September 17, 2020
Case exercise – Business modeling “FPA”
Background
It is 2019 and we find ourselves in a globally interlinked market, where the trade between Asia
and Europe is bigger than ever. The French Port Authority (“FPA”) responds to this
development and has decided to issue a concession for a third container terminal at their
premises. The concession is given for a 30 year period, and concerns a 200 hectares terminal
with a maximum of 1 million moves per year. The Port Authority is responsible for the
construction and maintenance of the basic infrastructure (access, terrain, quay walls, etc.),
whereas the future operator will be responsible for the required superstructure. The concession
will be awarded to the operator that presents FPA the most attractive proposal.
Your task
You work in the Investment / Business Development department of a globally specialized
container terminal operator. Your company is one of the participating parties in the tendering
procedure for the concession and you are responsible for the financial part of the bid that your
company will issue.
You have already collected all the necessary financial information (see separate excel file) and
the CFO asked you to generate a financial model with which you can prepare the financial part
to optimize the bid. You are requested to take the following into account in your model:
- Setup of all capital expenditures (investments and re-investments as necessary)
- Setup of the operational expenditures
- Setup of the operational revenues
- Setup of the concession payments to FPA
- Netting of all project cash flows
- Determination of project return
Your Risk Management department has made an estimate of the risk profile associated with this
project, its location and the expected traffic over the medium- to long term. Based on this
research, the Board of Directors has determined that the project return before taxes and
before financing should yield at least 16,5%.
It is your task to structure the project in such a way that this return objective will be achieved.
The only variable that you can optimize to achieve this is the financial award criterion, as
prepared by the Port Authority. As soon as the return objective has been achieved, the Finance
department will be responsible to prepare the bid and will take it from there.
Financial award criterion
The Port Authority grants the concession under the condition that the concessionaire:
1.) Pays an annual lease fee per hectare - this is set at 2,500 EUR/ha/year [price level 31
December 2019] and is indexed annually by 2%
2.) Pays a royalty fee per container - the amount shall be determined by the operator,
specified in the bid [EUR/Box in price level 31 December 2019]. This Royalty fee is
indexed once every 5 years by 10%.
September 17, 2020
Scope of Works (see excel sheet)
Project timing
Construction will take place in 2020 and 2021, afterwards the terminal will be operational from
beginning of 2022 until end of year 2051.
CAPEX
One-off investments in civil works and equipment. In addition, a number of replacement
investments need to be done with a certain frequency. Note that if a replacement investment is
projected to take place in the last year of operations this investment won’t be made.
OPEX
Operational expenditures consist of costs per moved container over the quay, as well as some
overhead expenses.
Expected traffic and revenues
A forecast has been made for the expected number of container movements for the first
operational year. This number increases annually with a given percentage (2.0% per annum).
There is a distinction made between the tariffs (revenues) of import and export containers, for
both a separate rate applies.
Price level and indexation
All given numbers in the excel sheet are based on price level of 31 December 2019, and
indexation adjustments need to be considered with the indicated percentage and frequency.
