Corporate Finance Webinar Energy Finance 2015 Tom
Description: Corporate Finance Webinar Energy Finance 2015 Tom Sanzillo, Director of Finance March 5, 2015 Overview Economic Analysis Financial Analysis Corporate and Project Analysis and Risk Risks from Public Opposition Purpose of IEEFA Finance 2015
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slide1. Corporate Finance Webinar Energy Finance 2015 Tom Sanzillo, Director of Finance
March 5, 2015<br>
slide2. Overview Economic Analysis
Financial Analysis
Corporate and Project Analysis and Risk
Risks from Public Opposition
Purpose of IEEFA Finance 2015<br>
slide3. “BiG” Picture – World, NATION, Markets, region Economics<br>
slide4. Economic Measures What is economy?
GDP “Gross Domestic Product”: How economy/ countries/ markets/ regions work
Types & size of sector: agriculture, energy, manufacturing, mining, energy, retail
Most important for economy: Growth
Market profitability
Project Profits: mines, plants, ports, & rail
Corporate Profits: “pure play,” integrated companies, diversified
Critical role of extractive industries
Coal/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 business
Competition
Within coal
Between coal & other energy sources<br>
slide6. Adani’s Corporate Structure<br>
slide7. Example of Corporate Presentation Mining Company: Cloud Peak Link to presentation: http://tinyurl.com/qzfd5gp<br>
slide8. “Little” Picture INDUSTRY, COMPANY, PROJECT Finance<br>
slide9. Income Statement: The Business/Production Process<br>
slide10. Income Statement 10<br>
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)<br>
slide12. Income Statement: Where Does Debt Come From Borrowing: Debt and Equity
Private 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 development
Company Equity: Stock, Cash, Assets – Borrow from Shareholders
Combination of all three is not unusual in energy.<br>
slide13. COrPORATE AND PROJECT ANALYSIS<br>
slide14. Corporate and Project Analysis Public/Private Corporations drive project development
Similarity – Growth
Differences of enterprise wide missions – Profit versus, Development Policy
Project Finance is a piece of broader corporate strategy and finance
Corporate parents and subsidiaries
Business and Capital Markets
Policy and Development Goals of Country<br>
slide15. 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 Projects
Economic – GDP Health, Markets, Demand/Supply, Price
Business Leadership, Vision, Policy, CEO and Board
Finance – Asset Allocation - Revenue/Expense/Profit/Loss
Good Management: Board/Managers Setting Policy/Execution
Legal & Regulatory – Good Citizen, Good Partner, Good Neighbor
Traditional Concepts of Political Risk
Good Negotiator, Knows How To Get Things Done
Cumulative Risk: Key Financial Concept<br>
slide16. The Risk of Public Opposition: Reputations Corporate/ Project Success<br>
slide17. Risk of Public Opposition Dynamic of Reputational Politics – Government/Business
Corporate/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.
Civil society attaches positive and negative connotations to these actions.
Part of the Brand, part of the profile
Instant Communication – instant profile
All Forms of Corporate/Government Success build reputation
All Forms of Corporate/Government Failure hurt reputation<br>
slide18. Benefits of Good Reputation
Company Growth
High Salaries for Corporate Leaders
Elections for Government Leaders
Power Positions of Ministers
Public Opinion and Editorial Support
Creates space for consumer relations and public benefits
Access to Public and Private Benefits: Profit Enhancement
New Laws, Regulations, Budgets, Contracts, Cash
Approval of Investors (Banks, Shareholders)
Favorable Regulatory Outcomes and Financing
Political Protection: Markets, Oversight, Leverage over competition and opposition Risk of Public Opposition<br>
slide19. What Undermines Corporate Reputations?
Financial Losses – Stock decline, dividend cuts, delayed or canceled projects, closing facilities, shrinkage
Changing perception in business world – rating agencies, analysts. Upgrades and Downgrades
Project Delays, Hearings, Investigations, Reviews
Something is Wrong
Improves accountability – new forums for issues
Costly to project – cuts into profits
Violations of Law
Exposes - Media
Loss of Allies – business, professional, political, editorial, regulatory
Breaking 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 Opposition<br>
slide20. What Undermines Government Reputations?
Unmanageable government finances – Tax increases, expenditure cuts, weak economy, credit downgrades .
Program failure: delayed or canceled projects, closing facilities, shrinkage
Changing perception in business world – rating agencies, audits, oversight studies.
Cost Overruns: Something is Wrong
Exposes – Media
Loss of Allies – business, professional, political, editorial, regulatory
Breaking 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 Opposition<br>
slide21. “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,2011
Lead Sponsor of Keystone Pipeline Risk of Public Opposition<br>
slide22. APPENDIX<br>
slide23. Appendix<br>
March 5, 2015<br>
slide2. Overview Economic Analysis
Financial Analysis
Corporate and Project Analysis and Risk
Risks from Public Opposition
Purpose of IEEFA Finance 2015<br>
slide3. “BiG” Picture – World, NATION, Markets, region Economics<br>
slide4. Economic Measures What is economy?
GDP “Gross Domestic Product”: How economy/ countries/ markets/ regions work
Types & size of sector: agriculture, energy, manufacturing, mining, energy, retail
Most important for economy: Growth
Market profitability
Project Profits: mines, plants, ports, & rail
Corporate Profits: “pure play,” integrated companies, diversified
Critical role of extractive industries
Coal/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 business
Competition
Within coal
Between coal & other energy sources<br>
slide6. Adani’s Corporate Structure<br>
slide7. Example of Corporate Presentation Mining Company: Cloud Peak Link to presentation: http://tinyurl.com/qzfd5gp<br>
slide8. “Little” Picture INDUSTRY, COMPANY, PROJECT Finance<br>
slide9. Income Statement: The Business/Production Process<br>
slide10. Income Statement 10<br>
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)<br>
slide12. Income Statement: Where Does Debt Come From Borrowing: Debt and Equity
Private 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 development
Company Equity: Stock, Cash, Assets – Borrow from Shareholders
Combination of all three is not unusual in energy.<br>
slide13. COrPORATE AND PROJECT ANALYSIS<br>
slide14. Corporate and Project Analysis Public/Private Corporations drive project development
Similarity – Growth
Differences of enterprise wide missions – Profit versus, Development Policy
Project Finance is a piece of broader corporate strategy and finance
Corporate parents and subsidiaries
Business and Capital Markets
Policy and Development Goals of Country<br>
slide15. 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 Projects
Economic – GDP Health, Markets, Demand/Supply, Price
Business Leadership, Vision, Policy, CEO and Board
Finance – Asset Allocation - Revenue/Expense/Profit/Loss
Good Management: Board/Managers Setting Policy/Execution
Legal & Regulatory – Good Citizen, Good Partner, Good Neighbor
Traditional Concepts of Political Risk
Good Negotiator, Knows How To Get Things Done
Cumulative Risk: Key Financial Concept<br>
slide16. The Risk of Public Opposition: Reputations Corporate/ Project Success<br>
slide17. Risk of Public Opposition Dynamic of Reputational Politics – Government/Business
Corporate/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.
Civil society attaches positive and negative connotations to these actions.
Part of the Brand, part of the profile
Instant Communication – instant profile
All Forms of Corporate/Government Success build reputation
All Forms of Corporate/Government Failure hurt reputation<br>
slide18. Benefits of Good Reputation
Company Growth
High Salaries for Corporate Leaders
Elections for Government Leaders
Power Positions of Ministers
Public Opinion and Editorial Support
Creates space for consumer relations and public benefits
Access to Public and Private Benefits: Profit Enhancement
New Laws, Regulations, Budgets, Contracts, Cash
Approval of Investors (Banks, Shareholders)
Favorable Regulatory Outcomes and Financing
Political Protection: Markets, Oversight, Leverage over competition and opposition Risk of Public Opposition<br>
slide19. What Undermines Corporate Reputations?
Financial Losses – Stock decline, dividend cuts, delayed or canceled projects, closing facilities, shrinkage
Changing perception in business world – rating agencies, analysts. Upgrades and Downgrades
Project Delays, Hearings, Investigations, Reviews
Something is Wrong
Improves accountability – new forums for issues
Costly to project – cuts into profits
Violations of Law
Exposes - Media
Loss of Allies – business, professional, political, editorial, regulatory
Breaking 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 Opposition<br>
slide20. What Undermines Government Reputations?
Unmanageable government finances – Tax increases, expenditure cuts, weak economy, credit downgrades .
Program failure: delayed or canceled projects, closing facilities, shrinkage
Changing perception in business world – rating agencies, audits, oversight studies.
Cost Overruns: Something is Wrong
Exposes – Media
Loss of Allies – business, professional, political, editorial, regulatory
Breaking 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 Opposition<br>
slide21. “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,2011
Lead Sponsor of Keystone Pipeline Risk of Public Opposition<br>
slide22. APPENDIX<br>
slide23. Appendix<br>