RESTRICTED RSTU" 'To Report No. TO- 567b This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not, be published nor may it be qupted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF THE 1967-1971 DEVELOPMENT PROGRAM OF THE JAMAICA TELEPHONE COMPANY ,IMITED JAMAICA January 11, 1967 Projects Department CURRENCY EQUIVALENTS US $1 = L 0.357 (7 shillings and 2 pence Jamaican) 1 Jamaican Pound = 1 Pound Sterling 1 I US $2. 80 6 1, 000, 000 = US $2, 800, 000 TABLE OF CONTENTS Page No. SUMMARY I. INTRODUCTION 1 II. TELECOMMUNICATIONS IN JAMAICA 1 The Public Utility Commission Act, 1966 2 The Licenses 3 III. THE BORROWER 4 Organization and Management h IV. EXISTING FACILITIES OF JTC 5 Local Telephone Facilities 5 Long Distance Telecommunication System - National 6 Telex Service 6 International Telecommunication Services 6 V. THE PROJECT 7 General 7 Telephone Exchange Equipment and Outside Telephone Plant 7 Long Distance Telephone Service 8 Telex 9 Other Works 9 Cost Estimates 9 Engineering and Procurement 9 VI. JUSTIFICATION OF THE PROJECT 10 VII. FINANCIAL ASPECTS 10 Tariffs 10 Present Financial Position 11 Past Earnings 1h Insurance 1h Depreciation 14 Dividends 15 Financing Plan 15 Accounts and Audits 16 Financial Prospects 17 Security 18 VIII. CONCLUSIONS 18 This report is based on the findings of a mission May 23 - June 4, 1966 composed of Messrs. F.S. Elofson and M.V. Scoffier of the Bank and on a feasibility study prepared by the Jamaica Telephone Company ANNEXES 1. Situation Data and Progress Record about JTC (1956-1965) 2. General Organization Chart and Headquarters Structure 3. Waiting List, Telephone Station Gain, Total Demands and Forecast (1961-1975) 4. Development Proposals and Estimated Construction Costs (1967-1971) 5. Company Taxation 6. Summary of Tariffs 7. Actual and Forecast Balance Sheets 8. Actual and Forecast Operating Statements 9. Forecast Sources and Applications of Funds 10. Financial Ratios Map JAMAICA APPRAISAL OF THE DEVELOPIENT PROGRAM OF TIIE JAMAICA TELEPHONE COMPANY LIMITED SUMMARY i. This report covers the appraisal of a project consisting of a development program for the Jamaica Telephone Company Limited (JTC), to expand and improve the telephone, telex and telegraph services in Jamaica. A Bank loan of US$ 11.2 million equivalent has been requested to cover the foreign exchange cost of the project, the total cost of which is estimated to be the equivalent of US$ 18.3 million. Interest during construction is not to be included in the requested loan. ii. The borrower would be the Jamaica Telephone Company Limited and the loan would be guaranteed by the Government of Jamaica. JTC is a private corporation which has been operating the telephone service in Kingston since 1892, and the island wide telephone system since 1945. In 1964, the Company was authorized to operate telex and teleprinter services throughout the island of Jamaica. For these services, the Company holds Government licenses issued under the Telephone Law and under the Telegraph Control Law. iii. In accordance with the Public Utility Commission Act passed by Parliament on May 27, 1966, the Company will in the future be regulated by a Public Utility Commission. The provisions of the Act have been reviewed by the Bank and found generally satisfactory. After extended negotiations new licenses have been granted to the Company by the Government. They will extend over a 25-year period with provision for ten year extensions. iv. The new licensing agreement provides that JTC should carry out a five year development and improvement program satisfactory to the Government. The loan is required for this 1967-1971 program, which includes: a) installation of automatic telephone equipment for about 26,000 new exchange lines and 700 new trunk circuits with provision for long distance dialing facilities and subscribers' special services throughout the island; b) extension of outside line plant including underground cables and open wire lines for connecting new subscribers and for extending existing networks; c) provision for the addition of interurban toll facilities consisting of radio and transmission equipment for new microwave and cable routes and for the extension of the existing ones. These are all required to increase the number of long distance circuits between the main centers of population and to connect the newly serviced areas; d) provision for subscribers' stations and public pay stations, as well as private automatic branch exchange installations; - ii - e) extension of telegraph, private wire and telex services; and f) construction of new buildings, building extensions and land acquisition to meet space requirements for additional equipment. v. The program is technically sound. The planned modernization and expansion of the local exchanges and trunk systems will permit connecting new subscribers and improvement of the telecommunication services throughout the island. A number of areas now without service are included in the extension of the telephone system. The estimated cost is reasonable and construction schedules based on Company experience are realistic. vi. Equipment and materials to be financed under the proposed Bank loan would be purchased on the basis of international competitive bidding. Telephone sets are being manufactured locally and would be eligible for Bank financing provided the local producer submits the best evaluated bid. vii. The Company has a history of satisfactory financial results. The new licenses will allow maintaining JTC's sound financial position. Assurances were obtained from the Government that, during the period of construction, telephone rates would be maintained at levels sufficient to provide to the Company such a return on its rate base as will enable it to achieve the financing of the project, after meeting payment of dividends at present levels and meeting its debt service. viii. The Company has outstanding four issues of prior secured long- term debt, totalling f 1.6 million (US$ 4.5 million). All four issues carry a charge on the assets of the Company but the first three issues rank ahead of the fourth and are pari passu with one another. The first issue (E 200,000) matures in 1968, the second (t 200,000) in 1970, the third (E 400,000) in 1978 and the fourth (t 800,000) in 1982. In view of the difficulty in changing the provisions concerning the parity of the security and the relative small amounts and early maturities of the first three issues, the Bank has agreed to accept a security position junior to them but equal to the fourth issue. The Trust Deed for this fourth issue is therefore being amended to grant the Bank a pari passu security position with the existing stockholders. ix. The financing plan for the project is satisfactory. It is based on a 39% contribution from net cash earnings and the proposed Bank loan. x. The Company is well managed and operated. Its organization is sound and capable of constructing and operating the project. xi. The project would be suitable for a Bank loan of US$ 11.2 million for a term of 15 years including a grace period of 5 years. -1 - JAMAICA APPRAISAL OF THE DEVELOPMENT PROGRAM OF THE JAMAICA TELEPHONE. COi4PANY LIMITED I. INTRODUCTION 1. Thin report covers the appraisal of a project of the Jamaica Telephone Company Limited (JTC), consisting of a five year development program (1967-1971) to expand and improve the telephone, telex and telegraph service in Jamaica. 2. The estimated cost of the project is £ 6.5 million (us$ 18.3 million). The Bank has been asked to make a loan to cover the foreign exchange requirements, excluding interest during construction, estimated to be equivalent to US$ 11.2 million. 3. The borrower would be the Jamaica Telephone Company Limited. JTC is a private corporation licensed by the Government to operate all local and long distance telephone and telex facilities throughout Jamaica. The loan would be guaranteed by the Government of Jamaica. 4. This report is based on a feasibility study prepared by the Jamaica Telephone Company and submitted to the Bank and to the Government of Jamaica, and on the information obtained by an appraisal mission consisting of F. S. Elofson and M. V. Scoffier, which visited Jamaica from May 23 to June 4, 1966. [I TELECOMMUNICATIONS IN JAMAICA 5. The Jamaica Telephone Company operates the telephone and telex services and carries out maintenance and construction services in respect of the Government and Railways telecommunication systems. Public Telegraph services are operated by the PPst Office Department under the Ministry of Communication. Overseas telephone, telex and telegraph facilities are provided by Cable and Wireless (West Indies) Company Limited. 6. The JTC's activities are authorized and regulated by two exclusive licenses issued under the Telephone Law which is administered by the Ministry of Trade and Industry, and two special licenses issued under the Telegraph Control Law administered by the Ministry of Communication and Works. Operational coordination between JTC and the other organizations in charge of telecommunications facilities in Jamaica is governed by adequate mutual agreements. - 2 - 7. Telephone service on the island of Jamaica was first provided for Kingston in 1881 by the West Indies Telegraph and Telephone Company. In 1892 the network of that Company was taken over by the present Jamaica Telephone Company. In 1945, JTC took over the all-island telephone system from the Government and has since operated an integrated telephone network for the whole island under the terms of the Kingston and Saint Andrew Telephone License 1925, and the Jamaica All Island Telephone License 1945. In 1958, JTC was authorized by special license to use wireless radio techniques in order to facilitate development of the telephone trunk network and, in 1964, to operate telex and teleprinter services throughout the island. 8. During the past ten years, the number of working automatic telephone lines has more than doubled, from about 19,000 lines in 1955 to about 39,000 at present. A five-year development program was completed in 1964 which provided additional stations and extension of service in new areas. The network was modernized by the addition of high grade microwave links among main centers and by the introduction of island-wide subscriber trunk dialing. In 1963, completion of a 128 channel submarine cable between Jamaica and the U.S.A. by the American Telephone and Telegraph Company associated with Cable and Wireless Ltd., provided JTC with modern facilities to handle overseas traffic requirements. 9. The Kingston and Saint Andrew Telephone License 1925, on which the three other licenses are concurrent and dependent, operates until January 20, 1967, but is automatically renewable for a period of five years. New licenses to the Telephone Company have been issued by the Government (see paragraph 12). According to the Public Utility Commission Act, enacted in June 1966, Company operations will be regulated and controlled by a Public Utility Commission. The Public Utility Commission Act, 1966 10. The provisions of this Act were reviewed by the Bank in connection with the recent loan to the Jamaica Public Service Company Ltd. The Commission will regulate and control the public utilities of the island. It will consist of not less than three or more than five members appointed from persons qualified and experienced in matters relating to industry, finance, economics, engineering, accounting, commerce or the law. The Act is based on U.S. practice. The Government will have a problem in finding suitable men experienced in telecommunications for the staff of the Commission. It is understood that it is considering recruitment of some foreign advisers to assist in initial operation and to train Jamaican permanent staff and this was confirmed during negotiations. - 3 - 11. The primary function of the Commission is to control the rates and the charges made by the Company for the various types of services, and to ensure that JTC complies with its obligations under the licenses. It may prescribe the system of accounts to be followed by the Company and approve depreciation rates. A provision is included in the Act that the Minister of Trade and Industry may intervene so as to assure an adequate minimum return for the Company during any construction period of a project for which financial assistance is being given by the Bank. The Licenses 12. To facilitate raising the funds necessary for continuing development, negotiations with the Government for the issuance of new licenses were started in 1963 four years before the expiration of the existing licenses. These have resulted in an agreement providing for three new licenses which were granted in December 1966 and cover a 25-year period with provision for ten-year extensions. The licenses were prepared by the Ministries of Trade and Industry and of Communications, in negotiation with the Company. The new licensing arrangements provide for Company operations to be regulated by the Public Utility Commission and require the Telephone and General Trust Limited which now owns 50.2% of Company's share capital to reduce its holdings to no more that 20%, over a five-year period. 13. The terms of the principal All Island Telephone license, 1966, require inter alia that: i) no company, firm or individual shall hold more than 20% of the ordinary issued shares without ministerial approval; ii) any re-organization of the capital structure of the JTC or changes in rates or rate structure, shall be subject to the approval of the Public Utility Commission; iii) within three months of the date of issue of the licenses the Company shall submit a development and improvement program covering a period of five years to the Ministry of Trade and Industry for approval; this program shall be in a sum of not less than E 5 million (US$ 14 million); and iv) the Company will continue its agreements with the Postmaster General and the Jamaica Railway Corporation to undertake on a repayment basis maintenance and construction services of the telecommunication systems for these two organizations. The telephone license also provides for fair compensation in the event the Government should decide to acquire the Company's assets. The other two licenses renew the 1958 and 1964 special licenses (see paragraph 7). The three licenses were reviewed by the Bank and found satisfactory. - 4 - 14. Since 1963, during the period of negotiation for new licenses, the expansion of JTC's installation has been restricted and the increasing demand on the existing equipment, although of modern construction, has resulted in it being overloaded to the extent that it cannot satisfactorily handle the traffic. The present program meets the requirements of the licensing agreement and will provide sufficient expansion of facilities to meet the estimated increase of traffic during the program period. III. THE BORROWER 15. The Borrower would be the Jamaica Telephone Company Limited which is registered in Jamaica. Significant data on the Company's operations over the last ten years are shown in Annex 1. Organization and Management 16. The Company is governed by a Board of Directors, consisting of nine members. At present seven of the Directors are Jamaican citizens and two are non-residents of Jamaica being members of the Board of Directors of the holding company Telephone and General Trust Ltd., London. One of the non-resident directors is also on the Board of Telephone and Associated Services of London, the consulting firm employed by JTC, (see paragraph 20). 17. The iManaging Director is the Chief Executive of the JTC and is a member of the Board. He is responsible for the administration of the Company day-to-day operations and negotiations with Government agencies and other companies. As a Board member the Managing Director participates in the establishment of Company policy. The head office is in Kingston, the capital city, and three regional offices are responsible for operations in their respective districts. An organization chart of the Company is given in Annex 2. 18. The CQmpany ic well managed by experienced officers, of whom the twelve most senior are expatriates. A total staff of 1,019 is employed, of which 95 are executives-and supervisory personnel. The Company also employs up to 200 casual laborers from time to time. The total number of employees per thousand telephones amounting to about 23 is relatively high but results from the Company's practice of carrying out practically all installation work with its own staff. 19. During the last decade, the Company has consistently pursued a recruitment and training policy to increase the number of suitably qualified Jamaicans on its staff. A vocational training school operating since 1957 has provided courses in various technical and administrative subjects to more than 1,200 students. Graduates from the West Indies University and the local technical college are engaged and sent either to the .United Kingdom or the United States for advanced specialized training. 20. Technical assistance is provided by the consulting firm Telephone and Associated Services Ltd., London. A five-year contract with this firm was signed in January 1965, covering assistance in planning, engineering, preparation of specifications, purchasing and inspection of equipment. The fees to be charged under this contract are reasonable. 21. The Company's organization and management are sound and qualified to carry out and operate the proposed project. There is no indication that the Managing Director plans to resign or retire within the construction period of the Project. Assurance has been received that the Bank will be consulted regarding any future appointments to this post. IV. EXISTING FACILITIES OF JTC Local Telephone Facilities 22. All local telephone service in Jamaica is provided by JTC. This includes providing private subscribers' installations such as extension telephones and private branch exchanges which are purchased, installed and serviced by the Company and rented to the users. As of the end of 1965, JTC had 50,067 telephone stations of all kinds connected to the general telephone network. Telephone density is only 2.9 telephones per hundred of population which compares with present averages of 45 in North America and 18 in Western Europe and, from the following table, is low when compared with other countries of the same area: Bahama Islands 13.9 per 100 Puerto Rico 7.2 " " Trinidad and Tobago 3.8 " Pariama 3.4 " Cuba 3.1 ' " 24. The local telephone service is entirely automatic, based upon the use of step-by-step Strowger exchange equipment of British manufacture. A significant proportion of the equipment is of recent installation, 80% having been installed subsequent to 1951. Maintenance of the automatic switching equipment is satisfactory and performed by Jamaican personnel under the supervision of a foreign staff. The oldest part of the Kingston Central and Montego Bay exchanges, installed in 1933 and 1945 respectively, is due to be replaced by new equipment. 25. About 65% of all telephone subscribers are in Kingston city, and suburban area. In the whole country there are 44 automatic exchanges of which 7 large ones are in the Kingston area and 37 in other centers throughout the island. A mobile radio telephone network is in operation and, in some cases, is also utilized to service fixed isolated locations. The networks are satisfactorily constructed to meet local conditions and are reasonably well maintained. A number of newly developed suburban communities around main cities and populated rural areas are inadequately, or not yet served, due to lack of necessary exchanges and lines. -6- 26. Station increase, total demand for telephone lines and waiting list of deferred requests since 1961 are shown in Annex 3. In March 1966, the waiting list included over 3,100 applications in Kingston and over 500 applications in 37 other cities or serviced areas of the island. The Company estimates that an additional 300 potential applicants are located in areas where exchange service does not yet exist and where line construction cost is high. Long Distance Telecommunication System - National 27. Expansion of the long distance system during the past twenty years is indicated by the increase in number of trunk telephone circuits from 12 in 1945 to 480 at the end of 1965. The annual rate of growth was 16% since 1961 and reached 20.1% in 1965. 28. The high capacity toll system consists of microwave links from Kingston to the main trunk centers and of very high-frequency (VHF) radio links to the other zone centers. The microwave equipment was installed during the past two years, and VHF equipment during the last five years. The modern design of the transmission equipment in use meets quality standards recommended by the International Telecommunication Union (ITU). The corresponding toll network is of appropriate design and suitable to local conditions. 29. Subscribers' Trunk Dialing (STD) was first introduced in 1961 and the entire Kingston area was converted to STD in 1964. Further extension completed the STD facilities to the rest of the island early in 1966. Despite the high rate of growth in number of circuits since 1961, the toll services are overloaded on certain routes due to the increase in demand. Telex Service 30. Telex service was first offered in 1964 and is available for local and international traffic in the Kingston area, where a 40 subscriber automatic exchange is operating. The present system is well suited to provide the required service and is in good condition. International Telecommunication Services 31. International telephone and telex services are provided by Cable and Wireless (West Indies) Ltd. and the American Telegraph and Telephone Company (A.T. & T.) in association with the JTC, under the terms of agreements in force until 1988. 32. According to the agreement for international telephone services, Cable and Wireless provides the overseas radio and submarine cable connections with associated transmission equipment and JTC provides the terminal signalling and switching equipment and switchboard services. International telephone traffic showed an increase of 30% in 1963/64 and of 50% in 196h/65 due largely to the increase of tourist activity. - 7 - V. THE PROJECT General 33. The proposed 1967-1971 expansion program has been based upon the telephone subscribers waiting list and an estimated growth rate of 8% per annum in the number of telephones. Interurban facilities have been planned to meet reasonably estimated traffic requirements on toll routes. Taking into account the observed traffic growth trends in the telephone network of the island, a basic increase of 15% per annum in the number of trunk circuits has been assumed. Service will be extended to some towns and rural areas not now being served. The need to improve service quality has been considered and the project includes replacement of obsolete telephone exchange equipment, as well as improvement of the existing local and toll networks. Development proposals have been summarized in Annex 4 showing estimated construction costs for each year. Telephone Exchange Equipment and Outside Telephone Plant 34. Nine existing automatic exchanges would be re-equipped with new automatic equipment and ten new automatic exchanges would be installed. In addition, extensions to existing equipment would be made in twenty-five other exchanges, sixteen of them being of rural type, and the use of line concentrators would be extended to fourteen new rural areas. The existing and new exchanges, and the proposed extensions, are shown in the attached map. 35. New automatic equipment totalling about 30,000 lines would be installed, consisting of 20,000 lines of crossbar or semi-electronic type installations in new or re-equipped exchanges and 10,000 lines of step type equipment in existing exchanges. There would be retired from service about 4,000 lines of old automatic equipment resulting in a net increase of about 26,000 exchange lines. 36. The project would include the following increases in telephones amounting to 28,000 during the program period: 1967 3,500 telephones 1968 5,000 if 1969 6,000 " 1970 6,500 " 1971 7,000 it 37. The planned expansion of outside cables and overhead line plant has been based on the Company's experience in recent years on the numher of subscriber connections required compared with the planned addition of new telephone stations. Allowance has also been made for the additional work required to reinforce and improve the existing cable system which, in many cases, is overloaded and prevents the connection of new subscribers. - 8 - Adequate provisions has been made in the type and quantity of new cables to permit connections to new areas as they are developed. Equipment for the Government and iRailway telecommunication systems, as well as inter-exchange junction cables and miscellaneous works have been included. The estimated quantities and costs are based on JTC's experience in recent years and are reasonable. Long Distance Telephone Service 38. The installations to be provided include: a) installation of high capacity microwave systems between Kingston and Palisadoes and between Kingston and Spanish Town; b) additional VHF radio transmission and receiving equipment for the links connecting Kingston with Ma-y Pen and Montego Bay with Falmouth, Lvcea, Negril and Savanna-la-Mar; c) installation of additional channeling equipment on existing microwave and VHF links to utilize their full capacity; d) provision of new junction cables between Kingston and Stony Hill, St. Ann's Bay and Ocho Rios, St. Ann's Bay and Discovery Bay and provision of channeling equipment for new and existing cables; e) construction of open wire pole lines, installation of multi- channel carrier systems on long distance pole routes, and reconstruction or extension to these routes where required; and f) installation of radio equipment for three base stations to serve mobile and isolated radio telephone subscribers' installations, including the present Kingston base, to cover approximately 70% of the total area of the island. The existing radio routes and the proposed additions during the program are shown in the attached map. 39. Associated with the installation of the local and long distance networks, equipment would be installed in telephone exchanges and trans- mission centers to extend STD to all subscribers. Provision has been made for an increase of about 700 automatic trunk circuits, more than doubling the 1966 figure, and 1,300 circuits in total would be operated on an automatic basis in 1971. This expansion is reasonable. 40. Manual boards for subacribers' assistance, information, monitor, trunk, international and other special services would be added with positions for 16 additional operators in Kingston. Additional operators positions will also be installed at the Montego Bay, Mandeville and St. Ann's Bay district centers, re-utilizing existing equipment. 41. The works for local and long distance telephone equipment are scheduled to be completed in successive steps over the 1967-1971 period. -9- Telex 42. The project would include the installation of a new 100 line automatic telex exchange in Kingston in 1967 and the purchase of teleprinters and of telegraph transmission systems for the telex network. Telex services will be extended to Montego Bay, Mandeville and St. Ann's Bay. Other Works 43. Provision is made in the program for pole lines and transmission equipment required for the Governmental and Railway Corporation tele- communications systems and for the overhead lines which JTC shares with the Jamaica Public Service Company. Cost Estimates 44. The estimated cost of the 1967-1971 program is summarized as follows: Local Foreign cost Cost US$ Total cost Class of Plant Jam.E IBRD Loan Other US$ Jam.E (in thousa nds)s 1. Exchange equipment 411 5,090 478 6,720 2,400 2. Outside line equipment 746 2,250 4,340 1,550 3. Subscribers' station equipment 277 1,785 2,562 915 4. Long distance equipment and materials 120 1,160 1,495 534 5. Land and buildings 300 840 300 6. Miscellaneous (specialized vehicles, tools and miscella- neous equipment) 262 135 868 310 7. Engineering 52 340 485 173 8. Contingencies 186 440 960 343 Total 2,354 11,200 h78 18,270 6,525 45. Cost estimates have been based on actual costs incurred by the Company in recent years. Contingencies estimated at about 4% of foreign exchange costs and 7.4% of local costs should provide adequate allowances for price variations. These estimates are considered to be reasonable. Engineering and Procurement 46. The program is technically sound and has been prepared in detail by JTC with the assistance of its consulting engineers. JTC and its consulting engineers will continue to collaborate in the preparation of specifications, invitation to bid, analysis of bids, purchasing of equipment and supervision of construction. - 10 - 47. Equipment will be installed by the JTC's own staff, except the new crossbar or semi-electronic type exchanges which will be installed by the suppliers. 48. The Company has confirmed that it will follow the Bank's require- ments with respect to international bidding procedures and purchase materials and equipment to be financed from Bank funds on the basis of international tender. 49. JTC has since 1965 purchased telephone instruments from a local assembly plant owned by International Telephone and Telegraph Company. It has been agreed that locally manufactured telephone sets could be financed under the proposed Bank loan provided this supplier submits the lowest evaluated bid. VI. JUSTIFICATION OF THE PROJECT 50. As mentioned before, telephone density in Jamaica is low at 2.9 telephones per hundred of population and telecommunication facilities are inadequate to satisfy the present high demand for services. Jamaica has experienced a high rate of economic growth (7.5% per annum) since mid- 1963 and growth prospects continue to be favorable. The anticipated rate of economic growth will increase the demand for communication facilities substantially. In additiion, the importance of such adequate facilities will increase on account of an expected further regional spreading of economic activity, principally in the mining sector, industry and tourism. At the same time, the Government's efforts to promote the development of private investment throughout the island is already showing results. 51. The project is needed to satisfy the aforementioned rapidly growing demand for new services and to alleviate the growing congestion in long distance and urban traffic. The project is intended to provide by 1971 a telecommunication system which will handle the estimated traffic requirements with little or no delays. The public dissatisfaction with telephone service, which at present is constantly expressed to the Company and to the Government, should thus be alleviated. VII. FINANCIAL ASPECTS Tariffs 52. Under the new Public Utility Commission Act, the Company's tariffs are subject to regulation by the Public Utility Commission. The Act provides that the Company shall be permitted to earn a maximum return on its rate base of 2.5% above the high point in the preceding year in the yield of the latest long-term issue of Jamaican Government bonds in the U.K. In 1966 this high point wias 8.4% so the maximum permissible return would be 10.9% at present. In determining the rate of return the Commission shall take into account any increase or decrease in debt service resulting from variations in the exchange rate. - 11 - The Act defines the return as gross income after deducting all operating and maintenance expenses, depreciation computed on a straight-line basis and taxes other than Jamaican income taxes, divided by the rate base and expressed as a percentage. 53. The rate of return is determined without allowing deduction of Jamaican Income Tax because this tax is the liability of the shareholders and not the Company. The dividends are paid to the shareholders after deducting income tax (37.5% of the gross dividends) and each shareholder uses the tax so deducted as a credit against his total tax liability. A brief description of the Company's taxation is given in Annex 5. 5h. The rate base is defined to include: a) plant in service and plant held for future use as it appears on the Company's books, less accumulated depreciation and any advances or contributions made by subscribers towards construction costs; b) plant under construction (excepting such amounts as are related to major exchange construction); c) working capital (limited to not more than 12-1/2% of the twelve months operating and maintenance expense); d) the average monthly balance of the materials and supplies account, as it appears on the books of the Company. Interest will be capitalized on major exchange construction at the rate of interest paid by the Company on its most recent long-term borrowing. 55. The Act also provides that during the construction period of any project financed by a Bank loan, the Minister of Trade and Industry may prescribe a minimum rate of return. 56. A summary of the Company's tariffs is given in Annex 6. They are generally comparable to those charged by other telephone entities in the Caribbean area. 57. The present level of tariffs is satisfactory and has permitted the Company to earn rates of return of about 9% during the last five years. The financing plan for the proposed expansion program assumes no changes in the tariffs, and although there would be a gradual decrease of the rate of return during the construction program the estimates indicate that the Company would generate sufficient funds to meet the capital requirements not met by the Bank loan (see paragraph 72). Present Financial Position 58. Balance sheets for the years 1961 through 1965 are given in Annex 7. The following is a summary of the balance sheet at December 31, 1965: - 12 - (in thousands of £) ASSETS Telephone plant 7,910 Less: Accumulated depreciation 2,039 Net Telephone Plant 5,871 Current assets 950 Total Assets 6 821 LIABILITIES Equity Cumulative preference shares 300 Ordinary shares 2,437 Premium on ordinary shares 7 Reserves and surplus 962 Total Equity 3,706 Long-term debt First mortgage debenture stock 800 Debenture stock 800 Total Long-Term Debt 1,600 Current liabili-ties 1,515 Total Liabilities 6,821 59. The investment in telephone plant is at original cost. There have been no revaluations of assets by the Company. Depreciation is calculated on a straight-line basis. 60. Included in Current Assets is £ 558,600 ($ 1,564,000) of accounts receivable. This includes amounts due from the Jamaican Railway Corporation and the Postmaster General for construction and maintenance services provided to them, (about £ 46,000), as well as the balances due from telephone subscribers. The balances due from subscribers represented about 26% of 1965 revenues, equivalent to 3.1 months of revenues. This balance is not considered excessive since the Company submits its bills bi-monthly. 61. The authorized share capital of JTC at December 31, 1965 was £ 3.5 million ($ 9.8 million) consisting of: - 13 - 5-1/2% First Cumulative Preference Shares at I 1 each E 100,000 6% First Cumulative Preference Shares at E 1 each 200,000 Ordinary Shares at 5 shillings each: Issued and outstanding 2,437,500 Authorized but not yet issued 762,500 £3,500,000 There have been no new shares issued to the public since July 1, 1960. The par value of the ordinary stock was reduced, in 1966, from one pound to five shillings to encourage wider ownership of the shares in Jamaica. Approximately 80% of the shareholders, holding 31% of the ordinary shares, are residents of Jamaica. Ordinary shares were recently sold on the London stock market at 5 shillings 7-1/2 pence. 62. The holding company maintains control of JTC through its ownership of 50.2% of the total issued-equity shares of JTC. As a condition to granting the new license the holding company has agreed to reduce, over a period of five years, its holdings of ordinary shares in excess of 20% of the outstanding share capital (see paragraph 12). A reasonable proportion of these shares must be offered for sale in Jamaica. Should the holding company be unable to achieve this reduction of its holdings within the allotted time, an extension may be granted by the Jamaican Government. 63. The Company has outstanding four issues of secured long-term debt. All four issues carry a charge on the assets of the Company but the first three issues rank ahead of the fourth issue and are pari passu with one another. All four issues are term loans with no sinking fund provisions; they mature as follows: Maturity Date Issue Amount Nov. 1, 1968 5% First Mortgage Stocks, issued June 1951 E 200,000 Dec. 31, 1970 5% First Mortgage Stocks, issued May 1954 200,000 May 1, 1978 6% First Mortgage Stocks, issued May 1958 400,000 Feb. 1, 1982 7-1/2% Debenture Stocks, issued January 1962 800,000 E1,600,000 64. The Trust Deed under which Debenture Stock was issued in January 1962 prohibits the Company from creating a new mortgage or charge ranking in priority or pari passu with the charge created by the Trust Deed. Although additional pari passu Debenture Stock may be issued under the 1962 Trust Deed, such new stock may not mature before February 1, 1982 which is the date on which the original stock issued thereunder matures. The Company has obtained indications from a majority of the stockholders of the 1962 issue of their preparedness to amend the Trust Deed to provide for the issue of Debenture Stock to the Bank ranking pari passu in all respects with the 1962 issue and providing for maturities corresponding to the amortization schedule in the Loan Agreement. 65. As a result of the continuing delays in the renewal of the Company's licenses it has, in recent years, been unable to obtain long-term loans and has had to rely on internally generated funds and short-term loans from the holding company to finance its expansion during the past four years. In 1965 the Company negotiated overdraft facilities with Barclays Bank D.C.O. of London in anticipation of the need to have funds available to repay the holding company loans when they are called. The Company has used Barclays for a number of years and has very good commercial relations. It was able to obtain an overdraft of up to f 900,000 and it is reasonable to expect that the Company can use this overdraft for an unlimited time. This use of short-term credit for expansion has placed the Company in a tight cash position and as of December 31, 1965, the current liabilities were more than 1.5 times the current assets. The current liabilities at that date included holding company loans at f 430,793 and a bank overdraft of E 453,723. It is anticipated that this un- satisfactory position will be gradually improved over the next five years. Past Earnings 66. The Company's financial history is good. Operating statements for the years 1961 through 1965 are shown in Annex 8. During this five- year period operating revenues increased about 5h%, from E 1.3 million in 1961 to t 2.0 million in 1965. In the same period, operating expenses increased 45% from 1 860,000 to f 1,250,000 which resulted in an improvement of the operating ratio from 66% in 1961 to 63% in 1965. The ratio of net operating income (after taxes) to average net plant in service has averaged about 9% in the 5 year period. Insurance 67. The Company's insurance practices are sound and it maintains adequate coverage against losses and liability. Depreciation 68. The annual amount to be charged for depreciation is computed, on the basis of average life of various categories of plant in service, by the Company's consulting engineers. The allowances range from about 2% on buildings to 15% on items such as vehicles and tools. The resulting composite rate has averaged about 5% in recent years. This rate is not unreasonable. 69. The Company is planning to institute continuing property records during 1967 and once established it will review its depreciation policy in cooperation with the Public Utility Commission (see paragraph 11). Dividends 70. The Company management has maintained a conservative policy on the declaration of dividends on its ordinary shares. These dividends have been paid at 9% of the par value of the shares since 1957. This rate represents a yield of 8% on the Market price (see paragraph 61) and 6.6% of the average ordinary equity capital (see Annex 10). It is the present expectation of management to continue the present rate of ordinary dividends. However, it would be reasonable for the Company to declare small increases in these dividends, as its equity grows, in order to maintain a market for its shares. Dividends on preference shares have been paid regularly and are not in arrears. Financing Plan 71. The plan for financing the 1967-1971 expansion program assumes a Bank loan equivalent to E 4 million, and temporary short-term borrowings through existing overdraft facilities. The balance of construction requirements would be met from internally generated funds. No sale of share capital is planned during the construction period because no under- writer could be expected to undertake the sale of new shares while the holding company is disposing of its excess shares (see paragraph 62). 72. A forecast of sources and applications of funds for the seven years 1967-1973 is shown in Annex 9. During the construction period, 1967-1971, JTC's requirements are estimated at L 7.8 million ($ 21.8 million) as follows: (in thousands of f) Percent Construction 6,525 83.3 Increase in working capital 1/ 1,304 16.7 Total Requirements 7,829 100.0 The estimated sources of capital are as follows: Internal cash generation 6,392 Less: Debt Service 1,823 Dividends, net 740 Net internal cash generation 3,829 48.9 Proposed IBRD loan 4,000 51.1 Total Sources 7,829 100.0 1/ Increase in working capital includes the elimination of the bank overdraft and the holding company loan. - 16 - 73. If the aforementioned program is carried out as planned, JTC's net fixed assets at the end of 1971 would be about E 10 million, nearly twice their value at the end of 1965. 74. Internal Cash Generation, net of dividends, taxes and debt service, would represent about 49% of total requirements. However, since about E 1.3 million would be required for working capital, some 1 2.5 million would be expended on the project, representing 39% of construction costs. 75. Based on forecasts the Company would be able to continue its present dividend policy, improve its working capital position and provide satisfactory contributions to construction costs from internally generated funds if its present tariffs are not reduced during the period of construction. Assurances were obtained from the Government that, during the period of construction of the project, telephone rates would be maintained at levels sufficient to provide to the Company such a return on its rate base as will enable it to achieve the financing of the project, after meeting payment of dividends at present levels and meeting its debt service. The rates of return during this period are estimated to gradually decrease from 11.5% in 1967 to 9.5% in 1971. After completion of the construction program the tariffs will be set and maintained in accordance with the Public Utilities Commission Act (see paragraph 52). 76. The financing plan includes the payment of the three first mortgage issues on their respective maturity dates (see paragraph 63). In addition the bank overdraft and holding company loan will be fully repaid by 1972. 77. The proposed Bank loan of $ 11.2 million is assumed to be for a term of 15 years, including a grace period of five years and carry a 6% interest rate. 78. It has been assumed that development would continue after completion of the program covered by the project at about the same annual level. Since the cash build up during the project period would be negligible, due to the paying off of the bank overdraft and holding company loan, future borrowing of E 800,000 in each of the years 1972 and 1973 have been assumed. Accounts and Audit 79. The accounting staff of JTC is well qualified and an accounting system based on the U.S. Federal Communications Commission system of accounts is being instituted under the requirements of the Public Utility Commission. 80. The Company presently retains Price Waterhouse & Co. as its auditors. Assurances have been obtained from the Company that it will continue to use independent autitors satisfactory to the Bank. - 17 - Financial Prospects 81. A forecast of earnings for the eight year period, 1966-1973 is given in Annex 8. In preparing these forecasts JTC used the following reasonable assumptions: a) local service revenues would increase at an annual rate of about 6%, corresponding to the expected growth in the number of telephone lines; b) trunk and metered call revenues would increase at an annual rate of about 10%, slightly less than the growth experienced in the past five years; c) revenues from international services would increase at an annual rate of about 20%, or about one-half of the rate of increase experienced since service via the submarine cable to the U.S.A. was established in February 1963; d) maintenance, administration and other costs of operation would increase at an annual rate of about 15%, reflecting system growth and expected wage and salary increases during the period; e) present rates would be maintained; f) dividends will continue to be paid at the present levels, i.e. 5-1/2% and 6% on the two issues of preference shares and 9% on the par value of the ordinary shares; g) average annual composite depreciation of about 4.8%. 82. The Act passed by the Jamaican Parliament on May 9, 1966 which authorized the Government to guarantee loans made by the Bank to private corporations incorporated in Jamaica, provides that the borrowing company shall pay to the Government a commission, as determined by the Minister of Finance, but not to exceed one percent of the amount guaranteed. Although no time limit has been set for the payment of this comnmission, it was assumed to be paid in 1967 and at the rate of one percent. 83. In preparing its forecasts, the Company did not foresee the need for any rate increases until after 1973. However, since the rate of return is estimated to fall to 9.3% in 1972 and 8.9% in 1973, a small rate adjustment may be necessary in 1972. - 18 - 84. Coverage of interest by net income would be satisfactory, remaining above three times until 1973 when it would fall to 2.9 times. This is well above the 2.5 coverage required under the 1962 issue indenture (see paragraph 64). 85. Based on the assumed payments of the first mortgage issues (see paragraph 76) debt service coverage by internal cash generation would fall to 2.7 times in 1968 and 1970 when the two issues of first mortgages would be redeemed. In the first two years of repayment on the proposed Bank loan, the coverage would be 2.5 and 2.4 times respectively. The ratio of long-term debt to equity would change from 30/70 at the end of 1965 to 51/49 at the end of 1973. Security 86. The Bank has agreed to take a security position junior to the first three secured debt issues (see paragraph 63) because of the difficulty in changing the provisions concerning the parity of security and the relative small amounts and early retirement of these issues. 87. The loan will be secured by Debenture Stock issued under an amended Trust Deed charging all of the present and future property of the Borrower. Until the amendment to the Trust Deed providing for the issue of Debenture Stock to the Bank (see paragraph 64) shall have been duly executed and registered, the Borrower shall not, without the Bank's prior approval, withdraw more than US$ 500,000 equivalent from the loan account. VIII. CONCLUSIONS 88. The program planned as a basis for the proposed Bank loan is technically sound and well designed to meet the immediate and most essential telecommunication needs of the island. JTC is efficiently operated and managed, its organization is sound and is fully capable of carrying out the program. 89. Estimates of costs are reasonable, procurement procedures and financing proposals are satisfactory. 90. JTC's financial position should remain sound and all construction expenditures in the program not covered by the proposed Bank loan would be met out of earnings (paragraph 72). 91. The terms of the new licenses granted to the Company have been reviewed by the Bank and found satisfactory. 92. The program is suitable for a Bank loan of $ 11.2 million with a term of fifteen years including a grace period of five years. January 11, 1967 THE JAM'AICA TELEPHONE CO. LTD. ANNEX 1 Situation Data and Progress Record (1956-1965) 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 PLANT AND TELEPHONES IN SERVICE Total Cost of Fixed Assets £2,703,899 E3,024,939 £3,690,645 L4,389,748 £5,o43,6142 L5,641,246 £6,293,450 £6,84h,826 W7,316,032 £7,909,911 No. of Telephone stations of all kind in service at 31st December 25,000 27,766 30,250 33,565 35,537 39,010 41,152 43,829 46,654 50,o67 Average Capital Cost per Telephone £108.1 £108.9 £122.0 E130.8 fl41.9 £144.4 £152.9 L156.2 £156.8 £158.0 Cost of New Construction £454,374 L353,675 £695,233 t744,518 £728,719 £662,637 £764,013 £596,120 £577,995 £711,397 Increase in number of Telephones 2,073 2,766 2A685 3,15 2,S554 3,493 2,122 2,677 2,825 3,413 Average Cost per Telephone Added £218.7 £127.9 *L279.7 L224.6 *£285.3 £188.1 *£360.0 t222.7 £204.5 £208.5 Percentage Increase in No. of Telephones 9.0 11.1 9.0 11.0 7.6 9.9 5.4 6,5 6.5 7.3 REVENUFE AND PROFIT Total Revenue £574,143 t692,572 £779,160 £937,793 £1,105,938 £1,291,779 L1,409,975 £1,529,792 £1,733,832 t1,971,858 Net Profit before tax £120,335 £150,051 £176,113 L231,634 £246,531 £341,559 £329,301 £378,822 £495,661 L560,245 Rate of Ordinary Dividend 8% 9% 9% 9% 9% 9% 9% 9% 9% 9% CAPITAL EMPLOYED Ordinary Stock L675,000 L1,075,000 £l,475,000 £1,875,000 f2,437,500 £2,437,500 £2,437,500 £2,437,500 £2,437,500 £2,437,500 Preference Shares £300,000 £300,000 £300,000 t300,000 L300,000 £300,000 £300,000 £300,000 £300,000 £300,000 Debenture and Debenture Stock L4OO,O00 £400,000 L800,000 £800,000 £800,000 £800,000 £1,600,000 £1,600,000 fl,600,000 f1,600,000 Reserves £259,120 £213,035 £2L2,653 £220,979 r253,846 £346,765 £396,372 £514,590 £754,204 £962,402 Loan Accommodation £896,286 £295,851 L322,584 £535,452 L540,285 L844,173 £507,096 £612,105 t741,617 t884,516 * The unusually high averape caoital cost per telephone installed in these years is due to capital expenditure incurred on the construction of a radio trunk network, the upgrading of party lines and the introduction of Subscriber Trunk Dialling. TH{E JAMAICA TELEPHONE COMPANY ANNEX 2 General Organization Chart and Headquarters Structure STOCEXOLDERS BOARD C DIEflrTORS CHIEF EXECIITIVE (Managing Director) Public Relations and Staff Secretariat Customer ODerations Engineering and Operations Controllership and Finance (Assistant General Manager) (Assistant General Manager) (Company Secretary) t I I Stores Customer Opera- Market Operations Training Operations Engineering Financial Secretarial Group tions and Sales Planning Districts and School Kingston Planning Construction Treasury Accounting Planning Group -District -8usiness Offices -Forecasts of - - -Installations -Traffic -Central -Custody -General and -Economic Stores Development Office and Telephone Forecast -Assignment -Maintenance -Requirements Registra Accounts Bureau -Service - - Subscriber -Outside tion -Revenue Plans -Outside -Design and Plant Requirements -Directory C. 0. & Radio Spec. -Special Plant -P.A.B.X. -Rates and -Advertising Services -Records Separations and Selling -Operators -Jorkshops -Methods -Methods and -Stores tngineer. Procedures June 23, 1966 THE JAMAICA TELEPHONE COMPANY WAITING LIST, TELEPHONE STATION GAIN AND TOTAL DEMANDS (NUMBER OF TELEPHONE LINES) 9,000 I I I I I I 9,000 8,000- 8,000 7,000 .--7,000 TELEPHONE STATION GAIN A 7,000 6,000 - Independance Recovery factor .. 6,000 and uncertainty after independance 6.000 L DEMANDS 5,000 .. E 5,000 4,000 '. .. 4,000 3,000 3,000 -. .. __0- / ........... \<,~Wj KITING LIST 2,000 2 . \ 2,000 1,000: t I I , \ 1,000 0 .~~~~~~~~~~~~~~~~~~~~~~~~~0 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 FORECAST z z m (R)IBRD-3074 > to THE JAMAICA TELEPHONE COMJPANY ANNEX 4 Development Proposals (1967-1971) Summary of Estimated Annual Costs (Construction costs in 1 Sterling, including Overheads and Contingencies) 1 9 6 7 Section Overseas Local Total IBRD Loan Other 1. Exchange Equipment 40,000 133,600 56,600 230,200 2. Outside Line Plant 132,000 108,000 240,000 3. Subscribers' Station Equipment 113,700 51,800 165,500 4. Long Line Radio and Transmission Equipment 149,400 59,000 208,400 5. Land and Buildings 141,300 141,300 6. Miscellaneous 12,000 48,000 60,000 Total 447,100 133,600 464,700 1,045,40 1 9 6 8 Section Overseas Local Total IBRD Loan Other 1. Exchange Equipment 965,500 37,000 168,050 1,170,550 2. Outside Line Plant 180,000 126,000 306,000 3. Subscribers' Station Equipment 128,700 64,000 192,700 4. Long Line Radio and Transmission Equipment 59,500 19,750 79,250 5. Land and Buildings 75,500 75,500 6. Miscellaneous 12,000 53,000 65,000 Total lz345,700 37,000 506,300 1,889,000 1 969 Section Overseas Local Total 1. Exchange Equipment 261,500 85,500 347,000 2. Outside Line Plant 187,000 179,000 366,000 3. Subscribers' Station Equipment 144,200 60,700 204, 900 4. Long Line Radio and Transmission Equipment 110, 750 42,550 153,300 5. Land and Buildings 60,000 60,000 6. Miscellaneous 12,000 58,800 70,800 Total 715,450 486,550 1a202,000 ANNEX 4 page 2 1 9 7 0 Section Overseas Local Total 1. Exchange Equipment 4050,00 112,000 517,000 2. Outside Line Plant 194,000 166,000 360,000 3. Subscribers' Station Equipment 141,300 79,200 220,500 4. Long Line Radio and Transmission Equipment 50,450 18,450 68,900 5. Land and Buildings 31,600 31,600 6. Miscellaneous 13,000 61,000 74,000 Total 803,750 468,250 1,272,000 1 9 7 1 Section Overseas Local Total 1. Exchange Equipment 239,500 53,500 293,000 2. Outside Line Plant 217,000 191,000 408,000 3. Subscribers' Station Equipment 152,500 84,500 237,000 4. Long Line Radio and Transmission Equipment 65,000 21,000 86,000 5. Land and Buildings 17,000 17,000 6. M4iscellaneous 14,000 62,000 76,000 Total 688,000 o429,000 1,117,000 SUMMARY OF ANNUAL COSTS Year Overseas Local Total IBRD Loan Other 1967 44.7,100 133,600 464,700 1,045,400 1968 1,345,700 37,000 506,300 1,889,000 1969 715,450 486,550 1,202,000 1970 803,750 468,250 1,272,000 1971 688,000 429,000 1,117,000 Total 4,000,o000 170,600 2,354,800 6,525,400 Overseas payments-acceptable by World Bank 1 4,000,000 - 61% Cash requirements from JTC's resources, overseas L 170,600 local 1 2,354,800 Total L 2 525?400 - 39% Total estimated expenditure over five years 1967-1971 inclusive 1 6,525,000 - 100% ANNEX 5 THE JAMAICA TELEPHONE COMPANY, LIMITED COMPANY TAXATION Company tax is assessed each year on the profits of the previous year after deducting the normal allowable expenses. The total rate of tax is 40% of which 37.5% is income tax and 2.5% is profits tax. The principal feature of Jamaican Company taxation is the generous initial allowances which are deductible from profits in addition to normal annual allowances. The initial allowance is 20%o of expenditures on all depreciable assets and is granted in the first year in addition to normal depreciation (annual) allowances which vary according to the category of the asset (e.g. 10% for switchboards and telephones, 5% for outside poles and cables). The depreciation allowances are calculated on the written down balances, and a balancing charge or allowance is made when the asset is retired and is the difference between the written down value and the salvage proceeds. Wiritten down value represents the difference between original cost and allowances given (initial and annual). Because of these initial allowances, the tax liability can be considerably reduced in periods of heavy capital expenditures. Dividends are paid to shareholders net of income tax and the tax deducted is retained by the Company. W1hen the shareholders tax liability is computed, dividends are included grcss and the tax deducted therefrom is allowed as a credit against the total liability. Under this concept, it is presumed that the tax (excluding profits tax) paid by the Company always exceeds the tax deducted from dividends but if at any time the accumulated tax deducted from dividends exceeds the accumulative tax paid, the excess is due as an additional liability. Otherwise Government would have allowed shareholders to deduct more tax in respect of dividends than would have been paid by the Company. Another feature of Jamaican Company taxation is that investment allowances equal to 20% of expenditure on depreciable assets other than automobiles is granted to certain industries. These allowances are granted in lieu of the initial allowances and they differ from the initial allowances in that the amount claimed is not used to write down the balance in the asset account. As a result, the Company would be allowed to claim, over the life of the asset, an allowance equal to 120% of the original asset value. This allowiance has not been granted to the Telephone Company but the Company is making active representations to Government in the hope that it will be granted in the future. ANNEX 6 THE JAMAICA TELEPHONE COMPANY LIMITED TARIFFS Exchange Telephone Tariffs Monthly Rentals Expressed in f Sterling (Billsare rendered to subscribers bi-monthly ) Residential Service L1. 0.0. (30 free calls) Business Service E1.10.0. (30 free calls) Each call over the first 30 is charged at 3 pence. Internal Long-Distance Telephone Tariffs Airline Distance Charge per each in miles 45 seconds of call 0 - 5 3d. 6 - 10 6d. 11 - 15 1/-d. 16 - 25 2/-d. 26 - 35 3/-d. 36 - 60 4/-d. Over 60 5/-d. Internal telex service is not yet available. The Jamaican Post Office Department provides all public telegraph service. JAMAICA THE JAMAICA TELEPHONE COMPANY LIMITED Actual and Forecast Balance Sheets (Expressed in thousands of Jamaican poinuds) Actual Forecast 1961 1962 1963 1964 1965 1966 -1967 196H 1969 1970 1971 1972 1973 ASSETS Fixed Assets Televhone plant 5,641 6,293 6,845 7,316 7,910 8,640 9,585 11,371 12,476 13,648 14,665 15,915 17,215 Less: D0nreciation Reserve 1,098 1,267 1,490 1,726 2,039 2,337 2,671 3,053 3,525 4,052 4,638 5,275 5,975 Net Fixed Assets 4,513 5,026 5,355 5,590 5,871 6,303 6,914 8,321 8,951 9,596 10,027 10,640 11,240 Current Assets Cash 10 20 72 59 1 1 1 1 1 1 1 39 114 Material. and suppliest 318 390 323 362 361 371 424 477 506 536 567 614 663 Accounts receivable 293 276 308 390 588 600 637 698 767 838 913 1,033 1,130 motal Current Assets 651 686 703 811 950 972 1,062 1,176 1,274 1,375 1,481 1,686 1,937 Total Assets 5,194 5,712 6,058 6,401 6,821 7,?75 7,976 9,497 10,225 10,971 11,508 12,326 13,177 LIABILITIES Eau it- w uImlative preference shares 300 300 300 300 300 300 300 300 300 300 300 300 300 Ordinary stock 2,437 2,437 2,L37 2,437 2,437 2,437 2,437 2,437 2,437 2,437 2,437 2,437 2,437 Premium on ordinary stock 7 7 7 7 7 7 7 7 7 7 7 7 7 Surplus and reserves 347 396 515 754 962 1,262 1,498 1,812 2,091 2,388 2,690 3,015 3,316 Total Equity 3,091 3,1h0 3,259 3,498 3,706 4,oo6 4,242 4,556 4,835 5,132 5,434 5,759 6,060 Long Term Debt Registered First Mortgage Stock 5': due 1968 200 200 200 200 200 200 200 5% due 1970 200 200 200 200 200 200 200 200 200 6o due 1978 400 400 400 400 400 400 400 400 400 400 400 400 400 7-1/2% Debenture Stock due 1982 800 800 800 800 800 800 800 800 800 800 800 800 Proposed a1R1B loan 417 1,793 2,508 3,312 4,000 3,718 3,418 Possible Future Borrowings 800 1,600 Total Long Termr. Debt 800 1,600 1,600 1,600 1,600 1,600 2,047 3,193 3,908 4,512 5,200 5,718 6,218 Current Liabilities Holding company loan 844 507 612 742 431 328 280 280 213 24 Bank overdraft 454 600 612 770 565 547 65 Accounts payable and other accrued liabilities 159 165 587 561 630 741 795 698 704 756 809 849 899 Total Current Liabilities 1,303 972 1,199 1,303 1,S15 1,669 1,687 1,718 1,482 1,327 874 849 899 Total Liabilities 5,194 5,712 6,058 6,401 6,821 7,275 7,976 9,497 10,225 10,971 11,508 12,326 13,177 January 6, l)67 JAMAICA THE .JAMAICA TE=XP8MNE COMPANY LIMITED Actual and Forecast Operating Statements (Exoressed in thousands of Jamaican pounds) Actual Forecast 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 Operating Revenues Local Serie Ievenues 605 633 657 694 736 720 728 781 845 912 983 1,035 1,103 Trunk and Metered Call Charges 615 699 778 911 1,055 1,177 1,296 1,450 1,627 1,816 2,014 2,202 2,392 International Service hl 81, 63 100 137 192 231 279 334 392 450 508 572 Other Income 31 34 32 28 44 117 87 106 121 126 135 160 175 Total Ooerating Revenues 1,292 1,h3l) 1,530 1,733 1,972 2,206 2,342 2,616 2,927 3,246 3,582 3,905 4,242 Operating Expenses Costs of Operation 637 692 695 762 860 942 1,084 1,241 1,433 1,639 1,894 2,124 2,385 Depreciation 223 257 308 326 390 398 434 482 572 627 686 737 800 Total Operating Expenses 860 949 1,003 1,088 1,250 1,340 1,518 1,723 2,005 2,266 2,580 2,861 3,185 Net Operating IncoTne 432 461 527 645 722 866 824 893 922 980 1,002 1,044 1,057 Taxes 35 101 108 128 204 249 206 181 202 215 226 225 233 Net Income Available for Fixed Charges 397 360 419 517 518 617 618 712 720 765 776 819 824 Fixed Charges Interest Expense 91 132 148 150 162 169 194 250 293 320 326 346 375 Other Financial Charges 40 Total Fixed Charges 91 132 148 150 162 169 234 250 293 320 326 346 375 Net Income 306 228 271 367 356 448 384 462 427 445 450 473 449 Balance Surplus and Reserves Beginning of Year 247 347 396 515 754 962 1,262 1,498 1,812 2,091 2,388 2,690 3,015 Sub-total 553 575 667 882 1,110 1,410 1,646 1,960 2,239 2,536 2,838 3,163 3,464 Deduct: Preference dividends-net 13 13 11 11 11 11 11 11 11 11 11 11 11 Ordinary dividends-net 193 138 137 137 137 137 137 137 137 137 137 137 137 Debt issue expense 28 4 Add: Correction of prior years expenses 20 Balance Surpl.s and Reserves at End of Year 347 396 515 754 962 1,262 1,498 1,812 2,091 2,388 2,690 3,015 3,316 January 6, 1967 JAMAICA THE JAMAICA TE17 T8N COMPANY LIMITED Forecast Sources and Applications of Fuinds (i&oressed in thousands o Jamaican oounds) 1967 1968 1969 1970 1971 1972 1973 Total SOURCES Internal Cash Generation Net income - before interest charges 616 712 720 765 776 819 824 5,234 Depreciation 431; 482 572 627 686 737 800 )i,338 Total Internal Cash Generation 1,052 1,194_ 1,292 1,392 1,462 1,556 1,624 9,572 Borrowings Proposed IBRD loan 447 1,346 715 804 688 4,000 Possible future borrowings 800 800 1,600 Total Borrawings J47 1,346 715 804 688 800 800 5,600 Total Sources of Funds 1,499 2,540 2,007 2,196 2,150 2,356 2,1±424 15,172 APPLICATIONS Construction Proposed construction program 1,045 1,889 1,202 1,272 1,117 6,525 Future construction program 1,350 1,400 2,750 Total Construction 1,045 1,889 1,202 1,272 1,117 1,350 1,400 9,275 Debt Service Anortization Mortgage repayments 200 200 400 Proposed IBRD loan 282 300 582 Total Amortization 200 200 282 300 982 Interest Mortgage issues 44 441 34 34 24 24 24 228 Debenture stook (7-1/2%) 60 60 60 60 60 60 60 420 Bank overdraft and holding company loan 63 68 63 47 22 2 265 Proposed IBRD loan 27 78 136 179 220 236 219 1,095 Possible future loan 24 72 96 Total Interest 194 250 293 320 326 3346 375 2,104 Total Deot Service 194 h5° 293 520 326 628 675 3,086 Dividend Payments - Net after Incomie Tax 14 1i48 1488 18 1488 11±8 1148 1,036 Commission for Guarantee 4° 40 Increase in Working Capital 84 211 159 238 77 127 96 992 Total Applications of Funds 1,511 2,698 1,802 2,178 1,668 2,253 2,319 IL,h29 Cash Surplus (Deficit) (12) (158) 205 18 482 103 105 743 Cash Surplus (Bank Overdraft) - Beginning of Year (600) (612) (770) (565) (547) (65) 38 (600) Cash S'irplus (Bank Overdraft) - End of Year (612) (770) (565) (5M7) (65) 38 143 143 January 6, 1967 JAMAICA THE JAMAICA TET7?)RE COMPANY LIFITED Financial Ratios (Expressed in thousards of Jamaican pounds) Actual Forecast 1961 1962 1963 1964 1965 1966 1967 1966 1969 1970 1971 1972 1973 Average Net Plant Average net plant in operation 4,329 4,785 5,190 5,472 5,731 6,087 6,608 7,618 8,636 9,274 9,812 10,333 10,940 Calculation of Rate Base Add: Materials and supplies 366 398 450 492 521 551 590 639 Working capital 118 136 155 179 205 237 266 298 Total Rate Base 6,571 7,142 8,223 9,307 10,000 10,600 11,189 11,877 Return on Net Plant Net operating income (after taxes) 397 360 419 517 518 617 618 712 720 765 776 819 824 Percentage on average net plant 9.2% 7.5% 8.1% 9.4% 9.0% 10.1% 9.4% 9.3% 8.3% 8.2% 7.9% 7.9% 7.5% Rate of Return (per P.U.C. Act) Net operating icome (before income taxes) 866 824 893 922 980 1,002 1,044 1,057 Percentage on Rate Base 13.2% 11.5% 10.9% 9.9% 9.8% 9.5% 9.3% 8.9% Intarest Coverage 7iLm4sinterest covered by net operating income before interest 4.7 3.5 3.6 4.3 4.5 5.1 4.2 3.6 3.1 3.1 3.1 3.0 2.9 Debt Service Coverage Times debt service covered by cash generated internally 6.0 5.4 2.7 4.4 2.7 4.5 2.5 2.4 Debt Ratio Long Term Debt to Equity 21/79 34/66 33/67 31/69 30/70 29/71 33/67 41/59 45/55 47/53 69/51 50/50 S1/49 Dividends Ordinary dividends - net 193 138 137 137 137 137 137 137 137 137 137 137 137 ,l 11 - gross 219 219 219 219 219 219 219 219 219 219 219 219 219 Ordinary share capital - average 2,437 2,637 2,437 2,437 2,437 2,437 2,437 2,437 2,437 2,437 2,437 2,437 2,437 'l equity - average 2,761 2,816 2,900 3,078 3,302 3,556 3,824 4,099 L,396 4,684 4,983 5,296 5,610 Gross dividends on average share capital 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% equity 8.0% 7.8% 7.6% 7.1% 6.6% 6.2% 5.7% 5.3% 5.0% 4.7% 4.4% 4.1% 3.9% Income available to ordinary shareholders 293 215 260 356 345 437 373 651 416 434 439 462 438 Per'entage of net ordinary dividends thereto 66% 66% 53% 38% hO% 31% 37% 30% 33% 32% 31% 3Y% 31% Operating Ratio 67% 67% 66% 63% 63% 61% 65% 66% 69% 70% 72% 73% 75% January 6, 1967 MONTEGO BAPARUCGSYONINTEG-SA EAY IMNTeI - . , , ' ±' . INGgcH DRacARRssA,sO.ANN'S EAV ,966OICCC, ' .ONEG ' .0. . HA.C E,0S'SA1971_12OCH - l X ; 9 -r'i . . . , 'AF A S . W KEMPSHOT ® .FOWNS___T3 IUCH GREEN ISLAND .HIG J X !t--> j tr .......... / / _c ""54 = ". E 3- ..EAI. * AAVABAA-LA-IAGR~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~P.ANOI < EAL0 //A L ACLANA ASER SACAAEA-LA-YA BAY C7ANA/NANEE 1966-12CC ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~I6 -I .C10A 1969-BEEN - ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 199-4 SANTA CAOPR,,NO HAHPE./MI6AIi ITELEPHONE EXCHANGES/ 9RW~i. * EXISTING EXCHANGES OR C-CEETRADORS , 'EILLE PAAR PARS!* . . u - ®DORT VORANT -3 11TING EXCANGS TO1 XEDD,7 / / / / DPR b 4 EXISTING EXCHANGES TH GE REPLACED -/ NDEVILLE/KINGSTDN -- 1 , R . | jv V 7 .. * PROPO-SED NE EXCHANGES OR CNNCNITRATORS // 1956-4CH, II LONG DISTANCE RADI O . . 9 / /, 1 |T' ' = ERISTING OH-/- LINEN ' -5 . j . . . M EXISTING EQ-I-TENT PROPOSED NEB EQDIPNENT ON EXISTING LINES , , , ' , , - VHFVMW PRAPOSED ANE LINKS AIAD EQ-IPNENT 'T THE JAMAICA TELEPHONE COMPANY * EllISTING TERMINAL SNDNINN I I I ROBILE RADIO SHSTEVNON t DEVELOPMENT PROGRAM * FPOOED TERHINAL STATIIN A EXISTING OARILE RADIO DASE STATIMNM S..,! 1967-1971 EXISTING GACE HA rAcE SATAION A PROPOSEA VOBILE RADIO ARA STAT-INS FROPOSED DACK TO II-K STATION DIrLE RADIO CO-EAGE LIMITS ANN ZDONE NAMrRSR 19G6_12C1 YEAR AND N-ISTING CHANNEL -APA-T S 5 4 3 2 1 0 B 10 IS DO 25Miles 1969-B6CH] HEAR AND PROPOSED C_ANNEL CAPACITY A EXSING HAM HICRMAAE RADIO LINES,D3 CHANNELS =(.) FROPODSE AEM VERO HEGA FREQDENCY RADIO LINKS / PROPOSER CH= CHANNEL CAPACITY OP -He LIAK | RDO-SED J-Ly 1966