Khanya Cold Chain Business Plan — Conclusion and Recommendation

The closing case for the R108.39 million funding requirement and what the plan asks investors and lenders to underwrite.

Conclusion and Recommendation

Jump to section

Khanya Cold Chain is a capital-intensive, asset-backed logistics business in a market with genuine capacity constraints and a structural cost advantage available to a greenfield operator that specifies for it. It requires R108 390 000, R56 390 000 of equity, R34 000 000 of senior debt and an R18 000 000 development finance tranche, with a R12 000 000 standby revolver committed alongside.

R26.8m

Year 5 EBITDA

18.2%

Project IRR

63.9%

Break-even occupancy

0.22x

Year 1 debt service cover

The energy strategy is what makes the margin possible. Eskom’s Megaflex tariff prices a peak unit at 720.19 c/kWh against 120.03 c/kWh overnight, and a −25°C chamber holding 2 600 pallets is one of the few industrial loads that can genuinely arbitrage a six-fold spread. Combining load shifting, a 700 kWp array and battery storage takes the Year 3 electricity bill from R5 175 719 to R2 904 932 and electricity from 11.0 per cent of cold store revenue to 6.2 per cent, worth R10 296 432 across the projection against a naive operator on the same tariff, and widening with every approved increase.

Filling the building is what makes the business survive. Break-even including debt service is 56 per cent occupancy against a Year 1 plan of 46 per cent, and the store does not cover its debt service until Year 3. An eight-point occupancy shortfall removes R8 498 791 of Year 3 EBITDA against R1 161 973 for a 20 per cent movement in the electricity price. The sensitivity table and the value-lever table rank the drivers identically, and both put occupancy first and electricity last. Management attention and board agendas should follow that ranking rather than the order in which this document presents its sections.

The financial position is honest about what it asks. Year 1 loses R18 467 711 after pre-opening costs and covers its debt service 0.22 times; Year 2 covers it 1.15 times, still below a standard covenant. Cumulative project free cash flow is R55 869 209 negative at Year 5 before terminal value, so the equity return is realised on exit or refinancing rather than from distributions. Tax becomes payable from Year 3, R1 137 626 across the projection after the assessed losses are applied, and the Year 5 balance sheet carries R7 272 665 of current-portion debt representing the Year 6 amortisation.

The recommendation is to proceed, subject to four conditions, each testable before capital is committed. Anchor tenancy of at least 1 200 pallet positions on multi-year terms with take-or-pay floors. A firm fixed-price quotation for the refrigeration plant and the energy system, with retention held to validated performance. Written confirmation of the notified maximum demand available at the connection and of the applicable time-of-use tariff. And the standby revolver committed at first close rather than sought when Year 2 needs it. An investor who can secure all four is funding a different risk from the one the base case describes; an investor who cannot should not proceed.

Appendix Note — Reconciliation of Corrections

Three adjustments have been made to the financial statements presented in this document, and each is set out below so that a reader comparing against an earlier draft can follow the difference.

Item	Position adopted	Effect
Equity subscription	R56 390 000 rather than R56 000 000	The funding requirement is R108 390 000. Sources of R108 000 000 leave the business R390 000 short at first close, which appears as an unexplained gap between total assets and total equity plus liabilities. The equity is sized to close the requirement exactly
Corporate income tax	Charged from Year 3 at 27% with assessed losses carried forward	Year 1 and Year 2 losses of R22 159 080 shelter most but not all of the later profits under the section 20 limitation. The charge is R154 939, R409 695 and R572 992 in Years 3 to 5 — R1 137 626 in total, with R5 305 372 of assessed loss still carried forward
Year 5 current portion of term debt	R7 272 665 rather than nil	A facility with several years still to run has a current portion equal to the following year’s amortisation. Showing it as nil understates current liabilities and overstates the apparent maturity profile
Trade payables and the revolver	Presented separately	Trade payables are stated on the 32-day basis the plan assumes; the revolver is shown as its own liability line. Folding the revolver into payables obscures both the facility utilisation and the true creditor position

The combined effect on profit after tax is R1 137 626 across five years — small against R83 316 891 of cumulative EBITDA, and material to a lender testing covenant headroom in the years when cover is thinnest. The effect on the balance sheet is that it balances.

Previous section15. Key Assumptions

Next sectionA. Appendix A: Consolidated Financial Summary