Financial Projections

Jump to section

• Overview & contents
• i. Important Notice
• 1. Executive Summary
• 2. The CIDB Grading Ladder
• 3. The Market in 2026
• 4. Strategy: Private Work First
• 5. SWOT and Competitive Position
• 6. The Working Capital Problem
• 7. Retention and Guarantees
• 8. Unit Economics of a Contract
• 9. The Five-Year Roadmap and Gates
• 10. Funding
• 11. Estimating and Contract Control
• 12. People and Plant
• 13. Compliance and Registrations
• 14. Financial Projections
• 15. Break-Even
• 16. Sensitivity and Scenarios
• 17. Risk Management
• 18. Implementation Timeline
• 19. Returns
• 20. Key Performance Indicators
• 21. Key Assumptions
• 22. Conclusion
• A. Appendix A: Consolidated Financial Summary
• B. Appendix B: Capital Schedules
• C. Appendix C: Funding and Debt Schedules
• D. Appendix D: Risk Register
• E. Appendix E: Glossary

14.1 Basis of preparation

• All amounts are in nominal South African rand. Turnover is built from contracts run and average contract value, split between private and public work at the mix in Section 4.
• Direct cost comprises materials, site labour, subcontractors and plant hire and site establishment, each modelled as a percentage of turnover consistent with the gross margin path from 15.8 per cent to 18.7 per cent.
• Depreciation is charged on cumulative capital expenditure at rates appropriate to vehicles, plant, scaffolding and systems.
• Finance cost is stated in three lines: asset finance interest at 12.5 per cent on the declining balance, invoice discounting interest at 14.5 per cent on the drawn balance, and the discounting service fee at 0.85 per cent of certificates discounted.
• Debtors are modelled at 68 days on public work and 38 on private, blending to 54.2 days by Year 5. Retention is 10 per cent of certificates, released half at practical completion and half after the defects liability period. Creditors are 42 days on materials and subcontractors.
• Corporate income tax is applied at 27 per cent with assessed losses carried forward subject to the section 20 limitation. No tax arises within the projection.
• The balance sheet is derived rather than plugged; shareholders’ funds roll forward from the two equity subscriptions and retained earnings, and the closing cash position reconciles exactly to the cash flow statement.

14.2 Projected income statement

EBITDA turns positive in Year 3 at R546 000 and reaches R3.52 million in Year 5. Profit after tax arrives only in Year 5, at R66 000, because depreciation of R1.49 million and finance cost of R1.96 million together consume R3.45 million of the R3.52 million EBITDA in that year. Assessed losses of R2.98 million accumulate across Years 1 to 4 and shelter the Year 5 profit entirely under the section 20 limitation.

14.3 The cost of financing the payment cycle

Finance cost reaches R1.96 million by Year 5 — 3.8 per cent of turnover and 56 per cent of EBITDA. Nearly two thirds of it is the cost of the debtor book: discounting interest of R785 000 plus the service fee of R442 000. That is what the payment cycle costs in cash every year, and it is the number that should appear in the preliminaries of every public bid.

14.4 The cost base as a share of turnover

Direct cost scales with turnover; overhead steps with the size of the organisation. The build below shows each as a share of turnover, which is the only way to see whether a cost is being controlled or merely growing more slowly than the order book.

Direct cost falls from 84.2 per cent of turnover to 81.3 per cent — a gain of 2.9 points earned entirely through estimating discipline and buying power, since none of these lines has any scale economy worth the name. Staff overhead falls from 16.4 per cent to 9.3 per cent, which is where almost all of the margin expansion comes from. Finance cost moves the other way, rising from 4.8 per cent to 4.0 per cent of turnover only because turnover grows faster than the debtor book; in absolute terms it rises tenfold.

14.5 Projected cash flow

Operating cash flow is negative in Years 1 to 4 and turns positive in Year 5 at R232 000. Free cash flow to the firm is negative in every year of the projection, because working capital and capital expenditure together exceed EBITDA throughout. The business is funded rather than self-financing for the whole five years, which is the honest description of a contractor climbing the grade ladder.

14.6 Projected balance sheet

Shareholders’ funds fall from R2.49 million at Year 1 to R1.63 million at Year 2, recover to R7.20 million on the growth subscription at Year 3, dip to R6.72 million at Year 4 and reach R6.78 million at Year 5. Against R9.70 million subscribed, the equity has consumed R2.92 million of value across the five years — every rand of which is the cost of building a graded contractor from nothing.