Integrated Report


 
Corporate governance statement
 
 

TRANSFORMATION REPORT
(Relates to the South African business only)

 

Aspen’s BEE philosophy

Aspen’s Broad-based Black Economic Empowerment (“BEE“) philosophy, as approved by the Transformation Committee and the Board is detailed below.

Aspen’s heritage and its most material business is South African. As such, Aspen is acutely aware of the need for transformation in South African society in order to overcome the consequences of previous discrimination and to create an equitable society in which all individuals have equal opportunities, free from prejudice. By so doing, South Africa will benefit from the social reparation of past injustices and the added economic contribution of inclusive and unrestricted participation by all citizens.

To this end, Aspen is fully supportive of constructive measures introduced by Government to facilitate effective transformation in South Africa. Aspen has embraced the BBBEE Codes and, through transformation, Aspen seeks to harness the strength and power of its diversity, respecting each person for his/her individuality. Aspen has embarked on a transformation journey and has made meaningful progress in this regard.

Group Chief Executive Stephen Saad chairs Aspen’s Transformation Committee. Deputy Group Chief Executive, Gus Attridge, Chairman of the Board, Judy Dlamini, and two independent non-executive directors, Rafique Bagus and Sindi Zilwa, are also members of the Committee. The primary role of the Transformation Committee is to assist the Board in ensuring that it discharges its fiduciary duties and obligations in respect of the South African business’s transformation in accordance with approved policy. The Board recognises the critical role it has to play in the development and empowerment of historically disadvantaged individuals in South Africa and that transformation is essential to the economic and social sustainability of the country. The Transformation Committee, which is responsible for developing and implementing the Group’s transformation strategy, while striving to ensure that management embraces transformation across the South African business, ensures alignment with the DTI’s BBBEE Act, 2003/2004, and the associated Codes of Good Practice of 2007.

The Transformation Committee has defined clear guidelines and objectives for each of the seven elements of the BBBEE Codes and has an ongoing responsibility to monitor and review all aspects of the Group’s BBBEE strategies. The Committee is governed by its Terms of Reference which is reviewed annually. The Committee’s responsibilities include:
  • monitoring the development and implementation of an appropriate transformation strategy for the Group;
  • making recommendations to the Board on the overall target empowerment rating and strategies in the South African business;
  • approving in advance the verification agency to be appointed to validate Aspen’s empowerment rating;
  • monitoring the implementation of the Transformation Policy and objectives in the South African business;
  • monitoring Aspen’s adherence to and performance under the BBBEE Codes; and
  • monitoring Aspen’s compliance with the requirements of the South African Department of Labour in respect of employment equity.

In the current financial year, based on the verification recently completed by Empowerdex, the Group scored 75,8 points (2010: 69,3 points) equating to an “AA“ value-adding rating with a procurement recognition level of 137,5%. An overview of the Group’s progress towards compliance is outlined below:

  DTI Codes of Good Practice   Progress   Target  
under  
the Codes  
Verified  
scorecard  
rating  
(October  
2011) 
  Verified  
scorecard  
rating  
(October  
2010) 
  Ownership   Full ownership points were achieved due to BBBEE equity holding and benefits retained on prior year disposals of Aspen shares   20,0   22,0*   22,0*
  Management control   Increase in top and senior black management   10,0   6,3     5,0  
  Employment equity   Score was improved due to increased employment of black disabled employees   15,0   11,1     10,1  
  Skills development   Increased skills spend on black employees and learnerships implemented during the year   15,0   12,5     9,5  
  Preferential procurement   Score improved due to increased spend on companies that are more than 50% black-owned   20,0   17,5     16,5  
  Enterprise development   Specific opportunities have been identified and implemented subsequent to year-end   15,0   1,9     2,7  
  Socio-economic development   Increased spend on CSI projects which focus on the upgrading of clinics and improving access to healthcare in rural areas   5,0   4,5     3,5  
  Overall score     100,0   75,8     69,3  

* Bonus points achieved.

Aspen has now achieved a “Level 3” contributor status, which is considered a major achievement in its transformation objectives. In October 2010, Aspen was recognised as a Level 4 contributor in accordance with the Department of Trade and Industry’s Codes of Good Practice. Aspen was ranked 7th in the health sector in the Financial Mail’s 2011 Empowerdex Survey of Top Empowerment Companies.

Achievements in the seven elements of the BBBEE Codes, verified by Empowerdex in October 2011, were as follows:

OWNERSHIP

Aspen’s direct BBBEE shareholders held 15,4 million shares at year-end. CEPPWAWU holds 2,0 million shares and Imithi holds 13,4 million shares. Imithi also holds 17,6 million preference shares which carry a right of conversion into Aspen ordinary shares on a one-for-one basis in June 2012. The preference shares enjoy full and equal voting rights as ordinary shares in Aspen. Total voting rights held by BBBEE shareholders in Aspen’s South African operations at year-end amount to 24,0%, using the DTI Codes of Good Practice.

Following the disposal of 6,8 million Aspen shares in 2010, CEPPWAWU disposed of a further 311 289 Aspen shares during the year.

In accordance with DTI guidelines, the BBBEE ownership points awarded to a company at any point in time continues to accrue to the company after the disposal of the shares of the qualifying equity holding by BBBEE shareholders. Based on the interpretation of Empowerdex, the duration of this entitlement is considered to be enduring. This principal is applied to prior disposals made by CEPPWAWU and Imithi in respect of their equity interests in Aspen.

MANAGEMENT CONTROL

Top and senior management

Aspen continues to focus on ensuring that, where possible, vacant senior management positions are filled by black employees (interpreted in the DTI Codes of Good Practice as the generic term which means Africans, Coloureds and Indians). The senior management category score improved to 35%. A formal internal succession planning process is being introduced that will identify potential opportunities for black employees throughout the Group.

Board representation

Aspen’s current Board includes three black directors translating to 35% black representation, measured against a target of 50% in terms of the BBBEE codes.

Judy Dlamini, a non-independent non-executive director, joined the Aspen Board in 2005 and has filled the position of Chairman since November 2007. A medical doctor and an MBA graduate, Judy played an instrumental role in the formation of Aspen’s BBBEE partner, Imithi. Her involvement outside of medicine has included corporate finance and business management.

Independent non-executive director, Rafique Bagus, was appointed to the Aspen Board in 2003. Rafique previously served as Chief Executive Officer of Trade and Investment South Africa where he was tasked with the responsibility of promoting, developing and co-ordinating exports from and direct investment into South Africa.

Sindi Zilwa, an independent non-executive director, was appointed to the Board in September 2006. In 1990, Sindi made history by becoming only the second black, female Chartered Accountant in South Africa.

Brief curricula vitae of Board representation on the Transformation Committee are contained here.

employment equity

The Group Human Resources Executive monitors the employment equity plan in consultation with employees through employee forums. The forums’ composition, which includes unionised members, ensures that the interests of employees at all levels, as well as gender and race groups, are represented. Aspen remains committed to promoting equity and diversity throughout the Group and has centred its approach on building a culture that is consistent with Aspen’s values, quality of management and continuous development, competitive recognition and rewards, and providing development opportunities.

An extensive review of Aspen’s employment equity targets was undertaken in an attempt to ensure that its equity plans retain their relevance in currently constrained economic conditions. Although a shortage of adequately experienced black candidates available or ready to fill senior positions within the Group exists, Aspen believes that it is fundamental to mentor and develop its current talent and ensure that these employees are supported as their developments are fast-tracked.

The Group’s commitment to affording equal opportunities to all employees is reflected in the employee profile. In South Africa, 75,8% (2010: 77,3%) of employees are black and 54,6% (2010: 53,7%) female.

Encouraging progress has been made in transforming the employee profile and objectives for the representation of previously disadvantaged individuals.

    2011
  Increasing black representation (%)  Achieved   Target  
  Senior management   29,5   43,0  
  Middle management   43,8   63,0  
  Junior management   67,4   68,0  

The Department of Labour concluded an audit of employment equity practices applied at the Port Elizabeth site during March 2011. Some concerns were raised by the Department of Labour with regard to employment analysis as required by the Employment Equity Act and certain aspects of Aspen's Employment Equity Plan. Aspen has since implemented an Employment Equity Review process to rectify these concerns and also prepare the Employment Equity Plan.

SKILLS DEVELOPMENT

Increased emphasis has been given to the upskilling of previously disadvantaged individuals. This is reflected in the increased expenditure on skills training and the increased number of learnerships entered into during the year. The table below sets out Aspen’s achievement in terms of the BBBEE Codes.

 Criteria   Weighting  
points  
Target  
under the  
DTI Codes  
of Good  
Practice  
Aspen’s  
profile  
Aspen’s  
score  
Skills development expenditure on learning programmes             
Black employees as % of leviable amount, adjusted for gender   6   3%   3,2%   6,0  
Black employees with disabilities as % of leviable amount, adjusted for gender   3   0,3%   0,1%   0,5  
Learnerships              
Number of black employees participating in learnerships or category B, C and D programmes as a % of total employees, adjusted for gender   6   5%   6,2%   6,0  
Total skills development score   15       12,5  

Skills training and learnerships are linked to specific work-related functions. Learnerships entered into are designed to upskill the current employees to perform their tasks better and more efficiently in developing their skills and knowledge/experience.

Refer to the section on “Training and developing our people“ here of the Sustainability Report for further detail on skills development.

PREFERENTIAL PROCUREMENT

During the year, the Group spent 80,4% of its total qualifying procurement spend of R2 412 million on empowered suppliers, reaffirming the Group’s commitment to increasing procurement of goods and services from 50% black-owned and/or 30% black female-owned business. Black women-owned enterprises made up 0,7% of this amount, a pleasing increase from the previous year. Focused initiatives will continue to be applied to ensure Aspen assists in building the capability of black female businesses in the pharmaceutical sector, despite obstacles which prevent foreseeable achievement of the Department of Trade and Industry’s 6% target. This area will receive focus during the year ahead, with links to the Group’s enterprise development initiatives. Aspen’s large qualifying spend base in South Africa requires a significant portion to be allocated to this supplier category in order to meet targets.

Led by a widespread Group effort to promote the appointment of empowered suppliers, preferential procurement continues to improve. As a consequence, the Group managed to improve its procurement from entities that have empowerment certificates.

Aspen has attained a Level 3 contributor status, which, combined with its accreditation as a value-adding supplier, enables its South African-based customers to claim 137,5% BBBEE preferential procurement credits for the full value of purchases made from Aspen.

Motivating existing suppliers, with no formal empowerment profile, to define their empowerment strategy is a key focus area for Aspen and the building of closer relationships with these suppliers remains a priority. Aspen engaged extensively with its supplier base through supplier awareness sessions to develop an accurate database of current suppliers’ BBBEE credentials and their intended transformation strategies. Approved suppliers are categorised in accordance with the BBBEE Codes and their status is monitored on a continuous basis. Aspen has made steady progress in the procurement of packing materials and supply chain services from accredited South African suppliers. Relevant BBBEE criteria were also applied in the selection of suppliers and consultants for the capital expansion, upgrade and restoration projects undertaken at the South African manufacturing sites.

The status of preferential procurement objectives for the year is set out below:

  Measurement principle   Target  
per DTI  
Codes  
of Good  
Practice  
Aspen  
2011*
actual  
  Aspen    
2010**
  Preferential spend with all suppliers   50%   80,4%     79%    
  Preferential spend with qualifying small and emerging micro enterprises   10%   18,8%     12%    
  Preferential spend with enterprises that are more than 50% black-owned   9%   6,9%     4%    
  Preferential spend with enterprises that are more than 30% black women-owned   6%   0,7%     –    
  Total preferential procurement score (points)  20,0   17,5     16,5    
  * As audited by Empowerdex in October 2011.
** As audited by Empowerdex in October 2010.

 

Strategies are being developed to ensure that the Group meets its objectives for the forthcoming year and in future years where compliance targets increase.

ENTERPRISE DEVELOPMENT

Enterprise development presents an opportunity to stimulate sustainable economic growth by empowering and developing black-owned and small, medium and micro businesses in South Africa, thereby supporting the expanding pool of entrepreneurial skills in the country and increasing the base of qualified suppliers in South Africa. The Transformation Committee has embraced enterprise development as one of its core strategic initiatives and remains committed to adhering to the spirit of enterprise development in the pharmaceutical industry. Senior executives have taken responsibility to accelerate enterprise development with selected partners. Stringent criteria are being applied in the selection of new enterprise development partners.

During the current financial year, Aspen identified certain enterprise development initiatives. These initiatives, which have now been finalised, have the following primary objectives:
  • benefiting empowerment groups in terms of skills and entrepreneurship;
  • significantly improving Aspen’s score in terms of the BBBEE Codes; and
  • being closely aligned with Aspen’s business so as to enable it to commercially leverage off them.

Subsequent to the year-end, Aspen has entered into an enterprise development transaction, which comprises loan funding of R25 million to two BEE participants to facilitate investment into an existing underlying business. The business is closely aligned to Aspen’s commercial activities of its pharmaceutical business.

A further transaction comprising loan funding of R25 million to two additional BEE participants to facilitate investment into an existing underlying business, which is closely aligned to Aspen’s consumer business, has been finalised and is awaiting Competition Commission approval prior to implementation.

SOCIO-ECONOMIC DEVELOPMENT

Socio-economic development is a core segment of Aspen’s business strategy and operations. Aspen continuously aims to invest in the economic transformation of communities in South Africa, focusing on education and training in line with its strategy of developing a pipeline of scarce skills for the industry and creation of sustainable jobs. All projects entered into are closely aligned to Aspen’s primary business.

Spend during the year increased from R7,9 million in 2010 to R11,9 million in 2011.

Aspen’s employees are actively involved in socio-economic development programmes and are encouraged to assist with volunteering either time, resources or money to community programmes and causes throughout the year.

Refer to the CSI section here of the Sustainability Report for further details.

Stephen Saad
Transformation Committee Chairman

21 October 2011