Corporate Finance Webinar

1. Corporate Finance Webinar Energy Finance 2015 Tom Sanzillo, Director of Finance March 5, 2015

2. Overview • Economic Analysis • Financial Analysis • Corporate and Project Analysis and Risk • Risks from Public Opposition • Purpose of IEEFA Finance 2015

3. Economics “BiG” Picture – World, NATION, Markets, region

4. 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

6. Adani’s Corporate Structure

7. Example of Corporate PresentationMining Company: Cloud Peak Link to presentation: http://tinyurl.com/qzfd5gp

8. Finance “Little” Picture INDUSTRY, COMPANY, PROJECT

9. Income Statement: The Business/Production Process

10. Income Statement

11. 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)

12. 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.

13. COrPORATE AND PROJECT ANALYSIS

14. 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

15. 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

16. The Risk of Public Opposition: Reputations Corporate/ Project Success

17. 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

18. Risk of Public Opposition • 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

19. Risk of Public Opposition • 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

20. Risk of Public Opposition • 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

21. Risk of Public Opposition “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

22. Using Finance to Change corporate/Government

23. Financial Analysis and Social Change IEEFA Energy Finance 2015 Conference • Purpose of conference is to better understand energy finance issues. (Some professionals/experts do not agree with us. Listen becausethey do not agree). • Not words, numbers or academic debate – finance work suggests new levers, new targets, new ways of surfacing the issues, isolating targets and winning. • All projects and companies have particular corporate financial plan. • Markets for coal, oil, natural gas, power and transport services are made of markets, industries, companies and government regulation • History, mission and culture – industry structure • We engage companies/governments at particular points in organizational history, mission development, business, electoral and strategic cycles. • Our job is to develop analysis that heightens risk portfolio of government, company or project • Finance work must be done along with broader campaigns with efforts to show environmental and climate weaknesses – Analysis must have legs. • We use a financial concept of cumulative risk to support our strategic and tactical work of finding multiple ways to influence.

24. APPENDIX

25. Appendix