enterprise Scheme to restructure pharmacies in north of england
Tax-efficient investments distributor Kreis Consulting has brought an Enterprise Investment Scheme (EIS) to market an EIS with an income stream rising to 4.5% in the fifth year of its lifetime.
The EIS, called Independent Pharmacy Care Centres plc, is not purely yield focused and like its peers, it is aiming to deliver capital growth. It is able to pay a rising level of income however, as it seeks to invest predominantly in profit-generating independent pharmacies that offer strong income streams.
Richard Lockhart, director at Kreis Consulting, said this kind of EIS has not been offered before because few people had previously viewed the EIS as an income generating product, instead concentrating on the tax efficiency gains the vehicle offered. If the full tax allowance is used, which amounts to 60%, 20% CGT relief as well as the 40% available for inheritance tax, then investors are effectively risking 40p in the pound, said Lockhart. In this scenario, the effective initial yield rises from 2.2p per annum to 4.5p, although this is subject to taxation.
Kreis said the product would be particularly appealing to lower risk investors looking to take advantage of the inheritance tax relief it offers.
Kreis is looking to raise £15m from the initial share offering and will look to pay a dividend yield of 2.2% from the second year of operation, which is expected to rise each year until it reaches 4.5% by year five. The estimated starting yield figure of 2.2% is based on the assumption that the first offering is fully subscribed.
The initial charge on the EIS is 5.5% and intermediary commission is 2.5% initial. There is a minimum investment of £25,000 and no maximum investment. The closing date for investments is 19 November 2002.
The company is looking to raise capital to purchase between 30 and 40 profit-generating independent pharmacies in the North and North-East of England and will then seek to improve their turnover. It will target pharmacies that derive the bulk of their income from prescription charges rather than through typical high-street pharmacy business. Both senior directors of the company, Devandra Shah and Christopher Brierley, have been involved in the pharmacy business for a number of years.
By concentrating on the prescription business, which is non-cyclical, the EIS will be building a group of businesses in an area that is expected to experience significant growth following the publication of the Government's NHS plan. Under this, a significant proportion of primary healthcare, such as outpatient treatment, will be devolved to pharmacies in order to take the pressure off hospital doctors.
The NHS care will still be free at the point of delivery as the Government will pick up the bill. Pharmacies able to carry out this kind of service will benefit from a constant stream of non-cyclical income, and increase turnover dramatically, said Lockhart.
He added: 'The reason we are able to offer a dividend is that the pharmacies we will be buying are already cash generative. Unlike other EISs, that tend to invest in companies which manufacture or develop new products, we will be able to push profits through to investors quickly.'
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