REPORT ON IMPLEMENTATION OF RESPONSIBLE SOURCING PROGRAM IN 2009

The initial focus of our Responsible Sourcing Program is on agricultural products and packaging materials from countries with a potential high risk of non-compliance with the Bacardi Responsible Sourcing Standards, which are drawn from international guidelines such as those set out by the UNGC and the International Labour Organization (ILO). We are also increasing our focus on the engagement of suppliers of our point-of-sale materials such as glassware, barware and textiles. We put our Responsible Sourcing Program into action by:

• Taking a focused approach to supplier engagement
• Managing supplier compliance with our Responsible Sourcing Standards
• Working in collaboration with other companies and industry bodies
• Embedding Responsible Sourcing Standards into the business.

A FOCUSED APPROACH TO SUPPLIER ENGAGEMENT

Agricultural suppliers
In line with the results of our supply chain risk assessment which we undertook in fiscal 2008, our main priority in 2009 has been the responsible sourcing of agricultural products – mainly molasses and light cane distillate from countries such as Brazil, Dominican Republic and Fiji, plus agave from Mexico.

Packaging Suppliers
Packaging represents more than US$500m spend globally. We have an ongoing program of engagement with suppliers in this area, focusing on geographical areas where compliance awareness needs to be further developed. A robust Compliance and Audit Guidelines Policy is currently being rolled out, the goal being that local procurement functions will be able to take responsibility for responsible sourcing of packaging.

Point-of-Sale
The point-of-sale business in Bacardi is an important strategic element in the growth of our brands. We are developing a category-focused point-of-sale business which supports our core global brands through the sourcing of items such as glassware, barware, print and textiles. The initial focus for responsible sourcing within the point-of-sale business is to ensure that our major manufacturers and intermediates are engaged in our Responsible Sourcing Program and are fully aware of what is expected of them. The objective is to roll out a global process which will be framed within a new policy.

MANAGING SUPPLIER COMPLIANCE

Our objective has been to get close to our key suppliers and to work with them in order to help them comply with our Standards. Our structured approach begins with us encouraging our suppliers to join Sedex – the Supplier Ethical Data Exchange – a system for companies and their suppliers to share ethical data. Our suppliers have to complete either the Sedex self-assessment questionnaire or our own self-assessment questionnaire if they do not join Sedex. This is followed by a visit from Bacardi. If necessary, we then ask expert external auditors to audit the supplier.

We will not walk away from a supplier that fails to comply with our standards. On the contrary, we work with them to help them improve their performance. In the case of persistent failure to address issues within an agreed timeframe we will terminate a contractual arrangement with a supplier.

WORKING IN COLLABORATION WITH OTHER COMPANIES

We care about the raw materials that we source and we recognize the best way to make a difference is to ensure our suppliers receive a consistent responsible sourcing message from all their customers. So we collaborate with other companies in initiatives such as the Better Sugarcane Initiative (BSI), AIM-Progress and Sedex. Working together increases our influence with our suppliers and gives them more encouragement and reason to strive for excellence in their ethical performance.

Better Sugarcane Initiative
In 2009, Bacardi was elected to the Management Committee of the BSI, a multi-stakeholder group that is working towards more responsible sourcing of sugarcane. This is recognition by BSI members, including other multi-national companies, that Bacardi is making a sustained effort to source sugarcane responsibly. Over the past year, with the input of experienced industry experts, the group has been developing a BSI Standard for all sugarcane growers and producers, based on legal, social and environmental principles, as well as farming efficiencies and agronomy. The aim is that growers and producers will be audited and will achieve certification to the BSI Standard. Bacardi is encouraging its sugar supply chain partners to participate.

Following a rigorous consultation process, the deadline for agreeing a first version of the Standard is the end of March 2010

AIM-PROGRESS
Bacardi is continuing to collaborate with other consumer goods companies as a member of the AIM-PROGRESS group, which is an initiative of AIM (the European Brands Association). AIM-PROGRESS is dedicated to promoting efficient, responsible sourcing practices through the mutual recognition of information on responsible sourcing within companies’ respective supply chains.

One example of this is the agricultural workstream’s focus on sugar which began in February 2009. AIM-PROGRESS members saw no reason to establish another sugarcane initiative. Instead they were keen to align with a credible sugarcane program, which the Better Sugarcane Initiative represents. And because of Bacardi’s involvement in the BSI, we are leading this workstream.

Our ongoing work aims to enable all AIM-PROGRESS audits to be shared among members. Over time, we hope to see a common approach to auditing.

Sedex and the PROGRESS-Sedex Work Group
Bacardi is a member of Sedex (Supplier Ethical Data Exchange), which is a system for reporting on labor, health and safety, environmental and business integrity standards. Suppliers that are members of Sedex share self-assessment questionnaires and audit reports with those customers which are members of Sedex. The benefit for suppliers is that they should be able to avoid “audit fatigue” by completing one questionnaire.

Bacardi is also a member of the PROGRESS-Sedex Work Group (PSWG), which is a work stream within AIM-PROGRESS made up of 11 of its members. The PSWG has co-funded a project manager who is tasked with approaching suppliers and recruiting them to Sedex. The other companies in the PROGRESS-Sedex Work Group are: Mars, PepsiCo, Danone, Diageo, Kraft, Britvic, United Biscuits, Nestlé, Cadbury and Unilever. Over the next two years, this process will capture most of our suppliers of packaging and ingredients.

EMBEDDING RESPONSIBLE SOURCING STANDARDS IN THE BUSINESS

So far, nearly 120 people in our business have received responsible sourcing awareness training. This ongoing program will capture new recruits and existing Bacardi team members moving into supplier-related roles.

Responsible sourcing clauses have been added to the vendor qualification process (VQP) for our suppliers of packaging, ingredients, point-of-sale items and suppliers of general services. And we make Responsible Sourcing checks on all new deals for molasses, agave, light cane distillate and point-of-sale items.

While we have made some good progress in integrating responsible sourcing targets within day-to-day procurement, challenges still remain. Responsible sourcing adds an additional layer of complexity to our efforts to meet the exacting quality standards of our premium brands while delivering outstanding value to our customers. It is a relatively new concept for Bacardi and consistently implementing the ways of working required by our commitment to responsible sourcing will demand ongoing focus.