Khanya Eggs Business Plan — Returns
A 37.4% return on capital deployed, debt cover of 3.23x even with no grant funding at all, and what the founders earn across the horizon.
Returns
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- Overview & contents
- i. Important Notice
- 1. Executive Summary
- 2. The South African Egg Market
- 3. Avian Influenza: The Risk That Defines This Business
- 4. SWOT and Competitive Position
- 5. The Five-Stage Roadmap
- 6. The Funding Ladder
- 7. Flock Performance
- 8. Feed Strategy
- 9. Point-of-Lay Pullet Sourcing
- 10. Biosecurity
- 11. Route to Market and Pricing
- 12. Operations and People
- 13. Regulation and Compliance
- 14. Unit Economics
- 15. Capital Expenditure
- 16. Financial Projections
- 17. Break-Even
- 18. Sensitivity and the Grant Question
- 19. Risk Management
- 20. Implementation Roadmap
- 21. Returns
- 22. Key Performance Indicators
- 23. Key Assumptions
- 24. Conclusion
- A. Appendix A: Consolidated Financial Summary
- B. Appendix B: Stage Capital Schedules
- C. Appendix C: Debt Schedules
- D. Appendix D: Risk Register
- E. Appendix E: Funding Application Checklist
- F. Appendix F: Glossary
- 21.1 Return on capital
- 21.2 Project and founder returns
- 21.3 What the equity is actually worth
21.1 Return on capital
The primary return measures for this business are static rather than time-weighted, because a five-year internal rate of return on a business still in its build phase is dominated by whatever terminal assumption is applied to it.
|
Measure |
Value |
Basis |
|---|---|---|
|
Return on capital deployed, Year 5 |
37.4% |
Year 5 EBITDA of R5.07m against R13.53m of cumulative capital deployed |
|
Return on capital employed, Year 5 |
26.3% |
Year 5 EBIT of R3.96m against equity and debt of R15.01m |
|
Payback on total capital |
2.7 years |
R13.53m of capital at the Year 5 EBITDA run rate |
|
EBITDA margin, Year 5 |
27.4% |
R5.07m on R18.46m of revenue |
|
EBITDA cover of debt service, Year 5 |
5.42x |
Against the 1.5 times Stage 5 gate condition |
A 37.4 per cent return on capital deployed and a 2.7-year payback are strong but not implausible figures for layer production. The cash cycle is short, a pullet is productive within eighteen weeks of placement and lays for over a year, and the fixed asset base, houses and cages, is inexpensive relative to the revenue it carries. Those characteristics are what make layer farming attractive when it works, and they are the same characteristics that make it unforgiving when a flock is lost.
21.2 Project and founder returns
|
Terminal value |
Enterprise value |
Project IRR |
Founder proceeds |
Founder multiple |
|---|---|---|---|---|
|
3.0x Year 5 EBITDA |
R15.20m |
46.1% |
R10.12m |
22.5x |
|
4.0x Year 5 EBITDA |
R20.26m |
64.5% |
R15.18m |
33.7x |
|
5.0x Year 5 EBITDA |
R25.32m |
79.3% |
R20.25m |
45.0x |
|
6.0x Year 5 EBITDA |
R30.39m |
91.8% |
R25.31m |
56.3x |
|
7.0x Year 5 EBITDA |
R35.45m |
102.7% |
R30.38m |
67.5x |
Founder proceeds are the enterprise value less the R8.71 million of debt outstanding at Year 5 plus the R3.64 million of closing cash. Because the R3.65 million of grant funding is non-repayable and non-dilutive, the whole of that residual accrues to the founder’s R450 000 of cash.
21.3 What the equity is actually worth
|
Basis |
Value at Year 5 |
Comment |
|---|---|---|
|
Net asset value |
R6.30m |
Shareholders’ funds on the balance sheet; the floor |
|
3.0x Year 5 EBITDA |
R10.12m |
A conservative trade multiple for a single-site agricultural operation |
|
5.0x Year 5 EBITDA |
R20.25m |
The central case used in this plan |
|
7.0x Year 5 EBITDA |
R30.38m |
Achievable only with a retail contract, a management team and a clean disease record |
|
Fixed assets at net book value |
R10.10m |
Houses, cages, plant, vehicles, solar, grading and mill |
The floor is the net asset value of R6.30 million, which is what the business is worth if the earnings are disbelieved entirely. The realistic range is between three and five times EBITDA. Reaching the upper end requires the three things the Stage 5 gate asks for, a retail-specification grading and packing operation, a management team beyond the founder, and debt service cover above 1.5 times, none of which is a valuation argument so much as a description of a business that a buyer can actually operate.