Dear Futureneers Solar 12J Investor
(This blog post was also distributed via email).
This is a long and detailed email in anticipation of our first dividend declaration for the solar fund in the next few weeks.
We feel it is important for investors to understand how dividends are calculated and paid, especially given that not all of us have extensive financial backgrounds. Even more important is to further understand that our main goal as fund managers is to safeguard your capital investment and then to generate returns and dividends. The ratio between cash and projects will play a key role in the quantum of your annual dividends. Hopefully we can explain this ratio a bit better herein.
Administrative matters related to Dividends
Our first dividends will be declared based on results up to 30 June 2022. However, please note (as mentioned before), that our financial results will probably only be finalized at the end of July, and the actual payments will most probably take place in early August 2022.
However, we will start the process sooner and over the next few weeks, expect email and WhatsApp communications to confirm your banking details and to provide each investor with their own individual “Dividend Schedule”, detailing how their specific dividend is calculated and how it compares to our original forecasts. This email therefore only deals with the principles behind the dividend declaration, while individual details are reported to each shareholder directly via a Dividends Certificate.
5 Year Plan and SmartLoan Investors
Those shareholders that invested by way of our innovative “5 Year Plan” or via our “SmartLoan” options, please note that your dividends will be paid directly into your outstanding loan balance and offset against last year's interest as per your signed loan agreements. The full dividend (minus any taxes payable) will therefore be paid on your behalf to the loan administrators and will be reflected as a “credit” on your subsequent loan statement.
All cash investors will be paid dividends directly into their specified bank accounts.
How are dividends calculated?
This is not the easiest calculation to explain, but I have attempted to show you via a “high-level” formula below how the Board of directors assesses and determines the dividend declaration.
The above “calculation” results in determining the funds available to the Board to declare a dividend to their investors. The Board may, depending on various solvency and liquidity requirements prescribed by the Companies Act, and after taking 12J and other tax rules into account, decide on the dividend to be declared, but the potential Net Dividend Yield as explained above is normally a good guideline to be used.
The above “calculation” results in determining the funds available to the Board to declare a dividend to their investors. The Board may, depending on various solvency and liquidity requirements prescribed by the Companies Act, and after taking 12J and other tax rules into account, decide on the dividend to be declared, but the potential Net Dividend Yield as explained above is normally a good guideline to be used.
Dividends Tax
Please also bear in mind that although corporate taxes have already been deducted, if you invested in your personal name or trust an additional 20% Dividends Tax will be deducted from your declared dividends (and paid on your behalf to SARS). Company investors are exempt from these additional taxes on receipt thereof. Therefore, the net amount you will receive in your bank account is net of all taxes and fees.
OK, now that we understand how dividends are calculated, what drives the quantum thereof?
Understanding the “Cash vs Projects” cycle is important
- As already mentioned, dividends which may be declared is a direct function of profits generated by the company as a weighted average between cash returns and project returns.
- However, it is important to understand that it takes time to deploy all the cash raised into profitable solar projects in terms of our investment mandate. Normally in your first year of investment, a large percentage of the investment remains in cash rather than in projects. Cash is low risk, but also generates lower returns. Higher yields can only be achieved by deploying cash into solar projects and as the risk increases the expectation of returns should increase similarly.
- Therefore, as we roll out more cash into solar projects and such projects produce positive results, your future returns and dividends should increase accordingly.
- In our investment methodology the deployment of cash is optimized during years 2-3, while from year 4 onwards, believe it or not, we start increasing the cash portion again to start building exit capital to enable investors wishing to exit after the 5 year 12J period has lapsed, to potentially “cash-out” their capital.
Let’s cut to the chase - What does it all mean to the investor?
- Having said all of the above, we have budgeted for slow cash roll out during the first 2 years of operations, which was included in our investor estimates initially communicated to you.
- As you may recall, our first solar project only went “live” in August 2021, while the second and third projects only recently started generating income. The year 1 returns are therefore mainly from interest earned (large weighted portion) and solar income only started to pull up yields in the last few months.
- The good news is that we slightly exceeded our year 1 projections, which will be reflected in your dividends. As mentioned, your Dividend Certificate will include:
- How dividends are calculated; and
- Actual dividends; and
- Details of Dividends taxes (if any); and
- Actual vs. Budget comparison
Next steps?
Please watch out for emails or WhatsApp messages in the next few weeks requesting to confirm your banking details. Additionally we will email the Dividend Certificates to each individual investor as soon as the financial results have been finalized.
Please feel free to drop me an email at any time with any other questions you may have.
Kind regards
Jaco Gerber and the Futureneers team
CFO: Futureneers Group
Click here should you want to ask specific questions or comment.