How has the Junior Market changed businesses?

This post was originally published on this site

As we continue our review of the Jamaica Stock Exchange (JSE’s) Junior Market over the last decade, we asked the leading players behind the companies listed to share their reasons for listing and the benefits derived so far.

Below are details about the most recent performance of two JSE-listed companies.

Jamaican Teas Limited (JAMT) – Revenue is up 24 per cent over nine months to $1.75 billion. Net profit attributable to shareholders is up 269 per cent to $313 million.

Caribbean Producers Jamaica Limited (CPJ) – Revenue is up 264 per cent in Q4 to US $21.07 million. Net profit attributable to shareholders is US $1.33 million, and net loss is US $4.04 million. 

Why did you choose to go public a decade ago?

John Mahfood (JM) – CEO of JAMT, listed July 12, 2010.

We were the third company to list on the Junior Exchange after Blue Power and Access Financial. We were debt-free at the time and producing strong cash flow, so we did not need the funds from the listing for financing any major projects or to pay down debt. One of the main triggers for me was that a year earlier we failed in a bid to buy the Walkerswood factory which was very heavily in debt to NCB [National Commercial Bank] and others. We tried to negotiate with NCB to allow us to take over the business without taking on the entire debt. The bank was unwilling to take a haircut to save the business and planned, instead, to call in the debt and sell the real estate and assets to recover a portion of their debt. The assets were insufficient to cover their debt, but they preferred this route rather than to try and save the business and take a haircut.

So, although I was not able to do the deal myself, I was able to help save the company by introducing the principals to a large main market company who had the resources to do it. So, having lost that opportunity, I thought that it was important to put the company in a position that it had sufficient cash resources to be able to take advantage of another business opportunity if one came up. Another factor that influenced me was the destruction of the financial sector in the nineties. While a lot of the problems had to do with the high-interest rate regime and lack of Government oversight, a large part of the blame had to do with bad management decisions and a lack of corporate governance. This influenced me to want to formalise our business structure and board oversight for our company.

Therefore, I thought that being on the Junior Stock exchange would be the right move for us. It did not occur to me at the time that being on the Junior Stock would have a significant impact on our long-term growth and increased profitability. 

Anthony Mark Hart (AMH) – Chairman of CPJ, listed July 20, 2011.

The Junior Market offered a very attractive tax incentive. We saw that as an opportunity to raise some capital and also benefit from the Junior Market tax incentives. We saw it as a way to include some ownership by the public to help us manage the company in a stricter manner through improved corporate governance. In the long-term prospects of the company, we saw it as a good option. 

How did listing improve your business and overall company structure?

JM: Tax benefit of zero tax for the first 5 years and 12.5 per cent for the next 5 years. This has a tremendous effect of improving your cash flow so that we have more funds available for investment. Creating an objective and improved value for your shares. It was hard to determine the value of your business prior to being listed. Traditionally, private companies were valued at 5 times profit (if you could find a buyer). Today our shares are valued at in excess of 15 times earnings.

A publicly traded company is viewed as a better candidate for an acquisition than a private company for the reason stated above. You can grow your family’s wealth.

Since listing on the exchange, we have seen other benefits as follows:

*We have developed a more formal organisational structure and increased accountability of our staff;

*We have been able to attract and keep better staff;

*We have been able to incentivise the staff through stock options and a purchase plan that creates wealth for them, rather than just a salary;

*We have put in various quality systems that makes us a better company;

*A strong board of directors that provide oversight and guidance.

AMH: Listing on the market really has helped us in all the ways to operate as a public company. You have to include external board members as it’s no longer ownership in a private setting. They can add value if they choose to join your board. With very strong discipline, in terms of their proficiency, we have directors with legal, IT and finance expertise. 

What are some of the indirect benefits you’ve derived since listing?

JM: Being on the stock exchange you are mentioned in the press frequently in terms of new investments and products. This helps your marketing efforts for your products. The greater exposure means that people are encouraged to bring ideas and products to us to increase our business. To some extent your shareholders are motivated to support your products and hence be your ambassadors. Lending institutions are anxious to do business with you and you are able to get better rates and terms.

AMH: People are always interested in the company. You get publicised sometimes, depending on what’s happening with the company, if it’s favourable or not so favourable. It certainly gives a lot more awareness to the company and helps in branding your products, plus adding credibility to the market. We’ve found it very helpful. In COVID-19 we grew our social media presence from 14,000 to over 31,000 followers on Instagram. That’s a very powerful thing to have and that can probably be accredited to us being listed on the Jamaica Stock Exchange. 

How has your business done over the last decade amid the 2013 debt exchange and novel coronavirus pandemic?

JM: In 2019 we added an investment company (QWI Investments) to our group. This company invested primarily in publicly traded company stocks. We did very well in the first year of 2019 but had a significant loss in 2020 due to the effects of COVID-19 on the Jamaican economy and the resultant impact on our stock market. Fortunately, these were paper losses and we did not carry a heavy debt and the losses were fully reversed in 2021. Our main manufacturing business was in fact positively affected by COVID-19 in that, while the Jamaican economy declined our overseas business did better than 2020 (we sell more than 50 per cent of our products overseas).

We did experience some problems during our last 10 years. One was a lower income real estate development in St Thomas which went badly and the other was an investment in a large supermarket in Montego Bay which had large losses. We had sufficient cash resources to come out of both events and learnt important lessons from both. The lesson for me was that you must ensure that you have sufficient/dedicated and competent management capabilities for businesses that are not your core business.

AMH: We’ve had explosive growth where the company has really focused on increasing the sales and activity of the business. That’s been extremely strong throughout the entire period. We had a few events which were caused by the growth itself, including the IT disruption in 2018. That caused a little setback and we recovered from that event, but we then got hit by a natural disaster which was COVID-19. Nobody was spared in COVID-19 and CPJ is very reliant on the hospitality sector. Over the worst 18 months of COVID-19, the company had to undergo a major restructuring, which we already embarked on coming out of that IT implementation. When COVID-19 came, it allowed us a focused period of time to undertake all of the restructuring in terms of processes and platforms of technology we’ve implemented. 

What’s next for your company in the coming months or year? Are there any new products to mention or markets to build on?

JM: Expand our main manufacturing plant, expand our soup and dry pack division and install a dedicated facility, increase our portfolio of products during the next six months, complete our current residential development by February 2022, commence a new residential development by April 2022, seek out acquisition opportunities in the manufacturing sector.

AMH: Now that the hospitality is on its way to recovery, the company is in a very strong position since we undertook that restructuring. We’re very excited about the future. Although COVID-19 had disastrous effects on our activities in terms of selling, it gave us a lot of opportunity to make the business as nimble, as efficient as it can be. We succeeded on that task and what you’re going to see going forward providing the travel trade gets better.