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C&WJ minority owners vote down resolution in protest - Demand financial transparency from company directors

Published:Friday | September 9, 2016 | 9:00 AMSteven Jackson
Garfield 'Garry' Sinclair, managing director of Cable & Wireless Jamaica/Flow Jamaica.
Mark Kerr-Jarrett, chairman of Cable & Wireless Jamaica.
The 2013 annual report of Cable & Wireless Jamaica, then trading as LIME Jamaica. The report includes comparative 2012 financial results, the year in which the telecom reported a record $20.2 billion loss.
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Minority share-holders of Cable & Wireless Jamaica (C&WJ) on Wednesday defied the board of directors and voted against a standard resolution to set pay for auditor KPMG in order to make a wider point on transparency.

Voting on resolution was subsequently adjourned for 30 days when C&WJ shareholders can vote via poll on the matter.

The shareholders at the annual general meeting on Wednesday demanded independent verification of the heavily fluctuating multibillion-dollar non-cash charges, which lead the company into losses. Annual losses at C&WJ once topped $20 billion back in 2012.

All other resolutions were passed without fanfare at the meeting, but not the final one, Resolution 4, for KPMG to continue as auditors of the company and to fix their fee.

It was a rare display of minority shareholders exercising their voting power at an AGM.

"It's a win for minority shareholders for the moment," minority shareholder Orette Staple declared to the Financial Gleaner just after the adjournment of the AGM.

As context, the resolutions to be voted on at AGMs are circulated to shareholders beforehand in the company's annual report, and votes on them tend to be mere formalities.

Lack of transparency

The C&WJ 29th AGM will go down as the date minority shareholders took a stand - and held their ground in the face of pushback from management.

"We have not heard, to my knowledge, a frank and credible reason for changing the auditors other than you are vexed with the numbers. That's not good enough," said C&WJ Managing Director Garfield Sinclair.

That led to a chorus of shareholders shouting "transparency".

The auditors received payment of $53 million for the year ending March 2016, up from $50 million the previous, according to disclosures in the annual report. But the fee was not the matter of contention.

The non-cash charges booked by C&WJ relate to impairment and depreciation at the company, which operates in a heavily capital-intensive telecom industry.

Essentially, the shareholders want the auditors or some other independent body to verify these non-cash expense charges, which violently fluctuate on an annual basis.

Some shareholders questioned whether the auditors rigorously test these impairment and depreciation charges, or whether the charges are estimates that increasingly reflect opinion rather than fact.

"How much of these assets that were written off are still active and functional," asked a shareholder, a Mr Minott, at the meeting.

Chairman Mark Kerr-Jarrett responded: "You don't expect the auditors to go into the manholes to test the cables."

C&WJ, which trades as FLOW Jamaica, posted its first annual profit in a decade at year end March 2016 due in part to these non-cash impairment charges (bundled as exceptional items) effectively shifting from an expense of $6.9 billion in 2014-15 towards income of $1.13 billion in 2015-16.

Then in the June 2016 first-quarter these non-cash impairments allowed the company to post a net loss of $695 million, or more than double the net loss a year earlier, despite double-digit growth in revenues and mobile subscribers.

In the financials, C&WJ explained that during 2015/16, in connection with the acquisition of Columbus International by Cable & Wireless Communications, the company re-evaluated the planned timing of network integration. Consequently, it made a decision to accelerate the depreciation on these assets over an average four-year period.

"I work at multilateral companies, including MegaMart and Tastee's. Do you know what customer service is. Because clearly you do not," said an upset shareholder, Livingston Young, while other shareholders raised hands to vote against Resolution 4.

In response to the vote against the motion, board member and attorney Rochelle Cameron said C&WJ would invoke Article 66 of the company's articles of incorporation, which allows a vote by poll in 30 days.

"Just to explain, that given the results, what we will do is facilitate shareholders to vote on the matter: That we will be proceeding by poll," said Cameron to shareholders. "This is well within the rules of articles of incorporation. The chairman has in fact called for a poll but the reason it would not be done now is that it has to be done on paper. So those arrangements will be done for this particular resolution."

KPMG audits the group financials as well as other C&WJ subsidiary, which streamlines the consolidated accounts, Kerr-Jarrett indicated.

"It's going to cost the company more because there will be a separate company conducting the audit," said Kerr-Jarrett about the possibility of changing auditors.

When the chairman proposed the resolution, Staple speaking from the middle of the meeting room and another shareholder Christopher Burrow at the far right audibly questioned the resolution. It came while the bulk of the over 150 shareholders were also rejecting in a growing chorus of "No!"

"From a transparency point of view, I would want to see this go to tender," said Staple immediately after the meeting, referring to the appointment of the auditor.

Earlier at the four-hour meeting, shareholder resentment grew following Staple's first set of questions. Staple also complained that two executive directors shared a pool of $145 million in compensation, which was more than double the $64 million of executive director compensation a year earlier.

"That relates to Chris Dehring and myself," Sinclair responded.

Horrendous increase

Last September, Dehring resigned his position as C&WJ chairman and as a member of CWC's senior executive team. He served in that capacity for six years.

Staple described the increase as horrendous, prompting pushback from the board.

Sinclair: "I think horrendous is the wrong word to use. Again, this reflects salaries and incentives. It also included Mr Derhing's exit package as well."

Staple: "So two executives got $145 million. And, Mr Chair, we as ordinary shareholders we couldn't even get a cent of dividend payments?"

Kerr-Jarrett: "I think you have to realise the work done and we have to pay competitive salaries."

Staple: "When it comes to salary, everyone who works has to be paid. But when it comes to unreasonableness, I have to talk about it. And I think that the increase is exorbitant."

Kerr-Jarrett: "We have to pay competitive salaries to get the talent to move this company forward."

C&WJ was acquired by overseas based Liberty Global earlier this year as part of the takeover of Cable & Wireless Communication.

C&WJ spent US$200 million on capital expenditure over the last year and a half, said the chairman. It will spend another US$60 million to $70 million this financial year, half on maintenance of the network. The company will acquire 90 SUVs and train 308 field technicians, while fortifying its backup power supply from 25 standby generators to 100.

Sinclair remains head of the local operations after two transitions and addressed shareholders at his sixth AGM.

"There is no doubt we continue to gradually move this business in the direction it needs to go," he said in his formal presentation.

He spoke of the history and transformation over the years from C&W in 2000 to LIME in 2009 to the amalgamation of FLOW-Columbus in 2015 and the 2016 acquisition by Liberty Global.

Sinclair described C&WJ as exiting a 'doom loop' of losses into a 'flywheel' of prosperity, saying: "Now we are beginning to see the commercial results. This is what is happening at the business now and are now reaping the rewards."

But he also telegraphed that the company would not be competing for now in the LTE sphere of lightning fast mobile data, despite owning the spectrum.

"We have about one million customers and half of them don't even have smartphones. So our task is to get more and more of them to use smartphones," he said. "So 65 to 70 per cent of the base still aren't even buying data plans. We need to get them on the data train rather than getting in the LTE high speed."

steven.jackson@gleanerjm.com