Risk Management

Jump to section

• Overview & contents
• i. Important Notice
• 1. Executive Summary
• 2. A Note on the Name
• 3. The Market and Why Scale Is the Enemy
• 4. The Product Strategy
• 5. SWOT and Competitive Position
• 6. Route to Market
• 7. Unit Economics and Prime Cost
• 8. Returns: The Wholesale Bakery Tax
• 9. Energy
• 10. The Five-Year Build and Its Gates
• 11. Funding
• 12. People and Production
• 13. Food Safety and Compliance
• 14. Financial Projections
• 15. Break-Even
• 16. Sensitivity and Scenarios
• 17. Risk Management
• 18. Implementation Timeline
• 19. Returns
• 20. Key Performance Indicators
• 21. Key Assumptions
• 22. Conclusion
• A. Appendix A: Consolidated Financial Summary
• B. Appendix B: Capital Schedules
• C. Appendix C: Funding and Debt Schedules
• D. Appendix D: Risk Register
• E. Appendix E: Glossary

17.1 The risks that matter

Prime cost failing to fall is the risk that removes the return. The plan requires it to move from 69.1 per cent to 63.2 per cent, and at 67 per cent the Year 5 EBITDA is roughly half what is shown. It is managed by contract buying on flour, by weighing every batch, by a version-controlled recipe book, and above all by calculating the number weekly rather than monthly.

Volume shortfall is the largest single sensitivity at R1.16 million on a fifteen per cent miss, because a bakery is a fixed-cost business. It is managed by adding routes only when existing rounds are dense, by measuring units per drop rather than customer count, and by the gate structure that refuses capacity expansion until the previous step is trading.

Returns creep is the risk that is invisible until it is expensive. Two percentage points costs R355 000 and takes debt service cover from 1.52 to 1.05 times. It is managed by an order book per shop, weekly adjustment of drop quantities, reporting by route and by shop, and by measuring the route salesman on net sales after returns rather than on gross delivery.

Ingredient price shock is largely outside management control. Four percentage points on ingredients costs R686 000. It is managed by forward contracting on flour, which is roughly half the ingredient line, and by holding the ability to move mix toward lines where the affected input matters less.

A food safety incident is the risk that is small in probability and total in consequence. A bakery without a current Certificate of Acceptability cannot trade, and one that causes an incident loses the institutional business permanently. It is managed by treating the compliance file as a live document, by batch coding from day one, and by never re-delivering returned product.

17.2 Risks sized against the plan

17.3 Controls

• Prime cost calculated weekly from ingredients issued, wages paid and revenue banked — not monthly from the management accounts.
• Returns, units per drop and drops per route reported weekly by route and reviewed against the previous week.
• No new route or vehicle until the existing routes meet the density threshold, regardless of customer demand.
• No capacity step drawn if the preceding gate on prime cost or returns has been missed.
• Flour bought on contract with a documented fallback supplier; spot purchase only to cover a gap.
• Every batch weighed and its yield logged; recipes changed only through the version-controlled book.
• Returned product destroyed and recorded, never re-delivered under any circumstance.
• The compliance file — Certificate of Acceptability, medicals, pest control, labelling — reviewed quarterly against expiry dates.
• No distribution to shareholders until debt service cover has exceeded 1.30 times for two consecutive years.