Railway Reform: Toolkit for Improving Rail Sector Performance - ppiaf

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Railway Reform: Toolkit for Improving Rail Sector Performance Annex 1: Financial Model—Guidance for Users Non-operating costs Users can freely label non operating costs and define the variability of physical and price cost drivers because they are independent of any operational variables. The logic behind non operating cost calculations remains similar to that of other operating costs. Taxes and dividends Users enter the corporate income tax applicable during the modeling period and set the amount of annual dividend. The model excludes the impact of valueadded taxes. Users also enter the debt service coverage ratio before a dividend can be paid, which is sometimes a financial covenant requested by lenders. If the entity’s debt service coverage ratio (DSCR) for a given year is lower than the requirement, no dividend is paid. If actual DSCR exceeds the requirement, a dividend will be paid from cash flow available for dividends, as determined on the Calculations worksheet. Users set the ‘annual dividend after DSCR’ as a percentage share of the cash available for dividends. Note: For integrated entities, assumptions for taxes/dividends need to be entered for freight only if it is combined with passenger or infrastructure. If infrastructure is integrated with passenger, users enter the shared assumptions for taxes/dividends for the infrastructure entity only. Consolidated financial statements will use dividend assumptions entered on ‘Assumptions – Consolidated’ worksheet. Freight entity tax assumptions are used for consolidated financial statements if freight is selected. If freight is not selected, consolidated financial statements will use the tax assumptions entered for infrastructure. Working capital First-year values are important in defining working capital (current assets minus current liabilities). The model converts each working capital item into the number of days of underlying revenue or underlying cost that each account represents. For example, days in accounts receivable indicate the amount of recognized operating revenue waiting to be paid; 50 days in accounts receivable is the total operating revenue typically recognized over a 50-day period. Inventory consists of stored materials and diesel fuel for use; other receivables are linked to other revenues. On the liability side, accounts payable refer to total operating costs that are due but unpaid; other payables are defined by non operating cost amounts waiting to be paid. If revenue collections become more/less efficient and invoice payments faster/slower, users can adjust after the first, historical year, the number of days outstanding in each working capital account. Finally, users can define how much interest is earned on cash balances, if any. It would not be unusual for interest to be below the benchmark interest for a low-risk cash account or short-term money market investment. Note: In consolidation, working capital accounts for freight, passenger and infrastructure entities are aggregated, excluding accounts receivable and payable arising from intra-company track access charges. The The World Bank Page 216
Railway Reform: Toolkit for Improving Rail Sector Performance Annex 1: Financial Model—Guidance for Users consolidated entity needs additional working capital for headquarters staff costs, other operating costs and non operating costs. Debt financing Assumptions for financing are divided into existing debt, new debt, and equity. Existing debt consists of three loans that the user defines according to source, currency, outstanding balance, repayment schedule, and interest rate. Users must ensure that the outstanding balance in the first modeling year is repaid in full by entering sufficient annual repayments in the schedule. If any amount remains outstanding, the model displays a warning. New debt assumptions can be entered for up to four loans. First, users must name the funding source, indicate the first disbursement year (any number from 1-30) and enter the loan currency. As mentioned earlier, if debt financing involves a fourth currency, loan terms should be converted to one of three available currencies. Users must enter the disbursement schedule for the new loans by hand since, by definition, new debt is undisbursed at the time of modeling. Users select the loan term, which includes the grace period, and can select a repayment profile—bullet, equal installment, or fixed annuity. A bullet loan is paid off in a single principal repayment at the end of the loan term and interest is paid annually on the whole principal; equal installments divide the loan into equal principal repayments with interest charged on the outstanding balance; fixed annuity repayment maintains an annual fixed amount of combined principal and interest. Users can enter a front-end fee due in the first year of loan disbursement and/or a commitment fee assessed during loan disbursement on committed but undisbursed capital (principal amount minus disbursements). Note: For integrated entities, financing assumptions need to be entered for freight only if it is combined with passenger or infrastructure. If infrastructure is integrated with passenger, users enter shared financing assumptions for the infrastructure entity only. Other long-term liabilities Users can group and enter any other long-term liabilities. Note: For integrated entities, assumptions for other long-term liabilities need to be entered for freight only if it is combined with passenger or infrastructure. If infrastructure is integrated with passenger, users enter shared assumptions for other long-term liabilities for the infrastructure entity only. Equity Equity assumptions are straightforward. Users enter the combined ending paidin capital in the first modeling year, together with retained earnings. Changes to paid-capital, in case of new equity injection, can be entered by hand for any year in the forecast period. The World Bank Page 217
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Railway Reform: Toolkit for Improving Rail Sector Performance - ppiaf

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