Animal Feed Potchefstroom Business Plan South Africa

Investor-grade feed mill memorandum: 26,325 tonnes and R228.0m Year 5 revenue, with debt service cover clearing 1.00x only in Year 5.

North West Agri Feeds — debt service cover by year against the 1.00 times covenant line

Business Plan & Investment Proposal · South Africa

Animal Feed Manufacturing Business Plan — Potchefstroom

North West Agri Feeds (Pty) Ltd · Debt Service Cover Clears 1.00x Only In Year 5.

A commercial animal feed mill at Potchefstroom producing ruminant and monogastric rations
for the surrounding livestock catchment, with custom formulation alongside standard ranges. Production builds from
11 000 to 26 325 tonnes over five years and revenue from R74.8 million to R228.0 million,
at a gross margin rising from 15.3 to 20.0 per cent.

26 325 tYear 5 production

R228.0mYear 5 revenue

20.0%Year 5 gross margin

1.33xYear 5 DSCR

The number a lender will look for first in this memorandum is debt service cover,
and it makes uncomfortable reading for four years running: minus 0.42 times in Year 1, minus 0.09 in
Year 2, then 0.41 and 0.82 before finally clearing the line at 1.33 times in Year 5. For four
consecutive years the mill does not generate enough to service its own debt, and someone else carries it. That sits
underneath a business whose operating story looks healthy — production nearly two and a half times, revenue
tripling to R228.0 million. The reason the two diverge is that feed milling is a thin conversion spread: gross
margin moves only from 15.3 to 20.0 per cent because raw material dominates the cost stack, so scale
arrives long before cover does. Net profit after tax follows the same pattern, negative through Year 4 and
positive only in the final projected year.

The number a lender reads first

Four years of cover below the line, and the one year that clears it.

Four years below 1.00xDSCR through Year 4Minus 0.42, minus 0.09, 0.41 and 0.82 times. For four consecutive years the business does not generate enough to cover its own debt service.

then

1.33xYear 5, and clearCover finally passes the line in the last projected year. Everything before that has to be carried by the funder rather than the mill.

Key measures

Six measures that determine whether this mill and its funding stand up.

1.33xYear 5 debt service coverAnd below 1.00x in every year before it. Cover, not margin, is the binding constraint on this plan.

15.3% → 20.0%Gross marginFeed milling converts grain into feed at a thin spread. Revenue triples but the margin moves less than five points.

26 325 tYear 5 productionFrom 11,000 tonnes, across ruminant and monogastric ranges sold into the surrounding livestock catchment.

Year 5First net profitNet profit after tax is negative from Year 1 to Year 4, reaching R7.2m only in the final projected year.

66.3xYear 2 net debt to EBITDAOn a near-breakeven EBITDA of R0.5m. It falls to 1.2x by Year 5, but the early years carry heavy gearing on thin earnings.

R228.0mYear 5 revenueThree times Year 1. Raw material dominates the cost stack, so revenue scale matters more than price here.

Revenue and earnings

Revenue and EBITDA on the base case. Raw material cost and volume are the two assumptions
that matter most, and both are stressed in Section 22.

Revenue build — tonnes milled and gross margin

Year 1R74.8m · 11 000 t · 15.3% GM
Year 2R103.6m · 14 229 t · 16.7%
Year 3R138.2m · 17 732 t · 18.9%
Year 4R178.3m · 21 704 t · 19.4%
Year 5R228.0m · 26 325 t · 20.0%

Production rises from 11,000 tonnes to 26,325 and revenue triples to R228.0m, but gross margin only moves from 15.3% to 20.0%. Feed milling is a thin-margin conversion business.

EBITDA, and the debt service cover it produces

Year 2R0.5m · DSCR −0.09x
Year 3R6.8m · 0.41x
Year 4R12.6m · 0.82x
Year 5R20.4m · 1.33x

Year 1 runs an EBITDA deficit of R3.2m. EBITDA then grows forty-fold to R20.4m — but debt service cover only passes 1.00x in Year 5. Cover, not margin, is the binding measure here.

How to read this plan

Debt service cover is the binding measure

DSCR is below 1.00x for four consecutive years — minus 0.42, minus 0.09, 0.41 and 0.82 — before reaching 1.33x in Year 5. A lender reading only the EBITDA growth would miss the constraint entirely.

Milling is a thin conversion spread

Gross margin moves from 15.3% to 20.0% while revenue triples. Raw material dominates the cost stack, so this is a volume and procurement business rather than a pricing one.

Gearing is heavy against early earnings

Net debt to EBITDA reads 66.3 times in Year 2 on a near-breakeven EBITDA of R0.5 million. It resolves to 1.2 times by Year 5, but the intervening years are tightly wound.

Profit arrives only in the final year

Net profit after tax is negative from Year 1 through Year 4 and turns to R7.2 million in Year 5. The projection ends at roughly the point the business starts earning.

Proximity to grain and livestock is the position

A Potchefstroom mill sits close to both its raw material and its customers. Feed is bulky and freight-sensitive, so location does more work here than formulation alone.

Selected exhibits

EBITDA under downside, base and upside scenarios

Year 3 EBITDA sensitivity to selling price and ingredient cost (R million)

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