Findings of companies use of Junior market 10-year tax incentive

Most companies struggled to maintain altitude after fiscal concession

Durrant Pate/Contributor

A review by NCB Capital Market of junior market companies whose tax incentives have expired suggests that the fiscal concession provided a meaningful launchpad for growth but long-term success ultimately depended on how effectively they used that window to build resilient businesses.

The 10-year tax incentive sees companies paying no income tax for the first five years after their listing on the local stock exchange and the remaining period at half the income tax rate or 12.5%. While earnings growth generally slowed as companies transitioned from 100% to 50% tax remission, the more meaningful test came once the full tax benefit expired. 

At that stage, the gap between the strongest and weakest businesses became increasingly evident, as higher tax expenses, coupled with other specific and exogenous challenges, exerted a gravitational pull on bottom-line growth. The assessment shows companies that used the tax savings and IPO proceeds to expand capacity, improve operational efficiency, and diversify/grow revenue base were generally better positioned to absorb the higher tax burden. 

Others, however, found it far more difficult to sustain earnings growth once that tailwind disappeared. Among a sample consisting of 15 of the first set of listed companies to complete their 10-year tax remission period, only five on average grew earnings, managing to maintain positive compound annual growth rates (CAGRs) for net profits even after transitioning to a 100% fully taxed environment.

Sample findings

The remaining 10 companies struggled to maintain altitude, reflecting the combined effects of higher effective tax rates, operational challenges, and adverse external conditions that their own engines have yet to overcome. Among the high-flyers were LASCO Manufacturing (LASM), LASCO Distributors (LASD), Caribbean Producers Jamaica (CPJ), Blue Power Group (BPOW), and Access Financial Services (AFS). 

“A common feature among the strongest performers was their willingness to reinvest the tax incentive’s financial benefits into long-term growth initiatives, such as capacity expansion, acquisitions, export development, and product diversification. LASM’s growth, for example, was supported by significant capital expenditure on production capacity, which was partly enabled by its tax savings,” the assessment found.

The company spent more than $6.38 billion over the 10 years, which included the expansion of its operations in White Marl, St. Catherine, by creating two major manufacturing plants: a Dry Plant and a Liquid Plant, alongside continued automation and product innovation. By expanding capacity and automating production, LASM improved efficiency, met rising demand, and strengthened its market position, laying the foundation for continued earnings growth, with earnings compounding at a 13.2% annual growth rate over the 5 years since its tax break ended. 

BPOW (CAGR: +5.12%) over the post-tax incentive period also pursued a manufacturing-led growth strategy focused on expanding soap production capacity and strengthening export markets. This was supported by investments in new production lines, factory reorganisation, additional wrapping machinery, expanded warehousing capacity and the development of regional distribution channels across the Caribbean and the US. 

AFS, CPJ and Honey Bun assessment

For AFS (CAGR: +0.6%), inorganic growth through acquisition has been a key avenue to growing its business. Notably, the company acquired the loan portfolio of Asset Management Company from Proven Investments in 2015, along with Micro Credit Limited’s portfolio in 2016, to capture a larger share of the local microfinance market and complement organic growth. 

However, the growth in direct costs (FY2019/2020: CAGR: +33.7%), coupled with full tax liabilities as of October 2019, tempered its overall earnings performance (+0.6%). CPJ (CAGR: +8.7%) highlights the importance of external conditions in shaping earnings growth. The company’s earnings had come under pressure ahead of the expiry of its full tax remission in July 2021 with the COVID-19 pandemic and the collapse of the tourism and hospitality sectors further weighing on growth. 

However, post-COVID revenue recovery of 106.2% and profit growth of 406.6% were driven by the reopening of the hospitality sector rather than tax-driven reinvestment effects. As the booster phase gave way to unassisted flight, some companies lost momentum in the face of rising costs, weaker revenue conditions, and external shocks, including COVID-19-related disruption and global supply chain volatility. 

Honey Bun (CAGR: -12.9%) accelerated its organic trajectory, aggressively increasing its route sales fleet, opening new retail outlets, and launching products like its premium Buccaneer Jamaica rum cakes into international markets. However, higher selling, distribution and administrative expense growth contributed to earnings volatility when it started paying the full income tax rate in June 2021. 

Earnings trajectory moderated

General Accident Insurance Company (GENAC) with a CAGR of -12.9%) also witnessed stalled earnings growth, given rising cost pressures. During its tax remission period, GENAC advanced a regional expansion strategy, growing its presence in Trinidad and Barbados as part of a broader effort to diversify underwriting risk and scale gross written premiums across the Caribbean. 

However, higher finance expense from insurance contracts and lower net investment income in some years, along with higher company fees given its migration to the Main Market in 2023 (a year after the end of its tax remission), moderated its earnings trajectory. Meanwhile, Paramount Trading (Jamaica) (CAGR: -36.1%) used its tax-advantaged years to pay down debt, including completely clearing its Allegheny loan to slash finance costs and compress its operating expense-to-revenue ratio from 24% to 19% in FY2022/2023 even as it began to take on full taxes that financial year. 

The company jumped to a net loss in FY2023/2024 on the back of lower year-over-year (YoY) revenues due to a one-time admixture contract for a new hotel in FY2022/2023 and only returned to modest profits in the following year. Consolidated Bakeries Jamaica, which trades as PURITY (CAGR: -14.1%) and AMG Packaging & Paper Company (CAGR: -1.9%) found shielding their margins far more difficult against the friction of supply chain shocks from the COVID-19 pandemic. 

Despite PURITY pumping $60 million into plant and fleet upgrades in FY2020, the company struggled to protect its profitability from rising raw material and administrative costs. That said, the company has shown signs of recovery since the start of 2026, posting improved margins and a return to profit as operational pressures continue to ease. 

Similarly, AMG undertook the construction of a new 10,300-square-foot facility in January 2021, just 6 months before the end of its 10-year tax free period to stockpile inventory and mitigate the risk of unstable global paper prices.