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ISIQONGO BEE/AGRI PROJECT

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Title: UKWINDLA BEE/AGRI PROJECT Author: LDP Last modified by: PC 10 Created Date: 6/8/2006 1:53:22 PM Document presentation format: On-screen Show – PowerPoint PPT presentation

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Title: ISIQONGO BEE/AGRI PROJECT


1
ISIQONGO BEE/AGRI PROJECT
  • PRESENTATION PARLIAMENTARY COMMITTEE
  • 13 JUNE 2006

2
INTRODUCTION
  • Who are we?

    We are the Isiqongo BEE/Agri consortium, led by
    our project leader Isiqongo Investments (Pty)
    Ltd
  • Our mission is To create sustainable and
    profitable Agri opportunities and to ensure
    participation by BEE farmers through our
    innovative model, ultimately resulting in broad
    based participation by farm workers and land
    claimants, whilst providing dedicated mentoring
    to the participants.
  • Why are we here?
  • We are here to present our BEE/Agri model and to
    present the opportunity for stakeholders to
    participate.

3
What do we want to achieve? 1. Acknowledgment
that our model is compatible with current
governmental initiatives. 2. Seek official
support in identifying and funding BEE farmers
(including land claimants) in the process of
purchasing farmland. 3. Access appropriate
funding for BEE farmers.
4
MEMBERS OF OUR CONSORTIUM
  • PROJECT LEADER Isiqongo Investments (Pty)
    Ltd, an investment holding company with a wide
    range of interests in ICT, Hotel and Leisure,
    management and consulting and manufacturing. The
    company is 100 black owned and controlled and is
    managed by Butityi Konki and Ntambi Ravele. Me
    Ravele is a board member.
  • Millennium Group Worldwide is a faith-based USA
    investment group specialising in BEE investments
    in Africa and participates as funder and
    strategic investor.
  • LDP BEE Consulting is a division of the auditing
    group LDP. Izak Strauss and Andre du Plessis
    developed the BEE/Agri model, both are chartered
    accountants and have been involved in various
    Agri/BEE projects and the structuring and funding
    thereof.

5
PROFILE OF BEE/AGRI CONSORTIUM
  • As a result of substantial work in the Agri/BEE
    industry, our consortium developed an innovative
    model to address structural problems in the
    agricultural industry, whilst at the same time
    provide BEE farmers with an opportunity to
    participate in the industry. The model
    facilitates investment into the industry and
    creates the ideal environment to align the
    investment with the SA Governments intention to
    empower previously disadvantaged individuals and
    groups within the agricultural sector.
  • Our consortium
  • 1. Is currently involved in a number of
    initiatives in the Citrus- , Poultry/eggs- and
    Deciduous fruit industries and demonstrated the
    success of the model.

6
  • 2. Has access to capital and existing alliances
    with a number of BEE funders, including
    major life assurances companies.
  • Has access to USA development funds provided by
    OPIC in co-operation with the Millennium Group
    Worldwide.
  • 4. Self-funding in all aspects, excluding the
    purchasing of farms by BEE farmers.

OUR GOALS
Launch a large scale BEE/Agri initiative with
massive participation from BEE farmers. This
initiative will be focussed on existing
economically viable opportunities in order to
ensure success.
7
  • The main threat to other initiatives is the fact
    that it is driven by land availability and not
    economic opportunities.
  • Access adequate and affordable funding for the
    BEE farmers. It is important to note that there
    are funding available, but at unaffordable rates
    and costs. Funds are currently deployed on ad
    hoc basis and not related to business
    opportunities.
  • Merge the interests of investors, funds, Agri
    business, BEE and land claims.
  • Seek instant and en-masse access to BEE farmers.
  • Address and include land claimants in our
    BEE/Agri model

8
PRESENTATION OBJECTIVES
  • It is our intention to present the BEE/Agri
    model to Parliament and to seek Official support
    assistance where possible. It is our honest
    opinion that investment and BEE in agriculture
    will not be effective unless properly focussed,
    driven by economics and funded at a cost
    affordable to BEE farmers.
  • It is not our aim to achieve an unfair business
    advantage, nor do we require any funding for our
    own business ventures. Our model is protected as
    our intellectual capital and should not be shared
    without our permission, but we are not purporting
    to own all the knowledge, nor do we seek any form
    of monopoly or exclusivity. However, we shall not
    be able to fund the acquisition of farm land by
    BEE farmers without huge assistance from all the
    relevant and important stakeholders.

9
  • In order to ensure success, we require specific
    assistance with
  • Access to governmental structures
  • Access to funding such as low interest funding
    for BEE farmers, funding for purchase of farms,
    land claims funds
  • Explore grants aid for BEE/Agri
  • Co-operate with Land Claims Commissioner
  • Formalising a joint structure with Landbank,
    IDC etc
  • Access to and the identification of black
    farmers and future black farmers
  • Co-operation and interaction with training
    facilities and institutions
  • Co-operation in respect of mentorship
    programmes.

10
OUR COMMITMENT
  • We have identifed and are currently structuring
    a number of Agri business opportunities, suitable
    to the implementation of our BEE/Agri model. It
    is our intention to include these opportunities
    as pilot projects and will introduce BEE farmers
    and participants.
  • The identification of economically viable Agri
    business opportunities and the presentation
    thereof to potential BEE farmers, farm workers
    and land claimants.
  • Co-ordinating appropriate and affordable funding
    for farmland.
  • Provision of access to traditional funding and
    capital and ensuring that affordable funding for
    farm lands are utilised in accordance with our
    model.

11
Formalise a working relationship with
governmental structures, Landbank and other
strategic institutions thus ensuring the proper
implementation of our model. Ensure that
services, training and assistance are provided in
accordance with the approved mentorship
programmes.
DETAILED BEE/AGRI MODEL
A NEW LOOK AT AGRICULTURAL STRUCTURES AND BLACK
EMPOWERMENT IN AGRICULTURE The agricultural
industry in South Africa is facing tremendous
challenges and it is crucial for the role players
in the industry to make the right strategic
decisions in the next year or two in order to
achieve a viable future for the industry.
12
  • The major challenges facing the industry are
  • Major segments of the industry is struggling to
    be competitive in global terms
  • Profitability is declining and debt is rising
  • Owners/Management are struggling to cope with
    the rising complexities of being part of an
    increasing smaller and competitive world
  • Consolidation in markets and retail
  • The approach to BEE
  • Ownership of land in SA and BEE
  • A decline in research and capacity in research
  • The skills level and productivity of workforce
  • Lack of interest by institutional investors in
    the industry
  • It is imperative that solutions are found to
    address the problems identified above.


13
  • It is a well-known fact that institutional
    investors and financiers are
  • under direct pressure to become actively involved
    in the industry, but
  • They have not been able to understand the
    complexities of the industry.
  • The following proposal sets up a structure, which
    will assist in
  • successfully transforming agriculture businesses
    and in the process
  • Achieve important black economic empowerment
    (BEE) goals.
  • We believe this approach to the industry will
    lead to solutions for many of
  • the problems and challenges facing the industry.
  • The following sectors in the industry are being
    targeted in our current
  • process
  • Citrus industry
  • Deciduous industry
  • Poultry industry

14
  • We believe the model should be applied to a wide
    variety of sectors
  • and can be tailored to each sector to suit the
    specific requirements
  • of that sector.
  • 1. STRUCTURE OF AGRICULTURAL BUSINESSES IN
    SOUTH AFRICA
  • Small units
  • Most agricultural businesses in South Africa
    are small to medium sized units. This fact makes
    it difficult for the businesses to grow in the
    current world economic climate as they struggle
    to compete with larger entities and also has
    very little negotiating power in buying their
    inputs or selling their products. Both the
    supply of inputs and the retail businesses in
    the world are consolidating and they are growing
    more powerful. The profit margins in these small
    production units tend to under constant pressure
    and ultimately resulting in loss making
    operations.

15
  • Management
  • The owner manages the typical unit in South
    Africa and he is challenged over a broad
    spectrum of disciplines, ranging from
    production, human resources, finance, marketing
    etc. It is very seldom that one person possesses
    the skills over such a broad spectrum of
    disciplines. The size of the businesses does not
    always justify the employment of good management
    in each of these disciplines. This fact also
    tends to make these businesses ineffective and
    endanger their long-term survival.
  • Long marketing channels
  • The average farmer does not have direct access
    to the best clients and they are exposed to the
    existing marketing channel and in the process
    value is lost.

16
  • Ownership
  • The ownership of these units vests almost
    exclusively in white hands and there is
    increasing pressure from socio/political view
    for immediate change. Many projects were
    initiated but the majority of them failed to
    deliver the expected results.
  • We are of the opinion that the current
    structures in agriculture do not provide
    solutions which allow effective investment
    whilst at the same time providing financially
    viable opportunities for BEE farmers. Our
    contention is that the basic structure of these
    businesses must change in order to successfully
    transform the industry.
  • Black Economic Empowerment
  • The following problems are experienced with most
    current BEE projects in the Agriculture
    industry

17
  • Capital
  • Most possible BEE participants are currently
    working in that sector and do not have access
    to capital to invest and they access debt
    finance or where possible, obtain access to
    grants or donor funds. It is also a fact that
    for the majority of farms (production units) in
    the industry, the return on capital is very low
    which make the cost of capital of utmost
    importance to ensure the long-term
    sustainability of the projects.
  • Management Skills
  • Although most possible BEE participants who
    currently work in the industry have technical
    skills they lack general management and
    financial management skills and experience.

18
  • Marketing
  • The recent deregulation of the marketing
    structures in the Agriculture resulted in
    farmers struggling to come to terms with the new
    marketing environment and for the potential BEE
    participant, it is an even bigger hurdle.
  • Slow progress in BEE process in SA
  • The process of BEE in the Agriculture has been
    slow and frustrating. Fundamentally the reason
    for this is the fact that to date, most projects
    have been launched and implemented on an ad hoc
    basis, small scale and within the existing
    structures in the industry.
  • CONCEPT
  • Consolidation

19
  • The aim of the concept is to achieve
    consolidation within the industries, in
    order to allow the benefits listed
    below, but without compromising the hands
    on nature of the production side
  • Economics of scale
  • Negotiating power
  • Necessary management skills
  • Access to capital
  • Logical units
  • It is our intention to divide the business into
    logical units and separating the production,
    value adding and facilitating (marketing, finance
    corporate management).
  • The facilitator (which could include the
    value adding (packaging)), will be the basis from
    which to consolidate the different activities.

20
Suitable BEE candidate will be identified as
future entrepreneur farmers. Finance in the
form of debt, equity and grants will be
employed to purchase suitable and strategic
farms. Large investments in farms (e.g R100m)
will present a volume base that will achieve the
advantages envisaged. The production units will
be owned (80 - 100) by BEE management and
employees, and will, through the facilitator
achieve the economics of scale of the
consolidation. Land claimants may be included
in the ownership structure. In some instances
production units may be consolidated in order to
form viable production units. All the different
units will, through agreements with facilitators
in each sector, market their products at market
related prices through the facilitator.
21
  • In return for committing their product they will
    acquire an interest in the facilitator through a
    trust and will directly share in the value of
    the distribution chain according to their
    contribution in product.
  • The facilitator forms the basis for the proposed
    consolidation and will provide the negotiating
    power and supply the necessary management skills
    and mentoring to the production units.
  • Any one company may not always provide the value
    adding and marketing and in these sectors the
    logical structures will be retained within our
    model. In certain cases, more than one
    facilitator will be included in the model and
    will be merged over a period of time.
  • Upward Integration
  • The owners of the production units will
    participate in the ownership of the facilitator
    and they will thus share in the value adding in
    the distribution channel.

22
  • Mentoring and management
  • The facilitator, in conjunction with existing
    farmers, will participate in a mentoring program
    with the new BEE farmers to ensure their
    sustainability and long-term success. These
    mentor farmers will be remunerated and may
    acquire an equity stake in the production units
    they mentor. Each mentor farmer will be selected
    on a basis of a successful track record and will
    manage a number of units where mentoring will be
    implemented.
  • The BEE participants will be allowed to buy the
    shareholding of the mentor farmers at an agreed
    method of valuation.
  • The facilitator will, as a result of the
    consolidation, be in the position to employ
    management at the right level and will thus be
    able to provide corporate management and
    mentoring to the value adding and production
    units.

23
  • The Facilitators will be managed by adequately
    qualified managers and BEE and employment equity
    will be addressed in the management structures.
  • The Investment Company and the Facilitator will
    ensure that good corporate governance practices
    are be employed through shareholders agreements
    and the composition of the boards of directors.
  • BEE
  • In accessing the black economic empowerment
    goals the following is identified
  • Land reform transfer of agricultural land to
    previous disadvantaged persons (PDP)
  • The participation of PDP in the economic
    activities and wealth creation in agriculture
    through ownership.

24
  • The transfer of skills in agricultural industry
    and mentoring of management in the process.
  • The achievement of access to the agricultural
    business by the funders/markets, but within the
    right BEE structures.
  • The black economic empowerment goals are
    achieved at two levels in the concept
  • Facilitator
  • BEE at this level will be built around a
    strategic BEE investor, obtaining an equity
    stake through an investment company. The BEE
    Investment Group at this level will co-ordinate
    the whole process and implement the model by
    identifying the right Facilitators in each
    sector. In return they will acquire a
    significant interest in the facilitator.

25
  • The acquisition of suitable and successful
    Facilitators
  • will achieve the transfer of knowledge and
    management skills.
  • The BEE investment group will ensure that the
    BEE profile of the Facilitator is secured and
    will provide the required
  • credentials and opportunities in the market.
  • The existing owners of the production units may
    retain a shareholding in the Facilitator and
    could thus share in the profits thereof.
  • Production Units
  • Management (BEE) and the employees of each
    production unit will own up to 80 - 100 of
    the ownership of these units. The Facilitator
    and /or previous owners may acquire or retain
    20 of the ownership.
  • The Facilitator will provide certain management
    skills on a

26
  • contract basis and provide mentoring for the new
    BEE managers/owners.
  • Our proposed ownership structure will ensure a
    change of ownership of the land, a transfer of
    skills and a broad participation in the economic
    ownership.
  • 3. PROPOSED STRUCTURE
  • The proposed structure is attached as
    schedule A and B.
  • Schedule A presents the corporate/investment
    structure and schedule B the detail structure
    at facilitator level.
  • BEE Shareholding
  • It is clear from the structure that there
    is a significant BEE shareholding in the
    Facilitator.

27
The percentage that the Investment company
initially holds will probably reduce as the
bigger strategy is rolled out depending on how
the roll out is financed through equity or
loan capital. The BEE shareholding in the
production unit (farm) is split between
management and employees. These parties will
also participate in the shareholding of the
Facilitator as indicated. It is our intention
to accommodate land claimants in the
shareholding structure. The BEE Trust is the
investment vehicle through which management
and employees of the different production
units will participate.
28
  • Each production unit will participate in the
    profit and capital growth of the trust based on
    a formulae, taking into account the volume and
    value of the product that they supply to the
    Facilitator.
  • Current shareholders
  • Current shareholders in any of the targeted
    businesses in terms of our model, may be
    retained, provided that they are able to add
    value to the model. The existing shareholders
    could be instrumental in the creation of
    value, transfer of skills, providing the
    required management and mentoring. Existing
    shareholders could thus participate in the
    consolidation strategy to unlock value in their
    businesses.

29
  • INVESTMENT PARTNER
  • Our BEE/Agri consortium is in the process of
    formalising an alliance with a strategic
    investment partner. The investment partner
    will consist of a single investor, USA funds and
    participation by investment funds.
  • The opportunity for an investment partner can
    be summarized as follows
  • Agriculture/BEE Investment
  • The proposed strategy creates an opportunity
    through which investors will be able to gain
    substantial recognition in terms of the BEE
    charter in the financial sector.
  • It also creates a structure in which the risks
    of investments in agriculture are addressed to
    great extent with regard to management, transfer
    of skills, diversification and corporate
    governance.

30
  • Investment in Holding company of sector (or
    facilitator).
  • The investor has the opportunity to invest in the
    value adding component and more risk averse part
    of the value chain in the agricultural industry.
  • The need for investment will be to acquire
    value-adding facilities and/or to buy out
    current shareholders in the facilitator.
  • The shares in facilitators will be bought at
    current values and this is usually a low value
    and often at a discount. The investor will
    share in the increased value as a result of the
    consolidation and added volume through the
    facilitator.
  • The financing at this level will probably be a
    mix of general equity shares and preference
    shares. Investment levels may be from R5m
    R30m per sector. Each sector will be viewed as a
    separate investment.

31
  • Black Empowerment group
  • It may be necessary for this group to acquire
    finance for their stake in the holding company
    as the strategy unfolds.
  • It may be an opportunity for the investment
    partner to finance these participants.
  • Broad based BEE participants
  • The participants will mainly invest in the farm
    land and they should be funded through
    appropriate and low cost funds. The Landbank
    should co-ordinate this function on behalf of
    the Government and providers of funds, grants
    and aid funds.
  • It may be possible to attract formal funds and
    investors to co-fund the acquisition of farms
    land. A managed fund could be established.

32
New Farmers Development Company This company
holds a diverse range of assets and it is
considered to have been a failure by its
investors which include a number of financial
institutions. This is a good example of the
failures to invest in BEE/Agri. We believe that
we can assist in finding a long term solution for
the investors in the company. The company may be
incorporated in the development of the strategy
as per this document and could form the basis for
the rescuing of a number of similar ventures.
33
5. SUMMARY The proposal presents a new
approach to establish a base from which to
build substantial groups in the agricultural
industry and in the process create and unlock
value in the value chain. It also presents
an excellent opportunity to achieve very
important BEE goals, give the BEE process and
land ownership new impetus and momentum and in
the process allows its participants to share in
the wealth creation by participating in the
establishment of stronger groups in each sector
in agriculture. Most white producers/farmers
are eager to identify sustainable solutions
for their industries with regards to black
economic empowerment. It is now possible and
opportune to acquire production units in some
sectors of the industry at substantial
discounts to replacement value.
34
The active support of investors, financiers,
donor funds and government is needed to get these
projects going and to achieve the transformation
objectives in the agriculture sector, which is
desired. Izak Strauss For LDP CONSULTING (PTY)
LTD Stellenbosch
35
AGRICULTURE PROJECT - CORPORATE STRUCTURE
Isiqongo Investments (Black owned company)
Investment Partner (Fund or company)
50 100
0 50
Poultry Holding Co
Citrus Holding Co
Deciduous Holding Co
Current Shareholder
35 90
0 50
Facilitator D1 (value adding, marketing , etc)
Facilitator C1 (Value adding, Marketing etc)
Facilitator P2
Facilitator P1 (Value adding , Marketing etc)
10 15
0 20
BEE Trust All prod units Facilitator P1
Production Unit P1 A
Production Unit P1 B
36
AGRICULTURE PROJECT - FACILITATOR STRUCTURE
Poultry Holding Company
Current Shareholder
0 - 50
35 90
Facilitator (value adding, marketing , etc)
BEE Trust All Units
10 - 15
BEE Employees Trust Unit A
Volume Participation
30 40
0 20
FINANCIERS Government Landbank, IDC, Grants
Donors,
40
Production Unit B
Production Unit C
Production Unit A
BEE Management Trust Unit A
10 - 20
Mentor Farmer Unit A,B C
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