BBBEE Expenditure Report 2010 Preferential procurement

Philosophy and why it is important

Hulamin promotes the economic empowerment of black South Africans and encourages business relationships with companies which actively pursue sound employment equity and black economic empowerment programmes.

Hulamin's future and the future growth of South Africa are dependent on growing the economic involvement in main stream business, on a sustainable basis, of all previously disadvantaged groups. At Hulamin, these objectives are achieved through the preferential procurement programme.

Responsibilities

The Procurement Review Committee, chaired by a member of the Executive Committee, oversees the company's progress in preferential procurement.

The committee is responsible for strategy and planning, approving suitable supply opportunities, reviewing results and supplier performance, and approving additional suppliers and any preferential terms.

The committee meets on a quarterly basis to review progress and achievements related to preferential procurement and enterprise development opportunities. It plans to increase BBBEE spend and enterprise development, and to discuss and resolve issues or obstacles related to achieving Hulamin's BBBEE targets.

Approach

Hulamin promotes the development of black-owned businesses and in particular wholly African-owned entities as preferred suppliers. Expenditure with these businesses is tracked over time, from which targets are set and performance is managed.

To achieve its preferential procurement objectives, Hulamin ensures that:

• Black businesses are sought as suppliers of choice;
• Hulamin subsequently works closely with these suppliers to assist them in achieving their goals;
• Non-BBBEE suppliers are encouraged to improve their own BBBEE ratings with the objective of becoming BBBEE suppliers to Hulamin; and
• All suppliers are also encouraged to seek opportunities to create partnerships or other interactions, in order to effect a skills and knowledge transfer to BBBEE enterprises.

In addition to its objective of developing black business in general, Hulamin actively seeks African entrepreneurs who have the potential to grow into successful suppliers.

All contracts with preferred suppliers, including African SMEs (small and medium enterprises), are concluded on regular commercial terms, ensuring that all suppliers meet Hulamin's requirement for the best value package, comprising price, quality, service, delivery performance, Safety, Health and Environment, and payment terms.

In order to achieve the objective of developing African SMEs, Hulamin commits to the following:

• In assessing competing suppliers, Hulamin gives preference to African SMEs which present a value package that is equivalent to non-African SMEs. This applies particularly to African SMEs from communities within which Hulamin operates;
• Hulamin actively seeks out African SMEs and encourages them to become suppliers to Hulamin. This is achieved through a database of potential suppliers, as well as working through organisations such as the Business Support Centre;
• Hulamin seeks to work closely with African SME suppliers who would benefit from exposure to Hulamin's technical and management skills, with the goal of encouraging skills transfer and a more competitive supplier base; and
• Hulamin encourages the formation of willing partnerships between African entrepreneurs and established suppliers, where such partnerships permit the transfer of business skills, knowledge and experience, thereby empowering the African entrepreneurs, and over time enabling them to take over the business or to establish their own competitive businesses.

Hulamin's objective of developing African SMEs is pursued through the involvement of all Hulamin's employees. The procurement department consults broadly in all areas in identifying and structuring supply opportunities that will suit African SMEs and in the further development of these suppliers.

Consultation takes many forms: from employees identifying and communicating opportunities they see, to management arriving at a decision to outsource a non-core function, or to close down an internal function and source from a third party. Examples over the past years include the outsourcing of the printing department, the box making department, the canteen, and contractual agreements with ex-employees now rendering cleaning services to the company.

2010 Results/achievements

Due to the nature of its business, Hulamin sources over i fty percent, by value, of its purchases in the form of aluminium metal from the local aluminium smelter, BHP Billiton. This amounted to R3,5 billion over the past 12-month period. In 2010, BHP Billiton moved up to become a level 7 supplier (from level 8 in 2009), allowing 50% of the invoice amount to now be classified as BBBEE expenditure.

This change in BBBEE rating of BHP Billiton has had a signii cant impact on Hulamin's overall BBBEE spend value and effectively doubles Hulamin's total expenditure with BBBEE enterprises. Now BHP Billiton singlehandedly accounts for approximately 64% of Hulamin's total BBBEE spend.

In 2010, Hulamin spent R3,012 billion in total with BBBEE enterprises. Of this total, R129,7 million was spent with Qualifying Small Enterprises (QSEs) and Emerging Micro Enterprises (EMEs), R224,5 million on black enterprises (greater than 50% black-owned), and R22,2 million with black woman-owned businesses (greater than 30% black woman-owned).

BBBEE expenditure now represents 55% of total expenditure for 2010 (after exclusions such as imported goods and services) and shows a signii cant increase on the 26% in 2009, 18% in 2007 and 22% in 2008.

Hulamin met and slightly exceeded the targeted spend of R32 million with wholly African-owned entities for 2010, showing a final spend of R32,7 million.