Valuation Of A Container Terminal 2005

1British Maritime Technology

Workshop on Valuing a Container Terminal

BMT Maritime Consultants

TOC Asia 2005Hong Kong


Introduction

Business Opportunities

HOW TO MAKE 600 mins of Local Outgoing Calls FREE. Ask me How? Call me Now!!

50 LEADERS NEEDED FOR GLOBAL INTERNET BIZ. Call Now

ASIAN CONTAINER TERMINAL for sale. Operating terminal, 125,000 TEU pa. Tenders wanted. Call Richard Szuflak +61 7 3221 1066

NEED LITTLE CAPITAL. Start you own biz to build your career. Call Henry HP for arrangement

STOCK & OPTION Seminar $650 2 days. Trade US Mkt Live. Free CD.

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This workshop will provide and insight into how a container terminal can be valued

This provides a seller with an idea of the price they should receive and a buyer with a price they pay for a terminal


Should You Use a Black Box Model for a Container Terminal Valuation?

We believe you shouldn’t!

– Different objectives of the vendors

• Encourage economic regional development

• Obtain operating expertise / Infrastructure investment

– Different objectives of the purchasers

• To generate return on investment

• Strategic geographical location

– Different environmental aspects

– Ownership structures of the concession


Should You Use a Black Box Model for a Container Terminal Valuation?

Different ownership structures that can occur:

Marine Approach

Quay (Depth)

Land

Civil Infrastructure

CT Operations

Full ownership

PortO

wner Port O

wner

Port Ow

ner

Concessionaire

Concessionaire Concessionaire


The Way We Assess a Concession’s Real Value

To do this BMT develops three coupled models:

–– Throughput modelThroughput model – which forecasts container throughput

–– Operational modelOperational model – which simulates the operations and development of the terminal against throughput

–– Financial modelFinancial model – which constructs P&L and Balance Sheets on an annual basis for the valuation period

A valuation period of between 20 and 30 years is most common to match the concession period

From these models we can provide a financial value


Valuation Process


Throughput ModelHinterland Assessment

Hinterland supply and demand forecast

– Short Term (0-5years)

• Current export/import demand in the region

• Local infrastructure (Road/Rail/Inland waterways)

• Direct competition

• Historical Growth Rates

– Medium Term

• Expected trends – specific to container industry

• Growth and development of industries conducive to container volumes

• Growth of logistics centres at the port

• Growth and development of infrastructure to container volumes

• Development of intermodal connectivity and logistics chain alliances

– Long Term

• Gross Domestic Product and long term expectations


Throughput ModelTariff Assessment

The tariff levels are also generated:

– For the ports:

• Terminal handling

• Port dues

• Storage

• Miscellaneous charges

– For distribution:

• Transport costs

• Distribution costs

– Customer Study

• Interview terminal customers to determine their expectations on pricing


Throughput ModelExample Figures

Typical handling charges vary between USD60 and USD330

Approximate Average Container Handling Charges

328

259 250228

202 201 200 199 190 173 163 156 140 120 118 117 110 93 75

050

100150200250300350

Brazil

United S

tates

Japa

nIta

lyChile

France

Spain

Austra

liaCana

da

United K

ingdom

German

y

Netherla

nds

Taiwan

Belgium

Philipp

inesSing

apore

ChinaTha

iland

Malays

ia

US$

/TEU

World Bank


Throughput ModelRegulatory/Competition Assessment

To determine the appropriate tariff a detailed study of the competition in the vicinity is undertaken

– Direct competition – Other container and break bulk terminals

– Indirect competition – other modes of transport such as road, rail, barging operations

Regulatory study

– Taxes and trade legislation obtained


Throughput ModelBMT Freight Model

BMT uses its proprietary Freight Flow simulation model (EFM) to forecast future freight volumes through a port under various competitive scenarios

The Asian Freight Model (AFM) is under development

It is a logistics model that establishes trade flows at minimum costs

Allows an accurate forecast of future freight through a port

Simulate impact of tariff changes on trade flows

BMT Freight Flow Simulation Model

TradeCapture


Throughput ModelAdded Value

Gives the concessionaire a better understanding of future throughput

Gives a platform to produce throughput scenarios and establishesincome drivers

Value can be added through the development of road, rail and inland shipping into the terminal hinterland. In the case of transshipment terminals, feeder and barging operations can be looked at

Identify where weak strong links lie in the logistics chain

This has an impact on the potential income which flows through to the financial evaluation model


Operational ModelKey Objectives and Capability

Model needs to be able to calculate/estimate

– Cost of the current operation

– Identify and integrate the main cost drivers such as throughput and productivity

– Evaluate the cost impact for different equipment choices or container handling systems

– Evaluate berth and yard capacities

– Establish capital expenditure requirements based on the cost drivers


Operational ModelStep 1

Model the current container terminal operation

– Identify variable and fix cost components

– Model current operational processes and work practices

– Establish current productivities of the main operational functions i.e. Vessel operation, road/rail exchange

– Calibrate with current operational costs to establish the accuracy of the model


Operational ModelStep 2

Establish alternative equipment choices and model their operational costs under different throughput and productivity scenarios

– Top lift, reach stacker direct/indirect

– Straddle carrier

– RTG

– Automated RMG + AGV (Trailer or straddle carrier)

For all the options personnel and equipment requirements need to be established


Operational Model Step 2 Example Vessel Operation

Costs are related to the time a container crane is deployed and its personnel paid.

Gross crane productivity is the best measure although it does not incorporate costs that are incurred when the vessel starts or ends during shifts

What is the effect on costs per vessel move?

Simple comparison reach stacker versus straddle carrier handling system


Productivity & Cost for Different Resource Deployment

20.00

25.00

30.00

35.00

40.00

45.00

50.00

55.00

15 20 25 30 35

productivity

EU

RO

per

mov

e

Reach stackerStraddle carriers

Reach stacker

Straddle carrier


Operational ModelStep 3 Capacity Evaluation

Berth capacity

– Quay length

– Number of cranes

– Working hours

– Productivity

– Utilisation factors

Yard capacity

– Available space

– Stacking system

– Dwell times

– Yard utilisation factors

These capacities are critical to determine at what stages additional equipment or change to a different handling system is required


Operational Model Example CAPX

Step changes in infrastructure requirements

Growth in terminal corresponds to a higher requirement and use of infrastructure

Infrastructure

0

5

10

15

20

25

30

35

2005

20

07

2009

20

11

2013

20

15

2017

20

19

2021

20

23

2025

Amou

nt o

f Equ

ipm

ent

Trailers Tractors Rail Mounted GantriesRubber Tyred Gantries Reach Stackers/Forks Ship to Shore CranesMobile Harbour Cranes


Operational ModelStep 4 Risk Analysis

Example labour environment

Ideally a container terminal operator wants full control and responsibility of its personnel

– Direct employment

– Enterprise agreements that cover personnel costs, deployment and flexibility

Worst case scenario (hypothetical)

– Labour pool where the conditions are negotiated between the union and a third party

– Many unions with specific work coverage

– No opportunity for enterprise specific deployment

This will reduce the enterprise/concession value


Financial Model

The goal of the financial model is to determine a value for the concession based on free cash flows (FCF) and provide analysis toolsDefined as the cash in the business that is available to financiersCreated from the throughput and operational modelsDefined as: Net Profit – Capital Expenditure – Change in Working CapitalFree Cash Flows and other indicators are then analysed to develop a value for the concession– Multiple of EBITDA (Enterprise Multiples)

• High infrastructure intensive firms• Good before financing comparison

– Internal Rate of Return– Net Present Value– Financial Ratio Analysis


Financial Model Case Study

Heavy Capital Expenditure in assets causes the free cash flow in initial years to be negative. This provides an insight as to when expenditure is payable

Inflows of capital is required to get the terminal into operating condition

– In later years this can be repaid

Free Cash Flow

-8,000-6,000-4,000-2,000

02,0004,0006,0008,000

10,00012,00014,000

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Year

EUR

'000

Expected Financing Requirements

01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,00011,00012,00013,00014,000

2006 2007 2008 2009 2010 2011 2012 2013

Year

EU

R '0

00

Required Debt Required Share Capital


Financial Model Example of operating costs over the concession

Staffing costs are found to make up a high proportion of expenses in a container terminal

Operating revenue often lies between 50% and 75% in European container terminals

Operating Expenses Make Up

0%10%20%30%40%50%60%70%80%90%

100%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Energy and Lubes Maintenance Costs per AnnumOperating Insurance Staff Costs per Annum

Operating Income Make Up

0%10%20%30%40%50%60%70%80%90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Revenue Expenses


Financial Model Example of CAPX over life of Concession

Initial acquisition and replacement of infrastructure is high

– Varies as per operational model

Growth in terminal corresponds to a higher requirement and use of infrastructure

Capital Expenditure Schedule

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Year

EU

R '0

00

Infrastructure Container Handling Intangibles IT System IT Hardware

Depreciation and Net Book Value

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Depr

ecia

tion

(EUR

'000

)

05,00010,00015,00020,00025,00030,00035,00040,00045,000

Net

Boo

k V

alue

(EU

R '0

00)

Total Depreciation Total NBV


Financial Model Processing of the Results

Pesimist ic Basic Opt imist icAggressive Compet it ion

Logical

Minimal Compet it ion

NPV

Throughput Volume

Tariff Assumption

NPV For Operating Scenarios

0-50,000 50,000-100,000 100,000-150,000 EUR '000

0% 50% 100%7%

9%

15%

IRR

Gearing

Loan Interest Rate

IRR For Financial Scenarios

0%-5% 5%-10% 10%-15%15%-20% 20%-25%

Important phase is to investigate the results of the valuation

– Scenario Analysis

– Sensitivity Analysis


Financial Model Sensitivity of input Variables

The impact of various variables on the model is investigated

The degree of influence can correlate to the actual operations of the terminal

– Impact of a number of cranes could show the impact on value if it breaks down

– Impact of the interest rate to the companies cash flow

Allows for mitigation planning

NPV sensitivity to a 10% change in variable

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Size

of s

iteBe

taM

arke

t Ris

kR

isk

Free

Rat

eD

ebt T

o Eq

uity

Taxe

sTe

rmIn

tere

st R

ate

Mob

ile H

arbo

urSh

ip to

Sho

reR

ail M

ount

edR

ubbe

r Tyr

edR

each

Trac

tors

Trai

lers

Infra

stru

ctur

eIn

tang

ible

sPo

wer

Fuel

and

Lub

esIT

sys

tem

sO

/H's

Mob

ile H

arbo

urSh

ip to

Sho

reR

ail M

ount

edR

ubbe

r Tyr

edR

each

Trac

tors

Trai

lers

Infra

stru

ctur

eTe

rmin

alTh

ird p

arty

Pow

er fi

xed

Busi

ness

Tax

Insu

ranc

eM

anag

emen

tLa

nd T

axO

pera

tions

Man

agem

ent

Mid

dle

Oth

erAd

ditio

nal S

taff

Stor

age

Con

gest

ion

Net

wor

king

Max

. cra

ne#

of d

ays

per

Max

. Cra

nes

/Li

fts p

er h

our

Max

. RTG

Variable

Sens

itivi

ty

NPV Low % NPV High %


Financial Model Example Enterprise Value Calculation (Based on EBITDA)

Enterprise Value of the firm (Takeover price) can be determined

– Forecast cash flows– Comparable enterprise multiple

Enterprise multiple of comparable firmsSelect an firm similar to its state of development/marketEnterprise multiple should increase as value increasesEnterprise value = Market Value + Debt –CashEstimate that after 5 years the firm is in steady stateDebt: 16 mill Cash: 28 millEstimate the this firm is comparable to ECT/HPH (x6.9)Enterprise Value approx 65.6 mill (9.5 mill EBITDA x 6.9)

Market Value 77.6 mill (65.6-28+16)

Discount back at WACC over 5 years 48.9 million value

EV/EBITDA Multiples of Businesses in the Port Industry

13.9

11.7 11.3 11.39.9 9.7

9 8.88 7.8

6.9

4.8 4.7 4.1

Port of

Tauran

ga

* Pelin

do III

/P&O Ports

* HMM/H

PH

* TCB/Sha

reholders

Ports o

f Auc

kland

* Ameri

can Port

/ABP

* Hes

se N

oord N

atie/PSA

P&O

* Powell

Duff

ryn/N

ikko

* ICTS/H

PH* E

CT/HPH

Northpo

rtJo

hor P

ortIC

TSI

EV Enterprise Value* Acquisitions

Earnings before Interest, Taxes, Depreciation and Amortization

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

EUR

'000


Financial Model Example of IRR and NPV

Pesimist ic Basic Opt imist icAggressive Compet it ion

Logical

Minimal Compet it ion

NPV

Throughput Volume

Tariff Assumption

NPV For Operating Scenarios

0-50,000 50,000-100,000 100,000-150,000 EUR '000

Net present value of the cash flows describes 40 million

Internal rate of return 20%

Value under different operating and financial scenarios and sensitivity

If there have been recent sales in the industry these can also be valued forward to a comparative point in this model

Pesimistic Basic OptimisticAggr essive Competi tion

Logical

Minimal Competi tion

IR R

Thro ughput V o lume

Tarif f A ssumpt ion

IRR For Operating Scenarios

0.0%-10.0% 10.0%-20.0% 20.0%-30.0%

30.0%-40.0% 40.0%-50.0%


Expected Rates of Return


Conclusion

Upper bound for buyer is 40-50 million euro.

Seller also knows this is the upper bound based on accepted assumptions

Number of techniques can be employed to give a basis for investment

Mr Szuflak would be able to update his ad with a 50 million Euro price tag

Business Opportunities

HOW TO MAKE 600 mins of Local Outgoing Calls FREE. Ask me How? Call me Now!!

50 LEADERS NEEDED FOR GLOBAL INTERNET BIZ. Call Now

ASIAN CONTAINER TERMINAL for sale. Operating terminal, 125,000 TEU pa. EUR 50,000,000. Call Richard Szuflak +61 7 3221 1066

NEED LITTLE CAPITAL. Start you own biz to build your career. Call Henry HP for arrangement

STOCK & OPTION Seminar $650 2 days. Trade US Mkt Live. Free CD.

Computer Courses$50 PC ASSEMBLY, Networking Web Design/ HTML, Red Hat Linux

Valuation Of A Container Terminal 2005

Business

Transcript of Valuation Of A Container Terminal 2005