Mr Bakery Master Business Plan — Executive Summary

A confectionery-led wholesale and retail bakery: R6.78m deployed, 3,150 units a day by Year 5, R17.15m revenue at an 11.2% EBITDA margin.

Executive Summary

Jump to section

On this page

1.1 The proposition
1.2 Four things a funder should understand
1.3 Headline numbers
1.4 Investment conclusion

1.1 The proposition

Mr Bakery Master is an entry-level bakery producing confectionery and specialty bread for wholesale distribution to spaza shops, forecourts, tuck shops and schools, with a retail outlet added in Year 4.

Output grows from 880 units a day to 3 150, taking revenue from R3.68 million to R17.15 million at an EBITDA margin of 11.2 per cent. Total capital deployed is R6.78 million, of which the founder contributes R1.62 million.

R17.15m

Year 5 revenue

R1.92m

Year 5 EBITDA

11.2%

EBITDA margin

R1.62m

Founder cash

1.2 Four things a funder should understand

Prime cost is 63.2 per cent and that is the control metric. Ingredients, packaging and labour dominate a bakery the way they dominate any food manufacturer. It starts at 69.1 per cent in Year 1 and must be driven down through recipe discipline, yield control and better buying. There is no version of this business that works with prime cost above 68 per cent.
A confectionery unit earns R4.48 on a R11.40 selling price — a 39.3 per cent contribution. A plain loaf earns R3.72 on R19.57, which is 19.0 per cent. This is the entire commercial argument for the product mix, and it is set out in Section 4.
Returns are the hidden tax on wholesale baking. Unsold stock comes back. At Year 1 that is 6.2 per cent of gross sales, worth R243 000. Each percentage point of returns at Year 5 volume is R178 000. Section 8 explains how it is controlled.
Break-even is 2 347 units a day against a Year 5 plan of 3 150. That is a margin of safety of 25.5 per cent once finance cost is included — comfortable at maturity, and nonexistent in Year 1 when the plan produces 880.

Figure 1. Output and revenue. Revenue rises faster than units because the mix shifts toward higher-value confectionery and cakes, and because returns fall.

1.3 Headline numbers

R’000 unless stated	Year 1	Year 2	Year 3	Year 4	Year 5
Units baked per day	880	1 380	1 950	2 560	3 150
Units baked per year, thousands	269	422	597	783	964
Average price per unit, R	14.55	15.42	16.33	17.34	18.42
Returns as % of gross sales	6.2%	5.2%	4.4%	3.8%	3.4%
Wholesale share of revenue	78.0%	74.0%	68.0%	62.0%	58.0%
Revenue, net of returns	3 676	6 172	9 318	13 071	17 148
Ingredients and packaging	(1 518)	(2 500)	(3 699)	(5 098)	(6 550)
Gross profit	2 158	3 672	5 619	7 973	10 597
Operating costs	(1 851)	(2 871)	(4 230)	(5 774)	(7 288)
Contribution	306	802	1 388	2 199	3 309
Overhead	(594)	(738)	(950)	(1 156)	(1 390)
EBITDA	(288)	64	438	1 043	1 919
EBITDA margin	-7.8%	1.0%	4.7%	8.0%	11.2%
Prime cost	69.1%	67.6%	66.1%	64.7%	63.2%
Profit / (loss) after tax	(761)	(559)	(414)	25	751
Closing cash	309	497	1 322	932	772

Figure 2. EBITDA and profit after tax. EBITDA turns positive in Year 2 and profit after tax in Year 4.

1.4 Investment conclusion

Measure	Value	Basis
Founder equity	R1.62m	At inception
Growth equity	R1.85m	At the second oven line in Year 3
Total equity subscribed	R3.47m
Loans and facilities	R5.17m	SEDFA, equipment finance, working capital and a bank term loan
Year 5 EBITDA	R1.92m	At an 11.2% margin
Net debt at Year 5	R2.02m	Loans outstanding less cash
Project IRR at a 5.0x exit	27.1%	On free cash flow with a terminal enterprise value
Equity IRR at a 5.0x exit	21.4%	On the two subscriptions, a 2.18x multiple
Exit multiple at which equity returns its subscription	2.86x	Well below the central assumption
First profitable year	Year 4	EBITDA turns positive in Year 2

The return is real, but it is earned in the last two years and it depends on prime cost

The project earns 27.1 per cent and the equity 21.4 per cent at a five times exit, on a 2.18 times money multiple. Those are respectable returns for a food manufacturing start-up and the equity recovers its subscription at just 2.86 times, which gives genuine headroom on the exit assumption. But the whole of the return arrives in Years 4 and 5: cumulative EBITDA across Years 1 to 3 is R214 000 against R2.96 million in Years 4 and 5 alone. What produces that swing is prime cost falling from 69.1 per cent to 63.2 per cent while volume more than triples. Neither happens automatically. An investor should test the prime cost path before the revenue path, because a bakery that cannot buy flour well and weigh every batch will not reach 63.2 per cent, and at 67 per cent prime cost the Year 5 EBITDA is roughly half what this plan shows.

Previous sectioni. Important Notice

Next section2. A Note on the Name