Green Master Vegetables Business Plan — Returns

What the owners earn across the horizon, the R4.30m of owner's funds at Year 5, and the return on capital deployed.

Returns

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19.1 Free cash flow
19.2 Why the five-year window understates the asset

Figure 24. Returns against the exit assumption.

Measure	Value	Basis
Founder equity	R1.95m	At inception
Grant funding received	R3.50m	Non-repayable; accrues to the company and therefore to the founder
Loans outstanding at Year 5	R6.58m	Production credit, asset finance and Land Bank facilities
Total assets at Year 5	R11.96m	Of which infrastructure and equipment is R7.67m
Owner’s funds at Year 5	R4.30m	Net asset value
Money multiple on founder equity	2.20x	R1.95m becomes R4.30m
Return on founder equity	17.1%	Over five years on a net asset value basis
Return excluding the grant benefit	-16.4%	If the R3.50m of grant had instead been debt
Project IRR	23.4%	On free cash flow with a terminal value of R17.11m
Return on capital deployed	26.7%	Year 5 EBITDA on R12.80m
Exit multiple at which founder equity is returned	2.09x	Applied to Year 5 EBITDA

Exit multiple	Enterprise value	Terminal equity	Project IRR	Founder return	Money multiple
3.0x	R10.26m	R5.07m	5.8%	21.1%	2.60x
3.5x	R11.97m	R6.78m	10.9%	28.3%	3.48x
4.0x	R13.68m	R8.49m	15.4%	34.2%	4.35x
4.5x	R15.39m	R10.20m	19.6%	39.2%	5.23x
5.0x	R17.11m	R11.91m	23.4%	43.6%	6.11x
5.5x	R18.82m	R13.62m	26.9%	47.5%	6.99x
6.0x	R20.53m	R15.33m	30.2%	51.1%	7.86x

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

The founder’s R1.95 million becomes R4.30 million of owner’s funds by Year 5, 17.1 per cent a year on a book basis and a 2.20 times multiple. R3.50 million of that is non-repayable grant that never dilutes and is never repaid, and without it the same five years produce minus 16.4 per cent. The farming is identical between those two numbers; only the capital structure changes. An investor is therefore underwriting two propositions at once: the operational proposition, which is that 45 hectares of irrigated vegetables in Limpopo with a 42 per cent direct channel can earn R3.42 million of EBITDA; and the funding proposition, which is that a competitive and heavily oversubscribed grant scheme will provide R3.50 million on the timetable assumed. The project IRR of 23.4 per cent measures the first and is the honest number. The second is outside the founder’s control, and the mitigation in Section 11 amounts to applying early, applying widely, and being willing to hold the farm at 24 hectares.

19.1 Free cash flow

R’000	Year 1	Year 2	Year 3	Year 4	Year 5
EBITDA	(390)	(425)	329	1 542	3 421
Movement in working capital	(210)	(213)	(392)	(464)	(537)
Taxation	—	—	—	—	(90)
Capital expenditure	(3 670)	(1 105)	(2 240)	(2 010)	(2 080)
Free cash flow to the firm	(4 270)	(1 743)	(2 303)	(932)	714

Free cash flow to the firm is negative in Years 1 to 4 and turns positive only in Year 5 at R714 000, cumulatively minus R6.20 million across the five years. Substantially all of the value therefore sits in the terminal position rather than in cash generated within the window, which is the ordinary shape of an agricultural enterprise establishing infrastructure across its first five years, and the reason the terminal assumption above matters more than any single operating variable.

19.2 Why the five-year window understates the asset

Position at Year 5	Value	What it produces from Year 6
Infrastructure and equipment	R7.67m	Irrigation, tunnels and packhouse sized for 45 hectares; no further build required
Tunnel area	4.5 ha	R1.46m of gross margin a hectare, on structures already paid for
Direct channel	42% of volume	Rising further with no additional capital; each point is worth R47 000
Certification and a signed contract	Achieved Year 4	A share of the crop priced before it is planted
Assessed loss carried forward	R1 399’000	Shelters most of Year 6 taxable profit
Fixed cost base	R5.30m	Barely rises; the farm has reached the size the base was built for

Year 5 is the first year of full operation, and it earns R3.42 million of EBITDA in the year the last 10.5 hectares come into production. Year 6 runs the whole 45 hectares through a fixed cost base built for them, with no expansion capital, no new debt, a signed offtake contract and an assessed loss still available. The five-year window captures the whole of the cost of establishing the farm and roughly one year of owning it.

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