IDCDay Month Year

Brazilian fact-finding delegation visiting SA

Presentation by Christine Engelbrecht27 July 2010

Growing sectoral diversity

INDUSTRIAL DEVELOPMENT CORPORATIONYour partner in development finance

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To be “the primary driving force of commercially sustainable industrial development and innovation to the benefit of South Africa and the rest of the African continent”

The IDC is a self-financing national development finance institution whose primary objectives are to contribute to the generation of balanced, sustainable economic growth in Africa and to the economic

empowerment of the South African population, thereby promoting the economic prosperity of all citizens. The IDC achieves this by promoting entrepreneurship through the building of competitive industries and

enterprises based on sound business principles.

Supporting industrial development capacity

Promoting entrepreneurship

Sustainable employment

Broad-based black economic empowerment

New entrepreneurs entering the economy

Growing SME sectorRegional equity

Industrialisation in the rest of Africa

Environmentally sustainable growth

Growing export sectorLocal beneficiation

FRANCHISING STRATEGIC BUSINESS UNIT OF THE IDC

MISSION:

To support emerging entrepreneurs with limited access to capital to acquire and manage a sustainable franchised business in South Africa & to assist new franchised concepts to expand & develop.

PRODUCTS:

The IDC’s Franchising SBU offers the following finance schemes to the industry:

•Wholesale finance for a brand with individual loans rolled out to franchisees over a period of time.

• Directly to franchisees that require funding of at least R1 million.

FUNDING CRITERIA AND TERMS

• Franchisor– At least 3 outlets with profit history for more than 12 months (Pilot stores will be separately evaluated)– History re closures and / or relocations will be critically evaluated– Business plan for typical outlet based on performance of existing outlets in similar areas

• Franchisee– Minimum unencumbered cash contribution - % based on strength of business model – Approval by franchisor– Approval of site and lease agreement with landlord– Site specific business plan must reflect economic merit

• Terms and conditions– Minimum loan amount of R300 000 (R1m for individual applications) – Term loan (could be supported with equity type funding from special funds to make it affordable to BEE)– Interest rate: Prime related based on Credit Risk and Developmental Impact– Term: Maximum period of 6 years– Repayments: Structured to suit the needs of the business and could be stepped or amortised and include a

capital moratorium– Security:

Security over the business assets (GNB / Suspensive sale / Cession of stock ) Personal suretyship from franchisee Pledge of shares and cession of loan accounts Buy back guarantee from franchisor (if considered necessary)

WHOLESALE FACILITY

• Pre approval of roll out plan of a franchisor over a period of time

– Max 5 outlets over a 18 month period

• Due diligence on the franchisor– Strength of the brand, training and support provided,

history of existing stores

• Mini due diligence on the site and the franchisee as and when it is identified

• Co-operation agreement between IDC and franchisor

• Individual loan agreements between IDC and franchisees

• Franchise agreement between Franchisor and franchisee

• Benefits of wholesale facility:– Certainty of availability of funds for roll out plan– Reduce the time required to approve prior to opening– Terms and conditions of funding pre-determined

Known Take strength of the brand and franchisor support into

account Structured to suit needs of the business

Franchisor

Loan agreement

Fran

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Co-operation agreem

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Franchisee IDC

CO-OPERATION AGREEMENT

• Agreement between Franchisor and IDC to co-operate with regards to the roll out of outlets

• Franchisor’s responsibilities:– Training of franchisees

– Ongoing support / mentorship

– Franchisee selection

– Agreed % (normally 70%) of outlets for BEE (50%+ ownership)

– Site selection (or evaluation)

– Notify IDC of breach by franchisee

– Provide / assist with information (financial and other)

– Step in clause / buy back guarantee (as considered necessary)

Day Month Year

QUESTIONS?THANK YOU!

The Industrial Development Corporation19 Fredman Drive, SandownPO Box 784055, Sandton, 2146South AfricaTelephone (011) 269 3000Facsimile (011) 269 2116E-mail callcentre@idc.co.zaWebsite: www.idc.co.za