Mainstreet Brick Business Plan — Debt Service and Working Capital

Debt service across development and equipment finance, the debtor cycle on merchant terms, and the facility sized against it.

Debt Service and Working Capital

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Figure 16. EBITDA, debt service and cover ratio.

R’000	Year 1	Year 2	Year 3	Year 4	Year 5
EBITDA	2 005	3 440	4 701	5 219	5 319
Development finance interest	978	978	856	720	568
Development finance capital	— (moratorium)	1 061	1 183	1 319	1 470
Equipment finance interest	470	397	315	223	118
Equipment finance capital	558	630	712	805	909
Working capital facility interest	225	225	225	225	225
Total debt service	2 230	3 291	3 291	3 291	3 291
Debt service cover ratio	0.90x	1.05x	1.43x	1.59x	1.62x
Debt outstanding at year end	13 356	11 665	9 771	7 647	5 267

Cover is below covenant for two years and the funder will price for it

Cover of 0.90 times in Year 1 and 1.05 times in Year 2 sits below the 1.30 times that lenders typically covenant, even after the twelve-month capital moratorium built into the development finance facility. A funder will require additional protection: a larger equity contribution, a debt service reserve account, a promoter guarantee, or a longer moratorium. Investors should assume the final funding structure will be more equity-heavy than modelled here, which would reduce the equity return in Section 14 further. The honest way to present this project is that it is fundable on development finance terms and would not be fundable on commercial bank terms, and that the difference is the moratorium and the mandate rather than anything about the underlying cash flow.

13.1 Working capital

R’000	Year 1	Year 2	Year 3	Year 4	Year 5
Raw material inventory at 25 days	1 590	2 035	2 424	2 739	3 024
Trade debtors at 40 days	3 873	4 891	5 748	6 409	6 979
Trade payables at 35 days	(3 146)	(3 886)	(4 503)	(5 023)	(5 505)
Net working capital	2 317	3 040	3 669	4 125	4 498
Movement in the year	(1 367)	(723)	(628)	(456)	(373)
Committed facility available	1 800	1 800	1 800	1 800	1 800

Net working capital rises from R3.30 million to R5.85 million across the projection, absorbing R3.55 million of cash in total. The debtor book alone reaches R6.98 million by Year 5 — more than the entire equity subscription. That is the structural reason this business consumes cash as it grows, and the reason a producer who wins a large contract without a committed facility behind it can be forced into distress by success rather than by failure.

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