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FEASIBILITY STUDY for

PROPOSED NEW CONVENIENCE CENTRE at

ASHTON

1. INTRODUCTION AND BRIEF Portions of the land which is the subject of this study has been intended by the client, Me Marlene Coetzee, for the development of a service station and a truck stop, respectively, and the client has instructed the writer to conduct a feasibility study in respect of these proposed developments. After due consultation between the writer and the client it has been resolved to rationalize the scope of the development to embrace the more modern industry approach of a convenience centre which would incorporate a fuels forecourt mainly for light vehicles, a convenience shop, a dedicated truck driveway, suitable ablution facilities and parking facilities for heavy vehicles. “Feasibility” in this study must be understood within a subjective rather than objective sense as it relates to what would be feasible for the client within the context of her specific financial circumstances and needs as well as her financial and career objectives. The feasibility aspect from an oil company perspective is very different and diverse as each company has its own requirements, evaluation methodology and hurdle rates. The study is therefore not aimed at the oil company perspective, but it is necessary to keep in mind that the industry has traditionally been relatively conservative and lately economical considerations coupled with more stringent statutory requirements in respect of the operation and development of convenience centres has resulted in an even more cautious approach amongst oil companies. Undoubtedly it has become more complicated and economically more demanding to establish new service stations. Having said this, the trade is not static and other trends, demands and policies which are prominent in the business world in general would also influence the trade. The study would be directed towards the assessment of aspects which would affect the fuel volumes to be achievement by the proposed convenience centre, fuel volume potential, projections, shop turnovers, income and expenses, profitability considerations and, finally, the calculation of financial returns on the proposed development.

2. THE SITE 2.1 Location The site under consideration consists of a vacant stretch of land situated at the western entrance to Ashton between the main road through the town and the railway line (refer to the local location plan (Annexure 1). Also refer to the photographs of the site (Annexure 2).

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2.2 Property Description The property is currently described as Remaining Extent of Erf 599, but subdivision of the property is being applied for to make provision for five clearly distinguishable usage components (see 2.6 below). The property is currently registered in the name of J C Barnard Beleggings (Pty) Ltd, but has been purchased by the client who will take transfer of the property in due course. 2.3 Extent and Physical Characteristics Erf 599 is 8,586 ha in extent and forms a long narrow stretch of land which is approximately 855 metres long and on average 95 metres wide. The land is relatively flat and slopes down gradually from west to east (refer to the photographs). It is currently vacant and covered with grass. A few farm worker dwellings are located just outside the western boundary of the property. The land appears to be uncomplicated from a development point of view, but the engineer’s report in respect of services suggests the possibility of clay conditions which will be investigated further through soil tests. However, at this stage it does not appear that any conditions exists which may influence development costs significantly. 2.4 Scope of the Development The development has been intended to consist of the components as set out in the site development plan attached as Annexure 3. After due consultation, it has been resolved to change the plan in respect of the originally intended service station and truck stop components to accommodate the modern oil industry approach of a convenience centre, which would effectively combine and rationalize the two facilities. ���� Convenience Centre A fuels forecourt (mainly for light vehicles), convenience shop, public toilets, fuels forecourt for heavy vehicles and ablution facilities for truck drivers would be combined into one business. Sleeping facilities are not provided for, but truckers can overnight in their trucks in a dedicated truck parking area. ���� Housing Component This will comprise 56 residential units in a security type of residential complex on approximately 3,9 ha. The units range between 95 and 128 sq. m. each and are aimed at the middle income market (refer to Annexure 4, which is the elevations plan of the residential units as prepared by gCg Design).

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���� Commercial Component This component comprises 1,36 ha and consists of the following:

Restaurant (480 sq. m.) Motor showroom (1270 sq. m.)

Architecture which complements the typical Western Cape style is proposed (Refer to Annexure 5 which is an elevations plan prepared by gCg Design) A total number of 81 parking bays are provided for. ���� Service / home craft This area of 1,7ha is mainly aimed at entrepreneurs having the need to display and sell their products in a legal, secure and tourist-friendly environment. ���� Tourism Centre A tourist information centre and display centre is envisaged. 2.5 Accessibility The rezoning and subdivision application makes provision for three access points from R60/R62 to the development. One of these access points (single in and out) will be utilised by the convenience centre. 2.6 Visibility. Visibility of the proposed service station and truck stop would be reasonably good. 2.7 Town Planning Considerations Erf 599 is currently zoned agricultural 1. However, the town planning firm Pro Consult is in the process of attending to the subdivision and rezoning of the property to allow the proposed usage of each component as set out in 2.3 above. An environmental impact assessment is also conducted by Sillito Environmental Consultants CC As the above processes have not been finalized yet, we are not taking into account any conditions which may be imposed in terms of the zoning approval. The copy of the current title deed (Deed of Transfer T10303/1971) made available to us by Pro Consult does not contain any onerous conditions, servitudes or caveats which may influence the performance of the proposed business on the premises.

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3. TRADING AREA AND MARKETING CONSIDERATIONS The proposed business would derive support mainly from transient trade. It will also derive support from the current local trade in Ashton (including the surrounding farming community) and, finally, from the additional market which will come into existence directly as a result of the development of the residential, service and home craft components of the proposed development . 3.1 Roads and Traffic Considerations 3.1.1 R60/62 The primary road serving the business would be the R60, a national road linking towns of the Western Cape Province, starting with Worcester, with towns of the Eastern Cape Province. It forms the main road through Ashton and splits in two directions just outside the town. The northern branch proceeds as the R62 along the Langeberg Mountain range through Oudtshoorn and along the Langkloof valley over Joubertina to the N2 national highway near Humansdorp. The R60 branches off to the south to link up with the N2 at Swellendam. 3.1.2 Traffic Volumes The latest traffic volumes on the main road through Ashton has been made available through the engineering firm BKS. This is based on a traffic survey conducted on Friday 5 March 2005 over a 12-hour period (daytime). The conclusions from the survey are summarized in the schedule attached as Annexure 6. The traffic count schedules attached as Annexure 7 are historical counts conducted by traffic engineers of the provincial government of the Western Cape. 3.2 Local Market In our view the current local market is adequately represented in the passing traffic as set out in the traffic survey. In 4.2 it is separated from transient trade for the purpose of fuel volume calculations. Future local market growth will mainly consist of vehicles brought into the local market directly as a result of the construction of the proposed development which is the object of this study. Our analysis of the scope and type of housing as well as the scope of the service and tourism developments, indicates that a total of approximately 300 vehicles will be added to the local market, i.e. vehicles owned by home owners and business owners within the development. Support from this source can be estimated at 70% and an average monthly consumption of 140 litres per vehicle can be worked on.

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3.3 Market growth On a national basis there is a 4,5% growth in the demand for fuel. This, however, cannot necessarily be applied in respect of this rural market. Apart from the development project which is the object of this study, no property growth is envisaged within the near future. Traffic volume growth on the R62 has nevertheless been significant as will be discussed in 4.2 and this will provide the most important source of growth 3.4 Competitors 3.4.1Service Station Competitors (fuel) Being located in a position where the proposed service station will serve traffic making use of the R60/R62, its competitors will be located along this route. The service stations referred to hereunder can be identified as primary competitors (refer to the location map : Annexure 1). Note: Only historical service station fuel volumes as supplied hereunder are

totally reliable. Current fuel volumes, however, are now treated as highly confidential information by oil companies and dealers alike and are therefore very difficult to obtain. Current volumes supplied hereunder are estimates based on various considerations such as magisterial district industry figures, information supplied by competitor oil companies or dealers, area trends, deliveries etc. Current fuel volumes are therefore not professed to be totally accurate, but from the writer’s experience in this industry ( twenty seven years) the information may be accepted as a fair indication of their volumes.

� Avo Diensstasie (Total)

(refer to the photographs in Annexure 8) Location : On the main road (R60/R62) on the eastern boundary of Ashton Facilities and services:

- Fuels forecourt under a canopy with 3 dual and 3 single pumps in tandem configuration;

- 2 Single diesel pumps away from the canopy; - Non franchise convenience shop (±80 sq. m.); - Wine boutique with a restaurant section where light

meals are served. - Public toilets - Shade net parking

Fuel volumes:

- 1989 : 71 k. p. m.; - Current : approximately 350 k. p. m.

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Remarks : Primary competitor in respect of the proposed business. The site has been upgraded in the recent past. Spacious driveway. Good site facilities and additional attractions.

� Exel Service Station (refer to the photographs on Annexure 9)

Location : Main road (R60/R62) through Ashton. Facilities and services :

- Fuels forecourt under a canopy with 2 single and 2 dual pumps under a rectangular canopy in tandem configuration;

- Single building accommodating parts sales, a workshop and a small convenience shop.

Fuel volumes (petrol only):

- 1990 : 88 kilolitres per month. - 1995 : 42 kilolitres per month. - Current : unknown – not in operation at times (estimated

at approximately 30 kilolitres per month)

Remarks : Operated as Engen site before (G & T Motorhawe en Kafee) Old and outdated design and appearance.

Lacks driveway space. Fuels forecourt not operational at times.

� Robertson Shell (Shell) (refer to the photographs in Annexure 9) This site is not located within the local market area of the proposed business, but is on the same route in close proximity to Ashton. Location : Situated on the main road (eastbound side) through Robertson; 20 kilometres from the proposed business. Facilities and Services :

- Fuels forecourt selling petrol and diesel through 7 pumps in tandem configuration under a canopy;

- Convenience shop (non-franchise). Fuel volumes:

- 1990 : 114 kilolitres per month; - 1995 : 161 kilolitres per month;

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- 2006 : ±270 kilolitres per month

Remarks: Outdated design and layout; Limited driveway space; Facilities inadequate to benefit from good location. � Montagu Toyota (Caltex)

(refer to the photographs in Annexure 9)

Location : Situated along the main road (R62) through Montagu. Facilities and Services:

- Fuels forecourt selling petrol and diesel under a canopy through 4 dual pumps;

- 1dual and 1 single pump for diesel away from canopy - Toyota franchise dealership

Fuel Volume (petrol only):

- 1990 : unknown - 1992 : 75 kilolitres per month. - 1995 : 98 kilolitres per month. - current : estimated at ±150 kilolitres per month.

Remarks: Driveway space insufficient for good volumes;

Neat and tidy appearance.

3.4.2 Truck Stop Competitors The range of competitors for diesel sales are substantially wider than for conventional service stations due to the phenomenal tank capacity of most modern trucks. The needs of drivers of heavy vehicles are also substantially different from those of light vehicle drivers. Whilst primary competitors for the proposed service station business at Ashton may be limited to a radius of approximately 25 to 30 kilometres, truck stop competitors will be found to exist within a radius of up to 150 and even 200 kilometres. Four different diesel sales scenarios or categories may exist in respect of dispensing and convenience facilities (see Annexure 10 for a diagrammatical representation of locations of competitors for the proposed truck stop.

���� Firstly, diesel may be sold on a retail basis through pumps adjacent to or combined with petrol pumps on the main forecourt, mostly under a canopy. It is mostly light to medium sized vehicles which are served on this basis (but not necessarily in all instances – depending on the height of the canopy, heavier vehicles may also be served on this basis). However, as a rule these sites would not be considered to be competitors to trucks stops.

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���� Secondly, conventional service station properties may have sufficient

driveway space to allow a dedicated diesel island away from the canopy to accommodate large vehicles. These outlets often also have convenience shops, fast food facilities and public toilets to make it attractive for drivers of trucks and other heavy vehicles. Diesel sales will mostly be on a retail basis, but facilities sometimes exist where commercial sales volumes are dispensed through an arrangement where the dealer receives a handling fee from the diesel provider in lieu of the retail profit margin.

Outlets which may be considered competitors for the proposed truck stop business at Ashton are the following:

- Total at Ashton (see the photograph Annexure 11) - BP at Buffelsjagrivier (see the photograph in Annexure11) - Caltex at Worcester (Kleinplasie) (photograph in Annexure 11) - Shell at Riversdale (see photograph in Annexure 12) - Engen at Heidelberg (see photographs in Annexure 12) - BP at Heidelberg (see photographs in Annexure 12) - Engen at Albertinia (see photographs in Annexure 13) - Shell at Albertinia (see the photographs in Annexure 13)

���� Thirdly, the service station property may be large enough to make truck

parking areas available and provide facilities which would constitute a service station/truck stop combination. In addition to convenience shop and fast food facilities, it may have dedicated truck toilets and washing facilities. Truck drivers may often even sleep over in their trucks at these sites. The emphasis here is still on retail fuel sales, but it may be in combination with commercial sales as described above.

Sites which may be considered competitors in this category are the following:

- Engen 1-Stop at Mossel Bay (see the photographs in Annexure 14) - Total Petroport at Mossel Bay (see Annexure 15) - Shell Ultra City at Worcester (see photograph in Annexure 15)

���� Finally, truck stops may exist in isolation to cater for heavy vehicles only.

In addition to a heavy vehicle diesel forecourt, it will typically have shop/ fast food facilities aimed specifically at the needs and preferences of truck drivers. It will normally also make provision for toilets, washing facilities (including showers) and sometimes sleeping facilities. The number of trucks stops within this category are limited. Examples of these can be seen at Beaufort West (BP and Engen), Swartkops at Port Elizabeth (Engen), Epping in Cape Town (Engen) etc. However, currently there are no facilities within this category which can be considered competitors to the proposed truck stop facility at Ashton.

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3.4.3 Future Competitors We are not aware of any proposed new service stations or trucks stops which are planned on this route. 3.4.4 Convenience shops and Restaurants None of the primary service station competitors are equipped with franchise convenience shops. However, Avo Diensstasie, the Total service station in Ashton has a non-franchise convenience shop as well as a wine boutique which, in addition to wine sales, also serves light meals and snacks. The Shell site in Robertson also has a non-franchise convenience shop and the Exel service station in Ashton has a small, old fashioned “corner café” type of facility which sells basic convenience items. Franchise convenience shops are located further away at Riversdale (Shell and Engen) Heidelberg (Engen and BP), Albertinia (Engen) and Mossel Bay 1-Stop (Engen). Wimpy franchise restaurants are located at Riversdale (Engen) ((The site is currently being redeveloped and is under construction) Heidelberg (Engen), and Engen 1-Stop at Mossel Bay. At Shell Ultra City outside Worcester is a Whistle Stop franchise restaurant. Non-franchise restaurants are located at Buffeljagsrivier (BP), Albertinia (Shell) and at the Total service station (Rietvlei) outside Mossel Bay. 4. VOLUME ASSESSMENT 4.1 Methodology The proposed new service station will derive its support from the following market segments: � Transient trade � The local market (mainly residential and the farming community); In order to establish volume projections we shall consider the following : � An analysis of volumes and support assumptions in respect of

traffic in the main road (R60) through Ashton.

� Available volumes in the local market and apportionment thereof.

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4.2 Traffic Volumes With reference to Annexure 6 as well as section 3.1.2 above the day time traffic volumes (6h30 to 18h30) past the proposed site during 2005 was 6100 vehicles. Upon the recommendation of Colin Tichauer of the engineering firm BKS it is assumed that day time traffic will represent 85% (6100) and night time traffic 15% of the total daily (24 hour) traffic volume. Our calculation on this basis indicates a total traffic volume of 7177 vehicles. Traffic in both directions may be taken into consideration as the proposed access in line with the Middle Street intersection would provide comfortable access to the business from both directions. Historical traffic counts indicate a substantial traffic growth on the R60/R62 route. Annexure 7 contains traffic count schedule compiled by provincial traffic engineers of the Western Cape Provincial Government. The counts have been conducted during 2002 and 2004, respectively, on the R60 (TR 03102) before the road had been upgraded. The 2005 count indicate a substantial traffic growth. Upon the advise of BKS we have assumed that traffic volumes will continue to grow at an average of 4,5% per annum. Taking into account that the environmental impact assessment, rezoning and subdivision processes, deeds office transactions, soil tests, oil company approvals, license applications and building plan approvals still have to be finalised, we estimate that the project could be streamed during the second half of 2010. If we apply traffic growth at the said rate up to 2010, a 24 hour traffic volume of 8944 is arrived at. With reference to Annexure 6 we have established that trucks represent on average approximately 11,7% of the total traffic volume, i.e. 1046 trucks by 2010. The balance of 7898 consequently represents light vehicles (we round this off to 7900 light vehicles). A comparison of traffic volumes at the various traffic survey points indicated in Annexure 6 reveals a difference of approximately 1208 (we round this off to 1200) vehicles between traffic in the town centre (Station Street intersection) and traffic leaving Ashton (at the Total service station). In our view the assumption can be made that the difference represents vehicles within the local market (obviously this is not totally accurate, but represents a reasonable indication of the local market which is adequate for our calculation purposes). The different categories of traffic volumes can therefore be summarized as follows:

- Light vehicles – transient trade : 6700 (7900 -1200) - Light vehicles – local trade : 1200 - Heavy vehicles : 1046

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4.3 Support Assumptions for Traffic Volume Based Assessment 4.3.1 Average Fill This refers to the average number of litres taken in on the forecourt per vehicle per visit and the figure would vary in relation mainly to variables such as the distance traveled and distances to destinations, availability of competitors and quality of competitor facilities en route.

���� Light Vehicles Based on varies studies conducted in the past the average fill for light vehicles varies between 23 to 35 litres for transient trade on a route such as this. Taking into account that the distances between towns on the R60 and R62 are relatively short, our assumption is that 25 litres would be a fair representation of the average fill in respect of transient trade. A fill of 18 litres is assumed in respect of local trade.

���� Heavy Vehicles Heavy vehicles primarily consist of two main categories:

- Long distance trucks and buses between the Cape Metropolitan area and the Eastern Cape mostly make use of the N2 route, but traffic congestion on this route makes the R60 an increasingly popular alternative. From our observations we conclude that approximately 30% of the trucks on this route are long distance trucks. Depending upon the direction the trucks come from they would spend approximately R1000 (from the Western Cape) to R2000 (from the Eastern Cape). This would equate to approximately 180 to 360 litres at a time. Our assumption is that the average fill would be in the region of 270 litres.

- Smaller trucks with a lower tank capacity have a more localized

function, e.g. to transport local products such as fruit (fresh fruit as well as processed fruit), wine, vegetables, etc. to the markets in the Cape Metropolitan area. A realistic average fill for these vehicles would be approximately 100 litres (between R500 to R600).

4.3.2 Call Ratio This refers to the number of vehicles turning into the site to purchase fuel expressed as a percentage of the total number of vehicles passing the property. This percentage would vary substantially in respect of various roads and locations, the variance being attributable to factors such as accessibility, site facilities, number and quality of alternative sites, driveway space and functionality. The percentage on a national or provincial transient route normally varies between approximately 5%% and 20% (the higher ratios being achieved at

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sites with excellent transient facilities located at ideal distances, such as Engen 1-Stop at Mossel Bay halfway between the Western Cape and the Eastern Cape). However, on road stretches where towns are relatively far apart the percentage could be up to 20% or more, e.g. Shell Ultra City at Three Sisters. The call ratio at existing service stations can be calculated if the traffic volumes and average fill are known. The formula to be used is as follows: v ÷ (t x d x f) x 100 = cr, where v = current fuel volume t = daily traffic volume d = days per month f = average fill cr = call ratio Applying this formula to Avo Diensstasie, the Total service station on the eastern periphery of Ashton, calculations (with reference to Annexure 6) would be as set out hereunder (note that the current traffic volume in Annexure 6 for traffic at this site is 5340 vehicles. Upon the assumption that traffic will grow at 4,5% (see 4.2 above) the current traffic volume (2007) is approximately 5830. Based on data in Annexure 7 approximately 89% of this, i.e. 5189, would represent light vehicles. Furthermore, we assume that approximately 82% of the fuel volume would represent light vehicle volumes (i.e.82% of 350000 = 287000 l.p.m.). 287000 (litres per month) ÷ (5189 x 25 x 25) x 100 = 8,85%.

To establish a call ratio in respect of the proposed new site one has to visualize facilities at the proposed new site and compare this with Avo Diensstasie in respect of the variables mentioned above. We assume that the proposed new site would be superior in terms of facilities, driveway space and site appearance. One of the problems, however, particularly for long distance trucks is that a higher fuel price grid applies in this area compared to the Cape Metropolitan area. Fuel is therefore more expensive in this location and this could have a negative implication. Taking all these factors into consideration in conjunction with the fact that existing support now has to be shared with a new participant in the market, we estimate that the call ratio at the proposed new service station would be follows: Light vehicles – transient trade : 5% Light vehicles – local trade : 4% Heavy vehicles – long distance : 3% Heavy vehicles - short and medium distance : 6%

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4.3.3 Days per Month This refers to the number of active days per month during which the daily average traffic volume may be maintained. It is expected that traffic volumes will normally taper down from Saturday afternoon until Sunday evening and that the traffic volume over a weekend will equate to that of one weekday. A month will consequently consist of approximately 25 days. 4.4 Calculation of Fuel Potential (traffic volume based) In establishing fuel potential it is taken into consideration that a new service station will not achieve its full potential immediately after streaming. Due to the process of familiarisation and the relatively slow process of changing support patterns, the assumption exists in the industry that a service station will reach maturity volumes from 18 months to two years after streaming. The potential to be calculated here reflects the monthly average volume to be achieved towards the end of the second year of operation. Our formula for traffic volume based calculations is as follows: t x d x c x f = v where t = daily traffic volume d = days per month c = call ratio f = average fill v = monthly fuel volume 4.4.1 Light Vehicles – transient trade The calculation is as follows: 6700 x 25 x 5% x 25 = 209378 litres per month. 4.4.2 Light vehicles – current local trade This calculation is in respect of currently existing local trade vehicles only and is as follows: 1200 x 25 x 4% x 18 = 21600 litres per month 4.4.3 Light vehicles – future local trade With reference to above the calculation is as follows:

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250 (vehicles) x 65% (support) x 120 (consumption) = 19500 l.p.m 4.4.4 Long Distance Heavy Vehicles (30% of 1046 = 314 vehicles) The calculation is as follows: 314 x 25 x 3% x 270 = 63585 litres per month. 4.4.5 Shorter Distance Heavy Vehicles (70% of 1046 = 732 vehicles) 732 x 25 x 6% x 100 = 109800 litres per month. 4.5 Petrol/diesel Ratio between Light Vehicles Diesel represents between 10% and 15% of total fuel sales at rural sites. We believe that 13% would be realistic in respect of the proposed new site. 4.6 Fuel Projections Our conclusion is that the maturity fuel potential is as follows:

���� Light Vehicles Transient trade : 209378 l.p.m. Local trade – current : 21600 l.p.m. Local trade – future : 19500 l.p.m. Total : 250478 l.p.m. This is rounded off to : 250000 l.p.m. As discussed above the split between petrol and diesel volumes will be as follows:

- Petrol : 217000 l.p.m. (87%) - Diesel : 33000 l.p.m. (13%)

���� Heavy Vehicles

Long distance : 63585 l.p.m. Shorter to medium distance :109800 l.p.m. Total :173385 l.p.m. This is rounded off to :173000 l.p.m. If we ad diesel volumes in respect of light vehicles to this, the diesel potential is as follows:

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173000 l.p.m. 33000 l.p.m. Total 206000 l.p.m. As discussed in 5.4.above, calculated fuel potential will not be achieved during the first year of operation. In this instance we project that the proposed site will achieve approximately 80% of the maturity volume as an average during the first year. By the second year potential customers would have familiarised themselves with the facilities at hand and settled into changed support patterns and habits. Growth from the first to the second year average volume will therefore be substantial. Maturity volumes will be reached towards the end of the second year and growth thereafter will be related mainly to traffic volume growth. Taking the above into consideration our fuel projections are as set out hereunder.

Fuel Projections Year Petrol Diesel Combined Growth % 1st year 174000 165000 339000 2nd year 209000 198000 407000 20% 3rd year 226000 214000 440000 8%

4th year 237000 225000 462000 5% 5th year 246000 234000 480000 4% Volumes are expected to grow annually thereafter by approximately 3% per annum and stabilize approximately by the 8th year of operation. 4.7 The Effect on Existing Competitors Assuming that the proposed site would have superior facilities it can be expected that the average call ratio at its primary competitor, the Total service Station in Ashton, will fall from its current level of approximately 8,8% to 5%. This would account for a fuel loss of approximately 125000 to 150000 l.p.m. to the new site. However, we understand that Total is currently considering the upgrading of the site. No confirmation of this has been received yet, but this would normally be the logical industry reaction to the streaming of a new competitor. No details are available in this regard, but upon the assumption that the purpose of the upgrade would be to make the site more competitive in terms of facilities, the call ratio would probably not fall beyond 6,5%. This will account for a fuel loss of approximately 100000 l.p.m. The facilities at the Exel site are of a very low standard and it can be expected that this site will not be able to compete and will probably have to close down. The Shell site at Robertson (approximately 20 kilometres away) can be expected to lose approximately 20000 to 30000 l.p.m. (mainly petrol). However, industry rumours are also rife that Shell is planning a site upgrade. If this materializes, it is unlikely that the volume loss would be significant. Montagu Toyota, the Caltex service station (approximately 15 kilometres away) is also expected to lose approximately 15 to 20 l.p.m. (petrol).

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The balance of fuel losses can be expected to be shared between the truck stop competitors. The diesel installations at Buffelsjagrivier, Heidelberg, Riversdale, Albertinia and Worcester will forfeit an average of approximately 20000 l.p.m. each to the new site. 5. CONVENIENCE SHOP TURNOVERS Franchise convenience shops at service stations is a relatively new concept in South Africa and a clear ratio between fuel sales and shop turnovers has not been established. Turnovers are therefore projected on the basis of retail floor space, competitors (number, location, quality, pricing and hours of operation) and customer analysis. No development plans are available yet and no data is available to work from. However, for the purposes of economic calculations we make the assumption that the development would include a modern oil company franchise shop, approximately 120 sq. m. floor area, which will remain open 24 hours daily. It is further assumed that high standards will be maintained in respect of facilities, product quality, product range and merchandising. It needs to be taken into account that the business will operate in an area with a very small local market where income levels are also low. Support will predominantly come from transient trade.

Taking all the above aspects into consideration as well as turnovers of comparable shops, our turnover projections are as set out hereunder. T/over per sq. m. ® Total turnover ® Growth % 1st year 750 90000 2nd year 850 102000 13% 3rd year 970 116000 14% 4th year 1100 132000 14%

5th year 1200 144000 9% 6. FINANCIAL CONSIDERATIONS 6.1 Notes in Respect of Costs and Expenses ���� Negotiations with oil companies have not been commenced with yet and no

building plans and cost estimates are therefore available yet. Two different scenarios are envisaged in respect of development costs:

- Scenario 1 makes provision for a typical situation often utilized by oil

companies such as Sasol where a loan from a financial institution is utilized in respect of development costs. In terms of a tripartite agreement coupled with a lease agreement, the oil company would

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pay a head lease rental which would equate to the loan repayment installment. The dealer (sub lessee or franchisee) therefore, in effect has no development cost expense element. In view of the relatively high costs of service station development in relation to income generated by the dealer, it is this transaction that will be utilized in our 5-year financial calculations contained in Annexures 18 and 19 and also in our 20-year DC F calculation contained in Annexure 22.

- Scenario 2 makes provision for a situation where the client would

utilize own funds to develop the convenience centre and no loans would be required. The amount we are making provision for as construction costs is R 7 868 000, which is the projected costs up to 2010. The amount is based on recent actual costs of a standard service station, with a building of approximately 280 sq. m. including a franchise convenience shop, which is currently under construction at a cost of R 4 386 000 (refer to the summary attached as Annexure 16). To this we have added the costs of a standard truck stop recently developed by Engen at Komatipoort in Mpumalanga at a cost of R1 600 000. The costs, expenses and revenues of the restaurant, motor trade related business component as well as the motor or truck repair areas which are shown in the development plan (Annexure 3) have not been included in these cost estimates or in our financial calculations as they are specialized facilities which can be developed as separate components to various levels, standards and permutations. As no plans are available at this stage it would not be possible to determine costs, expenses or revenue from these sources. It is recommended that they be treated as separate profit centres which need to be analysed and considered on their own merit.

The DCF calculations in Annexure 21 are based on this scenario.

���� The requirements of oil companies vary from company to company in respect

of initial capital requirements such as franchise fees, license fees, guarantees in respect of fuel deliveries etc. It is practically impossible to take all scenarios into account. The expenses we will utilize in our financial calculations is based on requirements normally associated with Sasol, which, as a relatively new participant, currently is more active than the rest of the industry members in terms of new service station developments.

���� All other expenses such as salaries and wages, municipal services etc. are

arbitrary figures based on an analysis of existing comparable businesses.

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6.2 Fuel Projections If the business is developed by 2010 our fuel projections are as follows:

Fuel Projections Year Petrol Diesel Combined Growth % 1st year 174000 165000 339000 2nd year 209000 198000 407000 20%

3rd year 226000 214000 440000 8% 4th year 237000 225000 462000 5% 5th year 246000 234000 480000 4% Volumes are expected to grow annually thereafter by approximately 3% per annum and stabilize approximately by the 8th year of operation. 6.3 Start-up Capital Investment (scenario 1) Franchise fee : 500 000 Stock purchases : 275 000 Working capital : 175 000 Professional fees : 300 000 (rezoning, EIA report etc.) Office equipment : 70 000 (Furniture, I T systems, equipment etc.) Sundry : 55 000 (deposits, legal fees etc.) Total : R 1 500 000 6.4 Annual Income and Expenses (Refer to the simplified 5 year income/cash flow analysis i.r.o. scenario 2 : Annexure 18) 1st year 2nd year 3rd year 4th year 5th year Gross profit 1591744 1954810 2195478 2434476 2640016 Expenses 1313218 1464189 1601215 1747081 1891223 Net profit 278526 490621 594263 687395 748792

Refer to Annexure 17 in respect of the calculation of the salaries and wages as an expense item. 6.5 Returns on Investment (Scenario 1) (Refer to Annexures 18 and 19) Effective return on investment (before tax) : year 1 : 20,3% year 2 : 35,7% year 3 : 43,2% year 4 : 50,0% Year 5 : 54,5%

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6.6 Funding In the above analysis (Scenario 1 – Analysis A) it has been assumed that no loans would be required in respect of the start-up capital requirements. The analysis in Annexure 19 (Scenario 2 – Analysis B) indicates the effect on cash flows where a loan of 75% of the capital investment at a nominal interest rate of 12% is utilized. 6.7 DCF Analysis Calculations have been based on the 20-year simplified income/cashflow analysis contained in Annexure 20.

���� Scenario 1 (Refer to Annexure 22) In this analysis it has been assumed that the client will pay the initial start-up capital, i.e. R 1 375 000 only (no development costs). Results in this scenario are favourable as the net present value (NPV) turns positive in the 4th year already. IRR returns are as follows: 5th year : 25% 10th year : 38% 15th year : 41%

���� Scenario 2 (Refer to Annexure 21) This analysis demonstrates the effect if the client pays the development costs (R 7 868 000) in addition to the start-up costs R 1 375 000). With this scenario a positive NPV is not achieved even after 20 years and the IRR is unacceptable. IRR in 5th yr : -4% IRR in 10th year : 5% IRR in 15th year : 8%

6.8 Sensitivity Analysis : Current Development As mentioned before the above analysis makes provision for a projected development by 2010 (when it is expected that all the various processes and formalities to utilize the land as proposed could be finalized) and inputs such as traffic volumes, fuel volumes and development costs have been escalated up to that point in time. If the formalities and processes are ignored and the business

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could be developed immediately with the result that no escalation of the inputs are required, the results would be as set out hereunder. 6.8.1 Fuel Projections Year Petrol Diesel Combined Growth % 1st year 139000 142000 281000 2nd year 167000 171000 338000 20% 3rd year 180000 185000 365000 8%

4th year 190000 194000 384000 5% 5th year 197000 202000 399000 4% Volumes are expected to grow annually thereafter by approximately 3% per annum and stabilize approximately by the 8th year of operation. 6.8.2 Returns

���� Return on Investment (ROI)

1st year : 6,8% 2nd year : 18,9% 3RD year : 25,0% 4th year : 29,3% 5th year : 32,2% ���� Discounted Cash Flow Analysis (DCF)

IRR After 5 years 3% After 10 years 21% After 15 years 26% After 20 years 27% NPV Discount rate @10% @12% @15% After 10 years R873260 R603953 R385528 After 15 years R1960154 R1397914 R970091 After 20 years R2977034 R2062435 R1408856 The NPV turns positive between 7years (@10% and !2%) and 8 years (@ 15%)

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7. CONCLUSIONS 7.1 Based upon the assumption that the various town planning and other

processes to allow the business to be developed could be finalized by 2010, our financial calculations indicate sound returns for the client. A return on Investment (ROI) of more than 35% by the second year of operation is relatively healthy for this kind of operation. A DCF analysis also indicates an IRR of 25% after 5 years and 38% after 10 years (based on the assumption that a transaction could be negotiated with an oil company where the development costs of the building and structures are not paid directly as a capital expense by the client). Where the calculation is based on the assumption that the business could be developed now already (2007) (i.e. with lower traffic volumes), the corresponding ROI becomes approximately 7% and 19%, respectively, with 25% in the third year of operation. An IRR of 21% is indicated after 10 years and 26% after 15 years and the payback period is between 7 and 8 years. These financial results are still acceptable within the parameters of the specific financial situation of the client and her financial and career objectives, which are more inclined towards returns and revenue in the medium to longer term.

7.2 The fuel projections demonstrate a strong tendency towards diesel sales (more than 50%). This is the result, firstly, of the lack of existing truck stop facilities or suitable truck orientated refueling facilities on the R60 route. Secondly, the client, who is the owner of a truck fleet and comes from a family who has been involved in the transport business all their lives, knows and understands the transport business and its needs intimately. The facilities would satisfy a long felt need, not only in the transport industry, but also amongst local authorities.

7.3 The strong growth in traffic volumes on the R60/R62 route is a very

important aspect in respect of the findings in this study. There is no doubt that the R60/R62 route is becoming increasingly popular from a transport, leisure and tourism perspective. There is evidence that traffic volumes have increased substantially since the road had been upgraded recently.

7.4 Currently there is no high standard transient type service station on the

R60/R62 route (refer to the various photographs of competitor outlets) and there would be merit in making such a facility available to satisfy the needs of travelers, the transport industry and tourist industry, particularly by 2010. The combination of components which will make up the proposed development could be ideal for this purpose.

7.5 There has been a need for some time to have a dedicated rest area or area to stop and have refreshments for truck drivers on this route. We understand that the municipality of Robertson in particular had been keen to address this need, but to date this could not materialize, presumably due to a lack of funds. An investor needs to be cautioned, however, that the needs of truck drivers may not necessarily include fuel in view of the higher fuel price grid

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which applies in this area. A special effort needs to be made to have adequate additional facilities which would attract drivers and increase profitability through increased turnovers at profit centres such as the shop and foods facilities.

7.6 It can be assumed that the reaction of oil companies to the increased traffic volume on this route would be to upgrade their existing facilities. It can be expected that Shell and Total in particular would seriously consider to further upgrade their outlets at Robertson and Ashton, respectively. For this reason it is imperative for the client, in conjunction with an oil company, to develop facilities which would have a high level of competitiveness. Our financial calculations in Annexures 18 to 22 have been compiled upon the assumption that the convenience centre would indeed have facilities which would be superior, or at least comparable to those of its competitors. In addition they would have the other components such as the tourism related facilities, industries and new residential units to complement the business.

7.7 Our financial calculations indicate that a scenario where the client would pay the construction costs of the business premises directly as a capital expense could not be supported. It is strongly advised that the client would endeavour to negotiate a deal where suitable financing could be arranged (e.g. the external finance deal where oil companies (such as Sasol currently) would effectively subsidise development loan repayment instalments.

7.8 There may be merit in investigating the option of purchasing the Exel service station property and business which is effectively adjacent to or separated from the proposed site by one other property only. It could well suit the oil company to transfer its pumps at this struggling outlet to the new location with good facilities. It may also facilitate the process of obtaining licenses as required by the recent amendments to the Petroleum Products Act and, finally, it may water down possible objections to the rezoning application.

------------------------------------------------------------------------------------------------------------ Disclaimer: � Information which is published or relied upon in this report has been obtained

from officials, professionals, oil company officials, service station dealers and other sources in good faith. In many cases the author has had no other recourse of verifying the accuracy thereof. Whilst every care has been taken to ensure the reliability of its source and content, the author cannot warrant the accuracy of the information. Anybody or any person acting upon the information and conclusions expressed or published in this report does so entirely at his/her/its own risk and the author does not accept liability for any damages whatsoever which may occur as a result of such action(s).

Use of the Report: � This report has been compiled for the sole and exclusive use of Marlene

Coetzee, the legal entities which are under her control and the professional consultants which have been appointed by her for this project. The report

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may not be copied, quoted or distributed, in part or wholly, by any other person(s) or entity without the author’s prior consent.

Mario de Sousa (consultant) April 2007