Essence Premium Catering Business Plan — Executive Summary

Contract feeding and events catering in Ekurhuleni: R7.94m deployed, 900,500 meals a year by Year 5, R31.82m revenue at a 6.6% EBITDA margin.

Executive Summary

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  • 1.1 The proposition
  • 1.2 Four things an investor must understand
  • 1.3 Headline numbers
  • 1.4 Investment conclusion

1.1 The proposition

Essence Premium Catering is a contract catering business in Ekurhuleni, feeding factory and warehouse staff, institutional clients and events from a single production kitchen.

It grows from 308 meals a day to 900 500 meals a year, taking revenue from R3.55 million to R31.82 million at an EBITDA margin of 6.6 per cent. Total capital deployed is R7.94 million, of which the founder contributes R2.15 million.

R31.82m

Year 5 revenue

R2.11m

Year 5 EBITDA

6.6%

EBITDA margin

R2.15m

Founder cash

1.2 Four things an investor must understand

  • Contract catering is a thin-margin volume business. EBITDA reaches 6.6 per cent by Year 5. That is normal for the sector and it is not a restaurant business. The money is made on repetition, contract retention and food cost control, not on any single meal.
  • Prime cost is 72.1 per cent and the selling price is contractually fixed. Unlike a restaurant, a caterer cannot reprice a menu when beef goes up. The contract price is set annually. Food cost discipline is therefore not a management preference; it is the only lever available between price reviews, and one percentage point at Year 5 volume is R318 000.
  • Break-even is 86.7 per cent of Year 5 revenue once finance cost is included. The business does not cover its cost base until Year 3. Losing one large contract in Year 4 takes it back below break-even, which is why customer concentration is the risk that matters most.
  • Public sector work pays at 68 days against 32 for private clients. The debtor book reaches R3.05 million by Year 5. In catering you buy food weekly and pay wages weekly; you are financing the client either way.
Revenue and meals served. Meal volume rises faster than revenue because government feeding adds many low-priced meals
Figure 1. Revenue and meals served. Meal volume rises faster than revenue because government feeding adds many low-priced meals.

1.3 Headline numbers

R’000 unless stated

Year 1

Year 2

Year 3

Year 4

Year 5

Meals served

80 000

189 500

455 300

687 700

900 500

Meals per operating day

308

729

1 751

2 645

3 463

Event covers

1 200

2 800

4 600

6 400

8 200

Government share of meals

0.0%

0.0%

30.5%

34.4%

34.8%

Government share of revenue

0.0%

0.0%

6.9%

8.2%

8.3%

Revenue

3 546

8 304

15 485

23 335

31 819

Food and consumables

(1 577)

(3 681)

(6 985)

(10 462)

(14 098)

Gross profit

1 969

4 623

8 500

12 873

17 721

Operating costs

(1 769)

(3 631)

(6 548)

(9 636)

(12 767)

Contribution

200

991

1 953

3 238

4 954

Overhead

(676)

(1 134)

(1 728)

(2 270)

(2 844)

EBITDA

(476)

(143)

225

968

2 110

EBITDA margin

-13.4%

-1.7%

1.5%

4.1%

6.6%

Prime cost

74.7%

73.7%

73.9%

73.1%

72.1%

Profit / (loss) after tax

(931)

(919)

(894)

(460)

363

Closing cash

455

633

1 403

1 429

1 211

EBITDA and profit after tax. EBITDA turns positive in Year 3 and profit after tax in Year 5
Figure 2. EBITDA and profit after tax. EBITDA turns positive in Year 3 and profit after tax in Year 5.

1.4 Investment conclusion

Measure

Value

Basis

Founder equity

R2.15m

At inception

Growth equity

R2.10m

At the kitchen capacity step in Year 3

Total equity subscribed

R4.25m

Loans and facilities

R8.89m

SEDFA, equipment finance and a contract-backed working capital facility

Year 5 EBITDA

R2.11m

At a 6.6% margin

Net debt at Year 5

R5.64m

Loans outstanding less cash

Project IRR at a 6.0x exit

19.4%

On free cash flow with a terminal enterprise value

Equity IRR at a 6.0x exit

13.1%

On the two subscriptions, a 1.65x multiple

Terminal value as a multiple of revenue

0.40x

A conventional basis on which contract caterers transact

Exit multiple at which equity is returned

4.69x

Applied to Year 5 EBITDA

First profitable year

Year 5

EBITDA turns positive in Year 3

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