Executive Summary

Jump to section

• Overview & contents
• i. Important Notice and Basis of Preparation
• 1. Executive Summary
• 2. The Business and the Regulated Price
• 3. Licensing, Safety and Compliance
• 4. Market and Customers
• 5. SWOT and Competitive Position
• 6. Operations
• 7. Financial Plan
• 8. Break-Even and Debt Service
• 9. Investment Analysis
• 10. Sensitivity and Scenario Analysis
• 11. The Margin Squeeze
• 12. Risk Analysis
• 13. Implementation Roadmap
• 14. Key Performance Indicators
• 15. Key Assumptions
• 16. Conclusion and Recommendation
• A. Appendix A: Consolidated Financial Summary
• B. Appendix B: Volume, Price and Cost Schedules
• C. Appendix C: Funding, Debt and Working Capital Schedules
• D. Appendix D: Risk Register
• E. Appendix E: Glossary

1.1 The proposition

Quick and Efficient Gas is a licensed LPG cylinder refill shop for a high-traffic peri-urban site in Gauteng. It installs a 4.9 tonne bulk storage vessel and fills customers’ own cylinders on site, rather than swapping pre-filled branded cylinders. Alongside the gas it sells cylinders, regulators, hoses, gas appliances and installation services, and it delivers to households and small businesses within the surrounding suburbs.

At maturity the shop fills about 47 cylinders a trading day, or 246.5 tonnes of LPG a year, generating R16.79 million of revenue and R1.54 million of EBITDA in Year 5.

1.2 The one fact that shapes everything

LPG sold in cylinders to domestic consumers is a price-controlled product in South Africa under the Petroleum Products Act. The Department of Mineral and Petroleum Resources gazettes a maximum retail price by magisterial district zone every month. In the Johannesburg zone the maximum price of a 9 kilogram cylinder is R378, or R42.00 per kilogram. A shop may sell below that price. It may not sell above it.

This removes the lever most retail businesses rely on. The shop cannot price for quality, for convenience, or for a better location. Of the R42.00 the customer pays, R16.11 is the regulated refinery gate price and a further R14.69 goes to wholesale, transport and storage before the shop sees anything. The shop’s gross margin is what remains: R11.20 per kilogram before losses.

1.3 Why this plan fills rather than swaps

There are two ways to run a gas shop. A cylinder-exchange outlet buys pre-filled branded cylinders from a distributor and swaps them across the counter. A licensed refill shop buys LPG in bulk into its own vessel and fills cylinders itself. The second requires a filling licence, a bulk vessel, a fire-protection system and a great deal more compliance — and it earns substantially more margin per kilogram.

At an assumed bulk delivered price of R30.80 per kilogram and a fill loss of 1.8 per cent, the refill model earns R10.64 per kilogram, or 25.3 per cent of the capped price. A cylinder-exchange shop buying pre-filled stock earns roughly R6.40. On this cost base the exchange model does not cover the shop’s operating costs at any realistic volume, which is why the plan accepts the compliance burden of a filling licence.

1.4 Financial summary

1.5 The honest assessment

Six findings matter more than anything else in this document.

▪ You cannot price your way to profit, so the buying price is everything. Because the selling price is capped, the only variable on the gas line is what you pay for it. The sensitivity analysis ranks the bulk buying price above volume as a driver of profit: an 8 per cent movement in the buying price swings Year 5 EBITDA by R1 561 270, against R1 192 069 for a 15 per cent movement in volume. The wholesale supply agreement is the single most valuable document this business will sign, and it should be negotiated before the lease.

▪ The margin is structurally exposed to a squeeze. The regulated ceiling and the wholesale cost are both derived from the same fuel basket, but they do not have to move together. If the delivered cost rises just two percentage points a year faster than the gazetted price, the gross margin falls from 25.3 per cent to 18.8 per cent over five years and roughly R766 344 of annual gross profit disappears at constant volume. This risk cannot be mitigated inside the business.

▪ Year 1 loses money and does not cover its debt service. At 27.3 fills a day the shop produces EBITDA of negative R199 655 against debt service of R421 491, a cover ratio of negative 0.47 times. Year 2 reaches 0.84 times, still below a standard covenant. The business is only comfortably financeable from Year 3, and the term sheet must say so.

▪ Accessories carry more of the profit than their share of sales. Gas is 77.2 per cent of Year 5 revenue but only 71.6 per cent of gross profit. Cylinders, appliances, regulators and installation work are unregulated, carry margins of 22 to 56 per cent, and contribute R1 273 860 of gross profit at maturity. Without them, break-even rises from 30.9 to 43.1 fills a day. The accessory counter is not a sideline; it is what makes the gas business viable.

▪ Demand is severely seasonal and the vessel cannot be stockpiled. The peak month sells 3.9 times the trough month. The obvious response — build stock ahead of winter — is not available, because a 4.9 tonne vessel holds only about 4 165 kilograms of usable gas. Winter demand must therefore be met by delivery frequency, rising from about 1.2 bulk deliveries a month in summer to 4.9 in July. Supplier reliability in winter is an operational risk, not a commercial one.

▪ Compliance is a gate, not a cost line. A filling licence, fire department permit, municipal consent use, SANS 10087 compliant design and a Certificate of Conformity under the Pressure Equipment Regulations are all required before the shop can lawfully trade. Illegal decanting operations compete on price precisely because they carry none of these costs. That competition is real, it is unlawful, and this plan cannot price against it.