The 9 Point Test

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Is your strategy just a gamble or robust in delivering returns? Developed with key stakeholders in the sector to test how your infrastructure investment stacks up!

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The 9 Point Test

  1. 1. contact@industreams.com InduStreams.com & Port-Investor.com THE 9 POINT TEST Is your strategy just a gamble or robust in delivering returns? Developed with key stakeholders in the sector… …to test how your infrastructure investment stacks up!
  2. 2. contact@industreams.com InduStreams.com & Port-Investor.com Introduction How does your investment rank? In previous presentations we have explored how strategy and the associated investment, operational and ownership models impact your return exposure. In this presentation we take a closer look at how to measure that impact with an assessment tool developed with key stakeholders in the sector. Specifically we take a walk through the “The 9 Point Test” and would like to invite you along to test your own infrastructure or port investment to see how it stacks up. But first a brief look at why this matters.
  3. 3. contact@industreams.com InduStreams.com & Port-Investor.com Which investment would you choose? Metrics Estimate Investment size $500mn Net Present Value $241mn Internal Rate of Return 15% Metrics Estimate Investment size $500mn Net Present Value $241mn Internal Rate of Return 15% Metrics Estimate Investment size $500mn Net Present Value $241mn Internal Rate of Return 15% 1 2 3 These may appear similar, but they are not. Consider the next slide...
  4. 4. contact@industreams.com InduStreams.com & Port-Investor.com Now, which investment would you choose? 1 2 3 Scenario NPV Best case +1,707mn Base case +241mn Worst case -968mn Scenario NPV Best case +1,707mn Base case +241mn Worst case -293mn Scenario NPV Best case +3,438mn Base case +241mn Worst case -293mn
  5. 5. contact@industreams.com InduStreams.com & Port-Investor.com The key problem The three cases presented are from the same investment (as you will see in the case below) just with slight differences in the investment model. If there is any difference in your preference between these, you, like us, do not believe that forecasting can be done with any great accuracy. What seems however to be the case is that most manage their assets and enter into investments using just a one line projection and relating to a base case only. The central problem being that information based on a single point or a base case does not provide nearly enough information for us to assess, manage or make decisions about investments or existing assets and portfolios. We need a new tool to assess and manage port investments and assets.
  6. 6. contact@industreams.com InduStreams.com & Port-Investor.com  Is an easy method of testing what is at least a conceivable spectrum for your investment.  Tests for the full downside.  Tests for upside potential.  Allow for graphic and numeric understanding of how your investment responds to changes in your investment, operational and ownership model.  Is constructed by simply looking at 100% variance on current outlook or base case up and down for the main value drivers (in the samples used, average rate and volume for just one time period). As with all investing there are no perfect options, but any approach that takes in a substantially wider spectrum than just one point, base case or single line projection is vastly superior. Our approach: The 9 Point Test
  7. 7. contact@industreams.com InduStreams.com & Port-Investor.com What ultimately matters Largely irrelevant other than a point of reference. Downside is non- speculative and very real. We need to obsess about reducing it. Upside, although speculative, should ultimately be the purpose of investing when dealing with any investment where a specific payoff point cannot be forecasted with any certainty. It is not only the worst and best case that matters it is the space that defines up and downside and thereby in reality an average across the 9 payoff points. As mentioned there are many options to use a greater goal or testing metrics than what is mostly used today (single point estimates). What really matters is to have a meaningful way of relating to a relevant spectrum and with that up- and downside (and the relation between the two).
  8. 8. contact@industreams.com InduStreams.com & Port-Investor.com Average return (NPV) exposure 1 2 3 +211mn +488mn +801mn When comparing the investment case above for average return exposure you will see a noticeable difference between that and the base case (making the base case further irrelevant and potentially misleading on a stand-alone basis).
  9. 9. contact@industreams.com InduStreams.com & Port-Investor.com Now, how does your investment stack up? Great! Very limited downside and substantial upside. An even sided gamble… As much upside as downside. Terrible! Tremendous downside and little upside. Now consider the strategy you employ and the associated agreements and parameters governing your investment. Which of these diagrams does it assimilate?
  10. 10. contact@industreams.com InduStreams.com & Port-Investor.com APPENDIX CASE ILLUSTRATION
  11. 11. contact@industreams.com InduStreams.com & Port-Investor.com Introduction The three samples used above all have the same starting point (and are from the same investment).  20 year concession  1,500 meters of quay and 100ha at cost of $500mn  Capacity 1.5mn TEU (ramp-up period of 6 years)  Average rate at $200 per TEU, average variable cost at $50 per TEU  Fixed cost at $5mn per year  Concession cost at $50mn per year (fixed)  25% corporate tax rate  10% discount rate
  12. 12. contact@industreams.com InduStreams.com & Port-Investor.com Sample 1 As capacity is capped at 1,5mn TEU volume only has an impact up to the base scenario thereafter only avg. rate increase make a difference. The lowest payoff point mainly consists of investment and concession liabilities. Return spread (NPV in USD) Base case +241mn Average +211mn Maximum +1,707mn Minimum -968mn Max./Min. 1.76 times
  13. 13. contact@industreams.com InduStreams.com & Port-Investor.com Sample 2 To get from Sample 1 to Sample 2 we amended the concession structure as follows with no change to the base case:  Previous fee $50mn per year  New fee $44.25 per TEU  PV value of concession fee remains $426mn (at 10% discount rate) as per base case And added a phasing option:  Previous commitment at $500mn  Option introduced to phase in 2 parts of $250mn per phase Return spread (NPV in USD) Base case +241mn Average +488mn Maximum +1,703mn Minimum -293mn Max./Min. 5.81 times
  14. 14. contact@industreams.com InduStreams.com & Port-Investor.com Sample 3 Finally we combined these adjustments with an expansion option to reach Sample 3:  Capacity capped at 1.5mn TEU in base case  Option introduced to double capacity by investing additional $500mn Return spread (NPV in USD) Base case +241mn Average +801mn Maximum +3,438mn Minimum -293mn Max./Min. 11.75 times
  15. 15. contact@industreams.com InduStreams.com & Port-Investor.com Disclaimer This presentation is issued for information purposes only and does not constitute an agreement, offer, obligation or invitation to enter into transactions or investment business. With this presentation, INDUSTREAMS LIMITED does not act in any way as your advisor. This presentation is not intended as, nor should it be, a substitute for consulting with INDUSTREAMS LIMITED. Whilst this presentation has been produced from sources believed to be reliable, the information, views and opinions expressed in this presentation are provided as of the date of this presentation and remain subject to verification, completion and change without notice. No representation or warranty whatsoever (whether express or implied) is or will be made as to, or in relation to, the accuracy, reliability or completeness of the information contained herein or in the appendices to this presentation. INDUSTREAMS LIMITED will not be liable towards you or any third party for any eventual damage you may incur, caused by the information contained in this presentation and its appendices.

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