Cattle Baron Master Business Plan — Returns

What the owners earn across the horizon, the R5.54m of owner's funds at Year 5, and how much of the return is herd value.

Returns

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Figure 24. Founder return against the herd valuation.

Measure	Value	Basis
Founder equity	R2.20m	At inception
Grant funding received	R3.40m	Non-repayable; accrues to the company and therefore to the founder
Loans outstanding at Year 5	R11.47m	Livestock, asset and Land Bank facilities
Total assets at Year 5	R17.18m	Of which the breeding herd is R9.89m
Owner’s funds at Year 5	R5.54m	Net asset value
Money multiple on founder equity	2.52x	R2.20m becomes R5.54m
Return on founder equity	20.3%	Over five years on a net asset value basis
Return excluding the grant benefit	-0.6%	If the R3.40m of grant had instead been debt
Project IRR	8.9%	On free cash flow with a terminal enterprise value of R17.01m
Return on capital deployed	22.5%	Year 5 EBITDA on R11.20m of capital
Return on capital deployed, cash basis	1.0%	Year 5 cash EBITDA on the same base

Herd valued at	Herd value	Owner’s funds	Return on founder equity	Money multiple
80% of the modelled value	R7.91m	R3.56m	10.1%	1.62x
90% of the modelled value	R8.90m	R4.55m	15.6%	2.07x
100% of the modelled value	R9.89m	R5.54m	20.3%	2.52x
110% of the modelled value	R10.88m	R6.53m	24.3%	2.97x
120% of the modelled value	R11.87m	R7.52m	27.9%	3.42x

The return is substantially a grant outcome, and that should be said plainly

The founder’s R2.20 million becomes R5.54 million of owner’s funds by Year 5 — a 20.3 per cent annual return on a book basis. R3.40 million of that is non-repayable grant, and without it the same five years produce minus 0.6 per cent. The farming does not change between those two numbers; only the capital structure does. An investor is therefore underwriting two distinct propositions at once: the operational proposition, which is that a well-run 450-cow herd can be built from 120 in five years and will produce materially more in Years 6 to 10 than in Years 1 to 5; and the funding proposition, which is that a competitive and heavily oversubscribed grant scheme will provide R3.40 million on the timetable assumed. The second is the weaker of the two and it is outside the founder’s control. Section 12 sets out the mitigation, and it amounts to applying early, applying widely, and being willing to hold the herd at 250 cows rather than borrow the difference.

20.1 Why the five-year window understates the asset

Position at Year 5	Value	What it produces from Year 6
Breeding herd	R9.89m	450 cows weaning 79.8% — roughly 359 calves a year without further capital
Infrastructure	R5.66m	Fencing, water and handling sized for the mature herd; no further build required
Cash gross margin per cow	R4 780	On 450 cows rather than the 400 average of Year 5
Fixed cost base	R1.80m	Barely rises; the herd has reached the size the base was built for
Assessed loss carried forward	R77’000	Shelters the first R247 000 of Year 6 taxable profit
Weaning percentage	79.8%	Still improving; 82 to 84% is achievable on a mature, well-recorded herd

Year 5 is the first year in which the enterprise covers its cash costs, and it does so at an average of 400 cows against a closing herd of 450. Year 6 runs the full 450 through a fixed cost base that was built for them, with no expansion capital, no new debt and an assessed loss still available. That is why the plan states plainly that cattle is a ten-year asset: the five-year window captures the whole of the cost of building the herd and almost none of the return from owning it.

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