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The investment per factory is R1,5 million. This amount includes all capital and operational expenses for three months. The investment can be syndicated at R100,000 per investor with a total of 15 investors per factory. The investment will be in a private company that will be formed for each factory.
The investment is by way of a loan account. The selected entrepreneurs, per factory, will draw an agreed monthly salary. The entrepreneur will not draw a share of the profits until the full loan account has been repaid. After the repayment of the loan account, the investor will retain its shareholding for the risk taken in the initial investment.
The shareholding of each factory is as follows:
45% for the entrepreneur;
5% for the community;
25% for the investor;
25% for the franchisor.
On a syndication basis, the investor will get a proportion of the allocated 25% depending on investment made.
Although each factory will be a new enterprise with its inherent risks, the concept is not new as Khaya Khanya Holdings is a fully operational business utilizing the same techniques as each individual factory. Each factory is forecasted to achieve between R1 million and R1,5 million net profit. Based on this assumption, investors will enjoy a return on investment of between 17% and 25% per annum. Obviously, once the loan account gets repaid the return calculation is not relevant.
The majority of the funds will be utilized to purchase assets. Approximately 85% of the funds will be utilized for this purpose. A company security will be given to investors against the assets. All funds will be controlled by Caban together with the respective entrepreneurs.
As a Caban initiative, Caban stands behind the investment. In the case of the investment failing, Caban will cover any shortfall to investors after the sale of the assets.
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Proper corporate governance structures will be implemented by Caban Investments. The board will report quarterly to all stakeholders. The report will include the following:
Management accounts which will include Income statement, Balance Sheet, Cash Flow Report and a detailed comparison between forecasts and actuals;
Report on operational activities.
On a quarterly basis, the profits of each factory will be distributed as follows:
• 28% held back for tax purposes;
• 22% held back for cash flow purposes. After each year an assessment will be made whether to distribute a portion of these funds depending on income forecasts for the
next year;
• 50% distributed to its shareholders proportionally with their shareholding after loanaccounts have been repaid.
The investor will have the following options to exit:
• Give 90 days’ notice of its intention to sell;
• Existing shareholders will have first option to purchase the shares;
• Thereafter it will be offered to external parties.
The valuation of the shares will be based on historical after-tax earnings of 4 times.
