the jse junior market sme funding through the stock exchange :: marlene street

Presented at the Caribbean Growth Forum

“To provide a fair, efficient and transparent stock market”

Debt or Equity? Debt◦ Fixed repayments; Clock starts at day 1; Whether

Profit or Loss◦ Cost of funding – Prime rate 18+%?◦ Collateral required◦ Tax shield

Equity Capital◦ Expected return yes, fixed no; share losses if any◦ Cost of funding – effectively zero over the long term◦ No collateral requirement


There are over 80,000 companies registered in Jamaica

Over 110 Company Categories, few examplesAgriculture

Automobile

Business

Construction

Entertainment

Financial Services

General MerchandiseHotel

Manufacturing

Medical

Real Estate

Restaurant

TransportServices

Company Category Number Company Category Number Company Category Number Company Category NumberAccountants 102 Chemicals 151 Grocers 23 Photographers 21Advertising 379 Church 1015 Hardware 142 Photographic 213Agriculture 2132 Cleaners 223 Health 17 Printing 22Air Conditioning 13 Clothing / Fabric 725 Home 6 Publishers 283Air Travel 28 Communication 578 Hotel 1421 Real Estate 5369

Animals 33 Computers 692 Industrial Equipment 279Restaurant Equipment & Supplies 589

Appliances 62 Construction 3893 Insurance 379 Roofing 12Architects 158 Consultants 321 Jewellers 16 Sanitation 41Art 156 Data Processing 133 Legal and Law 11 School 434Asphalt 1 Electrical 1730 Liquor 100 Security 981Audio 55 Engineering 104 Locksmiths 176 Service Station 262Automobile 3268 Entertainment 2673 Machine 132 Shipping 1174Bathroom 14 Environmental 142 Manufacturing 3454 Sports 146Batteries 9 Farming 154 Marine 3 Stationary /Office Supplies 497Beauty 345 Financial Services 2332 Marketing 181 Storage 49Bedding 22 Fire 2 Medical 1179 Stores 786Bee Keeping Services 9 Fish 145 Metal 148 Sugar Maufacturers 3Beverage 35 Florists 306 Mining 225 Surveyors 10Boat 3 Food 330 Motorcycles / Bicycles 34 Taxicabs 22Book 11 Fruit 23 Music 73 Telecomunications 159Bottlers 63 Funeral 24 Music Industry 12 Television 32Boutiques 34 Furniture 450 Nurse 45 Tool 1

Bridal 27Gardening & Landscaping 17

Office Furniture & Equipment 432 Tourism 110

Broadcast Services 19 Gas 40 Oils 9 Transport Services 2542Building 150 General Equipment 10 Other Services 567 Tyre 14Business 7336 General Merchandise 9516 Packaging 19 Water 79Charity 1856 Glass 1 Paper 8 Window 15

Undetermined 5327 Pesticide Services 97


Become a publicly traded company Regulated under the Securities Act, JSE JM

Rules Public Company - anyone may buy shares Public interest in profits, plans, mgmt, etc. Information disclosure requirements:◦ Quarterly accounts; annual audits; ◦ Notice of mgmt changes, large investments, general

meetings◦ Dividends among other requirements


1. Effective avenue for raising money2. Lower cost of funds than loans, allow

better use of leverage3. Higher profile and market visibility 4. Wealth creation and distribution

mechanism for shareholders: estate planning

5. Constant pricing mechanism for the company

6. No taxes on share transfer


Mix of existing small & medium sized with some new companies (start-ups)

None related to companies that are already listed Capital through Participating shares of between

J$50M(US580k) and $500M(U$5.8M) each, raised largely on strength of prospectus via IPO

JSE-approved Mentor for each Board of Directors Audit & Compensation Committees


1. Only have to give up 20% stake (minimum) to 24 other persons

2. Better management/utilization of leverage3. Reduced (fixed) cost – loan interest4. All the benefits of regular listing, plus5. Reduced (50%) JSE listing fees6. Tax holiday7. Reduction in other costs for listing

Standard prospectus and other documents No newspaper publishing requirement Negotiable lead-broker fees

8. Governance standards are good for business

Public & Private Sector: Ministry of Finance/JSE Stimulation of economy through SMEs, using the capital market as growth catalyst. Enhanced SME profitability & long-term viability Improved corporate governance Increased employment Larger pool of compliant taxpayers Gains in payroll taxes, GCT & CIT collections Wider pool of investors/wealth creation &

sharing Sustained economic growth

100+ companies canvassed since inception in 2009 MOU and joint promotions with JamPro, PSOJ,

brokers 13 listings to date All compliant with JSE rules All show financial and other improvements Paying additional taxes

10+ companies ready for listing Many getting ready to be listed

Average increase in Pre-Tax Profit of 371% over the previous year.

0

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

1,400,000,000$ Pre-Tax Profit

Post Listing Pre-tax Profit

Pre Listing Pre-tax Profit

Average revenue increase of 200% over the previous financial year

Junior Market CompaniesYear end Revenue

Stated in ProspectusRevenue First

year after Listing% Change in

Revenue

AMG Packaging & Paper Company Limited 231,846,328 308,921,086 33.24%

Access Financial Services Limited 220,840,881 382,869,382 73.37%

Blue Power Group Limited 647,744,268 696,455,723 7.52%

Cargo Handlers Limited 173,696,852 165,208,268 -4.89%

Dolphin Cove Limited - Operating Revenue 688,827,708 732,633,099 6.36%

General Accident Insurance Company Limited 2,203,074,000 3,626,395,000 64.61%

Honey Bun (1982) Limited 448,561,798 560,847,134 25.03%

Jamaican Teas Limited 320,131,121 448,561,798 40.12%

Lasco Distributors Limited 5,842,917,000 6,756,555,000 15.64%

Lasco Financial Services Limited 51,627,864 219,994,000 326.11%

Lasco Manufacturing Limited 172,020,000 2,969,611,000 1626.32%

GCT PAYE

Company Post listing Pre-listing%

change Post listing Pre-listing%

change

AFS 6,787,207 5,442,376 25% 16,282,369 15,865,726 3%

BPOW 16,518,868 9,587,552 72% 13,973,822 9,245,039 51%

CHL 0 0 0 15,338,179 13,558,387 13%

DCOVE 62,368,682 34,106,917 83% 58,845,536 47,915,148 23%

JAMT 84,256,260 52,122,877 62% 15,763,748 9,128,072 73%

LASD 8,469,385 2,456,205 245% 166,818,202 141,636,903 18%

LASF 22,100,000 9,900,000 123% 2,700,000 1,800,000 50%

LASM 8,232,783 5,629,320 46% 34,053,634 18,147,641 88%

208,733,185 119,245,247 75% 323,775,490 257,296,916 26%

Junior Market companies have employed over 230 full time workers and 100 temporary workers since listing.

Junior Market Companies

New Employees

Since ListingAccess Financial Services 52

AMG Packaging & Paper 7

Blue Power 10

Dolphin Cove 100

General Accident Ins 6Honey Bun (1982) Limited* 5

Jamaican Teas 20

Lasco Distributors 21

Lasco Financial 7

Lasco Manufacturing 3


New Employees

Since ListingAccess Financial Services 52


Blue Power 10

Dolphin Cove 100

General Accident Ins 6Honey Bun (1982) Limited* 5

Jamaican Teas 20


Lasco Financial 7



New Employees

Since Listing

Access Financial Services 56


Blue Power 10

Dolphin Cove 100

General Accident Ins 4Honey Bun (1982) Limited 25

Jamaican Teas 71


Lasco Financial 7


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New Employees Since Listing

New Employees

Financial Services Oct 2009: Listed on the JSE Junior Stock Market December 2009: Opened 3 new branches - Santa Cruz, Linstead & Portmore August 2010: Opened 2 new branches - Old Harbour & Brown's Town Feb 2012: Opened new branch in Downtown, Kingston. Total branches to 14. Has employed over 56 persons since listing on the Junior Market

AMG Packaging and Paper Company July 2011: Listed on the JSE Junior Stock Market Purchased new property adjacent to the company’s factory at a cost of J$58M

the property will enable the company to expand production facility and house its inventory indoors

Has hired 7 employees since listing

Caribbean Producers July 2011: Listed on the JSE Junior Stock Market Opened its meet processing facility in February 2012. The construction of a

10,000 sq ft warehouse in Montego Freeport is almost completed. The CPJ Market facility in Kingston is expected to open in October 2012. A new

distribution centre is set to open in St Lucia in the latter part of 2012. Has hired 25 workers since listing

Blue Power Group April 2010: Listed on the JSE Junior Stock Market Expanded building complex to 8,500 square feet, new machines and mills. Increased manufacturing capacity by 50 per cent, launched new soaps Has employed 10 persons since listing

Honey Bun (1982) Limited June 2011: Listed on the JSE Junior Market Purchased new equipment & vehicles – improved manufacturing and distribution.

efficiencies Expanded product line and marketing Has employed 10 permanent persons and 15 temporary workers since listing

Dolphin Cove Limited Dec 2010: Listed on the JSE Junior Market 2011: Opened a second marine park in Lucea, Hanover – Dolphin Cove Negril 2011: Purchased additional 3 acres to the 7-acre Ocho Rios marine park

facility to widen its attraction offerings. Over J$155M on capital expenditure. Has employed more than 100 persons since listing on the Junior Market

Jamaican Teas Limited July 2010: Listed on the JSE Junior Market Nov 2010: Acquired 50% interest in Bay City Foods Limited. June 2011: Entered water bottling business 2011: Doubled warehouse, factory and admin office space Dec 2011: Purchased a supermarket in Kingston Feb 2012: Purchased assets of former Hilo supermarket in Savanna-La-Mar Now building 2,000 sq ft warehouse on Port Royal street in Kingston to expand

productive capacity Purchase property in Kingston for the construction of 18 super studio apartments

in 2012. Purchased additional Packaging and grinding machines. Has employed 71 persons employed since listing on the Junior Market

Lasco Distributors Limited Oct 2010: Listed on the Junior Market Expanded its logistics business and technology platform In the process of expanding product lines as well as plant and machinery 29 employees hired since listing

http://www.lascojamaica.com/dynamicdata/data/docs/ldl 3rd quarter 2011.pdf

Lasco Manufacturing Limited Oct 2010: Listed on JSE Junior Market Building modern manufacturing facility costing J$2.1B in White Marl, adding

100,000 sq ft. to:• Significantly reduce imports and make use of more local resources• Enable launch of new products, increases exports and double sales by 2014

Has employed 6 persons permanently since listing Factory expansion projected to provide 250 new jobs in the first phase alone

Lasco Financial Services Limited Oct 2010: Listed on JSE Junior Market Expanded product range, e.g. education loans Acquired Supreme Ventures Money Gram business for J$38M Quadrupled payday loans since listing Incorporated Lasco Financial Services (Barbados) Ltd and has signed an

international Transfer Agreement with MoneyGram International. Trading is expected by the end of the calendar year 2012.

Has hired 7 persons since listing



Cargo Handlers Limited Dec 2010: Listed on JSE Junior Market Still working on major projects outlined in the companies prospectus. –

purchase of shore crane, 20 tonne heavy forklift and the lease of property at the Montego Bay port, alongside Berth 2.

General Accident Insurance Company Limited Sep 2011: Listed on JSE Junior Market Embarked on marketing campaign Employed 4 new persons since listing (one of whom is a marketing manager).

C2W Music Limited‣ May 2012: Listed on JSE Junior Market

Access Financial Services Limited Dividend Policy: A payment of an annual dividend of not less than 20% of the annual

after tax profits where such profits are available for distribution, subject to theCompany’s need for reinvestment of some or all of its profits from time to time in orderto finance its growth and development.

AMG Packaging & Paper Company Limited

Dividend Policy: A payment of an annual dividend of not less than 20% of net profits

available for distribution, subject to the need for reinvestment in the Company from timeto time.

Blue Power Group Limited Dividend Policy: A payment of an annual dividend of between 10% and 20% of the

annual after tax profits where such profits are available for distribution, subject to theCompany’s need for reinvestment of some or all of its profits from time to time in orderto finance its growth and development.

C2W Music Limited

Dividend Policy: A payment of an annual dividend of not less than 25% of the annualafter tax profits available for distribution, subject to the need for reinvestment in theCompany from time to time.

Cargo Handlers Limited Dividend Policy: A payment of an annual dividend of not less than 25% of the annual

after tax profits where such profits are available for distribution, subject to theCompany's need for reinvestment of some or all of its profits from time to time in orderto finance its growth and development.

Caribbean Producers Jamaica Limited Dividend Policy: A payment of an annual dividend in US currency, of not less than 25%of net profits available for distribution, subject to the need for reinvestment in theCompany from time to time.

Dolphin Cove Limited Dividend Policy: A payment of an annual dividend equivalent to not less than 25% of

net profits available for distribution, subject to the need for reinvestment in the Groupfrom time to time.

General Accident Insurance Company Limited

Dividend Policy: A payment of an annual dividend of not less than 25% of net profits

available for distribution, subject to regulatory approval by the Insurance Division of theFSC and the need to maintain sufficient capital for both regulatory purposes and growth.

Honey Bun (1982) LimitedDividend Policy: A payment of an annual dividend of not less than 20% of net profits

available for distribution, subject to the need for reinvestment in the Company from timeto time.

Jamaican Teas LimitedDividend Policy: A payment of an annual dividend of not less than 15% of the annual

after tax profits where such profits are available for distribution, subject to theCompany's need for reinvestment of some or all of its profits from time to time in orderto finance its growth and development.

LASCO Distributors LimitedLASCO Financial Services LimitedLASCO Manufacturing Limited

Dividend Policy: A payment of an annual dividend of not less than 15% of the annual

after tax profits where such profits are available for distribution, subject to theCompany's need for reinvestment of some or all of its profits from time to time in orderto finance its growth and development so that the Company sustains and improves onits ability to compete in the markets in which it operates.

Promised Objectives Delivery

Long term viability of SMEsThe companies listed have recorded improvements in revenues and pre-tax profits

Allow for a wider pool of investors & investment products

All Invitations (Offers) to purchase shares were fully subscribed, and most were oversubscribed

Since the creation of the Junior Market, over 5,000 new investors have registered.

Improved Compliance & Corporate Governance

All Junior Market companies are compliant - Financials and material disclosures are published timely. The companies practice corporate governance.

Larger pool and greater tax compliance Increased payment in GCT and PAYE

Increase in employment through expansionOverall 330 full-time and temporary workers have been employed by companies listed on the Junior market

Net Gain in taxation after the first 5 years

JSE providing an indirect service to tax authorities

The companies listed on the Junior Market have used the funds raised to position themselves to be far more competitive and to achieve growth

Assumptions:◦ No other JM companies listed◦ Other JM Companies are similar to those reporting◦ Same rate of growth of revenues & profits◦ Current tax rates applicable throughout◦ Capital allowances not factored in

Additional GCT and payroll taxes will outstrip CIT waived within 5 years

(1/2 rate) CIT collections in years 6 – 9 will exceed all taxes foregone in years 1 – 5


Listing on JJSE has added and will continue to add value for shareholders, the market and the economy

Efficient, low-cost method of raising capital

Reduced costs and greater ease in listing

Public/Private Sector Partnership can work

Is the avenue for economic growth through SMEs Market is driven by opportunities and

confidence.

Thank you for your time & attention