SA Premier Poultry Business Plan — Investment Analysis

The project and equity returns, the DFI quasi-equity structure, and what the numbers do and do not support.

Investment Analysis

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9.1 Returns
9.2 Sensitivity of the return to the exit assumption
9.3 What the return depends on

9.1 Returns

Measure	Base case	Comment
Total capital deployed	R100 240 000	Capital expenditure plus working capital and pre-operational cost
Equity and quasi-equity	R72 240 000	72.1% of the funding structure
Senior debt	R28 000 000	Eight years at 11.03% with a two-year capital moratorium
Project internal rate of return	19.3%	Unlevered, five years plus a terminal value at 6.0x EBITDA
Return to equity	21.4%	After debt service
Net present value at 15%	R21 434 705	Positive
Net present value at 18%	R5 880 811	Positive
Net present value at 22%	(R11 478 105)	Negative
Terminal value	R233 217 186	6.0x Year 5 EBITDA
Cumulative project cash flow before terminal value	(R81 300 411)	The return is realised on the terminal position
Cumulative profit after tax, Years 1 to 5	R7 710 389	Turns positive during Year 5

Figure 20. Cumulative project cash flow before terminal value.

This is an asset-backed industrial return, and the cash profile says so plainly

A project return of 19.3 per cent and an equity return of 21.4 per cent are reasonable for a food processing business with a hard asset base and a defensible market position. They are not venture returns, and the plan does not present them as such. The cash profile is the honest part: the plant consumes cash for two years, working capital absorbs a further R30 million as volume grows, and cumulative project cash flow before terminal value is still negative R81 300 411 at the end of Year 5. What the investor holds at that point is a registered high-throughput plant running at 14 000 birds a day with contracted growers, certified customers and a Year 5 EBITDA run rate of R38 869 531. The natural investors are agro-processing funds, development finance institutions with a food security or job creation mandate, and strategic partners in the poultry value chain.

9.2 Sensitivity of the return to the exit assumption

Figure 21. Project return under alternative exit assumptions.

Exit multiple of Year 5 EBITDA	Terminal value (R)	Project IRR	Equity IRR
4.0x	155 478 124	11.1%	7.9%
5.0x	194 347 655	15.4%	15.3%
6.0x	233 217 186	19.3%	21.4%
7.0x	272 086 717	22.7%	26.5%
8.0x	310 956 248	25.7%	30.9%

The base case applies six times Year 5 EBITDA. A registered high-throughput abattoir is valued on sustainable earnings and on the replacement cost of a facility that takes two years and R100 million to build, and the multiple is driven by the security of live bird supply and the quality of the customer book rather than by tonnage. At four times the project returns 14.4 per cent; at eight times it returns 23.3 per cent.

9.3 What the return depends on

Lever	Effect on annual EBITDA	Assessment
Selling prices 8% higher	+R8 974 368	The largest lever; depends on product mix and certification
Live bird price 8% lower	+R6 078 384	Negotiated annually; contract formulas reduce volatility, not level
Throughput 15% higher	+R4 686 696	The second shift is the structural version of this lever
Own-account share 10 points higher	+R3 304 800	Requires customers, and consumes working capital
Dressed yield 2 points higher	+R3 071 016	Genuinely controllable through line discipline
By-product recovery 25% better	+R2 068 560	Paw line and giblet recovery; a capital decision

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Next section10. Sensitivity and Scenario Analysis