ABC (Pty) Ltd

Overview

Executive Summary

KHULA Fleet Solutions (Pty) Ltd (hereafter referred to as “KHULA Fleet”) is pleased to submit its business proposal to ABC (Pty) Ltd.

KHULA Fleet was established in 2012 by two partners who had a vision of forming the first 100% Level 1 BBBEE Fleet Management Company in South Africa. The owners have extensive commercial business and relevant industry experience. They are of the opinion that the South African Fleet Management Industry is dominated by large businesses and that the industry is receptive for a small business entrant, who would be able to be nimble and unique in its customised product offerings, focusing on the customer’s unique needs as its key priority. KHULA Fleet through its inorganic growth will employ a staff compliment to support its vehicle and customer requirements. As part of its recruitment criteria, Black Women, Disabled people as well as Black people as defined in the BBBEE codes will be given preference.

Executive Summary

Tumi Ratshefola one of the partners sits on various Boards of Private Companies. He studied through Anglo American Scholarship in Electrical Engineering and a MBA through De Montfort University (UK) finalizing his Dissertation in Risk Management. Tumi Ratshefola has also undergone an Advance Program in Project Management through the University of Pretoria. Tumi attended the International Executive Development through Wits and London Business School and brings multi skilling/tasking broad expertise to the Company. He is the current Executive Chairman of the Company.

Darren Pillay, the other co founder of the business has had 16 years of experience in the Fleet Industry and has worked closely over these years with Government and Parastatal Institutions. As an Executive member of Viamax Fleet and then Director at Bidvest Capital, Darren Pillay has established a core competence and understanding of how Public Sectors operates as well as its Fleet Management requirements. In addition, Darren Pillay studied at Wits, graduating with a B Tech degree in Transport Economics as well a post graduate degree at University of Johannesburg in B Comm Hon Logistics. The value adds KHULA Fleet brings to ABC (Pty) Ltd with Darren Pillay’s long standing experience and understanding of the ABC (Pty) Ltd world is noted below:

Executive Summary

Continuity in business requirement

Systems and procedures

Continuity in the supply chain

Continuity in the Reporting and

Business Intelligence

Established relationships

Understanding ABC (Pty) Ltd’s fleet requirements

Objective

To provide ABC (Pty) Ltd with an alternative service providerfor Full Maintenance Leasing.

To ensure that ABC (Pty) Ltd has an effective, well managedand maintained fleet with an aim to reduce costs.

MissionKHULA Fleet’s mission is to be a premier, growing company that provides innovative, cost effective and

focused, fleet management solutions and services which are strategically suited to its clients’ operational requirements. To structure high margin deals that creates shareholder value.

Khula is positioned against a number of well established companies that have had a monopoly in the market place for a long time. We believe however that our unique selling proposition

Khula“Come grow with us”

will set us apart from our competitors as we are committed to holistic enrichment and not only to company profits.

Our logo device viz. a new leaf with colours that vignette from spring green to autumn red communicates the principles of:

A new beginningGrowthMoving from strength to strength

While the use of wheels not only indicates the space we play in, but which also further enhance the premise of mobility and upward growth.

Local Supplier Development• KHULA Fleet through its inorganic growth will employ a staff compliment to support its vehicle and

customer requirements. As part of its recruitment criteria, Black Women, Disabled people as well as Black people as defined in the BBBEE codes will be given preference.

• In doing so, KHULA Fleet intends creating an integrated supply chain that not only supports KHULA Fleet but also operates in its individual space. Such supplier development initiatives (see reference letters appendix 4) has already been established with two Companies, namely Arrow Canopy and Accessories CC as well as Siyathembana Trading 278 Pty Ltd. Siyathembana Trading was already set up during the era of Bidvest Bank and since the cancellation of the Transnet contract with Bidvest Bank, this supplier has had to temporarily close down. KHULA Fleet intend resurrecting this company by outsourcing all its vehicle Rubberizing requirements to them. The contracts awarded to such companies will allow them to establish a base revenue stream, thereby giving it an opportunity to grow its customer base. In doing so, we have created 6 jobs and as the business grows, more jobs and opportunities will be created. Once these two supplier development initiatives are established, KHULA Fleet will look to develop other start-up companies in the downstream of the supply chain or enhance smaller companies in the space of:

• Vehicle Washing and Valet Services• Panel beating• Vehicle deliveries• Vehicle Audits• Air-conditioning• Windscreen Repairs and Fitments

Products and Services• Sourcing and Purchasing

• Finance and Leasing

• Maintenance Management

• Fuel Management

• Traffic Fine Management

• Management Information

• Relief Vehicles (Short Rental)

• Vehicle Disposal

• Vehicle Tracking

Benefits of Outsourcing

Full Maintenance Leasing Primary value of any vehicle lies in its usage, productivity and reliability rather than

in its ownership

Companies are constantly looking at ways to reduce costs

Cannot manage what you can’t measure

Risk management includes ability to meet unexpected and often very expensivecosts of running a fleet

Specialist fleet management aims at managing, maintaining, controlling andreducing operating costs

Benefits of Full Maintenance Leasing

Balance Sheet

Not capitilised as a fixed asset on balance sheet

Rental expense on Income statement

Simplified accounting

Improved ROA

Improved gearing

Benefits of Full Maintenance Leasing

Costs / Cash flow benefitsReduced costs through lower:

Purchase Price

Repair and Maintenance Costs

Future value taken into account

Residual value reduces amount being financed

Don’t pay for unused value of the vehicle

Depreciating assets should be leased

Allows Business to invest cash flow into its core activities

Benefits of Full Maintenance Leasing

Administration benefits Fixed costs - ease of budgeting (other than fuel)

Outsourcing

Worldwide trend

Economies of scale

Expertise - stick to core competencies

Benefits of Full Maintenance Leasing

RiskReduce the risk of ownership

Future Resale Value

Unexpected repairs

Repudiated warranty

claims

Components of a Full Maintenance Lease

FinanceMaintenance and Repairs

TyresResidual

Value

Vehicle tracking and Monitoring

Fuel Management

Traffic Fine Management

Roadside Assistance

Accident Repair

Management

Customer Contact Centre

MIS

Integrated Fleet Management Solution

MaintenanceMaintenance inclusions:

Services

Maintenance

Normal wear and tear items

Labour

Maintenance exclusions:

Warranty related items

Top-up oils

Insurable damage

Driver abuse items

Windscreen and glass

Paintwork

Utilisation

Optimal utilisation is imperative in reducing operating costs

Over utilisation – incurs increased costs (maintenance & fuel)

Under utilisation – paying for vehicle being “idle” (affects ROA)

FML monitors actual usage versus contract kilometers, optimising utilisation

Restructures Usage is monitored monthly and where it is evident that actual usage is out of line

with contract parameters, restructures will be proposed

Deals can be restructured up or down depending on usage. This ensures that

customers pay for actual usage only and will reduce the risk of penalties being paid

at the end of term on excess kilometres

Restructures will only be activated with the customers signed approval.

Termination of Contract (Normal)

At contract end date, vehicles are returned to Lessor

The vehicle is assessed for damage and abnormal wear and tear

A condition report is completed and signed by both parties

The customer will be billed for any make good costs (in line with SAVRALA fair

wear and tear guide) and excess mileage

Continuous Improvement InitiativesContinuous

Improvement Initiatives

Continuous Improvement

Initiatives

–Right-sizing the vehicle fleet–Optimizing fleet management by achieving the right mix of vehicles matched to duty requirements – Fit for Purpose–Improving vehicle use through enhanced driver awareness and training, like green defensive driving courses–Improving vehicle maintenance tracking–Timely and more comprehensive reporting on vehicle operations–Enhanced two-way communication with Transnet and its Business Units–Enhanced reporting to Transnet and its Business Units–Encouraging the ongoing development of a culture of continuous improvement within Transnet

Cost Benefit Analysis

Where does your Rand go?

Capital / Depreciation

45%

Maintenance9%

Tyres4%

Fuel42%

Passenger Vehicles

Capital / Depreciation

35%

Maintenance8%Tyres

4%

Fuel53%

Light Commercial Vehicles

Fleet Costs

Own vs Lease• Cost to Procure

– The cost to raise a Purchase Order amount to R550 per PO.

• Maintenance Pilferage– Savings of up to 20% more than Owned Solution

• Admin and Systems– Infrastructure and personnel costs at R350 per vehicle per month, 100 vehicles R35 000 per month, 1000 vehicles

R350 000 pm, R4 200 000 per year

• Uptime and efficiencies– Owned fleet generally runs at a utilisation of between 60% to 70% - outsourced solutions runs between 90% and 95%

.

• Residual Risk– Due to the owned fleet being run from cradle to grave, the fleet does not exhume a positive image to the public nor its

staff. Outsourced solution ensures that the fleet is renewed at optimal economic life

• Management Information Systems– Management is cluttered with info – difficult to interpret and manage. Outsourced solutions manages the business by

exception

• Image and Morale– Do to the owned fleet being run from cradle to grave, the fleet does not exhume a positive image to the public nor its staff.

Outsourced solution ensures that the fleet is renewed at optimal economic life

• Cash flow constraints– Capex is utilised for non revenue generating assets. Outsourced solutions enabled business to invest cash flow into its core

business activities.

Finance Comparison Ownership

FML / OR No ownership – Risk lies with lessor

Cash Ownership – owner’s risk

FML /OR RV – client benefit but lessor risk

Cash N/A

Residual Value / Balloon Payment

Finance Comparison Maintenance

FML Included in rental for contract period

Cash Maintenance excluded

FML /OROff balance sheet – included on income statement as

operating expense

Cash / FL / IS Capitalised as asset on balance sheet

Accounting Treatment

Recoupment Tax

FML / OR No recoupment tax as vehicle is returned to lessor

Cash / IS / FL Recoupment tax paid on any profit from the sale of the asset

Finance Comparison

FML / OR / FL Claim full rental as tax deduction

Cash Can only claim depreciation @ 20% per annum

Tax Deductions

FML / OR

Passenger vehicles : Can claim input VAT on the

maintenance portion, services and fees

Commercial vehicles : Can claim input VAT on the full rental

Cash / IS / FL

Passenger vehicles: Can claim input VAT on the maintenance

expenditure

Commercial vehicles: Claim VAT on price after 60 days and

VAT on maintenance expenditure

VAT Input Claimable

Finance Comparison VAT Input Claimable

FML /ORVAT not capitalised on purchase price – only paid monthly on

the rental

Cash / IS /FL VAT paid on purchase price

FML / OR RV is VAT saving as it reduces the capital to be financed

Cash / IS / FL No benefit as VAT paid on purchase price

Residual Value & VAT

VAT Saving Example

Own FML / OR

Vehicle Price R100 000 R100 000

VAT @ 14% R 14 000 -

Total Price R114 000 R100 000

RV - R 40 000

Finance amount R114 000 R 60 000

Monthly Finance R 3 678 R 2 587

36 Months , Prime (10%), 40% RV

FML / OR provides a saving of R 1 091 per month

Good looking fleet = positive company image

Well maintained fleet = reduced costs

Focus on core business = more time to focus on revenue earning

business opportunities

End Result