Overview of the Presentation

1. FIRST ENGAGEMENT WITH THE PARLIAMENTARY SELECT COMMITTEE ON ECONOMIC DEVELOPMENT11 September 2012

2. Overview of the Presentation • Introducing Distell to the Select Committee • Who we are; What we do • A few of our products • Our Values and Aspirations • Ownership • Corporate Overview • Global Alcoholic Beverages Landscape • The great challenge of sustainable development . . . • So what is the best way to rise to this challenge . . . • Far-reaching legislation to ensure State regulation? • Continued self-regulation by Industry? • Joint efforts by the State and Industry?

3. Distell Group in brief

4. Distell Group: Who we are; What we do Who we are Distell Group Limited is a 12-year-old company with an 87-year-old history Distell was established in 2000, following a merger between Distillers Corporation (founded in1945) and Stellenbosch Farmers’ Winery (founded in1925) We employ nearly 5 000 people worldwide Our annual turnover for the latest financial year ended 30 June 2012 was R14,2 billion (R12.2 billion (85%) of which came from southern Africa) We now have a global footprint, but we remain proudly rooted in South Africa We are on level 4 in terms of BBBEE (from level 8 four years ago) What we do Distell is Africa’s leading producer and marketer of spirits, fine wines, ciders and ready-to-drink alcoholic beverages We are ranked 2nd in the world for cider production, and are among the top-8 brandy producers and top-11 wine producers in the world Some of our products (eg Van Ryn’s and Three Ships) have achieved “best in the world” status, and others (eg Amarula) are among the fastest-growing brands in the world

5. Distell Group: A few of our products

6. Distell Group : Our Values and Aspirations Our values A sense of ownership Entrepreneurial spirit Performance-driven culture Customer and consumer market orientation Respect for the individual A global mindset responsive to change Our aspirations Continuously building on our position as a profitable and leading South African wine exporter Consolidating our position as a domestic market leader Expanding our global footprint through exploring new markets Creating shareholder value Accelerating transformation Continuing on our path as a responsible corporate citizen

7. Distell Group: Ownership • BBBEE-consortium conversion date set for 2013, which will result in 6-8% shares becoming available

8. Distell Group: 10-year Corporate Overview Over a ten-year period we have • Delivered a total shareholder return of 24.6% CAGR (compared to the JSE top-40 index’ s ten-year CAGR of 12.6%) • Contributed R37,4 bn to the country’s economy • Distributed R34,1 bn in cash to stakeholders: • Government received 63.4% (R21,6 bn) by way of taxes • Employees received 25.9% (R8.8 bn) by way of emoluments • Shareholders received 10.7% (R3,7 bn)

9. Volume per geographical pool (mL) 9.6% 14.7 3.9% 22.1% 4.8% * BLNS figures represent in-market figures, excluding Africa channels Source: Business Information Warehouse

10. Global Alcoholic Beverages Landscape • Declining global growth of 3.9% made for tough trading conditions • Globally, alcoholic beverages posted further gains in 2011 both in volume and total value • Total value growth has returned to pre-recessionary levels, whilst volume growth is lagging • Whilst globally the industry’s growth trajectory signals a firm recovery, on a regional level growth performance is varied with emerging markets taking the lead with higher growth rates as compared to mature markets • In 2011, at category level, the volume consumption of wine and spirits grew ahead of beer at 2.35% and 2.91% respectively, whilst cider continued its high growth momentum with 5.75% volume growth Source: 2012, Euromonitor

11. The great challenge of sustainable development

12. Distell Group: Responsible Drinking • We promote only the responsible enjoyment of alcohol. This entails, amongst other things: • discouraging consumption of alcohol by pregnant women; • discouraging the selling of alcohol to minors and already intoxicated people; and • fully supporting the ARA’s Code of Commercial Communication. • We are starting to achieve success with programmes aimed at equipping young people to make healthy choices about alcohol, sex and drugs • We are in regular engagement with government about taking a balanced approach to managing alcohol abuse (i.e. balancing economic development with health and social concerns): • Minimising the impact of Alcohol Abuse • Fetal Alcohol Syndrome • Drinking and driving • Lifestyle diseases • Youth education • Emphasising that the tot system is illegal

13. Distell Group: Skills Development & Human Rights Mindful of South Africa’s skills shortage, 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. • Training spend increased by 2,78% (2011: 22%), with 78% of our training spend and 87% of our internship spend allocated to previously disadvantaged individuals (PDIs). • Learnership intake increased significantly from 69 to 111. • Lost time injuries increased by 62% due to expansion activities, but the number of lost days halved. • We suffered no industrial action and union membership held by our employees decreased marginally to 35,6%. • Following the Human Rights Watch report on conditions of farmworkers in the Western Cape, Distell re-examined its own practices, and emerged confident that we are respecting workers’ human rights on farms that we own or co-own. These practices include working and living conditions, remuneration and economic empowerment

14. Distell Group: Environmental Focus We are committed to reducing our impact on the environment through our five-point policy, as implemented by our environmental working group. Distell has two environmental specialists who are responsible for guiding the company’s strategy to reduce its impact on the environment They focus on: • Climate change and carbon footprint • Energy efficiency • Water usage to sustain water supplies • Primary waste management • Packaging material • Effluent / waste water • Responsible farming: • Sustainable practices (IPW) • Conservation of biodiversity (BWI) • Organic wine cultivation

15. Distell Group: B-BBEE We are making making progress towards our new employment equity and preferential procurement targets, as set in February 2012: • Achieved 100% B-BBEE compliance (Level 4 B-BBEE rating) five years ahead of target, with a score of 65,32 (7 points better than last year). • Strongest improvement shown in the areas of equity ownership and preferential procurement. • 70% of our South African staff are historically disadvantaged individuals (HDIs), and of these 17% are female. • 85% of all new appointments were PDIs, and 89% of all promotions were awarded to PDIs. • 50% of Distell’s total procurement spend, or R3,89 billion, went to B-BBEE suppliers (2011: 38%). • R48,78 million was spent on enterprise development.

16. Government concerns about the liquor industry Social Development– Alcohol abuse reduces disposable income of breadwinners in poor families, leading to family pressures; youth become addicted because of easy and abundant availability of alcohol Health – Increased cost of health care because of association between trauma care and alcohol abuse; high incidence of fetalalcohol syndrome in South Africa. Transport – Increased road accidents because of drinking and driving Police – Increased person-on-person assaults/violence Education – Learners with fetal alcohol syndrome struggle at school 17

17. Objectives of the National Planning Commission • Eliminating poverty by creating more jobs • Reducing inequality by improving our educational system • Reducing high burden of disease • Too few South Africans are employed – large proportion are out of school and adults who are not working. 19

18. Department of Trade and Industry’s Objectives • Job creation • Facilitate transformation of the economy to promote industrial • development, investment, competitiveness and employment • creation;   • Build mutually beneficial regional and global relations to advance • South Africa´s trade, industrial policy and economic development • objectives; • Facilitate broad-based economic participation through targeted • interventions to achieve more inclusive growth; • Create a fair regulatory environment that enables investment, trade • and enterprise development in an equitable and socially responsible • manner; and allow new entrants into the market. • Promote a professional, ethical, dynamic, competitive and • customer-focused working environment that ensures effective and • efficient service delivery • Manage Liquor Manufacturers and distributors licences 19

19. Department of Tourism Objectives • South Africa remain Competitiveness • To generate economic growth and foreign exchange, by • aggressively developing and promoting tourism • To establish tourism as a national priority • To create sustainable employment opportunities and • contribute to the well-being of all the people of South • Africa • To optimise opportunities for SMME's, specifically • emerging entrepreneurs • To use tourism to aid the development of rural • communities • To promote domestic tourism amongst all South Africans • To encourage tourism growth and cooperation in Southern • Africa 19

20. Department of Agriculture, Forestry and Fisheries Objectives • Economic growth and development • Job creation • Rural Development • Sustainable use of natural resources • Food security 19

21. So what is the best way to rise to this challenge?

22. Alternative to Restriction / Banning of Liquor Advertising • Self Regulation • Populating the Code of Commercial, Communication and • Conduct to all in the value chain • Reinforcement of economic contribution from enterprise • developments • Reinforcement of CSI contributions • Enforcement of legislation • Legal drinking age 18 years • Licensing • BAC limits • Partnerships • Foundation for Alcohol Related Research (FARR) (decrease in FAS by 30%, De Aar, NC) • Government, DTI, ECLB, WCLB and KZNLB. 19

23. Understanding Alcohol Abuse Better • Alcohol abuse and alcoholism emerge from a • complex interaction of biological, socio-cultural and • psychological factors in the environment that will • not respond to simplistic and cosmetic prevention • measures. • We recognize that harsh social and economic living • conditions contribute to alcohol abuse and agree • with the World Health Organisation that in order to • reduce alcohol-related harm it is crucial to address • social deprivation. • Alcohol abuse is a multi-faceted problem and there • is no ‘silver bullet” solution. 19

24. Understanding Alcohol Abuse Better, contd • Different drinking patterns are related to different health outcomes, both long-term (chronic) and short term (acute), and effective prevention requires a thorough understanding of how people drink • How people drink not only how much they drink determines • outcomes they are likely to experience. These ‘drinking patterns’ • describe three aspects: • Individuals: e.g. age, gender, health status, pregnancy, experience • Drinking settings: e.g. home, retail outlets, public spaces, commercial and non-commercial alcohol • Drinking behaviours and activities: e.g. mealtime drinking, binge drinking, drinking at work, drinking and driving 19

25. Consider Targeted Interventions • Targeted interventions seek to reduce the potential for harm by • specifically and selectively focussing on problematic drinking patterns • Targeted measures: • Specifically address harm where it occurs • Can be tailored to individual, societal and cultural differences • Do not require structural change or legislation for implementation • Avoid most unintended outcomes by virtue of their specificity • Targeted measures include; • Brief interventions for problem drinkers • Local accords and community action • Provision of information, raising awareness and alcohol education, particularly for ‘at risk’ groups • Responsible hospitality and server training 19

26. Impact of severe restriction or banning of liquor advertising • Restrictions will not reduce abuse and will have negative consequences • There will be increase of job losses, direct and indirect on the industries that work in the liquor-beverage value chain. • State security risks will increase – unrest arises when basic needs are not met. • Increased pressure on Social Grant system. • Economy will not grow but suffer more. • There will be increase in cheap illicit products and illegal syndicates • New BEE partners or emerging BEE partners product will struggle to market their products, while well-established players will benefit • Regulatory power by Social Development and Health amount to • “double jeopardy” (bargaining with National Treasury and Finance and regulating industry) 19

27. Regulation concerns: Sustainable Livelihoods Foundation • 180,000 – 265,000 informal liquor traders country-wide. • 25,000 unregistered traders in the Western Cape. • Shebeens are important micro-enterprises in the township informal economy: • The most numerically common home-based retail business, • Provide informal employment for South Africans, • Shebeens exert strong economic multipliers: food (braais), recycling, ice, spaza shops, DJs, table games and music, and liquor retailers. • The great majority of shebeens are long established, operate over weekends and sell low volumes to an established client base. • The majority of shebeen owners are women, who trade liquor as a means of survival, and have no choice to remain in business given labour market conditions and the competition within other spheres of the informal economy. • The scale of informal, unregulated, liquor trading in the townships is too large – too many entrepreneur livelihoods are at stake and the demand for a diversity of outlets for drinking (and access to liquor) is too high - for law enforcement to control illegal trade. • Regulation can provide a means to empowerment for a broad-base of micro-entrepreneurs in the liquor industry. • Micro-enterprises within the medium to high volume segment are sufficiently large to be included within the regulatory framework. • Industries (within the formal sector) cannot have an influence at the base of the pyramid if businesses are illegal and criminalised. • Inappropriate policy results in harm: • One of the main liquor policy harms has been the ghettoization of drinking culture, which in turn is fostering a demand for strong, cheap, liquor. This ghettoization also sustains drinking spaces which contribute to anti-social behaviour and liquor harms.

28. Regulation concerns: Spirits excise However well-intentioned, government’s goal to align South Africa’s excise taxes levied on alcoholic beverages with international norms, has produced some unintended consequences • An excise increase of 20% on spirits was announced in the 2012 national budget. Taking into account trade inflation, the spirits industry estimates that a further 20% to 22% spirits excise increase will be required in February 2013 for the industry to reach its excise tax goals • As result retail pricing increased by around 15% • Brandy volumes declined immediately, from a good performance in the first 8 months • Our concern remains around the proposed regulatory and legislative amendments, the future of alcoholic beverage advertising and exorbitant excise levies that may lead to undesirable consequences such as dwindling margins for legitimate farmers and an increase in illicit alcohol trading • These exorbitantly high excise hikes for South African spirits increase the economic incentive for illicit trade. As it is, the South African Liquor Brand Owners Association (SALBA) estimates that in 2012, illicit trade in spirits predominantly in the formal trade, will result in approximately R472 million in excise and VAT evasion. As industry, we are currently engaged in a process with national government to develop a new illicit trade quantification methodology to assess at national level the taxation gap by alcohol category, which will also take into account volumes stemming from the informal trade sector. This is important, since a significant part of the informal trade is unlicensed and operates outside the regulatory realm of liquor in SA • The spirits excise hikes also hold significant implications from a socio-economic perspective and could well lead to further job losses. Moreover, these job losses could also affect the country’s wine industry, one of the major employment providers in the Western Cape • It is Distell’s intention to continue with our industry peers, to participate in government’s review of SACU’s excise policy, with the aim of providing constructive inputs that objectively consider the intended and unintended consequences of excise policy going forward

29. Some suggestions to tackle Alcohol Abuse • Alcohol policy must operate within a reasonable regulatory framework • that balances individual freedoms against the well-being of society • Alcohol policy must recognize the cultures and religions that affect • consumption patterns • Government should appropriately and effectively regulate alcohol • beverage sales • Governments should set a minimum age for the purchase of alcohol • beverages • Laws should penalise those who illegally supply alcohol beverages to • those under the legal purchase age • Government should enforce laws against drinking and driving and impose • severe penalties on those that violate them • Illicit production and trade in alcohol can cause serious health problems • and governments should enforce laws to prevent this 19

30. What has worked and what has not • What has worked • Parents’ involvement • Strictly enforced self-regulations. • Partnership with government, eg ECLB, KZNLB and • WCLB) • Establishment of sport- and arts-and-culture- loving society • Establishment of Recreational Centres • What has not worked • Warning Label • Banning of advertisement in France and USA 19

31. Thank you for listening. Questions?

32. Strategic elements of Government’s Anti-Substance Abuse Programme of Action • Reduce demand through . . . • Interventions aimed at discouraging abuse of alcohol by members of the public • Reduce supply via . . . • Law-enforcement strategies to stop production and distribution of liquor, illicit substances and associated crimes • Reduce harm by means of . . . • Initiatives to minimise and mitigate the social, psychological and health impact of alcohol abuse

33. Demand-reduction interventions • Harmonise liquor laws and policies (1) • Information and education campaigns against alcohol abuse (12) • Restrictions/Ban on liquor advertising (21) • Ban on product-promoting sports and arts sponsorships (22) • Life-skills programme for young people (24) • Public advocacy and messaging against substance abuse (27) • Reducing current legal alcohol limit for drivers (31) • Zero tolerance for novice drivers (32) • Alcohol-free public -service functions (34)

34. Supply-reduction interventions • Reducing accessibility by raising current legal drinking age to 21 (3) • Restricting times and days of the week that alcohol may be sold (4) • Reducing number of liquor outlets in specific geographic areas, ie away from schools, libraries and places of worship (5) • Regulating to control home brews and concoctions (6) • Raising duties and taxes on alcohol products (7) • Imposing health and safety requirements for liquor premises (8) • Prescribing measures for containers, warning labels and alcohol content (9) • Increasing criminal and administrative liability of individuals and institutions that sell liquor to underage and already-intoxicated drinkers (10)

35. Harm-reduction initiatives • Mandatory contribution by liquor industry to a fund “ring-fenced” for prevention and treatment of alcohol abuse (11) • Continuum of care focussed on full spectrum of health services for alcohol abuse (23) • Strengthening of after-care services for learners (25) • Increasing provision of and access to rehabilitation and after-care (30)