1. © 2011 Grant Thornton UK LLP. All rights reserved. South East Midlands Local Enterprise Partnership BUSINESS, INNOVATION and GROWTH Conference 2012: ‘Getting Down to Business’ Funding Infrastructure Neil Rutledge, Grant Thornton 22 March 2012

2. © 2011 Grant Thornton UK LLP. All rights reserved. Agenda Current context –what has happened –what that means Funding model –overarching concept –development –revolver fund concept –key considerations Case study

3. © 2011 Grant Thornton UK LLP. All rights reserved. Current context - what has happened Recession & (some) recovery –House prices largely static –GDP growth downgraded consistently –Interest rates steady –Fiscal austerity –Funding market remains difficult Localism & decentralisation Infrastructure UK & the Green Investment Bank Changing planning regulations & abolition of RSS Formation & formalisation of LEPs

4. © 2011 Grant Thornton UK LLP. All rights reserved. Current context - what this means SEM LEP is a principal enabler of economic development –Need to do more with less –Requires innovative local solutions –Lever value from existing assets –Need for clarity about local priorities To play this role SEM LEP requires a sustainable funding model –less/no reliance on grants –lever finance and value –manageable in revenue terms –deliver economic development & service transformation –locally focused

5. © 2011 Grant Thornton UK LLP. All rights reserved. Funding model - overarching concept Jobs and Growth Enabling Infrastructure Site Developments Additional Revenues Funding capability Fund allows further infrastructure funding Direct revenue implications for LEP Leveraging additional revenues to fund further infrastructure Infrastructure makes sites viable for development

6. © 2011 Grant Thornton UK LLP. All rights reserved. Funding model - development Identification of viable projects and value of retained receipts Identification of sites/areas/projects requiring support Identification of sources of funding/applicable tools - GPF, RGF, EZ, TIF, CIL, s106, Jessica, GIB, NNDR, NHB Financial Model and Business Plan cash flows

7. © 2011 Grant Thornton UK LLP. All rights reserved. Funding model - Revolver fund concept (i) Government's preferred approach History of success HCA Guidance published Jan 2012

8. © 2011 Grant Thornton UK LLP. All rights reserved. Funding model - Revolver fund concept (ii) Growing Places Retained EZ NNDR RGF CIL (HCA) Property / Assets Other e.g. EU/Jessica/NHB SEM LEP Delivery Fund Loans - sub debt and mezzanine - Start Ups - Entrepreneurs - Private Developers - Development - Project Returns - Rates Growth, GVA Grants - Start Ups - Social Enterprise - Social infrastructure - Social Impact - Services Assets - Private Developers - Social Enterprise - Development - Project Returns - Rates Growth, GVA Rent Guarantees etc - Private Developers - House Builders / Social Landlords - Development - Social Impact - Rates Growth, GVA Equity - Start Ups - Social Enterprise - Dividends - Rates Growth, GVA Revolver Fund Governance Framework MechanismsBeneficiaries / Users Sources of Funding Sustainable Reinvestment of Returns in LEP area Pension Funds? Output / Return to LEP area

9. © 2011 Grant Thornton UK LLP. All rights reserved. Funding model - key considerations Governance structures - existing partner/stakeholder as fund manager or SPV Investment policy and criteria - returns, timeframe for recovery Tools for investment - equity, loans - type, security Ethical framework Project selection criteria State Aid - funding agreement with LA/accountable body, or direct agreement with landowner? Investment decisions - planning status, scale, deliverability, risk/reward balance

10. © 2011 Grant Thornton UK LLP. All rights reserved. Case Study Grant Thornton appointed to model cashflows Development appraisals carried out separately Bespoke financial model developed Input variables reflect 'base case', allow testing Funding structures considered individually Interdependencies and risks addressed and tested

11. © 2011 Grant Thornton UK LLP. All rights reserved. Case Study - derived revenue streams Capital AccountRevenue Account InflowsOutflowsInflowsOutflows Additional Business Rates Additional (net) Council Tax Site operating costs (Council) New Homes Bonus Borrowing costs Foregone revenues Community Infrastructure Levy (CIL) Other Planning conditions/S106 Borrowing drawdown/repayment Realisation of (developed) site values

12. © 2011 Grant Thornton UK LLP. All rights reserved. Case Study - model screenshot

13. © 2011 Grant Thornton UK LLP. All rights reserved. Contact Neil Rutledge Partner Government and Infrastructure Advisory Grant Thornton UK LLP Grant Thornton House Melton Street London NW1 2EP T: 020 7728 2296 E: neil.m.rutledge@uk.gt.com