Premier Quality Kenya Dairy Business Plan — Financial Plan

Five-year projections: revenue building to KES 21.97m and EBITDA to KES 5.23m, with milk, heifers and manure reported separately.

Financial Plan

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9.1 Basis of preparation
9.2 Projected income statement
9.3 Projected cash flow statement
9.4 Projected balance sheet
9.5 Funding the herd build

9.1 Basis of preparation

▪ All figures are in Kenya Shillings. The model is built bottom-up from a herd roll-forward rather than from a growth rate applied to an assumed base.

▪ Milk volume is derived from the average milking herd, lactation-adjusted yield and 305 days in milk. Feed is costed per head per day.

▪ Rearing costs for replacement heifers are reported separately from the cost of producing this year’s milk, because conflating them overstates the cost per litre.

▪ Milk is priced at KES 50 a litre with a 4% cooperative deduction, giving a net realised price of KES 48.

▪ Biological assets are carried at cost and are not depreciated. Cull and surplus stock sales are recognised in revenue as they arise.

▪ Depreciation of KES 742 500 a year is charged on fixed assets only, straight line over lives of five to twenty years.

▪ Term debt is KES 10 000 000 at 15.5% over ten years with a three-year principal grace period. Interest is charged on the outstanding balance and principal amortises over the remaining seven years.

▪ Corporate tax is 30%. Kenyan tax losses carry forward indefinitely, and the Years 1 to 3 losses shelter all of the Year 4 and Year 5 taxable profit, so no tax falls in the projection period.

▪ Working capital assumes 21 debtor days, 30 creditor days and 60 days of feed and forage inventory.

▪ No revenue is assumed from on-farm processing, value addition or any activity not described in Section 2.

9.2 Projected income statement

KES	Year 1	Year 2	Year 3	Year 4	Year 5
Milk revenue	3 991 000	7 838 000	11 496 000	14 737 000	17 536 000
Breeding stock, culls and manure	377 000	624 000	2 271 000	3 371 000	4 432 000
Total revenue	4 368 000	8 462 000	13 767 000	18 108 000	21 968 000
Feed — milking herd	(2 833 000)	(4 894 000)	(6 455 000)	(8 046 000)	(9 331 000)
Feed — rearing replacements	(343 000)	(798 000)	(1 335 000)	(1 717 000)	(2 351 000)
Labour	(1 080 000)	(1 380 000)	(1 680 000)	(1 860 000)	(1 980 000)
Vet, AI and animal health	(217 000)	(410 000)	(555 000)	(678 000)	(793 000)
Overhead and land lease	(1 540 000)	(1 720 000)	(1 940 000)	(2 120 000)	(2 280 000)
EBITDA	(1 645 000)	(740 000)	1 802 000	3 687 000	5 233 000
EBITDA margin	-37.7%	-8.7%	13.1%	20.4%	23.8%
Depreciation	(742 500)	(742 500)	(742 500)	(742 500)	(742 500)
Interest	(1 550 000)	(1 550 000)	(1 550 000)	(1 550 000)	(1 412 087)
Profit / (loss) before tax	(3 937 500)	(3 032 500)	(490 500)	1 394 500	3 078 413
Taxation	—	—	—	—	—
Profit / (loss) after tax	(3 937 500)	(3 032 500)	(490 500)	1 394 500	3 078 413
Cumulative profit / (deficit)	(3 937 500)	(6 970 000)	(7 460 500)	(6 066 000)	(2 987 587)

Figure 15. Where the Year 5 operating cost goes.

Figure 16. Cost of producing a litre against the net milk price.

Cost per litre falls from KES 68.20 in Year 1 to KES 39.40 by Year 5 on the cash cost of the milking enterprise — the basis on which the Kenya Dairy Board’s KES 30 to 37 range is quoted. Fully absorbed, including depreciation and interest, the figure falls from KES 95.80 to KES 45.30. Both are shown because a farmer comparing against the KDB range needs the first and a lender assessing whether the enterprise covers its full cost of capital needs the second. The enterprise crosses the net realised price of KES 48 on the fully absorbed measure during Year 4.

9.3 Projected cash flow statement

KES	Year 1	Year 2	Year 3	Year 4	Year 5
Profit / (loss) after tax	(3 937 500)	(3 032 500)	(490 500)	1 394 500	3 078 413
Add back: depreciation	742 500	742 500	742 500	742 500	742 500
(Increase) / decrease in working capital	(279 173)	(387 024)	(423 000)	(372 222)	(347 343)
Cash generated from operations	(3 474 173)	(2 677 024)	(171 000)	1 764 778	3 473 570
Purchase of in-calf heifers	—	(3 200 000)	(3 200 000)	(2 000 000)	—
Debt capital repaid	— (grace period)	— (grace period)	— (grace period)	(889 761)	(1 027 674)
Net movement in cash	(3 474 173)	(5 877 024)	(3 371 000)	(1 124 983)	2 445 896
Opening cash	14 445 000	10 970 827	5 093 803	1 722 803	597 820
Closing cash	10 970 827	5 093 803	1 722 803	597 820	3 043 716

Figure 17. Cash flow — three years of consumption before the business pays for itself.

Opening cash after the fixed capital expenditure and the first 20 heifers is KES 14 445 000. Cash generated from operations is negative KES 3.47 million in Year 1 and negative KES 2.68 million in Year 2, turns marginally negative at KES 0.17 million in Year 3 and positive from Year 4. Closing cash reaches its low point of KES 600 000 at the end of Year 4, when the last heifer purchase coincides with the second year of principal repayment. That trough is the reason working capital is sized at KES 5 600 000 rather than KES 3 100 000.

9.4 Projected balance sheet

KES, at year end	Year 1	Year 2	Year 3	Year 4	Year 5
Biological assets — the herd, at cost	4 000 000	7 200 000	10 400 000	12 400 000	12 400 000
Property, plant and equipment	8 157 500	7 415 000	6 672 500	5 930 000	5 187 500
Feed and forage inventory	522 082	935 671	1 280 548	1 604 877	1 920 329
Trade receivables	251 310	486 855	792 074	1 041 830	1 263 912
Cash	10 970 827	5 093 803	1 722 803	597 820	3 043 716
Total assets	23 901 719	21 131 329	20 867 925	21 574 527	23 815 457
Share capital	17 345 000	17 345 000	17 345 000	17 345 000	17 345 000
Retained earnings / (accumulated loss)	(3 937 500)	(6 970 000)	(7 460 500)	(6 066 000)	(2 987 587)
Total equity	13 407 500	10 375 000	9 884 500	11 279 000	14 357 413
Term debt — non-current	10 000 000	10 000 000	9 110 239	8 082 565	6 895 602
Term debt — current	0	0	889 761	1 027 674	1 186 963
Trade payables	494 219	756 329	983 425	1 185 288	1 375 479
Total liabilities	10 494 219	10 756 329	10 983 425	10 295 527	9 458 044
Total equity and liabilities	23 901 719	21 131 329	20 867 925	21 574 527	23 815 457

Figure 18. Balance sheet — asset composition.

The herd is the largest single asset from Year 2 onward, reaching KES 12 400 000 at cost by Year 4. Total equity falls from KES 17 345 000 at inception to a low of KES 9 884 000 at the end of Year 3 as the accumulated deficit deepens, then recovers to KES 14 353 000 by Year 5. Gearing peaks at 52.6 per cent in Year 3 and falls to 39.7 per cent by Year 5 as the facility amortises and retained earnings rebuild.

9.5 Funding the herd build

	Year 1	Year 2	Year 3	Year 4	Year 5	Total
Heifers purchased, head	20	16	16	10	0	62
Cost at KES 200 000 each	4 000 000	3 200 000	3 200 000	2 000 000	—	12 400 000
Funded from	Capital budget	Working capital reserve	Working capital reserve	Working capital reserve	—

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