Risk Management

Jump to section

• Overview & contents
• i. Important Notice
• 1. Executive Summary
• 2. Why Ekurhuleni
• 3. The Market and the Segment Trap
• 4. Contribution by Segment
• 5. SWOT and Competitive Position
• 6. Winning and Keeping Contracts
• 7. Tendering Into the Public Sector
• 8. Unit Economics and Prime Cost
• 9. Working Capital
• 10. The Five-Year Build and Its Gates
• 11. Funding
• 12. People and Production
• 13. Food Safety and Compliance
• 14. Financial Projections
• 15. Break-Even
• 16. Sensitivity and Scenarios
• 17. Risk Management
• 18. Implementation Timeline
• 19. Returns
• 20. Key Performance Indicators
• 21. Key Assumptions
• 22. 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

17.1 The risks that matter

Customer concentration is the risk that ends the business rather than damaging it. Break-even is 86.7 per cent of Year 5 revenue, so losing a client worth 30 per cent of turnover takes the operation straight through break-even into a loss it cannot trade out of quickly, because catering costs are largely fixed to the site. It is managed by a board-level limit of 25 per cent of revenue per client, reviewed at every renewal, and by pricing any contract that would breach it to reflect the risk.

Food cost escalation on a fixed contract price is the risk with no operational answer. Four percentage points removes R1.27 million of Year 5 EBITDA — 60 per cent of it — and the caterer cannot reprice mid-term. It is managed by an annual escalation clause tied to a published food inflation measure in every contract, by costed menus with a target food cost per segment, by portion control at the serving line, and by weekly rather than monthly measurement.

A food safety incident is small in probability and total in consequence. One serious incident ends the contract and contaminates every reference, and a caterer without a Certificate of Acceptability cannot trade at all. It is managed by temperature records from day one, an externally audited HACCP-based system from Year 3, food handler certification monitored against expiry dates, and a delivery radius that keeps hot food within its safe holding window.

Working capital exhaustion is the risk that catches profitable caterers. Public clients pay at 68 days against weekly food purchases and weekly wages, and the debtor book reaches R3.05 million. It is managed by a contract-backed facility advanced against certified invoices, by signed meal count records at every site every day, and by never funding a new contract’s mobilisation from an existing contract’s collections.

Price pressure on renewal is the largest single sensitivity at R1.59 million. Institutional buyers are increasingly price-sensitive under constrained budgets, and a renewal negotiated five per cent down removes three quarters of the EBITDA. It is managed by retention practices that make the incumbent hard to displace, by monthly client reviews with feedback data, and by never being the cheapest bid on a site the business cannot afford to serve.

17.2 Risks sized against the plan

17.3 Controls

• Food cost calculated weekly by segment against the costed menu, not monthly from the management accounts.
• No single client above 25 per cent of revenue, reviewed at every renewal as a board-level rule.
• Government and school feeding capped at one third of meals, monitored monthly.
• Every contract signed or renewed carries an annual escalation clause tied to a published food inflation measure.
• No contract accepted outside the 30 to 45 minute delivery radius, regardless of value.
• Temperature records at receipt, storage, cooking, holding and delivery, logged daily from day one.
• Food handler certification and vehicle certificates of fitness tracked against expiry dates, not against tender dates.
• Signed meal count record obtained at every site every day; invoices issued with the record attached.
• No capacity step drawn if the preceding gate on food cost, EBITDA or concentration has been missed.
• No distribution to shareholders until debt service cover has exceeded 1.30 times for two consecutive years.