A Section 12J Venture Capital Investment Company. FSP License N SARS VCC No. VCC-0056

Transcription

1 A Section 12J Venture Capital Investment Company FSP License N SARS VCC No. VCC-0056

2 Section 12J: An introduction The terms Section 12J or 12J are making reference to Section 12J of the South African Income Tax Act, 1962 (Act No. 58 of 1962). Section 12J came into effect on the 1st July 2009 and was created specifically for the purpose of inviting investors to participate in the capitalisation of promising small and medium size qualified enterprises in the Republic of South Africa. The intended purpose is to stimulate growth in this sector and in the South African Economy as a whole. Taxpayers who invest in a Venture Capital Company ( VCC ), through the acquisition of shares in the VCC, in return are entitled to a 100% tax deduction of these monies invested, subject to the provisions of Section 12J, thereby achieving an immediate return on investment of up to 45% (being the reduction in taxes payable). Individual (45% tax bracket) No Investment into 12J Invest R Invest R Taxable Earnings R 1,500, R 1,500, R 1,500, J Deduction R 0.00 R 300, R 1,500, Taxable Income R 1,500, R 1,200, R % -R 675, R 540, R 0.00 Earnings After Tax R 825, R 960, R 1,500, Tax Saving R 0.00 R 135, R 675, The Venture Capital Company is intended to be a marketing vehicle that will attract retail investors. It has the benefit of bringing together small investors as well as concentrating investment expertise in favour of the small business sector. - South African Revenue Service (SARS) ///// What is the objective? \\\\\ The objective of the Company is to provide investors with an investment resulting in a high after-tax return, high sustainable dividend yield and moderate risk exposure by gaining access to a combined portfolio of local and international Franchises, which would comprise of both existing stores and startups and also provide tax relief through the Companies accreditation with the South African Financial Services Board and the South African Revenue Services as a registered Venture Capital Company. ///// Who manages the portfolio? \\\\\ The Franchise Co. act as portfolio managers to The Company. They are a franchise management specialist company that own and manages a diverse range of established and popular South African Franchises on behalf of a vast number of investors offering all the benefits of owning a franchise without the risks, overheads, administration and long hours. The company s directors and senior management have between them more than 150 years combined experience in the industry ///// Why the Franchise Sector? \\\\\ The Franchise Industry is known to be recession resistant and inflation friendly from an investment perspective. The Franchise Co. s management module is based on the principle of increased turnover and investor dividend rewards. This can be achieved irrespective of high market volatility, inflation and interest hikes. The Franchise Co. have successfully delivered a dividend return of over 12% per annum consistently since inception of their existing Private Equity Franchise Portfolio. South African Inflation has hiked at 75% over the past decade

3 (3.60% in 2006 towards 6.30% in July 2016, food cost prices hiked 360% over the past six years (2.4% in 2010 towards 11.2% in 2016), however the average South African consumer spend has still been 56% of their monthly income within this sector Main Challenges Facing a Franchisor/Franchisee Due to the management teams experience, expertise, resources, profile and bulk purchasing power, up to 80% of the risks the average franchisee/franchisor faces is mitigated. Legend for graph depicting in which sectors the average South African spends their monthly income South African Spend in the Franchise Sector South African Spend outside the Franchise Sector ///// What is the risk profile of the portfolio? \\\\\ Moderate risk profile of the Company due to underlying portfolio being exposed to real growth assets and not fluctuating listed equity. Secure capital due to quality management, safeguarding and retention of assets. Should markets, interest rates and inflation fluctuate over the medium to long term, investors can rest assure that the sector they are invested in, has proven that it is recession and inflation resistant. The average South African spends 56% of their income in the Franchise Sector, of which this sector contributes around 9.25% to the GDP of the country L O W L O W - M O D M O D E R A T E M O D - H I G H H I G H ///// Contact Information \\\\\ The Company The Fund Manager Administrative Manager The Franchise Junction Section 12J VCC Limited Registration number: 2017/009803/06 Office 11 Sinoville Corner Centre, Cnr Braam Pretorius And Vinko Streets, Sinoville, Pretoria, Gauteng, 0182 Tel: info@franchisejunction12j.co.za Laudian Franchise Management One (Pty) Ltd Trading as The Franchise Co. Registration Number: 2015/385366/07 Office 11 Sinoville Corner Centre, Cnr Braam Pretorius And Vinko Streets, Sinoville, Pretoria, Gauteng, 0182 Tel: info@thefranchiseco.co.za Venture Capital Management Services Proprietary Limited Registration number: 2012/223909/ Katherine Street Building 2, Pinmill Office Park Strathavon, 2196 Tel: cindyh@grovest.co.za

4 ///// About the investment? \\\\\ Current Issued Share Capital Key Features Initial Offering Launch Date 26 January 2018 Management Team Investment Vehicle Performance Target The Franchise Co. Ordinary Shareholding in Company CPI + 15% (Net of Tax & Fees) Minimum Investment R 200, Fund Term SARS target of 5 years * Return is measured on the basis of the discounted cash flow or internal rate of return method and is reflected net of taxes & fees. * A portion of the funds invested is claimed back (through VCC share deduction) from SARS which lowers the base investment to a smaller Risk Portion. Company Leverage Dividend Yield Liquidity Valuation and Pricing Company Structure Targeted to remain between 0-40 percent of the value of the underlying assets at all times. No leverage charge will be levied to investors on borrowed funds Minimum of 8.5% p.a. of Share Capital Invested All Dividends are accrued to investors on a monthly basis. Note that the sale of shares of the Company are subject to restrictions imposed by legislation. Current legislation does not permit withdrawal within 5 years of investment into the Company. Should such dis-investment occur then SARS will levy a recoupment of tax which will reduce returns already received. An appropriate discount may also be applied for early repurchase of shares The share price of the Company will be updated on an annual basis and will apply from the first business day of the new year This report has been constructed based on facts, figures, rates, taxes and other criteria set by the Financial Services Board, the South African Revenue Services, South African Legislation & The South African Venture Capital Association s 2017 Industry Survey as it applied on the 31 December * The above figures and below graph are based on net profit figures, from current franchise stores, before dividend distributions to investors, but after applicable fees and taxes 45,00% 40,00% Key Indicators Key Indicators - Section 12J Structure Average Monthly Return 1.90% Average Monthly Return 3.46% Monthly Standard Deviation - Positive Returns 1.29% Monthly Standard Deviation - Negative Returns 0.00% Monthly Standard Deviation - Positive Returns Monthly Standard Deviation - Negative Returns Maximum Monthly Drawdown 0.00% Maximum Monthly Drawdown 0.00% 2.34% 0.00% Maximum Monthly Gain 5.61% Maximum Monthly Gain 10.20% Sharpe Ratio 1.04 Sharpe Ratio 1.24 Sortino Ratio No Drawdowns Sortino Ratio No Drawdowns Mar Ratio No Drawdowns Mar Ratio No Drawdowns Monthly Net Profit Return on an Existing Portfolio Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total R ,00% 30,00% Outperformance 25,00% 20,00% 15,00% 10,00% 5,00% 0,00% Annual Net Profit - Risk Portion Annual Net Profit Monthly Net Profit - Risk Portion Monthly Net Profit Outperformance Target Return Standard Target Return Section 12J Structure

5 ///// Return Target \\\\\ 55% Risk Portion Year Start Maturity Total Initial Investment Tax Recoupment Net Investment -R R R R R R Dividend R R R R R R Share Growth R0 R R R R R Maturity R R Total -R R R R R R R Per Annum 25.76% IRR 21.16% * Figures are net of taxes and fees and are rounded to the nearest 2 decimal places. Figures are shown based on the return profile on the risk portion of the investment assuming a 45% marginal tax rate for the investor. Due to rounding actual sums might vary slightly. Assumption is redemption of shares after 5 year SARS restricted term. Capitalisation of tax deduction is included at maturity ///// Fees/Costs \\\\\ Franchise Junction will incur fees/costs as a percentage of the funds received from investors, before allocating funding towards investment into appropriate Franchise outlets and businesses. These fees are charged once over the life of the investment and no further ongoing fees are charged to the investors by the Company. These fees are: Capital Raising Fees of 3%, Research Fees of 5% and Management Fees of 5.75% Over the minimum expected term of the investment of at least 5 years, as prescribed by SARS, these fees equate to 2.6% p.a. when adjusted for share price growth. As the company value grows the fees equate to a lessor equivalent amount. These fees are also anticipated to be recovered within the first year of trading of the underlying Franchise Businesses. Capital Raising Fee this fee is incurred in order to facilitate the capital raising process. Marketing, accommodation, catering, attorney fees, companies and intellectual property commission & administration costs Our Average Annual Fees 2.6% Research Fee this fee is incurred in order to facilitate the portfolio construction process. To identify opportunities, perform due diligence processes, corporate commissions & business brokerage costs Average Annual Fees Unit Trusts 2.77% Management Fee incurred to facilitate the process of lifetime management of the portfolio. Store visits, staff training, management selection, performance monitoring, staff welfare, infrastructure spend & compliance Average Fees p.a. Unit Trusts (inc performance fee) 3.5%

6 ///// Management Team \\\\\ Directors Adv. Musa Ndlovu Non-executive Chairman Dr. Danie Van Zyl Non-executive Director Jarryd Gillmer Non-executive Director Conrad Henning Non-executive Director Investment Committee Hubert Sherratt (CFP) Chairman Adv. Musa Ndlovu Jarryd Gillmer Chris Van Zyl Audit Committee Lynn Marais (CSSA) Audit Committee Chairlady Dr. Danie Van Zyl Audit Committee Conrad Henning Audit Committee ///// Important \\\\\ Franchise Junction Section 12J VCC Limited is an authorised Financial Service Provider and approved Venture Capital Company. FSP License N , SARS VCC No. VCC To ensure optimal investment into the company, the risk portion of investment should always be considered. Risk portion is the difference between an investors invested amount, so reduced by the decrease in tax liability in a given year of assessment after applying the section 12J deduction. Our corporate advisers, administrators and company governors include: