Tue | Aug 22, 2017

FLOW Jamaica to dole out $3b pension surplus

Published:Wednesday | March 23, 2016 | 3:00 AMSteven Jackson
Garfield Sinclair, managing director of Cable & Wireless Jamaica/FLOW Jamaica.

Cable & Wireless Jamaica (C&WJ), which trades as FLOW, will pay out nearly $3 billion as pension surplus to be divided equally between members of the superannuation fund and the company.

It will be one of the largest pension payouts in years for telecom workers and also for a locally listed company.

C&WJ will utilise the windfall to fund its capital-intensive projects.

"Trustees have agreed to distribute $3 billion of an approximate $5-billion surplus," said C&WJ/FLOW Jamaica Managing Director Garfield Sinclair in response to Wednesday Business queries.

C&WJ, which offers landline, Internet, mobile and cable services, underwent a series of restructuring over the medium term - including the merger with the local triple play operations of Flow - which resulted in a reduction of it's telecom's staff complement. Cable and Wireless dropped its old brand, LIME, and rebranded to new FLOW after the merger.

"The surplus arises primarily from the reduction in staff over the last two to three years," Sinclair said about C&WJ, which is the plan sponsor. He adds that the payout would pose no threat to future pension benefits.

The fair value of the plan's assets is estimated at $18.14 billion, while the obligations total $13.3 billion, resulting in excess assets of $4.84 billion.

The rest of the surplus that remains after the payout - approximately $1.8 billion - will fund C&WJ's monthly employer contribution to the pension fund, Sinclair confirmed.

The decision to approve the surplus payout came from a crossfunctional task force established by the board of trustees of CWJ Pension Plan. The task force was itself advised by consultant actuaries that the value of the assets of the plan is "sufficient" to adequately fund the distribution of surplus "without jeopardising its solvency", according to a stock-market filing published on Monday.

The $3b pension payout is on par with the $3.4 billion from cigarette distributor Carreras Limited in 2012 and the $2.8 billion from The Gleaner Company Limited in 2010. In those cases, minority shareholders received dividends many times larger than year-earlier levels following the pension payout. The payout to C&WJ, however, will not result in a dividend cheque.

ADDITIONAL LIQUIDITY

"Nooooo," responded Sinclair when asked about whether minority shareholders would benefit directly.

"This will be accounted for as an above-the-line increase in past service costs, so will not improve EBITDA at all. However, it will provide the company with additional liquidity in order to execute on its very expensive capital investment campaign," he said.

Sinclair previously told The Gleaner that C&WJ would resume dividend payments at an appropriate time when the company profits are sustained.

The company made its first net profit in years earning $144 million during the December quarter 2015 on revenues of $6.1 billion, which reversed the quarterly loss a year earlier of $1.8 billion.

Over nine months, however, the company recorded a net loss of $644 million, compared to a $3-billion net loss a year earlier. And its accumulated losses amassed over several years remain at a formidable $50 billion.

The quarterly profit comes at a time when UK-based Liberty Global seeks to acquire C&WJ's parent company, Cable & Wireless Communications.

Sinclair indicated that the pension payout was "unrelated" to the wider preparation for the proposed acquisition.

steven.jackson@gleanerjm.com