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Phillip Dearden

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About Phillip Dearden

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  1. Phillip Dearden

    Charity Laws change considered

    No. Charities are not exempt from Vat.
  2. Phillip Dearden

    World Cup Final

    I agree. I think Croatia edged it and deserved to get through but England had a great tournament.
  3. Phillip Dearden

    £3.8 Billion

    Tricky. I can’t say John is wrong as I don’t know how these figures were evaluated but we do have some clues. Before I dive too deep I should say that these figures are not the most important part of this problem (as I keep saying, that is future cash flows). These figures try to put a current figure on the value of the future liabilities. The pension and accounting worlds have a slight issue in that Actuarial Valuations can differ from Accounting provisions. The Actuarial Valuation is used for funding the pension scheme (thus, not too relevant for IOM as scheme is not funded) and the Accounting figures are prescribed by FRS 102 and determine the figure to go in the accounts. The Actuarial Valuation comes from here; https://www.gov.im/media/1358594/2016-valuation-report.pdf See section 2 The Accounting figure comes from the 2017 Audited Accounts; https://www.gov.im/media/1359110/iom-government-accounts-dark-blue-book-2016-17.pdf See 7.1.16 The rules for the Accounting figure are more prescriptive as standard setters do not want companies to have too much leeway as to how they do their accounts. In both cases we are trying to consider the future pension commitments, taking account of inflation, salary increases and mortality and then discount that to a value today. I don’t think future contributions come into it. [But I might be wrong here] They have nothing to do with accrued liabilities, they may be used to fund the pensions but so might tax, petrol duties and dog licenses. These can’t be shown as assets (as not receivable yet) and deducting them from a liability would be similar. At 3.2 CoMin is saying that if they had to have a fund to fund the liability, it would be £2.3bn but they have had to put £3.8bn in the accounts. The difference seems very large and I wonder what an Actuarial Valuation at 2017 would suggest? At the end of the day, this is all a bit academic. These numbers hint at the scale of the issue but the real problem is finding enough cash each year to meet the pensions as they fall due.
  4. Phillip Dearden

    £3.8 Billion

    A quick summary after a very quick scan. Pension Reserve Some discussion on this but PD starting to doubt himself here but I still think it is an irrelevance to funding future pensions. Liability In accounts at £3.8bn but if a fund was required, the amount would be £2.3bn. PD not sure how to reconcile these two numbers but it probably does not matter. The problem is annual cash shortfalls and how to fund them. Options Reduce accrued rights Difficult and likely to attract resistance Close schemes to new members and offer DCS Requires extra cash (currently 46m) to fund pensions Members and Unions may oppose Could be effective in the very long-run Close schemes to new members – except key staff Mirror defined contribution scheme Often suggested but little real rationale offered Incentive for members to move to new DCS Expensive incentives would be required Offer DCS to new members irrespective of whether existing schemes continue Borrow to fund pensions Borrow to fund a liability Then need to fund loan repayments Taxation of lump sums or extra tax on pensions Possibly discriminatory and thus legislation may be opposed Numbers not significant enough The report does not make recommendations, it sets out options. PD view – it is not a Pension Problem but a Government Cashflow problem and requires 30+ year projections of government revenues and expenditures (inc pensions) and then some tweaking to ensure the difference is positive. Easy to say…
  5. Phillip Dearden

    £3.8 Billion

    http://www.tynwald.org.im/business/opqp/sittings/Tynwald 20162018/2018-GD-0047.pdf
  6. Phillip Dearden

    £3.8 Billion

    Awesome, I will bear your kind thoughts in mind for when required.
  7. Phillip Dearden

    £3.8 Billion

    PD never too busy for MF, Steam Packet not broken - continues to trade happily and profitably despite my appointment. Pension Facts? Yes, the Actuarial Value of the current commitments was £3.823 bn per the audited accounts at 31/3/2017. This liability is not funded and the plan is that it will be paid out of future tax revenues. The pension reserve is a bit of red-herring - its an accounting provision. The pension will be paid out of future cash-flows and it is the quantum of future cash-flows that matters. I have asked and been told that forecasts exist that show this can be met. I have not seen these but I do hope they are correct. I expect future growth in GDP, population and tax revenues is important.
  8. Phillip Dearden

    Steam Packet to be sold

    I don't think so. It is trite to say so, but a company (or other asset) is worth what someone will pay for it - there is no magic formula and there is no market for "shares in ferries that sale to the IOM and use a govt. linkspan". Whether it is worth 124.3m is a good question and one that we do not, as yet, have sufficient information to form a good judgement. However, focusing on the 48.3m is a red-herring. The split of consideration is a convenience for the vendor. We are paying 124.3m for future cash-flows, fixed assets, stock, less creditors and pension provision. The focus should be on the 124.3, not the split. In this case, I imagine the vendors worked out what the company was worth to them and the Govt. then has to decide how much it wants the company.
  9. Phillip Dearden

    Steam Packet to be sold

    No. I do not think we are buying any liabilities. We pay 124m, 76m to MSIOM (that it uses to pay off a loan) and 48.3m to the owners of MSIOM (that they keep). We will end up with shares in MSIOM costing 48.3m and a loan to MSIOM that cost us 76m. For 124.3m we will receive 8 years cash flow (or the right to, we may cancel this right), some boats, some buildings and some stuff (Inventories).
  10. Phillip Dearden

    Steam Packet to be sold

    BUT IOMSPCo has no debt. The debt is in the parent. We could just buy the subsidiary, from MIOM who could then pay of their debt and keep the difference (the equity in the house). That would be more normal. However, in this case that is not straightforward as there is 113m due to the IOMSPco by the parent. They won't want to pay that off and its not easy to write off as a dividend (might be do'able as Purchase of Own shares or Reconstruction or ...) so buying the two is convenient. It may also be the case that the owners prefer a sale of shares (in MIOM) to a dividend from MIOM (paid out of the share sale of IOMSPCo). It's still 124m for the 8 year cash flows, some Fixed Assets and the Boats.
  11. Phillip Dearden

    Steam Packet to be sold

    That would make sense. The accs at UK Co House show; If the parent only had a liability of 76m and the shares in the operating company the 124m (48m for shares, 76m loan to parent) would get the future cash flows, the stock/inventory plus the boats. The 113m debtor is to the parent and arises because they have been taking profits out as loans. If we only bought the subsidiary, this would need to be repaid (unlikely) or written of as a distribution (tricky, insufficient reserves)...so buying the two together is more straightforward. The future cash-flows were estimated at 118m by Park/Oxera but these were discounted to 89m (at 4.5%). There are uncertainties about the IOM economy so it is not quite a Fixed Annuity and I would want more than 4.50%. At 12% the cash-flows discount to 58m. This makes the price look high but I can see why the vendors might not go any lower so, if we want it, now, we have to pay the asking price.
  12. Phillip Dearden

    Steam Packet to be sold

    You can see how we got here....IOMSPco want to increase their value so that there is something over and above the debt attaching to the shares. They ask for a new deal and offer enhanced service and new shiny boats. IOM Govt. is excited at the idea of enhanced service and shiny boats but concerned voters will say they gave away too much too cheaply so they hire consultants who say the deal is a good one but more good for the IOM SPco...they then negotiate and don't agree - I still think there is room to agree, there is nothing wrong with IOM SPCo making a profit but the terms look good and part of the profit is because of the economics and geography of the Island so it would be resonable for the Govt. to charge a "Franchise fee" and add in conditions about ROCE and vetos re change in ownership. I suspect this is not want IOMSPCo want but the deal could still be attractive. I think (maybe hope) this is till achievable and I hope the current machinations turn out to be "posturiing" or "negotiating tactics". What would not be good is an IOMSPCo owned and controlled, on an ongoing basis, by the IOM Govt. partly because Govt. is not the best owner of trading businesses but mostly because its operations would become politicised. No matter how much current Members intend to leave operational matters within the company, those Members will not be there for ever and MHKs will find it hard to resist when "Unhappy of Onchan" complains that he did not get a discount or "Grumpy of Castletown" moans that he was only 20 minutes late and the boat left without him. If there are votes in it, MHKs would have to respond and the operation of the company would then become subject to the whims of Tynwald. That voter interference has already begun in the comments above....and below.
  13. Phillip Dearden

    Steam Packet to be sold

    The Govt. hired consultants (Park and Oxera) to advise on the value of the IOMSPCo business and, in particular, the value of the proposed new contract. They used a Net Present Value analysis of EBITDA (which was very close to cash generated) and a cost of capital of 4.5% (all debt). If you re-do those figures starting from 2019 up to end 2026, you get a current value of 89m for the projected cash flows to the end of the contract. The boats will have some residual value and I have left out 2018 profits - so I can see how you might get close to £124m. The actual cash flows generated would be about £118m (8 years - maybe there is another year to add?).
  14. Phillip Dearden

    Steam Packet to be sold

    Some interesting thoughts there! The business generated approx 15.5m pa in cash (3 years av to 2016) and this might be what the vendors look at as being the value they want to replace on a sale ie 8 x 15m = 120m. However, ignoring depreciation and pensions is quite a big step. To use this figure to value the business would be an assessment of the business's worth if you did not have to pay for boats (and stuff). Nevertheless, the cash generation is significant and one way or another, it should be an attractive business for someone. That does not explain why the Government needs to buy it or why now but that may come out in next week's debate...or it may not. AND Debtors, at 113m is enormous. This can't be trade customers - it would be two years turnover. It may be that cash generated is loaned to group companies. If so, you would expect this loan to be extinguished on sale, somehow.
  15. Phillip Dearden

    Steam Packet to be sold

    I spend most of my time counting dogs and then chasing the missing one!
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