BEE Calculations
Content
• How the scorecard works
• Basic calculation of Ownership using the
following methods:
1. Control principal
2. Strict flow through principal
3. Modified flow through principal
• Sale of business example
• Procurement example
How the Scorecard works
This is a general calculation that is used throughout the scorecard.
In this example the ownership element is used. A company cannot earn points
above
the maximum set, however they can earn proportional points to that of the set
targets.
Assume you are measuring the ownership element in the BEE scorecard.
And further assume the following information:
No. of shares in Company 1 000
Shares currently held by white owners 1 000
New shares issued to black people 500
Assume the split:
Black men 400
Black women 100
Therefore the number of shares held by black people will be 500 out of a new
total of
1 500.
An excerpt of the scorecard for ownership looks as follows;
Therefore the following will happen.
Exercisable voting rights in the hands of black people = 500 / 1 500 = 33,3%
The target is set at 25% plus one vote.
In this example the company scores 33,3% black ownership and therefore will
score the full 3 points.
(Remember there is no bonus points awarded for scoring over the targets.)
Then of the black shareholders, black women hold 100 shares out of 1 500 =
6,7%
The target is set at 10%.
Therefore in this example the company will score the following points:
In this example black women represented only 6,7% of the total company’s
ownership and therefore did not score full points.
1. Control Principal
Remember in this method the control that black people can exercise on a
company is measured.
If black people control over 50% of a company it is considered to be 100%
controlled by black people. The measurement is the ultimate control that resides
with a black person. A typical example is shown below:
The application of a trust is difficult to record for the control principal as it is
the trustees whom control the trust for the benefit of the beneficiary. In this
example the black person is the beneficiary of 90% of the trust. Therefore a
flat 90% is used in the control percentage. This only applies if the fiduciaries
cannot change the identity of the beneficiaries.
As it can be seen in this example 23,4% is controlled by black people.
2. Strict flow through principal
In this method the actual benefits that black people receive from the company is
measured.
The best way to understand the principal is for every R100 that the underlying
company declares as a dividend, what is the ultimate cash received by black
people.
An example is shown below:
In other words the measured company declares a R100 dividend.
R26 is paid to Co B.
65% of R26 is paid to Co A = R16.9
90% of R16.9 is paid to the Trust = R15.2
90% of R15.21 is paid to black people = R13.7
So 13,7% is the ultimate benefit to black people.
3. Modified flow through principal
This is similar to the strict flow through principal; however relief is given once to
the chain of ownership. Where the chain that is owned by black people is still
above 50% relief will be allowed to be used to view the ownership as being
100%.
Note: This only happens once – so logically the relief will be used at the lowest
possible level to achieve maximum benefits.
An example is shown below:
On the same structure the following results are obtained:
Control principal 23,4%
Strict flow through 13,7%
Modified flow through 21,1%
Sale of Business Example
On transaction date:
Assume Company A sells a business unit – Division C to a BEE company for
R195m. Before the transaction occurs Co A is valued at R1 000m (A,B & C)
Further assume that the BEE company is 51% owned by black people. Often in
practice the other 49% is owned by a funder, it could be Co A or a third party
finance house.
Voting rights calculation
target = 25% + 1 vote
As noted above division C will be compared to that of Co A in order to calculate
the scores.
If Co A were to sell R200m shares to the BEE company it would have the same
effect of having 10.2% voting rights.
Therefore the score attributed to voting rights is:
Similarly if the BEE company had black women a score for that element in the
scorecard will also be calculated.
Economic interest calculation target = 25%
Therefore the score is
Again a similar calculation would be performed for black women and black
designated groups.
Net equity calculation target = 25% graduation
Note:
Statement 101 (Sale of assets) – only allows for the use of Formula A for the
calculation of net equity (Formula B can only be used when applying Statement
100)
One year later:
Assume the following has happened
Co A used its proceeds to purchase/create another asset – Division D.
The total fair value of Co A is now R1 200 (A,B & D)
Further assume that Division C is now valued at R300m.
The calculations are performed again;
Voting rights
Points scored
Economic interest
Same as above
Net equity interest
Graduation target at the end of Yr 1 = 10% of the target = 10% x 25% = 2.5%
Therefore,
A full 7 points will be awarded to Co A.
Procurement Example
Assume a Co makes the following purchases from the following suppliers
Assume all purchases from the local suppliers meet the definition of
procurement. The imported goods also meet the definition of procurement and
is not excluded.
BEE procurement spend
Therefore R3 000 000 is recognised as being the BEE procurement spend.
This equates to a 40% procurement spend. (R3m / R7,5m)
Therefore the points awarded are as follows: