Levubu Root Business Plan — Break-Even and Debt Serviceability
The tonnage needed to cover the cost base, and debt service cover moving from negative to 3.89x by FY2031.
Break-Even and Debt Serviceability
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- Overview & contents
- 1. Executive Summary
- 2. Investment Thesis
- 3. Company and Business Overview
- 4. Problem, Customer Need and Value Proposition
- 5. Products and Services
- 6. Industry Analysis
- 7. Market Analysis and Sizing
- 8. Customer Analysis
- 9. Competitive Landscape
- 10. Business Model
- 11. Go-to-Market Strategy
- 12. Operating Model
- 13. Management and Organisation
- 14. Strategic Plan
- 15. SWOT Analysis
- 16. Risk Analysis
- 17. ESG and Sustainability
- 18. Implementation Roadmap
- 19. Financial Plan
- 20. Assumptions Framework
- 21. Funding Requirement and Structure
- 22. Break-Even and Debt Serviceability
- 23. Investment Case and Valuation
- 24. Sensitivity and Scenario Analysis
- 25. Key Performance Indicators and Management Dashboard
- 26. Conclusion
- A. Appendix A: Assumption Register
- B. Appendix B: Conditions Precedent to Drawdown
- C. Appendix C: Index of Exhibits and Tables
- D. Appendix D: Glossary
- 22.1 Break-even analysis
- 22.2 Debt serviceability
22.1 Break-even analysis
|
Break-even analysis |
FY2027 |
FY2028 |
FY2029 |
FY2030 |
FY2031 |
|---|---|---|---|---|---|
|
Fixed cost base (R million) |
14.06 |
22.24 |
32.82 |
43.73 |
54.06 |
|
Blended price (R per kg) |
22.17 |
24.11 |
25.33 |
26.29 |
27.04 |
|
Variable cost per kg (R) |
2.95 |
2.96 |
2.99 |
3.03 |
3.08 |
|
Contribution per kg (R) |
19.22 |
21.15 |
22.33 |
23.26 |
23.96 |
|
Contribution margin |
87% |
88% |
88% |
88% |
89% |
|
Break-even revenue (R million) |
16.22 |
25.35 |
37.21 |
49.43 |
61.01 |
|
Break-even volume (tonnes) |
732 |
1,052 |
1,469 |
1,880 |
2,257 |
|
Actual revenue (R million) |
11.31 |
23.09 |
38.72 |
58.85 |
83.70 |
|
Margin of safety |
-43% |
-10% |
4% |
16% |
27% |
Table 53. Break-even analysis. Fixed costs include field cost, lease and overheads, all of which are committed at planting.
The business crosses break-even during FY2029, on revenue of R38.7m against a break-even of R37.2m, a margin of safety of 4%. That is a thin margin and it should be read as such: FY2029 is the year in which a modest disappointment on either yield or price produces a loss. By FY2031 the margin of safety is 27%, which is where the business becomes genuinely resilient.
The contribution margin of 89% is the defining structural feature. Almost the entire cost of a kilogram of ginger is committed at planting, eight months before it is sold. In a business with that cost shape, the break-even point is a function of tonnes harvested rather than of anything the commercial team does.
22.2 Debt serviceability
|
Debt serviceability |
FY2027 |
FY2028 |
FY2029 |
FY2030 |
FY2031 |
|---|---|---|---|---|---|
|
Cash available for debt service (R million) |
(9.26) |
(1.26) |
3.87 |
11.64 |
21.90 |
|
Debt service — interest and capital |
1.73 |
1.73 |
2.78 |
5.62 |
5.63 |
|
Debt service cover ratio |
-5.37x |
-0.73x |
1.39x |
2.07x |
3.89x |
|
Covenant floor |
1.25x |
1.25x |
1.25x |
1.25x |
1.25x |
|
Interest cover ratio |
-4.18x |
0.39x |
2.02x |
3.97x |
7.26x |
|
Term debt balance |
15.00 |
15.00 |
20.00 |
17.86 |
15.71 |
|
Net debt |
4.20 |
2.08 |
8.56 |
5.38 |
(10.27) |
|
Net debt to EBITDA |
n/m |
3.08x |
1.52x |
0.39x |
-0.41x |
|
Gearing (debt to debt plus equity) |
51% |
39% |
45% |
36% |
24% |
Table 54. Debt serviceability. The covenant floor of 1.25x is the level a commercial lender would typically require for an agricultural term facility.
DSCR is negative in FY2027 and FY2028 and this is why the term debt carries a 3-year capital grace period. During grace the only service obligation is interest, funded from the equity raised for that purpose. The first tranche begins amortising in FY2030, by which point DSCR is 2.07x. Cover reaches 3.89x by FY2031.
A lender should note two things. First, the covenant is only meaningful from FY2030, and a covenant tested earlier would breach by design rather than by disappointment; the facility documentation should reflect that explicitly. Second, in the downside case DSCR reaches only 0.85x by FY2031 and never clears the covenant floor. The term debt is serviceable in the base case and marginal in the downside, which is the honest description of a R20.0m facility against this cash flow profile.