Maximize Tax Savings and Profitable Returns with Section 12BA Renewable Asset Portfolio
"Discover how to preserve your earnings through smart tax savings and harvest profitable returns from solar investments with the innovative Futureneers Energy Team. Learn about the main differences between 12J and 12B tax deductions, investment structures, and the unique approach taken by securing Solar Assets upfront. Explore the details of the Nicolor Gold Processing Plant project, including plant description, key risks, and mitigation strategies to ensure successful operation and revenue streams."
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Section 12BA Renewable Asset Portfolio Preserve Your Earnings with Smart Tax Savings | Harvest Profitable Returns from Solar Investments
Futureneers Energy Team (We will however never outgrow our entrepreneurial flair) The Futureneers group was established in 2016 as a startup incubator which evolved into an innovative private equity fund. We are the biggest investors in our own fund. We put our own cash next to those of our investors. We look after the investments of more than 250 high-net-worth individuals. More than R500 million capital raised in the group to date. We have a proven track record of deploying capital in and developing renewable energy projects. Our team excels in innovative tax structuring, including the experience of pioneering South Africa's first 12B fund in 2021. Twelve years combined experience in 12B Renewable Asset investments. Jaco Gerber (CA, SA): Ex Partner PwC, co-founder Futureneers Capital The Innovative Finance Guy Deon Lewis: (N Dip, Elec Eng.) Ex CEO Cipla Nutrition, co-founder Futureneers Capital. The Procurement Guru James Rothman (CA, SA): Ex CFO Anuva Investments, pioneered SA s first 12B fund. The Young Gun Ricky Huyser: CEO AEC. Extensive engineering, construction and renewables experience overseeing more than 1,500 projects globally over last 20 years. The Executionist 2
Main differences between 12J and 12B? 12J 12BA Tax Deduction? 100% of investment 125%of Asset (up to Feb 25), then 100% When deduction? Date of Investment Asset brought to use Max deduction R2.5m (individuals) No Max (Limited to available projects) Returns After tax dividend distributions (Company pays tax) Pre-tax distributions (Investor pays tax) When sell - recoupment? 1st 5 Years: 45% max tax rate Thereafter: 18% CGT Up to Feb 25: 125% Recoupment Thereafter: Only 100%. Investment structure Company En Commandite Partnership Advantage of Gearing and Tax Deductions Remains in the Company Allocated to Investors Company Investor (Limited pro-rata) Owner of Assets / Liabilities 3
We followed a different approach by firstly securing the Solar Assets and only then raising the 12BA Capital (This simply means Investors are guaranteed of active projects by February 2024 & can therefore claim their Section 12BA Tax deductions in respect of the the 2024 tax year)
Project: Nicolor Gold Processing Plant PLANT DESCRIPTION AND DETAILS Plant type Commercial and Industrial | Grid-tied | Eskom Size 1.3MW (with the option to expand) Total Plant Cost R37.8 million (includes Eskom integration) Completion February 2024 PPA Term 25 Years KEY RISKS AND MITIGATION Life of Mine Risk Ensuring diversification in energy supply sources and exploring additional wheeling opportunities to enhance operational flexibility and revenue streams. Client Risk A competent new ownership and management team, active since March 2023, can address these risks through strategies like reducing expenses, optimizing plant output, concluding long-term residue deposit agreements. Energy Consumption Risk Designing the plant to be "Wheeling Ready" and ensuring it supplies only up to 60% of daytime demand will optimize energy usage. 5
Project: Groenvlei Agri PLANT DESCRIPTION AND DETAILS Plant type Agriculture| Hybrid & BESS | Eskom Size 313 kWp Solar + 645 kWh BESS Total Plant Cost R14.7 million Completion February 2024 PPA Term 15 Years KEY RISKS AND MITIGATION Client Risk The farm's long standing operation history, strong balance sheet, and diversified electricity off-takers provide financial resilience. Additionally, the flexibility of the battery system (being plug-and-play and easily removable) allows for adaptability in changing circumstances. Energy Consumption Risk Implementing a take-or-pay agreement ensures a minimum revenue stream, and a fixed amount for the battery usage can stabilize income, reducing the risk associated with fluctuating energy consumption. 6
Project: Doornekraal Agri PLANT DESCRIPTION AND DETAILS Plant type Agriculture| Hybrid & BESS | Eskom Size 77 kWp Solar + 123 kWh BESS Total Plant Cost R3.8 million Completion February 2024 PPA Term 7 Years KEY RISKS AND MITIGATION Client Risk The advance payments from the energy buyer and a loan from the EPC provides additional financial security and lowers the capital outlay. Energy Consumption Risk Implementing a take-or-pay agreement ensures a minimum revenue stream, and a fixed amount for the battery usage can stabilize income, reducing the risk associated with fluctuating energy consumption. 7
Project: Huis Stilbaai Retirement Home PLANT DESCRIPTION AND DETAILS Plant type Residential Hybrid & BESS | Municipal Size 113 kWp Solar + 123 kWh BESS Total Plant Cost R3.8 million Completion February 2024 PPA Term 15 Years KEY RISKS AND MITIGATION Financial Stability Risk They receive a government subsidy and are generating operating surpluses despite being non- profit of nature. The practice of depositing operating surpluses into an investment reserve acts as a buffer against unforeseen expenses or shortfalls in subsidy or revenue. Client Risk Huis Stilbaai is a non-profit and operates on a strict budget. The building is owned by a separate entity and thus they don t have any capital outlay or loans. 8
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This is how it works (R1m investment in a 45% Tax Bracket) Upfront Tax Benefit ( cash back ) to Investor R1,000,000 capital invested (R1,000,000 X 125% X 45%) R1,500,000 (Solar Asset acquired / constructed) On own Capital (56%) R562,500 = (R500,000 X 125% X 45%) On structured debt = (28%) R281,250 R500,000 Structured Debt raised by Futureneers R843,750 This simply means: - Additional upfront ROI of 28% (over and above standard 12BA Tax Benefit). - Only 15% (R156,250) of total investment remains to be at risk (the Risk Capital ), while 85% have been returned to the investor in year 1. 10
Investor Cash Flow (High Level Indicative Summary) 2024 Tax Year Years 1-7 Years 8-25 R1,000,000 (R562,500) Invested Investor has option to remain invested. Annual distributions picking up as loans are being repaid. First 2-3 years very low returns as debt is settled, then ramping up and an option for an exit payment in year 7 Standard 12B Tax benefit (R281,250) Additional Structured Debt Benefit 2.4 Times Risk Capital returned after all fees and taxes paid R1,600,000 in total (R156,250) R345,858 Investment at Risk Effective Return Effective Return IRR: 27% Pre-Tax & 15% Post-Tax (2.4 times risk capital back after all expenses and taxes paid) IRR: 32% Pre-Tax & 18% Post-Tax (11 times risk capital back after all expenses and taxes paid) 11
Our 12BA Value Proposition No 12BA Investment Section 12BA Tax Liability (R0.85M) (R0.85M) Investment (R0.15M) (R1.00M) Tax Benefit R0.00M R0.85M Net Investment (Risk Capital) (R0.15) (R0.15) Net Cash Outflow (R1.00M) (R1.00M) Pre-Tax IRR 9.7% 27%-32.00% Post-Tax IRR 5.4% 15%-18% 3-4 times enhanced after tax return
Expectation Management 1. Solar investment are long-term assets generating cash for periods exceeding 20 years. They are however depreciating assets with annual generation degradation of 0.5% to 0.75%. 2. Expect low returns the first 7 years, as cash is used to settle major portion of debt. The downside of taking on additional debt is that cash is used to first repay loans and therefore reducing cash distributions to investors especially in the first few years of the investment. The investor however receives 28% ROI on total investment in year one to compensate for taking on the additional debt. 3. Tax structured investments typically favours investors with an effective tax rate of 45%. Lower effective tax rates may result in variation in structuring and lower debt gearing ratios. 4. Futureneers has options to structure investments for investors with effective tax rates as low as 36% to 41%. 5. All targeted IRRs are after management fees: 2.5% upfront (paid from project proceeds) Avg. 1.87% on capital raised p.a. (1.25% of AUM) Performance fees on project by project basis - only commencing from Y10 to incentivise longevity of projects. 13
Available Investments According to Section 12BA, the solar assets must be OPERATIONAL by 29 February 2024. (This simply means we can only guarantee investments on the assets that will be producing income by 29 February 2024 and once we have filled the R39m of available investments, the fund will be closed and there will be no further tax deductions available.) R96m already secured Only R39m available R135m R0
Q&A We will answer all the questions time permitting. If you have any further questions, don t hesitate to contact us directly: Jaco Gerber C: 0824698456 | E: jaco@futureneers.co Disclaimer - This document is not to be construed as a public offering of securities in any jurisdiction, nor is it intended to be, advice as defined and/or contemplated in Financial Advisory and Intermediary Services Act, 37 of 2002, or any other financial, investment, trading, tax, legal, accounting, actuarial or other professional advice ( advice ). Futureneers Capital (Pty) Ltd ( Futureneers ), its agents and affiliates, are dealing with you exclusively on the basis that you have sufficient knowledge, experience and/or professional financial, tax, legal and other advice to undertake your own assessment of the information. The information contained in this publication has been obtained from sources that Futureneers believes are reliable, but we do not represent or warrant that it is accurate or complete. The information may be based on assumptions or market conditions and may change without notice. Past performance is not a guide to future investment performance. This document is confidential, and the recipient may not distribute it to other persons without prior written consent of the directors of Futureneers. Neither the Futureneers nor any of its affiliates or agents accepts any liability whatsoever for any direct, indirect or consequential damages or loss arising from any use of or reliance on this documentation or its contents. Deon Lewis C: 0825529788 | E: deon@futureneers.co James Rothman C: 0823080510 | E: james@futureneers.co 15
