Enterprise Development –

Bridging Economic Transformation

Franchising as an alternative

Roshqott

Content

B

C

D

A

PwC

Content

Franchising – what is it about?A

Roshqott

Franchise Concept

Franchising the Energy sector is an unique conceptwhere Roshqott grants ; The rights to use its complete business package containing allthe elements necessary to enterprise a previously disempoweredperson into the Energy business ;

To enable him or her to run it on an ongoing basis, efficientlyand profitably according to guidelines supplied;

Franchised Business models are diverse ,ranging from selectedproducts and services agreements to the complete range thatinclude Substation ,Overhead line construction and HV/MVnetwork maintenance

The franchisee is the key pillar in franchising ; HV/MV network construction experience and knowledge oflocal market are key assets for the business model ;

The premise is that franchisees can achieve better results than inown businesses, where franchising is used to grow the totalserved market and achieve cost reduction

1Roshqott

Entrepreneurship promotes franchisee’s best performance

ey lements for Success

• Exclusivity: franchisee represents only Roshqott’s Products and services

• Branding: Roshqott’s brand policy has to befollowed strictly

• Product portfolio: in most cases completeProduct /service portfolio is offered

• Engineering : full engineering including designs support

• Advisory services:Set up and on-going training of staff

• Entrepreneurship: franchisee are independententrepreneurs with full P&L and staff responsibility

•Costs advantage for the franchisee:access to Roshqott’s procurement chain

2Roshqott

A clear agreement about entrusted constructionactivities enables close monitoring of franchisees

Main obligations of the Franchisor Main obligations of the franchisee

•Supporting Franchisee drafting a Business Plan

•Engineering and design support•Support Franchisee on Preparation of tenders•Main Equipment - procurement and supplies•Supporting business tools’ implementation•Advising on IT systems to be acquired by franchisee•Advising on Personnel,Plant, equipment required•Providing detailed procedures and training•Supporting franchisee on-site SHEQ issues•Supervising and controlling franchisee’s activity•Providing detailed catalogue of activities

• Managing and Performing business activities

• Providing business contingency plans• Regional marketing• Participation in training provided by Franchisor• Recording and accounting for monthly, all

business transactions• Following all regulations provided by the

Franchisee as per instructions and procedures documents

• Keeping in secret any information concerningagreement details ,IP or client’s data

• Preparing monthly management accountsdocumentation and submitting it to theFranchisee

• Ensuring monthly payments to Franchisee of allfees/commissions and equipment supplies

Typical activities for the Franchisor and the franchisee

3Roshqott

Engineering,Technical ,Commercial issues are covered by franchisor – Construction management and on-site execution issues are covered bythe franchisee

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Franchising: Different roles on the value chain

Support functions: Human resources, finance, IT, general services etc.

Suppliers Operations Sales CustomersDistribution/Logistics

FunctionsFranchisor Franchisee

Roshqott

Product selection flexibility allows smaller but effectiveinvestments

Offered Products :

• Turnkey substation projects : Franchise agreements Will have as its focus turnkey HV substations

• Turnkey rural Overhead line projects :

• MV overhead line

• Networks and equipment maintenance : this will beincluded as part of the standard package

• Protection and automation systems

5Roshqott

PwC

Franchising modelsB

Roshqott

Engineering Franchise ConceptualModel

DTI

Government InstitutionsPrivate Sector

SOC’S -BEESubcontract Quotas

T&F institutions- BEE Funding

GovernmentInstitutions

Market

Model description

• Government through Department ofTrade & Industry and otherGovernment organs dictates andinfluences SOC’s ,Municipalities andothers , levels of BEE and SLD quotasthat Government Institutions mustintroduce to achieve economictransformation .

• Often,these dictates are enforced through tender and finance grants awards on pure BEE merit to companies without the necessary production , business skills

and fiancial support .

• However well intended in the name of BEE industrialization ,some of these contracts have disastrous results due to poor execution skills and/or contractors inability to raise the necessary funding .

• Engineering Franchise concept bridges the expert production and business skill gap ,thus ensuring a positive outcome to all stake holders .i.e. The client get a quality and on time executed project , funding institutions are more pliable to issuing grants and seed capital to contractor and most important of all the impulse and development of profitable and successful small enterprise today , with probability and aspirations of a future large coperation in the future .

Licensed Franchisee’s

6Roshqott

Bussiness Market Structure Model

Holding Company

T&F institutions -Funding Support

SOC’S -CustomerSupport

Roshqott energy EnterpriseDevlopment PtySubsidiaries

Stakeholders

Model description

• Holding Company to be formed with60/40 BEE Partnership•Subsidiarycompanies 100% ownership .

• Enterprise Development company will be responsible for Franchisee acquisition and contracting: -Recruiting -Contract Formalization -Know how transfer and Trainning -Control and communication

• Roshqott Energy solutions company will be responsible for Franchisee Engineering and product / equipment support: -Equiment /Material technical specs. -Drawings -Main Equipment Procurement -Project Management.

• Franchisee 100% owner equity Holding company may take 20% equity BEE majority ownership. -Bussines management. -Balance of Plant Procurement -Project Management -Construction

SOC’s ,Trade and Finance institutions support is paramount . -SOC’S “Buy-in” and prefferred contractor stataus -DTI, IDC finance and grants -Equity fund investors

Licensed Franchisee’s

7Roshqott

Roshqott Bussiness Organizational Model

Holding Company

Roshqott energy EnterpriseDevlopment PtySubsidiaries

Enterprise Development

Incubator

8Roshqott

Engineering Franchises

PRODUCTS & SERVICES

● Licensee Recruitent and contracts

● Licensed Products & Services

● Kow how transfer and Training

● Construction Resources

● Control and Comunication

Stage 2

The franchising concept can be divided into three stages

Franchising framework

3 4

Network Maintenance and Automation

Ove

rhea

d li

ne

and

Su

bsta

tion

s ● Supplies● Engineering● S&M● General management

1-2 Years

● Supplies● Engineering● S&M

3-5 Years

2

Stages

Stage 1

Support services Phase Periods

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Stage 3 ● Supplies● Engineering

6-7 Years

Roshqott

The franchising cooperation can be implemented ondifferent levels

Engineering franchising cooperation model levelsComments

Franchisee sign forcontracts and ownin -house executionCIBD levels 6-7

Supplycontractualproducts+Engineering

Level 3 – Upon Financial and market maturity

Supply contractualproducts+Engineering +S&M+GeneralManagement

Franchisor signs forcontract andsubcontract partsupplies and servicesto Franchisee

Level 1 – recommended for start up companies

• The franchisee undergoes incubationperiod before being raised to franchiseestatus .

• Sign up as an Enterprise developmentcompany •

. Entrepreneur status (compulsory)

CIBD levels 4-5

Franchisor andFranchisee sign forcontracts andsubcontract partsupplies and servicesbetween one another

Supplycontractualproducts+Engineering+S&M

Level 2 – Ideal for SME’s companies

• Franchisee contract directly withcustomer

• Exclusivity• Entrepreneur status (compulsory)

• Franchisee is involved in thewhole process

• Exclusivity

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Detailed franchising case example

Roshqott

CIBD levels 1-3

Financial Investment Model

KPIStart up costs Royalties &Commissions

CAPEX <R2’0 Million

OPEX <R1’00 Million

BM : 0%Eng.:0%

Roylaties :0%

PricingModel

Level 3 - Franchisestage 3

Level 2 - Franchisestage 1-2

Level 1 - EnterpriseDevelopment

Entrylevels

CAPEX <R7’0 Million

OPEX <R3’00 Million

CAPEX <R11’0 Million

OPEX <R7’00 Million

BM : 0%Eng.:4%

Roylaties :5%

BM : 3%Eng.:4%

Roylaties :5%

Sales : R5-10MillionProfitability:20%Pay back :N/A

Sales : >R50MillionProfitability:12,5%

Pay back :3-5

Sales : R25-40MillionProfitability:15%Pay back :3-5 Years

Roshqott 11

Roshqott

The implementation of a franchising concept should startwith a clear plan and pilot phase – Execution in 12months

Pilot timeline

2 – 3 months 9 months

Pilot Design

LaunchpreparationInitial/quick

scoping

Go/No-goon pilot

Incubation through subcontract if project awarded

Franchise Roll-out Planning Franchise AgreementLaunch

pilot

Positive preliminary results No/No-go on roll-out

Unspecified

• Identify Territory• Identify project• Define operational risk• Attraction of franchisees• Start pilot 3-4 branches

• Attractive model that must get the buy-in from stakeholders

• Competitive advantage thanks to ascalable technological platform

• Test and learn in a larger network

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Roshqott

Roshqott has created an Engineering franchise networkconcept to grow and gain market share faster

Key elements in Roshqott’s franchising process

• Requisites:- Local market

knowledge- Technical

knowledge• Employees: •

There are threerolls:- ProjectManagement

- Construction

- Office director

Enterprisedevelopmentcontract with anexclusivity clause

Termination at endof subcontractagreement

Know-how transfer/Training• When the Enterprise Development contract is

signed the enterprise receives on-siteconstruction training for employees and forthemselves.

•The enterprisee can contract for additonalbusiness training and construction resources

Control and communication• Control is enforced through periodic steering

committee meetings from the central officeand through business targets definition

Reasons to cancelthe contract:

• Substandardproject quality/projectexecution

• End ofsubcontract

Developedenterprise reachesfinancial maturity

Know-how

transfer/TrainingExit

Previous to signature Contract End

13

Contractformalization

Recruitment Enterprise

Development

Roshqott

Roshqott has created an Engineering franchise networkconcept to grow and gain market share faster

Key elements in Roshqott’s franchising process

• Requisites:- Local market

knowledge- Technical

knowledge• Employees: •

There are threerolls:- ProjectManagement

- Construction

- Office director

EngineeringFranchise contractwith an exclusivityclause

Termination at endof subcontractagreement

Know-how transfer/Training• When the Engineering Franchise contract is

signed the franchisee receives training foremployees and for themselves

• The franchisor transfers Business App. andalign franchisee with IT and brandingrequirements

Control and communication• Control is enforced through periodic auditing

from the central office and through businesstargets definition

Reasons to cancelthe contract:

• Substandardproject quality/projectexecution

• Growth belowobjectives

If the contract iscancelled Roshqottwould replace withanother franchisee

Know-how

transfer/TrainingExit

Previous to signature Contract End

14

Contractformalization

Recruitment Engineering Franchise

Trainning Centre

Opentrainning

Rooms

Board RoomReception

Satelitemeeting room

Premises and Trainning Facilities

Head office and

Distribution Warehouse

Monte CarloKyalami Bussiness Park

Roshqott 15

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The franchising concept is a new and unique Concept in

South Africa – Main objective is enterprise and skills

development for Southern African Countries

Roshqott

PwC

Setting up and running a franchisingmodel: risks and benefitsC

Roshqott

Roshqott

Gain-Risk Analysis

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• Threat of loosing own identity• Pressure on Margins• Dependence on Franchisor operational and market power (products, procurementpower, process, image)

Franchisor

Franchisee

Risks

• Own business• Brand and products already

established• Independence• Increased customer trust

Gains

• Amortization of costs• Rapid expansion of regions possible• Relatively low initial investments

required• New client base achievement• Enables sales and entrepreneurial

approach along with flexibility

• Lack of interestedentrepreneurs/partners– In traditional recruiting channels (own

network)– Lack of brand recognition

• Lack of buy-in by Industry stakeholders• Increased complexity of management• Abuse of IP data by franchisee

PwC

Things to get right

Roshqott

D

Roshqott

The analysis of concepts has led to the identification of bestpractices from traditional franchising

Create trust andconsistency

Create trueownership andaccountability

Create one voice

• Develop a model that ensures clear and equitable relationships

• Ensure that policies, procedures and practices treat the franchisee as apartner

• Work together on joint business planning and allow for a model thatprovides enough flexibility for both sides to succeed

• A franchisees association – associate and get together

• Participate in the organization process to ensure franchisor interests arenot damaged

Transferable best practices

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