Kasi Kicks Business Plan — Financial Plan

Five-year projections with full income statement, cash flow and balance sheet: revenue to R75.23m and EBITDA to R10.31m.

Financial Plan

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7.1 Basis of preparation
7.2 Income statement
7.3 Inventory: the balance sheet problem
7.4 Funding
7.5 Cash flow
7.6 Balance sheet

7.1 Basis of preparation

▪ All figures are in South African Rand and exclude VAT.

▪ Revenue is built from stores, pairs sold per store, the allocation mix and the realised price after markdown. It is not a growth rate applied to an assumed base.

▪ Selling prices escalate at 5.8% a year and landed costs at 6.2%, so gross margin compresses slightly across the projection.

▪ Store fixed costs escalate at 6.0%; central costs scale partly with the number of stores rather than being fully loaded from Year 1.

▪ Variable cost is R101 a pair in store and R118 a pair online, so the blended variable cost per pair rises as the online share grows from nil to 18%.

▪ Stock is held at 4.2 turns a year, against an industry median near 4.4. Suppliers are paid on 34 days.

▪ Depreciation is straight-line over four to ten years, with store fit-out over seven.

▪ Tax is at Small Business Corporation rates while turnover remains below the R20 million threshold, and at 27% thereafter, with early losses carried forward subject to the section 20 limitation.

7.2 Income statement

R	Year 1	Year 2	Year 3	Year 4	Year 5
Stores trading	1	2	3	4	4
Pairs sold	7 252	18 349	31 712	46 118	49 239
Realised price a pair	1 219	1 290	1 365	1 444	1 528
Revenue	8 842 462	23 670 746	43 282 793	66 594 680	75 225 919
Cost of sales	(4 702 519)	(12 635 957)	(23 192 648)	(35 818 998)	(40 614 420)
Gross profit	4 139 943	11 034 789	20 090 146	30 775 681	34 611 499
Gross margin	46.8%	46.6%	46.4%	46.2%	46.0%
Variable selling costs	(730 992)	(2 099 412)	(4 059 312)	(6 522 170)	(7 608 260)
Store fixed costs	(2 381 560)	(5 048 906)	(8 027 761)	(11 345 902)	(12 026 656)
Central costs	(2 172 125)	(2 841 324)	(3 583 008)	(4 403 465)	(4 667 673)
EBITDA	(1 144 734)	1 045 146	4 420 064	8 504 144	10 308 910
EBITDA margin	-12.9%	4.4%	10.2%	12.8%	13.7%
Pre-opening costs, non-recurring	(1 360 000)	—	—	—	—
Depreciation	(676 603)	(939 726)	(1 080 685)	(1 221 644)	(1 221 644)
Finance costs	(784 718)	(664 725)	(528 581)	(374 112)	(198 851)
Profit / (loss) before tax	(3 966 055)	(559 305)	2 810 798	6 908 388	8 888 415
Taxation	—	—	(151 783)	(1 250 550)	(2 399 872)
Profit / (loss) after tax	(3 966 055)	(559 305)	2 659 015	5 657 838	6 488 543
Cumulative profit / (deficit)	(3 966 055)	(4 525 360)	(1 866 345)	3 791 493	10 280 036

The tax basis changes in Year 2, and it is worth stating why

Small Business Corporation rates are available only while turnover stays below R20 million. Revenue reaches R23 670 746 in Year 2, so the group pays Small Business Corporation rates in Year 1 alone and the standard 27 per cent corporate rate from Year 2 onward. The Year 1 loss of R3 966 055 and the Year 2 loss of R559 305 shelter the Year 3 and Year 4 profits under the section 20 limitation, which caps the set-off at the higher of R1 million or 80 per cent of taxable income. Tax of R151 783 falls in Year 3, R1 250 550 in Year 4 and R2 399 872 in Year 5, and the assessed loss is fully utilised by the end of the projection. A plan that assumes Small Business Corporation rates throughout understates the total charge across the projection by roughly a third.

7.3 Inventory: the balance sheet problem

Figure 14. Stock held at cost against the facility.

Footwear turns stock about 4.4 times a year because a single style becomes fifty or more size SKUs, each of which must be present for the style to sell at all. A customer who wants UK 9 and finds only UK 12 does not buy a different size; they leave.

R	Year 1	Year 2	Year 3	Year 4	Year 5
Cost of sales	4 702 519	12 635 957	23 192 648	35 818 998	40 614 420
Stock at cost	1 119 647	3 008 561	5 522 059	8 528 333	9 670 100
Stock turns	4.2x	4.2x	4.2x	4.2x	4.2x
Stock as a share of revenue	12.7%	12.7%	12.8%	12.8%	12.9%
Less: supplier credit at 34 days	(438 043)	(1 177 048)	(2 160 411)	(3 336 564)	(3 783 261)
Net working capital	681 604	1 831 513	3 361 648	5 191 769	5 886 839
Stock facility	6 500 000	6 500 000	6 500 000	6 500 000	6 500 000
Facility drawn at year end	0	533 495	1 421 546	524 270	0

7.4 Funding

Source	Amount	Share	Terms
Promoter and investor equity	10 300 000	63.9%	First loss; sized to carry two loss-making years
Debt and asset finance	5 830 000	36.1%	Five years at 13.46%
Total funding requirement	16 130 000	100.0%
Stock facility	6 500 000		Committed at drawdown; peaks at R1 421 546 drawn

Use of funds	Amount	Share
Store fit-out, two stores	3 900 000	24.2%
Warehouse racking, handling and pick systems	640 000	4.0%
Merchandise planning and retail systems	520 000	3.2%
E-commerce platform and integration	460 000	2.9%
Delivery vehicle and logistics	380 000	2.4%
Head office fit-out and equipment	290 000	1.8%
Capital expenditure subtotal	6 190 000	38.4%
Opening stock, two stores and warehouse	5 200 000	32.2%
Working capital for the first two seasons	2 400 000	14.9%
Lease deposits and guarantees	980 000	6.1%
Pre-opening salaries, recruitment and training	720 000	4.5%
Launch marketing and community activation	640 000	4.0%
Total funding requirement	16 130 000	100.0%

Opening stock at R5 200 000 is 32.2 per cent of the requirement — more than both store fit-outs combined at R3 900 000. That ratio is characteristic of footwear and it surprises investors who are used to hospitality or services businesses where the fixed asset dominates. Note also that the opening buy of R2 600 000 a store sits close to the R2 417 525 of stock each store carries at maturity, which is the level a well-turned store should hold; a first buy materially above that is depth the business will later have to mark down.

7.5 Cash flow

R	Year 1	Year 2	Year 3	Year 4	Year 5
Profit / (loss) after tax	(3 966 055)	(559 305)	2 659 015	5 657 838	6 488 543
Add back: depreciation	676 603	939 726	1 080 685	1 221 644	1 221 644
Add back: pre-opening costs funded at drawdown	1 360 000	—	—	—	—
Movement in working capital	4 518 396	(1 149 909)	(1 530 135)	(1 830 121)	(695 070)
Cash generated from operations	2 588 944	(769 488)	2 209 565	5 049 361	7 015 117
Capital deployed	— (funded at close)	(1 950 000)	(1 950 000)	(1 950 000)	—
Debt capital repaid	(891 479)	(1 011 472)	(1 147 616)	(1 302 085)	(1 477 348)
Net movement before facility	1 697 465	(3 730 960)	(888 051)	1 797 276	5 537 769
Facility drawn / (repaid)	0	533 495	888 051	(897 276)	(524 270)
Closing cash	4 097 465	900 000	900 000	1 800 000	6 813 499

Figure 16. Cash flow — the opening stock buy carries Year 1.

Opening cash after the capital programme, the opening stock buy, the lease deposits and the pre-opening spend is R2 400 000. Year 1 generates R2 588 944 of operating cash — positive despite the EBITDA loss, because the opening stock buy was funded at drawdown and is drawn down through the year rather than repurchased. From Year 2 the working capital build reverses that, and operations turn genuinely cash-generative from Year 3 at R2 209 565, reaching R7 015 117 by Year 5.

7.6 Balance sheet

R, at year end	Year 1	Year 2	Year 3	Year 4	Year 5
Fit-out, systems and vehicles, net of depreciation	5 513 397	6 523 671	7 392 986	8 121 342	6 899 698
Stock at cost	1 119 647	3 008 561	5 522 059	8 528 333	9 670 100
Lease deposits	980 000	980 000	980 000	980 000	980 000
Cash	4 097 465	900 000	900 000	1 800 000	6 813 499
Total assets	11 710 509	11 412 232	14 795 045	19 429 675	24 363 297
Share capital	10 300 000	10 300 000	10 300 000	10 300 000	10 300 000
Retained earnings / (accumulated loss)	(3 966 055)	(4 525 360)	(1 866 345)	3 791 493	10 280 036
Total equity	6 333 945	5 774 640	8 433 655	14 091 493	20 580 036
Debt and asset finance — non-current	3 927 049	2 779 433	1 477 348	0	0
Debt and asset finance — current	1 011 472	1 147 616	1 302 085	1 477 348	0
Stock facility drawn	0	533 495	1 421 546	524 270	0
Trade payables	438 043	1 177 048	2 160 411	3 336 564	3 783 261
Total liabilities	5 376 564	5 637 592	6 361 390	5 338 182	3 783 261
Total equity and liabilities	11 710 509	11 412 232	14 795 045	19 429 675	24 363 297

Figure 17. Balance sheet — asset composition.

The asset composition is the plan’s own argument made visually. Fit-out, systems and vehicles peak at R8 121 342 net and then decline; stock rises without pause to R9 670 100 and overtakes them in Year 5. Total equity falls from R10 300 000 at inception to a low of R5 774 640 at the end of Year 2 and recovers to R20 580 036 by Year 5, as gearing falls from 45.9 per cent to 15.5 per cent.

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