Precision Coachworks Business Plan — Break-Even and Debt Service

The vehicle throughput needed to cover the cost base, and debt service across the three-year capital moratorium.

Break-Even and Debt Service

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10.1 Break-even
10.2 Debt service

10.1 Break-even

Figure 18. Revenue against break-even.

	Year 1	Year 2	Year 3	Year 4	Year 5
Gross margin	39.5%	39.5%	39.5%	39.5%	39.5%
Overhead plus debt service, R	4 149 944	4 779 092	6 978 861	8 404 951	8 962 306
Break-even revenue including debt service, R	10 506 187	12 098 967	17 668 003	21 278 357	22 689 382
Break-even vehicles	293	343	504	607	649
Planned vehicles	134	270	523	715	838
Break-even as a share of planned revenue	218.9%	127.0%	96.3%	84.9%	77.4%
Headroom, R	(5 706 187)	(2 573 967)	677 997	3 771 643	6 619 618

Break-even is crossed during Year 4, when planned revenue of R25.05 million clears a break-even of R21.09 million. By Year 5 break-even sits at 77.4 per cent of planned revenue — 649 vehicles against a plan of 838, which in operating terms is a cycle time of about 11.6 days rather than 9.0 at the same floor and utilisation. The margin of safety is real but not generous, and it is a direct consequence of a 39.5 per cent gross margin carrying a R7.47 million overhead.

Break-even measure at Year 5	Value	Interpretation
Gross margin	39.5%	Blended across labour at 63%, paint at 46% and parts at 23%
Break-even revenue including debt service	R22 689 382	Against R29 309 000 planned
Break-even vehicles	649	Against a plan of 838
Break-even as a share of planned revenue	77.4%	A margin of safety of 22.6 points
Equivalent cycle time at break-even	About 11.6 days	At the same floor positions and utilisation. The plan assumes 9.0

10.2 Debt service

Figure 19. EBITDA, debt service and cover.

R	Year 1	Year 2	Year 3	Year 4	Year 5
Asset finance drawn in the year	3 614 675	295 455	1 258 636	18 740	12 494
Interest at 13.25%	478 944	518 092	684 861	687 345	590 605
Capital repaid	— (moratorium)	— (moratorium)	— (moratorium)	742 606	901 701
Total debt service	478 944	518 092	684 861	1 429 951	1 492 306
Balance outstanding at year end	3 614 675	3 910 130	5 168 766	4 444 900	3 555 693
of which current portion	0	0	742 606	901 701	995 594
of which non-current portion	3 614 675	3 910 130	4 426 160	3 543 199	2 560 099
EBITDA	(1 776 000)	(500 000)	949 000	2 915 000	4 101 000
Debt service cover	n/a — EBITDA negative	n/a — EBITDA negative	1.39x	2.04x	2.75x
Gearing	28.9%	36.5%	47.5%	40.3%	29.2%

The three-year capital moratorium is a term of the facility, and interest is paid throughout

EBITDA is negative in Years 1 and 2 — R1.78 million and R0.50 million — so no principal can be serviced from operations, and a debt service cover ratio cannot meaningfully be calculated in those years. What is serviced is interest: R478 944 in Year 1, R518 092 in Year 2 and R684 861 in Year 3, paid from the working capital provision. Principal then amortises each tranche over the remaining four years, so debt service rises to R1 429 951 in Year 4 and R1 492 306 in Year 5, with cover at 2.04 times and 2.75 times respectively. Year 3 cover is 1.39 times on interest alone. The financier’s protection through the moratorium is the equipment itself, the interest that continues to be paid, and a covenant that tests cycle time and panel listings from opening rather than waiting for a ratio that cannot be computed until Year 3.

Gearing peaks at 47.5 per cent at the end of Year 3 — the moment the accumulated deficit is deepest and the second booth has just been financed — and falls to 33.4 per cent by Year 5. That peak is uncomfortable but transient, and it is the arithmetic consequence of financing equipment against a business that loses money for three years by design.

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