Mon | Dec 5, 2016

Restore Junior Market incentives to spur growth - Street-Forrest

Published:Friday | December 19, 2014 | 12:00 AM
File Jamaica Stock Exchange general manager, Marlene Street-Forrest.
File The Jamaica Stock Exchange at Harbour Street, Kingston
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Head of the Jamaica Stock Exchange (JSE), Marlene Street Forrest, noting that participation in the Junior Market has declined, is pushing for a roll-back of the cutback in the 10-year tax incentives the Government offered to those companies, which since 2009 has resulted in $3.4 billion of capital raised for expansion.

Between January and October 2014, only one company prepared an offer for the market and took the necessary steps to list its shares on the JSE Junior Market following the Government's decision to reduce the tax incentive to companies listed on that market as of January this year.

A recent JSE report made available to the Financial Gleaner concludes that based on the number of companies that have been listed between January and October, the change has negatively affected the number of companies desirous of listing on the Junior Market.

"Based on our conversations with potential companies, the issue is one of confidence and attractiveness of the incentive," the report said.

amendments

Under amendments to the Income Tax Act, new entrants to the Junior Market will no longer be able to access benefits applied to members up to December 31 last year.

Overall, special tax benefits under the JSE Junior Market will come to an end by December 21, 2021.

Companies listed on the exchange prior to January 1, 2014 will continue to enjoy their current benefits for the remainder of their unexpired incentive period.

However, companies that list between January 1, 2014 and December 31, 2016 will enjoy full relief from income tax for five years from the date of listing, down from the previous 10 years. By December 2021, all special incentives to the Junior Market will cease.

Street Forrest observed that "it is well recognised that the Junior Market incentive ... drives small and medium-size companies to list. Since the revision of the incentive to five years, and given all the uncertainty that surrounded the Government's position, companies have taken a cautious approach. Hence, the number of companies that were expected to list have not materialised.

"It will take some time for them to regain confidence that there will be no further changes and restart their preparation for listing," said Street-Forrest.

She said the importance of retaining the incentives can be observed from the achievements of listed companies since 2009, when that market was created.

There are 23 securities currently listed on the JSE Junior Market.

As a result of the tax incentives, the companies have been able to use some $3.4 billion for the most part to expand and retrofit their production systems.

The JSE report noted that "all companies, with the exception of two, experienced increases in revenue in 2013 in comparison to 2012."

In regard to profit, 17 of the companies recorded profits in 2013, of which 14 saw an uptick in surplus, compared with 2012.

The report cited, for example, the expansion of Access Financial Services Limited (AFS), which in 2009 opened three new branches, another two in 2010 and yet another in downtown Kingston in 2012.

"In 2014, AFS successfully raised $105 million from its unsecured short-term notes, which are listed on the JSE bond market," the Junior Market review said.

Other Junior Market achievements cited included AMG Packaging, which in 2012 purchased new property, costing J$43 million, that will add 10,000 square feet of warehouse and manufacturing space to expand output.

"In 2013, the company purchased a paper clamp forklift and two new machines, a larger rotary die cut machine and a multifunctional machine to enhance quality and increase production. In 2014, the company is in the process of being ISO 9001:2008 certified," the JSE report said.

Another Junior Market outfit, Blue Power Group Limited, retired a substantial portion of its debt in 2010. In 2011, it expanded its building complex at Victoria Avenue in Kingston to 8,500 square feet, and purchased new machines and mills.

"This increased manufacturing capacity by 50 per cent and permitted the launching of new soaps. In 2012, the company was successful in the appointment of new distributors in Barbados and Trinidad and Tobago," the JSE report said.

sales in excess of $1b

In 2013, Blue Power Group, for the first time in its history, recorded sales in excess of $1 billion and profits in excess of $100 million, the report added.

It cited, additionally, Cargo Handlers Limited, which in November 2013 invested in Bulk Liquid Carrier Petroleum Limited, which transports petroleum across the island, an investment that is "expected to add $150 million in revenue."

The JSE report also cited progress by Caribbean Cream Limited, which in 2013 opened a branded depot at 138 Red Hills Road, St Andrew, and launched its first franchise retail store in Barbican, also in St Andrew.

It noted that "in 2013, the company launched a $300-million investment schedule of retooling, rebranding, recruiting senior managers and expanding its facilities, a move aimed at higher levels of production and operational efficiencies. In 2014, the company installed a new cold-room and purchased equipment to increase the quality of the products by shortening the freezing time."

Caribbean Producers Jamaica Limited, the JSE report said, acquired an additional 10,000 square feet of space for a food-processing plant in Montego Bay, St James, in 2011 and in 2012 constructed a store in Kingston costing $80 million. By 2013, the company had employed more than 100 persons, representing a 40 per cent increase in the workforce.

Among those cited as well was Jamaican Teas Limited, which in 2010 acquired a 50 per cent interest in Bay City Foods Limited.

In 2011, Jamaican Teas entered into the water bottling business, doubled its warehouse, factory and administration office space and purchased a supermarket. In 2012, the company invested $60 million in the construction of an apartment complex and in 2013 purchased land and a building to house its manufacturing and administrative operations. In 2013, the company surpassed the $1-billion mark in revenues and issued a corporate bond that netted $100 million. In 2014, it completed work on the

model unit in its real-estate development in Yallahs, St Thomas, the JSE report said.

LASCO Distributors Limited, it said, has expanded its logistics business and technology platform and, in 2014, expansion works have commenced for its existing distribution centres by an additional 90,000 square feet.

Medical Disposables & Supplies Limited, the report pointed out, has increased inventory levels, expanded its customer base and improved market penetration.

"The company acquired an additional 3,000 square feet of warehouse space to facilitate current and intended growth," the report said.

Medical Disposables has also entered into a co-distribution arrangement with German pharmaceutical company, Denk Pharma, it added.

The JSE said that Paramount Trading (Jamaica) Limited, since listing, has acquired a transportation division, sales have increased by 6.5 per cent and net assets have increased by $13.9 million.

avia.collinder@gleanerjm.com