Corporate Finance Webinar - PowerPoint Presentation

Slide1

Corporate Finance Webinar

Energy Finance 2015

Tom Sanzillo, Director of Finance

March 5, 2015 Slide2

Overview

Economic AnalysisFinancial Analysis

Corporate and Project Analysis and RiskRisks from Public OppositionPurpose of IEEFA Finance 2015Slide3

“BiG” Picture – World, NATION, Markets, region

EconomicsSlide4

Economic Measures

What is economy? GDP “Gross Domestic Product”: How economy/ countries/ markets/ regions work

Types & size of sector: agriculture, energy, manufacturing, mining, energy, retailMost important for economy: GrowthMarket profitabilityProject Profits: mines, plants, ports,

& railCorporate Profits: “pure play,”

integrated companies, diversifiedCritical role of extractive industriesCoal/oil economics: Reserves, supply/demand (tons, barrels, cubic feet), location

Price of coal/oil/natural gas/power from plants/electricity Cheap power – household budgets and businessCompetitionWithin coalBetween coal & other energy sourcesSlide5

Country

Size 2013 GDP (trillions)

2013 % GDP GrowthAustralia

$1.6

2.5%

Bangladesh

$0.15

6.0%

Canada

$1.8

2.0%

China

$9.2

7.7%

India

$1.9

5.0%

Indonesia

$0.9

5.8%

Italy

$2.1

-1.9%

Japan

$4.9

1.6%

Mozambique

$0.02

7.4%

Philippines

$0.27

7.2%

Poland

$0.52

1.7%

South Africa

$0.35

1.9%

Thailand

$0.4

1.8%

Turkey

$0.8

4.1%

United Kingdom

$2.7

1.7%

United

States

$16.8

2.2%

Vietnam

$0.17

5.4%Slide6

Adani’s

Corporate Structure Slide7

Example of Corporate PresentationMining Company: Cloud Peak

Link to presentation:

http://tinyurl.com/qzfd5gpSlide8

“Little” Picture INDUSTRY, COMPANY, PROJECTFinanceSlide9

Income Statement: The Business/Production Process

Revenues

Money In:

How much buying and selling?

Coal =

$ Per tonPower = Currency/Megawatt Hour (MWh

)

Ports

= Fees

Oil/

Liquefied natural gas (LNG) = $barrel(

bbl

); Gas $/cubic foot (

cf

);

Shipping miles per ton

Expenses

Money Out:

Cost of

Production:

What

does it cost to make a sale happen?

Labor

Fuel

Chemicals

Electricity

Machines

Facility Maintenance

Reclamation

Corporate

Administration

Operating Profit or Loss

Is

the company or project a going concern? Worthy of Investment?

Earnings Before Interest, Taxes, Depreciation, Administration (EBITDA)Slide10

Income Statement

10

Item of Expense

 Description

Interest

Interest on Short & Long Term Debt

Taxes

Federal, State, Local

Royalties

Usually Extraction Related

Depreciation

Annual depletion of property, plant, materials

Corporate Administration

Front Office

Net Income/Loss

Comprehensive Income or Loss Slide11

Income Statement:

Understanding Debt

Why Important? – Extraction, Power – rely heavily on debt.What is function of debt? Raises money to build plants/mines/ports -- assets. Assets produce revenue/pay back debt and profit. Or not.How much is too much debt, overleverage? When operating profit cannot cover interest. (taxes, depreciation and other expenses)Slide12

Income Statement:

Where Does Debt Come From

Borrowing: Debt and EquityPrivate Investment Banks – Bonds, Private Equity, Project Related Financing – JP Morgan, Morgan Stanley, Citi, UBS. Public Banks – “Development Banks” - International Financial Institutions (“IFI”) – multiple countries provide capital to spur developmentCompany Equity: Stock, Cash, Assets – Borrow from Shareholders

Combination of all three is not unusual in energy.Slide13

COrPORATE AND PROJECT ANALYSISSlide14

Corporate and Project AnalysisPublic/Private

Corporations drive project developmentSimilarity – GrowthDifferences

of enterprise wide missions – Profit versus, Development PolicyProject Finance is a piece of broader corporate strategy and financeCorporate parents and subsidiaries

Business and Capital MarketsPolicy and Development Goals of CountrySlide15

Companies and Projects Require Investment: All investments have risks

Profit

: Investment + time and effort must return revenue - cover costs, spur more investment

Risks to Successful ProjectsEconomic – GDP Health, Markets, Demand/Supply,

PriceBusiness Leadership, Vision, Policy, CEO and Board

Finance – Asset Allocation - Revenue/Expense/Profit/LossGood Management: Board/Managers Setting Policy/Execution

Legal

&

Regulatory

–

Good

Citizen, Good Partner, Good NeighborTraditional Concepts of Political Risk

Good Negotiator, Knows How To Get Things

Done

Cumulative Risk: Key Financial ConceptSlide16

The Risk of Public Opposition: Reputations Corporate/ Project SuccessSlide17

Risk of Public Opposition

Dynamic of Reputational Politics –

Government/BusinessCorporate/government actions have symbolic importance – to corporate employees, governments, market stakeholders, public – “Sending Signals”

Actions – policy, program, investments, taxes, law/regulation, budgets, sanctions, fines, delays.C

ivil society attaches positive and negative connotations to these actions.

Part of the Brand, part of the profileInstant Communication – instant profileAll Forms of Corporate/Government

Success

build

reputation

All

Forms

of Corporate/Government Failure hurt reputationSlide18

Benefits of Good Reputation Company Growth

High Salaries for Corporate LeadersElections for Government Leaders

Power Positions of MinistersPublic Opinion and Editorial Support Creates space for consumer relations and public

benefitsAccess to Public and Private Benefits: Profit Enhancement

New Laws, Regulations, Budgets, Contracts, CashApproval of Investors (Banks, Shareholders)

Favorable Regulatory Outcomes and FinancingPolitical Protection: Markets, Oversight, Leverage over competition and opposition

Risk of Public OppositionSlide19

What Undermines Corporate Reputations? Financial Losses – Stock decline, dividend cuts,

delayed or canceled projects, closing facilities, shrinkageChanging perception in business world – rating agencies, analysts. Upgrades and Downgrades

Project Delays, Hearings, Investigations, ReviewsSomething is WrongImproves accountability – new forums for

issuesCostly to project – cuts into profits

Violations of Law Exposes - Media

Loss of Allies – business, professional, political, editorial, regulatoryBreaking Public Promises (Polls) – price to consumers, commitments to communities, environmental agreements, legal/contract/labor disputes

go to management

and integrity.

Unfair Advantage – political contributions tied directly to bad activity

Risk of Public OppositionSlide20

What Undermines Government Reputations?

Unmanageable government finances – Tax increases, expenditure cuts, weak economy, credit downgrades .

Program failure: delayed or canceled projects, closing facilities, shrinkageChanging perception in business world – rating agencies, audits, oversight studies.

Cost Overruns: Something is WrongExposes – Media

Loss of Allies – business, professional, political, editorial, regulatoryBreaking Public Promises – price to consumers, commitments to communities,

environmental agreements, legal/contract/labor disputes go to management and integrity.Leadership Crisis – polls, scandals, elections, policy/political fights

Unfair

–

political contributions tied directly to bad activity

Risk of Public OppositionSlide21

“There is no way we could have ever predicted that we would become the lightning rod for a debate around fossil fuels and the development of the Canadian oil sands.”Russ Girling, CEO,

TransCanada,2011Lead Sponsor of Keystone Pipeline

Risk of Public OppositionSlide22

APPENDIXSlide23

Country

Agency

U.S.

Securities and Exchange

Commission

www.sec.gov

Australia

Australian Securities and Investments

Commission

http

://asic.gov.au/about-asic/

Bangladesh

Bangladesh Securities and Exchange

Commission

http

://www.sec.gov.bd/

Canada

13 Provincial Securities Regulators

http://www.osc.gov.on.ca/en/home.htm

Ontario Securities Commission

http://www.osc.gov.on.ca/en/home.htm

Alberta Securities Commission

http

://www.albertasecurities.com/Pages/home.aspx

China

China Securities Regulatory Commission

(EN):

http://www.csrc.gov.cn/pub/csrc_en/

(CH):

http://www.csrc.gov.cn/pub/newsite/

Indonesia

Indonesian Capital Market Supervisory

Agency

http

://www.bapepam.go.id/

India

Securities and Exchange Board of

India

http

://www.sebi.gov.in/sebiweb/

Appendix

Slide24

Country

Agency

Japan

Financial Services Agency

(JPN):

http://www.fsa.go.jp/

(

EN):

http://www.fsa.go.jp/en/index.html

Mozambique

Limited Disclosure: Summary of Accessible information

http://www.doingbusiness.org/data/exploreeconomies/mozambique/protecting-minority-investors/

http://www.mic.gov.mz/

http://www.cpi.co.mz/index.php/en/2012-03-14-03-21-37/useful-links

Philippines

Securities and Exchange Commission Republic of the Philippines

http://www.sec.gov.ph/

Poland

Ministry of Justice Poland (Polish version access to company info)

http://ms.gov.pl/pl/

South Africa

Financial Services Board of South

Africa

https

://www.fsb.co.za/Pages/Home.aspx

Thailand

Securities and Exchange Commission

(TH):

http://

www.sec.or.th/TH/Pages/home.aspx

(EN

):

http://www.sec.or.th/EN/Pages/Home.aspx

Turkey

Capital Markets Board of

Turkey

http

://www.cmb.gov.tr/

SermayeP iyasa

Kurulu

http

://www.spk.gov.tr/

United Kingdom

Companies

House

https

://www.gov.uk/government/organisations/companies-house/about/about-our-services

Vietnam

State Securities Commission of

Vietnam

www.ssc.gov.vn

Links to Securities and Financial Regulators

http://www.world-stock-exchanges.net/regulators.html

https://www.nrd.ca/nrd/userguide/english/helpful_info/securities_administrators.htm