The NCB Scheme of Arrangement

APPENDIX F 

IMPACT OF SCHEME OF ARRANGEMENT ON EARNINGS ATTRIBUTABLE TO PUBLIC SHAREHOLDERS
      

Purpose  

The purpose of this Appendix is to demonstrate the impact of the Scheme on earnings attributable to public shareholders both in total and on a per share basis.

The contents of this Appendix are for the purposes of illustration only and should not be construed as an indication or forecast of future levels of profitability.

Quality of Earnings (Entitlement to Ordinary Dividends)  

FINSAC holds $1 billion and $5.3 billion in par value of preference shares in Existing Group and Bank, respectively and is entitled to receive dividends and repayment of principal in priority to the ordinary shareholders.  The contractual terms of the preference shares are such that preference dividends only become payable when there are sufficient post-tax profits after transfers to Banking Reserve, provision for capital redemption of the preference shares and clearing of the accumulated deficit.  Ordinary shareholders of Existing Group can receive dividends only after preference dividends in both Group and Bank have been paid in full.

For the 12 months commencing 1 July 2000 the following consolidated post-tax profits would need to be achieved before any earnings would be available to pay ordinary dividends, after clearing the accumulated deficit:  

            Existing Group before reorganization                                         $1,350 million

            New Banking Group after reorganization                                     $ 780million           

Therefore, if the Scheme is approved, ordinary shareholders will be eligible for dividends at lower profit levels.  

Quantity of Earnings

Financial results of Existing Group and New Banking Group for the nine months ended 30 June 2000 were as follows:

EXISTING Group BEFORE reorganization

                                                                                    Nine months            Annualised

                                                                                           (Actual)

Existing Group post-tax profits                                          $418 million             $558 million Earnings per Ordinary Share (“EPS”)                                    48 cents                  64 cents

No preference dividends are likely to be payable for the year ending 30 September 2000 as the accumulated deficit has not been eliminated.

NEW Banking Group AFTER reorganization

                                                                                    Nine months            Annualised

                                                                                       (Proforma)

New Banking Group post-tax profits                                $556 million              $742 million Earnings per Ordinary Share                                                28 cents                   37 cents

The post-tax profits of New Banking Group after reorganization are higher than those of Existing Group before reorganization because of the transfer of loss-making non-core subsidiaries and assets along with the removal of FINSAC’s 40% direct ordinary shareholding in Bank, accounted for as minority interest in Existing Group.

Some Comparisons of EPS BEFORE and AFTER Reorganization

 ·         Before reorganization, increases in the profits of Existing Group accrue primarily to          preference shareholders and not to ordinary shareholders.  

·         After reorganization, public shareholders of New Banking Group receive a larger share of any profit increase than they would have before reorganization of Existing Group.  This is demonstrated graphically on the next page.  

·         Increases in Bank’s annual post-tax profits will result in a larger percentage increase in EPS of New Banking Group after reorganization in comparison to Existing Group before reorganization (once the accumulated deficit is cleared).  

For example, a 100% increase in Bank’s annual post-tax profits in the period to 30 September 2002, will result in a:

14% increase in EPS for Existing Group before reorganization; but a  

55% for New Banking Group after reorganization.  

·         At existing profit levels (shown in the tables above), Proforma EPS of New Banking Group after reorganization is lower than that of Existing Group before reorganization.  This is due to the increase in issued ordinary shares at reorganization.  

·         EPS for the New Banking Group will exceed that for the Existing Group if, in the period to 30 September 2002, Bank’s annual post-tax profits are equal to or exceed $925 million ($830 million thereafter).

Bases and Assumptions for Calculations  

1.       Earnings figures for Existing Group and Bank before reorganization have been annualised based the on actual results for the nine months ended 30 June 2000, presented in Appendices A and B, respectively.

2.       Earnings figures for New Banking Group after reorganization have been annualised based the on proforma results for the nine months ended 30 June 2000, presented in Appendix E.

3.       Bank is the main contributor to group profitability. Profits of all subsidiaries other than Bank have been assumed to be constant at an annualised level based on actual results for the nine months ended 30 June 2000.

4.       Unless otherwise stated, the accumulated deficits at 30 June 2000 of $289 million in Bank and $492 million in Existing Group are assumed to have been cleared.

5.       The weighted average yield on six month Government of Jamaica Treasury Bills is assumed to be 17.5% with effect from 30 September 2002, the date on which the coupon rate of dividend on the preference shares contractually changes.

6.       “Claw back” provisions as described in Appendix H which may result in additional preference dividends becoming payable are assumed not to apply.

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