The New B-BBEE Codes What they mean

The New B-BBEE Codes – What they mean for business Presenter: Anton de Wet CA(SA) Specialist B-BBEE Auditor and Trainer

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The benefits of B-BBEE compliancy • Retaining market share • Competitive advantage (preferred supplier) • New growth opportunities (tenders) • Economic growth (spending power) • “Licence to do business” in South Africa?

Turnover Thresholds Old Codes (R million) Exempted Micro-Enterprise (EME) Qualifying Small Enterprise (QSE) Generic 0– 5 5 – 35 35 + New Codes (R million) 0 – 10 10 – 50 50 +

What drives BEE? Supplier Supplier Supplier Mainstream Economy Supplier Supplier Supplier Supplier GOVERNMENT Supplier Supplier Supplier Supplier Supplier 5 Supplier

Weightings Element Ownership Weighting (Old Codes) 20 Weighting (New Codes) 25 Management Control 10 15 Employment Equity 15 - Skills Development 15 20 Preferential Procurement 20 - Enterprise and Supplier Development Enterprise Development - 40 15 - Socio-Economic Development 5 5 100 105 Total

Contribution Levels B-BBEE Status Qualification points (Old Codes) Qualification points (New Codes) B-BBEE Procurement Recognition Level 1 Contributor ≥ 100 135% Level 2 Contributor ≥ 85 but <100 ≥ 95 but <100 125% Level 3 Contributor ≥ 75 but <85 ≥ 90 but <95 110% Level 4 Contributor ≥ 65 but <75 ≥ 80 but <90 100% Level 5 Contributor ≥ 55 but <65 ≥ 75 but <80 80% Level 6 Contributor ≥ 45 but <55 ≥ 70 but <75 60% Level 7 Contributor ≥ 40 but <45 ≥ 55 but <70 50% Level 8 Contributor ≥ 30 but <40 ≥ 40 but <55 10% Non-compliant Contributor < 30 points < 40 points 0%

General Amendments • 7 elements reduced to 5 • Management Control and Employment Equity consolidated into Management Control • Preferential Procurement and Enterprise Development consolidated into Enterprise and Supplier Development • 3 Priority Elements with 40% sub-minimum targets: - Ownership - Skills Development - Enterprise and Supplier Development • Large Enterprise to comply with all 3 Priority Elements to avoid 1 level discounting • QSE to comply with Ownership and either SD or ESD to avoid 1 level discounting

General Amendments (continued) • EME less than 51% black-owned automatic level 4 • EME and QSE 51% or more black-owned only need to obtain a sworn affidavit confirming turnover and black ownership; no verification required; automatic level 1 (51%+) or 2 (100%) • QSE less than 51% black-owned need to comply with all 5 elements subject to discounting – verification is required similar to Large Enterprise • Adjusted Recognition for Gender removed; black woman are separately scored • In first year (until 11/10/2014) entities may opt to apply new codes, thereafter compulsory • Only one scorecard for QSE’s and Large Enterprises

Ownership • Sub-minimum to avoid discounting is 40% of Net Value points • Points increased from 20 to 25 points • Shareholding by Family Trusts clarified • Only SA based and regulated mandated investments qualify • More emphasis on: - Employee Share Ownership Programmes - Broad-based Ownership Schemes - Co-operatives • Black New Entrant threshold was R 20 m, now R 50 m • Entities applying the Modified Flow Through cannot also apply the Exclusion principle

Weighting points (Old Codes) Criteria/Indicator Voting Rights: Exercisable Voting Rights of black people Exercisable Voting Rights of black women Compliance target (Old Codes) 3 2 Weighting points (New Codes) 25% + 1 vote 10% Compliance target (New Codes) 4 2 25% + 1 vote 10% Economic Interest: Economic interest of black people 4 25% Economic interest of black women 2 10% Economic interest of black natural people in Designated Groups; Employee Ownership Schemes; Broad-based Ownership Schemes; Co-Operatives Involvement in ownership of black new entrants Realisation Points: Ownership fulfilment Net Value Time-based graduation factor: 10% of Target (Year 1) 20% of Target (Year 2) 40% of Target (Year 3 -4) 60% of Target (Year 5 -6) 80% of Target (Year 7 -8) 100 % of Target (Year 9 -10) Bonus Points: Involvement in ownership of black new entrants 1 - 2 Involvement in ownership of black participants in Employee 1 Ownership Schemes; Broad-Based Ownership Schemes; Cooperatives Total 20 + 3 Bonus Points No Restrictions 25% 10% 3% 2 2% 0 0 8 10% 3 - 1 7 2, 5% 0 0% 0 25 25% 0%

Management Control • Now includes Employment Equity • Targets now takes the demographic breakdown of race-groups into consideration in terms of the Regulations of Employment Equity Act and the Commission on Employment Equity Report • Must use current payroll data • Must submit EEA returns if “designated employer”

Weighting points (Old Codes) Criteria/Indicator Board Participation: Exercisable Voting Rights of black Board members Exercisable Voting Rights of black female Board members Black Executive Directors Black female Executive Directors Other Executive Management: Black Executive Management Black female Executive Management Black Other Top Management Bonus point for Black Independent Non-Executive Board Members Disabled Employees Black Disabled employees as a percentage of all employees Senior Management: Black employees in Senior Management Black female employees in Senior Management Middle Management: Black employees in Middle Management Black female employees in Middle Management Junior Management: Black employees in Junior Management Black female employees in Junior Management Total Compliance target (Old Codes) Weighting points (New Codes) Compliance target (New Codes) 0 2 1 50% 25% 2 50% 0% 2 1 50% 25% 3 2 1 40% 0% 40% 2 1 0 0 60% 30% 0% 2 2% 0 0 50% 0% 0 0 3 0% 2 1 60% 30% 0% 0% 2 1 75% 38% 0% 0% 1 1 19 Should be 15 88% 44% 0 0 10 + 1 bonus points

Employment Equity (no longer a separate Weighting Target Weighting Criteria/Indicator element) (Old Codes) points Target (New Codes) (Old Codes) Black Disabled employees as a percentage of all employees 2 Black employees in Senior Management 5 Black employees in Middle Management 0 0% 60% 0 0% 4 75% 0 0% Black employees in Junior Management 4 80% 0 0% Bonus for meeting or exceeding the EAP targets per category 3 Total 3% 0 15 + 3 bonus points 0

Skills Development • Sub-minimum to avoid discounting is 40% of total weighting points • Main target significantly increased from 2/3% to 6% of “Leviable Amount” (annual payroll) • Now 4 points available for training black unemployed people • 5 Bonus points available for absorbing registered learners as permanent staff • Targets now takes the demographic breakdown of race-groups into consideration in terms of the Regulations of Employment Equity Act and the Commission on Employment Equity Report

Skills Development (continued) • Must meet SETA requirements to qualify • Category F (uncertified) and Category G (inhouse) training both capped at 15% of total skills spend • Legitimate training expenses such as accommodation, catering and travel expenses also capped at 15% of total skills spend • Mandatory sector training does not qualify • International training must meet SAQA requirements

Criteria/Indicator Weighting points (Old Codes) Compliance target (Old Codes) Weighting points (New Codes) Compliance target (New Codes) Skills Development Spend on Learning Programmes Skills Development expenditure 6 Skills Development expenditure for black employees with disabilities 3% 3 0. 3% % 8 6% 4 0. 3% Learnerships: Number of black employees participating in Learnerships, apprenticeships or internships 6 5% * 4 2. 5% Number of unemployed black people participating in Learnerships, apprenticeships or internships 0 0% 4 2. 5% Bonus point for number of Black People absorbed at the end of the learnership 0 0% 5 100% Total 15 20 + 5 Bonus Points

Enterprise and Supplier Development (continued) • Sub-minimum to avoid discounting is 40% in each of the three main indicators of the ESD scorecard • “Value-adding Supplier” concept replaced with “Empowering Supplier” • ESD contributes to 40 of the total 105 points • 10 points for developing suppliers • 5 points for developing other black businesses • 21 of the 25 points for procurement only allocated to spend with Empowering Suppliers • EME’s and Start-ups are automatically Empowering Suppliers

Enterprise and Supplier Development (continued) • Maximum 1. 5 points for early payment of black-owned suppliers • A three year contract with the following suppliers will result in enhanced recognition of 120% of actual spend: - Supplier Development beneficiaries - Black-owned EME’s and QSE’s - All new suppliers of the measured entity

Criteria/Indicator 2. 1 Preferential Procurement Broad-based BEE Procurement Spend from all Empowering Suppliers based on the broad-based BEE Procurement Recognition levels as a percentage of Total Measured Procurement Spend of the enterprise Broad-based BEE Procurement Spend from all QSE Empowering Suppliers based on the applicable broadbased BEE Procurement Recognition levels as a percentage of Total Measured Procurement Spend for the enterprise Weighting points (Old Codes) Compliance target (Old Codes) Weighting points (New Codes) Compliance target (New Codes) 12 70% 5 80% 3 15% 4 15% Broad-based BEE Procurement Spend from all EME based on the applicable broad-based BEE Procurement Recognition levels as a percentage of Total Measured Procurement Spend for the enterprise Broad-based BEE Procurement Spend from any of the following Empowering Suppliers as a percentage of Total Measured Procurement Spend: suppliers that are 51% black owned; 3 12% 9 40% suppliers that are 30% black women owned 2 8% 4 12% 2 2% Bonus Points Procurement Spend from Designated group suppliers that are at least 51% black owned 2. 2 & 2. 3 Enterprise and Supplier Development Annual Value of all Supplier Development contributions as a % of Target Annual Value of all Enterprise Development contributions as % of target 0 0% 0 0% 10 2% of NPAT 0 0% 5 1% of NPAT

Criteria/Indicator Weighting points (Old Codes) Compliance target (Old Codes) Weighting points (New Codes) Compliance target (New Codes) Bonus Points Graduation from Enterprise Development to Supplier Development Beneficiary Jobs created by a supported supplier 0 1 Total 20 40 + 4 bonus points Enterprise Development (no longer a separate element) Criteria/Indicator Value of all Enterprise Development Contributions and Sector Specific Programmes made Total Weighting points (Old Codes) 15 15 Compliance target (Old Codes) 3% of NPAT Weighting points (New Codes) 0 0 Compliance target (New Codes) 0%

Socio-Economic Development • No changes • NPO’s may however lose out on donations from QSE’s who will now only score a maximum of 5 points and no longer 25 points

Criteria/Indicator Value of all Socio-Economic Development and Approved Socio. Economic Development Contributions made Total Weighting points (Old Codes) Compliance target (Old Codes) 1% NPAT 5 5 Weighting points (New Codes) Compliance target (New Codes) 1% NPAT 5 5

Some areas in need of clarification • Basis for application new codes? • Management Control scorecard - needs to be corrected • “Obtain” a sworn affidavit – from who? • Enterprise Development and Supplier Development Plan in place for imported goods or services – guidance needed • International training must meet SAQA requirements – guidance needed • “Trainee tracking tool”? • Applying demographics to skills spend?

Some areas in need of clarification (continued) • What is exactly is an Empowering Supplier: An Empowering Supplier is a BEE compliant entity which demonstrates that it is a “good citizen South African entity” complying “with all regulatory requirements of the country”. A Large Enterprise must comply with 3 of the following criteria and a QSE with only 1: • • 25% of Cost of Sales, excluding labour and depreciation, must be procured from South African suppliers or producers. (For the service industry labour costs are included but capped at 15%); 50% of jobs created must be for black people - provided the number of Black employees since the immediate prior B-BBEE verification is maintained; 25% of production must be local production including local manufacturing, and/or assembly, and/or packaging; At least 12 days a year must be spent on skills transfer to assist black EME’s and QSE’s to increase their knowledge in operations or financial capacity.

Factors to consider going forward • Be verified now and before 11/10/2014 and stay compliant for two year more years! • QSE: Consider donations in February 2014 • The need for BEE consultation • Plan for higher verification costs • Start using BEE management software • Get your accountant/auditor involved!

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