This section contains the analysis that determined the shape of the entire plan. Read on margin, the studio is the best business Highveld operates. Read on return on capital, it is the worst. The plan follows the second reading.

Full unit economics at steady state

Table 23. Unit economics by channel, FY2031 steady state, before head-office allocation

Studio capital includes leasehold improvements, plant and equipment, solar photovoltaic with battery storage, water reclamation, brand and IT. In-dealership capital is equipment and mobilisation only, because the dealer provides premises, water and power.

The decision this analysis forced

The first version of this plan proposed three studios opening in successive years and no embedded channel at all. It produced a cash shortfall approaching R74 million, a head-office burden that never became affordable, and returns below the cost of capital in every scenario including the upside. The analysis above explains why in one line: a studio consumes roughly R5.93m of capital to produce R4.71m of annual EBITDA, while an embedded unit consumes R0.32m to produce R0.55m.

Table 24. Capital allocation under the rejected and adopted plans

The rejected plan is described qualitatively; it was not carried forward as a modelled scenario. It is included because the reasoning that eliminated it is the reasoning that justifies the plan that replaced it.

Why two studios are retained rather than none

If embedded units are so much more capital-efficient, the logical conclusion appears to be that Highveld should build no studios at all. The modelling does not support that either, for three reasons that are commercial rather than financial.

• Paint protection cannot be applied on a forecourt. Ceramic coating and film application require a dust-controlled, temperature-stable, well-lit environment. Without a studio, Highveld forfeits the two highest-contribution lines in the portfolio, R752 and R818 of contribution per labour hour respectively, and with them the margin that carries the head office.
• The academy needs a home. Every embedded detailer is trained at a studio before deployment. Training on a live dealer forecourt is not viable: the vehicles belong to the customer and mistakes are expensive. The academy is the mechanism that solves the labour constraint, and it requires a facility.
• Dealer principals buy what they can inspect. The enterprise sales process depends on bringing a dealer principal to a facility that visibly operates to a higher standard than their own wash bay. A contractor without a flagship is competing on a rate card alone, which is the competition Highveld is designed to avoid.