Quick and Efficient Gas Business Plan — The Margin Squeeze
The structural risk in a regulated business: costs rise with inflation while the selling price is set by government, and what that does over time.
The Margin Squeeze
Jump to section
- Overview & contents
- i. Important Notice and Basis of Preparation
- 1. Executive Summary
- 2. The Business and the Regulated Price
- 3. Licensing, Safety and Compliance
- 4. Market and Customers
- 5. SWOT and Competitive Position
- 6. Operations
- 7. Financial Plan
- 8. Break-Even and Debt Service
- 9. Investment Analysis
- 10. Sensitivity and Scenario Analysis
- 11. The Margin Squeeze
- 12. Risk Analysis
- 13. Implementation Roadmap
- 14. Key Performance Indicators
- 15. Key Assumptions
- 16. Conclusion and Recommendation
- A. Appendix A: Consolidated Financial Summary
- B. Appendix B: Volume, Price and Cost Schedules
- C. Appendix C: Funding, Debt and Working Capital Schedules
- D. Appendix D: Risk Register
- E. Appendix E: Glossary
|
Per kilogram |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
|---|---|---|---|---|---|
|
Regulated ceiling price |
R42.00 |
R43.89 |
R45.87 |
R47.93 |
R50.09 |
|
Cost of gas into the shop |
R31.36 |
R33.46 |
R35.70 |
R38.10 |
R40.65 |
|
Gross margin per kg |
R10.64 |
R10.43 |
R10.16 |
R9.83 |
R9.44 |
|
Margin as % of price |
25.3% |
23.8% |
22.2% |
20.5% |
18.8% |
11.1 What can be done about it
|
Defence |
How it works |
What it achieves |
|---|---|---|
|
Index the supply agreement |
Negotiate a stated relationship between the delivered price and the gazetted maximum retail price |
Converts an open-ended exposure into a defined one. The single most valuable clause available |
|
Qualify a second wholesaler |
Approve an alternative supplier by Year 3 |
Creates a genuine alternative at each annual renegotiation, and covers winter delivery risk at the same time |
|
Grow the accessory share of gross profit |
Appliances, installation, revalidation and delivery are unregulated |
Accessories are already 28.4% of gross profit. Every point added reduces exposure to the regulated line |
|
Size the debt for the squeeze, not the base case |
Model the facility against a compressed margin |
A business with a 12% headroom on its buying price should not also carry a stretched debt service |
|
Monitor the gazette monthly |
Track the ceiling and the delivered price as a spread, not separately |
The divergence is visible monthly and invisible annually |
None of these restores the margin. What they do is convert an unmanaged exposure into a monitored one with a defined response, which is the most this business can achieve against a variable set outside it.