Business Plan Framework Generic Project Finance

BUSINESS PLAN Generic

DATE:

Author(s)

Contents Page Number

Section Executive Summary Glossary Section 1 1.1 1.2 1.3 1.4 1.5 1.7 1.7 1.8 1.9

General/Introductory Overview of the Project Introduction of company & project description Mission and/or Vision Legal entity & registration details Location of proposed facility Ownership & company structure Status/stage of development and growth potential Progress to date & existing contracts/agreements Capital structure of the project Proposed sources of debt & equity financing

Section 2 2.1 2.1.1 2.2 2.2.1 2.2.2 2.2.3 2.2.4 2.3 2.3.1 2.3.2 2.3.3 2.3.4 2.3.5 2.3.6

Macro-Economic & Social Context of the Project Macro-economic analysis Key economic data Sector analysis Global, national, regional & project area Development challenges & priorities Role of the sector Enhanced sector development Socio-economic analysis Region, sector & host community Socio-economic impact Community participation and/or support BEE Anticipated socio-economic impact Comparative advantages

Section 3 3.1 3.1.1 3.1.2 3.1.3 3.2 3.2.1 3.2.2 3.3 3.4 3.5 3.6

Institutional Analysis Organisational structure of the company Organization of the project company Main sponsors Capacity to implement the project Description of shareholders Contribution, financial position, exit strategy Shareholders Agreements Structure of BOD & key management positions Operational management Staffing, HR policies & training Consultants

Section 4 4.1

Contractual Arrangements/Regulatory Issues The project company

4.1.1 4.2 4.2.1 4.2.2 4.2.3 4.3

Constitutive documents of the project company Regulatory issues Legal requirements for the project Government role and impact on the project Environmental & health requirements specific to the sector & project Main operating agreements

Section 5 5.1 5.1.1 5.1.2 5.1.3 5.1.4 5.1.5 5.2 5.4 5.5 5.6 5.7 5.7.1 5.7.2 5.7.3 5.7.4 5.7.5 5.7.6 5.8 5.8.1 5.8.2 5.8.3 5.9 5.10 5.11 5.12 5.13

Operational &Technical Management Detailed project description Preparatory studies and surveys Description of the design aspects Capacity, flexibility & expandability Capital Costs Sources of technology & supplier details Land regime Quality & Waste Management Environmental impact/aspects of the project Implementation arrangements Materials Description, volumes & cost Geographic & supply logistics Sustainability of supplies/raw materials Environmental considerations Supply agreements Demand & competition Performance of the company Barriers of entry Achievable yield Cost aspects Competitor analysis Location of company & clients Vendor location & logistics Revenue model/assumptions Implementation

Section 6 6.1 6.1.1 6.1.2 6.1.3 6.1.4 6.1.6 6.1.7 6.2 6.2.1 6.2.2 6.3 6.3.1

Marketing, Sales & Off-take Value proposition Attributes of the product Development of image & reputation Pricing & sales strategy Customer service & relationship building strategy Marketing Strategy Sales volumes and tariff data Market Share Analysis Customer identification Product-line sales forecast Sales Implementation Off-take agreements

Section 7 7.1 7.2 7.3

Risk Analysis Fundamental risks Mitigation Opportunities

Section 8 8.1 8.2 8.3 8.4 8.4

Financial Information & Analysis Funding structure Main financial agreements Financial model Capital demand & financial plan Returns

Section 9 9.1 9.2 9.3 9.4 9.5 9.6 9.7 9.8 9.9 9.10

Appendices Financial analysis Securities Supply agreements Off-take agreements CVs Certificate to do business Memorandum & Articles of Association Shareholders’ Agreement Audited financial statements & Directors’ Report Glossary

Executive Summary Short (approximately three pages) summary which highlights the most important strategic issues of the project, the costs, the proposed structure, its performance within the sector it resides in and the anticipated impact of the project, within its immediate area and within a broader context.

Glossary It is recommended that a list of acronyms be included (if applicable) together with an explanation of sector- and/or project specific technology.

Section 1

General/Introductory Overview of the Project

1.1

Introduction of company & project description General description of the project; the bidding process followed (if any); the rationale, the timing, the niche, its history etc.

1.2

Mission and/or Vision These are the two anchors on which any company's strategy and operational objectives should be based. Mission refers to the reason why the company was created and is in business. Vision describes where the business intends to progress to during the next 5 years (i.e. products, customers, geographic markets, etc.).

1.3

Legal entity & registration details

1.4

Location of proposed facility

1.5

Ownership & company structure Who are the initiators/sponsors of the project; who are the shareholders; what roles will these persons and/or entities play? Also describe the company structure in a diagram, possibly supplying brief comments.

1.6

Status/stage of development and growth potential

1.7

Progress to date & existing contracts/agreements

1.8

Capital structure of the project Cost of the project and proposed debt to equity ratio

1.9

Proposed sources of debt & equity financing What are the sponsors and equity partners contributing and what role is the DBSA expected to play?

PLEASE NOTE: A professional business plan contains all important qualitative and quantitative information about the business idea. The main body of the business plan together with appropriate enclosures should provide answers to most investigative questions. In the event that questions arise that are not fully covered in the document, then sufficient supporting information must be readily available to maintain confidence in the thoroughness of the research behind the proposal. Although there are many formats that can be adopted there are some fundamentals that always apply. A BP should be convincing, complete and clearly structured; be written in an objective and easily understandable way; be brief (approximately 25-50 DIN A-4 pages without enclosures or attachments, typeface Arial, type size 11, line spacing 1.5, margins 2.5 cm); be visually appealing, using graphs and charts to best effect; be structured along the lines of subjects; and not contain any spelling or typing errors. It may well be that there is a bigger story to tell than can be accommodated within the range of 25-50 pages. To avoid the business plan becoming too long whilst ensuring that all of the necessary information is provided, it is useful to develop enclosures (appendices) to allow for inclusion of more detailed coverage on any section as may be appropriate. Comments on the use of these enclosures are included in the following sectional guidelines. It is useful to present your business plan all in portrait arrangement, thus avoiding the reader having to rotate the document at certain pages, as is sometimes required particularly for forecast and financial information. Use of an enclosure is particularly useful in this regard, allowing the base plan to be a summary whilst providing more detailed numeric analysis that, if necessary, can be arranged in landscape format. All financial plans should be based on a 5 year time-scale: the first 3 years should be broken down by months, and the following years should present the quarterly planning. You should also prepare an overall view of all the years.

Section 2

Macro-Economic & Social Context of the Project

2.1 2.1.1

Macro-economic Analysis Key economic data – national, regional & project area

2.2 2.2.1 2.2.2

Sector Analysis Global, national, regional & project area Development challenges and priorities in the relevant sector Sector information e.g. current costs of energy in the country, waste management situation and health threats if allowed to continue etc. should also be included. Importance of the specific sector in the economy of the country/region/area How the project will enhance development within the particular sector (concrete examples and figures) and confirmation of how this project will contribute towards addressing key economic challenges

2.2.3 2.2.4

2.3 2.3.1 2.3.2 2.3.3 2.3.4 2.3.5 2.3.6

Socio-economic Analysis Socio-economic data of region, sector & host community (demographics, income, employment, socio-economic conditions in the project area) Socio-economic impact, e.g. jobs, contribution to local economy and GDP etc. i.e. social cost-benefit analysis of the project Community participation and/or support for the project, direct community benefits and the social impact of the project BEE, i.e. the degree of management & ownership, nature of involvement etc. and empowerment in general, including the alignment of the project with the relevant BEE charter Anticipated socio-economic impact of the project e.g. jobs, SMME, transfer of skills etc. Comparative advantages

Section 3 Institutional Analysis 3.1 Organisational structure of the company 3.1.1 Organization of the project company (structure; legal status; company’s registration number, certificate of incorporation, etc.) 3.1.2 Description of main sponsors (experience, qualifications, financial position etc.) The sponsor’s financial capacity (an undertaking will be required from the sponsors to fund any cash shortfalls and not to abandon the project before the first disbursement). 3.1.3

Capacity to implement the project (track record in similar projects & past successes)

3.2

Description of shareholders (experience, qualifications, financial position, past successes, reasons for leaving/terminating previous ventures etc.) Contribution, financial position, exit strategy Shareholders Agreements Agreements are required between the project company/SPV and the various shareholders (Shareholders Agreements) and directors (Directors Agreements), key persons (Key-person Contracts) etc. - these need to be in place before the first payment can be made and copies must be filed with the bank). Structure of BOD & key management positions

3.2.1 3.2.2

3.3 3.4

Operational management (how will the business work and who will do what)

3.5

Staffing, HR policies & training (the social impact of a private sector project is usually assessed in terms of its staff & recruitment policies, its training and empowerment capacity and its general social responsibility)

3.6

Consultants’ role (if any), e.g. an external consultant did the feasibility study or will do the EIA (these facts will contribute to the credibility of the project).

Section 4 4.1 4.1.1

Contractual Arrangements/Regulatory Issues The project company Constitutive documents of the project company

4.2 4.2.1

Regulatory issues Legal requirements for the project - licences, copyright, patents, rights, leases etc. Government role and impact on the project (required approvals; regulations; etc.), and progress regarding finalization of these. Environmental & health requirements specific to the sector

4.2.2 4.2.3 4.3

Main operating agreements supporting the project (management; contractors; procurement; off-take agreements, supply agreements; maintenance; etc.)

Section 5 5.1 5.1.1

Operational &Technical Management of Project

5.1.3 5.1.4 5.1.5

Detailed project description Preparatory studies and surveys – required/ completed/outstanding Description of the design aspects: technology/process (process; patents; maps; plans; etc.) Capacity, flexibility & expandability Capital Costs Sources of technology & supplier details

5.2

Land regime - titles; restitution issues if any etc.

5.4

Quality & Waste Management

5.5

Environmental impact/aspects of the project

5.1.2

5.6

Implementation Arrangements  Project management arrangements  Supporting infrastructure (requirements)  Contractual arrangements  Status of government approvals  Acquisition of rights-of-way

5.7 5.7.1 5.7.2 5.7.3 5.7.4 5.7.5 5.7.6

Materials Description, volumes & cost Geographic & supply logistics Sustainability of supplies/raw materials Environmental considerations (finite resource?) Supply agreements Demand & competition

5.8 5.8.1 5.8.2 5.8.3

Performance of the company in terms of: Barriers of entry Achievable yield Cost aspects • Capital cost components. • Operating costs: o Operating costs components. o Working capital. Pre-operating expenses

5.9

Competitor analysis (domestic & global)

5.10

Location of company & clients in terms of market access

5.11

Vendor location & logistics

5.12 5.13

Detailed explanation of revenue model/assumptions (how will the project generate income?) Implementation arrangements:  Project management arrangements.  Supporting infrastructure (requirements).  Contractual arrangements.  Status of government approvals.  Acquisition of rights-of-way.

Section 6 6.1

6.1.1 6.1.2 6.1.3 6.1.4 6.1.6 6.1.7

Marketing, Sales & Off-take Value proposition A comprehensive description of the market opportunity and how it is to be approached is recommended, together with a market situation analysis (e.g. product; industry analysis; competition; value added; market shares; price structures; etc.). Attributes of the product Development of image & reputation Pricing & sales strategy Customer service & relationship building strategy Marketing Strategy - objectives; segments; pricing; promotion; logistics; etc. Sales volumes and tariff data if applicable (existing or assumed values in the projections)

6.2 6.2.1 6.2.2

Market Share Analysis Customer identification Product-line sales forecast

6.3 6.3.1

Sales Implementation Off-take agreements

PLEASE NOTE: The prerequisite for the successful distribution of a product is the existence of a market for it. Detailed comments are required. Proof should be provided that the sponsors have a profound knowledge of the market and the proposed customers as well as of the condition of the market (global as well as domestic). It is not sufficient to only state the sector, the target group and the competitors, but an investor will want to see a detailed analysis of the customer and market segment. This means that the sponsors must be aware of typical market data, must have done a feasibility study to confirm project potential and to present thee facts in a plausible and convincing manner, also graphically. Such data would include yields, entry barriers and legal impediments/requirements. Data can be deduced from the existing markets. A detailed picture should be drawn of competitors, their strengths and weaknesses. How will the project be positioned? How will it compare with its competitors? What is its value-add? What market share is anticipated? Have customers been lined up? Have contracts & commitments been secured – if not what is the strategy etc?

Section 7 7.1

Risk Analysis Fundamental risks

7.2

Mitigation

7.3

Opportunities

The documentation should also include a Risk Analysis, as well as any other relevant information on the project and its background. (It works quite well to think of all possible risks and to include a table which indicates how these risks will be mitigated/addressed – sort of SWOT analysis).

Section 8 8.1 8.1.1 8.1.2

Financial Information & Analysis

8.1.3

Funding structure Main players (financiers; advisors; arrangers; etc.) Business plan requirements & proposed roll-out (objectives; resources; roll-out period; milestones); securities; foreign exchange; insurances etc. Funding structure (equity; debt; cash from operations; etc.)

8.2

Main financial agreements (e.g. sponsor support agreements)

8.3 8.3.1 8.3.2 8.3.3 8.3.4 8.3.5 8.3.6 8.3.7 8.3.8 8.3.9 8.3.10 8.3.11 8.3.12 8.3.13 8.3.14 8.3.15

Financial model Assumptions & methodology Project costs (pre-operating; CAPEX, OPEX etc.) Projected capital expenditure Liquidity forecast/financial plan (cash flow) Projected income statement Projected balance sheet Projected profit & loss Projected break-even Ratio analysis & DSCR Sensitivity analysis Worst case scenario Five-year forecasts Profitability forecast Investment & depreciation plan Investment stages (funding)  Guaranteed funding  Non-guaranteed funding Capital demand & financial plan Returns (IRR, NPV etc.)

8.4 8.5

NB: Financial model in detailed form must be included as an appendix, including an electronic version thereof (main results sheet; financial ratios; assumptions; market; cash flows; funding; tax; profit & loss; balance sheets).

Section 9

Appendices

9.1

Financial Model

9.2

Securities

9.3

Supply agreements

9.4

Off-take agreements

9.5

CVs of key staff & BOD members; copies of IDs; certificates of good conduct/references etc.

9.6

Certificate to do business

9.7

Memorandum & Articles of Association

9.8

Shareholders’ Agreement

9.9

Audited financial Statements & Directors’ Report