forecast summary
TRANSCRIPT
Introduction
What is “The Brand Group”?
-‐ TBG Holdings (PTY) Ltd known to us as "The Brand Group" is a private company registered in South Africa. -‐ Strong focus on purchasing and successfully managing existing, profitable and well-‐established brands and
franchises. -‐ Secondary aim of purchasing the property the business resides within.
Core Focus Areas
1. Cash Flow -‐ Main focus to establish businesses with high cash flow from a sales point of view. 2. Structure -‐ Scalable business model so as to limit overheads and increase profit in order to aggressively re-‐
invest. 3. People -‐ Ensuring top quality staff in key areas and hands on 4 month program with each acquisition to train
employees. 4. Franchises -‐ After intense market research it was noted that this was stable and a large asset base could be
built up. 5. Property -‐ Where possible “The Brand Group” seeks to obtain the premises of the entity to further increase
the asset base.
Secondary Objective Areas
-‐ We are wise to the fact that in an ever expanding business such as this there will exist many opportunities which may not be in the sole mandate of "The Brand Group", we encourage our shareholders to bring these opportunities to our attention as to ever diversify the exposure of "The Brand Group". We try to cultivate a culture of innovation and entrepreneurial spirit within the framework of our shareholders. We aim to have skilled and professional shareholders with strong vested interested in the welfare of "The Brand Group".
Structure of Ownership
-‐ Shareholding is available to the public, we reserve the right to pre-‐approve any potential shareholder as we see to create a company with strong entrepreneurial skills and innovative culture. With this being said we want diverse, driven and skilled shareholders who through their vested interests in the business contribute more than just money but their skill as well.
-‐ We have a 10 year plan. In these 10 years our objective is too aggressively re-‐invest all profits and shareholders contributions to ensure maximum capital growth. Our aim is not to have to make use of financing facilities and we acquire new business as cash surplus allows. In this way minimising our exposure to finance costs.
-‐ The company has 100 000 authorised ordinary shares, 40% of the entity will remain in the hands of the
original shareholders. Therefore the remaining balance of 60 000 shares are left and available for purchase. These shares will be allocated monthly over a period of 10 years.
-‐ All shareholding consist of ordinary shares with the applicable voting rights attached there to. Each share will be allocated at a price of R 1000.00, each month 500 shares will be allocated to existing shareholders for the fee of R1000, this is a positive cash flow into the entity of R 500 000.00 and will remain constant throughout the 10 year period. Therefore if contributions are made consistently over the 10 year period based on purchasing of 1 share then one would have a total of 120 shares at the end of the time frame. Bearing in mind that for the first 10 years "The Brand Group" has an aggressive re-‐investment strategy and no dividends will be allocated in this time frame.
Capital Growth Projections
We work under the following assumptions going forward:
-‐ "The Brand Group" does strong research into any new business that it intends to acquire and in this way seeks to purchase business' which can meet the initial capital outlay within 3 years. To be slightly more conservative a return on equity of 30% is used for the purpose of this calculation.
-‐ Currently "The Brand Group" has two Vida E franchises. Camps Bay and Clock Tower in the V&A Waterfront, both these stores have shown strong promise and current net profit would see capital "repaid" in the 3 year time period. These franchises are also what serve as the current capital base of R 2 400 000.
-‐ "The Brand Group" seeks to acquire new capital assets with existing cash reserves only and in doing this limit exposure to finance costs.
-‐ "The Brand Group" will focus on the acquisitions of business in the following price categories over the
timeline of the entity:
o Capital Expenditure on new entities will be as follows 1. In Year 1 and Year 2 entities to the value of R1, 5 million will be purchased. 2. In Year 3 and Year 4 entities to the value of R2, 0 million will be purchased. 3. In Year 5 and Year 6 entities to the value of R3, 0 million will be purchased. 4. In Year 7 and Year 8 entities to the value of R4, 0 million will be purchased. 5. In Year 9 and Year 10 entities to the value of R5, 0 million will be purchased.
-‐ All values used in the calculation are in present value terms, capital acquisitions expressed in today’s terms for the use of the forecast and shareholder contributions have been discounted by 6% over the term to present value.
The below is a summarised version of the forecasts for the brand group over the 10 period.
o The 10 year period will commence on the 1st of January 2016 and cease on the 31 December 2025. o After the 10 year period the entity will begin to distribute profits.
Guidelines on table.
1. Shareholder Contributions in PV -‐ This is the yearly total of expected contributions from members which has been discounted by 6% over the 10 year term
2. Total Return on Equity -‐ This is factor of the return on the capital purchased, "The Brand Group" looks to recoup capital in 3 years but for the calculation 30% ROI has been used.
3. Total Cash into the Entity -‐ This is the total of the cash in present value terms into the business, a combination of shareholder contributions and returns on capital employed.
4. Total Capital Expenditure -‐ This is the forecasted spend on the acquisition of new business in present value terms. Each 2 year period acquisition strategy will target higher valued entities.
5. Cash Surplus at Year End -‐ All Acquisitions will be made from cash surpluses, this will be on a month to month basis as the cash surplus exceeds the cost of the new business.
6. Capital at Start of the Year -‐ This is the combination of all assets acquired to date at the start of each year, return on equity is based on monthly capital values.
7. Total Capital at Year end -‐ Combination of all asset at the end of the specific period. Carried over to calculate the new return on equity for the following period.
R-‐
R50,000,000.00
R100,000,000.00
R150,000,000.00
R200,000,000.00
R250,000,000.00
R300,000,000.00
R350,000,000.00
R400,000,000.00
YEAR 1 -‐ 2016
YEAR 2 -‐ 2017
YEAR 3 -‐ 2018
YEAR 4 -‐ 2019
YEAR 5 -‐ 2020
YEAR 6 -‐ 2021
YEAR 7 -‐ 2022
YEAR 8 -‐ 2023
YEAR 9 -‐ 2024
YEAR 10 -‐ 2025
Total Capital At Year End
Period
1. Shareholder Contributions
in PV 2. Total Return
on Equity 3. Total Cash into the Entity
4. Total Capital
Expenditure 5. Cash Surplus at Year End 6. Capital at Start of Year
7. Total Capital At Year End
Year 1 -‐ 2016
R 6,000,000.00
R 1,507,500.00
R 7,507,500.00
R 7,500,000.00 R 7,500.00
R 2,400,000.00
R 9,900,000.00
Year 2 -‐ 2017
R 5,660,377.36
R 3,982,500.00
R 9,642,877.36
R 9,000,000.00 R 650,377.36
R 9,900,000.00
R 18,900,000.00
Year 3 -‐ 2018
R 5,339,978.64
R 7,170,000.00
R 12,509,978.64
R 12,000,000.00 R 1,160,356.00
R 18,900,000.00
R 30,900,000.00
Year 4 -‐ 2019
R 5,037,715.70
R 11,520,000.00
R 16,557,715.70
R 16,000,000.00 R 1,718,071.70
R 30,900,000.00
R 46,900,000.00
Year 5 -‐ 2020
R 4,752,561.98
R 16,995,000.00
R 21,747,561.98
R 21,000,000.00 R 2,465,633.68
R 46,900,000.00
R 67,900,000.00
Year 6 -‐ 2021
R 4,483,549.04
R 24,345,000.00
R 28,828,549.04
R 30,000,000.00 R 1,294,182.71
R 67,900,000.00
R 97,900,000.00
Year 7 -‐ 2022
R 4,229,763.24
R 34,270,000.00
R 38,499,763.24
R 36,000,000.00 R 3,793,945.96
R 97,900,000.00
R 133,900,000.00
Year 8 -‐ 2023
R 3,990,342.68
R 47,170,000.00
R 51,160,342.68
R 52,000,000.00 R 2,954,288.64
R 133,900,000.00
R 185,900,000.00
Year 9 -‐ 2024
R 3,764,474.23
R 64,645,000.00
R 68,409,474.23
R 70,000,000.00 R 1,363,762.87
R 185,900,000.00
R 255,900,000.00
Year 10 -‐ 2025
R 3,551,390.78
R 88,270,000.00
R 91,821,390.78
R 90,000,000.00 R 3,185,153.65
R 255,900,000.00
R 345,900,000.00
Year 11 -‐ 2026
R -‐
R 103,770,000.00
R 103,770,000.00
R -‐ R 106,955,153.65
R 345,900,000.00
R 345,900,000.00
The above will further be summarised into the two crucial factors and graphed. We consider the growth of the capital base over time as well as the return on equity.
R-‐
R20,000,000.00
R40,000,000.00
R60,000,000.00
R80,000,000.00
R100,000,000.00
R120,000,000.00
YEAR 1 -‐ 2016
YEAR 2 -‐ 2017
YEAR 3 -‐ 2018
YEAR 4 -‐ 2019
YEAR 5 -‐ 2020
YEAR 6 -‐ 2021
YEAR 7 -‐ 2022
YEAR 8 -‐ 2023
YEAR 9 -‐ 2024
YEAR 10 -‐ 2025
YEAR 11 -‐ 2026
Total Return on Equity
Analysis of Graphs
Total Authorised Share Capital Total Shares Reserved for Founders Remaining Shares for Contributing Members
100,000.00
40,000.00
60,000.00
Total Capital Value after 10 year period
Total Capital Value of Company Total Shares Reserved for Founders Remaining Shares for Contributing Members
R345,900,000.00
138,360,000.00
207,540,000.00
To unitise the values the following must be considered. 120 Shares which would be the total of shares acquired should a member contribute for the total 10 period. This is a present Value Calculation:
Total Value of the Entity R 345,900,000.00
Number of Issued Shares 100,000.00
PV of one Share 3,459.00
10 Year Contribution 120
Total Value of 120 Shares 415,080.00
Present Value worth of share contribution over 10 years Present Value of R 120 000 R90,073.45 Rate of Return 22%
Essentially what this means is that in real terms your money has grown on average by 22% per annum excluding the future dividend yield considerations. All contributions have been discounted by 6% as and when the payment would occur to accurately reflect what the value of R 120 000 is in today’s terms when paid over the 10 year cycle.
Consider for a moment the return on Equity in Year 11
At the end of Year 11 there will be a cash surplus of R 106 955 153 available for distribution amongst the shareholders. This equates to the following:
Total Cash Surplus R106,955,153.65
Total Share Issue 100,000.00
Average per Share R1,069.55
At holding of 120 Shares R128,346.18
Therefore in year 11 a total dividend of R 128 346 will be paid out at present value. When considering this together with the fact that the present value of one share is R90 073 the following is true:
Therefore in year 11 dividends received are in excess of 100% of the actual equity in present value. Considering this together with the fact that there is average growth of 22% of the actual capital in real terms the combined effect show significant returns.
The final Consideration is the fact that most JSE listed companies only show a dividend yield of between 3% and 6%. If we consider this type of market value then we need to reassess the value of the capital as assumptions have not included the growth of the going concern and the value in the income potential of the entity. Let assume that the dividend yield in the market is 6% which is very generous and calculate the actual market cap as it should be.
Year 11 Dividend Pay out R128,346.18
Less 15% dividend tax 19,251.93
Net Pay out 109,094.26
Present Value of Share R 90,073.45 Rate of Return 121%
Bearing in mind that the lower the dividend yield the higher the perceived value of the stock.
Total Dividend Yield R103,770,000.00
Apply Dividend Yield 6%
Total Assessed Market Cap R1,729,500,00.00
Actual Capital Expenditure R345,900,00.00
Growth through going concern 500%
Therefore if we take this into account on a single share the future value of 120 shares will be as follows:
Total Market Cap R1,729,500,000.00 *New
Total Shares issued 100,000.00
Average per Share 17,295.00
Total of 120 Shares 2,075,400.00
Present Value of 120 Shares R 90,073.45 Actual Rate of Return on Capital 44%
When we consider the above it is therefore clear that actual growth on the capital investment is 44% year on year growth which is compounded annually.
In essence in present value terms contributions in today’s money of: R 90,073.45 Will be equal to the following amount in present value (real terms) in 10 years from now R2,075,400.00
These returns are excluding the inflation factor and as such should be seen as 44% growth compounded annual with an additional 6% growth to cover for inflation as we are using real Present Values
