Rickard Wärnelid presents 'The role of financial models in infrastructure projects' at the Alternative funding for transport infrastructure conference in Sydney on 26 & 27 March 2014

1. From technical feasibility to completion
The role of financial models
in infrastructure projects
Alternative Funding for Transport Infrastructure
26 March 2014

2. 2
1. Desired state
Agenda

3. 3
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

4. 4
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

5. 5
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?

6. 6
=-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

7. 7
Typical timeline of developments
Bankers
Engineers
Government
SPV CFO
Structuring
Financing
Feasibility
Economics
VFM
Agreement

8. 8
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

9. 9
Recommended timing for ‘clean-ups’
2013 2014 2015 2016 2017 2018 2019 2020
Bid Operations
start
Start of
construction
Operational
stability
Refinancing

10. 10
Engineers
Agreement between government, engineers, developers
and investors
GovernmentInvestors
Developers

11. 11
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

12. 12
A structured approach to case analysis

13. 13
Getting buy-in through transparency