Financial Projections

Jump to section

• Overview & contents
• i. Important Notice
• 1. Executive Summary
• 2. A Note on the Name
• 3. The Market and the FMD Crisis
• 4. Foot-and-Mouth Disease as a Business Risk
• 5. The Production System
• 6. Herd Performance
• 7. SWOT and Competitive Position
• 8. Grazing, Land and Water
• 9. Unit Economics
• 10. Route to Market
• 11. The Five-Year Build and Its Gates
• 12. Funding
• 13. People, Security and Stock Theft
• 14. Compliance and Traceability
• 15. Financial Projections
• 16. Break-Even
• 17. Sensitivity and Scenarios
• 18. Risk Management
• 19. Implementation Timeline
• 20. Returns
• 21. Key Performance Indicators
• 22. Key Assumptions
• 23. Conclusion
• A. Appendix A: Consolidated Financial Summary
• B. Appendix B: Capital Schedules
• C. Appendix C: Funding and Debt Schedules
• D. Appendix D: Risk Register
• E. Appendix E: Glossary

15.1 Basis of preparation

• All amounts are in nominal South African rand. Cash revenue is built from weaners sold multiplied by weight and price, plus cull cow sales at 16.0 per cent of the herd a year.
• Herd growth is the non-cash increase in the value of the breeding herd. It is included in reported EBITDA because it is real value, and separately identified so that cash EBITDA can be read directly.
• The weaner price opens at R44.00 a kilogram — roughly ten per cent below the market at the time of preparation — and escalates at 5.5 per cent a year.
• Depreciation is charged on the infrastructure and equipment element of capital only. The breeding herd is carried as a biological asset and revalued through the herd growth line rather than depreciated, and the working capital element funds opening trading.
• Interest and principal derive from the facility-level schedules in Appendix C across five instruments, with capital moratoria reflecting the lag between placing a cow and selling her first weaner.
• Corporate income tax is applied at 27 per cent with assessed losses carried forward subject to the section 20 limitation. No tax arises within the projection.
• The balance sheet is derived rather than plugged; owner’s funds roll forward from founder equity, grants received and retained earnings, and the closing cash position reconciles exactly to the cash flow statement.

15.2 Projected income statement

Reported EBITDA turns positive in Year 2 at R153 000 and reaches R2.52 million in Year 5. Cash EBITDA — the number that pays the bank — is negative in every year to Year 4 and turns positive only in Year 5, at R112 000. The gap in every year is the increase in the value of the breeding herd, and it is the reason a cattle enterprise can be profitable on paper and short of money at the same time.

Assessed losses of R1.35 million accumulate across Years 1 to 3. Year 4 taxable profit of R224 000 and Year 5 of R876 000 are both fully offset under the section 20 limitation, so no tax is payable within the forecast and R247 000 of assessed loss remains unutilised.

15.3 The cost base as a share of cash revenue

The total cost base is 221 per cent of cash revenue in Year 1 and 97 per cent by Year 5. Almost none of that improvement comes from cutting costs: the cost base rises from R1.09 million to R3.95 million across the five years. It comes from cash revenue rising from R492 000 to R4.07 million against a cost base that grows less than four times.

15.4 Projected cash flow

Operating cash flow is negative in every year of the projection, reaching minus R202 000 in Year 5 after working capital. The enterprise is funded rather than self-financing for the whole five years, which is the honest description of a herd being built. Closing cash never falls below R604 000 and never exceeds R1.66 million.

15.5 Projected balance sheet

15.6 Debt and gearing

Gearing rises from 35 per cent in Year 1 to 67 per cent in Year 5, and Year 5 interest of R1.00 million exceeds cash EBITDA of R112 000 by a wide margin. Debt service is met from further drawings and from the grant, not from operations, throughout the projection. That is a defensible position for a herd build against a rising biological asset — the breeding herd at R9.89 million comfortably exceeds the R11.47 million of debt when infrastructure of R5.66 million is added — but it is not a position that can be extended indefinitely, and Year 6 is the first year in which the enterprise services its own debt.