2007 - sharedata

www.distell.co.za

annual report

2007

Distell A

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ual R

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Distell Annual Report 2007Distell Annual Report 2007

Dates of importance to shareholders

Annual general meeting October 2007

Financial reports Interim report February 2008

Preliminary announcement of annual results August 2008

Annual financial statements September 2008

Ordinary dividends Interim dividends

– declaration February 2008

– payable March 2008

Final dividends

– declaration August 2008

– payable September 2008

Administration

Distell Group Limited Incorporated in the Republic of South Africa

(Registration number: 1988/005808/06)

ISIN: ZAE000028668

JSE share code: DST

Company secretary CJ Cronjé

Registered office Aan-de-Wagen Road, Stellenbosch 7600

PO Box 184, Stellenbosch 7599

Telephone: 021 809 7000

Facsimile: 021 886 4611

E-mail: [email protected]

Transfer secretaries Computershare Investor Services 2004 (Proprietary) Limited

70 Marshall Street, Johannesburg 2001

PO Box 61051, Marshalltown 2107

Telephone: 011 370 7700

Facsimile: 011 688 5221

Auditors PricewaterhouseCoopers Inc.

Stellenbosch

Listing JSE Limited

Sector: Consumer Goods – Food and Beverage – Beverages

Sponsor Rand Merchant Bank (A division of FirstRand Bank Limited)

Websitewww.distell.co.za

COMPRESS ) 3460

CONTENTS

Features

Our Group 3

Annual highlights 4

How we’ve measured up 5

Our brands at a glance 8

Our global presence 10

Board matters 12

Seven-year fi nancial review 15

Analysis of shareholders 18

Cash value added statement 19

Reviews

Chairman’s statement 20

Managing director’s report 24

Corporate

Corporate governance 32

Sustainability report 37

Financials

Consolidated annual fi nancial statements 52

Notice to shareholders, voting form,

dates of importance and administration 102

DISTELLANNUAL REPORT

2007

1Distell Annual Report 2007

we craftgreat brands

2 Distell Annual Report 2007

Our culture

Who we areAfrica’s leading producer and marketer of fi ne wines,

spirits, ciders and ready-to-drinks (RTDs).

Our visionA great company rooted in South Africa crafting

leading liquor brands for people to enjoy at every

occasion the world over.

We turn into assets.

At Distell, we create brands quite literally from the ground up.

Each brand starts as a tiny seed – or a germ of an idea – and is then crafted and nurtured to its fi nal

perfection through years of care and dedication. We harvest the raw materials from the earth, blend it

with our own passion and shape it into brands that have become icons of companionship, relaxation

and celebration . . . Th at’s why we’re Brandcrafters.

59% Remgro-KWV

Investments Limited

Distell Group Limited Listed on the JSE Limited

Our Group

29%Other Beverage Interests

(Proprietary) Limited

(SABMiller)

12%Other investors

85%Ordinary shares

South African Distilleries and Wines (SA) Limited

100%Preference shares

MANUFACTURERS AND DISTRIBUTORS OF BRANDED

ALCOHOLIC BEVERAGES

• Distell Limited (100%)

• Stellenbosch Farmers’ Winery Limited (100%)

MANUFACTURERS OF WINE

• Nederburg Wines (Proprietary) Limited (100%)

• Durbanville Hills Wines (Proprietary) Limited (64%)

FARMING

• Nederburg Wine Farms Limited (100%)

WHOLESALE DISTRIBUTORS OF BRANDED

ALCOHOLIC AND OTHER BEVERAGES

• Distell Namibia Limited (100%)

• Expo Liquor Limited (100%)

• Swaziland Liquor Distributors Limited (100%)

SORTER AND WASHER OF SECOND-HAND BOTTLES

• Ecowash (Proprietary) Limited (100%)

MANUFACTURER AND DISTRIBUTOR OF

MATURATION VATS

• Tonnellerie Radoux (SA) (Proprietary) Limited (50%)

MANUFACTURERS AND DISTRIBUTORS OF BRANDED

ALCOHOLIC AND OTHER BEVERAGES (ASSOCIATES)

• Tanzania Distilleries Limited (35%)

• Grays Inc Limited (26%)

MANUFACTURERS OF BRANDED ALCOHOLIC

BEVERAGES ( JOINT VENTURES)

• Lusan Holdings (Proprietary) Limited (50%)

• Papkuilsfontein Vineyards (Proprietary) Limited (49%)

• Lomond Wine Estates (Proprietary) Limited (50%)

• Interim Sahara Limited Liability Partnership (50%)

JOINT VENTURES AND ASSOCIATESSUBSIDIARIES

100%BEE Consortium

WIPHOLD Beverages

(Proprietary) Limited

15%Ordinary shares



Annual highlights

Financial results (R’000) % change 2007 2006

Revenue 18,4 7 954 602 6 717 210

Trading income 25,3 1 114 733 889 395

Headline earnings 45,4 779 294 535 970

Adjusted headline earnings 29,2 779 294 603 211

Total assets 9,5 5 997 095 5 475 078

Share performance (cents) % change 2007 2006

Headline earnings 44,2 391,5 271,5

Adjusted headline earnings 28,1 391,5 305,6

Dividends 28,1 196,0 153,0

Net asset value 18,4 1 972,7 1 666,6

Cash fl ow from operating activities 19,8 407,8 340,5

Closing share price 38,8 5 415,0 3 900,0

Financial statistics 2007 2006

Return on equity (excluding BEE* share-based payment) 19,8 16,2

Seven-year compound growth per annum (%) 2007 2006

Total return to shareholders 34,3 29,8

Distell share price index 29,8 25,2

* BEE: black economic empowerment

Headline earnings per share

Salient features

Total revenue

Dividend per share

Total sales volumes

Trading income

Headline earnings per share, excluding non-recurring BEE expense in the previous year,


How we’ve measured up

Objectives

Strategic priorities

• Growing Amarula’s position globally

• Building on our position as a profi table

and leading South African wine exporter

• Consolidating our position as a

domestic market leader

• Expanding our global footprint through

exploring new markets, and increasing our

focus on our operations in Africa

• Continuing on our path as a

responsible corporate citizen

• Creating shareholder value

• Accelerating transformation

A sense of ownership

Each and every one of us will be

aware of our contribution.

Performance-driven culture

We will challenge each other to ensure

continuous improvement by creating

more, better and faster.

What we stand for (our values)

Respect for the individual

We will respect each other’s diversity

and contribute to the communities

in which we live. We will promote the

responsible use of alcohol.

Entrepreneurial spirit

We will give each other the freedom

to explore and create.

Customer service orientation

We will delight our customers and

consumers everywhere.


Performance: Awards for 2007

Th e 2003 Jacobsdal Cabernet Sauvignon wins a Grand Gold medal at the Selections Mondiales in Canada.

Th e 2005 Lomond Conebush Syrah 2005 receives a four-star rating in the Shiraz Challenge.

Th e 2005 Lomond Sugarbush Sauvignon Blanc wins gold at the International Wine Challenge.

Monis Vintage Muscadel 2000 clinches gold at the Muscats du Monde International Wine Competition in France and receives a 2007 Platinum award from the South African Muscadel Association.

Th e 2006 Nederburg Noble Late Harvest earns gold at the 2007 International Wine Challenge.

Th e 2005 Nederburg Manor House Shiraz wins gold at the Syrah du Monde.

Th e 2005 Nederburg Noble Late Harvest takes a Grand d’Or medal at the Michelangelo International Wine Awards and the brand wins a further eight golds at the event.

Th e 2005 Private Bin Edelkeur Noble Late Harvest receives a gold medal and is awarded the title of Best Noble Late Harvest at the Old Mutual Trophy Wine Show.

Th e 2003 Nederburg Private Bin Edelkeur Chenin Blanc scoops a Veritas double gold at the SA National Wine Show and the brand brings home an additional six golds from the competition.

Th e 2006 Neethlingshof Sauvignon Blanc wins the title of Best Sauvignon Blanc at the Swiss International Air Lines Wine Awards and a gold medal. Th is secures an inclusion on the carrier’s business-class wine list.

Th e 2003 Neethlingshof Shiraz wins gold at the Selections Mondiales in Canada.

Th e 2005 Lord Neethling Weisser Riesling and 2006 Neethlingshof Sauvignon Blanc both take gold on the Michelangelo International Wine Awards.

Th e 2005 Lord Neethling Weisser Riesling also wins a Veritas gold on the SA National Wine Show.

Th e 2005 Lord Neethling Weisser Riesling Noble Late Harvest wins the Agri Expo Trophy for Best Noble Late Harvest at the Young Wine Show.

Th e same wine is named the top dessert wine (National Certifi cate Winner for natural sweet wine) in the Stellenbosch district at the Terroir Wine Awards.

Th e 2003 Allesverloren Cabernet Sauvignon receives a Veritas gold medal at the SA National Wine Show.

Th e Allesverloren Port 2001 wins top honours in the dessert wine category (Swartland district) at the 2006 Terroir Wine Awards.

Th e 2004 Alto Shiraz wins gold at the Selections Mondiales in Canada.

Th e 2004 Alto Rouge clinches gold at the Swiss International Air Lines Wine Awards.

Th e 2004 Alto Shiraz wins a Veritas gold medal on the SA National Wine Show.

Th e 2005 Fleur du Cap Semillon Unfi ltered scoops a Grand d’Or medal at the Michelangelo International Wine Awards. Th e brand brings home another six golds from the competition.

Th e 2005 Fleur du Cap Sauvignon Blanc Unfi ltered Limited Release is voted best white wine at the Winemakers’ Choice Awards.

Th e 2006 Sauvignon Blanc Unfi ltered and 2006 Viognier Limited Release each takes gold at the International Wine Challenge in London.

Th e 2006 Fleur du Cap Chenin Blanc is the fi rst Distell wine selected for the British Airways Club Class wine menu.

Fleur du Cap Unfi ltered Viognier Limited Release 2006 is crowned top Viognier at the 2007 International Wine Challenge by scooping the International Viognier Trophy.

Drostdy-Hof outshines its ultra and super premium competitors, earning two golds at the Concours Mondial de Bruxelles, one for the 2006 Chardonnay, the other for the 2005 Shiraz.

Durbanville Hills wins the most top awards in a single category at the Michelangelo International Wine Awards, clinching two gold and fi ve silver medals.

Th e 2000 Durbanville Hills Caapmans Cabernet Sauvignon/Merlot wins the Diamond Award for red wine at the 2006 Winemakers’ Choice Awards.

Durbanville Hills takes a Veritas double gold on the SA National Wine Show for the 2003 Luipaardsberg Merlot, and earns another three golds at the event.

Amarula Cream brings home a best in class gold medal at the International Wine and Spirits Competition as well as the Trophy for Best Liqueur in the world.

Amarula continues its winning streak to win gold at the Concours Mondial de Bruxelles.

Klipdrift Gold scoops a best in class gold at the International Wine and Spirits Competition.

Mainstay Cane wins a best in class gold award at the International Wine and Spirits Competition.


Plaisir de Merle stands out at the Swiss International Air Lines Wine Awards, where the 2006 Chardonnay is judged both the top white wine on the show, and the best Chardonnay. Th ey also clinch an overall gold medal for the vintage. Th e wine is chosen by the carrier to serve to fi rst-class passengers.

Th e Pongracz Magnum and Desiderius 2001 both win Veritas gold at the SA National Wine Show.

Desiderius 2001 is crowned top South African sparkling wine at the WINE Magazine Amorim Cork Cap Classique Challenge.

Th e 2001 Stellenzicht Syrah wins a gold medal at the inaugural Syrah du Monde and outclasses all the other South African producers as the only local contestant amongst the competition’s ten best wines.

Th e 2001 Syrah also earns gold at the Selections Mondiales in Canada.

Stellenzicht’s 2002 Syrah and 2005 Golden Triangle Pinotage both bring home gold from the Swiss International Air Lines Wine Awards.

Th e 2003 Golden Triangle Shiraz is selected for SAA’s fi rst and business-class wine lists on board intercontinental fl ights.

Stellenzicht wins a Veritas gold at the SA National Wine Show with the Golden Triangle Cabernet Sauvignon 2001.

Th e 2005 Pinotage Golden Triangle is included on the Absa Top 10 Pinotage list.

Th e 2004 Tukulu Pinotage is selected for the Absa Top Ten Pinotage line-up, a fourth such inclusion for Tukulu.

Th e 2005 Tukulu Chenin Blanc is named top white wine (Swartland district) at the 2006 Terroir Awards.

Th e Uitkyk Reserve Sauvignon Blanc 2005 is named the top Sauvignon Blanc in the Stellenbosch district and top white wine (Simonsberg-Stellenbosch ward) at the Terroir Wine Awards.

Oude Meester earns two golds at the Concours Mondial de Bruxelles, one for the 12 Year Old Reserve and the other for the Peppermint Liqueur.

Th e Ginger Liqueur wins a best in class gold medal at the International Wine and Spirits Competition.

Oude Meester Reserve also clinches a gold at the International Spirits Challenge.

Th e Th ree Ships 10 Year Old Single Malt Whisky achieves a best in class gold award at the International Wine and Spirits Competition.

Th ree Ships 5 Year Old Whisky wins gold at the Concours Mondial de Bruxelles.

Van Ryn’s 10 Year Old wins a best in class gold medal at the International Wine and Spirits Competition.

Van Ryn’s Collection Reserve 12 Year Old and 10 Year Old vintages scoop gold at the Concours Mondial de Bruxelles.

Van Ryn’s 10 Year Old continues to win best in class gold at the International Spirits Challenge.

• ISO 9001:2000 certifi cation at all our distilleries,

wineries, secondary production sites, distribution

centres and brand homes in the Republic of South

Africa. Distell Namibia Windhoek and Walvis Bay

are also included in the ISO 9001:2000

certifi cation. Distell’s ISO 9001:2000 certifi cation,

which is valid until November 2008, includes the

corporate functions quality management and

research, group purchasing, logistics, technical

services, export logistics and group human

resource management.

• Hazard Analysis and Critical Control Points

(HACCP) certifi cation at the majority of our

wineries and secondary production sites.

Accreditation and certifi cation as at 30 June 2007

Worcester Distillery is the fi rst distillery to be

listed for HACCP.

• ISO 17025 accreditation of Distell’s central

laboratory at Adam Tas cellar.

• International Food Standards higher-level

certifi cation at Adam Tas.

• British Retail Consortium (BRC) food safety

certifi cation of Adam Tas, Bergkelder, J.C. Le Roux

and Nederburg wineries, Durbanville Hills, Paarl

and Green Park. During this fi nancial year BRC

certifi cation was given to Plaisir de Merle, while all

the sites previously certifi ed retained their status.

• ISO 14001:2004 certifi cation of Durbanville Hills

and Nederburg. Plaisir de Merle and Bergkelder

have been assessed and recommended for listing.

• Integrated Production of Wine certifi cation of all

Distell and Lusan farms and the winemaking

cellars.

• Wine and Agricultural Ethical Trade Association

certifi cation of Worcester/Robertson, Goudini,

Wellington and Van Ryn Distilleries.

• Organic certifi cation for certain vineyards at

Papkuilsfontein and Plaisir de Merle. Nederburg

cellar has been certifi ed to produce organic wines.

Mellow-Wood 5 Year old wins a gold medal at the International Spirits Challenge.


Our brands at a glance

Spirits

Wines

Do

mes

tic

Inte

rna

tio

na

l

AMARULA COUNT PUSHKIN

COLLISON’SWHITE GOLD

MAINSTAYCOMMANDO MELLOW-WOODKLIPDRIFTFLIGHT OF THEFISH EAGLE

AUTUMN HARVEST

CELLAR CASK

CHATEAU LIBERTAS

GRAÇA GRÜNBERGER J.C. LE ROUX SEDGWICK’S OLD

BROWN SHERRY

PAARL PERLÉ PONGRÁCZ TASSENBERG ZONNEBLOEM

DROSTDY-HOF DURBANVILLE HILLS

FLEUR DU CAP NEDERBURG OBIKWA TWO OCEANS


Ciders and ready-to-drinks (RTDs)C

ap

e L

egen

ds

HILL & DALE le BONHEUR LOMOND TUKULUNEETHLINGS-HOF

PLAISIR DE MERLE

STELLENZICHT UITKYKALTOALLESVERLOREN THEUNISKRAALJACOBSDALFLAT ROOF MANOR

ESPRIT SAVANNAHUNTER’S KLIPDRIFT

& COLA

OUDE MEESTER RICHELIEU VAN RYN’S COLLECTION VICEROYTHREE SHIPSNEDERBURG UITKYK

Our global presence

Year-on-year growth

Trend Amarula Wine

Volume +31% +17%

Value +67% +30%

% of total exports 4% 3%Asia Pacifi c

Trend Amarula Wine

Volume +20% +1%

Value +54% +27%

% of total exports 25% 40%Europe

Trend Amarula Wine

Volume +34% +14%

Value +45% +21%

% of total exports 28% 46%

Trend Amarula Wine

Volume +12% +12%

Value +29% +29%

% of total exports 20% 9%North America

Africa (including BLNS*)

Trend Amarula Wine

Volume +52% +23%

Value +69% +27%

% of total exports 20% 1%Latin America

Trend

Volume Value

% of total export volumes

Total exports

* BLNS: Botswana, Lesotho, Namibia and Swaziland


Highlights1. Comfortably outperformed the industry growth rate of bottled wine exports

2. Continued to strengthen marketing, sales and distribution infrastructure to maximise opportunities

3. Establishing strategic alliances with trading partners to bolster our presence in Europe and strengthen our ties in North America, Europe and Asia Pacifi c

4. New wine brand listings in several countries and solid growth in key markets

5. Amarula continued to outperform its category

6. Growing awareness of Amarula in several key markets

7. Exploiting the popularity of Savanna in key markets

An international profi le

Amarula Wine

+26% +8%+46% +25%

7% 71%



Board matters

Board of directors

Duimpie Bayly*

Director of Duimpie Bayly & Associates,

technical consultant and adviser to the

wine industry. Attended 6 of 6 board

meetings.

Peter Bester*

Director of Agrinet, Dorbyl and South

African Property Opportunities Plc,

amongst others. He was formerly executive

chairperson of Cadbury Schweppes (SA)

until retiring in 2001. Attended 6 of 6

board meetings and 3 of 3 remuneration

committee meetings.

Piet Beyers

Director of Remgro and Unilever Bestfoods

Robertsons (Holdings) LLC. Attended 6

of 6 board meetings.

Merwe Botha#

Financial director

Attended 6 of 6 board meetings.

Johan Carinus*

Wine farmer and director of Het Jan

Marais Fund and Zeder Investments.


Smartie Genade#

Business director: Wines


Jakes Gerwel*

Chancellor of Rhodes University, non-

executive director of Naspers and Old

Mutual, non-executive chairperson of

Brimstone Investment Corporation,

Africon Engineering International, Life

Healthcare, Media 24 and South African

Airways. He chairs the boards of trustees

of the Nelson Mandela Foundation, the

Mandela Rhodes Foundation and the

Human Sciences Research Council,

amongst others and is vice chairperson of

the Peace Parks Foundation. Attended 2

of 6 board meetings.

Dr Edwin de la H Hertzog

Chairperson of Medi-Clinic Corporation,

non-executive deputy chairperson of

Remgro, non-executive director of Total

(SA) and Trans Hex Group as well as

Chair of Council, Stellenbosch University.


Robert Lumb*

Independent non-executive director of

New Clicks Holdings, Metje & Ziegler and

HomeChoice Holdings. He was formerly

managing partner, Western Cape, of Ernst

& Young. Attended 3 of 4 board meetings

and 2 of 2 audit committee meetings since

joining the board on 19 October 2006.

Joe Madungandaba*

Chief executive offi cer of Community

Investment Holdings. Executive director

of Jasco Electronic Holdings and

non-executive director of Air Liquide

Healthcare. Attended 3 of 6 board

meetings.

Louisa Mojela*

A founder and group chief executive offi cer

of Women Investment Portfolio Holdings

(WIPHOLD). Serves on the boards of Sun

International, ABB SA, South African

Airways and the Financial Services

Board, amongst others. Attended 5 of 6

board meetings and 3 of 3 remuneration

committee meetings.

Gugu Mthethwa*

Investment executive at WIPHOLD and

non-executive board member of ABB SA,

MCG Industries and Landis+Gyr. Attended

6 of 6 board meetings and 4 of 4 audit

committee meetings.

David Nurek*

Regional chairperson of Investec Western

Cape, chairperson of New Clicks Holdings

and Lewis Group, deputy chairperson

of Foschini and, amongst others, also a

director of Pick ’n Pay, Aspen Pharmacare,

Sun International and Trencor. Attended

6 of 6 board meetings, 4 of 4 audit

committee meetings and 3 of 3

remuneration committee meetings.

Jan Scannell#

Managing director


Peter Swartz*

Proprietor of Swartz Properties and

Southern Pumps and also a director

of Absa Group, Absa Bank and Sun

International. Attended 6 of 6 board

meetings and 3 of 3 remuneration

committee meetings.

Th ys Visser

Chief executive offi cer of Remgro and also

a director of Rainbow Chicken, Nampak,

British American Tobacco Plc, Medi-

Clinic Corporation, Unilever Bestfoods

Robertsons (Holdings) LLC. Attended 5

of 6 board meetings, 3 of 4 audit

committee meetings and 2 of 3

remuneration committee meetings.

* Independent

# Executive


Jan Scannell (56)

Managing director

BCom, LLB

Jan joined Distillers Corporation in 1979.

He was appointed a director in 1988, and

managing director in 1994. In December

2000, he was appointed managing director

of Distell. Jan’s role is to ensure the

company delivers on its key objectives. He

is also responsible for building a high-

performance culture within the company.

Merwe Botha (54)

Financial director

BCom Hons (Taxation), BCompt Hons,

CA(SA)

Merwe joined Distillers Corporation

in 1980. He was appointed fi nancial

director in 1997 and to his present

position at Distell in December 2000. He

is responsible for fi nancial planning and

control, information technology, statutory

reporting and internal auditing.

Stoff el Cronjé (53)

Company secretary and corporate

development director

MA

Stoff el joined Distillers Corporation in

1980. He was appointed group company

secretary and human resources director

in 1990 and to his present position at

Distell in December 2000. He performs all

statutory company secretarial functions

and is also responsible for the company’s

human resources, legal, corporate aff airs

and corporate strategy planning divisions.

Don Gallow (49)

International director

Don joined Distillers Corporation in 1986.

He was appointed Distell’s international

director in 2005 and is responsible for

growing our international revenue by

providing superior service to existing

customers and obtaining new listings.

Smartie Genade (56)

Business director: Wines

BCom (Hons), MBA

Smartie joined Stellenbosch Farmers’

Winery in1972, was appointed director

of the company in 1988 and managing

director in 2000. He was appointed

operations director at Distell in December

2000, assuming his present position in

2004. He is responsible for the profi tability

and sustainability of Distell’s wine

interests.

Hennie Heÿl (61)

Primary production director

MSc Agric

Hennie joined Distillers Corporation in

1974, was appointed technical director

in 1988 and production director in 1997.

He took up his present position at Distell

in December 2000. He is responsible for

our farms; grape, wine, brandy and other

raw material procurement; distillation,

winemaking and blending.

Gert Loubser (59)

Quality management and research director

MSc, PhD

Gert joined Stellenbosch Farmers’ Winery

in 1974, was appointed research and

development director in 1994 and to his

present position at Distell in December

2000. His role is to ensure total quality

management is implemented throughout

the Group and that ongoing research leads

to new products and processes.

Nantha Moodley (48)

Business director: Ciders and RTDs

BA, NDip

Nantha joined Stellenbosch Farmers’

Winery in 1989 and has over 15 years’

experience in sales, training and

distribution. He was appointed to his

current position in November 2004 and

is responsible for the profi tability and

sustainability of Distell’s business in the

cider and ready-to-drink (RTD) categories.

Malcolm Searle (47)

Marketing director

BCom (Hons)

Malcolm joined Distell as marketing

director in January 2004 with almost

20 years’ experience in fast-moving

consumer goods, working as a marketing

executive in several countries worldwide.

He is responsible for building strong brand

portfolios based on market strategies that

leverage consumer insights and drive

innovation.

Caroline Snyman (32)

Business director: Spirits

BEng (Chemical), MSc, PhD, CWM

Caroline joined Distell in January 2000

as technical manager: spirits and was

appointed to her current position in

November 2004. She is responsible for the

profi tability and sustainability of Distell’s

spirits interests.

Tim Tarr (49)

Sales director

Tim joined Distillers Corporation in 1979

and was appointed national sales director

in 1995. He took up his present position

at Distell in December 2000. His role is to

ensure we retain and improve our market

leadership in South Africa, Botswana,

Lesotho, Namibia and Swaziland and he

oversees all our sales forces operating in

these areas.

Valerio Toros (43)

Operations director

BEng (Mech), MBA

Valerio joined Distillers Corporation in

1991 as project engineer. After overseeing

the SFW/Distillers merger, he was made

group manager of business process

improvement (BPI), and then appointed

BPI director at the end of 2003. He took

up his present position in November

2004 and oversees the operations of the

Group, including packaging, distribution,

technical services, procurement and

supply chain management.

Executive management


Klipdrift, South Africa’s best-selling

brandy is synonymous with generosity and

hospitality. No matter where you are, open a bottle

of Klipdrift and make yourself at home.


Seven-year fi nancial reviewfor the years ended 30 June

Balance sheets (R’000)AssetsNon-current assets

Property, plant and equipment 1 330 516 1 256 900 1 223 036 1 225 351 1 197 900 1 139 182 1 022 442

Biological assets 114 675 104 380 107 170 98 939 94 585 – –

Financial assets and

investments in associates 96 092 418 490 307 711 558 839 313 707 565 208 654 551

Intangible assets 34 060 11 211 14 501 – – – –

Retirement benefit assets 187 052 48 795 – – – – –

Deferred income tax assets 28 762 36 770 44 118 36 431 19 402 16 789 8 745

Total non-current assets 1 791 157 1 876 546 1 696 536 1 919 560 1 625 594 1 721 179 1 685 738

Current assets

Inventories 2 703 336 2 499 217 2 246 268 2 207 296 2 074 364 1 651 076 1 600 341

Trade and other receivables 809 024 617 097 552 542 513 414 529 192 581 978 477 079

Financial assets 361 152 254 640 309 249 – 324 106 195 452 –

Current income tax assets – – 51 636 33 230 31 864 29 741 25 403

Cash and cash equivalents 332 426 227 578 196 989 159 390 139 304 185 221 178 227

Total current assets 4 205 938 3 598 532 3 356 684 2 913 330 3 098 830 2 643 468 2 281 050

Total assets 6,7 5 997 095 5 475 078 5 053 220 4 832 890 4 724 424 4 364 647 3 966 788

Equity and liabilitiesTotal shareholders’ equity 3 940 680 3 316 048 2 894 248 2 572 091 2 363 184 2 127 516 2 039 812

Non-current liabilities

Interest-bearing borrowings 2 629 330 646 329 014 754 601 424 130 598 791 791 347

Retirement benefit obligations 12 842 12 191 21 391 16 905 15 297 15 297 15 592

Deferred income tax liabilities 164 033 120 647 110 646 101 127 105 128 80 959 47 275

Total non-current liabilities 179 504 463 484 461 051 872 633 544 555 695 047 854 214

Current liabilities

Trade payables and provisions 1 489 940 1 196 201 1 023 333 1 003 788 791 961 673 844 562 324

Interest-bearing borrowings 329 264 432 502 674 588 384 378 1 024 724 868 240 510 438

Current income tax liabilities 57 707 66 843 – – – – –

Total current liabilities 1 876 911 1 695 546 1 697 921 1 388 166 1 816 685 1 542 084 1 072 762

Total equity and liabilities 5 997 095 5 475 078 5 053 220 4 832 890 4 724 424 4 364 647 3 966 788

Note: The figures for 2001 to 2004 have not been adjusted, except for reclassifications, for the adoption of IFRS.

Seven-year

compound 2007 2006 2005 2004 2003 2002 2001

growth % p.a. IFRS IFRS IFRS SA GAAP SA GAAP SA GAAP SA GAAP


Seven-year fi nancial reviewfor the years ended 30 June

Income statements (R’000)Revenue 8,5 7 954 602 6 717 210 5 964 003 5 563 969 5 032 563 4 777 536 4 471 202

Operating expenses (6 839 869) (5 827 815) (5 241 696) (4 994 128) (4 579 560) (4 296 757) (4 129 073)

Trading income 15,9 1 114 733 889 395 722 307 569 841 453 003 480 779 342 129

Dividend income 1 284 1 497 1 210 949 922 1 776 618

Net financing costs 7 969 (27 363) (53 071) (95 702) (119 056) (89 440) (76 974)

Share of profit of associates 14 255 9 856 9 316 10 674 12 723 13 387 5 731

Profit before exceptional

items and taxation 19,7 1 138 241 873 385 679 762 485 762 347 592 406 502 271 504

Exceptional items 73 876 (67 241) – – 51 462 (73 175) (145 602)

Profit before taxation 1 212 117 806 144 679 762 485 762 399 054 333 327 125 902

Taxation (367 243) (271 756) (187 265) (124 790) (86 277) (96 575) (10 862)

Minority interest 2 979 – (844) (390) (315) (266) (283)

Net profit attributable to

equity holders 17,9 847 853 534 388 491 653 360 582 312 462 236 486 114 757

Cash fl ow statements (R’000)Cash generated from

operating activities 15,5 1 188 101 900 123 795 348 761 195 408 778 496 710 609 703

Dividend income 1 284 1 497 1 210 949 922 1 776 618

Net financing costs (23 179) (75 987) (101 685) (161 381) (214 228) (133 736) (152 181)

Taxation paid (365 380) (153 388) (219 980) (143 915) (91 015) (71 292) (50 600)

Dividends paid (342 729) (266 788) (209 948) (158 420) (146 685) (148 641) (104 670)

Cash retained from normal

operating activities 458 097 405 457 264 945 298 428 (42 228) 144 817 302 870

Exceptional items 11 006 – – 46 500 4 962 (73 175) (145 602)

Cash retained by operating

activities 469 103 405 457 264 945 344 928 (37 266) 71 642 157 268

Cash inflow from investment

activities 50 800 (164 364) (92 486) (19 265) 9 841 (229 628) (148 941)

Ordinary shares issued 11 542 18 406 8 406 5 708 – – –

Treasury shares sold 1 893 5 348 (7 981) (1 480) – – –

Minority interest 2 692 (1 417) – 70 (315) (266) (270)

Decrease in interest-bearing

borrowings (325 472) (101 638) (85 364) (984) 41 240 12 764 8 987

Cash outflow from

financing activities (309 345) (79 301) (84 939) 3 314 40 925 12 498 8 717

Increase in net cash and

cash equivalents 210 558 161 792 87 520 328 977 13 500 (145 488) 17 044

Seven-year

compound 2007 2006 2005 2004 2003 2002 2001



Performance per share (cents)Earnings

attributable earnings basis 17,6 425,9 270,7 250,6 184,3 159,8 120,9 58,7

adjusted headline basis 18,9 391,5 305,6 250,6 183,3 130,1 110,4 106,1

cash equivalent basis 15,7 475,7 377,5 300,4 219,1 162,6 143,5 103,6

Dividends 17,9 197,0 153,0 123,0 97,0 75,0 70,0 53,0

Cash flow 20,2 407,8 340,5 242,1 257,3 55,9 112,6 133,9

Net asset value 10,2 1 972,7 1 666,6 1 466,6 1 309,9 1 208,3 1 087,8 1 043,0

Liquidity and solvencyFinancial gearing ratio 0,00 0,16 0,28 0,38 0,55 0,60 0,55

Total liabilities on total equity Avg 0,8 0,52 0,65 0,75 0,88 1,00 1,05 0,94

Interest-free liabilities on total assets 0,26 0,23 0,21 0,21 0,17 0,16 0,15

Dividend cover (times) 2,0 2,0 2,0 1,9 1,7 1,6 2,0

Current ratio 2,24 2,12 1,98 2,10 1,71 1,71 2,13

Acid test ratio 0,80 0,65 0,65 0,51 0,56 0,64 0,63

Returns (%)Trading income on turnover 14,0 13,2 12,1 10,2 9,0 10,1 7,7

Pretax return on equity Avg 19,5 30,8 24,3 23,5 18,9 16,9 15,7 6,2

Effective tax rate 30,3 33,7 27,5 25,7 21,6 29,0 8,6

Return on equity Avg 14,3 19,8 18,2 17,0 13,9 10,8 10,2 10,2

Attributable earnings on total assets 14,1 9,8 9,7 7,5 6,6 5,4 2,9

Attributable earnings on turnover 10,7 8,0 8,2 6,5 6,2 4,9 2,6

Dividend yield 4,2 4,5 5,8 6,8 5,8 6,9 6,7

ProductivityCash value added (R million) 12,9 3 743,1 3 090,8 2 601,1 2 314,7 1 794,6 1 704,6 1 727,4

Net asset turn (times) 2,0 2,0 2,1 2,2 2,2 2,3 2,3

Net assets per employee (R’000) 15,7 926,3 800,8 693,7 614,7 544,3 468,6 401,7

Revenue per employee (R’000) 13,6 1 869,9 1 622,1 1 429,5 1 329,8 1 159,0 1 052,3 880,5

Number of employees 4 254 4 141 4 172 4 184 4 342 4 540 5 078

Seven-year

compound 2007 2006 2005 2004 2003 2002 2001



Analysis of shareholdersat 30 June

Distribution of shareholders

Public shareholders 3 456 99,37 21 838 590 10,93

Non-public shareholders

Major beneficial shareholders 2 0,06 176 022 000 88,12

Directors, including those of subsidiaries, and their associates 19 0,54 1 746 840 0,87

The Distell Group Share Trust 1 0,03 152 074 0,08

3 478 100,00 199 759 504 100,00

Number of shares in issue 2007 2006

Total number of shares in issue 199 759 504 198 968 930

Shares purchased by The Distell Group Share Trust

and accounted for as treasury shares (152 074) (434 636)

199 607 430 198 534 294

Weighted number of shares 199 078 536 197 413 974

Major beneficial shareholders Number of % of

shares total

The following shareholders have a holding of greater than 5% of the issued shares of the company:

Remgro-KWV Investments Limited 117 348 000 58,74

Other Beverage Interests (Proprietary) Limited (SABMiller) 58 674 000 29,37

JSE Limited

2007 2006 2005 2004 2003 2002 2001

Price per share (cents)

highest during the year 5 500 4 000 2 600 1 725 1 500 1 500 1 000

lowest during the year 3 605 2 475 1 500 1 100 1 105 735 675

closing at year-end 5 415 3 900 2 600 1 500 1 201 1 350 730

weighted average 4 738 3 377 2 121 1 418 1 287 1 008 788

Price earnings ratio 13,8 14,4 10,4 8,1 7,5 11,2 12,4

JSE actuaries’ price index

at year-end (2000: 100 cents)

Distell Group Limited 622 448 299 172 138 155 84

Closing price/net asset value per share 2,7 2,3 1,8 1,1 1,0 1,2 0,7

Weighted average number of

shares in issue (’000) 199 079 197 414 196 194 195 626 195 580 195 580 195 580

Number of shares traded (’000) 6 575 4 692 5 099 3 533 2 784 6 263 3 647

Shares traded/shares in issue (%) 3,3 2,4 2,6 1,8 1,4 3,2 1,9

Value of shares traded (R’000) 311 556 158 440 108 145 50 114 35 833 63 124 28 722

Number of transactions 1 259 1 274 1 214 1 069 981 1 386 1 220

Number of shareholders 3 478 3 445 3 381 3 283 3 389 1 738 2 268

Market capitalisation (R million) 10 817 7 760 5 131 2 945 2 349 2 640 1 428

Net asset value/market capitalisation 0,36 0,43 0,56 0,87 1,01 0,81 1,43

Number of % Number of % of issued

Ordinary shares holders of holders shares shares


Cash value added statementfor the years ended 30 June

GR OU P 2007 2006

R’000 R’000

Cash generated

Cash derived from sales 7 762 675 6 652 655

Net financing costs paid (23 179) (75 987)

Income from investments 1 284 1 497

Cash value generated 7 740 780 6 578 165

Cash payments to suppliers of materials and services (3 997 691) (3 487 335)

Cash value added/wealth created 3 743 089 3 090 830

Cash utilised to:

Pay excise duty to the State 1 757 671 1 510 664

Pay tax on income to the State 365 380 153 388

Remunerate employees for their services 808 206 754 533

Provide shareholders with a return on the use of their risk capital 342 729 266 788

Cash disbursed among stakeholders 3 273 986 2 685 373

Net cash retained from operating activities 469 103 405 457

Reconciliation with cash generated

Cash value added (above) 3 743 089 3 090 830

Less: Remuneration to employees for their services (808 206) (754 533)

Net financing costs paid 23 179 75 987

Payment of excise duty to the State (1 757 671) (1 510 664)

Cash generated from operating activities 1 200 391 901 620

State taxes

Excise duty 1 757 671 1 510 664

Tax on income 365 380 153 388

Value added tax 372 022 304 790

Employees’ tax deducted from remuneration 99 084 90 501

Regional Services Council levies and property taxes 17 009 22 753

Channelled through the Group 2 611 166 2 082 096

2007

State 65%Employees 25%

Other 10%

Employees 28%State 62%

2006Other 10%


Trading environmentDuring the year under review the

economy remained buoyant, given

positive consumer spending, an

encouraging momentum in fi xed

investments and stronger than expected

export growth. Th e anticipated slowdown

in consumer spending did not materialise

despite several interest rate hikes.

Investor confi dence, in particular,

was boosted by Government’s stated

commitment, as it prepares for the 2010

FIFA World Cup, to tackle crime with

integrated strategies that address root

causes, as well as ineffi ciencies in the

policing and justice systems.

Th e country’s economic upswing,

however, has been led largely by

consumer spending, much of it on credit.

A voracious consumer appetite not only

adds to infl ationary pressures and the

risk of still further interest rate increases

but has also pushed household debt to

record highs. Such high levels of spending

will likely temper to some degree, as the

impact of the National Credit Act comes

into eff ect, petrol prices continue to rise

and further interest rate hikes are

anticipated.

Nevertheless, the positive impact of

greater domestic affl uence is marked.

South Africa’s black diamonds, as the

upwardly mobile black middle class are

now being named, pumped an extra

R60 billion into the economy in the last

year, according to the University of Cape

Town Unilever Institute of Research.

Estimated to have an annual spending

power of R180 billion, they represent a

relatively small percentage of black

consumers, but have a signifi cantly larger

proportion of black buying power.

Although the study has been criticised for

using too liberal a defi nition of the term

middle class, to include relatively low-

wage earners as well as students, there

can be no denying that greater access to

education, as well as to job opportunities

and career advancement, has contributed

to the growth in spending, creating a

climate in which strong brands can

fl ourish.

While extensive fi xed investment

spending across many sectors has

accelerated job creation, the high rates of

unemployment continue, impacting on

both economic and social stability. It is

also cause for concern that potential

development, which could further curb

joblessness, is being impeded by a

collapse in infrastructure. Water and

electricity supply, roads and other

utilities are buckling under the strain of

increased demand. Government and local

authorities need to step in and provide

the necessary resources and skills, not

only to sustain much-needed growth, but

to improve South Africa’s global

competitiveness.

We note the slip in our ratings with the

World Economic Forum. South Africa

now ranks 46th of 125 countries in terms

of global competitiveness, compared with

40th place of 117 countries in 2005.

Overstretched infrastructure, along with

the costs to business of crime and

violence, a shortage of skills and

infl exible labour policies, has contributed

to the lower rating.

Th ese drawbacks notwithstanding, we

see great opportunities for South African

companies keen to operate on a broad

geographic front. South Africans are

recognised for their entrepreneurship

and good business practices. All over the

world, there are organisations willing to

partner local operations and Distell is no

exception. We recently entered into

distribution agreements with major

players on European wine markets. We

have also established a joint venture with

Burn Stewart Distillers, a Scotch whisky

producer and brand owner with a

portfolio of leading whisky brands.

Relationships such as these allow us to

exploit opportunities and extend our

global reach, and we shall continue to

investigate options for international

relationships and investment, in the

process building on what has already

been exciting export growth.

Ciders, made from the juice derived from

apples, are now the fastest growing

alcoholic beverage worldwide. Distell, as

one of the world’s largest producers of

ciders, is well-placed to capitalise on this

trend, domestically, on the African

continent, and further afi eld, as you will

read in the managing director’s report,

which follows.

In recent months, there have been reports

about a crisis in our wine industry. Th at

there is a global oversupply, now in its

fourth year, is not in dispute. Nor is it

disputed that some farmers are under

fi nancial pressure as a result. However, it

is our view that the wine industry

remains viable, with a potentially

encouraging long-term future. Research

undertaken by the international Wine &

Spirits Record, on behalf of Vinexpo,

points to ongoing growth in international

wine consumption and there is reason to

expect that South African producers will

continue to participate in this growth,

provided their off erings are consistent

with market demand.

Nevertheless, we believe the industry

would be in a far healthier state and

generating far more jobs if there were

access to Government funding for market

research, development and promotional

activity, as is provided in countries such

as Australia and New Zealand, for

example.

“ . . . we see great opportunities for South African

companies keen to operate on a broad geographic front”

Chairman’s statement


A large portion of the global market is

concentrated in the premium sector and

that is where much future growth has

been identifi ed. However, if South Africa

is to compete eff ectively in this sector, we

shall have to plan and produce our wines

cost effi ciently and support our brands

with long-term investment and

strategies. Winegrowers should also seek

to align themselves with viable brands.

To maximise success, however, calls for a

collective eff ort to market Brand South

Africa, our single biggest asset, so our

individual brands can follow in its

slipstream.

Distell’s policy is to protect its brands

and, tempting as it may be in the short

term, not to chase volume at the expense

of profi tability. We employ over

4 200 people. Th ere are also some

44 000 hectares under cultivation for

Distell wine brands, representing many

suppliers, their workers and their

families. Protecting our brands is also a

way of protecting them. By building

sustainable brands, we are assuring them

of a continuous uptake of production,

even in times of oversupply.

LegislationTh e progress of provincial liquor

legislation has been slow but now appears

to be gaining at least some momentum.

We believe that once legislation is in

place nationwide, it will be far easier to

promote the responsible consumption of

alcohol, as well as monitor and address

transgressions. While ad hoc

interventions can contain on-trade abuse

to a limited extent, a formalised

infrastructure will make for far greater

effi ciencies in this regard. Most

important, however, is to recognise that

unless legislation in all provinces refl ects

the needs of the communities and

consumers it intends to serve, it will be

unrealistic to expect widespread

compliance.

We also call on Government to address

the continued illicit trading and

smuggling of alcoholic beverages that

pose a threat not only to our industry but

also to the domestic excise regime. Th e

National Treasury has also voiced its

concerns and is in consultation with the

industry as well as the South African

Revenue Service. We look forward to the

outcome of these discussions in curbing

illegal liquor production and distribution.

Superbly matured since 1845, Viceroy’s success has increased

throughout Africa with it becoming one of the best-selling

premium brandies in Kenya.


Chairman’s statement (continued)

Th e release earlier this year of the

Department of Trade and Industry’s Code

of Good Practice meant the drafting of

the Liquor Manufacturers’ and

Distributors’ Industry Charter could be

brought closer to completion and we look

forward to its conclusion. We also await

the response of the Minister of

Agriculture to the Wine Industry

Transformation Charter submitted at the

end of July.

TransformationTh e establishment of the South African

Wine Industry Council has been an

extremely important development in

underpinning transformation. It has been

structured to allow for greater

representativity and improved

collaboration between the major players

in the industry. Its success will require

unity of purpose amongst all players, who

will have to overlook sectoral interests for

the greater good of the industry. Without

a cohesive industry, we cannot expect

progress to continue unimpeded, nor can

we expect to make the much-needed

advance in developing our domestic wine

market.

Excise duties on wines and spiritsAn understanding has been reached with

the National Treasury regarding the basis

on which average retail prices should be

calculated. We hope this will lead to a fair

and consistent excise dispensation for all

alcoholic beverages.

Drinking responsiblyDistell fully supports existing legislation

in respect of under-age consumption, as

well as of driving under the infl uence of

alcohol. Abuse of alcohol across the

spectrum and under-age drinking are, in

our view, best addressed through closely

targeted and holistic measures adopted

by the industry as a whole. To this end, we

have taken an active role in the Industry

Association for the Responsible Use of

Alcohol (ARA) of which we are a leading

corporate member, with Distell’s head of

regulatory aff airs, Michael Mokhoro,

currently serving as chairman. Our belief

is that working as a unifi ed force in co-

operation with Government in developing

educational, early identifi cation and

interventionist measures that target the

vulnerable and marginalised, provides

the strongest, most eff ective and cost-

effi cient basis for combating excessive,

harmful and inappropriate consumption.

Th e Liquor Manufacturers’ and

Distributors’ Industry Charter, in its

current form, accepts that membership of

ARA is ample demonstration of

commitment to combat abuse and should

further strengthen the very positive

contribution made by the organisation.

We also express our thanks to former

ARA director, Chan Makan, for the

laudable and very successful initiatives

he has developed and implemented, and

we welcome his successor, Adrian Botha,

who formerly served on ARA’s

management committee. His extensive

background and experience make him

ideally suited to the task.

ProspectsWe expect the present tempo of consumer

spending to moderate to some degree.

Even a slight downward adjustment in

disposable income should see well-

marketed brands as the best positioned

to build loyalty and attract newcomers.

Our task will be to further strengthen our

market visibility and our existing

relationships with retail and on-

consumption channels, as well as with

consumers locally and globally, ensuring

ever better quality and service.

AcknowledgementsWe have set and to a large extent met

demanding standards across every facet

of the business, all the while maintaining

stringent fi nancial disciplines. Our aim is

to delight our customers and consumers

wherever we trade and to maintain the

highest quality in every one of the

functions we perform. We strive to be a

worthy employer and a responsible

corporate citizen, mindful of the impact

we make at an economic, social and

environmental level.

We have not only weathered a diffi cult

wine market locally and abroad but we

have also played a key role in advancing

the domestic popularity of brandy, still

South Africa’s favourite spirit. We have

established a global platform for

Amarula, internationally the most widely

known South African consumer product.

We have introduced many product

innovations and we have set the

benchmark for the local cider industry.

We have been acknowledged on local and

international showcases for our products

across the portfolio and we have

extended our international footprint,

despite the ferocity of the competition.

We have also managed to participate

actively in technical forums worldwide in

pursuit of ever better quality systems and

products.

None of these activities or successes

would have been possible without the

shared goals, dedication and support at

every level of the business from

co-directors, management, staff and

suppliers. I thank each one of you

personally and look forward to your

continued commitment.

We also thank Daan Prins, who has

resigned from the board, for his

contributions and insights over the

years, and we welcome Robert Lumb.

DM Nurek

Chairman

Stellenbosch

22 August 2007


Savanna, one of the country’s most popular dry cider

brands, embraces the attitude of a new South Africa with

its off -the-wall dry humour. Th is trendy brand’s popularity

is now spreading to international shores where, amongst

others, it is sold at leading supermarket

chains in the United Kingdom.


Th e domestic marketSouth Africa’s economic climate has

generally been favourable, with gross

domestic product (GDP) growing at 5%.

Business and consumer confi dence

remained high during the period under

review, fuelled by accelerated economic

growth in the fi nal quarter of 2006 and

ever-increasing employment levels.

Rising infl ation and interest rates did

little to curb cash or credit spending

amongst consumers.

Th e alcoholic beverage sector continued

to benefi t from ongoing premiumisation

for the third consecutive year. Th is trend

of trading up to distinctively packaged

alcoholic beverages that denote a sense of

luxury has in large part been driven by

the black diamond phenomenon,

described in the chairman’s statement.

Newly affl uent black middle class

consumers have grown dramatically in

number and spending power.

Growth in the alcoholic beverage sector

was driven mostly by premium priced

beer, whisky and ready-to-drink (RTD)

beverages.

In the case of our own portfolio, a further

increase in market investment and a

continuation of our relentless pursuit of

quality at intrinsic and packaging levels,

supported by compelling advertising

campaigns, resulted in greater consumer

support across all product categories.

Performance highlights in our spirits

segment included the sustained growth

of Klipdrift and Richelieu brandies.

Exclusive brands such as the Van Ryn’s

Collection Reserve range of potstill

brandies, Klipdrift Gold and Oude

Meester 12 Year Old also benefi ted from

ongoing premiumisation.

Amarula Cream had another excellent

year, further entrenching its position as

the category leader. On the wine front,

Durbanville Hills and Two Oceans

experienced sound growth, the latter

benefi ting from the greater exposure

brought by television advertising. Other

good performances came from Drostdy-

Hof (especially the Extra Light and

Natural Sweet variants), J.C. Le Roux

sparkling wines, and Sedgwick’s Old

Brown Sherry. Within the RTD category,

our cider brands performed exceptionally

well. Hunter’s posted strong growth

across its entire brand range, while

Savanna was once again the star

performer of the entire Distell brand

portfolio.

Continued focus on and investment in

brand building, market activation, trade

channel management, as well as

customer and consumer relationship

management strategies, have allowed us

to capitalise on favourable economic

conditions and remain fi rmly on our

growth path.

We also explored new investment

opportunities to enhance our spirit

portfolio during the year under review as

mentioned in the chairman’s statement.

In April, we entered into a joint venture

as equal partners with Burn Stewart

Distillers, a Scotch whisky producer and

brand owner with a portfolio of leading

whisky brands. Burn Stewart is owned by

CL WorldBrands, the global drinks group

of Trinidad-based CL Financial with

distribution networks in Europe, the USA

and the Far East. Th e joint venture owns

and markets three of Burn Stewart’s

leading brands in sub-Saharan Africa.

In addition to Scottish Leader (which

Distell has represented in South Africa

Managing director’s report

We have improved shareholder value through considerable growth in earnings and by extracting even better performance from our assets.

“Th is has been another successful year for Distell”

Headline earnings, excluding the non-recurring black economic empowerment (BEE) expense incurred the previous year, grew 29,2%, achieving compound annual growth of 19,2% over a seven-year period.

Over the same period, net operating assets (i.e. fi xed assets, inventory and accounts receivable, less accounts payable) refl ected compound annual growth of 3,3%.

Returns on shareholders’ funds continued to improve, from 18,2% last year to 19,8%.

Our sound fi nancial performance has been the result of strong and profi table volume growth, and a very satisfactory performance by operating units across the business.

Management uses a range of fi nancial and non-fi nancial key performance indicators to monitor progress against our strategic priorities and business plans. Divisions across the business succeeded in meeting, if not improving, most of these performance measurements.


Nederburg, the country’s most awarded name in wine, continues

to fi nd favour in markets abroad. A South African

brand leader in Germany, Nederburg is delighting

wine lovers in the UK, across Europe, the USA, Asia Pacifi c and

closer to home, on the African continent.


Managing director’s report (continued)

since 1999), they are the Bunnahabhain

Islay Single Malt, and Black Bottle Scotch

Whisky, a blend of seven Islay malts.

International marketTh e expansion of our international

business forms an integral part of

Distell’s strategic focus. To this end, we

are concentrating on:

• Building a core portfolio of brands in

key markets.

• Still further advancing Amarula’s

global position, strengthening

support where we currently trade and

establishing a presence in new

markets. Amarula is the company’s

biggest spirit brand and also South

Africa’s most widely distributed

alcoholic beverage internationally.

• Building on our position as a

profi table and leading South African

wine exporter. We succeeded in

exporting 43% of our premium wine

production, with drive brands,

Nederburg, Fleur du Cap, Two

Oceans, Durbanville Hills and

Drostdy-Hof, all showing signifi cant

growth in key markets.

• Exploiting the popularity of Savanna

in key markets.

• Giving greater attention to our

African operations.

International sales volumes have shown

compound annual growth of 10,3% over

a fi ve-year period. Currently,

international business contributes

18% of total revenue. Th is year export

volumes grew 9,8%, a refl ection of a

favourable sales mix.

African markets Th e International Monetary Fund, in its

April 2007 World Economic Outlook,

painted a fairly optimistic picture of

Africa. Th e continent’s economic growth

is being fuelled mainly by strong global

growth, increased capital infl ows,

a buoyant commodities sector, improved

economic stability in many countries and

the positive impact of debt relief.

Since 2000, real GDP growth in sub-

Saharan Africa has averaged around

4,5% per annum. We began focusing

assiduously on the subcontinent in 2003

and have been expanding our presence in

the region ever since, with our eff orts

continuing to bear fruit. Th is year, sales

volumes for Africa (excluding Botswana,

Lesotho, Namibia and Swaziland) grew

31,5%, well ahead of target.

Wine sales volumes grew 24,5% and

spirits 47,8%. We are particularly

encouraged by the acceptance and

growth of brandy outside South Africa.

Although off a low base, sales volumes of

ciders and RTDs grew 62,5%.

Angola, Kenya and Zambia delivered

excellent results, with sales volume growth

driven particularly by Amarula, Viceroy,

J.C. Le Roux, Nederburg and Savanna.

In line with strong growth trends, we

have substantially strengthened our

marketing structures and sales

representation in key markets in the

region. We are confi dent that our

increased investment, both in terms of

infrastructure and brand support, will

allow us to eff ectively exploit market

potential.

At the same time, we remain committed

to our philosophy of partnering with local

players to expand our footprint across the

continent, while building capacity in

developing markets. Th e Group adds

signifi cant value by providing technical

and manufacturing skills in countries

such as Zimbabwe, Kenya, Tanzania and

Mauritius.

We hold a 35% share in Tanzania

Distilleries Limited that continues to

deliver excellent results. With sales

volumes far exceeding targets, capacity

has recently been expanded. In a major

boost to the local industry, the operation

is now also bottling Tanzanian wines.

Zimbabwean company African Distillers

Limited, in which we have an eff ective

31% share, has demonstrated remarkable

resilience under extremely challenging

conditions. Present circumstances have,

however, necessitated the adoption of a

survival as opposed to a growth strategy.

Nevertheless, the performance of this

investment has no material bearing on

Distell’s overall performance.

During the review period we fi nalised a

transaction giving us a 26% interest in

the Mauritian company, Grays Inc

Limited, and initial results have proved

encouraging.

Our production and distribution

agreement with Kenya Wine Agencies

Limited once again resulted in

substantial volume growth for key

brands, especially brandies.

BLNS countries (Botswana, Lesotho, Namibia, Swaziland)Th e countries immediately beyond our

borders have long been important

markets for us and over the years we have

continued to strengthen marketing, sales

and distribution infrastructure to

maximise opportunities. Growth across

all product segments has been in line

with projections.

Other markets (outside the African continent)Th is year export volumes grew 7,2%, a

refl ection of a favourable sales mix.

Amarula Cream

Th e past few years have seen

unprecedented global growth in the

popularity of cream liqueurs,

precipitating a signifi cant proliferation in

product off ering in all markets. However,

most players have not managed to make

any real impact and the market is

currently consolidating.


Amarula continued to perform well with

strong growth achieved in all key

markets, in particular Canada, Germany,

Brazil and neighbouring countries, as

well as the UK. With a 25,6% growth in

export volumes, the brand continues to

outperform the category on the

international front.

Global development remains a priority.

Continuous research underpins our

investment strategy in the brand, which

focuses on both established and newer

markets. Th e travel retail channel has and

will continue to play a valuable role in

promoting Amarula’s visibility.

Wines

To underpin our international trading

activities, we have been actively engaged

in establishing strategic alliances with

trading partners, concluding several

important agency agreements that will

not only bolster our presence in Europe,

but also strengthen our ties in North

America, Europe and Asia Pacifi c.

Distell entered into a supply and agency

agreement with Altia Corporation, an

international multi-beverage company

that operates in the Nordic states, where

it is the market leader, as well as in the

emergent Baltic markets. Th is deal is

helping to forge an already strong

presence in Finland, Norway and Sweden,

while giving us exposure to new

opportunities in the Baltic states.

We also entered into an agreement with

Baarsma Wine Group Holding (BWGH) to

carry some of our drive wine brands in

the Netherlands, giving us a balanced

exposure across a range of channels and

price points. BWGH is a leading player in

the Dutch retail and on-consumption

channels and also markets directly to an

extensive base of consumers. Key brands

being represented include Fleur du Cap,

Durbanville Hills, J.C. Le Roux, Pongracz,

Two Oceans and Drostdy-Hof.

To secure a stronger presence in UK

retail, we have expanded our agreement

with distributor Waverly TBS, which has

recently taken on Two Oceans, in

addition to other focus wine brands –

Nederburg, Drostdy-Hof, Fleur du Cap

and Plaisir de Merle.

AV Imports continues to make inroads

for Two Oceans in the USA, focusing on

some of the major grocers’ chains.

Listings have been achieved with Hyvee,

across over 200 stores in the mid-west;

Publix in the south; 500 Food Lion stores

in the south; and mid-Atlantic and

Pennsylvania Liquor Commission.

Distell’s competitive edge is, we believe,

the result of ongoing brand investment,

a relentless focus on quality, fl exibility of

service off erings, solid agency structures

and a balanced product portfolio.

Drive brands have shown compound

annual growth in volume of 16,8 % over

a fi ve-year period, increasing the

contribution of international markets to

total group brand income from wine.

During the review period, these key

brands showed a 12,6% volume growth in

an international market characterised by

oversupply and contracting market share

for many players. However, overall wine

volume growth was signifi cantly lower,

increasing just 3,3%, given the decline in

sales of second-tier brands.

We have seen solid growth in key markets

such as Scandinavia, Canada (where Two

Oceans is one of the top ten wine brands)

and the USA. Although our performance

in the UK and the Netherlands did not

meet our expectations, we were able to

increase our share of the South African

category in these markets.

Our continued focus on emerging

markets is also starting to show

encouraging results and a number of

breakthroughs have been made in

Central Eastern Europe and Asia Pacifi c.

Although off a small base, we are heartened

by brand developments, most notably in

Russia, China, Vietnam and South Korea.

Our intention remains to establish and

maintain profi table brands. We have

increased our earnings from wine

exports this year, while substantially

increasing advertising support for our

brands.

OperationsStrategies and initiatives designed to

achieve and entrench a sustainable

competitive cost advantage remain a top

priority in our goal to participate

successfully in competitive global

markets. Year-on-year improvement in

operational performance is refl ected in

a continuous reduction in unit cost and

a constant improvement in net operating

margin. Excellence in operational

performance demands that we:

• place customers and consumers at

the centre of our thinking,

• deliver superior products, and

• provide excellent service at

competitive prices.

It is, however, imperative that we

constantly raise the performance of our

operating units to maintain our lead and

competitive edge. Business process

improvement is therefore integral to the

way we work.

Th is year we have made further advances

in enhancing effi ciencies. Progress

against cost leadership goals has been in

line with targets, with most key

performance indicators showing an

improvement on the previous year. Sales

volumes increased 14,4% while expenses,

excluding sales and marketing

expenditure, rose 15,7%, resulting in a

mere 1,2% increase in cost per litre, well

below the producer price index (PPI) of

10,4%. Th e benefi ts fl owing from



improved effi ciencies allow us to reinvest

in strategic areas of the business,

particularly marketing expenditure on

drive brands and by extending sales

representation and marketing

capabilities in key markets.

Th e principle of managing by project has

contributed to an overall improvement in

effi ciencies. Consequently we have

formalised this approach by establishing

a central Enterprise Project Offi ce. We

successfully implemented the Six Sigma

methodology, training project managers

and placing them in business units. Th is

has further boosted a sense of ownership

amongst staff and impacted positively on

both team and individual performance.

Th is year our secondary production

division, responsible for bottling and

blending, extended the implementation

of the “overall equipment effi ciency”

process monitoring systems to all

production sites. Th e system is designed

to signifi cantly reduce unplanned

downtime and changeover time on

production lines, resulting in enhanced

throughput and a substantial

improvement in resource utilisation.

To capitalise on the trend towards

premiumisation, while still maintaining

a competitive advantage, we continue to

invest diligently in measures to improve

product intrinsics, as well as extrinsics

such as packaging. Advances in this

regard include:

• Establishing labelling capability to

produce complex product

confi gurations

• A programme to expand automatic

packers to prevent damage caused by

manual processes

• Investment in equipment to produce

new packaging concepts

We also have to ensure that our service

off erings are aligned with customer

needs in a changing environment. Our

‘Route to Market’ project, aimed at

identifying customer needs, market

opportunities and gaps in our service

model, is close to completion and

recommendations, based on research

fi ndings, are in the process of being

implemented. SAP functionality is

currently being implemented in Distell

TradeXpress outlets that service specifi c

customer channels in the South African

market. Not only will this enable us to

raise our service levels to customers, but

also to reduce inventory and optimise

inter-depot transport.

Th e quality of our employees impacts

directly on our operational performance.

We therefore promote values such as:

• A sense of ownership where

employees at every level are aware of

their contributions, and are

empowered and accountable

• A performance-driven culture, where

we challenge ourselves to ensure

continuous improvement, by creating

more, better and faster

• A customer-service orientation, to

delight our customers and consumers

everywhere

• Entrepreneurship, by allowing

employees the freedom to explore and

create

• Respect for the individual where we

respect each other’s diversity and

contribute to the communities in

which we operate. We also promote

the responsible use of alcohol.

Th e Group continues to maintain mission

directed work teams in all operation

environments. We believe this approach

provides a valuable foundation for

ongoing improvement. It encourages and

builds a culture that is performance-

driven and oriented towards customer

service. It also promotes team work, a

sense of ownership and stimulates

innovation. Given the excellent results

from initiatives already under way, we

recently expanded the parameters by

introducing additional modules that

focus on areas such as ‘asset care’ and

‘process control’.

We have embarked on a programme to

align our people competencies with

future business requirements. In this way

we are able to engage in more meaningful

and targeted training programmes.

Th e phenomenal growth of the RTD market

in which Distell is a signifi cant player, has

resulted in greater investment to meet

demand, of ciders in particular. We are

increasing cider capacity at our production

plant in Paarl, as well as at our bottling

facility in Green Park. Th ese expansions

are expected to be commissioned early in

the 2008 fi nancial year.

A national shortage of carbon dioxide

(CO2 )

prompted us to explore the

viability of CO2 recovery. We have since

entered into an agreement with Air

Liquide for the installation of a full-scale

CO2 recovery plant in Paarl which will

give us continued supply of CO2 needed in

the production of many of our products.

Procurement practices remain a top

priority. Close collaboration with our

suppliers plays a major role in enabling us

to further expand our business, both in

the local and international markets,

benefi ting all industry participants. It is

therefore crucial to ensure continuous

product availability, quality standards

and cost reduction through improved

effi ciencies throughout the value chain.

Th is is particularly important given the

challenging trading conditions faced by

the industry and the need to provide

a stable operating environment over

the long term for the mutual benefi t of

all participants in the supply chain.

During the year signifi cant progress was

made in establishing a global supply

network. Th is gives us access to better

product, service and pricing options and


Amarula Cream is enjoyed in over 90 countries worldwide and

continues to outperform the category on the

international front. Amarula, the spirit of Africa, achieved strong

growth in all key markets, in particular Brazil, Canada,

Germany, neighbouring countries as well as the UK.


also helps to counter local supplier

production capacity constraints,

particularly in the case of packaging

materials.

We have also initiated a low-tech, labour-

intensive scheme in the Northern Cape

and Free State, to ensure Distell of a cost-

eff ective source of distilling wine. Using

virgin land that does not require the

grafting of vines onto rootstock (thus

reducing input costs), applying low-cost

trellising, as well as fl ood irrigation, the

intention is to establish high-density

vineyard planting on some 700 hectares.

Expected to optimally yield an average of

45 tons per hectare, crops will be

processed at existing wine cellars with

underutilised capacity. Further details

regarding this project appear on page 44

in the sustainability report.

A section of our production plant in

Wadeville was destroyed by fi re late in

2006. We are pleased to report that

eff ective business resumption procedures

meant production remained virtually

uninterrupted as alternative sites

stepped in to provide the necessary

support. Repairs are on schedule and

we expect the plant to be fully

operational by October 2007.

Financial reviewRevenueRevenue grew 18,4% to R8,0 billion on

a sales volume increase of 14,4%.

Locally, sales volumes increased 15,6%,

with growth accelerating signifi cantly

during the second six months. Our

brands in the cider and RTD category

continued their exceptional performance

and, with a 37,2% volume growth,

performed way ahead of the category.

Spirit volumes, including brandy, rose

2,4% (2006: 3,2%) in an extremely

competitive market. While brown spirit

brands and liqueurs showed 4,0% volume

growth, the white spirit market remained

under pressure. Continued focus on

brand building saw our wine segment

refl ect profi table volume growth of 4,5%

(2006: 1,9%) notwithstanding the ever-

increasing number of players in a highly

price-competitive market.

International sales volumes, excluding

Africa, increased 7,2%. International

revenue, benefi ting from a favourable

exchange rate and sales mix, increased

32,0%. Spirit volumes grew 23,2%, thanks

to solid performances in all key markets.

Although natural wine sales volumes

rose 3,3%, drive brands performed

impressively, growing 12,6%.

Revenue derived from African countries

grew 20,0% on a volume growth of 11,8%.

African countries outside the BLNS

region delivered revenue growth of

31,5%, although off a relatively small base.

Trading incomeTh e increase of 25,3% in trading income

was the result of strong revenue growth,

benefi ts derived from improved

throughput and further advances made

to enhance effi ciencies across the

business.

Th e Group’s ability to constantly raise the

performance of our operating units has

become a key strength, enabling us to

signifi cantly step up brand investment,

sales support and representation, as well

as marketing activities, while at the same

time improving net operating margin,

a key performance indicator.

Improved throughput and effi ciencies in

production, distribution and other

service centres meant we could contain

increases in operating costs per sales unit

to a mere 1,2%, well below the offi cial PPI

of 10,4%.

We continued to meet our objective of

ongoing margin enhancement, by further

improving net operating margin from

13,2% to 14,0%.

Net other gainsDuring November 2006, a section of our

production plant in Wadeville was

destroyed by fi re. Th e portion of the

insurance claim which relates to the

replacement of assets has been settled

between the Group and the insurers.

Th e diff erence between the insurance

proceeds in respect of fi xed assets and

book value at the time of the incident is

refl ected separately in the income

statement and is included in net other

gains.

Net fi nance income and cash fl owCash generated from operating activities

rose to R1,2 billion from last year’s

R900,1 million, an increase of 33,2%.

Cash retained from operating activities

amounted to R469,1 million (2006:

R405,5 million).

Fixed investment spend to maintain and

expand operations amounted to

R224,5 million (2006: R164,4 million).

Th e increase in capital expenditure, to

expand the production capacity of our

cider manufacturing plants, was

necessitated by a signifi cant increase in

demand.

Th e Group generated net cash fl ow of

R244,6 million before fi nancing activities,

with an equivalent increase in cash and

cash equivalents and, as a result,

net fi nancing income amounted to

R8,0 million compared to net fi nancing

cost of R27,4 million the previous year.

TaxationTh e eff ective tax rate decreased from

33,7% to 30,3%, mainly as a result of the

BEE share-based payment incurred the

previous year, which was not tax-

deductible.



EarningsHeadline earnings increased 45,4% to

R779,3 million.

Adjusted headline earnings – headline

earnings excluding the non-recurring

BEE share-based payment incurred

the previous year – rose 29,2% to

R779,3 million. Th is growth is

attributable largely to a 25,3% rise in

trading income, a substantial reduction

in fi nancing costs and a lower eff ective

tax rate.

DividendTh e directors have resolved to declare

dividend number 38 of 109 cents per share,

making a total dividend of 196 cents per

share for the year ended 30 June 2007

(2006: 153 cents). Th e total dividend

represents a dividend cover of 2,0 times

by adjusted headline earnings, and is

28,1% higher than the previous year.

Investment and fundingTotal assets increased by R522,0 million

to R6,0 billion, an increase of 9,5% on the

previous year. Th is compares favourably

with the 25,3% rise in trading income,

demonstrating the Group’s ability to

extract better performance from our

assets.

Total capital expenditure amounted to

R224,5 million, of which R123,2 million

was spent on the replacement of assets.

A further R101,3 million was directed

to the extension and refurbishment

of the Wadeville plant, increasing

production capability at our cider and

RTD facilities and augmenting both

production and maturation capacity

for our spirits.

Investment in net working capital rose

5,3% to R2,0 billion. Inventory increased

8,2% to R2,7 billion. Bulk spirit stock in

maturation increased substantially, in

accordance with the Group’s longer-term

view of consumer demand for our spirits

brands. Although bottled stock and

packaging material at year-end refl ected

an increase of 12,7% on the previous year,

average annual bottled stock duration

improved from 41 days last year to

35 days and was maintained at 40 days

for packaging material.

Th e Group remains in an extremely

strong fi nancial position as shown by

the positive cash and cash equivalent

balance, net of interest-bearing debt,

of R361,7 million at year-end (2006:

R55,4 million).

Increased cash generated refl ects growth

in profi tability, effi cient utilisation of

fi xed assets and continuous improvement

in working capital management.

Future funding fl exibility is ensured by

the existence of a R3,9 billion borrowing

facility.

Shareholder valueTh e value that a company generates for its

shareholders is best measured by total

shareholder return (TSR), a combination

of share price appreciation and dividends

over the medium to long term. Since the

merger between Distillers Corporation

Limited and Stellenbosch Farmers’

Winery Group Limited in 2000, to form

Distell Group Limited, the Group has

delivered a TSR of 34,3% per annum over

a seven-year period, compared to the

seven-year compound annual growth rate

of 19,8% in the JSE Top 40 index.

ProspectsBusiness conditions in South Africa

remain favourable, with consumption

expenditure growth an important driver

of overall economic performance.

Employment creation, further real

growth in disposable income and high

levels of consumer confi dence are

expected to continue. Although the

tightening in credit availability and

higher interest rates may have an adverse

impact on consumer spending in the

short term, the board is expecting growth

in consumer spending to continue, albeit

at a slower pace, still benefi ting alcoholic

beverage sales.

Th e global economic outlook remains

positive, but there are concerns about the

short-term impact of higher energy

prices, and higher interest rates.

We expect the trading environment to

remain competitive, with increased

marketing investment by most industry

players. Th e wine industry in particular

continues to pose challenges globally.

Nevertheless, we believe our business is

appropriately structured, with a portfolio

of compelling brands and an effi cient cost

base that will allow us to compete

eff ectively, and to capture opportunities

in key markets. We shall underpin our

eff orts by upping our investment in drive

brands and support structures and

expect to continue to deliver growth in

earnings.

AcknowledgementI express my sincere appreciation to every

member of Distell for their committed

individual contribution and teamwork in

crafting our fi ne brands.

JJ Scannell

Managing director

Stellenbosch

22 August 2007


Corporate governance, critically

important to Distell’s success as a

business and in protecting the interests

of its shareholders, is managed and

monitored by the company’s board of

directors and several of its

subcommittees. Th e directors are

unreserved ly committed to the principles

of good governance and to this end

accept full accountability to all their

stakeholders in applying the necessary

disciplines in maintaining the highest

standards of professionalism, integrity,

independence, fairness and social

responsibility.

Transparency in the management

process gives shareholders and other

interest groups the assurance that the

Group is managed according to ethical

norms and international best practice

within the boundaries of prudently

determined risk parameters.

Th e board is of the opinion that the Group

complies more than adequately with all

the signifi cant principles incorporated in

the Code of Corporate Practices and

Conduct, as set out in the second King

Report (King II) and the JSE Limited

Listings Requirements.

Board of directorsTh e board evaluates and reviews the

strategic direction of the Group, agrees

on key performance indicators and

identifi es 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.

Th e board holds management

accountable for its activities, which are

monitored and controlled through

regular reports and discussions. In this

way the board is able to:

• Retain full and eff ective control over the

Group, and monitor management’s

implementation of planning strategies

• Review the performance of executive

management against business plans,

budgets and industry standards

• Consider signifi cant fi nancial matters,

including investment decisions

• Identify, consider, monitor and, if

appropriate, approve fi nancial and non-

fi nancial matters relevant to the

business of the Group

• Ensure a comprehensive system of

policies, procedures and controls is in

place and adhered to

• Ensure sound governance, including

compliance with relevant laws and

regulations, audit and accounting

principles and the Group’s internal

governing documents and codes of

conduct

• Defi ne levels of materiality, hold certain

powers and delegate other matters with

the necessary written authority and

terms of reference to management or

board committees

• Be aware of and commit to the

underlying principles of good corporate

governance, monitor and maintain

compliance.

Th e board is chaired by independent,

non-executive director DM Nurek and

comprises 13 non-executive directors

(of whom ten are independent) and three

executive directors, including the

managing director. Th e roles of the

chairperson and managing director are

separated, with responsibilities divided

between them. Th e chairperson has no

executive functions.

Non-executive directors, appointed for

their knowledge and experience of a wide

range of businesses and business sectors,

augment the skills and experience of the

executive directors and management and

contribute independent viewpoints to

matters under consideration. All

directors have the appropriate expertise

to fulfi l their duties and enjoy signifi cant

infl uence at meetings. Th is ensures a

balance of authority and precludes any

one director from exercising unfettered

powers of decision-making.

Generally, directors have no fi xed term

of appointment but retire by rotation.

At each annual general meeting of the

company, a third of the directors (those

longest in offi ce since their last election)

retire and, if available, are considered for

reappointment.

Procedures for appointments to the

board are formal and transparent and a

matter for the full board’s consideration.

Th e board is always mindful of the need

to maintain an infusion of fresh thinking

and a relevant mix of skills and

experience.

Th e eff ectiveness of the board

composition and the performance of all

its directors, including the chairperson,

are assessed annually.

Non-executive directors receive neither

share options nor material benefi ts from

Distell, other than their directors’ fees.

All board members are required to

disclose the extent of their shareholdings

in Distell, other directorships and any

potential confl ict of interest. It is

incumbent on directors to act in the best

interests of the company at all times.

Where a potential confl ict of interest does

exist, they are expected to recuse

themselves from relevant discussions and

decisions.

Directors and other nominated

employees are required to advise the

chairperson and obtain his clearance

before dealing in Distell shares. Th e

chairperson withholds clearance during

any closed period or where there exists

unpublished, price-sensitive information

in relation to the company shares.

Th e board convenes at least every two

months to review a formal schedule of

matters for which its members are fully

briefed in advance. Eff ective

chairmanship and a formal agenda

ensure all issues requiring attention are

raised and addressed. Th is enables

directors to discharge their

Corporate governance

“Managing the Group according to ethical norms . . .”


responsibilities in determining whether

prescribed functions have been carried

out according to set standards within the

boundaries of prudent, predetermined

risk levels and in line with international

best practice.

Th e company has purchased adequate

“Directors and Offi cers” insurance cover

to meet any material claims against

directors and offi cers.

In addition, all directors have unlimited

access to the advice of the company

secretary, who acts as an adviser to the

board and its subcommittees on issues,

including compliance with Group rules

and procedures, statutory regulations

and with King II. Independent

professional advice is available to

directors in appropriate circumstances at

the company’s expense.

Board subcommitteesSpecifi c responsibilities are delegated to

board committees, with defi ned terms of

reference from approved charters. All

chairs of committees report orally on the

proceedings of their committees at the

subsequent board meeting and minutes

of committee meetings are provided to

the board.

Th e principal board committees are as

follows:

Th e audit and risk committeeTh e audit and risk committee regularly

evaluates the Group’s exposure and

responses to signifi cant business,

strategic, statutory and fi nancial risks. It

also reviews:

• the eff ectiveness of risk management

processes; and

• the appropriateness and adequacy of the

systems of internal fi nancial and

operational controls.

In addition, the committee reviews and

evaluates accounting policies and

fi nancial information issued to the

public, to ensure appropriate standards

of governance and reporting are

maintained.

Th e audit and risk committee is

responsible for recommending the

appointment of the external auditors,

determines their fees and assesses the

performance of internal as well as

external auditors. Th e committee also

ensures eff ective communication

between directors, management and

internal and external auditors. Th e risk

management workgroup assists the audit

and risk committee with its risk

management function.

Drostdy-Hof, more than any other South African wine,

embodies the essence of the Cape both in style and taste. It is

the biggest South African wine brand by

volume in Sweden and continues to show

signifi cant growth in other key markets.


Corporate governance (continued)

Th e committee is chaired by an

independent, non-executive director

since the chairperson of the board may

not serve as chairperson of the audit and

risk committee. Th e present incumbent is

Robert Lumb.

Th e committee meets at least four times a

year. Th e internal and external auditors,

the managing director, the fi nancial

director and the company secretary are

in attendance at each meeting and other

members of the management team attend

as required. However, when issues are

raised with the external auditors in

which executive attendees have a vested

interest, the latter are required to recuse

themselves.

Audit and risk committee members, as

well as the internal and external auditors,

have unlimited access to whatever

information they require in discharging

their responsibilities. Moreover, the

internal and external auditors have

unlimited access to the chairperson.

Th e internal audit department reports

directly to the audit and risk committee

and is also responsible to the group

fi nancial director on day-to-day matters.

Th e managing director is copied on all

signifi cant reports which are then

discussed with him.

Th e remuneration committeeTh e remuneration committee is

responsible for the assessment and

approval of a broad remuneration strategy

for the Group. It also determines the

remuneration of non-executive directors,

as well as the short and long-term

incentive pay structures for executive

management and senior management.

Remuneration strategies are aimed at

rewarding employees at market-related

levels and in accordance with their

contribution to the Group’s operating and

fi nancial performance, covering basic pay

as well as short and long-term incentives.

To promote identifi cation with

shareholders’ interests, share incentives

are considered a critical element of

executive incentive pay.

Th e remuneration committee is also

responsible for the identifi cation,

assessment and nomination of potential

new directors. New directors are

provided with suitable induction material

designed to familiarise them with all

aspects of the business. Th e remuneration

committee consists of fi ve non-executive

directors, and is chaired by DM Nurek.

In compliance with its charter, the

committee met three times during

the year.

Accountability and auditInternal auditTh e mandate of the Group’s internal audit

function operates in terms of the audit and

risk committee’s approved charter to

provide management with an independent,

objective consulting and assurance service

that reviews matters relating to control,

risk management, corporate governance

and operational effi ciency.

Th e primary mandate of the Group’s

internal auditors is to examine and

evaluate the eff ectiveness of operational

activities, the attendant business risks

and the eff ectiveness of the system of

internal operational and fi nancial control

to manage such risks and to bring

material defi ciencies, instances of non-

compliance and development needs to

the attention of management, the

external auditors and the audit and risk

committee for resolution.

In particular, the internal audit function

assesses the relevance, reliability and

integrity of management and fi nancial

information, the effi cient and economic

use of resources, the safeguarding of

assets, compliance with relevant policies,

procedures, laws and regulations and the

prevention of waste and fraud.

Th e Group’s exposure and responses to

signifi cant business, strategic, statutory

and fi nancial risks and reviews are

regularly evaluated.

Th e function of the Group’s internal audit

is also to provide a risk management

facilitation role, ensuring the process of

risk management is always accorded the

highest priority, but without assuming

responsibility for risk management itself,

which remains the responsibility of

relevant line management.

Th e internal auditors also conduct

independent investigations into fraud or

other irregularities.

Th e internal audit department functions

under the direction of and reports to the

audit and risk committee, but is

responsible to the group fi nancial

director for day-to-day matters. It has

unrestricted access to the chairperson of

the audit and risk committee. Th e

internal audit plan is presented in

advance of audit and risk committee

meetings and is based on an assessment

of potential risk areas. All Distell

business operations and support

functions are subject to internal audit.

Th e audit and risk committee approves

the yearly audit schedule. Internal audits

are conducted in accordance with the

standards of the Institute of Internal

Auditors.

Teams of appropriately qualifi ed and

experienced employees perform internal

audits. From time to time, in the case of

special assignments, independent

external practitioners are engaged and

accorded equivalent access to

information.

Every audit assignment is followed by a

detailed report to executive management,

including recommendations on aspects


requiring improvement. Material

fi ndings are reported to the audit and

risk committee.

External auditTh e external auditors express an

independent opinion on the annual

fi nancial statements. Th e external audit

function provides reasonable, but not

absolute, assurance on the accuracy and

reliability of fi nancial disclosures. Th e

external auditors’ plan is reviewed by the

audit and risk committee to ensure

signifi cant areas of concern are covered,

without encroaching on the external

auditors’ independence and right

to audit.

Th ere is close co-operation between

internal and external auditors with the

aim of ensuring appropriate combined

audit coverage and minimisation of

duplicated eff ort.

Internal controlSystems of internal control are designed

to manage, rather than eliminate, the risk

of failure to achieve business objectives

and can provide reasonable, but not

absolute, assurance against

misstatement or loss.

While the board of directors is

responsible for the internal control

systems and for reviewing their

eff ectiveness, responsibility for their

actual implementation and maintenance

rests with executive management.

Th e systems of internal control are based

on established organisational structures,

together with written policies and

procedures, and provide for suitably

qualifi ed employees, segregation of

duties, clearly defi ned lines of authority

and accountability. Th ey also include

standard cost and budgeting controls,

and comprehensive management

reporting.

Th e Group’s treasury department is

responsible for controlling and reducing

exposure to interest rate, liquidity and

currency transaction risks. Treasury

functions and decisions are guided by

written policies and procedures as well as

by clearly defi ned levels of authority and

risk assumption. While non-leveraged

derivatives are purchased periodically to

hedge specifi c interest rate or currency

exposures, the Group treasury does not

undertake speculative fi nancial

transactions.

Th e eff ectiveness of and adherence to

internal control systems are monitored

continually through reviews and reports

by senior management, through a process

of control self-assessment, as well as

through the internal and external audit

processes. Th e process of control self-

assessment by management itself,

supplements the existing structures to

evaluate the systems of internal control,

and is designed to assess, maintain and

improve controls on an ongoing basis. All

divisions report on their assessments on

a monthly basis.

During the year under review, none of

these reviews indicated the occurrence of

any signifi cant lapse in the functioning

of internal controls.

Th e directors are satisfi ed that control

systems and procedures are suitably

implemented, maintained and monitored

on an ongoing basis by qualifi ed

personnel, with an appropriate

segregation of authority, duties and

reporting lines.

Risk managementTh e board is responsible for the total

process of risk management. Th e audit

and risk committee has specifi c

responsibility for the system of risk

management, and reviews the risk

reports of the Group twice a year,

reporting to the board on key risks facing

the Group and its associated risk

mitigation responses.

A central risk manager, reporting to the

audit and risk committee, is responsible

for setting policies and procedures on

risk management and risk fi nancing.

Th e workgroup supervises the activities

of decentralised risk management and

loss control departments. Th e

management of operational risk, a line

function, is conducted in compliance

with set policies and standards.

Performance is measured on a regular

basis through independent risk audits

carried out by a central risk management

function, assisted by independent

consultants.

Th e Group has adopted a continuous,

systematic and integrated enterprise-

wide risk management process that

focuses on identifying, assessing,

managing and monitoring all known

forms of risks across the Group.

Management, assisted by external

consultants, continues to further develop

and enhance its comprehensive risk

management framework and related

controls. Th is includes the training and

communication, continuous control self-

assessment by line management and

comprehensive reporting.

Major risks are the subject of ongoing

attention of the board of directors and

are given particular consideration in the

Group’s annual business plans, which

they approve.

Th e most signifi cant risks currently

faced by the Group include those

pertaining to regulations, brands, failure

to achieve international objectives,

the supply chain, physical environment,

skills and people, technology as well as

currency and interest rates. Th ese risks

and risk responses are included in

the Group’s integrated risk management

programme.


Two Oceans is sold on every continent and takes its name from

the two great oceans that converge at the Cape – the warm

Indian and the bracingly cold Atlantic. Not only has Two Oceans

become one of Canada’s top ten wine brands,

it also holds the position as the top-selling South African wine in

that country.


Sustainability report

Environmental sustainabilityEnvironmentWe see environmental management as

an important area of our corporate

performance. To this end we have

established an environmental working

group that identifi es, plans, implements,

reports on and reviews a range of

initiatives intended to reduce our impact

on the environment and promote best

practice in terms of sustainable

production, packaging and distribution.

While we clearly comply with all

environmental legislation, we have made

our engagement with the natural

environment a centralised corporate

focus and have established and

embedded measuring and monitoring

systems in respect of the company’s use

of water and energy, as well as our

generation of effl uent, of solid waste and

air emissions. With these systems now in

place, backed by investment in

appropriate technology, extensive

training programmes in environmental

awareness across the company, amongst

our suppliers and with local

communities, we are in the process of

setting stringent reduction targets.

At primary production level in particular,

but also at secondary production level,

environmental monitoring forms part of

the mission directed work teams

(MDWTs).

We have also focused during the year

under review in developing environmental

management systems for all our

operations in line with ISO 14001

principles, and are pleased to report that

four of our wineries – Durbanville Hills,

Plaisir de Merle, Nederburg and Bergkelder

– are now ISO 14001:2004 certifi ed.

Our key environmental priorities during

the year under review were:

Water useOur water is derived from two sources.

Almost 80% is municipally supplied, with

the balance from boreholes, dams or

rivers. With our improved capacity to

measure water usage at our primary and

secondary production sites, as well as our

offi ce buildings, gardens and public

facilities, coupled with greater staff

awareness of the need to use water

sparingly, we are better placed to reduce

our water consumption.

At all our bottle-washing facilities, for

example, we measure water usage strictly

in terms of the number of bottles washed.

We also recycle fi nal bottle rinse water

for gardening purposes. In addition, we

have installed shut-off nozzles wherever

appropriate and now make use of high-

pressure cleaning equipment at our

operational sites, replacing open-plant

cleaning and tank-rinsing procedures to

curtail both water usage and effl uent.

Effl uent generationImplementing cleaner production

practices at all primary and secondary

operations is helping to reduce the

effl uent we generate. We also work on an

ongoing basis with the University of

Stellenbosch and other research bodies to

improve the quality of our effl uent.

Our approach to the disposal of waste

water is tailored to the conditions

prevailing at each site. A little less than

82% of effl uent is sent to municipal

facilities, with the balance treated in-

house and dispersed, complying with

environmental regulations.

We have now installed cross-fl ow

fi ltration units at our three largest

primary cellars and, in one case, a

centrifuge unit as well. Th ese moves have

not only cut waste water to a signifi cant

degree but have also reduced its organic

loading downstream.

We continue to explore the development

of treatment systems with other parties,

working with other producers as well as

local authorities. We are collaborating

with other producers in the Worcester

area, for example, to implement a system

to treat our collective effl uent. Our

Wellington distillery is also working with

a range of interest groups to fi nd a

sustainable solution to treat the waste

water from grain whisky distillation

through the upfl ow anaerobic sludge bed

bioreactor.

Energy managementGovernment’s overtaxed infrastructure

and the resultant energy shortfalls have

made the need to minimise energy

consumption more pressing than ever.

We are working towards reducing

consumption and are creating a specialist

group to advise on how to further

minimise energy usage.

Air emissionsCarbon dioxide (CO

2), produced during

fermentation, energy generation and

transportation, is our biggest contributor

to air emissions. We have entered into an

agreement with Air Liquide for the

installation of a full-scale CO2 recovery

plant in Paarl. Expected to be operational

by the end of 2007, the recovery facility

will not only give us ready access to CO2

needed in many of our products, but will

signifi cantly reduce our carbon footprint.

In other smaller initiatives, CO2

emissions from boilers are being reduced

on an ongoing basis, given our

application of best-practice boiler-water

treatment and our controls to ensure

optimal coal-to-steam generation.

“We strive to be a worthy employer and a responsible corporate citizen, mindful of the impact we make at

an economic, social and environmental level”David Nurek, Chairman


Solid wasteIn our eff orts to reduce the impact on the

environment of the solid waste we

generate, we promote by-product

recovery and recycling as widely as

possible. Our purchasing contracts also

specify the use of safe, recyclable and

environmentally friendly materials.

We have initiatives in place to ensure

pomace is composted, tartrate residues

are collected for tartrate recovery and

yeast lees and skins are processed for

alcohol recovery. Filtration waste is

collected by a certifi ed waste contractor

to ensure safe and environmentally

friendly disposal.

Distell is a shareholder and board

member of the Glass Recycling Company.

A not-for-profi t venture involving glass

manufacturers and bottlers, it has been

endorsed by the Department of

Environmental Aff airs and Tourism. Its

mandate is to improve recycling levels

and reduce waste glass through public

awareness, capacity-building initiatives

and the provision of infrastructure, such

as glass banks, where people can take

waste glass for recycling. Th e initiative

aims to help at least 80 recycling

entrepreneurs to establish themselves,

ultimately leading to new jobs for several

thousand people a year. To date, about

100 entrepreneurs operating nationally,

have created 5 000 informal jobs for glass

collectors.

Other solid waste generated on our

production sites, such as paper and

plastic waste, is sold to companies for

recycling.

Integrated production of wine (IPW)Distell is fully compliant with IPW, which

promotes sustainable wine production

and is rated one of the most progressive

systems of its type worldwide.

Organic winegrowingTh e organically cultivated vineyards on

Distell farms Plaisir de Merle and

Papkuilsfontein, have been accredited by

Swiss-based Société Générale de

Surveillance (SGS), the international

body that monitors organically grown

agricultural foodstuff s. Varietals

cultivated on these blocks include

Sauvignon Blanc, Chardonnay,

Sangiovese and Pinotage. Our Nederburg

cellar has also been accredited by SGS for

the production of organic wines.

Biodiversity and Wine Initiative (BWI)Th e BWI is a pioneering partnership

between the local wine industry and the

conservation sector aimed at minimising

any further loss to the highly threatened

Cape Floral Kingdom (CFK), the smallest

on the planet but home to as many as

9 600 plant species, more than found

across the entire Northern Hemisphere.

Some 90% of local wine production

occurs within the CFK, which is also a

World Heritage site and a conservation

hotspot.

To become a member of the BWI,

producers have to incorporate biodiversity

best practices in their farming operations,

enhancing the suitability of vineyards as

habitat for biodiversity through eco-

sensitive measures, and reducing the

negative impact of farming practices on

the surrounding natural habitat. Distell

farms that are now BWI members include

Plaisir de Merle, Papkuilsfontein and

Lomond.

Amarula Elephant Research ProgrammeWith elephants becoming increasingly

restricted to small, fenced reserves, they

pose unique problems to game reserve

managers, given their large size, social

nature and their vast consumption of

vegetation. Th e Amarula Elephant

Research Programme is a long-term

research initiative that brings together

expertise from a range of disciplines

within the University of KwaZulu-Natal,

as well as from other academic

institutions both in South Africa and

internationally. Using a team of full-time

and part-time researchers, as well as PhD

and MSc students, the programme, for

Sustainability report (continued)


which Amarula is providing R3 million

over a fi ve-year period, involves

Government conservation agencies and

private game reserves, as well as

ecologists, in generating elephant

management plans based on data

collected. Th e programme is directed by

Professor Rob Slotow and is intended to

contribute strategically to elephant

conservation. Recent projects have

included a study into the behaviour of

female elephants in the Kruger National

Park and their impact on their physical

environment. Th e research explores how

elephants move through their range and

seeks to identify what prompts their

migration to certain locations. Making

use of a satellite tracking system similar

to those used in cars, researchers are able

to record very precise location data.

Findings will provide key information in

the management of elephant populations

at the Park that will also be applied in

other reserves.

Th e Amarula Elephant Research

Programme has also been engaged in an

initiative to protect the rare sand forest

in Maputaland, under threat from

elephants. Once disturbed, sand forest

habitat is slow to regenerate and becomes

susceptible to alien invasion, making it

vulnerable to fi re. Th e programme has

used a series of interventions that include

reducing the elephant population by

relocating some of the animals to other

reserves and the use of immuno-

contraception, as well as the erection of

two-strand electric fencing 1,3 metres

above the ground. Th e fences prevent the

entry of elephants but allow the freedom

of movement of other animals. Th e

successful outcome of the project has

prompted other reserves to follow similar

interventions to protect sand forests

elsewhere.

Flight of the Fish Eagle sponsors Breede River Fish Eagle ProjectBrandy brand, Flight of the Fish Eagle, is

sponsoring a three-year study being

undertaken jointly by conservation body

Birds of Prey Working Group of the

Endangered Wildlife Trust and the

University of Cape Town. Its long-term

goal is to develop a systematic chemical

pollution profi le for the entire Breede

River from source to mouth, and to

determine how effi ciently the African fi sh

eagle (Haliaeetus vocifer) and other

selected raptor species refl ect that profi le.

Zones of particular concern, in terms of

both pesticide concentrations and overall

water quality, will be identifi ed along the

length of the river. Th e results should

facilitate the development of a more eco-

friendly and sustainable approach to

agriculture and water management

within the river’s catchment area. It is

also envisaged that it will reduce

pollution beyond the Breede River and

the Western Cape as the fi ndings are

intended to inform national decision-

makers of the relative impact of chemical

pollution on South African water systems

and agricultural landscapes.

World Wide Fund for Nature (WWF-SA) and Peace Parks Foundation (PPF)Distell’s relationship with WWF-SA

continues into its 40th year. Involvement

includes the protection of habitats,

conservation of species and natural

resources.

Distell also supports the Southern

African Wildlife College, a joint initiative

of WWF-SA and the PPF. A training point

for game rangers throughout the

Southern African Development



Community (SADC) region is located in

the Kruger National Park. Th e company

sponsors the prizes for the top certifi cate

and diploma course students every year,

many of whom go onto middle and senior

management conservation positions in

leading game parks on the African

continent.

Kenya Wildlife Society (KWS)Th e company, via Amarula, provides

support to this initiative of the Kenyan

government to promote and

communicate the importance of

conservation, highlighting its activities

in brand-related news and

advertisements. Co-branded clothing,

featuring KWS and Amarula, is also sold

to raise funds for conservation work.

Social sustainabilityPublic healthResponsible drinking

Distell recognises the social benefi ts of

moderate and responsible consumption

of alcoholic beverages. Th ere is also

increasing evidence to support the

benefi cial eff ect on health that carefully

regulated consumption can have,

positively impacting on coronary health,

cognitive function, as well as other areas.

At the same time, it cannot be denied that

excessive or irresponsible consumption of

alcohol may result in negative personal,

social or health consequences.

As we believe our employees are our most

important ambassadors, we have made

the culture of moderation an essential

focus of the Distell culture and ensure it

is maintained at company events. We also

run awareness campaigns as an integral

feature of staff communication so our

people are well supported to follow

responsible drinking patterns in their

own environments. A recent example was

the hard-hitting, multilingual play, Love

Child, that raises awareness of foetal

alcohol spectrum disorder (FASD). It was

initially staged on Distell farms before

being taken to outside communities as

part of the company’s broader social

initiatives.

Our role in promoting awareness of

FASD has been furthered through

our sponsorship of training programmes

for public health workers. Th ese

programmes are designed to train

workers in identifying and managing

FASD patients.

We acknowledge that meaningful

targeting of abuse is the collective

responsibility of the alcoholic beverage

industry, national and provincial

government, local authorities and

police services.

It is for this reason that the company

co-operates very closely with the Industry

Association for Responsible Alcohol Use

(ARA) to promote and execute a

constructive approach to alcohol use and

abuse. Moreover, Michael Mokhoro,

Distell’s head of regulatory aff airs, has

been appointed chairman of the

organisation and will be devoting a

signifi cant portion of his time to ARA

activities and issues. Th e ARA represents

the industry in liaison with Government,

the Advertising Standards Authority and

law enforcement agencies and researches

and funds a variety of initiatives into

targeting and supporting those at risk.

Projects include life-skills education for

urban and rural children, youth and adult

communities; the identifi cation of

alcohol-related health risks; intervention

among vulnerable groups through

counselling and rehabilitation; running

pedestrian-focused campaigns; targeting

urban youth through the Rock Challenge,

a three-year initiative, now in its second

year, that uses rock music as a vehicle to

raise awareness of responsible lifestyle

habits; providing training to licensees to

develop and entrench a culture of

moderation among patrons and to

eliminate under-age drinking. Currently,

the organisation is addressing ways to

ensure compliance with specifi c

provincial legislation, beginning with the

Eastern Cape.

Th e ARA has also recently established a

complaints line accessible to the public to

augment eff orts to monitor non-

compliance.

A major area of ARA’s involvement is

research into and creating awareness of

the dangers of alcohol-related illnesses,

and to this end it was instrumental in

establishing the Foundation for Alcohol-

Related Research (FARR) in 1996. Th e

FARR, whose administration is funded by

ARA, is based at the medical schools of

both the University of Cape Town and the

University of the Witwatersrand and is


chaired by Human Genetics professor

Denis Viljoen, who is also a specialist

paediatrician and ranked as a world

authority on FASD.

Th e FARR, now funding its fourth

research fellow, has played a signifi cant

role in studying the incidence of FASD

amongst communities throughout the

country and in exploring the relationship

between the disease and patterns of

alcohol consumption among pregnant

women.

Based on the fi ndings of the research,

which has been ongoing since the mid-

1990s, the FARR spearheaded the

establishment of the country’s fi rst FASD

support centre and safe house, in De Aar,

Northern Cape, in 2004. Th e Joan

Wertheim Centre is the joint project of

the FARR and the Northern Cape

government. In addition to providing

help to those caring for children with

FASD and their families, the centre also

raises awareness amongst communities

of the dangers of drinking among

pregnant women and provides a place of

refuge for women and their children.

A second such facility followed in

Upington, while a third is being

established in Ashton, scheduled for

completion this year. Intended to serve

the rural communities of the Boland-

Overberg communities, it is being created

in association with the Western Cape

provincial authorities. Th e possibility

of another facility in Ceres is also

being explored.

In addition, ARA also engages with

community leaders to promote the

development of stable social

environments with adequate recourse

to sporting and recreational facilities.

Recent focus has also been given to the

issue of digital marketing and parameters

for the industry to follow in the interests

of responsible communication.

Distell’s advertising principles

No conclusive evidence has been found to

prove that advertising promotes specifi c

drinking patterns. It is our view that

advertising encourages choice. It

therefore forms the platform for many of

our marketing initiatives in which we

compete for the attention of responsible

consumers, of legal drinking age.

However, we believe in responsible

advertising as demonstrated in our

advertising principles listed below. In

addition, management assumes

responsibility for compliance with these

principles. Compliance with these

principles is also a prerequisite when

awarding business to our communication

suppliers, including advertising and

public relations agencies, events

management, market research and media

buying companies and consultancies.

Th ese principles apply to all advertising,

packaging, merchandising and

promotional material produced on behalf

of the company.

1. All communication developed to

promote the consumption of our

products will be legal, decent, honest

and truthful and conform to accepted

principles of fair competition and

good business practice. It will comply

with all regulatory requirements and

always be ethical and will be

prepared with a due sense of social

responsibility. It will be mindful to

sensitivities relating to culture,

gender, race and religion and will not

impugn human dignity or integrity.

It will be free of suggestion or

encouragement of excessive or

inappropriate consumption.

Furthermore, no religion or religious

themes will be employed in such

communications.

2. Advertisements will not show or

encourage irresponsible drinking.

Th is applies, for example, to the

quantity of drink being consumed in

any advertisement. Advertisements

will also not induce people to prefer a

drink because of its higher alcohol

content or potentially intoxicating

eff ects. In addition, abstinence or

moderate consumption may not be

presented in a negative light.

3. Advertisements will be directed

towards brand selling with a view to

establishing brand loyalty but will

not set out to encourage a general

increase in the consumption of

alcohol or to change brands or the

type of alcoholic beverage consumed.

4. Liquor advertising will not be

directed at anyone under the age of

18 years. No-one associated with the

act of drinking in an advertisement



will be younger than 25. No-one

under the age of 18 will be depicted in

advertisements except where it would

be usual for them to appear, such as

in family scenes or in background

crowds. Th ey will not be shown

drinking alcoholic beverages, nor

may it be implied that they are.

5. Advertisements will not be placed in

any medium aimed specifi cally at

children. Nor will they be directed at

those under age or be created to have

special appeal to children. Th ey will

not employ characters or icons with

special appeal to children. Moreover,

advertisements will not be

transmitted in the commercial

breaks immediately before, during or

immediately after children’s

programmes on television or radio.

6. No TV advertisement will be

broadcast during programmes with a

verifi able 30% or more viewership of

people under the age of 18 (known as

the 70/30 rule). Even in the case

where liquor sponsorship of televised

sporting events takes place, no

fl ighting of advertisements will be

permitted if at least 30% of viewers

are under the age of 18. No fl ighting of

any advertisement will take place on

weekdays between 14:00 and 17:00 or

on week-ends before 12:00.

7. Th e same 70/30 rule will apply in the

case of radio programmes but for

audiences below the age of 20 years.

However, an 80/20 rule will apply in

the case of audiences aged between

16 and 20 years. No liquor

advertisements will be broadcast

before 08:00 and between 14:00 and

17:00 on weekdays and before 12:00

on week-ends.

8. Th e 70/30 rule will apply in the case

of advertisements shown in cinemas,

with compliance achieved through

contractual arrangements with

cinema owners.

9. No liquor billboards will be placed

within 200 metres of schools,

community centres or places of

worship and no building wraps or

billboards larger than Super 96 size

will be placed within 500 metres of

schools, community centres or places

of worship.

10. Advertisements will not imply that

alcoholic beverage consumption is

essential to business and social

success or acceptance, or that refusal

is a sign of weakness. Nor will they be

based on a dare or imply any failing in

those who do not accept the challenge

of a particular alcoholic beverage.

11. Advertisements will not be suggestive

of sexual indulgence or

permissiveness or claim or suggest

that alcoholic beverages can

contribute directly to sexual success

or seduction. Nor will such

advertisements portray nudity or

near nudity. Th ey will also not be

derogatory to either gender.

12. Advertisements will not claim that

alcohol has curative qualities, nor

off er it expressly as a stimulant,

sedative or tranquilliser.

Advertisements may refer to the

refreshing attributes of an alcoholic

beverage, but will not imply that

performance can be improved

through the consumption of such

a drink.

13. Advertisements will not suggest

consumption of liquor under

circumstances which are generally

regarded as inadvisable, improper or

illegal, such as preceding or during

any activity requiring sobriety, skill

or precision. Examples of such

activities are driving, work or sport

requiring intense physical eff ort.

14. Advertisements will not depict

pregnant women.

15. Alcoholic drinks will not be

advertised in a context of aggressive

or antisocial behaviour. Nor will they

suggest any association with illicit

drugs or drug culture.

16. All advertisements in print, television

and cinema media will carry the

message “Not for sale to persons

under the age of 18”. Th e minimum

specifi cations set for displaying this

message are designed to ensure its

clear visibility. Furthermore, there

must be no variation in the wording

of the message line.

Th e following rules also apply in the case

of all promotional events undertaken in

the name of Distell:

1. Events and competitions directed at

people below the age of 18 will not be

linked to any of the company’s

alcoholic brand or sponsorship

initiatives. Th ose under the age of

18 will not be eligible to participate

in events and competitions aimed at

promoting our alcoholic beverages

and products.

2. All product launches or promotions

will exclude activities which

encourage excessive or irresponsible

consumption. Consumers who attend

such promotions will be encouraged

to assume personal responsibility for

their decision to drink or not drink

and for the quantity they consume.

3. Appropriate snacks or meals will

be available when promotions or

tastings are held.

4. On-campus promotions will be

arranged in a manner that meets

with the approval of the authorities of

the university or other tertiary

institution involved, and care will be

taken to avoid serving alcoholic

beverages to under-age consumers.

5. No promotions will be permitted that

encourage increased consumption

within a limited time period.

6. In accordance with the law, Distell

will not deliver or sell to unlicensed

outlets.

Th e following rules apply to the

packaging of Distell products:

1. Products will be packaged

attractively, making use of the

highest practical quality materials


and may also be designed to improve

the convenience of storage, transport

and service.

2. Th e alcoholic strength of a product

will not be used as the principal

subject of any label. However, details

of alcoholic strength will be provided,

in accordance with legislation.

3. Packaging will not be designed

expressly to appeal to people under

the age of 18.

4. Labels will not convey any sexual

innuendo.

5. Packaging will not be designed to

encourage the impression that

alcohol is a bulk commodity. Nor will

degrading or colloquial terms such as

“dop”, “grog” or “booze” be used.

Distell sells exclusively to licensed traders

and works closely with its customers to

promote responsible consumption, by

encouraging them to undergo training

devised by ARA and by ensuring the

following:

1. Minors are not supplied with

alcoholic beverages. Furthermore, we

shall not supply to traders convicted

of selling alcoholic beverages to

minors or of employing staff under

the age of 16. Nor shall we supply to

traders convicted of supplying

alcoholic beverages as an inducement

to employment or in lieu of

remuneration.

2. Alcohol is not supplied to anyone who

is intoxicated. Rapid and/or excessive

consumption of alcohol is

discouraged and promotions with

this objective are disallowed.

3. Traders do not allow for activities on

their premises to result in undue

off ence, annoyance, disturbance,

noise or inconvenience to people who

reside, work or worship in the vicinity.

Skills transferFocusing on our home community, Distell

supports the Stellemploy Project that

provides training for mainly unemployed

young men in the Boland region, teaching

skills in bricklaying, painting, welding,

plumbing, electrical services and

gardening. Distell has made a building

available for training purposes. We also

provide fi nancial support to AgriTrain,

a Section 21 company that works in

conjunction with the Department of

Agriculture in the Western Cape,

Elsenburg College of Agriculture and the

University of Stellenbosch, to give

disadvantaged matriculants access to

tertiary training in viticulture and other

agricultural courses.

Last year Plaisir de Merle embarked on a

pilot trout-farming project, involving

some of the farm’s 64 workers, with

Distell providing infrastructure that

includes the use of the dams and water

supply, as well as all legal input. Th is

venture is connected to a larger initiative

led by the Hands-on Fish Farmers Co-

operative that provides a smoking service

and also markets all the fi sh, fresh and

smoked, to retailers and restaurants, on

behalf of its members. Th e co-operative is

being run in association with

Stellenbosch University’s Department of

Agriculture and Forestry Sciences, with

funding supplied by the national

Department of Science and Technology.

Th e project harvested six tons of fi sh,

resulting in a profi t for the 18 workers on

the farm who are involved. It is hoped to

extend the operations with additional

workers keen to join and thus share in the

benefi ts, broadening their skills, enabling

them to augment their income while also

exposing them to business management

training. Th e growth of the project,

however, will depend on access to

fi ngerlings.

Black economic empowerment (BEE)Distell has implemented a BEE

measurement system that conforms to

the Department of Trade and Industry’s

Codes of Good Practice, released in

November 2005.

Externally audited, the system has

accorded us an interim score rating of

fair broad-based (BB) contributor and we

are placed at level 6, enabling our

customers to claim 60% of their

expenditure on Distell for the purposes of

their preferential procurement ratings.

Th ese ratings will remain valid until

February 2008, by when we hope to have

been re-evaluated in accordance with

Government’s updated 2007 Codes of

Good Practice.

Enterprise, skills development and skills transferPapkuilsfontein Vineyards

Papkuilsfontein Vineyards is jointly

owned by Distell, a consortium of

Gauteng entrepreneurs and a community

trust, and supplies grapes to Nederburg.

It also produces its own range, the award-

winning Tukulu label. When the farm was

purchased in 1998, the plan was to

develop 330 hectares to vineyards with

much of the rest of the farm being

earmarked for conservation. After

extensive soil testing, it turned out that

a total of 375 hectares could be planted,

now cultivated in full. Of these,

approximately 20 hectares are farmed

organically and have been accredited by

the SGS. To date, all vineyards on the

farm have been farmed without

irrigation, thanks to suitable climatic

conditions, soils with good water

retention, and the planting of cover crops

between vine rows. Papkuilsfontein is a

member of the BWI.

Durbanville Hills

Durbanville Hills is one of Distell’s

leading wine brands. Th e venture

includes a winegrowing and winemaking

skills transfer initiative for farm workers

and a share ownership component.

A workers’ trust has been allocated

50 000 shares (5% of the total), while a

portion of wine sales revenue is also

devoted to the workers’ trust.



Trustees include employee

representatives appointed by the workers

on the nine member farms of the

Durbanville Hills venture who decide on

the distribution of shares, as well as how

dividends can be spent in a way that

benefi ts the workers and their families.

To avoid confl ict of interest, trustees may

not take up shares.

Apart from the wine operation which has

a capacity to process 8 000 tons of grapes

a year, Durbanville Hills has also

established a small olive-growing project.

Some fi ve hectares of olive groves have

been planted and are farmed under

contract with the revenue going to the

workers’ trust.

A dedicated co-ordinator has been

appointed to oversee the provision of life-

skill, literacy and health education

programmes for the approximately

170 workers and their families. Th e

programmes include recreational and

sporting initiatives.

Durbanville Hills is also a sponsor of the

Durbanville Schools Foundation,

providing infrastructure to

disadvantaged schools in the area, as well

as assisting with tuition and hostel

accommodation fees.

Empowerment of poor rural

communities in the Northern Cape

and Free State

Distell has initiated and structured an

empowerment initiative with several

wine industry players to provide skills

training and income to marginalised

rural communities in the Northern Cape

and Free State, bringing them into the

wine industry and opening up

opportunities for land ownership.

Parties involved with Distell include wine

research body Winetech, VinPro, the

South African Wine Industry Trust

(SAWIT), as well as Griekwaland Wes

Korporatief Limited, Oranjerivier

Wynkelders and SENWES Limited,

together with the provincial governments

of the Free State and Northern Cape.

All these localised farming initiatives

have been co-ordinated under the aegis of

a Section 21 company established as the

Northern Cape/Free State Vineyard

Development Company. Distell is

represented as one of its members, along

with Winetech, SAWIT, VinPro and the

three co-operatives.

Th e low-tech, labour-intensive scheme

has been conceived to ensure Distell a

cost-eff ective source of distilling wine.

Using virgin land that does not require

the grafting of vines onto rootstock and

thus reducing input costs, applying low-

cost trellising, as well as fl ood irrigation,

the intention is to establish high-density

vineyard plantings on some 700 hectares.

Expected to ultimately yield an average of

45 tons per hectare, crops will be

processed at existing wine cellars with

underutilised capacity. All players

involved are optimistic about achieving

this goal, given that as early as the second

year some growers have already been able

to produce as much as 18 tons per

hectare, although yields range from 13

to 18 tons per hectare.

Distell is guaranteeing the uptake of

crops, once in production, to meet its

needs. We are also involved in providing

management and technical

infrastructure, as well as training to

emergent farmers involved in the project,

with Ernst le Roux as chairman. Th e

project is also involved in the national

Department of Agriculture’s mentorship

programme.

Th e fi rst phase involved experimentation

with various winegrowing techniques

and varietals by a team of viticulturalists

at the Agricultural Research Council’s


research station in Upington, as well as

by individual commercial farmers, keen

to participate. Th e second phase, now

under way, involves the establishment of

small-scale vineyards in Upington,

Douglas and Hartswater, ranging in size

from 0,5 to 2,5 hectares.

Land is being made available through a

variety of measures, including land

restitution, loans granted by farmers,

land given or leased by farmers and the

leasing of Government and municipal

property. A two-year 50-hectare

commercial planting programme,

originally scheduled to begin last year,

will begin later this year at Jacobsdal.

Depending on the quality of the grapes, it

is possible that some of the fruit could be

distilled into potstill brandy to meet the

demands of this fast-growing segment of

the burgeoning brandy market. It is also

possible that the project could be further

extended to include plantings for grape

concentrate and thus off er an additional

source of revenue.

Lutouw, Olifants River

Distell is a major supporter of Lutouw

Estates, the high-quality wine-farming

venture at Lutzville situated along the

Olifants River, some 6 km from the sea

and where a dam has been built to irrigate

arable land. Th e company currently

purchases premium grapes for its Fleur

du Cap Unfi ltered range as well as for

other top-end brands. Workers on the

farm hold a 40% share in the venture in

which viticultural services are provided

on a contractual basis by self-employed

workers fi rst trained in agricultural and

business skills for the purpose.

Th e venture was established in 2000 by

two leading Lutzville wine farmers,

Truter Lutz and Jan Louw, with the

SAWIT warehousing shares on behalf of

workers. Lutz and Louw have also

assisted the farm workers to establish

specialised business units contracted to

carry out work on the farm.

After initially planting 60 hectares of

vineyards, Lutouw Estates cultivated a

further 37 hectares to white varietals,

with Distell providing surety to fi nance

the new plantings.

Uylenkraal, Gansbaai

Distell has acquired a 75-hectare farm

adjacent to Lomond Wine Estates in

Gansbaai, which has been bought

expressly for the purpose of establishing

a BEE venture involving workers on the

farm, as well as those from the

neighbouring Lomond. Th e company’s

soil scientists and viticulturalists have

assessed the property to determine the

ideal varietals for cultivation. Last year

11 hectares were planted to Sauvignon

Blanc and Cabernet Sauvignon. A further

3,5 hectares will be planted this year and

will include Pinot Noir. It is expected that

30 hectares will be cultivated eventually.

Preferential procurementDistell spent R4,0 billion on the purchase

of service and materials from its suppliers

during the year under review. To date, the

majority of suppliers, who represent 70%

of total supplier spend, have been

assessed in terms of their ability to meet

BEE criteria. We have evolved long-term

partnerships with a substantial portion

of our strategic suppliers, particularly

those of raw materials and packaging

with whom there is extensive joint

investment in research, development and

application, and, in the same spirit, we

are working closely with them to enhance

their BEE status, assisting them to follow

company-established policy guidelines



and procedures. Moreover, all potential

new vendors are required to comply with

Distell’s BEE requirements before

relationships can be formalised.

Distell is also actively engaged in

assisting small-scale suppliers with

infrastructural support and training,

where necessary, to ensure they meet

company-specifi ed quality standards.

Currently, small suppliers supported by

Distell include those operating in the

fi elds of long-distance transport, bottles

and merchandising materials.

Mirma

Th e marula fruit used to make Amarula

Cream is harvested from January to March

in a 500-km radius around Phalaborwa, as

far south as Acornhoek and

Th ulamahashe in Mpumalanga. While the

fruit is harvested annually during this

three-month period, the remaining nine

months of the year off er little economic

activity to sustain the people in these

marginalised rural communities. It is

estimated that some 60 000 people are

dependent on the income produced from

the marula harvest. It was against this

background that in 1998, Distillers

Corporation, together with tribal indunas

representing the communities in these

areas, established the Section 21 Mirma

Product Development Company. In

addition to managing the collection of

marula fruit harvests from the relevant

communities and transporting them to

Distell’s factory in Phalaborwa, the

development company also conceives and

initiates other revenue-producing projects

within these communities and develops

the infrastructure to enhance general

quality of life.

Distell and the development company

have jointly fi nanced a crèche in

Hnlangasi in Khenyi, as well as a clinic

and community hall in Phalaborwa for

the Edinburgh community, most recently

funding equipment for the clinic and

providing running water for the crèche.

At present, negotiations are under way

with the local authorities to obtain

permission to build another clinic in

Dumphries, serving settlements as far as

Th ulamahashe.

Distell has also trained community

members in brick-making and wire-fence

construction.

Owner driver scheme

Our owner driver scheme, established in

1999, made it possible for drivers,

originally employed by the company, to

establish their own enterprises and

undertake deliveries on our behalf to

retailers and on-consumption outlets.

Th ey have been trained in business

management and administration,

guaranteed an income by being

contracted to undertake deliveries and

given access to funding to acquire their

vehicles. In addition, a technical mentor

provides training in vehicle upkeep and

arranges breakdown repairs at

reasonable cost, and, where required,

trains driving crew.

We continue to provide ongoing business,

management and technical support to

the owner drivers through a structured

liaison programme. Moreover, every six

months all the vehicles in the scheme are

subjected to a full technical audit by

Distell-appointed technical personnel to

ensure the highest safety standards are

maintained.

Th e national scheme involves 105 drivers,

employing 369 assistants, to service all

17 of Distell’s distribution centres in

South Africa, but is set to expand, given

the growth in sales nationwide. At

present, 98% of deliveries from these

17 distribution centres are handled by the

owner drivers, with the company paying

R64 million for their services during the

year under review. In addition to their

steady monthly income derived from

their participation in the project,

owner drivers are free to undertake

deliveries on behalf of other clients,

provided there is no confl ict of interest.

Engaging with the wider communityTh e company’s Staff Volunteer

Programme helps employees to make a

meaningful contribution to the

communities within which they live and

work. A Crises Welfare Programme,

designed to respond rapidly to

communities ravaged by natural

disasters and fi res also forms part of the

company’s corporate social investment

strategy.

In addition, the Distell Foundation,

chaired by board member Gugu

Mthethwa, has been established to

allocate funds to needy organisations.

Sponsorships are to be directed to,

amongst others, job creation initiatives,

the reintegration of street children into

society and hospital equipment for the

treatment of FASD.

Distell also contributes to the Charity

Wines Trust by donating Nederburg

wines. Th ese are sold in cases of six

bottles each at R250 per case, with

proceeds used to fund a range of

initiatives that impact positively on the

quality of life of wine-farm workers and

their families. Some of the benefi ciaries of

the charity trust are the Pebbles Project,

the Anna Bram Foundation and the

Association for the Sensory Disabled.

Funds are used to purchase sporting and

learning equipment, clothing and

infrastructure.

Distell also supports a number of health-

related initiatives via the Nederburg

Charity Trust, whose benefi ciaries are the

Hospice Palliative Care Association of

South Africa, Organ Donor Foundation

and an HIV/Aids support non-

governmental organisation called


Mothers2Mothers. At last year’s

Nederburg Auction over R322 000 was

raised and shared equally amongst the

three organisations. Amongst those items

auctioned were 50 cases of 2005

Nederburg Amateur White, a wine

created for this purpose by the

winemaking team and donated by

Nederburg.

Arts and cultureFor more than four decades, Distell has

been actively supporting the arts in South

Africa, based on the belief that music,

dance and drama help to cross cultural

divides, promote better understanding

amongst South African communities,

advance and empower talent, enhance

quality of life and create jobs.

During the year under review, the

company helped to support dance, poetry

performances, music and drama.

Highlights included sponsorship of:

• Th e Fleur du Cap Th eatre Awards,

amongst the most important of its

kind in South African theatre,

opportunity to perform on stage with

a professional orchestra. Th is event,

now in its 36th year, serves as an

important launching pad for young

musicians.

• Th e Jazzart Dance Th eatre Young

Adult Training and Job Creation

Programme gives trainees the

opportunity over a three-year period

to participate in professional theatre

productions, to make television

appearances and acquire practical

experience. Th ey are trained in

African music, African dance, ballet

and various other styles of dance, as

well as in basic lighting design,

theatre craft, choreography,

improvisation, voice and physical

theatre.

• Magnet Th eatre’s Educational

Outreach Projects, which include the

Community Groups Intervention, the

Directors’ Workshops and the

Clanwilliam Arts Project, contribute

signifi cantly to capacity building and

skills transfer.

• Th e Voorkamerfest in Darling off ers

audiences and performers the unique

experience of theatre in the

presented for the 40th year. Th ese

annual awards for distinguished

acting, directing and technical talent,

were initiated in 1967. Funds made

through ticket sales to the annual

gala presentation dinner are donated

to a development project in the

performing arts.

• Th e Oude Libertas Summer Season

presented at the renowned Oude

Libertas Amphitheatre in

Stellenbosch, featuring an array of

local and international artists, both

established and upcoming.

• Th e Kayamandi Art Project, a

Stellenbosch community arts

development initiative presented in

collaboration with the Greater

Stellenbosch Trust and the

Woordfees. Young township artists

develop skills in entrepreneurship,

dancing, singing and drama through

regular workshops and mentoring.

• Th e Classical & Jazz Music Festival

presented by Artscape and the Cape

Philharmonic Orchestra, where

exceptionally talented young

instrumental soloists and singers

from the Western Cape are given the


voorkamers (living rooms) of Darling’s

residents. Th ere are six routes, with

each presenting three voorkamer

stops. Performances take place in

homes that range from small

township dwellings to grand

Victorian homesteads. Local taxis are

used as transport to the venues.

• Th e Ikhwezi Community Festival is

an outreach drama project presented

by the Baxter Th eatre. Young talent

from Cape Town and the rural areas

of the Western and Eastern Cape is

given six-month workshops in the

fi eld and four-week pre-production

rehearsals to prepare them for a

three-week run at the Baxter Th eatre.

• Emerging artists appearing in a range

of arts festivals, including the

Woordfees, Klein Karoo Nasionale

Kunstefees, Aardklop, Grahamstown,

Cape Town, Suidooster, Hilton, Whale,

Volksblad, Kalfi e and Cederberg

Festival.

• New indigenous productions by South

African playwrights.

Heritage CollectionDistell is the custodian of a collection of

unique, priceless and important heritage

assets, including the homesteads of

Nederburg and Plaisir de Merle, and,

together with Lusan Holdings, maintains

several other well-known national

monuments, like the Uitkyk,

Le Bonheur and Neethlingshof manor

houses. Th ese buildings, some dating

back to the late 17th century, together

with Distell’s collection of antique Cape

furniture from the 18th and 19th

centuries, are among the most signifi cant

to refl ect the Cape’s wine-related history

and culture.

Distell also has an extensive collection of

historical wine and brandy-related

artifacts, displayed at our wine and

brandy cellars. Th ese items are of great

interest and educational value to local

and overseas visitors.

Only authentic traditional museum

techniques are used to conserve and

restore the antiques in the care of Distell,

with all such activities overseen by

a curator appointed for this purpose.

A central register of all the antiques,

implements and wine presses is

maintained at Distell’s archives, where

books, photographs, video material,

documents and information relating to

the company’s history, its people and

products are also maintained, as well as

research material on the wine and brandy

industries.

During the year under review, the

interiors of Nederburg’s Manor House

were refurbished in keeping with the

period furniture and artefacts, to

coincide with the upgrade of the winery’s

wine-tasting and sales areas. Th e wine-

tasting facility at the Drostdy in Tulbagh

was also upgraded in harmony with the

heritage environment.



Our peopleOur human resources department is

achieving its goal of becoming a truly

strategic partner to the business.

Highlights during the year included:

• Bringing all human resources

procedures and policies in line with

ISO requirements.

• Ongoing focus on competency

profi ling, identifying skills gaps and

aligning recruitment with needed

skills, as well as on competency

training. Our competency model

ensures fair selection processes and

focused training interventions, and it

serves as a basis for career guidance.

Continuous learning is encouraged to

augment skills.

• Integrating performance

management assessments with

competency profi ling to maximise

the potential of our people, giving

them the appropriate skills where

needed.

• Ongoing focus on developing leaders

through leadership development and

training.

• Th e initiation of an apprenticeship

programme that is to be expanded in

the coming year.

Mission directed work teams (MDWTs)Our MDWTs provide a key

communication tool to the business and

are used at every level, from top

management to operations. Focused on

promoting a culture of quality and cost-

effi ciency, they are also designed to boost

morale and commitment. We now have

235 such teams across the business and

their establishment has served to

enhance employee performance,

encourage a sense of ownership and

accountability in terms of responsibility,

increase co-operation and foster a

climate of mutual respect. In addition,

confl ict handling has been greatly

facilitated.

Training and career development programmesWe recognise that key to maintaining a

competitive advantage is the

development of functional expertise and

leadership talent across all facets of our

business. We have exceeded our overall

training targets for the year and are

comfortably ahead in the areas of career

development and sales training, as well

as leadership and management training

and operational training.

A. Our sales and marketing training

focused on the upliftment of Distell-

specifi c marketing competencies,

generic sales training and

merchandising training. Our

customer care consultants also

received training during this period.

B. Our initiatives around leadership

development focused on supervisory

skills on various levels, as well as

Distell’s leadership development

programmes (DLDP) in conjunction

with Gibs. Due to the roll-out of the

competency profi ling process, more

leadership development training has

been rolled out than planned for, to

address immediate needs.

797

730 91

5

416

2 03

3

1 88

7

4 89

4

3 50

2

A B C D

People trained

Year to date = 8 639

Annual target = 6 535


C. We continued with the

implementation of organisational

development and completed more

drug, HIV/Aids and alcohol aware-

ness programmes than planned for.

D. Our operational training focuses on

statutory training, health and safety

training, MDWT training and

standard operating practice training.

Learnership and skills programmesDuring the period under review

180 people completed their learnerships.

Th ese were in fi rst-line manufacturing,

freight handling, packaging and other

skills.

InternshipsDistell is a frontrunner in

accommodating interns from tertiary

institutions. During the year, we hosted

21 interns who gained valuable

experience that they could apply to

workplace practices. Th ey represented

the fi elds of food technology, sales,

marketing, quality assurance and human

resources. Based on the success of the

initiative, we plan to expand its scope

during the current year, to include more

students across a greater spectrum of

disciplines.

Adult basic education trainingA total of 110 people were assisted to

become functionally literate during the

year under review.

Employee assistanceTh e company provides non-stigmatised,

confi dential support to staff for HIV/Aids,

as well as for drug and alcohol addiction,

domestic violence and stress-related

conditions. Our HIV/Aids Know Your

Status addresses prevention, as well as

managing the disease as a chronic

condition rather than an exceptional

disease. We also run drug awareness

training and domestic life-skills

programmes, and encourage early

interventions to promote staff wellness.

Industrial relationsDistell fully supports the right to freedom

of association and collective bargaining.

Recognition, organisational rights and

conditions of employment are regulated

by collective agreements and labour

legislation. Collective relationships have

been formalised with the following three

unions:

• National Union of Food, Beverages,

Wine, Spirits & Allied Workers

• Food & Allied Workers’ Union

• Africa Wood & Allied Workers’ Union

During the year under review, we were

not aff ected by any industrial action.

Moreover, all wage negotiations were

concluded timeously at company level.

Corrective action practicesTh e Corrective Action Code, aligned to

Distell’s core values, provides the

framework for line management and staff

to operate in a principled and ethical

environment. Th e code is communicated

on an ongoing basis amongst Distell

teams and in such a way that the

implications of deviation are readily

understood. Moreover, procedures for

handling deviations from the code are

also made explicit.

Th e code focuses on cultivating:

• A sense of ownership by passionately

promoting Distell, its business

reputation and products

• An entrepreneurial spirit by

continually striving to stay ahead,

learning on an ongoing basis,

confronting problems constructively

and encouraging innovation

• A performance-driven ethos by being

accountable and striving to

continually raise standards

• A climate of mutual respect and

dignity, expressing care and

sensitivity to colleagues, suppliers

and all those encountered in the

course of duty

• Health and safety in the workplace by

upholding safety procedures and

exercising responsibility

• A climate of service by proactively

anticipating and meeting the needs of

colleagues, customers and

consumers.

Health and safetyDistell has an eff ective risk control

programme to address the risks arising

from criminal activity, fi re and

occupational safety. All Distell sites

undergo detailed compliance audits,

conducted twice a year. Reports and their

fi ndings also infl uence employee

management performance scores.

Managers are required to meet minimum

service levels, failing which, corrective

action is taken.

An overall average of 92% for health and

safety was achieved across all sites.

While external criminal activity

continues to require signifi cant

investment to mitigate risk, the number

of motor vehicle accidents during the

year refl ected a 3% decline and a 9% drop

in gross loss year-on-year.

Of the 255 occupational injuries reported

to the Compensation Commissioner,

25 required reporting to the Department

of Labour.

Employment equity (EE)In vigorously pursuing the sustainability

of our business, we treat the development

of intellectual capital as a priority,

through several initiatives including

leadership development, internships,

learnership and skills programmes. All

are focused primarily on previously

disadvantaged staff .

To date, the percentage of previously

disadvantaged individuals (PDI)

appointed to management level has

increased from 25% in 2002/03 to 36% in

2006/07. Female members of staff now

comprise 33% of management, up from



MALE FEMALE African Coloured Indian White African Coloured Indian White Total

Top management 1 17 4 22

Senior management 1 1 1 72 1 9 85

Professionally qualifi ed and experienced specialists and middle management 17 14 4 223 1 6 1 75 341

Skilled technical and academically qualifi ed workers, junior management, supervisors, foremen and superintendents 178 149 26 409 30 79 10 306 1 187

Semi-skilled and discretionary decision-making 494 512 14 52 60 147 14 198 1 491

Unskilled and defi ned decision-making 449 346 6 13 101 213 1 128

Total permanent 1 139 1 022 52 786 192 446 25 592 4 254

Non-permanent employees 35 23 1 35 36 18 40 188

Grand total 1 174 1 045 53 821 228 464 25 632 4 442

OCCUPATIONAL LEVELS – 2006/07

28% at the start of our EE project. Of the

246 promotions in the past fi scal year,

82% involved previously disadvantaged

individuals.

Over the past fi ve years, PDI promotions

at all levels have averaged 83%.

Our fi ve-year EE plan developed in 2002

expires in September 2007, necessitating

a new fi ve-year EE plan, currently being

drafted.

Percentage of staff appointed amongst previously disadvantaged individuals

Appointments %

Supervisory, sales and administrative staff

82,5%

Management level 80,0%

Promotions (all levels) 82,0%

Occupational levelsConcerted eff orts are being made by the

company to increase representativity in

all occupational categories and across all

levels through the Distell Leadership

Development Programme (DLDP),

focused recruitment, learnerships, skills

development, internships and focused

training. Competency modelling is under

way at all sites and is assisting us in

closing existing gaps and improving

employee performance.

Focus will be placed on the bargaining

unit levels in the near future to ensure

this process is rolled out throughout the

organisation during the 2007/08 year.

Overall race split 2007

Overall gender split 2007

Male 70%

Female 30%

African, Coloured, Indian 67%

White 33%

Contents

53 Currency of financial statements

53 Report of the independent auditor

54 Directors’ responsibilities for financial reporting

54 Certificate by the company secretary

55 Report of the board of directors

56 Balance sheets

57 Income statements

58 Statements of recognised income and expense

59 Cash flow statements

60 – 98 Notes to the annual financial statements

99 Annexure 1: Interest in subsidiaries

100 Annexure 2: Interest in unlisted associates

101 Annexure 3: Interest in joint ventures

Consolidated annual financial statementsfor the year ended 30 June 2007

Distell Annual Report 200752

Currency of financial statements


Report of the independent auditorTo the members of Distell Group Limited

We have audited the annual financial statements and group annual financial statements of Distell Group Limited, which comprise the directors’ report,

the balance sheet and the consolidated balance sheet as at 30 June 2007, the income statement and the consolidated income statement, the statement of

recognised income and expense and the consolidated statement of recognised income and expense, the cash flow statement and the consolidated cash

flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 55 to 101.

Directors’ responsibility for the financial statements

The company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial

Reporting Standards and in the manner required by the Companies Act of South Africa. This responsibility includes: designing, implementing and main-

taining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to

fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International

Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance

whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial 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 preparation and fair presentation of the

financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the

effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of

accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of the company and of the Group as of

30 June 2007, and their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting

Standards and in the manner required by the Companies Act of South Africa.

PRICEWATERHOUSECOOPERS INC.

Director: A Wentzel

Registered Auditor

Stellenbosch

22 August 2007

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:

2007 2006

US dollar 7,09 7,11

British pound 14,20 13,05

Euro 9,53 9,05

Canadian dollar 6,70 6,41

Botswana pula 1,14 1,18

Australian dollar 6,02 5,28


Directors’ responsibilities for financial reporting

The Companies Act (Act 61 of 1973), as amended (the Act), requires the

directors to prepare financial statements for each financial year which

fairly present the state of affairs of the company and the Group and the

profits or losses for the period. In preparing these financial statements,

they must:

• select suitable accounting policies and apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• state whether set accounting standards have been followed, subject

to any material departures disclosed and explained in the financial

statements; and

• prepare the financial statements on the going concern basis unless it is

inappropriate to presume the Group will continue in business.

The directors are responsible for keeping proper accounting records, which

disclose with reasonable accuracy at any time the financial position of the

company, to ensure the financial statements comply with the Act. They

have general 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 accordance with

International Financial Reporting Standards and incorporate full and

responsible disclosure in line with the accounting policies of the Group,

supported by reasonable and prudent judgements and estimates.

The board of directors approves any change in accounting policy, with

their effects fully explained in the annual financial statements.

The directors have reviewed the Group’s budget and cash flow projections

for the period to 30 June 2008. Based on these projections, and considering

the Group’s current financial position and the financing facilities available

to it, they are satisfied it has adequate resources to continue its operations

in the foreseeable future. The annual financial statements were prepared

on a going concern basis.

No event, material to the understanding of this report, has occurred

between the financial year-end and the date of this report.

A copy of the financial statements of the Group is available on the

company’s website. The directors are responsible for the maintenance and

integrity of statutory and audited information on the company’s website.

The annual financial statements as set out on pages 55 to 101 have been

approved by the board of directors and are signed on their behalf:

DM Nurek JJ Scannell

Chairman Managing Director

Stellenbosch

22 August 2007

Certificate by the company secretary

In my capacity as company secretary, I hereby confirm, in terms of the Companies Act, that for the year ended 30 June 2007, the Group has lodged with the

Registrar of Companies all such returns as are required of a public company in terms of this Act and that all such returns are true, correct and up to date.

CJ Cronjé

Company secretary

Stellenbosch

22 August 2007

Report of the board of directorsfor the year ended 30 June 2007

The board has pleasure in reporting on the activities and financial results

for the year under review:

Nature of activities

The company is an investment holding company with interests in liquor-

related companies.

The Group is South Africa’s leading producer and marketer of wines,

spirits and flavoured alcoholic beverages.

Group financial review

Results

Year ended 30 June: 2007 2006

R’000 R’000

Revenue 7 954 602 6 717 210

Trading income 1 114 733 889 395

BEE share-based payment – (67 241)

Attributable earnings 847 853 534 388

– Per share (cents) 425,9 270,7

Headline earnings 779 294 535 970


Adjusted headline earnings 779 294 603 211


Total assets 5 997 095 5 475 078

Total liabilities (2 056 415) (2 159 030)

The annual financial statements on pages 55 to 101 set out fully the

financial position, results of operations and cash flows of the Group for the

financial year ended 30 June 2007.

Dividends

Total dividends for the year (R’000)* 392 470 303 934


* The final dividend of 109 cents (2006: 85 cents) per share was declared after year-end

and was therefore not provided for in the annual financial statements. Refer to note 29

to the annual financial statements for payment details.

Accounting policies and comparative figures

The Group changed its accounting policy on 1 July 2006 by adopting the

option in the amended statement of International Financial Reporting

Standards dealing with Employee Benefits (IAS 19), to recognise all actuarial

gains and losses in retirement benefit obligations outside profit and loss in

the period in which they occur in the statement of recognised income and

expense, and by early adopting IFRIC Interpretation 11 dealing with Group

and Treasury Share Transactions which addresses the issue of share-based

payment arrangements that involve two or more entities within the same

group.

Details of these changes are contained in note 37 to the annual financial

statements.


Subsidiary companies and investments

The Group acquired interests in the following associates and joint ventures

during the current financial year:

– Grays Inc Limited (Mauritius) (26%)

– Lomond Wine Estates (Proprietary) Limited (50%)

– Interim Sahara LLP (United Kingdom) (50%)

Particulars of subsidiary companies, associated companies and joint

venture companies are disclosed in Annexures 1, 2 and 3 respectively.

Directors

The names of the directors, their attendance of meetings and their

membership of board committees appear on page 12.

Daan Prins resigned as director during the course of the year and we thank

him for his valuable contributions. Robert Lumb was appointed to the

board of directors with effect from 19 October 2006.

Directors’ interests and emoluments

Particulars of the emoluments of directors and their interests in the issued

share capital of the company and in contracts are disclosed in notes 39 to

41 to the annual financial statements.

Events subsequent to balance sheet date

The directors are not aware of any matter or circumstance arising since

the end of the financial year that would significantly affect the operations

of the Group or the results of its operations.

Holding company

The holding company of the Group is Remgro-KWV Investments Limited.

The Group structure appears on page 3.

Secretary

The name and address of the company secretary appears on the inside

back cover.

Approval

The annual financial statements set out on pages 55 to 101 have been

approved by the board.

Signed on behalf of the board of directors:

DM Nurek JJ Scannell

Chairman Managing director

Stellenbosch

22 August 2007

Balance sheetsat 30 June

ASSETS

Non-current assets

Property, plant and equipment 3 1 330 516 1 256 900 – –

Biological assets 4 114 675 104 380 – –

Financial assets 5 72 822 403 107 – –

Investments in subsidiaries 6 – – 1 680 041 1 661 622

Investments in associates 6 23 270 15 383 – –

Intangible assets 7 34 060 11 211 – –

Retirement benefit assets 15 187 052 48 795 – –

Deferred income tax assets 16 28 762 36 770 – –

Total non-current assets 1 791 157 1 876 546 1 680 041 1 661 622

Current assets

Inventories 8 2 703 336 2 499 217 – –

Trade and other receivables 9 809 024 617 097 – –

Financial assets 5 361 152 254 640 – –

Cash and cash equivalents 332 426 227 578 – –

Total current assets 4 205 938 3 598 532 – –

Total assets 5 997 095 5 475 078 1 680 041 1 661 622

EQUITY AND LIABILITIES

Capital and reserves

Share capital 11 601 800 588 365 604 020 592 478

Non-distributable and other reserves 12 295 959 189 599 96 430 89 553

Retained earnings 13 3 040 443 2 535 319 979 591 979 591

Attributable to equity holders of the company 3 938 202 3 313 283 1 680 041 1 661 622

Minority interest 2 478 2 765 – –

Total equity 3 940 680 3 316 048 1 680 041 1 661 622

Non-current liabilities

Interest-bearing borrowings 14 2 629 330 646 – –

Retirement benefit obligations 15 12 842 12 191 – –

Deferred income tax liabilities 16 164 033 120 647 – –

Total non-current liabilities 179 504 463 484 – –

Current liabilities

Trade and other payables 17 1 386 401 1 093 191 – –

Interest-bearing borrowings 14 329 264 432 502 – –

Provisions 18 103 539 103 010 – –

Current income tax liabilities 57 707 66 843 – –

Total current liabilities 1 876 911 1 695 546 – –

Total equity and liabilities 5 997 095 5 475 078 1 680 041 1 661 622

Net asset value per share (cents) 1 972,7 1 666,6

GR OU P C OM PAN Y 2007 2006 2007 2006

Notes R’000 R’000 R’000 R’000


Income statementsfor the years ended 30 June

Sales volumes (litres ’000) 391 889 342 633 – –

Revenue 19 7 954 602 6 717 210 342 914 120 996

Operating expenses 20 (6 839 869) (5 827 815) – 750 325

Trading income 1 114 733 889 395 342 914 871 321

BEE share-based payment 21 – (67 241) – –

Net other gains 22 73 876 – – –

Operating profit 1 188 609 822 154 342 914 871 321

Dividend income 23 1 284 1 497 – –

Finance income 24 87 172 93 483 – –

Finance costs 25 (79 203) (120 846) – –

Share of profit of associates 26 14 255 9 856 – –

Profit before taxation 1 212 117 806 144 342 914 871 321

Taxation 27 (367 243) (271 756) – (18 255)

Profit for the year 844 874 534 388 342 914 853 066

Attributable to:

Equity holders of the company 847 853 534 388 342 914 853 066

Minority interest (2 979) – – –

844 874 534 388 342 914 853 066

Earnings per ordinary share (cents) 28

– basic 425,9 270,7

– diluted 396,8 269,3

Dividends per ordinary share (cents) 29

– interim 87,0 68,0

– final 109,0 85,0

196,0 153,0

GR OU P C OM PAN Y 2007 2006 2007 2006

Notes R’000 R’000 R’000 R’000


Statements of recognised income and expensefor the years ended 30 June


Group

Fair value adjustments (net of tax):

– cash flow hedges 12 – (649)

– available-for-sale investments 12 3 093 2 577

Cash fl ow hedge realised to income 12 256 3 082

Currency translation differences 12 (7 893) 5 720

Actuarial gains and losses 12 98 689 42 876

Net income recognised directly in equity 94 145 53 606

Profit for the year 844 874 534 388

Total recognised income for the year 939 019 587 994

Attributable to:

Equity holders of the company 941 998 587 994

Minority interest (2 979) –

939 019 587 994

Company


Total recognised income for the year 342 914 853 066

2007 2006

Notes R’000 R’000

Cash flow statementsfor the years ended 30 June

Cash flows from operating activities

Trading income 1 114 733 889 395 342 914 120 996

Non-cash flow items 30.1 117 539 185 540 – –

Working capital changes 30.2 (44 171) (174 812) – 146 036

Net other gains 11 006 – – –

Cash generated from operating activities 1 199 107 900 123 342 914 267 032

Dividend income 1 284 1 497 – –

Interest received 41 664 44 859 – –

Interest paid (64 843) (120 846) – –

Taxation paid 30.3 (365 380) (153 388) – –

Dividends paid 30.4 (342 729) (266 788) (342 914) (267 032)

Cash retained from operating activities 469 103 405 457 – –

Cash flows from investment activities

Investment to maintain operations 30.5 (123 212) (106 317) – –

Investment to expand operations 30.6 (89 960) (58 047) – –

Preference shares redeemed 275 277 – – –

Investment in associates (11 305) – – –

Cash inflow from investment activities 50 800 (164 364) – –

Cash flows from financing activities

Ordinary shares issued 11 542 18 406 11 542 18 406

Treasury shares sold 1 893 5 348 – –

Minority interest 2 692 (1 417) – –

Decrease in interest-bearing borrowings (325 472) (101 638) – –

Increase in intercompany borrowings – – (11 542) (18 406)

Cash outflow from financing activities (309 345) (79 301) – –

Increase in net cash and cash equivalents

Balance at the beginning of the year (121 795) 47 610 – –

Exchange gains on cash and cash equivalents (73) (7 613) – –

Balance at the end of the year 332 426 121 795 – –

Increase in net cash and cash equivalents 30.7 210 558 161 792 – –

Cash flow per share (cents) from operating activities 407,8 340,5

GR OU P C OM PAN Y 2007 2006 2007 2006

Notes R’000 R’000 R’000 R’000


Notes to the annual financial statementsfor the years ended 30 June

1. SIGNIFICANT ACCOUNTING POLICIES

1.1 Basis of preparation

The annual financial statements are prepared in accordance with

and comply with International Financial Reporting Standards (IFRS)

and the South African Companies Act (Act No 61 of 1973), as

amended. The financial statements are prepared on the historical

cost convention, as modified by the revaluation of certain financial

instruments and biological assets to fair value.

These financial statements incorporate accounting policies that

have been consistently applied to both years presented, with the

exception of the implementation of the following accounting

standards which did not have a material effect:

• IFRS 1 (AC 138) (Amendment) – First-time Adoption of

International Financial Reporting Standards and IFRS 6 (AC 143)

(Amendment) – Exploration for and Evaluation of Mineral

Resources (effective from 1 January 2006) *

• IFRS 6 (AC 143) – Exploration for and Evaluation of Mineral

Resources (effective from 1 January 2006) *

• IFRIC 8 (AC 141) Scope of IFRS 2 (AC 139) and AC 503: Accounting

for Black Economic Empowerment (BEE) transactions, that was

early adopted in 2006.

• IAS 19 (AC 116) (Amendment) – Employee Benefits – Actuarial

gains and losses, Group Plans and Disclosures (effective from

1 January 2006)

• IAS 21 (AC 112) (Amendment) – The Effect of Changes in Foreign

Exchange Rates – Net Investment in a Foreign Operation (effective

from 1 January 2006)

• IAS 39 (AC 133) (Amendment) and IFRS 4 (AC 141) (Amendment)

– Insurance Contracts (effective from 1 January 2006)

• IAS 39 (AC 133) (Amendment) – Cash Flow Hedge Accounting of

Forecast Intragroup Transactions (effective from 1 January 2006)

• IAS 39 (AC 133) (Amendment) – Financial Instruments – The Fair

Value Option (effective from 1 January 2006)

• IFRIC Interpretation 4 (AC 437) – Determining whether an

Arrangement Contains a Lease (effective from 1 January 2006)

• IFRIC Interpretation 5 (AC 438) – Rights to Interests arising from

Decommissioning, Restoration and Environmental Rehabilitation

Funds (effective from 1 January 2006) *

• IFRIC Interpretation 6 (AC 439) – Liabilities arising from

Participating in a Specific Market – Waste Electrical and Electronic

Equipment (effective from 1 December 2005) *

• IFRIC Interpretation 7 (AC 440) – Applying the Restatement

Approach under IAS 29 (AC 124) – Financial Reporting in

Hyperinflationary Economies (effective from 1 March 2006)

• IFRIC Interpretation 9 (AC 442) – Reassessment of Embedded

Derivatives (effective 1 June 2006)

• IFRIC Interpretation 11 (AC 444) – IFRS 2 – Group and Treasury

Share Transactions (effective 1 March 2007), that was early

adopted.

* The relevance of these standards, interpretations and amendments to

published standards has been assessed with respect to the Group’s operations

and it was concluded that they are not relevant to the Group.


The preparation of the financial statements in accordance with

IFRS requires the use of certain critical accounting estimates.

It requires management to exercise its judgement in the process

of applying the Group’s accounting policies. The areas involving

a higher degree of judgement or complexity, or areas where

assumptions and estimates are significant to the financial

statements are mainly biological assets, impairment of receivables,

retirement benefits, deferred income taxes, impairment of

intangibles, useful life and impairment of property, plant and

equipment, inventory provisions, share options and income taxes.

The key estimates and assumptions relating to these areas are

disclosed in the relevant notes to the annual financial statements.

Standards, interpretations and amendments to published

standards that are not yet effective

Certain new standards, amendments and interpretations to

existing standards have been published that are mandatory for the

Group’s accounting periods beginning on or after 1 November 2006

or later periods but which the Group has not early adopted and

which would not have a material effect on the financial results,

financial position or cash flows, if implemented:

• IAS 1 (AC 101) (Amendment) – Presentation of Financial

Statements – Capital Disclosures (effective from 1 January 2007)

• IFRS 7 (AC 144) – Financial Instruments: Disclosures, and

a complementary Amendment to IAS 1 (AC 101), Presentation

of Financial Statements – Capital Disclosures (effective from

1 January 2007)

• IFRS 8 (AC 145) – Operating segments (effective from

1 January 2009)

• IAS 23 (AC 114) (Revised) – Borrowing Costs (effective from

1 January 2009)

• IFRIC Interpretation 10 (AC 443) – Interim Financial Reporting

and Impairment (effective 1 November 2006)

• IFRIC Interpretation 12 (AC 445) – Service Concession

Arrangements (effective 1 January 2008) *

• IFRIC Interpretation 13 (AC 446) – Customer Loyalty Programmes

(effective 1 January 2008) *

* The relevance of these standards, interpretations and amendments to

published standards has been assessed with respect to the Group’s operations

and it was concluded that they are not relevant to the Group.

1.2 Basis of consolidation

Subsidiaries

Subsidiaries are entities (including special purpose entities) which

are, directly or indirectly, controlled by the Group. Control is

established where the Group has power to govern the financial and

operating policies of an entity so as to obtain benefits from its

activities. Subsidiaries are fully consolidated from the date on

which effective control is transferred to the Group. They are

deconsolidated from the date that control ceases.

The purchase method of accounting is used to account for the

acquisition of subsidiaries by the Group. The cost of an acquisition

is measured as the fair value of the assets given, equity instruments

issued and liabilities incurred or assumed at the date of exchange,

plus costs directly attributable to the acquisition. Identifiable assets

acquired and liabilities and contingent liabilities assumed in a

business combination are measured initially at their fair values at

the acquisition date, irrespective of the extent of any minority

interest. The excess of the cost of acquisition over the fair value of

the Group’s share of the identifiable net assets acquired is recorded

as goodwill. If the cost of acquisition is less than the fair value of the

net assets of the subsidiary acquired, the difference is recognised

directly in the income statement.

All intercompany transactions, balances and unrealised gains and

losses on transactions between Group companies are eliminated.

Where necessary, accounting policies for subsidiaries have been

changed to ensure consistency with the policies adopted by the

Group. Separate disclosure is made of minority interests.

A listing of the Group’s principal subsidiaries is set out in

annexure 1 to the annual financial statements.

Associates

These are undertakings over which the Group has between 20%

and 50% of the voting rights, and over which the Group exercises

significant influence, but which it does not control. Investments in

associated undertakings are accounted for by using the equity

method of accounting and are initially recognised at cost. The

Group’s investment in associates includes goodwill identified on

acquisition, net of any subsequent accumulated impairment loss.

The Group’s share of its associates’ post-acquisition profits or losses

is recognised in the income statement, and its share of post-

acquisition movements in reserves is recognised in reserves. The

cumulative post-acquisition movements are adjusted against the

carrying amount of the investment. When the Group’s share of

losses in an associate equals or exceeds its interest in the associate,

including any other unsecured receivables, the Group does not

recognise further losses, unless it has incurred obligations or made

payments on behalf of the associate.

Unrealised gains on transactions between the Group and its

associates are eliminated to the extent of the Group’s interest in

the associates. Unrealised losses are also eliminated unless the

transaction provides evidence of an impairment of the asset

transferred. Accounting policies of associates have been changed

where necessary to ensure consistency with the policies adopted by

the Group.

A listing of the Group’s principal associated undertakings is set out

in annexure 2 to the annual financial statements.

Joint ventures

Joint ventures are those entities over which the Group exercises

joint control in terms of a contractual agreement. The Group’s

interests in jointly controlled entities are accounted for by

proportionate consolidation. The Group combines its share of the

joint ventures’ individual income and expenses, assets and liabilities


and cash flows on a line-by-line basis with similar items in the

Group’s financial statements. The Group recognises the portion of

gains or losses on the sale of assets by the Group to the joint venture

that is attributable to the other venturers. The Group does not

recognise its share of profits or losses from the joint venture that

result from the Group’s purchase of assets from the joint venture

until it resells the assets to an independent party. However, a loss

on the transaction is recognised immediately if the loss provides

evidence of a reduction in the net realisable value of current assets,

or an impairment loss.

A listing of the Group’s principal joint ventures is set out in

annexure 3 to the annual financial statements.

1.3 Foreign currency translation

Functional and presentation currency

Items included in the financial statements of each of the Group’s

entities are measured using the currency of the primary economic

environment in which it operates (the functional currency). The

consolidated financial statements are prepared in South African

rands which is the company’s functional and presentation currency.

Foreign subsidiaries and joint ventures

The results and the financial position of all Group subsidiaries and

joint ventures that have a functional currency that is different from

the presentation currency of the Group are translated into the

presentation currency as follows:

• Assets and liabilities for each balance sheet presented are

translated at the closing rate at the date of that balance sheet.

• Income and expenses for each income statement presented are

translated at the average exchange rates for the period presented.

• All resulting exchange rate translation differences are recognised

as a separate component of equity in the foreign currency

translation reserve (FCTR).

When the foreign subsidiary’s or joint venture’s functional currency

is the currency of a hyperinflationary economy the financial

statements of this subsidiary or joint venture are restated for the

changes in the general purchasing power of the functional currency

and, as a result, are stated in terms of the measuring unit current at

the balance sheet date. All the line items in these inflation adjusted

financial statements are translated to the Group’s presentation

currency at the closing rate. The comparative amounts are those

that were included in the Group’s results in the previous year.

The resulting exchange rate differences are recognised in the

income statement.

On consolidation, exchange rate differences arising from the

translation of the net investment in foreign subsidiaries and joint

ventures are also taken to the FCTR. When a foreign operation is

sold all related exchange rate differences in the FCTR are recognised

in the income statement as part of the profit or loss on the sale of

the operation. The Group’s net investment in a subsidiary or joint

venture is equal to the equity investment plus all monetary items

that are receivable from or payable to the subsidiary or joint venture,

for which settlement is neither planned nor likely to occur in the

foreseeable future.


Goodwill and fair value adjustments arising on the acquisition of a

foreign subsidiary or joint venture are treated as assets and liabilities

of the foreign subsidiary or joint venture and are translated at the

closing rate.

Transactions and balances

Foreign currency transactions are translated into the functional

currency using the exchange rates prevailing at the date of the

transactions. Foreign exchange gains and losses resulting from the

settlement of such transactions and from the translation at year-end

exchange rates of monetary assets and liabilities denominated in

foreign currencies are recognised in the income statement, except

when deferred in equity as qualifying cash flow hedges and qualifying

net investment hedges.

1.4 Segment reporting

A business segment is a group of assets and operations engaged in

providing products or services that are subject to risks and returns

that are different from those of other business segments.

A geographical segment is engaged in providing products or

services within a particular economic environment that are subject

to risks and returns that are different from those of segments

operating in other economic environments.

Segment revenue is all revenue directly attributable to the segment,

excluding investment income and including joint venture revenue.

Segment result is segment revenue less segment expenses. Segment

expenses are all directly attributable expenses resulting from the

operating activities of a segment as well as any relevant portion of

an expense that can be allocated to the segment on a reasonable

basis. This allocation is done on a line-by-line basis considering

the driver for each type of expense, e.g. sales of merchandise or

employee costs. Segment result comprises trading profit plus

exchange rate differences less investment income.

1.5 Property, plant and equipment

Property, plant and equipment are tangible assets held by the

Group for use in manufacturing and distribution of its products

and are expected to be used during more than one period. All

property, plant and equipment are stated at their historical costs

less subsequent depreciation and accumulated impairment. The

historical cost includes all expenditure that is directly attributable

to the acquisition of the property, plant and equipment and is

depreciated on a straight line basis, from the date that assets are

available for use, at rates appropriate to the various classes of assets

involved, taking into account the estimated useful life and residual

values of the individual items. Land is not depreciated, as it is

deemed to have an unlimited useful life. Improvements to leasehold

properties are shown at cost and written off over the remaining

period of the lease.

Management determines the estimated useful lives and the related

depreciation charges at acquisition but will revise the depreciation

charge where useful lives are subsequently found to be different

from the previous estimate.


Useful lives:

Buildings 60 years

Stainless steel tanks 25 years

Other machinery and barrels 3 – 25 years

Equipment and vehicles 4 – 10 years

Capitalised finance lease vehicles 4 years

Property, plant and equipment’s residual values and useful lives are

reviewed at each balance sheet date. If appropriate, adjustments

are made and accounted for prospectively as a change in estimate.

Subsequent costs are included in the asset’s carrying amount or

recognised as a separate asset, as appropriate, to the extent that it

is probable that future economic benefits associated with the item

will flow to the Group and the cost of the item can be measured

reliably. All other repairs and maintenance are charged to the

income statement during the financial period in which they are

incurred.

Gains and losses on disposal or scrapping of property, plant and

equipment, being the difference between the net proceeds on

disposals or scrappings and the carrying amount are recognised in

the income statement.

1.6 Biological assets

Biological assets consist of grape vines which are valued at fair

value by discounting its net cash flows over the remaining lives

thereof at an appropriate discount rate.

Gains and losses arising from changes in fair value are accounted

for in income in the period in which they arise.

The determination of fair value of biological assets requires

significant management judgement and, amongst others, the

following factors are considered: the discount rate, productive life

of grape vines, rental value of farm land and expected sales prices.

Immature grape vines are shown at cost.

1.7 Intangible assets

Goodwill

Goodwill represents the excess of the cost of an acquisition over the

fair value of the Group’s share of the net identifiable assets of the

acquired subsidiaries, joint ventures and associates at the date of

acquisition. Goodwill on acquisition of subsidiaries and joint

ventures is included in ‘intangible assets’. Goodwill on acquisition

of associates is included in ‘investment in associates’. Goodwill

denominated in a foreign currency is translated at closing rates.

Separately recognised goodwill is tested annually for impairment

and carried at cost less accumulated impairment losses. Impairment

losses on goodwill are not reversed. Goodwill is allocated to cash-

generating units for the purpose of impairment testing. The

allocation is made to those cash-generating units or groups of cash-

generating units that are expected to benefit from the business

combination in which the goodwill arose. Impairment losses on

goodwill are not reversed. The gain or loss on disposal of an entity

includes the carrying amount of goodwill relating to the entity

disposed.

Trademarks

Trademarks are shown at historical cost. Trademarks that have a

finite useful life are carried at cost less accumulated amortisation.

Amortisation is calculated using the straight-line method to

allocate the cost of trademarks over their estimated useful lives.

Trademarks that are deemed to have an indefinite useful life are

carried at cost less accumulated impairment losses.

Research and development expenditure

Research and development expenditure relating to internally

generated brands and trademarks are recognised as an expense in

the income statement as incurred.

Computer software

Acquired computer software (which are not integral parts of

computer hardware) and software licences and the direct costs

associated with the development and installation thereof are

capitalised.

Costs associated with developing or maintaining software are

recognised as an expense when incurred. Costs that are directly

associated with the production of identifiable and unique software

controlled by the Group, and that will probably generate future

economic benefits beyond one year, are recognised as intangible

assets. Direct costs include the software development employee

costs and an appropriate portion of relevant overheads.

Computer software is depreciated on the straight-line method

over their estimated useful lives (three to five years) when available

for use.

1.8 Impairment of non-financial assets

Assets that have an indefinite life are not subject to amortisation

and are tested for impairment at each balance sheet date. Assets

that are subject to amortisation are reviewed for impairment

whenever events or changes in circumstances indicate that the full

carrying amount may not be recoverable. The determination of

whether an asset is permanently impaired requires significant

management judgement and, amongst others, the following factors

will be considered: duration and extent to which the fair value of the

assets is less than its cost; industry, geographical and sector

performance; changes in regional economies and operational and

financing cash flows.

Where the carrying value of an asset exceeds its estimated

recoverable amount, the carrying value is impaired and the asset is

written down to its recoverable amount. The recoverable amount

is calculated as the higher of the asset’s fair value less cost to sell

and the value in use. These calculations are prepared based on

management’s assumptions and estimates such as forecasted cash

flows; management budgets and industry, regional and geographical

operational and financial outlooks. For the purpose of impairment

testing the assets are allocated to cash-generating units (CGUs).

CGUs are the lowest levels for which separately identifiable cash

flows can be determined. The related impairment expense is

charged to the income statement to the extent that it is not a reversal

of a previous revaluation included in non-distributable reserves.


Non-financial assets, other than goodwill, that suffered impairment

are reviewed for possible reversal of the impairment at each

reporting date.

1.9 Financial assets

The Group classifies its financial assets in the following categories:

• Held-to-maturity investments

• Available-for-sale investments

• Financial assets at fair value through profit and loss

• Loans and receivables

The classification is dependent on the purpose for which the financial

asset was acquired. Management determines the classification of its

financial assets at the time of the purchase and re-evaluates such

designations at each balance sheet date.

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets

with fixed or determinable payments and fixed maturities that the

Group’s management has the positive intention and ability to hold

to maturity. If the Group were to sell other than an insignificant

amount of held-to-maturity investments, the whole category would

be tainted and reclassified as available for sale. Held-to-maturity

investments are included in non-current assets, except for those

with maturities less than 12 months from the balance sheet date,

which are classified as current assets.

Available-for-sale investments

Available-for-sale investments are non-derivatives that are either

designated in this category or not classified in any of the other

categories. They are included in non-current assets unless

management intends to dispose of the investment within

12 months of the balance sheet date.

Financial assets at fair value through profit and loss

This category has two subcategories: financial assets held for

trading, and those designated at fair value through profit or loss at

inception. A financial asset is classified in this category if acquired

principally for the purpose of selling in the short term or if so

designated by management. Derivatives are also categorised as

held for trading unless they are designated as hedges. Assets in this

category are classified as current assets if they are either held for

trading or are expected to be realised within 12 months of the

balance sheet date.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed

or determinable payments that are not quoted in an active market.

They are included in current assets, except for maturities greater

than 12 months after the balance sheet date. These are classified as

non-current assets.

Regular purchases and sales of investments are recognised on trade

date – the date on which the Group commits to purchase or sell the

asset. Investments are initially recognised at fair value plus

transaction costs for all financial assets not carried at fair value

through profit or loss. Financial assets carried at fair value through


profit or loss are initially recognised at fair value and transaction

costs are expensed in the income statement. Financial assets are

derecognised when the rights to receive cash flows from the

investments have expired or have been transferred and the Group

has transferred substantially all risks and rewards of ownership.

Available-for-sale financial assets and financial assets at fair value

through profit or loss are subsequently carried at fair value. Loans

and receivables and held-to-maturity financial assets are carried at

amortised cost using the effective interest rate method.

Gains or losses arising from changes in the fair value of the ‘financial

assets at fair value through profit or loss’ category, including interest

and dividend income, are presented in the income statement within

‘operating expenses’ in the period in which they arise. Changes in

the fair value of monetary securities denominated in a foreign

currency and classified as available-for-sale are analysed between

translation differences resulting from changes in amortised cost of

the security and other changes in the carrying amount of the

security. The translation differences are recognised in profit or

loss, and other changes in carrying amount are recognised in

equity. Changes in the fair value of monetary securities classified

as available-for-sale and non-monetary securities classified as

available-for-sale are recognised in equity. When securities

classified as available-for-sale are sold or impaired, the accumulated

fair value adjustments recognised in equity are included in the

income statement as ‘gains and losses from investment securities’.

Interest on available-for-sale securities calculated using the

effective interest rate method is recognised in the income statement.

Dividends on available-for-sale equity instruments are recognised

in the income statement when the Group’s right to receive payments

is established.

The fair values of quoted investments are based on current bid

prices. If the market for a financial asset is not active (and for

unlisted securities), the Group establishes fair value by using cash

flow models.

The investment of Distell Group Limited in the ordinary shares of

its subsidiary, South African Distilleries and Wines (SA) Limited is

carried at cost less impairment losses in the company financial

statements.

1.10 Financial instruments

Financial instruments on the balance sheet consist of financial

assets, trade and other receivables, cash and cash equivalents,

interest-bearing borrowings and trade and other payables. The

particular recognition methods adopted are disclosed in the

individual policy statements associated with each item.

Derivatives

The Group is party to financial instruments that reduce exposure

to fluctuations in foreign currency exchange and interest rates.

These instruments mainly comprise forward foreign exchange

contracts and interest rate swap agreements. The purpose of these

instruments is to reduce risk.


Derivatives are initially recognised at fair value on the date a

derivative contract is entered into and are subsequently remeasured

at their fair value. The method of recognising the resulting gain or

loss depends on whether the derivative is designated as a hedging

instrument, and if so, the nature of the item being hedged. The

Group designates certain derivatives as either: (1) hedges of the fair

value of recognised assets or liabilities or a firm commitment ( fair

value hedge); or (2) hedges of a particular risk associated with a

recognised asset or liability or a highly probable forecast transaction

(cash flow hedge); or (3) hedges of a net investment in a foreign

operation (net investment hedge).

The Group documents at the inception of the transaction the

relationship between hedging instruments and hedged items, as

well as its risk management objectives and strategy for undertaking

various hedge transactions. The Group also documents its

assessment, both at hedge inception and on an ongoing basis, of

whether the derivatives that are used in hedging transactions are

highly effective in offsetting changes in fair values or cash flows of

hedged items.

The fair values of various derivative instruments used for hedging

purposes and the movements on the hedging reserve in

shareholders’ equity are disclosed in the relevant notes to the

financial statements. The full fair value of a hedging derivative is

classified as a non-current asset or liability if the remaining hedge

item is more than 12 months, and as a current asset or liability, if

the remaining maturity of the hedged item is less than 12 months.

Trading derivatives are classified as a current asset or liability.

Fair value hedge

Changes in the fair value of derivatives that are designated and

qualify as fair value hedges are recorded in the income statement,

together with any changes in the fair value of the hedged asset or

liability that are attributable to the hedged risk. The gain or loss

relating to the effective portion of interest rate swaps hedging fixed

rate borrowings is recognised in the income statement within

‘finance costs’. The gain or loss relating to the ineffective portion is

recognised in the income statement within ‘operating expenses’.

Changes in the fair value of the hedged fixed rate borrowings

attributable to interest rate risk are recognised in the income

statement within ‘finance costs’.

If the hedge no longer meets the criteria for hedge accounting, the

adjustment to the carrying amount of a hedge item for which

the effective interest rate method is used is amortised to profit or loss

over the period to maturity.

Cash flow hedge

The effective portion of changes in the fair value of derivatives that

are designated and qualify as cash flow hedges are recognised in

equity. The gain or loss relating to the ineffective portion is

recognised immediately in the income statement within ‘finance

costs’.

Amounts accumulated in equity are recycled in the income

statement in the periods when the hedged item affects profit or loss

( for instance when the forecast sale that is hedged takes place). The

gain or loss relating to the effective portion of interest rate swaps

hedging variable rate borrowings is recognised in the income

statement within ‘finance costs’. The gain or loss relating to the

effective portion of forward foreign exchange contracts hedging

export sales is recognised in the income statement within ‘revenue’.

However, when the forecast transaction that is hedged results in

the recognition of a non-financial asset ( for example, inventory) or

a non-financial liability, the gains and losses previously deferred in

equity are transferred from equity and included in the initial

measurement of the cost of the asset or liability.

When a hedging instrument expires or is sold, or when a hedge no

longer meets the criteria for hedge accounting, any cumulative gain

or loss existing in equity at that time remains in equity and is

recognised when the forecast transaction is ultimately recognised

in the income statement. When a forecast transaction is no longer

expected to occur, the cumulative gain or loss that was reported in

equity is immediately transferred to the income statement. If the

hedge no longer meets the criteria for hedge accounting,

the adjustment to the carrying amount of a hedged item for

which the effective interest rate method is used is amortised to

profit or loss over the period to maturity.

Derivatives that do not qualify for hedge accounting

Certain derivative instruments do not qualify for hedge accounting.

Changes in the fair value of any derivative instruments that do not

qualify for hedge accounting are recognised immediately in the

income statement within ‘finance costs’.

Offsetting

Where a current legally enforceable right of set-off exists for

recognised financial assets and financial liabilities, and where

there is an intention to settle the liability and realise the asset

simultaneously, or to settle on a net basis, all related financial

effects are offset.

Disclosure about financial instruments to which the Group is

a party is provided in note 10 to the annual financial statements.

1.11 Deferred income tax

Deferred income tax is provided at currently enacted or substantially

enacted tax rates using the liability method. Provision is made for

all temporary differences arising between the taxation bases of

assets and liabilities and their balance sheet carrying values.

No deferred income tax is accounted for if it arises from initial

recognition of an asset or liability in a transaction other than

a business combination that at the time of the transaction affects

neither accounting nor taxable profit or loss.

Deferred income tax assets are recognised to the extent that it is

probable that future taxable profit will be available against which

the temporary differences can be utilised. Management applies

judgement to determine whether sufficient future taxable profit


will be available after considering, amongst others, factors such as:

profit histories; forecasted cash flows and budgets.

Secondary taxation on companies (STC) is provided in respect of

dividend payments, net of dividends received or receivable and is

recognised as a taxation charge for the year in which the dividend

is paid.

Deferred income tax is provided on unutilised STC credits which

will be utilised in the foreseeable future.

Non-resident shareholders’ taxation is provided in respect of foreign

dividends receivable only when the dividend is recognised.

Deferred income tax is provided on temporary differences arising

on investments in subsidiaries, associates and joint ventures,

except where the timing of the reversal of the temporary difference

can be controlled by the Group and it is probable that it will not

reverse in the foreseeable future.

1.12 Leases

The Group leases certain property, plant and equipment. Capitalised

leased assets are assets leased in terms of finance lease agreements

where the Group has substantially all the risks and rewards of

ownership. Finance leases are capitalised at the lease’s commence-

ment at the lower of the fair value of the leased item or the present

value of the minimum lease payments. Depreciation is provided

on the straight-line method over the shorter of the lease term and

their estimated useful lives. Finance charges are written off over

the term of the lease in accordance with the effective interest

rate method.

Leases of assets in terms of which all the risks and benefits of

ownership are effectively retained by the lessor are classified as

operating leases. Payments made under operating leases are

charged to the income statement on a straight-line basis over the

lease term.

1.13 Inventories

Inventories are stated at the lower of cost and net realisable value.

Cost is determined by the first-in first-out (FIFO) method. The

cost of finished goods and work in progress comprises raw

materials, direct labour, other direct costs and related production

overheads (based on normal operating capacity), but excludes

borrowing cost.

Net realisable value is the estimated selling price in the ordinary

course of business, less the applicable costs of completion and

selling expenses.

1.14 Trade and other receivables

Trade and other receivables originated by the Group are initially

recognised at fair value and subsequently measured at amortised

cost using the effective interest rate method, less provision for

impairment. Fair value is the estimated future cash flows discounted

at the effective interest rate.


A provision for impairment of trade receivables is established when

there is objective evidence that the Group will not be able to collect

all amounts due according to the original terms of the receivables.

Significant financial difficulties of the debtor, probability that the

debtor will enter bankruptcy or financial reorganisation, and

default or delinquency in payments are considered indicators that

the trade receivable is impaired. The amount of the provision is the

difference between the carrying amount and the recoverable

amount, being the present value of the expected cash flows,

discounted at the market rate of interest for similar borrowers.

1.15 Cash and cash equivalents

Cash and cash equivalents and bank overdrafts are carried at cost

and, if denominated in foreign currencies, are translated at closing

rate. Cash comprise cash on hand, deposits held at call with banks

and other short-term highly liquid investments with original

maturities of three months or less. Bank overdrafts are included in

current interest-bearing borrowings.

1.16 Share capital

Ordinary shares are classified as equity. Incremental costs directly

attributable to the issue of new shares are shown in equity as

a deduction from proceeds, net of tax.

Where entities controlled by the Group purchase the company’s

shares, the consideration paid, including attributable transaction

costs net of income taxes, is deducted from total shareholders’

equity as treasury shares until they are sold. Where such shares are

subsequently sold, any consideration received is included in

shareholders’ equity. Dividends received on treasury shares are

eliminated on consolidation.

1.17 Trade and other payables

Trade and other payables are recognised initially at fair value and

subsequently measured at amortised cost using the effective

interest rate method.

Financial guarantee contracts are recognised initially at fair value

and subsequently at the initially recognised fair value, less

appropriate cumulative amortisation recognised on a straight-line

basis over the estimated duration of the contract.

1.18 Borrowings

Borrowings are recognised initially at fair value, net of transaction

costs incurred. Borrowings are subsequently stated at amortised

cost. Any difference between the proceeds (net of transaction costs)

and the redemption value is recognised in the income statement

over the period of the borrowings using the effective interest rate

method. Borrowings are classified as current liabilities unless the

Group has the unconditional right to defer settlement of the liability

for at least 12 months after the balance sheet date.

All borrowing costs are expensed when incurred.


1.19 Provisions

Provisions are recognised when the Group has a present legal or

constructive obligation, as a result of past events, and it is probable

that an outflow of resources embodying economic benefits will be

required to settle the obligation, and a reliable estimate of the

amount of the obligation can be made. Provisions are measured at

the present value of the expenditures expected to be required to

settle the obligation using a pretax rate that reflects current market

assessments of the time value of money and the risks specific to the

obligation. The increase in the provision due to passage of time is

recognised as interest expense.

1.20 Employee benefits

Retirement funds

The Group provides pension, retirement or provident fund benefits

to all employees.

The schemes are generally funded through payments to insurance

companies or trustee-administered funds, determined by periodic

actuarial calculations. The Group has both defined-contribution

and defined-benefit plans.

A defined-contribution plan is a plan under which the Group pays

fixed contributions into a separate entity. The Group has no legal or

constructive obligations to pay further contributions if the fund

does not hold sufficient assets to pay all employees the benefits

relating to employee service in the current and prior periods.

The Group’s contributions to defined-contribution plans in respect

of services rendered in a particular period are recognised as an

expense in that period. Additional contributions are recognised as

an expense in the period during which the associated services are

rendered by employees.

A defined-benefit plan is a plan that is not a defined-contribution

plan. This plan defines an amount of pension benefit an employee

will receive on retirement, dependent on one or more factors such

as age, years of service and compensation.

The liability recognised in the balance sheet in respect of defined-

benefit pension plans is the present value of the defined-benefit

obligation at the balance sheet date less the fair value of plan assets.

The defined-benefit obligation is calculated every third year by

independent actuaries using the projected unit credit method. The

present value of the defined-benefit obligation is determined by

discounting the estimated future cash outflows using interest rates

of high-quality corporate bonds that are denominated in the

currency in which the benefits will be paid and that have terms to

maturity approximating to the terms of the related pension liability.

Current service costs are recognised immediately in income.

Actuarial gains and losses arising from experience adjustments

and changes in actuarial assumptions are recognised outside profit

or loss in the period in which they occur and are presented in the

statement of recognised income and expense. Refer to note 37 to

the financial statements for the effect of this change in accounting

policy.

Past-service costs are recognised immediately in income, unless

the changes to the pension plan are conditional on the employees

remaining in service for a specified period of time (the vesting

period). In this case, the past-service costs are amortised on a

straight-line basis over the vesting period.

Post-retirement medical benefits

The Group provides for actuarially determined future medical

benefits of employees who retire based on the employee’s

remaining years in service up to retirement age and completing a

minimum service period. The expected costs of these benefits are

accrued over the period of employment based on past services.

This post-retirement medical benefit obligation is measured as

the present value of the estimated future cash outflows based on

a number of assumptions. These assumptions include, amongst

others, health care cost inflation, discount rates, salary inflation

and promotions and experience increases, expected retirement

age and continuation at retirement. Valuations of this obligation

are carried out every third year by independent qualified

actuaries, in respect of past service liabilities and actuarial

gains or losses are recognised outside profit or loss in the period

in which they occur and are presented in the statement of

recognised income and expense. Refer to note 37 to the financial

statements for the effect of this change in accounting policy.

Share-based compensation

The Group operates an equity-settled share incentive scheme

through The Distell Group Share Trust.

Scheme shares are granted to executive directors and manage-

ment. Shares are granted at the market price of the shares on the

date of the offer and are exercisable at that price. Offers are

exercisable within one year from the date of offer and are payable

within seven years in three equal instalments of which the first

instalment is only payable after three years

The fair value is determined at grant date with reference to the

fair value of the shares granted, excluding the impact of any non-

market vesting conditions. Non-market vesting conditions are

included in assumptions about the number of shares that are

expected to become exercisable. At each balance sheet date, the

entity revises its estimates of the number of shares that are

expected to become exercisable. It recognises the impact of the

revision of original estimates, if any, in the income statement, and

a corresponding adjustment to equity over the remaining vesting

period. The proceeds received net of any directly attributable

transaction costs are credited to share capital (nominal value)

and share premium when the shares are exercised.


Long-service awards

Long-service awards are provided to employees who achieve certain

predetermined milestones of service within the Group. The Group’s

obligation is valued by independent qualified professionals at year-

end and the corresponding liability is raised. Costs incurred are set off

against the liability. Movements in the liability, including notional

interest, resulting from the valuation are charged against the income

statement upon valuation.

Bonus plans

The Group recognises a liability and an expense for bonuses and

profit-sharing, based on a formula that takes into consideration the

profit attributable to the company’s shareholders after certain

adjustments. The Group recognises a provision where contractually

obliged or where there is a past practice that has created a

constructive obligation.

1.21 Revenue recognition

Revenue comprises the fair value of the consideration received or

receivable for the sale of goods and services in the ordinary course

of the Group’s activities, including excise duty, but net of value

added tax (VAT), general sales taxes (GST), rebates and discounts,

and after eliminating sales within the Group.

Excise is not directly related to sales, unlike value added tax. It is

not recognised as a separate item on invoices, increases in excise

are not always directly passed on to customers and the Group

cannot reclaim the excise where customers do not pay for products

received. The Group considers excise as a cost to the Group and

reflect it as cost of goods sold and consequently any excise that is

recovered in the sales price is included in revenue.

Revenue is recognised as follows:

• Cash sales of goods: Sales are recognised upon delivery of

products and customer acceptance and collectability of the

related receivable is reasonably assured.

• Sales of services: Sales of services are recognised in the

accounting period in which the services are rendered, by

reference to completion of the specific transaction assessed on

the basis of the actual service provided as a proportion of the

total services to be provided.

• Interest income: Interest income is recognised on a time-

proportion basis using the effective interest rate method. When a

receivable is impaired, the Group reduces the carrying amount to

its recoverable amount, being the estimated future cash flow

discounted at the original effective interest rate of the instrument,

and continues unwinding the discount as interest income. Interest

income on impaired loans is recognised using the original effective

interest rate.

• Dividend income: Dividend income is recognised when the

shareholder has an irrevocable right to receive payment.

1.22 BEE transactions

BEE transactions where the Group receives or acquires goods or

services as consideration for the issue of equity instruments of the

Group are treated as share-based payment transactions.


BEE transactions where employees are involved are measured and

accounted for on the same basis as share-based compensation as

in note 1.20.

Transactions, in which share-based payments are made to parties

other than employees, are measured by reference to the fair value of

equity instruments granted if no specific goods or services are

received. Vesting of the equity instrument granted occurs

immediately and an expense and a related increase in equity are

recognised on the date that the instrument is granted. No further

measurement or adjustments are required as it is presumed that

the BEE credentials are received upfront.

1.23 Earnings per share

Earnings, headline earnings and adjusted headline earnings per

share are calculated by dividing the net profit attributable to

shareholders, headline earnings and adjusted headline earnings,

respectively, by the weighted average number of ordinary shares in

issue during the year, excluding the ordinary shares held by the

Group as treasury shares. Adjusted headline earnings are calculated

by excluding the non-recurring BEE expenses from headline

earnings.

For the diluted earnings per share, the weighted average number of

ordinary shares in issue is adjusted to assume conversion of all

ordinary shares with dilutive potential. Share scheme options,

issued in terms of the share option scheme, have dilutive potential.

For the share scheme options a calculation is done to determine

the number of shares that could have been acquired, at the closing

market price, based on the monetary value of subscription rights

attached to outstanding share scheme options in order to determine

the “bonus” element; the “bonus” shares are added to the ordinary

shares in issue. No adjustment is made to net profit, as the share

scheme options have no income statement effect.

1.24 Dividend distribution

Dividend distribution to the company’s shareholders is recognised

as a liability in the Group’s financial statements in the period in

which the dividends are approved.


1.25 Comparative figures

Where necessary, comparative figures have been adjusted to

conform with changes in presentations made in the current year

with disclosure of the reclassification detailed in the relevant

notes.

1.26 Non-current assets held-for-sale

Non-current assets held for sale are classified as assets held for sale

and are stated at the lower of the carrying amount and fair value,

less costs to sell if their carrying amount is recovered principally

through a sale transaction rather than through continued use.

These assets are measured at the lower of its carrying amount and

the fair value less costs to sell.

1.27 Related parties

Individuals or entities are related parties if one party has the ability,

directly or indirectly, to control or jointly control the other party or

exercise significant influence over the other party in making

financial and/or operating decisions. Key management personnel

are defined as all directors of Distell Limited, the main operating

company of the Group.

1.28 Income statement line items

The following additional line items, headings and subtotals are

presented on the face of the income statement, as management

believes it to be relevant to the understanding of the Group’s

financial performance:

• Trading income being the Group’s operating results excluding

non-recurring BEE share-based payments and net other gains.

• BEE share-based payment being the fair value of instruments

granted in terms of the non-recurring portion of the BEE

transaction (see note 1.22).

2. DEFINITIONS AND RATIOS

2.1 Acid test ratio

Current assets, excluding inventories, divided by total current

liabilities.

2.2 Cash flow per ordinary share

Cash flow from operating activities before dividends paid, divided

by the number of ordinary shares in issue. This basis identifies the

cash stream actually achieved in the period under review.

2.3 Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash

equivalents comprise cash on hand, deposits held at call with

banks, and investments in money market instruments, net of bank

overdrafts. In the balance sheet, bank overdrafts are included in

interest-bearing borrowings under current liabilities.

2.4 Current ratio

Current assets divided by total current liabilities.

2.5 Dividend cover

Adjusted headline earnings per ordinary share divided by dividends

per ordinary share.

2.6 Dividend yield

Dividends per ordinary share divided by the weighted average price

per share during the year.

2.7 Earnings per ordinary share

Basic earnings basis

Earnings attributable to equity holders divided by the weighted

average number of ordinary shares in issue.

Headline basis

Earnings attributable to equity holders, after taking into account

the adjustments explained in note 28.1, divided by the weighted

average number of ordinary shares in issue.

Cash equivalent basis

Earnings attributable to equity holders, after taking into account

the adjustments explained in note 28.1, divided by the weighted

average number of ordinary shares in issue. This basis recognises

the potential of the earnings stream to generate cash.


2.8 Earnings yield

Headline earnings per ordinary share divided by the closing share

price at year-end on the JSE Limited ( JSE).

2.9 Effective tax rate

The tax charge for the year divided by the profit before taxation.

2.10 Financial gearing ratio

The ratio of interest-bearing borrowings, net of cash and cash

equivalents, to total equity.

2.11 Interest-free borrowings to total assets

Interest-free borrowings, excluding post-retirement medical

liability, divided by total assets (both excluding deferred income

tax).

2.12 Net asset turn

Revenue divided by net assets at year-end.

2.13 Net asset value per ordinary share

Total equity divided by the number of ordinary shares in issue.

2.14 Pretax return on equity

Profit before taxation as a percentage of closing equity.

2.15 Price earnings ratio

The closing share price at year-end on the JSE, divided by headline

earnings per ordinary share for that year.

2.16 Return on equity

Adjusted headline earnings divided by closing equity.

2.17 Total return to shareholders

This represents the internal rate of return over a seven-year period.

It is computed by recognising the market price of a Distell ordinary

share seven years ago as a cash outflow, recognising the annual

cash dividend streams per share and the closing share price at the

end of the current year as inflows and then determining the

discount rate inherent to these cash flow streams. The equivalent of

the market price of a Distell ordinary share seven years ago is

computed by dividing the total market capitalisation of both

Distillers and SFW at that date by the number of ordinary shares in

issue at 30 June 2007 (199,0 million shares).


3. PROPERTY, PLANT AND EQUIPMENT

Machinery,

tanks and Equipment

Properties barrels and vehicles Total

R’000 R’000 R’000 R’000

2006

Opening balance 552 436 636 559 34 041 1 223 036

Additions 47 298 108 606 15 744 171 648

Disposals (716) (6 608) (1 594) (8 918)

Transfers (876) (255) 1 131 –

Depreciation (2 336) (117 086) (9 444) (128 866)

595 806 621 216 39 878 1 256 900

At cost 618 792 1 399 274 105 279 2 123 345

Accumulated depreciation (22 986) (778 058) (65 401) (866 445)

Net carrying value 595 806 621 216 39 878 1 256 900

2007

Opening balance 595 806 621 216 39 878 1 256 900

Additions 62 473 126 834 20 788 210 095

Disposals (9 062) (278) (502) (9 842)

Transfers (2 887) 2 818 69 –

Depreciation (2 712) (113 261) (10 664) (126 637)

643 618 637 329 49 569 1 330 516

At cost 667 775 1 486 054 118 329 2 272 158

Accumulated depreciation (24 157) (848 725) (68 760) (941 642)

Net carrying value 643 618 637 329 49 569 1 330 516

Included in equipment and vehicles are capitalised finance lease vehicles with a book value of R3,2 million (2006: R2,3 million) (see note 14).

Details of properties are available for inspection at the registered office of the company.

4. BIOLOGICAL ASSETS

The Group owns bearer biological assets in the form of grape vines. 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 grape vines on 30 June 2007 amounted to approximately 1 483 ha (2006: 1 331 ha), of which approximately 1 139 ha

(2006: 976 ha) can be classified as mature vines. The total output of grapes harvested during the current year amounted to 10 186 tons

(2006: 9 740 tons).

The fair value of the grapes harvested during the current financial year amounted to R37,2 million (2006: R35,0 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 grape vines was calculated by discounting the net cash flows thereof over its remaining lives at a discount rate of 18%

(2006: 18%). The net cash flows were calculated with reference to grape varieties, expected yields based on the past three years’ experience,

estimated future sales prices and estimated future production costs. The average productive life of grape vines are estimated at 23 years

(2006: 23 years).


4. BIOLOGICAL ASSETS (continued)

Carrying amount

Opening balance 104 380 107 170

Acquisitions 12 424 5 791

Net change in fair value (2 129) (8 581)

– Decrease due to harvest (37 248) (34 970)

– Gain due to price, yield, maturity and cost changes 35 119 26 389

Balance at the end of the year 114 675 104 380

An amount of R8,5 million (2006: R5,8 million) for vineyard development expenses is included in the

total of capital commitments in note 32.

The fair value of grape vines cultivated on land, of which the lease expires in 2018, amounts to

R4,1 million (2006: R6,1 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.

5. FINANCIAL ASSETS

Other loans and receivables

– Preference shares with a dividend rate of between 7,3% and 9,1%, redeemable in May 2007

and March 2008 361 152 590 921

– Loans to producers and other unrelated parties at market-related interest rates and secured

by bonds over properties where applicable 19 360 27 859

Available-for-sale investments 53 462 38 967

433 974 657 747

Less: Short-term portion of preference shares (361 152) (254 640)

72 822 403 107

Directors’ valuation of financial assets 434 259 657 747

All the investments are unlisted and details thereof are available at the registered office of the company.

6. INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES

Company

Investments in subsidiaries (annexure 1) 1 680 041 1 661 622

Group

Investments in associates (annexure 2)


Additions 6 949 –

Share of profit 14 255 9 856

Dividends received (13 317) (8 671)

Disposal of interest in associate – (2 101)


Made up as follows:

Cost and share of profits 14 194 8 805

Goodwill 9 076 6 578

23 270 15 383

2007 2006

R’000 R’000



2007 2006

R’000 R’000


6. INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES (continued)

Summary of goodwill


Additions 2 498 –


Directors’ valuation of investments in associates 162 046 30 534

Impairment test of indefinite life goodwill

Goodwill acquired through the investments in Tanzania Distilleries Limited and Grays Inc Limited

has been allocated to those cash-generating units. The recoverable amount of the cash-generating

units has 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 discount

rate applied to the cash flow projections is between 10% and 16%. These calculations indicate that

there was no impairment in the carrying value of the goodwill.

Key assumptions used for value-in-use calculation

Sales growth rates (7% – 11%), gross margins (26% – 55%) and cost increases (5% – 12%) were

based on historical performance and management’s expectations of the market development. The

discount rates used are pretax and reflect specific risks relating to the relevant business.

7. INTANGIBLE ASSETS

Capitalised

software Trademarks Total

R’000 R’000 R’000

2006

Opening balance 14 501 – 14 501

Additions 985 – 985

Amortisation (4 275) – (4 275)

Balance at the end of the year 11 211 – 11 211

Cost 43 466 – 43 466

Accumulated amortisation (32 255) – (32 255)

Net carrying value 11 211 – 11 211

2007

Opening balance 11 211 – 11 211

Additions 19 598 14 303 33 901

Amortisation (11 052) – (11 052)

Balance at the end of the year 19 757 14 303 34 060

Cost 63 064 14 303 77 367

Accumulated amortisation (43 307) – (43 307)

Net carrying value 19 757 14 303 34 060

The Group acquired certain whisky brands during the course of the financial year. Management regards these as having an indefinite useful life

as there are no foreseeable limit on the time the trademarks are expected to provide future cash flows.

8. INVENTORIES

Bulk wines, flavoured alcoholic beverages and spirits 1 477 995 1 443 844

Bottled wines, flavoured alcoholic beverages and spirits 673 507 597 228

Packaging material 211 356 147 256

Excise duty 340 478 310 889

2 703 336 2 499 217

The cost of inventories recognised as an expense and included in ‘Costs of goods sold’ amounted

to R4 989,2 million (2006: R4 467,2 million).

The Group reversed Rnil (2006: R21,2 million) million of a previous write-down during the year

as the goods were sold above original cost. The amount reversed has been included in ‘Costs of

goods sold’ in the income statement.

9. TRADE AND OTHER RECEIVABLES

Trade receivables 705 080 599 218

Provision for impairment of receivables (10 757) (21 684)

Insurance claims 67 159 –

Other receivables 47 542 39 563

809 024 617 097

The Group recognised a provision of R6,4 million (2006: R11,1 million) for its trade receivables

during the year. An amount of R2,0 million (2006: R9,6 million) of the provision for impaired

receivables was used during the year. These amounts have been included in ‘Sales and marketing

expenses’ and ‘Distribution costs’ in the income statement.

10. DERIVATIVE FINANCIAL INSTRUMENTS

The following amounts are included in ‘Other receivables’ (note 9) and ‘Accrued expenses’ (note 17):

Assets

Interest rate swaps – fair value hedges – 980

Forward foreign exchange contracts – held-for-trading 215 –

215 980

Liabilities

Interest rate swaps – cash flow hedges – (649)

Forward foreign exchange contracts – held-for-trading (209) (6 681)

(209) (7 330)

Total 6 (6 350)

2007 2006

R’000 R’000



10. DERIVATIVE FINANCIAL INSTRUMENTS (continued)

Interest rate swaps

In order to hedge specific exposures in the interest rate repricing profile of existing borrowings, the Group uses interest rate derivatives to

generate the desired interest profile. The value of borrowings hedged by interest rate derivatives, and the rates applicable to these contracts at

30 June 2007 and 30 June 2006, were as follows:

Borrowings Fair value

hedged Interest Interest gain/(loss)

R’000 payable receivable R’000

2007

Interest rate swaps (0 – 1 years) – – – –

Interest rate swaps (0 – 1 years) – – – –

2006

Interest rate swaps (0 – 1 years) 80 946 3M Jibar +1,2% 9,7% fixed 980

Interest rate swaps (0 – 1 years) 80 946 10,1% fixed 3M Jibar +1,2% (649)

The interest rate swap agreements reset every six months on 17 March and 17 September, with the final reset on 17 May 2007.

Forward foreign exchange contracts

Material forward foreign exchange contracts as at 30 June 2007 and 30 June 2006 are summarised as follows:

Forward foreign exchange contracts – anticipated transactions

These forward foreign exchange contracts do not relate to specific items on the balance sheet, 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

first three months of the following year.

Foreign

currency Rand Fair value

amount amount gain/(loss)

Foreign currency ’000 R’000 R’000

2007

Forward foreign exchange sales

Canadian dollar 1 300 8 649 (17)

Euro 2 400 23 045 215

31 694 198

Forward foreign exchange purchases

Euro 6 700 64 421 (192)

96 115 6

2006

Forward foreign exchange sales

US dollar 2 850 18 301 (1 480)

Canadian dollar 1 000 5 836 (605)

Euro 5 000 41 106 (4 596)

65 243 (6 681)

The net uncovered trade proceeds at 30 June 2007 amounted to R222,3 million (2006: R125,1 million) and net uncovered trade purchases at

30 June 2007 amounted to R21,0 million (2006: R29,1 million).


11. SHARE CAPITAL

Number Number

’000 ’000

Shares authorised

Ordinary shares of 1 cent each 250 000 250 000

Shares issued


Issue of shares – share scheme 791 1 622

Ordinary shares of 1 cent each issued and fully paid 199 760 198 969

Treasury shares

Opening balance 435 1 134

Issue of shares – share scheme 791 1 622

Shares paid and delivered – share scheme (1 074) (2 321)

Shares held by The Distell Group Share Trust 152 435

Ordinary Share Treasury

shares premium shares Total

R’000 R’000 R’000 R’000

2006

Opening balance 1 974 572 098 (9 461) 564 611

Issue of shares – share scheme 16 18 390 (18 406) –

Shares paid and delivered – share scheme – – 23 754 23 754

Balance at the end of the year 1 990 590 488 (4 113) 588 365

2007

Opening balance 1 990 590 488 (4 113) 588 365

Issue of shares – share scheme 8 11 534 (11 542) –

Shares paid and delivered – share scheme – – 13 435 13 435

Balance at the end of the year 1 998 602 022 (2 220) 601 800

Ten percent of the unissued share capital is under the control of the board of directors until the next annual general meeting.

Share scheme

The trustees of The Distell Group Share Trust (the scheme) offered to participants unissued ordinary shares which were reserved for the scheme.

The total number of unissued shares reserved for the scheme is 10 488 996 (2006: 11 279 570). The details of the offer are as follows:

The offer is 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.

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.

2007 2006



11. SHARE CAPITAL (continued)

Number of Number of

shares shares paid

Offer price Number of accepted as and delivered

per share shares at 30 June as at 30 June

Date Participants (Rand) offered 2007 2007

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 14,60 953 320 953 320 635 548

13 December 2002 Other participants 14,60 1 639 069 1 639 069 1 014 197

3 June 2004 Other participants 15,05 219 570 219 570 –

25 October 2005 Executive directors 31,00 62 743 62 743 –

25 October 2005 Other participants 31,00 1 079 191 1 079 191 –

7 November 2006 Executive directors 40,00 227 233 227 233 –

7 November 2006 Other participants 40,00 335 074 335 074 –

6 893 886 6 893 886 4 027 430

2007 2006

Average Average

offer price offer price

per share Number of per share Number of

(Rand) shares (Rand) shares

The current status of the scheme is as follows:

Ordinary shares due to participants

Previous financial years 19,88 3 489 402 12,01 4 782 071

Offered and accepted in current financial year 40,00 562 307 31,00 1 254 051

Shares paid for and delivered 12,52 (1 073 136) 10,23 (2 321 233)

Resignations and other 31,00 (112 117) 14,01 (225 487)

Outstanding at the end of the year 26,15 2 866 456 19,88 3 489 402

Scheme shares outstanding at the end of the year have the following

expiry dates and exercise prices:

2007 2006

Exercise

price

per share Number of Number of

(Rand) shares shares

Shares issued, not paid for and not delivered (Share Trust) 14,60 152 074 434 636

April 2006 7,35 1 1

December 2006 14,60 – 790 573

June 2007 15,05 73 190 73 190

December 2007 14,60 790 571 790 571

June 2008 15,05 73 190 73 190

October 2008 31,00 380 644 418 017

June 2009 15,05 73 190 73 190

October 2009 31,00 380 644 418 017

November 2009 40,00 187 437 –

October 2010 31,00 380 645 418 017

November 2010 40,00 187 437 –

November 2011 40,00 187 433 –

2 866 456 3 489 402


11. SHARE CAPITAL (continued)

The fair value of shares 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 R40,00

exercise price shown above

expected volatility 29,89% to 35,90%

dividend yield 3,91% to 6,34%

option life shown above

annual risk-free interest rate 7,81% to 10,43%

The expected volatility was determined based on the historical volatility of the Group’s share price over the expected lifetime of each offer.

The total expense recognised in the income statement relating to above equity-settled share-based payments was R5,3 million

(2006: R4,1 million).

2007 2006

R’000 R’000

12. 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 (6 744) 1 149

Opening balance 1 149 (4 571)

Currency translation differences for the year (7 893) 5 720

Hedging reserve – (256)

Opening balance (256) (2 869)

Fair value adjustments of cash flow hedges – (649)

Hedging reserve realised to income 256 3 082

Fair value adjustments 12 581 9 488


Fair value adjustments of available-for-sale investments 3 549 2 937

Deferred income tax on fair value adjustments (456) (360)

BEE share-based payment option reserve 80 995 74 118

Opening balance 74 118 –

BEE share-based payment for the year 6 877 74 118

Employee share scheme reserve 16 855 11 517


Employee share-based payment for the year 5 338 4 139

Actuarial gains and losses reserve 141 565 42 876

Opening balance 42 876 –

Actuarial gains and losses for the year 139 084 59 976

Income tax on actuarial gains and losses (9 705) –

Deferred income tax on actuarial gains and losses (30 690) (17 100)

295 959 189 599

Company

BEE share-based payment option reserve 80 995 74 118

Reserves at formation of a previous holding company 15 199 15 199

Capital reduction 236 236

96 430 89 553



13. RETAINED EARNINGS

Company 979 591 979 591

Consolidated subsidiaries 2 024 322 1 524 719

Joint ventures 33 561 28 978

Associated companies 2 969 2 031

3 040 443 2 535 319

Opening balance 2 535 319 2 267 719


Dividends paid (342 729) (266 788)

Balance at the end of the year 3 040 443 2 535 319

Any future dividends declared from the distributable reserves of the company or its subsidiaries,

which are not wholly owned subsidiaries of the company and are incorporated in South Africa,

may be subject to secondary taxation on companies (STC) at a rate of 12,5% of the dividends

declared.

Dividends received by group companies during their various dividend cycles can be carried

forward as unutilised STC credits. These STC credits can then be utilised to reduce any STC

payable on future dividends declared by Group companies.

Changes in legislation relating to STC are currently being contemplated by the revenue authorities.

The Group had unutilised STC credits of R25,6 million at 30 June 2007 (2006: R26,4 million).

14. INTEREST-BEARING BORROWINGS

Non-current

Unsecured loan, bearing interest at a fixed rate of 8,8% per annum, payable six-monthly in arrears,

with a final redemption on 3 March 2008 328 484 328 484

Unsecured loan, bearing interest at a fixed rate of 10,7% per annum, payable six-monthly in arrears,

with a final redemption on 17 May 2007 – 326 819

Secured loans on capitalised finance lease vehicles (see note 3), bearing interest at a variable

rate of 1,8% below prime per annum, payable monthly in arrears in instalments of R91 068

(2006: R57 130) for 48 months 3 409 2 062

331 893 657 365

Less: Portion of loans repayable within one year, included in current liabilities (329 264) (326 719)

2 629 330 646

Current

Unsecured call accounts and bank overdrafts – 105 783

Short-term portion of non-current borrowings 329 264 326 719

329 264 432 502

Total interest-bearing borrowings 331 893 763 148

The interest rate repricing profile at 30 June 2007 and 30 June 2006 is summarised as follows:

% of 2007 2006 % of

Interest-bearing borrowings total R’000 R’000 total

Fixed rate (unsecured loans) 99,0 328 484 655 303 85,8

Floating rate (secured loans) 1,0 3 409 2 062 0,3

Floating call rate (2006: 7,4%) – – 105 783 13,9

Total interest-bearing borrowings 100,0 331 893 763 148 100,0

The maturity profile of the interest-bearing borrowings is indicated in note 34.5.

2007 2006

R’000 R’000


14. 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 1 620 000 1 682 000

Less: Current interest-bearing borrowings – (105 783)

Unutilised banking facilities 1 620 000 1 576 217

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 3 940 680 3 316 048

Total interest-bearing borrowings (331 893) (763 148)

Unutilised borrowing capacity 3 608 787 2 552 900

Cash and cash equivalents 332 426 227 578

Unutilised borrowing capacity and cash and cash equivalents 3 941 213 2 780 478

No assets of the Group, other than vehicles under finance lease agreements, were encumbered as

at 30 June 2007.

15. RETIREMENT BENEFITS

Balance sheet assets for:

Pension benefits (45 851) (9 972)

Post-retirement medical liability (141 201) (38 823)

(187 052) (48 795)

Balance sheet obligations for:

Post-retirement medical liability 12 842 12 191

12 842 12 191

Net retirement benefit asset (174 210) (36 604)

Income statement charge for:


Post-retirement medical liability 12 723 11 953

6 979 1 981

15.1 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 1 March 2005 and indicated that the plans are in a sound financial position.

2007 2006

R’000 R’000



15. RETIREMENT BENEFIT OBLIGATIONS (continued)

15.1 Pension benefits (continued)

Balance sheet

Amounts recognised in the balance sheet are as follows:

Present value of funded obligations 173 301 169 970

Fair value of plan assets (290 824) (260 193)

Funded position (117 523) (90 223)

Actuarial gains 2 415 (25 736)

Asset not recognised in terms of IAS 19, paragraph 58 limit* 69 257 55 572

Asset not recognised at balance sheet date** – 50 415

Net asset in balance sheet (45 851) (9 972)

The movement in the defined benefit obligation over the year is as follows:


Current service cost 907 464

Interest cost 13 457 12 419

Contributions 268 261

Actuarial losses 6 943 30 081

Benefits paid (18 077) (61 629)

Past-service cost in terms of the surplus apportionment exercise – 102 756

Risk premiums (167) (157)


The movement in the fair value of plan assets over the year is as follows:


Expected return on plan assets 20 108 19 979

Actuarial gains 28 150 41 224

Employer contributions 349 338

Employee contributions 268 261

Risk premiums (167) (157)

Benefits paid (18 077) (61 629)


Income statement

Amounts recognised in the income statement are as follows:

Current service cost 907 464

Interest on liability 13 457 12 419

Expected return on plan assets (20 108) (22 855)

Total income (5 744) (9 972)

Actual return on plan assets (47 879) (85 050)

* The “IAS 19, paragraph 58 limit” ensures that the asset to be recognised in the Group’s balance sheet 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.

** No asset was previously recognised for the SFW Pension Fund and the Distillers Corporation Pension Fund in respect of the surplus as the apportionment of the surplus

as at 1 April 2002 still needed to be approved by the Registrar of Pension Funds in terms of the Pension Funds Second Amendment Act, 39 of 2001. The required Financial

Services Board (FSB) approval was obtained and the apportionment of the surplus finalised in the previous financial year and an asset of R10,0 million was recognised on

30 June 2006 in this regard.

The FSB approved the transfer of R104,3 million from the employer surplus in the SFW Pension Fund to the Distell Retirement Fund, which is a defined contribution

fund. This transfer was utilised to reduce the employer liability in the Distell Retirement Fund, resulting in a net asset in the employer surplus account of R50,4 million on

30 June 2006. The FSB approved the surplus apportionment within the Distell Retirement Fund in the current financial year and an asset and actuarial gain of

R33,5 million were recognised at balance sheet date in this regard.

2007 2006

R’000 R’000



15.1 Pension benefits (continued)

Principal actuarial assumptions on balance sheet date

Discount rate 7,8% 8,0%

Expected rate of return on plan assets 8,3% 7,5%

Future salary increases 5,8% 6,0%

Future pension increases 4,8% 5,0%

Inflation rate 4,8% 5,0%

2007 2006

R’000 R’000

15.2 Post-retirement medical liability

Balance sheet

Amounts recognised in the balance sheet are as follows:

Present value of funded obligation 441 128 395 764

Fair value of plan assets (569 487) (422 396)

Net asset in balance sheet (128 359) (26 632)

The movement in the defined benefit obligation over the year is as follows:


Current service cost 19 228 12 991

Interest cost 31 074 26 108

Actuarial losses 4 764 54 372

Benefits paid (9 702) (9 715)


The movement in the fair value of plan assets over the year is as follows:


Expected return on plan assets 37 579 27 146

Actuarial gains 107 969 114 348

Employer contributions 11 245 –

Benefits paid (9 702) (9 715)


Income statement

Amounts recognised in the income statement are as follows:

Current service cost 19 228 12 991

Interest on liability 31 074 26 108

Expected return on plan assets (37 579) (27 146)

Total expense 12 723 11 953

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 balance sheet date

Discount rate 7,8% 8,0%

Expected rate of return on assets 8,8% 9,0%

Future salary increases 5,8% 6,0%

Annual increases in health cost 6,8% 7,0%

Expected membership continuation at retirement 95,0% 95,0%

Expected retirement age 60 60

2007 2006



Decrease Increase



15.2 Post-retirement medical liability (continued)

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 11 699 16 010

Effect on the defined-benefit obligation 78 674 104 501

2007 2006

R’000 R’000

Actuarial gains recognised in the SoRIE 139 084 59 976

Cumulative actuarial gains recognised in the SoRIE 199 060 59 976

16. DEFERRED INCOME TAX

Deferred income tax assets and deferred income tax liabilities are offset when there is a legally

enforceable right of offset and when the deferred income tax relates to the same fiscal authority.

The amounts disclosed on the balance sheet are as follows:

Companies in the Group with net deferred income tax assets

Deferred tax asset to be recovered after more than 12 months (18 459) (29 452)

Deferred tax asset to be recovered within 12 months (10 303) (7 318)

(28 762) (36 770)

Companies in the Group with net deferred income tax liabilities

Deferred tax liability to be recovered after more than 12 months 142 999 92 252

Deferred tax liability to be recovered within 12 months 21 034 28 395

164 033 120 647

Net deferred income tax 135 271 83 877

The gross movement on the deferred income tax account is as follows:


Income statement charge

Provision for the year 20 248 (111)

Charged to equity (note 12) 31 146 17 460


The movement in deferred income tax assets and liabilities during the year, without taking

offsetting into account, is as follows:

Allowances Actuarial

on fixed Biological gains and

assets assets losses Total

Deferred income tax liabilities R’000 R’000 R’000 R’000

2006

Opening balance 129 430 20 691 – 150 121

Charged to the income statement 2 849 (2 206) – 643

Charged to equity – – 17 100 17 100

Balance at the end of the year 132 279 18 485 17 100 167 864

2007

Opening balance 132 279 18 485 17 100 167 864

Charged to the income statement 8 883 3 543 – 12 426

Charged to equity – – 30 690 30 690

Balance at the end of the year 141 162 22 028 47 790 210 980


16. DEFERRED INCOME TAX (continued)

Leave and

Impairment of Assessed Unutilised bonus

receivables losses STC credits accruals Other Total

Deferred income tax assets R’000 R’000 R’000 R’000 R’000 R’000

2006

Opening balance (6 731) (25 340) (18 255) (17 526) (15 741) (83 593)

Charged to the income statement 443 (701) 14 949 (22 366) 6 921 (754)

Charged to equity – – – – 360 360

Balance at the end of the year (6 288) (26 041) (3 306) (39 892) (8 460) (83 987)

2007

Opening balance (6 288) (26 041) (3 306) (39 892) (8 460) (83 987)

Charged to the income statement 3 168 5 509 104 (1 829) 870 7 822

Charged to equity – – – – 456 456

Balance at the end of the year (3 120) (20 532) (3 202) (41 721) (7 134) (75 709)

2007 2006

R’000 R’000

17. TRADE AND OTHER PAYABLES

Trade payables 858 029 616 249

Accrued expenses 58 077 42 756

Accrued leave pay 40 328 34 550

Excise duty 417 731 376 921

Value added tax 12 236 22 715

1 386 401 1 093 191

18. PROVISIONS

Bonuses


Charged to the income statement

Additional provisions 105 567 106 714

Unused amounts – reversed (11 725) (548)

Utilised during the year (93 313) (63 589)


Performance and other bonuses 101 778 101 208

Long-service bonuses 1 761 1 802

103 539 103 010

The majority of employees in 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.

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% and an attrition

rate of 7%.



19. REVENUE

Group

Sales 6 231 244 5 247 586

Excise duty 1 723 358 1 469 624

7 954 602 6 717 210

Company

Dividends received

Ordinary shares: South African Distilleries and Wines (SA) Limited 291 477 102 846

Preference shares: WIPHOLD Beverages (Proprietary) Limited 51 437 18 150

342 914 120 996

20. OPERATING EXPENSES

20.1 Costs classified by function

Costs of goods sold 5 178 362 4 407 290

Sales and marketing expenses 910 472 703 873

Distribution costs 488 273 430 627

Administration and other costs 262 762 286 025

6 839 869 5 827 815

20.2 Costs classified by nature

Group

Administrative and managerial fees 6 597 6 286

Advertising costs and promotions 643 765 466 792

Amortisation of intangible assets 11 052 4 275

Auditor’s remuneration (note 20.3) 4 975 4 509

BEE share-based payment relating to employees 6 877 6 877

Depreciation (note 3) 126 637 128 866

Employee benefit expense (note 20.4) 808 206 754 533

Impairment of trade and other receivables 4 050 7 079

Net fair value adjustment of biological assets (note 4) 2 129 8 581

Net foreign exchange losses 1 540 (17 584)

Operating lease expenses (notes 20.5 and 32) 70 295 60 278

Loss on disposal of property, plant and equipment – 255

Raw materials and consumables used 4 751 861 4 108 606

Research and development expenditure: trademarks and brands 6 495 6 359

Transportation costs 147 054 112 465

Other expenses 248 336 169 638

6 839 869 5 827 815

Company

Profit on disposal of interest in subsidiary: Sale of 15% in South African Distilleries and

Wines to WIP Beverages (see note 38) – (750 325)

– (750 325)

2007 2006

R’000 R’000

20. OPERATING EXPENSES (continued)

20.3 Auditor’s remuneration

Audit fees 3 411 3 021

Audit fees in respect of previous year 170 132

Fees for other services

Taxation 1 197 993

Other 140 289

Expenses 57 74

4 975 4 509

20.4 Employee benefit expense

Salaries and wages 720 881 682 441

Scheme shares granted to directors and employees 5 337 4 139

Pension costs – defined-contribution plans 44 824 39 695

Medical aid contributions 30 185 26 277

Post-retirement medical benefits 12 723 11 953


808 206 754 533

20.5 Operating lease expenses

Properties 25 586 22 680

Vehicles 23 855 20 216

Equipment 11 713 8 745

Machinery 9 141 8 637

70 295 60 278

21. BEE SHARE-BASED PAYMENT

Employee portion – recurring 6 877 6 877

Non-employee portion – non-recurring – 67 241

6 877 74 118

Taxation – –

6 877 74 118

See note 38 for details about the BEE transaction.

22. NET OTHER GAINS

Net insurance proceeds received for fire damage to production site 63 587 –

Profit on disposal of property, plant and equipment 10 289 –

73 876 –

Taxation (5 317) –

68 559 –

23. DIVIDEND INCOME

Dividend income is derived from unlisted investments 1 284 1 497

1 284 1 497

24. FINANCE INCOME

Interest received


Other 3 452 6 713

Dividends received on preference shares 45 508 48 624

87 172 93 483

2007 2006

R’000 R’000



25. FINANCE COSTS

Interest paid

Borrowings (77 029) (118 289)

Other (2 220) (2 597)

Fair value gains on financial instruments

Interest rate swaps: cash flow hedges transferred from equity (256) (3 082)

Interest rate swaps: fair value hedges 302 3 122

(79 203) (120 846)

26. SHARE OF PROFIT OF ASSOCIATES

Share of profit before taxation 20 789 14 408

Share of taxation (6 534) (4 552)

14 255 9 856

Dividends received (13 317) (8 671)

Share of profit for the year 938 1 185

27. TAXATION

27.1 Normal company taxation

Group

Current taxation

current year 347 528 264 233

previous year (533) 7 634

Deferred taxation 20 248 (111)

367 243 271 756

Composition

Normal South African taxation 300 220 236 056

Foreign taxation 30 087 23 414

Secondary taxation on companies (STC) 36 936 12 286

367 243 271 756

Company

Deferred taxation

current year – 18 255

27.2 Reconciliation of rate of taxation (%)

Standard rate for companies 29,0 29,0

Differences arising from normal activities:

non-taxable income (3,1) (2,3)

non-deductible expenses 1,2 3,5

taxation losses utilised – (0,1)

foreign tax rate differential and withholding taxes 0,2 0,2

27,3 30,3

Secondary taxation on companies 3,0 1,5

Unutilised STC credits – 1,9

Effective rate 30,3 33,7

27.3 Taxation losses

Calculated taxation losses and capital improvements available for offset against future taxable income 77 924 97 558

Applied to reduce deferred income tax (70 801) (89 796)

7 123 7 762

2007 2006

R’000 R’000


28. EARNINGS PER ORDINARY SHARE

28.1 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) 199 079 197 414

Earnings reconciliation

Profit attributable to equity holders 874 853 534 388

Adjusted for (net of taxation):

net other capital gains (68 559) (181)

loss on disposal of interest in associate – 1 763

Headline earnings 779 294 535 970

Adjusted for (net of taxation):

non-recurring BEE share-based payment (note 21) – 67 241

Adjusted headline earnings 779 294 603 211

Basic earnings per share (cents) 425,9 270,7

Headline earnings per share (cents) 391,5 271,5

Adjusted headline earnings per share (cents) 391,5 305,6

Cash equivalent earnings

Profit attributable to equity holders 847 853 534 388

Adjusted for:

deferred income tax (note 27.1) 20 248 (111)

dividend from preference shares (note 24) (45 508) (48 624)

BEE share-based payment (note 21) 6 877 74 118

non-cash flow items (note 30.1) 117 539 185 540

Total cash equivalent earnings 947 009 745 311

Cash equivalent earnings per share (cents) 475,7 377,5

28.2 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 scheme (note 11) and the call option granted to the consortium participating in the BEE transaction (note 38).

For the share scheme, 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

scheme 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 scheme options.

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 (Proprietary) Limited at year-end.

2007 2006

R’000 R’000



28. EARNINGS PER ORDINARY SHARE (continued)

28.2 Diluted earnings per share (continued)

Weighted average number of ordinary shares in issue (’000) 199 079 197 414

Adjusted for:

share scheme 885 732

BEE transaction 13 689 277

Weighted average number of ordinary shares for diluted earnings (’000) 213 653 198 423

Diluted earnings per share (cents) 396,8 269,3

Diluted headline earnings per share (cents) 364,7 270,1

Diluted adjusted headline earnings per share (cents) 364,7 304,0

29. DIVIDENDS

Paid: 87,0 cents (2006: 68,0 cents) 173 791 134 810

Declared: 109,0 cents (2006: 85,0 cents) 218 679 169 124

Total: 196,0 cents (2006: 153,0 cents) 392 470 303 934

A final dividend of 109,0 cents per share was declared for the financial year ended 30 June 2007.

The dividend will be paid on Tuesday, 25 September 2007. The last date to trade cum dividend

will be Friday, 14 September 2007. The share of Distell will commence trading ex dividend from

the commencement of business on Monday, 17 September 2007, and the record date will be

Friday, 21 September 2007.

Since the final dividend was declared subsequent to year-end, it has not been provided for in the

annual financial statements.

30. CASH FLOW INFORMATION

30.1 Non-cash flow items

Depreciation 126 637 128 866

Net fair value adjustment of biological assets 2 129 8 581

Intangible assets amortisation 11 052 4 275

Profit on disposal of property, plant and equipment – (255)

Provision for impairment of receivables (10 927) (1 526)

Provision for retirement benefits 1 478 1 981

Provision for leave and bonuses 6 307 44 083

Other (19 137) (465)

117 539 185 540

30.2 Working capital changes

Group

Increase in inventories (191 065) (252 949)

Increase in trade and other receivables (125 884) (41 870)

Increase in trade and other payables 272 778 120 007

(44 171) (174 812)

Company

Decrease in other receivables – 146 036

30.3 Taxation paid

Group

Unpaid at the beginning of the year (66 843) 51 636

Current provision for taxation (346 539) (271 867)

Current provision for taxation in equity (9 705) –

Unpaid at the end of the year 57 707 66 843

(365 380) (153 388)

2007 2006

R’000 R’000



30. CASH FLOW INFORMATION (continued)

30.4 Dividends paid

Group

Dividends declared (342 914) (267 032)

Dividends paid to The Distell Group Share Trust 185 244

Unpaid at the end of the year – –

(342 729) (266 788)

Company

Dividends declared (342 914) (267 032)

Unpaid at the end of the year – –

(342 914) (267 032)

30.5 Investment to maintain operations

Properties (33 950) (10 644)

Machinery, tanks and barrels (73 731) (95 636)

Equipment and vehicles (13 726) (8 225)

Intangible assets (19 598) (985)

Proceeds on disposal of property, plant and equipment 17 793 9 173

(123 212) (106 317)

30.6 Investment to expand operations

Properties (28 523) (36 654)

Biological assets (12 424) (5 791)

Machinery, tanks and barrels (53 103) (12 970)

Equipment and vehicles (7 062) (7 519)

Intangible assets (14 303) –

Net investments disposed 25 455 4 887

(89 960) (58 047)

30.7 Increase in net cash and cash equivalents

Balance at the beginning of the year (121 795) 47 610

Exchange gains on cash and cash equivalents (73) (7 613)

Balance at the end of the year


Call accounts and bank overdrafts – (105 783)

210 558 161 792

31. SEGMENT REPORTING

Primary reporting format – business segment

The Group is engaged in the manufacturing, marketing and distribution of alcoholic beverages.

As these activities comprise an integrated operation, the Group regards this as a single primary

business segment, on which all information is disclosed in the annual financial statements.

Secondary reporting format – geographic distribution regions

Regional revenue

Republic of South Africa 6 454 210 5 527 154

Sub-Saharan Africa 706 011 588 170

International 794 381 601 886

7 954 602 6 717 210

Regional assets

Republic of South Africa 5 737 702 5 256 903


International 137 067 104 741

5 997 095 5 475 078

2007 2006

R’000 R’000


2007 2006

R’000 R’000


31. SEGMENT REPORTING (continued)

Secondary reporting format – geographic distribution regions (continued)

Capital expenditure on property, plant and equipment

Republic of South Africa 208 174 158 596


International 203 6 232

210 095 171 648

Regional revenue excludes sales between Group companies.

Regional assets include operating assets and investments in associates, but exclude intercompany balances.

32. COMMITMENTS

Capital commitments

Capital expenditure contracted, not yet incurred 155 772 61 387

Capital expenditure authorised by the directors, not yet contracted 371 260 202 143

527 032 263 530

Composition of capital commitments

Subsidiaries 515 524 259 346

Joint ventures 11 508 4 184

527 032 263 530

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 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 CPIX inflation rate.

The future minimum lease payments under non-cancellable operating leases are as follows:

Not later than 1 year 45 566 39 827

Later than 1 year and not later than 5 years 108 221 78 764

153 787 118 591

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. Ownership of the vehicles is transferred to employees of the

Group at the end of the lease agreements. The agreements have no contingent rents.

Later than

Not 1 year and

later than not later than

1 year 5 years Total Total

R’000 R’000 R’000 R’000

Minimum lease payments 1 102 3 077 4 179 2 453

Finance costs (322) (448) (770) (391)

Present value of minimum lease payments 780 2 629 3 409 2 062


33. CONTINGENCIES

In prior years the Group received compensation for relinquishing its distribution rights to certain whisky trademarks. The South African Revenue

Service has issued revised assessments to the value of R29,5 million in terms of which the proceeds of R67 million have been subjected to

income tax and value added tax. The Group has lodged an appeal against these assessments and the matter will be heard in the Special Income

Tax Court.

34. FINANCIAL RISK MANAGEMENT

34.1 Treasury risk management

The Group adopts a prudent, but flexible approach towards the use of derivative instruments aimed at reducing or eliminating foreign currency

and interest rate risks, using the most cost-effective means available. 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 are reviewed

annually by the board of directors.

34.2 Foreign currency risk management

The Group has transactional currency exposures, which principally arise from sales and purchases, in currencies other than SA rand. 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.

The Group does not speculate or engage in the trading of financial instruments.

The functional currencies of the following subsidiaries are as follows:

Afdis Holdings (Private) Limited (Zimbabwe) (50%) Zimbabwe dollar

Distell Namibia Limited (Namibia) Namibian dollar

Distillers Corporation (Botswana) (Proprietary) Limited (Botswana) Botswana pula

Grays Inc Limited (Mauritius) (26%) Mauritian rupee

Namibia Wines & Spirits Limited (Namibia) Namibian dollar

Swaziland Liquor Distributors Limited (Swaziland) Emalangeni

Tanzania Distilleries Limited (Tanzania) (35%) Tanzanian shilling

34.3 Interest rate risk management

Interest rate risk arises 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 interest rate characteristics of new borrowings and the refinancing of existing borrowings

are revised on an ongoing basis.

34.4 Credit risk management

Potential concentrations of credit risk principally exist for trade receivables, cash and cash equivalents, derivatives and investments. 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 granting of credit is controlled by application and the assumptions

applied therein are reviewed and updated on an ongoing basis.

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 Group is 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 R47,4 million and staff housing loans of R2,9 million (2006: R3,0 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 2007, the Group did not consider there to be a significant concentration of credit risk which had not been adequately provided for.



34. FINANCIAL RISK MANAGEMENT (continued)

34.5 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.

The maturity profile of the Group’s financial instruments are summarised as follows (derivative instruments reflect their contract amounts):

0 – 12 1 – 2 3 – 5 Beyond 5 2007 2006

months years years years Total Total

R’000 R’000 R’000 R’000 R’000 R’000

Financial assets

Derivative instruments 215 – – – 215 980

Trade and other receivables 808 809 – – – 808 809 616 117

Cash and cash equivalents 332 426 – – – 332 426 227 578

Other financial assets 361 152 – – 72 822 433 974 657 747

Financial liabilities

Derivative instruments 209 – – – 209 7 330

Trade and other payables 1 489 731 – – – 1 489 731 1 188 871

Interest-bearing borrowings 329 264 780 1 849 – 331 893 763 148

Current income tax liabilities 57 707 – – – 57 707 66 843

34.6 Fair value of financial instruments

The estimated net fair values, at 30 June 2007, have been determined using available market information and appropriate valuation methodologies,

as detailed below, but are not necessarily indicative of the amounts that the Group could realise in the normal course of business.

The following methods and assumptions were used by the Group in establishing fair values:

Cash and cash equivalents, trade and other receivables and loans: The carrying amounts reported in the balance sheet approximate

fair values.

Interest-bearing borrowings and trade and other payables: The carrying amounts reported in the balance sheet approximate fair values.

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.

35. HYPERINFLATIONARY ECONOMIES

The Group’s joint venture in Zimbabwe operated in a hyperinflationary environment and the conversion factors and indices that were used to

restate the relevant financial statements are detailed below. The conversion factors are derived from the Zimbabwean consumer price index

issued by the Zimbabwean Central Statistics office.

2007 2006

Indices 4 032 634 158 708

Conversion factor 1,00 25,41

Parallel rate used for conversion of results 26 000 60 000

R’000 R’000

Loss on net monetary position, included in net foreign exchange gains (note 20.2) 11 816 1 816


36. BUSINESS COMBINATIONS

With effect from 1 January 2006, the Group acquired 26% of the share capital of Grays Inc Limited, a liquor producer and distributor in Mauritius.

The acquired business contributed net income of R1,1 million for the 18 months to 30 June 2007.

With effect from 1 July 2006, Lomond Wine Estates (Proprietary) Limited, in which the Group holds a 50% interest, acquired a vineyard farming

operation from Lomond Properties (Proprietary) Limited. The acquired business contributed a net loss of R1,0 million for the 12 months to

30 June 2007.

Lomond

Wine Estates

Grays Inc (Proprietary)

Limited Limited

R’000 R’000

Details of the net assets acquired and goodwill are as follows:

Purchase consideration – cash paid 6 949 7 700

Fair value of net assets acquired (4 451) (7 700)

Goodwill (note 6) 2 498 –

The goodwill is attributable to the profitability of the acquired business and the synergies

expected to arise after the Group’s acquisition.

The fair value assets and liabilities arising from the acquisitions are as follows:

Property, plant and equipment 4 241 899

Biological assets – 16 106

Intangible assets 1 036 –

Deferred income tax assets 285 –

Inventories 32 446 –

Trade and other receivables 43 220 38

Cash and cash equivalents 2 236 1

Borrowings (32 773) (173)

Shareholder’s loan (16 753) –

Retirement benefit obligations (2 290) –

Trade and other payables (14 531) (1 471)

Net assets 17 117 15 400

Group’s interest in net assets acquired 4 451 7 700

Purchase consideration settled in cash 6 949 7 700

Shareholder’s loan for working capital requirements 4 356 –

Cash outflow on acquisition 11 305 7 700


37. CHANGES IN ACCOUNTING POLICIES AND COMPARATIVE FIGURES

37.1 Actuarial gains and losses in retirement benefit obligations

The Group changed its accounting policy on 1 July 2006 by adopting the option in the amended statement of International Financial Reporting

Standards dealing with Employee Benefits (IAS 19), to recognise all actuarial gains and losses in retirement benefit obligations outside profit and

loss in the period in which they occur.

Previously, actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10%

of the value of plan assets or 10% of the defined benefit obligation were charged or credited to income over the employees’ expected average

remaining working lives. All actuarial gains and losses are now recognised outside profit or loss in the period they occur and are presented in the

statement of recognised income and expense (SoRIE). This change in policy requires the Group to present the SoRIE as a primary statement in

place of the statement of changes in equity.

This change in accounting policy has been accounted for retrospectively and the comparative financial statements for 30 June 2006 have been

restated. The effect of the change on 30 June 2006 is as follows:

Previously Currently

reported reported Difference

R’000 R’000 R’000

Group

Income statement

Profit before taxation 806 144 806 144 –

Taxation (271 756) (271 756) –

Balance sheet

Retirement benefit assets 9 972 48 795 38 823

Deferred income tax assets 35 061 36 770 1 709

Retirement benefit liabilities (33 344) (12 191) 21 153

Deferred income tax liabilities (101 838) (120 647) (18 809)

Non-distributable and other reserves (146 723) (189 599) (42 876)

37.2 Group and treasury share transactions

The Group changed its accounting policy on 1 July 2006 by early adopting IFRIC Interpretation 11 dealing with Group and Treasury Share

Transactions. The interpretation addresses the issue of share-based payment arrangements that involve two or more entities within the same group

and also provides guidance on how share-based payment arrangements should be accounted for in the financial statements of the subsidiary that

receives services from its employees or goods or services from suppliers other than employees.

The employee portion of the BEE share-based payment (note 21) was allocated to subsidiaries based on the number of units that qualifying

employees receive in terms of The Distell Employee Share Ownership Trust and the non-employee portion was allocated to subsidiaries based on

the relative benefits expected to be received by them.

The implementation of this interpretation had no effect on the consolidated financial statements of the Group.

This change in accounting policy has been accounted for retrospectively and the comparative individual financial statements of Distell Group

Limited for 30 June 2006 have been restated. The effect of the change on 30 June 2006 is as follows:

Previously Currently

reported reported Difference

R’000 R’000 R’000

Company

Income statement

Profit before taxation 797 203 871 321 74 118

Taxation (18 255) (18 255) –

Balance sheet

Retirement benefit assets 1 587 504 1 661 622 74 118



38. 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, 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 (Proprietary) Limited (WIP Beverages).

WIP Beverages settled the purchase price by issuing variable rate (consumer price inflation index, for metropolitan areas, excluding interest rates

(CPIX) plus 7%) cumulative redeemable preference shares to Distell Group Limited (Distell Group).

After an initial eight-year term, which can be extended by two years, WIP Beverages has a call option whereby it can exchange its shares in SADW

for shares in Distell Group.

The preference shares do not have voting rights, except in respect of certain resolutions like 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. As a consequence, Distell Group has power to govern certain 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 option pricing model, equates 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 is expensed immediately and the employee portion

is spread over a vesting period of eight years. Also see accounting policy note 1.22.

39. DIRECTORS’ EMOLUMENTS

2007 2006

Non- Non-

Executive executive Total Executive executive Total

R’000 R’000 R’000 R’000 R’000 R’000

Salaries and fees 3 621 1 654 5 275 3 253 1 238 4 491

Incentive bonuses 1 718 – 1 718 1 284 – 1 284

Retirement fund contributions 752 – 752 684 – 684

Medical aid contributions 48 – 48 86 – 86

Vehicle benefits 610 – 610 580 – 580

Scheme shares (8) 1 076 – 1 076 795 – 795

Paid by subsidiaries 7 825 1 654 9 479 6 682 1 238 7 920

Retirement

Incentive fund Medical aid Vehicle Scheme 2007 2006

Salaries bonuses contributions contributions benefits shares Total Total

R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000

Executive

JJ Scannell 1 787 990 371 16 222 727 4 113 3 465

SJ Genade 906 361 188 16 195 220 1 886 1 695

MJ Botha 928 367 193 16 193 129 1 826 1 522

Subtotal 3 621 1 718 752 48 610 1 076 7 825 6 682



39. DIRECTORS’ EMOLUMENTS (continued)

Retirement

Incentive fund Medical aid Vehicle Scheme 2007 2006

Fees bonuses contributions contributions benefits shares Total Total

R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000

Non-executive

FC Bayly 90 – – – – – 90 80

PM Bester (1) 112 – – – – – 112 80

PE Beyers 90 – – – – – 90 80

JG Carinus 90 – – – – – 90 80

GJ Gerwel 90 – – – – – 90 80

E de la H Hertzog 90 – – – – – 90 80

R Lumb (2) 127 – – – – – 127

MJ Madungandaba 90 – – – – – 90 80

LM Mojela (3) 112 – – – – – 112 60

GP Mthethwa (4) 130 – – – – – 130 60

DM Nurek (5) 312 – – – – – 312 214

D Prins 57 – – – – – 57 120

PEI Swartz (6) 112 – – – – – 112 100

MH Visser (7) 152 – – – – – 152 124

Subtotal 1 654 – – – – – 1 654 1 238

Total 5 275 1 718 752 48 610 1 076 9 479 7 920

1. Mr PM Bester is a member of the remuneration committee.

2. Mr R Lumb was appointed with effect from 19 October 2006 and is chairman of the audit committee.

3. Ms LM Mojela is a member of the remuneration committee.

4. Ms GP Mthethwa is a member of the audit committee.

5. Mr DM Nurek is chairman of the board, a member of the audit committee and chairman of the remuneration committee.

6. Mr PEI Swartz is a member of the remuneration committee.

7. Mr MH Visser is a member of the audit committee and the remuneration committee.

8. Scheme shares refer to the value of shares accepted after 7 November 2002 which are accounted for in terms of IFRS 2.

.

40. INTEREST OF DIRECTORS IN SHARE CAPITAL AND CONTRACTS

On 30 June 2007 and on 30 June 2006, 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- 2007 2006

Ordinary shares Beneficial beneficial Beneficial beneficial Total Total

FC Bayly – – 1 949 – 1 949 1 949

MJ Botha 379 791 – – – 379 791 223 984

SJ Genade 336 837 2 992 – – 339 829 222 745

E de la H Hertzog 25 200 – – 21 000 46 200 46 200

R Lumb – – 3 000 – 3 000

DM Nurek – – 15 000 – 15 000 15 000

JJ Scannell 934 171 900 – 1 100 936 171 756 669

PEI Swartz – – 10 000 – 10 000 10 000

1 675 999 3 892 29 949 22 100 1 731 940 1 276 547

The other directors of the company have no interest in the issued capital of the company. There has been 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.


41. DISTELL SHARE SCHEME

In the financial year ended 30 June 2007 an additional 227 233 shares (2006: 62 743) were offered to directors.

Current status

Ordinary shares

Number of Number of Share price Balance

Shares Shares shares paid shares paid on date of of shares

accepted accepted Offer and delivered and delivered payment and Increase in accepted

prior to in the year to price prior to in the year to delivery value* as at

Participant 30 June 2006 30 June 2007 (Rand) 30 June 2006 30 June 2007 (Rand) R’000 30 June 2007

Executive

JJ Scannell 589 823 7,35 589 823 –

JJ Scannell 537 605 14,60 179 202 179 202 52,00 6 702 179 201

JJ Scannell 59 494 31,00 59 494

JJ Scannell 129 515 40,00 129 515

SJ Genade 275 995 7,35 183 996 91 999 41,00 3 096 –

SJ Genade 210 254 14,60 70 085 70 085 52,00 2 621 70 084

SJ Genade 48 506 40,00 48 506

MJ Botha 261 962 7,35 174 642 87 320 41,00 2 938 –

MJ Botha 205 461 14,60 68 487 68 487 52,00 2 561 68 487

MJ Botha 3 249 31,00 3 249

MJ Botha 49 212 40,00 49 212

Total 2 143 843 227 233 1 266 235 497 093 17 918 607 748

* 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 11).


42. RELATED-PARTY TRANSACTIONS

Distell Group Limited is controlled by Remgro-KWV Investments Limited which owns 59% of the

company’s shares.

Related-party relationships exist between the Group, associates, joint ventures and the shareholders of the

company.

The following transactions were carried out with related parties:

Purchases of goods and services

KWV Group Limited (inventory used in production) 85 067 132 814

M&I Group Services Limited (management services) 6 081 5 698

M&I Group Services Limited (interest on loans) 1 412 6 097

92 560 144 609

Year-end balances arising from purchases of goods and services

KWV Group Limited (including VAT) 4 914 5 739

M&I Group Services Limited (including VAT) 1 401 1 067

M&I Group Services Limited (call accounts) – 75 000

6 315 81 806

The Group has access to loan funds from M&I Group 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 19 486 16 911

Information regarding directors’ remuneration appears in note 39.


2007 2006

R’000 R’000

Annexure 1interest in subsidiaries

The total profits/(losses) after taxation of consolidated subsidiaries for the year are as follows:

Profits 848 604 527 940

Losses (19 588) (4 673)

Net consolidated profit after taxation 829 016 523 267

The company’s direct interests in its subsidiaries are as follows:

South African Distilleries and Wines (SA) Limited (85%) – Unlisted 810 630 792 211

Long-term loan – interest-free and repayable on demand 729 634 718 092

Share-based payment contribution (note 37.2) 80 995 74 118

Shares 1 1

WIPHOLD Beverages (Proprietary) Limited

Variable rate cumulative redeemable preference shares (note 38) 869 411 869 411

Investments in subsidiaries 1 680 041 1 661 622

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

Distell Limited 100 1 000

Distell Namibia Limited (Namibia) 100 4 000

Distillers Corporation International Limited (Mauritius) 100 12

Distillers Corporation (Botswana) (Proprietary) Limited (Botswana) 100 3

House of J.C. Le Roux Limited 100 100

Devon Road Property Limited 100 100

Durbanville Hills Wines (Proprietary) Limited 64 861 700

Ecowash (Proprietary) Limited 100 100

Expo Liquor Limited 100 4 066 625

Nederburg Wines (Proprietary) Limited 100 218 870

Nederburg Wine Farms Limited 100 200

Namibia Wines & Spirits Limited (Namibia) 100 100 000

SFW Holdings Limited 100 200

SFW Financing Company Limited 100 70 000

Stellenbosch Farmers’ Winery Limited 100 7

Swaziland Liquor Distributors Limited (Swaziland) 100 390 401

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 2007 amounted

to R115,0 million (2006: R51,2 million). The preference shares have a dividend rate of CPIX plus 7%.


2007 2006

R’000 R’000

Annexure 2interest in unlisted associates

2007 2006

R’000 R’000

The Group’s interest in associates is as follows:

Tanzania Distilleries Limited (Tanzania) (35%) 14 959 15 146

Cost price 27 427 27 427

Goodwill written off (14 075) (14 075)

Equity-accounted retained earnings 1 607 1 794

Grays Inc Limited (Mauritius) (26%) 8 025 –

Cost price 6 949 –

Equity-accounted retained earnings 1 076 –

Papkuilsfontein Vineyards (Proprietary) Limited (49%) 286 237

Cost price – –

Equity-accounted retained earnings 286 237

Investments in associates 23 270 15 383

Share in net assets of associates 14 194 8 805

Goodwill 9 076 6 578

23 270 15 383

The aggregate balance sheets of associates are summarised as follows:

Property, plant and equipment 28 795 22 251

Financial and intangible assets 10 134 –

Current assets 111 512 28 910

Total assets 150 441 51 161

Interest-free liabilities 67 476 27 840

Interest-bearing liabilities 29 348 13 729

Total liabilities 96 824 41 569

Equity 53 617 9 592

Minority interest (39 423) (787)

Group’s share in equity 14 194 8 805

Loans to associates 4 722 –

Group’s share in net assets of associates 18 916 8 805

Tanzania Distilleries Limited (35%) 8 381 8 568

Grays Inc Limited (26%) 5 527 –

Papkuilsfontein Vineyards (Proprietary) Limited (49%) 286 237

14 194 8 805

The Group’s interest in the revenue and profit of the associates is as follows:

Revenue 121 003 52 402


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 and Grays Inc Limited are different to those of the rest of the Group. The unaudited results of these companies to

30 June 2006 and 30 June 2007, subsequent to their respective year-ends, have been included based on information prepared by management where applicable.


Annexure 3interest in joint ventures

The Group’s interest in the joint ventures is as follows:

Total equity

Afdis Holdings (Private) Limited (Zimbabwe) (50%) 1 128 8 452

Tonnellerie Radoux (SA) (Proprietary) Limited (50%) 7 980 7 315

Mirma Products (Proprietary) Limited (45%) 1 470 904

Lusan Holdings (Proprietary) Limited (50%) 27 855 15 652

Lomond Wines Estates (Proprietary) Limited (50%) (966) –

Interim Sahara LLP (United Kingdom) (50%) 14 309 –

Proportional interest in joint ventures 51 776 32 323

The Group’s interest in the assets and liabilities of the joint ventures is as follows:

Property, plant and equipment 161 864 162 956

Intangible assets 14 303 –

Current assets 67 954 56 010

Total assets 244 121 218 966

Non-current liabilities 187 266 180 153

Current liabilities 5 079 6 490

Total liabilities 192 345 186 643

Net assets 51 776 32 323

Net interest consolidated 51 776 32 323

The Group’s interest in the income and expenditure of the joint ventures is as follows:

Revenue 47 194 52 600

Profit before taxation 18 572 4 037


The Group’s interest in the cash flow statements of the joint ventures is as follows:

Cash retained from operating activities 2 569 10 141

Cash inflow from investment activities 1 593 (5 217)

Net cash flow 4 162 4 924

Notes:

All joint ventures are incorporated in South Africa, unless otherwise stated.

2007 2006

R’000 R’000


Notice to shareholders

Notice is hereby given that the next annual general meeting of the company

will be held at 12:00 on Wednesday, 17 October 2007, at the Visitors’ Centre

of Van Ryn’s Brandy Distillery, Van Ryn Road, off Baden Powell Drive

(R310), Vlottenburg, Western Cape, to pass the following resolutions with

or without modification:

1. APPROVAL OF ANNUAL FINANCIAL STATEMENTS

Ordinary resolution number 1

Resolved that the audited annual financial statements for the year

ended 30 June 2007, be accepted and approved.

2. APPROVAL OF DIRECTORS’ REMUNERATION


Resolved that the remuneration of the non-executive directors for

the financial year ended 30 June 2007, be approved.

3. ELECTION OF DIRECTOR


Resolved that Mr PE Beyers, who retires in accordance with the

company’s articles of association and who has offered himself for

re-election, be hereby re-elected as a director of the company.



Resolved that Dr E de la H Hertzog, who retires in accordance with

the company’s articles of association and who has offered himself

for re-election, be hereby re-elected as a director of the company.



Resolved that Mr RL Lumb, who retires in accordance with the





Resolved that Mr MJ Madungandaba, who retires in accordance

with the company’s articles of association and who has offered

himself for re-election, be hereby re-elected as a director of the

company.



Resolved that Mr MH Visser, who retires in accordance with the



Biographical details of all the directors standing for re-election can

be found on page 12.

8. AUTHORITY TO PLACE UNISUED SHARES UNDER THE

CONTROL OF THE DIRECTORS


Resolved that 10% (ten per centum) of the authorised but unissued

shares in the company be hereby placed under the control of the

directors as a general authority in terms of section 221(2) of the

Companies Act (Act 61 of 1973), as amended (the Act), who are

hereby authorised to allot and issue shares in the company upon

such terms and conditions as the directors in their sole discretion

deem fit, subject to the provisions of the Act, the company’s articles

of association and the Listings Requirements of the JSE Limited

( JSE), when applicable.

And to transact any other business that may be transacted at an annual

general meeting.

VOTING AND PROXIES

Members who have not dematerialised their shares or who have

dematerialised their shares with “own name” registration are entitled to

attend and vote at the meeting and are entitled to appoint a proxy or proxies

to attend, speak and vote in their stead. The person so appointed need not

be a member of the company. Proxy forms must be forwarded to reach

the company’s transfer secretaries, Computershare Investor Services 2004

(Proprietary) Limited, Ground Floor, 70 Marshall Street, Johannesburg, or

posted to the transfer secretaries at PO Box 61051, Marshalltown 2107, by

12:00 (South African time) on Monday, 15 October 2007.

Proxy forms must only be completed by members who have not

dematerialised their shares or who have dematerialised their shares with

“own name” registration.

On show of hands, every member of the company present in person or

represented by proxy shall have one vote only. On poll, every member of

the company shall have one vote for every share held in the company by

such member.

Members who have dematerialised their shares, other than those members

who have dematerialised their shares with “own name” registration, must

contact their CSDP or broker in the manner and time stipulated in their

agreement:

• to furnish them with their voting instructions; and

• in the event that they wish to attend the meeting, to obtain the necessary

authority to do so with a letter of representation in terms of the custody

agreement. Such letter of representation must be lodged with the

company’s transfer secretaries, Computershare Investor Services 2004

(Proprietary) Limited, Ground Floor, 70 Marshall Street, Johannesburg, or

posted to the transfer secretaries at PO Box 61051, Marshalltown 2107, by

12:00 (South African time) on Monday, 15 October 2007.

By order of the board of directors.

CJ Cronjé

Company secretary

Stellenbosch

22 August 2007


Form of proxyTHIS FORM OF PROXY IS ONLY FOR USE BY:

1. REGISTERED MEMBERS WHO HAVE NOT YET DEMATERIALISED THEIR DISTELL GROUP LIMITED ORDINARY SHARES; AND

2. REGISTERED MEMBERS WHO HAVE ALREADY DEMATERIALISED THEIR DISTELL GROUP LIMITED ORDINARY SHARES AND ARE REGIS-

TERED IN THEIR OWN NAMES IN THE COMPANY’S SUBREGISTER.*

* See explanatory note 3 overleaf.

For completion by the aforesaid registered members who hold ordinary shares of the company (“member”) and who are unable to attend the 2007 annual

general meeting of the company to be held at 12:00 on Wednesday, 17 October 2007, at the Visitors’ Centre of Van Ryn’s Brandy Distillery, Van Ryn Road,

off Baden Powell Drive (R310), Vlottenburg, Western Cape (“the annual general meeting”).

I/We ___________________________________________________________________________________________________________________

of (address) ______________________________________________________________________________________________________________

being the holder/s of ____________________________________________________________ ordinary shares in the company, hereby appoint (see

instruction 1 overleaf)

1. ________________________________________________________________________________________________________or failing him/her,

2. ________________________________________________________________________________________________________or failing him/her,

3. the chairperson of the annual general meeting, as my/our proxy to attend, speak and vote for me/us and on my/our behalf or to abstain from voting at

the annual general meeting of the company and at any adjournment thereof, as follows (see note 2 and instruction 2 overleaf):

Insert an “X” or the number of votes

exercisable (one vote per ordinary share)

In favour of Against Abstain

Ordinary resolution 1: Approval of annual financial statements

Ordinary resolution 2: Approval of directors’ remuneration

Ordinary resolution 3: Election of director – Mr PE Beyers

Ordinary resolution 4: Election of director – Dr E de la H Hertzog

Ordinary resolution 5: Election of director – Mr RL Lumb

Ordinary resolution 6: Election of director – Mr MJ Madungandaba

Ordinary resolution 7: Election of director – Mr MH Visser

Ordinary resolution 8: Authority to place unissued shares under the

control of the directors

Signed at ___________________________________________________ on __________________________________________________ 2007

Signature/s ______________________________________________________________________________________________________________

Assisted by me ___________________________________________________________________________________________________________

(where applicable)

Please read the notes and instructions overleaf.

Distell Group Limited

(Incorporated in the Republic of South Africa)

(Registration number 1988/005808/06)

( JSE share code: DST ISIN: ZAE000028668)

(“the company”)


Form of proxy

Notes:

1. A member entitled to attend and vote at the annual general meeting is entitled to appoint one or more proxies to attend, speak and vote in his/her

stead. A proxy need not be a registered member of the company.

2. Every member present in person or by proxy and entitled to vote at the annual general meeting of the company shall, on a show of hands, have one

vote only, irrespective of the number of shares such member holds. In the event of a poll, every member shall be entitled to that proportion of the

total votes in the company which the aggregate amount of the nominal value of the shares held by such member bears to the aggregate amount of the

nominal value of all the shares issued by the company.

3. Members registered in their own names are members who elected not to participate in the Issuer-Sponsored Nominee Programme and who

appointed Computershare as their Central Securities Depository Participant (CSDP) with the express instruction that their uncertificated shares are

to be registered in the electronic subregister of members in their own names.

Instructions on signing and lodging the form of proxy:

1. A member may insert the name of a proxy or the names of two alternative proxies of the member’s choice in the space/s provided overleaf, with or

without deleting “the chairperson of the annual general meeting”, but any such deletion must be initialled by the member. Should this space be left

blank, the proxy will be exercised by the chairperson of the annual general meeting. The person whose name appears first on the form of proxy and

who is present at the annual general meeting will be entitled to act as proxy to the exclusion of those whose names follow.

2. A member’s voting instructions to the proxy must be indicated by the insertion of an “X”, or the number of votes exercisable by that member, in the

appropriate spaces provided overleaf. Failure to do so will be deemed to authorise the proxy to vote or to abstain from voting at the annual general

meeting, as he/she thinks fit in respect of all the member’s exercisable votes. A member or his/her proxy is not obliged to use all the votes exercisable

by him/her or by his/her proxy, but the total number of votes cast, or those in respect of which abstention is recorded, may not exceed the total

number of votes exercisable by the member or by his/her proxy.

3. A minor must be assisted by his/her parent or guardian unless the relevant documents establishing his/her legal capacity are produced or have been

registered by the transfer secretaries.

4. To be valid, the completed forms of proxy must be lodged with the transfer secretaries of the company, Computershare Investor Services 2004

(Proprietary) Limited at Ground Floor, 70 Marshall Street, Johannesburg, South Africa, or posted to the transfer secretaries at PO Box 61051,

Marshalltown 2107, South Africa, to be received by them not later than Monday, 15 October 2007, at 12:00 (South African time).

5. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity must be attached to this form of

proxy unless previously recorded by the transfer secretaries or waived by the chairperson of the annual general meeting.

6. The completion and lodging of this form of proxy will not preclude the relevant member from attending the annual general meeting and speaking and

voting in person thereat to the exclusion of any proxy appointed in terms hereof, should such member wish to do so.

7. The completion of any blank spaces overleaf need not be initialled. Any alterations or corrections to this form of proxy must be initialled by the

signatory/ies.

8. The chairperson of the annual general meeting may accept any form of proxy which is completed other than in accordance with these instructions

provided that he is satisfied as to the manner in which a member wishes to vote.


Distell Annual Report 2007Distell Annual Report 2007

Dates of importance to shareholders

Annual general meeting October 2007

Financial reports Interim report February 2008

Preliminary announcement of annual results August 2008

Annual financial statements September 2008

Ordinary dividends Interim dividends

– declaration February 2008

– payable March 2008

Final dividends

– declaration August 2008

– payable September 2008

Administration

Distell Group Limited Incorporated in the Republic of South Africa

(Registration number: 1988/005808/06)

ISIN: ZAE000028668

JSE share code: DST

Company secretary CJ Cronjé

Registered office Aan-de-Wagen Road, Stellenbosch 7600

PO Box 184, Stellenbosch 7599

Telephone: 021 809 7000

Facsimile: 021 886 4611

E-mail: [email protected]

Transfer secretaries Computershare Investor Services 2004 (Proprietary) Limited

70 Marshall Street, Johannesburg 2001

PO Box 61051, Marshalltown 2107

Telephone: 011 370 7700

Facsimile: 011 688 5221

Auditors PricewaterhouseCoopers Inc.

Stellenbosch

Listing JSE Limited

Sector: Consumer Goods – Food and Beverage – Beverages

Sponsor Rand Merchant Bank (A division of FirstRand Bank Limited)

Websitewww.distell.co.za

COMPRESS ) 3460

CONTENTS

Features

Our Group 3

Annual highlights 4

How we’ve measured up 5

Our brands at a glance 8

Our global presence 10

Board matters 12

Seven-year fi nancial review 15

Analysis of shareholders 18

Cash value added statement 19

Reviews

Chairman’s statement 20

Managing director’s report 24

Corporate

Corporate governance 32

Sustainability report 37

Financials

Consolidated annual fi nancial statements 52

Notice to shareholders, voting form,

dates of importance and administration 102

DISTELLANNUAL REPORT

2007

www.distell.co.za

annual report

2007

Distell A

nn

ual R

epo

rt 2007

2007 - sharedata

Documents