Mainstreet Junction Business Plan — Debt Service and Working Capital
Debt service across the senior and oil company facilities, and why wet stock ties up cash in a fuel retail business.
Debt Service and Working Capital
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- Overview & contents
- i. Important Notice and Basis of Preparation
- 1. Executive Summary
- 2. How Fuel Retail Economics Actually Work
- 3. The Business and Its Revenue Streams
- 4. Market and Site Analysis
- 5. SWOT and Competitive Position
- 6. Regulatory Pathway and Licensing
- 7. Operations Plan
- 8. Management and Organisation
- 9. Capital Requirement and Funding Structure
- 10. Financial Projections
- 11. Break-Even Analysis
- 12. Debt Service and Working Capital
- 13. Investment Returns
- 14. Sensitivity and Scenario Analysis
- 15. Risk Management
- 16. Implementation Timeline
- 17. Exit Options for Investors
- 18. Key Performance Indicators
- 19. Key Assumptions
- 20. Conclusion
- A. Appendix A: Consolidated Financial Summary
- B. Appendix B: Capital and Depreciation Schedules
- C. Appendix C: Funding and Debt Schedules
- D. Appendix D: Risk Register
- E. Appendix E: Glossary
- 12.1 Working capital
- 12.2 The cash conversion cycle
|
R’000 |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
|---|---|---|---|---|---|
|
EBITDA |
5 324 |
7 909 |
10 418 |
12 393 |
14 023 |
|
Senior facility interest |
2 880 |
2 880 |
2 685 |
2 467 |
2 222 |
|
Senior facility capital |
— |
1 624 |
1 819 |
2 038 |
2 282 |
|
Oil company facility interest |
630 |
528 |
415 |
290 |
152 |
|
Oil company facility capital |
973 |
1 075 |
1 188 |
1 313 |
1 451 |
|
Total debt service |
4 483 |
6 107 |
6 107 |
6 107 |
6 107 |
|
Debt service cover ratio |
1.19x |
1.29x |
1.71x |
2.03x |
2.30x |
|
Debt outstanding at year end |
29 027 |
26 327 |
23 320 |
19 970 |
16 237 |
Cover opens at 1.19 times, which is below the 1.30 times a bank would typically require and is achievable only because of the twelve-month capital moratorium. It reaches 1.29 times in Year 2, clears the covenant threshold in Year 3 at 1.71 times, and reaches 2.30 times by Year 5. Year 1 and Year 2 are the years in which the funder is exposed, and the plan’s response is the debt service reserve funded from the working capital buffer, no distributions before Year 3, and a distribution gate set at 1.50 times cover.
12.1 Working capital
|
R’000 |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
|---|---|---|---|---|---|
|
Fuel and shop inventory |
2 177 |
2 691 |
3 126 |
3 493 |
3 819 |
|
Trade and other receivables |
1 353 |
1 667 |
1 929 |
2 149 |
2 341 |
|
Trade and other payables |
(2 208) |
(2 667) |
(3 044) |
(3 369) |
(3 664) |
|
Net working capital |
1 322 |
1 691 |
2 012 |
2 273 |
2 496 |
|
Movement in the year |
1 278 |
(370) |
(320) |
(261) |
(223) |
|
Fuel stock days on hand |
6 |
6 |
6 |
6 |
6 |
|
Shop stock days on hand |
21 |
21 |
21 |
21 |
21 |
12.2 The cash conversion cycle
|
Element |
Days |
Effect on cash |
|---|---|---|
|
Fuel purchased and delivered |
Day zero |
Product paid for on delivery or within five days under the supply agreement |
|
Fuel sold at the pump |
Roughly six days on average |
Six days of stock on hand at Year 5 volumes is roughly R1.9 million of product |
|
Card settlement |
One to two days |
Card penetration exceeds two-thirds of fuel sales |
|
Cash banked |
Daily |
Contracted cash-in-transit collection; a drop-safe protocol with a limited forecourt float |
|
Shop stock |
Twenty-one days |
A smaller absolute number but a slower cycle than fuel |
|
Trade creditors |
Five days on fuel, fourteen on shop and services |
Fuel terms are short because the product is high-value and fast-moving |
|
Net cycle |
Approximately eight days |
Modest by retail standards, but scaled by a very large cost of sales |
The cycle is short but the numbers running through it are large. At Year 5 the cost of fuel sold is R156 million, so a single day of working capital is roughly R430 000. That scale is what makes a pump price spike a treasury event: the days do not change but the rand value of each one rises with the price, and none of it improves gross profit.