventures 118 261 113 262
For Distell Angola Limitada and Distell Ghana Limited we only have joint control over these entities as decisions regarding the financial and operating policies requires the unanimous consent of all shareholders. The Group’s interest in the assets and liabilities of the joint ventures is as follows: Property, plant and equipment 216 175 188 050 Intangible assets – 14 303 Current assets 109 246 85 497 Total assets 325 421 287 850
Non-current liabilities 149 587 152 824 Current liabilities 57 573 21 764 Total liabilities 207 160 174 588
Net assets 118 261 113 262
Net interest consolidated 118 261 113 262
The Group’s interest in the income and expenditure of the joint ventures is as follows:
Revenue 147 503 125 806 Profit before taxation 9 217 13 632 Profit for the year 5 756 9 666
The Group’s interest in the cash flow statements of the joint ventures is as follows:
Cash retained from operating activities 23 965 (1 745) Cash outflow from investment activities (22 619) (7 559) Net cash flow 1 346 (9 304)
Notes: 1. All joint ventures are incorporated in South Africa, unless otherwise stated. 2. There are no contingent liabilities relating to the Group’s interest in the joint ventures and no contingent liabilities of the ventures itself. 3. The Group now owns 100% of Scotch Whisky Sub-Sahara Limited Liability Partnership through the acquisition of Burn Stewart Distillers Limited which holds 50%. Refer to note 35.1.
127 Notes to the annual financial statements for the years ended 30 June
Number of Number of % ordinary % of issued holders of holders shares shares 44. Analysis of shareholders at 30 June 2013
Distribution of shareholders Public shareholders 5 101 99,67 25 459 522 12,52 Non-public shareholders 17 0,33 177 838 779 87,48 Major beneficial shareholders 2 0,04 176 022 000 86,59 Directors, including those of subsidiaries, and their associates 14 0,27 1 566 893 0,77 The Distell Group Share Trust 1 0,02 249 886 0,12 5 118 100,00 203 298 301 100,00
2013 2012 Number of shares in issue Total number of shares in issue 203 298 301 202 838 012 Shares purchased by The Distell Group Share Trust and accounted for as treasury shares (249 886) (430 058) 203 048 415 202 407 954
Weighted number of shares 202 752 322 202 185 079
Number % of of shares total Major beneficial shareholders The following shareholders have a holding of greater than 5% of the issued shares of the company: Remgro-Capevin Investments Limited 117 348 000 57,72 Other Beverage Interests Proprietary Limited (SABMiller) 58 674 000 28,86
128 Definitions and Ratios
Acid test ratio interest provision, as well as the impact of new business Current assets, excluding inventories, divided by total acquisitions, divided by the weighted average number of current liabilities. ordinary shares in issue.
Cash flow per ordinary share Earnings yield Cash flow from operating activities before dividends paid, Headline earnings per ordinary share divided by the closing divided by the weighted number of ordinary shares in issue. share price at year-end on the JSE Limited (JSE). This basis identifies the cash stream actually achieved in the period under review. Effective tax rate Cash and cash equivalents The tax charge for the year divided by the profit before For the purposes of the cash flow statement, cash and taxation. cash equivalents comprise cash on hand, deposits held Financial gearing ratio at call with banks and investments in money market The ratio of interest-bearing borrowings, net of cash and instruments, net of bank overdrafts. In the balance sheet, bank overdrafts are included in interest-bearing borrowings cash equivalents, to total equity. under current liabilities. Interest-free borrowings to total assets Current ratio Interest-free borrowings, excluding post-retirement medical Current assets divided by total current liabilities. liability, divided by total assets (both excluding deferred income tax). Dividend cover Headline earnings per ordinary share divided by dividends Net asset turn per ordinary share. Revenue divided by net assets at year-end.
Dividend yield Net asset value per ordinary share Dividends per ordinary share divided by the weighted Total equity divided by the number of ordinary shares in average price per share during the year. issue. Earnings per ordinary share Basic earnings basis Pre-tax return on equity Earnings attributable to equity holders divided by the Profit before taxation as a percentage of closing equity. weighted average number of ordinary shares in issue. Price-earnings ratio Headline basis The closing share price at year-end on the JSE, divided by Earnings attributable to equity holders, after taking into headline earnings per ordinary share for that year. account the adjustments explained in note 27.1, divided by the weighted average number of ordinary shares in issue. Return on equity Headline earnings divided by closing equity. Cash equivalent basis Earnings attributable to equity holders, after taking into Total return to shareholders account the adjustments explained in note 27.1, divided by This represents the internal rate of return over a seven-year the weighted average number of ordinary shares in issue. period. It is computed by recognising the market price of a This basis recognises the potential of the earnings stream Distell ordinary share seven years ago as a cash outflow, to generate cash. recognising the annual cash dividend streams per share Normalised earnings basis and the closing share price at the end of the current year as Earnings attributable to equity holders, after taking into inflows and then determining the discount rate inherent to account the adjustments for abnormal excise duty and these cash flow streams.
129 Dates of importance to shareholders
Annual general meeting 16 October 2013
Financial report Interim report February 2014 Preliminary announcement of annual results August 2014 Annual financial statements September 2014
Ordinary dividends Interim dividends – declaration February 2014 – payable March 2014
Final dividends – declaration August 2014 – payable September 2014
Administration
Distell Group Limited Auditors Incorporated in the Republic of South Africa PricewaterhouseCoopers Inc. (Registration number: 1988/005808/06) Stellenbosch ISIN: ZAE000028668 JSE share code: DST Listing JSE Limited Company secretary Sector: Consumer goods – Food and Beverage – Beverages CJ Cronjé Sponsor Registered office Rand Merchant Bank (a division of FirstRand Bank Limited) Aan-de-Wagenweg, Stellenbosch 7600 PO Box 184, Stellenbosch 7599 Website Telephone: 021 809 7000 www.distell.co.za Facsimile: 021 886 4611 E-mail: [email protected]
Transfer secretaries Computershare Investor Services Proprietary Limited 70 Marshall Street, Johannesburg 2001 PO Box 61051, Marshalltown 2107 Telephone: 011 370 7700 Facsimile: 011 688 5238
130 GroundPepper www.distell.co.za