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

2. DISCLAIMER Whilst every effort has been made to ensure the accuracy of the seminar, presentation and handouts, the presenters/authors, the organisers and the Association of Chartered Certified Accountants do not accept any responsibility for any opinions expressed by the presenter/author, contributors or correspondents, nor for the accuracy of any information contained in the seminar handouts. @ COPYRIGHT Copyright of this material rests with SA Accounting Academy and the documentation or any part thereof, may not be reproduced either electronically, photocopied, scanned, typed, hand-written or in any other means whatsoever without the prior written permission of SA Accounting Academy.

3. 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?

4. Turnover Thresholds Old Codes (R million)New Codes (R million) Exempted Micro-Enterprise (EME)0 – 50 – 10 Qualifying Small Enterprise (QSE) 5 – 3510 – 50 Generic35 +50 +

5. What drives BEE? 5 GOVERNMENT Mainstream Economy Supplier

6. Weightings ElementWeighting (Old Codes) Weighting (New Codes) Ownership2025 Management Control1015 Employment Equity15- Skills Development1520 Preferential Procurement20- Enterprise and Supplier Development -40 Enterprise Development15- Socio-Economic Development55 Total100105

7. Contribution Levels B-BBEE Status Qualification points (Old Codes) Qualification points (New Codes) B-BBEE Procurement Recognition Level Level 1 Contributor≥100 135% Level 2 Contributor≥85 but <100≥95 but <100125% Level 3 Contributor≥75 but <85≥90 but <95110% Level 4 Contributor≥65 but <75≥80 but <90100% Level 5 Contributor≥55 but <65≥75 but <8080% Level 6 Contributor≥45 but <55≥70 but <7560% Level 7 Contributor≥40 but <45≥55 but <7050% Level 8 Contributor≥30 but <40≥40 but <5510% Non-compliant Contributor < 30 points< 40 points0%

8. 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

9. 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

10. 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 R20m, now R50m Entities applying the Modified Flow Through cannot also apply the Exclusion principle

11. Criteria/Indicator Weighting points (Old Codes) Compliance target (Old Codes) Weighting points (New Codes) Compliance target (New Codes) Voting Rights: Exercisable Voting Rights of black people325% + 1 vote4 Exercisable Voting Rights of black women210%2 Economic Interest: Economic interest of black people425%4 Economic interest of black women210%2 Economic interest of black natural people in Designated Groups; Employee Ownership Schemes; Broad-based Ownership Schemes; Co-Operatives 1 2,5% 3 3% Involvement in ownership of black new entrants--22% Realisation Points: Ownership fulfilment1 No Restrictions 00 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) 7 25% 8 25% Bonus Points: Involvement in ownership of black new entrants210%00% Involvement in ownership of black participants in Employee Ownership Schemes; Broad-Based Ownership Schemes; Co- operatives 1 10% 0 0% Total 20 + 3 Bonus Points 25

12. 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”

13. Criteria/Indicator Weighting points (Old Codes) Compliance target (Old Codes) Weighting points (New Codes) Compliance target (New Codes) Board Participation: Exercisable Voting Rights of black Board members3 50%2 Exercisable Voting Rights of black female Board members 0 0%125% Black Executive Directors2 50%2 Black female Executive Directors 0 0% 125% Other Executive Management: Black Executive Management3 40%260% Black female Executive Management 0 0%130% Black Other Top Management2 40%00% Bonus point for Black Independent Non-Executive Board Members 140%00% Disabled Employees Black Disabled employees as a percentage of all employees 00%22% Senior Management: Black employees in Senior Management00%260% Black female employees in Senior Management 130% Middle Management: Black employees in Middle Management00%275% Black female employees in Middle Management00%138% Junior Management: Black employees in Junior Management00%188% Black female employees in Junior Management00%144% Total 10 + 1 bonus points 19 Should be 15

14. Criteria/Indicator Weighting points (Old Codes) Target (Old Codes) Weighting points (New Codes) Target (New Codes) Black Disabled employees as a percentage of all employees 23%00% Black employees in Senior Management5 60%00% Black employees in Middle Management4 75%00% Black employees in Junior Management4 80%00% Bonus for meeting or exceeding the EAP targets per category 3 0 Total 15 + 3 bonus points 0 Employment Equity (no longer a separate element)

15. 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

16. Skills Development (continued) Must meet SETA requirements to qualify Category F (uncertified) and Category G (in- house) 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

17. 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 63%86% Skills Development expenditure for black employees with disabilities 30.3% %40.3% Learnerships: Number of black employees participating in Learnerships, apprenticeships or internships 65% *42.5% Number of unemployed black people participating in Learnerships, apprenticeships or internships 00%42.5% Bonus point for number of Black People absorbed at the end of the learnership 00%5100% Total15 20 + 5 Bonus Points

18. 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

19. 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

20. Criteria/Indicator Weighting points (Old Codes) Compliance target (Old Codes) Weighting points (New Codes) Compliance target (New Codes) 2.1Preferential 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 1270%580% Broad-based BEE Procurement Spend from all QSE Empowering Suppliers based on the applicable broad- based BEE Procurement Recognition levels as a percentage of Total Measured Procurement Spend for the enterprise 315%3 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 415% 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; 312%940% suppliers that are 30% black women owned28%412% Bonus Points Procurement Spend from Designated group suppliers that are at least 51% black owned 0 0%22% 2.2 & 2.3 Enterprise and Supplier Development Annual Value of all Supplier Development contributions as a % of Target 00%102% of NPAT Annual Value of all Enterprise Development contributions as % of target 00%51% of NPAT

21. 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 0 1 Jobs created by a supported supplier 0 1 Total20 40 + 4 bonus points Criteria/Indicator Weighting points (Old Codes) Compliance target (Old Codes) Weighting points (New Codes) Compliance target (New Codes) Value of all Enterprise Development Contributions and Sector Specific Programmes made 153% of NPAT00% Total15 0 Enterprise Development (no longer a separate element)

22. 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

23. Criteria/Indicator Weighting points (Old Codes) Compliance target (Old Codes) Weighting points (New Codes) Compliance target (New Codes) Value of all Socio-Economic Development and Approved Socio- Economic Development Contributions made 5 1% NPAT 5 1% NPAT Total5 5

24. 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?

25. 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. Some areas in need of clarification (continued)

26. 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!

28. The BEE experience...

29. The Alternative…

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