Lee Henry’s response to statements from Dave Cabeldu of Save Our Shoreline Jersey
JDC recently posted a response to clarify many of the statements made in a letter from Dave Cabeldu of Save Our Shoreline Jersey. See the original letter and JDC’s response here.
Dave Cabeldu has now posted his own response directed at Lee Henry that continues to make statements which are either out of context or simply misinformed. See below Dave Cabeldu’s response and Lee Henry’s subsequent response:
Dave Cabeldu’s response:
Hi Lee, Just wanted to respond to your post and to clarify, as much of your facts/ assumptions are incorrect and / or are not transparent.
It was interesting to note that JDC is claiming to adhere to P73/2010 which is what the States Assembly approved and thus any deviation from the requirements of P73/2010 would be a breach of the States mandate.
In yesterday’s media statement the new JDC Chairman incorrectly stated “The current Scrutiny arrangements were not designed with States owned companies in mind.” Clearly she has not read ( or is just plainly ignoring ) P73 /2010, which is astonishing as she is a long standing Board member / now Chairman, which overtly states “It is important to note that all bodies involved in the proposed regeneration process will also be open to scrutiny by The Corporate Services Scrutiny Panel.” So as set out correctly in the letter any Judicial Review, requested by JDC, would have been a further waste of taxpayers money, as full documentation should have been provided to Scrutiny when it was asked for over a year ago.
The EY report on the JIFC, written by Mark Gerold the former chair of the Royal Institution of Chartered Surveyors Global Valuation Board and thus who is eminently more qualified than most, summarised to have “ severe reservations as to whether there will be sufficient demand to enable the full development of the JIFC ………….office development alone will not generate sufficient surpluses to fund even a small proportion of the public realm and highway improvements currently targeted ( car park and road ) at a cost @ £ 90m…………the proposal to lower La Route de la Liberation beneath the development proposed at a cost of £45m ( 2008 ) is commercially unrealistic.” Only selective reading of the EY report would conclude that building 4 and 5 are viable and JDC should continue with building 5. The report actually states in its Conclusion that “A developers profit and a positive site value contribution is achieved if the SoJDC views on timing of leasing and investment yields are met. In our view, this outcome is unlikely.“ The EY report shows the building 4 development with a negative site value of £ 1,586,000 and this is made worse as SoJDC were given the whole Esplanade site with an annual income of £759,000, from the taxpayer, for just £1.
The Independent inspectors report into building 5, by Philip Staddon BSc, Dip, MBA, MRTPI, came to a similar conclusions on the flawed JIFC development
‘I consider that the 2008 Masterplan is out of date and in need of review.’
‘I am currently unconvinced that the 2008 Masterplan can be regarded, in Planning terms, as viable and deliverable.”
‘Although ultimately SoJDC consider Phase 2 may generate sufficient funds, the evidence (that I have seen) is scant, appears broad brush and speculative, and is silent on the issue of risk and contingency.’ P73 / 2010 requires JDC to only undertake “risk averse “ development.
P73 / 2010 requires that for sales – “If it is proposed that a specific development is undertaken directly by SoJDC, before committing to construction costs SoJDC will have to secure a sufficient level of legally binding pre-sales to fund the costs of constructing the first phase of a scheme and Pre-development Costs – all detailed design costs and fees will be funded directly by SoJDC out of equity.”
The 2015 accounts, signed off 10th March 2016, notes College Gardens is 187 units, with 80 as social including 40 where the Treasury hold the shared equity units. College Gardens have secured “commitments” on 45 of 107 open market apartments, with a supposed value of £ 14m. In the Consolidated Cashflow these are shown as £47,000 But the £ 1,000 “deposits” ( x 47 ) are fully refundable and are not legal commitments. Where is the money, to limit risk, from binding pre –sales as required by P73/ 2010 ?
JDC are supposed to act as an arms length company and in the private sector the site / property would be purchased up front. Why has the College Gardens, £ 1.5m, purchase price ( which is an under value ) been deferred in payment to the Treasury until after the development is complete ?
The so called minor infrastructure works seem to be funded by the Treasury and there is no detail of the security provided to the bank for funding or adequate funding detail to provide the required transparency. For example there is an exceptional charge of £0.1 m in respect of Harcourt litigation and £0.1 for 'inventory costs written off' but no reasons are given ? £ 150,000 is noted for legal costs for Hopkins / Harcourt cases. The 2014 accounts noted Harcourt litigation but not the Hopkins case, despite that litigation being already well underway.
'Operating Profit' in total was reported as '£0.9m'
This is made up of
Property revaluation Waterfront car park 0.7
Waterfront parking fees/ licence (net) O.5
Balance = Property development - LOSS (0.3)
There should be a clear distinction here between these figures because the directors have done nothing to achieve the former. i.e not 'operated' in any way. Neither can the car park receipts/licence fees really be described as the JDC mainstream purpose which is 'development'.
However, in achieving this loss of £0.3m the Directors have received Salaries and Fees, Benefits, Bonuses and Pension Contributions of over £0.4m and their employee benefits added another £0.5m to costs.
It would seem however that they are either understaffed or employ staff who are not professionally qualified since their profit and loss account was charged with a further £0.4m for professional fees (including consultancy) which exclude those in respect of the first IFC construction which are carried forward in the balance sheet but not specified. Incidentally, it is interesting to see that Building 4's costs are rising “nicely” and already stand at £ 9.4 m (excluding any land value which somewhat distorts the true cost to the island) but as at 31/12/15 the building appeared to be only in its very early stages with just 2 concrete towers.
But, when looking at a company such as this, cash flow is extremely revealing. A cursory glance at the cash flow in the accounts is somewhat misleading since it shows the bank overdraft (£7.0m) as part of the cash inflow. In 2014, the net cash outflow was £3.6m and in 2015, excluding the bank overdraft, it was £10m. Is it a coincidence that the Trade and other payables payable in January 2016 were £1.2m higher than in the previous year? The company paid a dividend of £1.0m not out of current cash profits but out of the waterfront car park which used to be collected by TTS.
Our, the taxpayers, cash is disappearing fast year on year and despite having had £20 million paid in by the island six years ago, not having had to pay for any land and having employed 'top of the range' directors, we are still having to borrow money to finance their activities. They are only able to possess the credibility to do this because we, the taxpayer, can offer unlimited security to the bank from the public purse in the case that our very high risk project goes pear shaped which it seems like doing already.
In the Conclusion, of P73/2010, JDC are to “provide for transparency and clear accountability to the States Assembly throughout the development process.” and this is what the taxpayers, as shareholders of JDC, deserve but which is not being provided.
Lee Henry’s Response to Dave Cabeldu:
Dave – I am going to try and explain the position to you very clearly as you do not appear be acknowledging what I has been stated in my previous posts. Maybe you do understand what has been said or you are just against JDC. I have noted that the vast majority of SOSJ’s criticisms are against the States, and in particular this company, and in almost all cases, your statements are out of context or just plainly wrong. I will endeavour to explain the issues clearly:
JDC’s Chairman and our other Board members are fully aware of Scrutiny’s powers and have no wish to obstruct them. Against this, the release of commercially sensitive information that can damage the company must also to be taken into account. In relation to commercially sensitive information, P73/2010 specifically says:
Nothing in this MoU shall be construed as requiring the inclusion in any BP, annual report, financial statements, or half-yearly report (referred to below) of any information where the making available of the information would be likely to unreasonably prejudice the commercial position of SoJDC or that of the person who supplied or who is the subject of the information.
In other words, P73/2010 allows JDC to keep sensitive information from the Shareholder. As I have already pointed out to you in several posts now, PPC also recognised this and stated at paragraph 64 of their decision:
64.“the PPC accepts that SoJDC, UBS, HSBC and Camerons have legitimate concerns in relation to preserving the confidentiality of the contents of the documents sought by the Summons and it did not agree with the submission made by the CSSP that the commercial sensitivity of such documents was less than those involved in the case of Veolia. In particular, the PPC noted the comments made by Mr Burton of Camerons that the information sought by the CSSP concerning the contract with Camerons included detailed information concerning Cameron’s rates for labour, wage costs, profit recovery, supply chain and relevant contact details, and that if SoJDC had disclosed in its invitation to tender documentation that the documents received would be disclosed to CSSP then Camerons would not have tendered for the contract to act as main contractor for Building 4. For this reason it was appropriate to impose the protections set out at paragraph 62 above as regards inspection of the documents only at the offices of SoJDC or its lawyers, that the documents should not be copied and that a draft of the CSSP’s report should be provided to SoJDC for comments.”
Various measures have been put in place by PPC to keep JDC’s commercially sensitive information confidential:
- “The Documents are not to be reproduced, photographed or copied or removed from the offices of SoJDC or its lawyers by members of the CSSP save that members of the CSSP may take notes concerning the contents of the Documents and may discuss contents of the Documents with EY. In the event that EY have not previously reviewed any of the Documents included within the amended wording to be used in the Summons as substituted by paragraph 61 above, and that EY require copies of the same for the purposes of any discussions with the CSSP, then SoJDC shall provide copies of such Documents to EY;
- The Documents are provided to the members of the CSSP for the sole purpose of the preparation of the CSSP’s final report concerning the Financial Viability of the Jersey International Centre and not for any other purpose;
- Subject to the above, the contents of the Documents including any notes taken concerning the same pursuant to sub-paragraph 62.2 are to be kept strictly confidential by members of the CSSP and are not to be disclosed to any other person whatsoever other than the CSSP’s two scrutiny officers (who will also keep their contents confidential) and as may be required to be disclosed by law;
- The CSSP will provide a draft of its final report concerning the Financial Viability of the Jersey International Centre to SoJDC for comments by the SoJDC, such comments in respect of any references in such report to confidential information contained in or derived from the Documents to be provided in writing within fourteen days of the provision of such draft to SoJDC.”
It is regrettable that JDC had to challenge the summons and that the States had not introduced protective measures before a situation such as ours had arisen. However, PPC has now set a framework which will ensure that any States owned company’s sensitive information is properly protected going forward.
For the avoidance of doubt, this is not to suggest that JDC does not trust the Scrutiny panel, but there have been incidences in the past where, for example, confidential material has been left on a photocopier and subsequently leaked. These new measures put in place by PPC will limit any chances of this occurring.
The Board has a statutory duty to act in the best interests of the company and that is what it did. It thought it had found a solution to Scrutiny’s requests last July when it provided ALL information to Scrutiny’s appointed independent advisors, EY. At the time Scrutiny agreed to this compromise. However, the provisions now provided by PPC goes a long way to protect JDC’s commercially sensitive information and it is has accepted that this can now be released to Scrutiny.
The EY report
Whilst Mark Gerold of EY may have reservations about demand, this is why JDC are undertaking the Masterplan in phases. This is entirely in accordance with P73/2010 but is contrary to what the St Helier Waterfront Action Group and SOSJ want. Both of you have stated that the Esplanade Quarter should be delivered in one phase. On the one hand you support the EY report that questions demand and on the other you want it delivered in one phase. We consider your approach to be high risk and goes against the risk profile that the States Assembly agreed in P73/2010 for SoJDC.
We would also say that EY made a number of assumptions when providing its figures including the fact that floors 2 and 3 would have void periods of 12 months and 6 months respectively. These floors are now let to BNP Paribas and therefore the position has already improved from what has been reported. Further, EY assumed a yield of 7% when the latest evidence of large transactions suggests 6.5% on older buildings with shorter lease terms than No.4 JIFC. EY also stated that subject to confirming viability, No.5 JIFC should also be progressed.
The Masterplan is controlled by the Planning Department and the Environment Minister and commissioning a review of the Masterplan is a matter for them. JDC is a delivery vehicle and is tasked with undertaking either directly or via joint ventures, the delivery of the Masterplan. It is therefore this document that JDC has to work with, together with the Island Plan and other supplementary Planning Guidance. The remit that JDC has from its Shareholder is to deliver the Masterplan in phases and that is what it is doing. P73/2010 is very clear in that one of SoJDC’s key risk mitigating measures “…will [be to] phase large development schemes if practically feasible to do so.”
As for the independent Inspector’s report, again you take paragraphs out of context. Rather than repeat them all here, the conclusions of the report speak for themselves. They state:
In my view, there can be little doubt that the Building 5 proposal strongly accords with most of the relevant policies in the Island Plan. Indeed, I find that it is a positive and high quality development that supports many of the Plan’s strategic, economic and more detailed technical policies.
My analysis is that the SPG retains considerable weight and that the Building 5 proposal strongly accords with its content.
I also consider that the proposal accords with the principles of the Masterplan, but I must ascribe considerably less weight to this document as I consider it to be in need of review. I am not convinced that the Masterplan is sufficiently up to date and robustly ‘sense checked’ to provide a sound Planning Framework for delivery today. Its aspiration, objectives and vision remain strong, but there are questions and concerns about its overall viability and deliverability.
Overall, when all material consideration are considered together, I conclude that the proposal accords with the Revised Island Plan 2011 and that, accordingly, the appeal should be dismissed and the planning permission for Building 5 should be confirmed.
After quoting what it says in P73/2010 about pre-sales, you ask “… where is the money, to limit risk, from binding pre-sales as required by P73/2010?” The answer is, it is in our lawyer’s client account. That is why you do not see it in JDC’s financial statements. JDC will not account for these funds until the project commences and that is when, in accordance with P73/2010, JDC has “secured a sufficient level of legally binding pre-sales to fund the costs of constructing the first phase of a scheme”.
The reservation deposits are shown as a creditor for the same reason - if the project does not proceed, then it will pay back the deposits. However, I am pleased to say that JDC has nearly achieved the pre-sale requirement as laid down by P73/2010 and we will be proceeding with this scheme and accounting for those deposits in our 2016 financial statements.
The deferred consideration for the site is entirely normal and appropriate particularly when the transacting entity is a related party. For instance if a private individual owned a house with a field adjacent to it and obtained planning permission for 10 houses on this field, it would be normal for that house owner to transfer the land into a company to carry out the development. Would that owner borrow funds in the company to pay himself for the land or would the shareholder wait for the full proceeds at the end of the development? The purpose of JDC is to regenerate States land and assets and therefore the States must ensure that JDC is adequately resourced to do that. The former JCG site had been left derelict for 15 years and the College Gardens development on the site will supply 80 affordable homes and restore the former school building’s exterior to its former glory. This project should be endorsed not criticised.
For the avoidance of doubt, Treasury is not funding the infrastructure works or any of the main construction works. Secondly, if any extra security was provided for the costs of these works, then it would have said so in the financial statements. Again, for the avoidance of doubt, no further security was provided.
With regard to the Hopkins litigation, this commenced in April 2015, after the 2014 financial statements had been signed. Once again you are incorrect that this court action began beforehand. This is a matter of public record.
2016 Financial Statements
No profit from the current developments is recognised in the financial statements. The International Financial Reporting Standards state that profits will only be recognised once the buildings are nearing completion and values can be assessed with more certainty.
I am not sure what your point is about the car parks. JDC manage them and have a duty to collect revenue. However, as you bring this up, it is interesting to note that the car park revenue has increased substantially over the years (from £178k in 2004, £529k in 2010, £925k in 2015) and the capital value is reflective of the incomes generated.
As to your comments on the financial statements generally, PwC are JDC’s auditors and ensure everything written in those statements is correct and consistent with what is being reported.
I will finish with some quick and decisive responses to the rest of your comments on the financial statements:
- The profits that are to be made on the developments JDC is currently working on will flow through the financial statements over the next few years.
- We are not sure why you feel it is unusual that Building 4’s costs are rising. This is entirely appropriate given it is under construction.
- As for the cashflow statement, this is the standard way of producing such a statement - There is nothing misleading about it.
- Trade payables are bound to be higher given the construction activity in the company.
- Of the £20m share capital injected by the States between 1996 and 2000, £12.2m was spent on public infrastructure and £7.8m was spent on building the Waterfront car park. None of these funds were spent on the running of the JDC as you suggest.
In summary, all your statements are unfounded and if you did know the facts, then you would see that JDC is following P73/2010 to the letter.