From technical feasibility to completion

The role of financial models in infrastructure projects

Alternative Funding for Transport Infrastructure

26 March 2014

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1. Desired state

Agenda

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Cash flow forecasting/ treasury

Operational performance

Traffic modelling (revenue)

What do we mean by a ‘financial model’?

Strategy model

CapEx

OpEx

FM services

Bids and transactions

Debt covenants

Equity analysis

Tax

Technical feasibility

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Financial modelling is a team effort

Project CFO

Bankers &

advisors

Engineers External

Cash flow forecasting (detailed)

Strategy model

Tax & accounting

Greenfield bids

Refinancing

Valuations

Debt covenants

Equity analysis

Technical feasibility

OpEx

CapEx

Patronage modelling

Government

FM services

JV partners

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A financial modelling ecosystem is a community of financial models in conjunction with their defined flows of data and purposes interacting

as a system.

In bad examples, also known as a whole lot of messy spreadsheets.

What is a financial modelling ecosystem?

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=-IF(Debt.Bond1.Flag=1, J$434*IF(AND(J$434=1,K$434=0), I924+SUM(J920:J922), IF(AND(Debt.Bond1.Term*P- (J$11-1)=0),(I924+SUM(J920:J922))/ (Debt.Bond1.Term*P-(J$11-1)+1), (I924+SUM(J920:J922))/( VLOOKUP($B919,Table.Depreciation,4)*P ))),J$368*IF(AND(J$368=1,K$368=0),I924+SUM(J920:J922),IF( AND((Debt.Bank1.Term+Debt.Bank3.Term)*P-(J$11-1) =0),(I924+SUM(J920:J922))/ ((Debt.Bank1.Term+Debt.Bank3.Term)*P-(J$11-1)+1),(I924 +SUM(J920:J922))/(VLOOKUP($B919,Table.Depreciation,4)*P))))

Would you bet AUD 3 billion that this is correct?

Balancing functionality vs. complexity

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Typical timeline of developments

Bankers

Engineers

Government

SPV CFO

Structuring

Financing

Feasibility

Economics

VFM

Agreement

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Identify (upfront) all stakeholder requirements

Clearly define the ‘owner’ of each model

Accept that there is not one perfect solution – compromises required

Identify interfaces (data, users and outputs) between layers

Standardise methodology across all layers

Sufficient (but not excessive) flexibility for analysis

Be realistic about the lifetime of a model and be prepared to turn off

Include consistency checks between layers

Define and document information flows

Goal: Consistent and robust analysis across all aspects of a project for all stakeholders

Challenges in developing an ecosystem

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Recommended timing for ‘clean-ups’

2013 2014 2015 2016 2017 2018 2019 2020

Bid Operations start

Start of construction

Operational stability

Refinancing

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Engineers

Agreement between government, engineers, developers and investors

GovernmentInvestors

Developers

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Evaluation of alternative funding cases

Alternative funding scenarios require input from a wide range of areas

ILLUSTRATIVE

BankCash

Tax

Equity

Funding case

Accounting

Government

Technology

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A structured approach to case analysis

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Getting buy-in through transparency