Jersey Post incorporation

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A decision made to agree to appointments to the Board of Jersey Post, additional funding for Post Office Pension fund and to the incorporation of Jersey Post.

Subject:	Jersey Post Incorporation
Decision Reference:	MD-TR-2006-0018	Exempt clause(s):		n/a
Type of Report: (oral or written)	Written	Person Giving Report (if oral):		n/a
Telephone or e-mail Meeting?	n/a	Report File ref:		RB/1/30/1/06
Written Report – Title	Report to accompany the Postal Services (Transfer) (Jersey) Regulations 200-.	Written report - author		Head of Corporate Financial Strategy Division
Decision(s): The Minister agree to the following appointments to the Board of Jersey Post upon incorporation as proposed by the Chairman designate: Mr John Pinel: Managing Director Mr Ian Ridgway: Finance Director Mr Clive Spears: Non-Executive Director. Initial appointment of 3 years. Mr Paul Jackson: Non-Executive Director. Initial appointment of 3 years. The Minister agree to the additional funding of Jersey Post Office Pension Fund by Jersey Post, at a level consistent with Basis C in the attached report recommended by the actuary and to the transfer of responsibilities for that scheme thereafter from Jersey Post to the States as envisaged by the Postal Services (Jersey) Law 2004 and the attached draft Regulations. That the Minister agree to the incorporation of Jersey Post on 1st April 2006, subject to States approval, and the lodging of the attached Postal Services (Transfer) (Jersey) Regulations 200- and the accompanying Report
Reason(s) for decision: To achieve the incorporation of Jersey Post, in accordance with the decision of the States in approving the Postal Services (Jersey) Law 2004, on 1st April 2006.
Action required: Regulations to be revised in respect of changes to date of incorporation. Report to accompany Regulations to be prepared and approved. Report once approved, to be lodged with Regulations by 31 January 2006.
Signature: (Minister/ Assistant Minister)			Date of Decision:

Jersey Post incorporation

TREASURY AND RESOURCES MINISTER

incorporation of jersey post

REPORT TO ACCOMPANY the Postal Services (TRANSFER) (Jersey) REGULATIONS 200-.

Incorporation

1. The States have previously agreed that Jersey Post should be incorporated essentially to afford that organisation the freedom to act commercially in a fast moving, but robustly regulated, business environment.

2. Under the Postal Services (Jersey) Law 2004, the States are able to make Regulations to achieve incorporation through the vesting of assets, rights, liabilities and employees into a group of companies. It is intended that that take place on 1st April 2006.

3. In preparing the attached Regulations and the underlying arrangements to establish that new corporate group, the Minister for Treasury and Resources has sought to create a robust commercial group with every prospect of success in the new business environment.

4. The assets, rights and liabilities being transferred are referred in the Regulations as those of the Committee for Postal Administration (“CPA”), but further to the move to Ministerial Government, are actually those of the Minster for Economic Development. Similarly references to employees of the CPA refer to those employees of the States Employment Board involved in the direct operation of the Jersey Post Trading Operation.

The new “ Jersey Post” corporate group

5. The group holding company will be Jersey Post International Limited (‘JPIL’) (Regulation 2(1)). It will issue to the States the whole of its authorised share capital in the form of £5 million Ordinary Shares (Regulation 3(1))

6. JPIL will own the entire share capital of the main trading company, Jersey Post Limited (“JPL”), JPL will in turn own all of the share capital of three asset holding, non-trading, companies (Regulation 2(2)) and Offshore Solutions Limited (“OSL”) (Regulation 5(1) which operates the Jersey Post fulfilment operation and employs the staff employed therein.

7. Under PSL, the States has delegated to the Minister for Treasury and Resources all of its powers as holder of securities in the group, except for those relating to future ownership. In exercising those powers, the Minister for Treasury and Resources has agreed to the appointment of Michael Liston as the first Non-Executive Chairman of the Board of Directors of JPIL, John Pinel and Ian Ridgway as executive directors and Paul Jackson, and Clive Spears as non-executive directors.

8. The total value of the net assets (excluding goodwill and after deducting relevant pensions liabilities) currently estimated to be transferred to the group is approximately £7 million and the equity will comprise £5 million of Ordinary shares and approximately £2million of distributable reserves.

The main operating company and its employees

9. The main operating and trading entity will be JPL. All employees directly employed by Jersey Post will transfer seamlessly into the employ of JPL (Regulation 15) on 1st April 2006 (Regulation 17 (2)). The only change in contracts of service of the employees will be the change of employer. The rights of those employees currently participating in the Public Employees Contributory Retirement Scheme (‘PECRS’) will also be unchanged save for the change of employer. The obligations of those employees to contribute to PECRS at the same rates as States employees will also be unchanged - and all changes in benefits to States employees within PECRS will accrue to and be applicable to these employees in the future as in the past.

10. To achieve this admission of JPL into PECRS on appropriate terms that will give the company a degree of commercial freedom with regard to its participation in it, JPL will pay a Lump Sum Contribution of approximately £11.8 million into that fund in respect of past service liabilities. JPl will have sufficient net assets to meet this cost but will be short of the required cash that will need to be paid over on or before 1st April 2006. Therefore under Article 29(3) of PSL it is intended that the Minister for Treasury and Resources will make loans to JPIL of approximately £4 million repayable over a maximum period of 5 years and bearing interest at a rate to be fixed at one percent over the Bank of England Base Rate. This rate will be beneficial to Treasury and Resources – and will also be a rate that is likely to be cheaper for JPIL than if it borrowed from outside the States.

11. When PSL was approved by the States in 2004, various undertakings were given by the then Policy and Resources Committee to the Committee of Management of PECRS with regard to changes to the arrangements set out in the Public Employees (Contributory Retirement Scheme) (General) (Jersey) Regulations 1989, as amended, in respect of the admission of such employees into PECRS when they have a new employer (as will occur on the Transfer Date). In particular, undertakings were given to ensure that a new employer would enter into legally effective obligations in that connection and that those obligations would include a requirement to pay a Termination Contribution should a sudden exit of the employer from PECRS (as permitted by the Regulations) ever take place.

12. The Public Employees (Contributory Retirement Scheme) (Amendment No 9) (General) (Jersey) Regulations 200* will fulfil and discharge these undertakings and have been agreed in principle with a view to them being lodged in the near future.

13. However, because it seems unlikely that these amending Regulations will become law before the Transfer Date, the Treasury & Resources Minister will ensure (and so undertake to COM if necessary) that Jersey Post Limited, the company that will become the employer of these staff, will

· Enter PECRS via the General Regulations and an Admission Document;

· Sign an agreed Admission Document as soon as practicable after the amendments to Regulations have been made;

· Pay the envisaged Lump Sum Contribution with interest in full up to the date of payment to PECRS.

14. The rights of those employees participating in the pension fund known as the Jersey Post Office Pension Fund (JPOPF), will continue unchanged, other than for the change of employer, with JPL being obliged to make contributions in respect of those employees sufficient to provide fully funded pensions for them in retirement. Jersey Post will be required to pay into the fund, immediately before the transfer date an amount determined by the Fund actuary to be the total of past service liabilities of the JPOPF, in respect of all remaining pensioners and employees, at that date (Regulation 7). That amount is currently estimated to be approximately £2m and is in addition to the £4.4m paid into the JPOPF in 2004.

15. Thereafter other than in respect of contributions for existing employees, all responsibilities in respect of the fully funded JPOPF will transfer to the States.

The main operating company and asset transfers

16. It is to the main operating and trading entity – JPL – that all of the movable assets, rights and liabilities of the Board are being transferred (Regulation 5), other than those noted above in respect of JPOPF.

The transfer of immovable property

17. The immovable property to be transferred to the group is listed in Regulations 6 and the associated Schedules and plans. These schedules have been prepared in the Law Officers’ Department. In each case the property will be transferred to a non-trading wholly owned subsidiary of JPL so as to minimise the risk to which such properties are exposed. In all cases, the transfers have been made subject to the standard Housing Committee condition (Regulation 6 (5)).

18. The transfer of the leasehold interest in Warehouses on the former Jackson’s Garage site, Rue des Pres Trading Estate is effected through Regulation 6(3&4)). Because the transfer is effected by Regulations made under Article 35 of the PSL, there is no requirement for the participation or consent of the landlord. As the effect of the transfer will be to alter the identity of the lessee, it is hypothetically an interference with the landlord’s rights. However the assignments of the leases of those sites were undertaken in the full knowledge of the landlord that the lease assignments would transfer to the incorporated entity in the near future.

Accounting matters

Regulations 8, 9 and 10 deal with accounting matters in the books of the States. They provide for the orderly closure and settlement of outstanding balances in the States books at the transfer date.

Regulations 11, 12 and 13 deal with accounting matters in the books of the companies. It establishes, in particular, the accounting conventions for the valuation of all assets and liabilities of all the group companies at vesting day and also deals with the accounting treatment of the net surpluses of assets over liabilities in each company on that day.

Corporate governance matters

21. A Memorandum of Understanding (‘MoU’) will be entered into between the Board of JPIL and the Minister for Treasury and Resources. The purpose of this MoU is to ensure the appropriate conduct of Jersey Post Group and to put in place an accountability framework appropriate to the Group as a business.

22. This MoU aims to foster a sound working relationship between the Treasury and Resources Department and the Minister and Jersey Post based on a mutual understanding of expectations for the sharing of information, regular dialogue on key issues as they emerge and develop, and most importantly, the operation of a "no surprises" policy such that Treasury and Resources, in exercising responsibilities as holder of securities in Jersey Post Group on behalf of the States of Jersey, is kept fully informed as to key business decisions which have the potential to impact on the States of Jersey's interests as owner.

In discharging their obligations towards the States as owner of the group, the Minister for Treasury and Resources will in future have a role that is significantly different from the previous role of the CPA. The difference arises from the fact that the interests of users of postal services in Jersey are now to be looked after by the regulatory authority that is separate from and independent of the States – the Jersey Competition Regulatory Authority (‘JCRA’), whereas the Minister shall act in the interests of the States as holder of securities in the Group.

Financial projections

The projected Consolidated Balance Sheet of JPIL immediately after transfer on 1st April 2006 is –

			£'m

Fixed Assets: Tangible Assets			10.2
Net Current Assets			2.6
Creditors falling due after more than one year			(6.0)

Net Assets			6.8

Shareholders Funds
Share Capital			5.0
Profit & Loss reserve			1.8	
				
Total Shareholders Funds			6.8	
				 The Minister for Treasury and Resources commends these draft transfer Regulations to the States as one of the final steps in the creation of a completely new and exciting environment for postal services in Jersey and a robust commercial entity with every prospect of a highly successful future. TREASURY AND RESOURCES MINISTER