Karoo Meridian Business Plan › Section 12 › Financial Plan

12.1 Basis of preparation

Sponsor anchors preserved; below-EBITDA independently
re-derived. Revenue, EBITDA, flock counts, capital budget and
the proposed funding stack are the sponsor’s figures, preserved exactly.
Depreciation, interest, taxation (27% corporate rate with assessed-loss
carry-forward per s20 of the Income Tax Act), working capital, the
revolving facility, the balance sheet and all ratios are re-derived from
first principles. The balance sheet ties to zero in every projection
year. Land is carried at cost and not depreciated; the foundation flock
is a biological asset carried at cost for prudence (no fair-value uplift
is recognised in the projections despite flock growth — a deliberate
conservatism worth roughly R40–60m of unrecognised asset value by Year
5).

12.2 Projected profit and loss

The Year 1 loss of R15.9m reflects a thin EBITDA (R9m at a 13.2%
margin while the flock is maiden-heavy and the first clip small)
carrying full-year interest of R17.0m. The assessed loss shelters
taxation until it is fully absorbed during Year 3; the effective
cash-tax rate over the first five years is 13% versus the 27% statutory
rate.

12.3 Projected cash flow

12.4 Projected balance sheet

Equity dips to R75.7m at the end of Year 1 (the establishment loss
against R90m subscribed) and compounds to R744m by Year 10 with no
dividends assumed. Net debt peaks at R186m in Year 3 (2.8x that year’s
EBITDA) and turns net-cash during Year 6.

12.5 Debt structure and service cover

12.6 Returns, sensitivity and scenarios

Returns. The 10-year unlevered project IRR is 26.9%
and the equity IRR 33.5%, assuming exit at a conservative 5.0x EBITDA
multiple in Year 10 (enterprise value R1,148m against Year 10 EBITDA of
R229.5m). These land at the top of and above the sponsor’s 19–27%
guidance because the re-derived model runs the full 10-year horizon with
terminal value, whereas the sponsor band appears referenced to the
5-year window.

12.7 Working capital policy

Net working capital is modelled at 14% of revenue, reflecting the
sector’s structural cycle: wool is shorn months before auction
settlement (inventory holding of 3–5 months across classing, brokering
and sale), livestock inventory turns slowly by design, export meat
receivables run 30–60 days against letters of credit, while input
creditors provide modest offset. The absorption is front-loaded — ΔNWC
consumes R9.5m in Year 1 rising to R23.4m in Year 5 as revenue compounds
— and is the proximate cause of the revolver requirement quantified in
Section 12.3.

12.8 Covenant compliance dashboard

The dashboard confirms the structural point made in Section 12.5: on
the proposed covenant package (testing from Year 4 against a funded
interest reserve in Years 1–3), the enterprise passes every test from
first measurement, with rapidly widening headroom. Testing conventional
covenants from Year 1 would produce immediate technical breach — a
design issue, not a viability issue, and one that competent structuring
resolves.

12.9 Valuation cross-check

As a sanity check on the 5.0x exit multiple, a discounted cash flow
over the explicit 10-year horizon at a 16.5% nominal ZAR WACC (risk-free
±10.5% on long bonds, equity risk premium and agri illiquidity loading,
blended with post-tax DFI debt cost) with 4.5% terminal growth yields an
enterprise value of approximately R1.0–1.2 billion — bracketing the
R1.15 billion multiple-derived exit value. Asset backing provides a hard
floor: land at cost (R90m, before any appreciation over a decade), the
biological asset at conservative cost (R42m against a Year 10 flock more
than double the foundation numbers), and net PPE, together exceed R280m
by Year 10 before any going-concern premium — roughly 2.4x the residual
senior debt.

12.10 Revenue seasonality

Annual figures conceal a pronounced intra-year cycle that lenders
funding a seasonal revolver must see. Wool income concentrates in the
October–March auction window following the spring shearing; lamb income
peaks post-weaning (December–April) and again from autumn feedlot
turnoff; stud auction income is a single spring event. The stylised
quarterly shape below (steady-state year, % of annual revenue) explains
why the revolver’s intra-year peak exceeds its year-end balances shown
in Figure 14 — year-end reporting dates catch the facility near its
seasonal low.

The practical covenant implication: quarterly DSCR tests would show
artificial Q2–Q3 weakness in every year; the proposed package therefore
tests on trailing-twelve-month CFADS, and the revolver limit of R35m is
sized against the intra-year working-capital peak, not the year-end
balance.

Confidential — this business plan is provided to prospective investors and lenders for evaluation purposes only and may not be reproduced or distributed without the written consent of Karoo Meridian Wool & Livestock (Pty) Ltd.