Golden Delta Rice Business Plan — Break-Even and Debt Service

The tonnage and utilisation needed to cover the cost base, and debt service cover across the two-year capital moratorium and beyond.

Break-Even and Debt Service

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10.1 Break-even
10.2 Debt service

10.1 Break-even

Figure 16. Break-even in tonnes of milled rice.

	Year 1	Year 2	Year 3	Year 4	Year 5
Contribution per tonne of milled rice, ₦	367 794	424 774	480 667	529 495	580 336
Fixed cash costs, ₦	176 000 000	198 880 000	224 734 400	253 949 872	286 963 355
EBITDA break-even volume, t	479	468	468	480	494
Break-even including debt service, t	653	619	799	780	769
Planned milled rice output, t	454	764	1 004	1 100	1 189
Break-even as % of planned output	143.8%	81.0%	79.6%	70.9%	64.7%
Margin of safety, percentage points	-43.8	19.0	20.4	29.1	35.3

At full production the venture breaks even, after covering fixed cash costs and full debt service, at 769 tonnes of milled rice against a planned 1 189 — a margin of safety of 35 percentage points. That is comfortable. The relevant number for a funder, however, is Year 1: at 454 tonnes of output against a break-even of 653 tonnes including debt service, the margin of safety is negative 44 points. The safety margin is earned by Year 2, not granted at the outset.

Break-even measure at full production	Value	Interpretation
Contribution per tonne of milled rice	₦580 336	After all variable costs including purchased paddy
Fixed cash costs	₦286 963 355	Must be covered before any profit
EBITDA break-even volume	494 t	Tonnes of milled rice a year
Break-even including debt service	769 t	The operative measure for a geared business
Planned volume	1 189 t
Break-even as a share of output	64.7%	Capacity utilisation required
Margin of safety	35.3 points	How far output can fall before losses
Break-even yield for raw paddy	3.52 t/ha	Against a national average of 2.0 and a plan of 5.0

10.2 Debt service

Figure 17. EBITDA, debt service and cover across the projection.

₦	Year 1	Year 2	Year 3	Year 4	Year 5
Opening balance	713 653 000	713 653 000	713 653 000	618 794 398	515 398 522
Interest at 9.0%	64 228 770	64 228 770	64 228 770	55 691 496	46 385 867
Capital repaid	— (moratorium)	— (moratorium)	94 858 602	103 395 876	112 701 505
Total debt service	64 228 770	64 228 770	159 087 372	159 087 372	159 087 372
Closing balance	713 653 000	713 653 000	618 794 398	515 398 522	402 697 017
EBITDA	(9 021 600)	125 647 606	257 855 758	328 495 078	403 055 953
Debt service cover	-0.14x	1.96x	1.62x	2.06x	2.53x

Cover is negative 0.14 times in Year 1 by construction — EBITDA is negative and the business is paying interest out of the working capital reserve. It reaches 1.96 times in Year 2, when interest is still the only service obligation, then falls to 1.62 times in Year 3 as the first capital repayment of ₦94 858 602 falls due, before rising to 2.53 times by Year 5. A lender should note that the Year 2 figure flatters the position: it is high because no capital is being repaid, not because the business is strong.

Covenant consideration	Position	What a lender should require
Year 1 cover	−0.14x	Covenant testing must commence no earlier than Year 2, and preferably Year 3
Year 2 cover	1.96x	Flattered by the moratorium; interest-only service is not a fair test
Year 3 cover	1.62x	The first genuine test, and the year the covenant should bite
Moratorium	Two years on capital	Negotiated at the outset, not requested when Year 1 disappoints
Yield covenant	5.0 t/ha by Year 3	Test yield and recovery from the first season, not just financial ratios
Security	Registered title, mill and equipment	Land tenure is what makes the debt securable at all

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