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  • UNDERSTANDING THE VODACOM BEE TRANSACTIONCraig Gradidge and Kagisho Mahura

  • AGENDA

    Welcome and Intro

    GMI Update

    Investment Context key principles

    Vodacom BEE Transaction (YeboYethu)

    Admin Processes

  • Cyril RamaphosaForeword in Visions of Black Economic Empowerment2007

    Broad-base BEE comes not only with rewards

    but also with responsibility. As BEE evolves, it

    will have to be the responsibility of all those

    that are empowered to contribute to the

    broadening and deepening of economic

    empowerment across society.

  • GRADIDGE-MAHURA INVESTMENTSA diversified investment advisory company

    Investment Sub-advisory

    Asset Management Consulting

    Financial Education Services

    Wealth Management

  • A diversified investment portfolio

    Unit TrustsBEE Transactions

    Offshore InvestmentsShare Portfolios

    Private EquityETFs (Satrix)

    Alternatives (Hedge Funds)

    Investment Management

  • Key Investment Principles

    DiversificationAiming for low correlation:

    Between asset classes shares, property, bonds, cash

    Within asset classes Resources (Inzalo), Financials (Eyethu, Eyomhlaba, Masonge), TMT (Asonge, YeboYethu, Telkom, Welkom Yizani,

    Phuthuma Nathi), Retail Industrial (Tiger Brands??)

    Between currencies

    Time in the Market Risk reduction over longer period

  • Long-term 1 year rolling returns

    Total Periods - 108Negative Periods - 29

  • Long-term 5 year rolling returns

    Total Periods - 104Negative Periods - 8

  • Long-term 10 year rolling returns

    Total Periods - 99Negative Periods - 1

  • UPDATE ON PREVIOUS SCHEMES

  • YeboYethu

    Vodacom SA

    Black Public ESOP

    Vodacom Group YeboYethu Thebe Royal Bafokeng

    45%55%

    93.75% 3.44% 0.84% 1.97%

  • How is the deal structured?

    DISCOUNT 10% (R1562)

    EQUITY 16% (R2500)

    VENDOR FINANCING 74%

    YeboYethu

    Black Public

    7 200 000Vodacom SA

    Ordinary Shares

    82 800 000 Vodacom SA

    A Shares

    Dividends

    Dividends

  • YeboYethu

    Subscribe for shares in YeboYethu

    Shares sold at R25 each and in multiples of 100.

    Min 100 shares (R2500), max 1,440,000 (R36m)

    Total value of the deal R2.2bn

    Can start trading after 5 years with other black investors

    Seven-year vendor financing facilitation period

    Unrestricted trading after 10 years

    Receive dividends from year 1!

  • WHERE SHOULD ONE PITCH EXPECTATIONS?

    Looking forward: need to make assumptions about

    the future

    Vodacom: assumptions we made

    Growth Rate (of Vodacom profits)

    Dividend Policy (what % of profits paid as dividends)

    PE rating (value of Vodacom as a multiple of profits)

    Inflation (average rate over the period)

    As always rather make conservative assumptions

    These are only illustrative figures

  • WHERE SHOULD ONE PITCH EXPECTATIONS?

    AssumptionsDividend Policy 50%PE Rating 12Inflation 8%

    Investment VSA sharesIssue price (per share) R 25Discount R 1,563 63 Notional Funding R 11,562 462 Your Investment R 2,500 100 Total exposure to VSA R 15,625 625

    VodacomSA Profit Value at Y7 Expected dividend Present Value5% growth p.a. R 0 R 740 R 010% growth p.a. R 7,339 R 903 R 4,28215% growth p.a. R 17,305 R 1,101 R 10,097

  • LETS ASSUME A HIGHER DIVIDEND PAYOUT RATIO

    AssumptionsDividend Policy 70%PE Rating 12Inflation 8%

    Investment VSA sharesIssue price (per share) R 25Discount R 1,563 63 Notional Funding R 11,562 462 Your Investment R 2,500 100 Total exposure to VSA R 15,625 625

    VodacomSA Profit Value at Y7 Expected dividend Present Value5% growth p.a. R 1,803 R 1,035 R 1,05210% growth p.a. R 9,911 R 1,264 R 5,78315% growth p.a. R 20,388 R 1,541 R 11,896

  • EVEN HIGHER DIVIDEND POLICY

    AssumptionsDividend Policy 90%PE Rating 12Inflation 8%

    Investment VSA sharesIssue price (per share) R 25Discount R 1,563 63 Notional Funding R 11,562 462 Your Investment R 2,500 100 Total exposure to VSA R 15,625 625

    VodacomSA Profit Value at Y7 Expected dividend Present Value5% growth p.a. R 3,948 R 1,331 R 2,30410% growth p.a. R 12,483 R 1,625 R 7,28415% growth p.a. R 23,472 R 1,982 R 13,696

  • Vodacom SA

    Is the largest mobile communications network operator in South Africa, by both number of customers and

    revenue. The company is dominant in its market and enjoys a market share of 55%. It offers a range of

    mobile voice and data communication products. The company has an awesome track record of innovation with a number of firsts nationally and internationally

    over the years.

  • Prospects Vodacom SA

    Expanding Data and Content Service Offering

    MMS, internet, 3G, HSDPA, etc

    Vodacom Business

    Converged technology and communication services

    Mobile Advertising

    International Data Transmission

    Undersea cabling

  • Risks Vodacom SA

    Mature market fewer growth opportunities Approx 60% of revenue from airtime sales

    Increased competition MTN, Cell C, Virgin Mobile, Telkom?

    Disruptive technology Pre-paid sales more sensitive to economic cycle

    85% of Vodacom SA sales

    Regulatory environment changes Currency risks

    Making imported equipment more expensive

    Health risks

  • Risks - YeboYethu

    No capital protection

    Limited liquidity when trading shares

    No regularly quoted share price first 5 years

    Dividend does not fully cover outstanding debt

    Risks to Vodacom (as discussed above)

  • Unlisted shares

    Shares that are not listed or traded on a stock market Trade over-the-counter on a trading platform Participants on this platform usually have to register before

    being able to trade Advantages:

    Company does not incur cost of listing on stock market Usually less volatile share prices

    Disadvantages: Illiquid market Price discovery hampered by liquidity, and sometimes

    subjected to third party valuation

  • Requirements

    Offer opened 30 July 2008 and closes at 15:00 on 11 September 2008

    The prospectus containing application forms is available from Post Offices until 11 September 2008

    Only original Application Forms will be accepted.

    NOT those printed from YeboYethus website or photocopies!

    Black minors (under 18 yrs) can apply

    but must be assisted by a guardian and

    have a bank account in their own name

  • APPLICATION PROCESS

    Complete application form and sign

    Have application stamped at your bank (go with ID)

    Take application, certified copy of ID, proof of residence

    to Post Office

    System generates temporary YeboYethu account.

    Please Note EFT and Bank issued cheque payments

    must be made before 8 September 2008!

    Keep record of all payments safe in case of disputes

  • Requirements cont

    Vesting Trusts (NOT Discretionary Trusts)

    Full Trust Deed

    Letter of Authority

    Trustees resolution authorising person/s to act

    Certified Copy of ID of Authorised person/s

    Proof of Physical Address

  • Requirements cont

    Close Corporations

    CK1 certificate of incorporation

    CK 2 amended founding statement (if applicable)

    Members resolution authorising person/s to act

    Certified Copy of ID of Authorised person/s

    Proof of Physical Address

  • Requirements cont

    Partnerships

    Partnership agreement

    Partners resolution authorising person/s to act

    Certified Copy of ID of Authorised person/s

    Proof of Physical Address

  • Requirements cont

    Unincorporated Associations e.g. Stokkie

    Constitution

    Members resolution authorising person/s to act

    Certified Copy of ID of Authorised person/s

    Proof of Physical Address

  • Disclaimer

    This presentation does not constitute advice.

    While all due care has been taken to ensure accuracy of the content of

    this presentation, neither Craig Gradidge, Kagisho Mahura nor

    GradidgeMahura Investments (Pty) Ltd accept any liability for any

    loss that may be suffered by anyone who relied directly or indirectly

    on all or part of this presentation.

    GMI is a representative of Renaissance Specialist Fund Managers

    (FSP 25033)

  • THANK YOU

    Kagisho Mahura: 082 494 7480, kagisho@gminvestments.co.za

    Craig Gradidge: 079 885 6215 gradidgec@gmail.com

  • A bit on vendor financing

    Existing company(Vendor) New Company

    Option: Borrow from the bank

    Two things: Security Affordability

    Main challenges: Personal security Interest rate risk Banks usually demand marketable assets as security Debt stands even if business falls over

  • A bit on vendor financing

    Existing company(Vendor) New Company

    Alternative option: Existing company provides funding

    Offer debt usually at favourable rate to New Company Vendor sometimes guarantees dividend flow Attractive option if vendor has record of paying high dividends Positives:

    vendor does not need to convince itself that it is a good company Deals can be structured on favourable terms If deal