Essence Premium Catering Business Plan — Returns

What the founders and growth equity investor earn across the horizon, and the return on capital deployed.

Returns

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19.1 Free cash flow
19.2 What the founder holds at Year 5

Figure 24. Returns against the exit assumption.

Measure	Value	Basis
Founder equity	R2.15m	Year 1
Growth equity	R2.10m	Year 3, at the kitchen capacity step
Total equity subscribed	R4.25m
Year 5 EBITDA	R2.11m	At a 6.6% margin
Exit multiple applied	6.0x	Equivalent to 0.40x revenue
Terminal enterprise value	R12.66m
Net debt at Year 5	R5.64m	Loans of R6.86m less cash of R1.21m
Terminal equity value	R7.02m
Money multiple on equity	1.65x
Equity IRR	13.1%	On the two subscriptions at their actual timing
Project IRR	19.4%	On free cash flow with the terminal enterprise value
Return on capital deployed	26.6%	Year 5 EBITDA on R7.94m
Exit multiple at which equity is returned	4.69x

Exit multiple	Enterprise value	Terminal equity	Project IRR	Equity IRR	Money multiple
4.0x	R8.44m	R2.80m	4.9%	-10.0%	0.66x
4.5x	R9.49m	R3.85m	9.0%	-2.4%	0.91x
5.0x	R10.55m	R4.91m	12.7%	3.6%	1.15x
5.5x	R11.61m	R5.96m	16.2%	8.7%	1.40x
6.0x	R12.66m	R7.02m	19.4%	13.1%	1.65x
6.5x	R13.71m	R8.07m	22.4%	17.0%	1.90x
7.0x	R14.77m	R9.13m	25.2%	20.5%	2.15x

A contract book transacts on revenue as much as on earnings, and that is what protects the downside

At six times EBITDA the equity earns 13.1 per cent on a 1.65 times multiple, and the equity recovers its subscription at 4.69 times. Those are unremarkable numbers for five years of work. What makes the position defensible is the basis rather than the level: six times a 6.6 per cent EBITDA margin is 0.40 times revenue, and contract catering books change hands on revenue multiples because what the buyer acquires is a contracted stream of turnover with switching costs attached, not a stream of earnings. A national group buying this business is buying eleven sites, a compliant kitchen and a retention record — and it will run them on its own overhead. That is why the exit assumption sits at six times rather than the three to four a thin-margin standalone would command, and an investor should test the contract book’s renewal history before testing the multiple.

19.1 Free cash flow

R’000	Year 1	Year 2	Year 3	Year 4	Year 5
EBITDA	(476)	(143)	225	968	2 110
Movement in working capital	(297)	(354)	(589)	(589)	(578)
Taxation	—	—	—	—	—
Capital expenditure, net of allowance	(2 740)	(690)	(1 415)	(1 240)	(1 480)
Free cash flow to the firm	(3 513)	(1 187)	(1 779)	(861)	52

Free cash flow to the firm is negative in every year of the projection, cumulatively minus R3.62 million, and it is still minus R53 000 in Year 5 after capital expenditure and working capital growth. Substantially all of the value therefore sits in the terminal position. That is the ordinary shape of a contract catering business building a book: every new contract consumes site equipment and debtor funding before it contributes, and a business growing at this rate does not generate free cash until it stops growing.

19.2 What the founder holds at Year 5

Position at Year 5	Value	What it produces from Year 6
Contracted revenue base	R31.82m	Recurring, with switching costs attached and escalation clauses in place
Kitchen, equipment and vehicles	R4.64m	Sized for 3 464 meals a day; no further capacity capital required
Management layer	Complete	The founder’s time available for commercial work rather than production
Public-sector track record	Three years	A scored requirement in later, larger tenders
HACCP-based system, audited	From Year 3	The condition of institutional and healthcare supply
Assessed loss carried forward	R2 841’000	Shelters Year 6 and Year 7 taxable profit almost entirely

Year 5 is the first year the business is profitable and the last year of the build. Year 6 runs the same contract book through a kitchen and a management layer already paid for, with no capacity capital, a full year of escalation clauses and R2.84 million of assessed loss still available. The five-year window captures the whole of the cost of building the contract book and one year of owning it.

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