What you need 1 Session : Part 1 Preferential Procurement "Sustainable SMME's Driving the Economy!" 1. What is Preferential Procurement? 2. Driving Forces & Procurement Recognition Levels 3. Scorecard Overview (Procurement) 4. Factors that affect the scoring. Evidence Requirements 6. Terms & Definitions 7. Q&A 2 Part 2: Enterprise & Supplier "Sustainable SMME's Driving the Economy!" 1. What is ESD & who qualifies? 2. Scorecard Overview (ED & SD) 3. Amendments Introduced 4. Evidence Required. Terms & Definitions 6. Q&A 3 Supplier ) 1
Enterprise & Supplier What is ESD? Priority Element 4 Scorecard Overview Comparison of Codes (Generic) Element 2007 Codes 2013 Codes Ownership Equity 20 Points +3 bonus 2 Points Management Control Employment Equity 10 Points +1 bonus 1 Points +3 bonus 19 Points Skills 1 Points 20 Points + bonus Preferential Procurement Enterprise (+ Supplier ) Socio Economic 20 Points 1 Points 40 Points +4 bonus (PP = 2) ; (ESD = 1) Points Points TOTAL 100 Points +7 bonus 109 Points +9 bonus Scorecard Overview Comparison of Codes (QSE) Element 2007 Codes 2013 Codes Ownership Equity 2 Points + 3 Bonus 2 Points Management Control Employment Equity 2 Points + 2 Bonus 2 Points + 2 Bonus 1 Points Skills 2 Points 2 Points + Bonus Preferential Procurement Enterprise (+ Supplier ) Socio Economic 2 Points 2 Points 30 Points + 3 Bonus (PP = 20) ; (ESD = 10) 2 Points Points TOTAL 100 Points +7 bonus 100 Points + 8 bonus 6 Supplier ) 2
[Enterprise Supplier ] Generic Scorecard Overview Sub Element Indicator Weighting Points Compliance Target Supplier Enterprise Bonus Points Priority Element: 40% sub minimum Annual value of all Qualifying Supplier Contributions made by the Measured Entity as a percentage of the target Annual value of Enterprise Contributions and Sector Specific Programmes made by the Measured Entity as a percentage of the target Bonus point for graduation of one or more Enterprise beneficiaries to graduate to the Supplier level Bonus point for creating one or more jobs directly as a result of Supplier and Enterprise initiatives by the Measured Entity 10 2% of NPAT 1% of NPAT 1 Yes 1 Yes 7 / 1 + 2 bonus [Enterprise Supplier ] QSE Scorecard Overview Sub Element Indicator Weighting Points Compliance Target Supplier Enterprise Bonus Points Priority Element: 40% sub minimum Annual value of all Qualifying Supplier Contributions made by the Measured Entity as a percentage of the target Annual value of Enterprise Contributions and Sector Specific Programmes made by the Measured Entity as a percentage of the target Bonus point for graduation of one or more Enterprise beneficiaries to graduate to the Supplier level Bonus point for creating one or more jobs directly as a result of Supplier and Enterprise initiatives by the Measured Entity 1% of NPAT 1% of NPAT 1 Yes 1 Yes 8 / 10 + 2 bonus E&S Amendments & Objectives Sub minimum s (Priority Element): 40% of each of the targets / indicators (PP, ED & SD) Introduction of Supplier subelement (previously only ED) Focus is on developing black owned suppliers to the company (value adding, empowering) Beneficiaries are EME s & QSE s that are at least 1% black owned (previously 2% min) Contributions aimed at increasing / supporting their Financial and/or Operational capacity 9 Supplier ) 3
Which of the following would qualify as ESD Contributions? a. Providing premises at less than market value rental b. Funding a Learnership for a black business owner c. Payments to 3 rd parties to facilitate contributions d. Interest bearing, secured loan to black owned entity e. Minority Investment in a black owned entity 10 ESD Contributions What can be claimed? investments in beneficiary entities; loans made to beneficiary entities (o/s loan value each year); the provision of seed or development capital; guarantees given or security provided on behalf of beneficiaries; grant Contributions to beneficiary entities; direct costs incurred by a Measured Entity in assisting and hastening development of beneficiary entities; overhead costs of a Measured Entity directly attributable to Enterprise and Supplier Contributions; preferential credit terms granted by a Measured Entity to beneficiary entities; 11 ESD Contributions What can be claimed? settlement of the cost of services, for example: professional and consulting services; licensing and/or registration fees; industry specific levies and/or other such fees; and IT services; creation or development of capacity and expertise for Beneficiary Entities required to manufacture or produce goods and/or services previously not manufactured, produced or provided in the RSA facilitation of access to credit for Beneficiary Entities unable to access similar credit facilities through traditional means; provision of training and/or mentoring to Beneficiary Entities maintenance by the Measured Entity of an Enterprise and Supplier unit which focuses exclusively on support of Beneficiary Entities 12 Supplier ) 4
ESD Contributions What can be claimed? provision of finance to Beneficiary Entities at rates of interest below the applicable rate relaxed security requirements or absence of security requirements for beneficiary entities unable to provide security for loans; and settlement of accounts with beneficiary entities over a shorter period of time in relation to the Measured Entity's normal payment period, provided the shorter period is no longer than 1 days Payments made by the Measured Entity to suitably qualified and experienced third parties to perform Enterprise and Supplier on the Measured Entity's behalf. 13 ESD Contributions What cannot be claimed? Any payments made / costs incurred outside of the Measurement Period (Financial Year) Preferential payment terms which extend beyond 1 days Any travel or commuting time (relating to human resource capacity / time cost) Any costs already accounted for under Skills Contributions The same contributions cannot be counted under both Enterprise & Supplier 14 ESD Recognition Factors Benefit Factor Matrix Revised B BBEE Codes Description Old Codes New Codes Grant Contributions 100% 100% Direct Cost incurred 100% 100% Discounts given (in addition to normal business practice) 100% 100% Overhead Costs 80% 70% Interest Free & Unsecured Loans 100% 70% Standard Loans to Black owned EME/QSE 70% 0% Guarantees provided on behalf of Beneficiary 3% 3% Lower Interest Rate (Prime Rate Less Actual Rate) (Prime Rate Less Actual Rate) Minor Investment in Black EME/QSE 100% 70% ESD Investment with lower dividend to financier (Dividend rate of (Dividend rate of ordinary shareholders ordinary shareholders less Actual Dividend rate of Contributor) less Actual Dividend rate of Contributor) Professional Services rendered at no cost 80% 60% Professional Services rendered at discount 80% 60% Time of employees deployed in assisting beneficiaries 80% 60% Shorter Payment Periods 1% less number of days 1% less number of days (max 1% 1 of points) Supplier )
What do we base the target (spend) on in the case of a Net Loss? a. Nominal Value Target b. Previous Year s Profit c. Year Average Profit d. Industry Norm Profit Margin to Turnover e. Last Profit Year s NPAT Margin to Turnover 16 NPAT & Industry Norms Target based on Net Profit After Tax (NPAT) If NPAT = Loss, OR If NPAT/Turnover (Profit Margin) is less than ¼ of relevant Industry Norm; Then apply year average NPAT; If year average NPAT / year average Turnover is less than ¼ of Industry Norm; Then apply ¼ of Industry Norm to current Turnover to calculate Indicative NPAT 17 Enhanced Recognition Procurement from ESD Beneficiaries Purchasing from Supplier beneficiaries could substantially benefit the Preferential Procurement scorecard: 12% to 13% B BBEE Recognition Factor (Level 2 & 1) Across most sub elements: Total Spend, EME/QSE Spend, Black Owned Spend & possibly BWO, Designated Groups First time Suppliers attract 120% enhanced recognition ESD Recipients with a min 3 year supply contract attract 120% enhancement Effectively up to 194.4% Enhanced Recognition possible across all sub elements 18 Supplier ) 6
[Preferential Procurement] Generic Scorecard Overview Sub Element Indicator B BBEE Procurement Spend from All Empowering Suppliers based on the B BBEE Procurement Recognition Levels as a Percentage of B BBEE Procurement Spend from all Empowering Suppliers that are Qualifying Small Enterprises based on the applicable B BBEE Procurement Recognition Levels as a percentage of Preferential B BBEE Procurement Spend from Exempted Micro Enterprise Procurement suppliers based on the applicable B BBEE Procurement Recognition (Priority Element) Levels as a percentage of B BBEE Procurement Spend from all Empowering Suppliers that are at least 1% black owned based on the applicable B BBEE Procurement Recognition Levels as a percentage of B BBEE Procurement Spend from all Empowering Suppliers that are at least 30% Black Women Owned based on the applicable B BBEE Procurement Recognition Levels as a percentage of =Total Measured Procurement Spend Weighting Points 3 4 9 4 Compliance Target 80% of 1% of 1% of 40% of 12% of 40% Sub Min / 2 + 2 19 (10 / 2 Bonus Points) Recognition Levels Preferential Procurement B BBEE Status Old Thresholds New Thresholds Recognition Level One Contributor 100 points 100 points 13% Level Two Contributor 8 <100 points 9 <100 points 12% Level Three Contributor 7 <8 points 90 <9 points 110% Level Four Contributor 6 <7 points 80 <90 points 100% Level Five Contributor <6 points 7 <80 points 80% Level Six Contributor 4 < points 70 <7 points 60% Level Seven Contributor 40 <4 points <70 points 0% Level Eight Contributor 30 <40 points 40 < points 10% Non Compliant Contributor <30 points <40 points 0% 20 Enterprise & Supplier Evidence Requirements Enterprise & Supplier Agreements AFS: Measured against a % of NPAT or adjusted NPAT BEE Affidavit of Beneficiary entity, or Annual Financial Statements & Statutory Docs Proof that the shareholders meet the definition of Black SA Citizens per the Codes Supporting documentation: Invoices, Receipts, Payments, independent valuations, loan agreements, signed registers, programme outcomes, payslips of trainers/staff deployed, Proof of graduation, Affidavit 21 confirming Job(s) Created (bonus points) Supplier ) 7
Questions? 22 ESD Definitions "Benefit Factor" "Benefit Factor Matrix" "Enterprise Contributions" means a factor specified in the Benefit Factor Matrix applicable to fixing the monetary value of Enterprise and Supplier & Socio Economic Contributions claimable under statement 400 and 00. means the Benefit Factor Matrix for Enterprise and Supplier and Socio Economic Contributions annexed to statement 400 and 00. means monetary or non monetary contributions carried out for the following beneficiaries, with the objective of contributing to the development, sustainability and financial and operational independence of those beneficiaries: Enterprise Contributions to Exempted Micro Enterprises or Qualifying Small Enterprises which are at least 1% Black owned or at least 1% Black women owned. 23 ESD Definitions "Supplier Contributions" means monetary or non monetary contributions carried out for the benefit of value adding suppliers to the Measured Entity, with the objective of contributing to the development, sustainability and financial and operational independence of those beneficiaries: Supplier Contributions to suppliers that are Exempted Micro Enterprises or Qualifying Small Enterprises which are at least 1% black owned or at least 1% black women owned. "Net Profit After Tax" means the operating profit of a measured entity after tax. It incorporates both the equity I loss figures and abnormal items, but excludes extra ordinary items as determined by (GAAP) Generally Accepted Accounting Practices. "Industry Specific means the qualifying contributions that are unique to the industry Initiatives or Sector in which enterprises operate. For the purposes of the Codes an Specific Initiatives industry may be grouped in major divisions in accordance with the Standard Industrial Classification Coding System used by Statistic South Africa. 24 Supplier ) 8
ESD Definitions "Exempted Micro Enterprise or EME Qualifying Small Enterprise or QSE means an Entity with an annual turnover of R 10 (ten) million or less means an Entity with an annual turnover of between R 10 (ten) million and R0 (fifty) million "1% Black Owned means an Entity in which: (a) Black people hold at least 1% of the exercisable voting rights as determined under Code series 100; (b) black people hold at least 1% of the economic interest as determined under Code series 100; and (c) has earned all the points for Net Value under statement 100 2 Links to useful information: https://www.statssa.gov.za/additional_services/sic/contents.htm https://www.thedti.gov.za/gazzettes/affidavit_eme https://www.thedti.gov.za/gazzettes/bbee_qualifying_small_enterprise https://www.thedti.gov.za/economic_empowerment/bee_codes http://www.gov.za/document/latest 26 Reg Glutz: 083 268 363 E mail: reg@bee4business.co.za www.bee4business.co.za www.beetrax.co.za 27 Supplier ) 9