Mainstreet Brick Business Plan — Financial Projections

Five-year projections: revenue building to R63.7m and EBITDA to R5.32m, with the full cost stack and capacity utilisation by year.

Financial Projections

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11.1 Assumptions
11.2 Projected income statement
11.3 Projected cash flow statement
11.4 Projected balance sheet

11.1 Assumptions

Assumption	Value	Note
Installed capacity	1 345 000 units a month	Two shifts; 16.14 million units a year
Capacity utilisation	66% to 96%	Years 1 to 5 ramp
Reject and breakage rate	3.0% of production	Material consumed, no sale realised
Selling price escalation	5.5% a year	Below cement escalation — margin compresses over the projection
Cement price escalation	7.5% a year	Silo delivery pricing; the concentrated input
Aggregate and crusher sand escalation	6.5% a year	Delivered pricing
Blended material escalation	6.9% a year	Weighted at 43% cement
Bad debt provision	1.5% of revenue	Against contractor default
Operating cost escalation	6.5% to 9.0% a year	Wages 6.5%, electricity 9.0%, other 7.0% to 7.5%
Depreciation	R1 506 400 a year	10-year straight line on R15.06m of plant and equipment
Debtor days	40 days	Trade debtors against revenue
Creditor days	35 days	Trade payables against materials and operating costs
Raw material stock	25 days	Cement and aggregate on hand
Corporate tax	27%	Standard rate; the Year 1 assessed loss carried forward
Discount rate	16.5% project, 20.0% equity	Project hurdle reflecting start-up manufacturing risk in a cyclical sector
Exit assumption	3.5 times Year 5 EBITDA	Conservative for a single regional plant

11.2 Projected income statement

R’000	Year 1	Year 2	Year 3	Year 4	Year 5
Revenue	35 343	44 631	52 450	58 479	63 685
Cement	(9 982)	(12 776)	(15 218)	(17 197)	(18 984)
Aggregate, admixture and other materials	(13 231)	(16 935)	(20 172)	(22 797)	(25 165)
Bad debt provision	(530)	(669)	(787)	(877)	(955)
Gross profit	11 600	14 251	16 273	17 607	18 581
Gross margin	32.8%	31.9%	31.0%	30.1%	29.2%
Operating costs	(9 595)	(10 811)	(11 572)	(12 388)	(13 262)
EBITDA	2 005	3 440	4 701	5 219	5 319
EBITDA margin	5.7%	7.7%	9.0%	8.9%	8.4%
Depreciation	(1 506)	(1 506)	(1 506)	(1 506)	(1 506)
Interest	(1 672)	(1 600)	(1 396)	(1 167)	(911)
Profit / (loss) before tax	(1 174)	334	1 799	2 545	2 902
Taxation	—	—	(259)	(687)	(783)
Profit / (loss) after tax	(1 174)	334	1 540	1 858	2 118
Net margin	-3.3%	0.7%	2.9%	3.2%	3.3%

Figure 11. Margin compression: prices escalate at 5.5%, cement at 7.5%.

The shape of this statement is the investment case in miniature. Gross margin declines from 32.8 per cent to 29.2 per cent across the projection because cement is modelled to escalate at 7.5 per cent while selling prices escalate at 5.5 per cent — a deliberately conservative but realistic spread given that cement producers have historically passed energy and carbon costs through faster than masonry producers can recover them. Volume growth carries EBITDA upward despite that compression, but the trend is a warning: a brick plant that does not grow volume or shift mix will see its margins erode year on year.

Figure 12. Where every rand of Year 3 revenue goes.

11.3 Projected cash flow statement

R’000	Year 1	Year 2	Year 3	Year 4	Year 5
EBITDA	2 005	3 440	4 701	5 219	5 319
Movement in working capital	(1 367)	(723)	(628)	(456)	(373)
Taxation paid	—	—	(259)	(687)	(783)
Operating cash flow after tax	638	2 717	3 814	4 075	4 163
Interest paid	(1 672)	(1 600)	(1 396)	(1 167)	(911)
Capital repaid	(558)	(1 691)	(1 895)	(2 123)	(2 380)
Free cash flow to equity	(1 592)	(574)	523	785	872
Working capital facility drawn	1 800	—	—	—	—
Net movement in cash	208	(574)	523	785	872
Opening cash	2 400	2 608	2 034	2 557	3 342
Closing cash	2 608	2 034	2 557	3 342	4 214

Figure 13. Cash flow and free cash flow to equity.

Free cash flow to equity is negative in Years 1 and 2 and turns positive in Year 3, accumulating to R13 610 across the five years against R6.30 million subscribed. In plain terms the equity is not repaid from operations within the projection period at all, which is why Section 14 concludes that the terminal value is not one of several return sources but the entire return.

Working capital absorbs cash in every year of the projection — R1.37 million in Year 1 and R0.37 million by Year 5 — because the debtor book grows faster than trade credit as revenue rises. That is the structural characteristic of a growing manufacturer selling on credit terms, and it is the reason the committed facility exists.

11.4 Projected balance sheet

R’000, at year end	Year 1	Year 2	Year 3	Year 4	Year 5
Plant, equipment and yard, net of depreciation	13 558	12 051	10 545	9 038	7 532
Raw material inventory	1 590	2 035	2 424	2 739	3 024
Trade debtors	3 873	4 891	5 748	6 409	6 979
Cash and cash equivalents	2 608	2 034	2 557	3 342	4 214
Total assets	21 629	21 011	21 274	21 528	21 749
Share capital	6 300	6 300	6 300	6 300	6 300
Retained earnings / (accumulated loss)	(1 174)	(840)	700	2 558	4 676
Total shareholders’ funds	5 126	5 460	7 000	8 858	10 976
Development finance term loan	8 500	7 439	6 257	4 938	3 467
Asset-based equipment finance	3 056	2 426	1 714	909	—
Working capital facility	1 800	1 800	1 800	1 800	1 800
Trade and other payables	3 146	3 886	4 503	5 023	5 505
Total liabilities	16 502	15 551	14 274	12 670	10 773
Total equity and liabilities	21 629	21 011	21 274	21 528	21 749

Figure 14. Balance sheet — asset composition.

Total assets are broadly flat at R21 million to R22 million across the projection: depreciation of R1.51 million a year on the plant is offset by growth in debtors, inventory and cash, so the composition shifts from fixed assets toward working capital rather than the balance sheet growing. Shareholders’ funds fall from R6.30 million to R5.13 million in Year 1 as the loss is absorbed, then recover to R10.98 million by Year 5.

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