The Business Observer Newspaper - 18th December 2014

Interview

Issue 16

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December 18, 2014

Distributed with Times of Malta

THE REFORMS AT THE MFSA INCLUDE THE SETTING UP OF THE FINANCIAL SERVICES ARBITER. Photo: Chris Sant Fournier

KPMG recently announced a €26 million offer to acquire Crimsonwing. Richard Fleming, head of advisory at KPMG UK, speaks about the implications . see pages 10 and 11 >

INDUSTRY FOCUS Valletta’s revival is gathering momentum with restoration works, the Piano project, luxury boutique hotels, increased night-life and a boom in the property market. see page 3 >

Consumer protection reforms under way at MFSA Anthony Manduca The Malta Financial Services Authority is to carry out a number of reforms in 2015 in order to enhance the protection of consumers where these are disadvantaged in transactions with financial service providers, chairman Joseph Bannister has told The Business Observer.

These will include an enhanced institutional framework, an improved regulatory framework and a strengthened enforcement regime.

“During the past year the MFSA, following the introduction of the Single Supervisory Mechanism under the European Central Bank, has been working on the introduction of legislation and practice wide-ranging initiatives at EU level

which underpin a stronger focus on good customer outcomes in investment services, insurance and banking,” Prof. Bannister said.

The MFSA chairman said the current international emphasis on prudential regulation, that seeks to promote stable and fair markets, is a principle which also drives consumer confidence and fosters positive financial outcomes for consumers.

“However, a new emphasis on the conduct of business was the initiative taken by the G20 in February 2011, which called on the OECD and other international institutions to develop common principles on consumer protection in the field of financial services.

“The creation of a separate conduct regulator in the UK, the US and

“e MFSA is to embark on a major internal restructuring exercise” other jurisdictions reflects this new prioritisation for conduct of business in financial services,” he said.

He said the MFSA is to embark on a major internal restructuring exercise to reflect these international priorities in 2015.

He added: “The MFSA is currently preparing legislative

NEWS

proposals for the adoption of a conduct-of-business regime, and the revised MFSA Act will also establish a more defined enforcement process and an internal audit function as required under the ECB to enhance the systematic evaluation of MFSA’s governance processes, internal controls and risk management.”

Prof. Bannister said the proposed legislative changes together with the set of rules for enforcement and conduct-ofbusiness rules will be published for consultation in 2015.

“The proposed changes will be supported by the setting up of the Financial Services Arbiter. The MFSA has made recommendations to the government for the setting up Continued on page 3

For 2015 the unions want an end to precarious work practices and more emphasis on attracting investment while employers want fiscal consolidation and growth. see pages 5 and 6 >

CASE STUDY Boutique hotels are all the rage but Hospitality Ventures warns that there is only a fine line between profit and loss in this segment. see pages 12 and 13 >

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Malta’s economic development Continued from page 1 of this office which will be a specialised, single and independent dispute-resolution authority.”

Prof. Bannister said the MFSA faces a challenge to continue making Malta attractive for international finance. The authority, he said, has been reviewing insurance legislation for some time as part of its efforts to introduce innovation within the existing EU legislation.

“Specific legislation for redomiciliation of insurance companies followed by the Protected Cell Company legislation and more recently as part of the drive to introduce capital markets activity, legislation for reinsurance special purpose vehicles was introduced. However, this latest introduction – the Securitisation Cell Company legislation – allows securitisation vehicles to set up cell structures.

“This is a unique type of legislation not available in any other jurisdiction as it allows a single cell to issue separate tranches, to transact in different currencies and keep accounts in the currency of choice.

The Securitisation Cell Company is also applicable for all types of securitisation transactions,” he said.

THE POSITION OF EXECUTIVE HEAD CHEF IS A KEY ONE IN ALL FIVE-STAR HOTELS, OFFERING SUBSTANTIAL SALARIES AND BONUS. THIS HIGHLIGHTS THE FACT THAT THE FOOD OFFERED IN A HOTEL IS PERHAPS ONE OF THE MOST ESSENTIAL INGREDIENTS FOR A SUCCESSFUL HOTEL.

Prof. Bannister told The Business Observer that various other pieces of legislation and rules are expected to be published during 2015. Regulations regarding a revised Companies Act Tenth Schedule for the establishment of investment funds as limited partnerships are expected in the new year as well as the rules for Personal and Occupational Pensions under the Retirement

“e financial services industry has continued to expand” Pensions Act. These rules aim to further enhance the development of the international pensions sector.

Prof. Bannister said that in spite of the global economic crisis, the country’s financial services industry has continued to expand and to be instrumental in Malta’s economic development, to job creation, and to the building of a competitive infrastructure for the islands’ financial services industry.

Correction The lease on House of Four Winds was signed by Bank of Valletta in 2010 and was for 30 years and not 40 (The Business Observer – December 4).

The remaining 26-year lease has been extended to 65 years.

€70,000+ is starting salary for 5-star hotel general manager Anthony Manduca Hotel general manager is the highest paid position in the sector, with a basic salary package starting from €70,000+, according to Misco’s first ‘Salaries and Benefits Report for the 5-Star Hospitality Sector’.

The report deals with over 80 positions in the hospitality sector, from general manager and other management positions to waiter, housekeeper and cook. The financial packages tend to vary considerably between hotels, depending on the size and organisational structure.

Overall, internationally-recognised hotel chains tend to offer higher packages. After hotel general manager, the best paid position is that of finance manager, followed by management posts in operations, food and beverage, human resources, sales and marketing and engineering.

Executive head chef is also a key position, offering substantial salaries and bonus. This highlights the fact that the food offered in a hotel is perhaps one of the most essential ingredients for a successful property.

In addition, health insurance seems to have become a standard benefit that is offered to all employees.

The report, compiled over the past months, gives an overview of the financial packages and remuneration structures adopted by five-star hotels in Malta.

“Internationally recognised hotel chains tend to offer higher packages for employees”

Every year, Misco publishes its salaries and benefits report.

The latest edition, the 29th, was launched recently and carries an in-depth analysis of the most recent trends across 7,000 different remuneration packages available in Malta.

“The Salaries and Benefits Report is the most sought-after tool of its kind due to the comprehensive and well-researched data and covers over 80 categories of personnel which include management, executive, clerical, technical and other personnel in various private, foreign-owned and government-controlled, service and manufacturing organisations working in and from Malta,” said Sophie Terpougoff from Misco.

“We also publish specific sectors focusing on specific areas such as the ICT sector. We have had several requests from hotels to publish a report that concerns what we all know is one of the main pillars in Malta’s economy, and this led us to work on our first edition which covers a number of five-star hotels,” added Ms Terpougoff.

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2015 economic wish list ANTHONY MANDUCA asked the social partners what economic issues they would like the government to focus on

JOSEPH FARRUGIA Director General, Malta Employers’ Association In its reaction to the national Budget, the Malta Employers’

TONY ZARB General Secretary, General Workers’ Union The end of precarious work practices was, is and will remain an important priority for the GWU. Such precarious employment undermines stability at the place of work, encourages the hiring of foreign workers and threatens established working conditions.

While we continue to encourage the government to take

Association stated that the government faces a difficult year in reaching its fiscal targets, given its projected expenditures and revenues for the coming period.

The consolidation of fiscal finances remains an overall priority which the government should focus on during 2015.

The government is expected to implement the reforms in public transport to ensure an efficient and sustainable service which should increase economic efficiency through reduced traffic congestion.

Another priority is energy policy. The government has managed to keep its pre-electoral promises of reduced energy

the necessary measures to regularise the way contracts are awarded for services in the public sector, we believe that more wide-ranging measures are needed to prevent precarious work spreading to the private sector – where we have already had similar cases.

During 2015, the government needs to find ways of strengthening the country’s manufacturing sector. The creation of more jobs that offer a just alternative

rates through substantial subsidies, rather through generation of cheaper energy.

It is imperative that the decision whether to build another power station or else whether to rely on the BWSC plant in conjunction with the interconnector and a gas pipeline will truly be made in the national interest and not based in pre-electoral commitments.

The national airline is another hot issue which faces a decisive year as it has its last chance to become a sustainable enterprise. This requires a stable and committed management team which is empowered to take any decisions necessary to save the airline.

to precarious employment is a priority. While we agree with the Youth Guarantee Scheme – where youths who have completed their obligatory education do not end up dependent on social benefits – we believe that a structure should be in place which offers training to people in precarious employment which will lead to job opportunities with decent conditions.

There needs to be more environmental awareness and we believe that the time is right for the country to embark on a serious long-term plan on how industry uses resources. Our country is the ideal place to be a research and development centre for industry that specialises in the responsible use of resources and the production of renewable energy. Government support for such an investment would contribute towards the creation of ‘green jobs’ which offer new alternatives to precarious work practices.

DAVID CURMI

President, Chamber of Commerce, Enterprise and Industry The Malta Chamber reiterates its call, made at pre-Budget 2015 stage, for the government to keep the country’s fiscal consolidation as a principle priority, while promoting Malta’s competitiveness to ensure sustainable, export-led growth. Data presented with the Budget 2015 document clearly shows that there is no room for complacency in terms of economic policy.

GDP growth forecasts for 2015 (2.9 per cent) is mainly fuelled by domestic demand and public expenditure (2.6 per cent for 2015). In 2015 net exports are expected to close with a marginal positive contribution (0.3 per cent) which in itself is a note of caution because domestic demand on its own cannot sustain long-term growth for the country.

Lasting economic growth needs to be driven by exportled activity and this requires the country to be competitive.

Besides, the sensitive forecasts

of public finance convergence to EU parameters leave no margin of error in terms of potential slippages in the restructuring of the health sector, the energy sector and transport, including Air Malta.

National competitiveness is an ongoing process that is never concluded and is achieved by addressing a list of matters that serve as bottlenecks in the economy.

We look forward to seeing the matter of competitiveness being given its rightful importance, and being discussed at national agenda level.

For this reason, we look forward to the discussion of the Malta Chamber’s Economic Vision among our fellow social partners.

We are satisfied to note that our proposal for the MCESD to set up a specialised working group to discuss each fundamental listed in our Economic Vision was accepted, as we believe that the Economic Vision document can serve as a blueprint for the country’s economic prosperity for the years to come. continued on page 6

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Navigating the way forward continued from page 5

JosEf VEllA

general secretary, Union Ħaddiema Magħqudin 2015 is on our doorstep and we all start jotting down our wish lists, aims and resolutions. Unless this country is going to take the question of productivity seriously, little progress can be made.

The strength of an economy is totally dependent on its ability to maximise its productivity through its workforce.

Our country is not seriously equipped to attract investment.

We desperately need better coordination between policies whereby we plan how we want our economy to develop keeping in mind the skills needed for such

AbigAil PsAilA MAMo

CEo, gRTU The GRTU expects next year to be a very important one. We expect 2015 to consolidate on many issues that will have a significant impact on our economy.

2015 should tackle a problem that has plagued our economy, competitiveness and growth, for many years, the issue of unfair competition. The government has once again committed itself to tackle the problem through a set of measures announced in Budget 2015. We expect that in 2015 the government will move from talk to action and take all the necessary measures, in consultation with

investment. Policy coordination means coordination between various government departments including our ambassadors who need to market our investment strategy in an organised manner.

This cannot happen if we do not invest and train our professional staff at the various embassies and together with them we need to develop a plan to attract tailor-made investment.

It is also important to understand that investment can come from both local and foreign sources. A forum with local investors should be set up. Entering into a dialogue about investment opportunities with the business community should be encouraged. The important thing is to differentiate between discussing business opportunities and competing for business opportunities.

These are two different processes that have to be kept apart and distinct from each other.

None of this can be achieved without bringing into the Maltese political scenario a sense of integrity, a sense of service to the nation, a sense of humility and a professional attitude. the main stakeholders. The current situation is unsustainable and has become more so with the new items added to the list of goods subject to excise.

The GRTU would like to see a definite improvement in the lending environment and lending trends, especially in relation to SMEs. The GRTU anticipates that cheaper and easier access to finance for enterprises should have a very positive impact on our economy with stronger and more competitive enterprises, increased growth and employment.

During the last years the country’s finances have been hampered by a number of issues, which until today continue to threaten Malta’s economic success. In 2015, the GRTU expects the government to focus on public transport and Air Malta.

It is not a question of carrying a burden which is not ours because succeeding in both areas is a national priority, but it is a question of carrying a burden that is jeopardising our finances and creating uncertainty. GRTU expects significant improvements in both areas.

Top 10 risks for 2015: from the pleasant to the genuinely scary Stephen King With the benefit of hindsight, the world always seems to be totally explicable. Projections for the future, in contrast, are full of uncertainties. No one can be sure what the future folds, even if economists offer forecasts apparently accurate to at least one decimal place. In trust, forecasters behave like hers of wildebeest, heading off in one direction or another without ever really knowing why. Far better, it seems, for everyone to be wrong in exactly the same way than to take the risk of standing out from the pack.

Yet, the forecasting consensus has missed some of the big stories in recent years. As late as September 2008, forecasters on average still thought the US would enjoy growth of over one per cent in 2009 as opposed to the eventual more than three per cent contraction. In 2011, forecasters thought the eurozone was embarking on a sustained cyclical recovery – prompting the European Central Bank to raise interest rates – even though a sovereign bond crisis was just around the corner.

And, at the beginning of 2013, forecasters competed to revise

up their forecasts for Japanese growth, completely convinced that Abenomics would transform Japan’s economic prospects. It didn’t. Remarkably, the consensus growth forecast for Japan in 2014 is now back to one per cent, exactly where it was before Abenomics was first announced.

Forecasting tail risks is no easy task, one reason why the global financial crisis was only spotted with the help of rear-view mirrors. Our risks are divided into three main categories: (i) growth risks; (ii) policy risks; and (iii) market risks.

Many of the growth risks are on the downside – associated with fault-lines in both the eurozone and China – but, with promises of

“Forecasting tail risks is no easy task, one reason why the global financial crisis was only spotted with the help of rear-view mirrors”

structural reform, there may be some surprising rays of light in parts of the emerging world.

Policy risks are mostly associated with central banks changing tack in a world fundamentally different to how it used to be prefinancial crisis: helicopters and premature tightening are both potential sources of instability.

As for market risks, our big worries are an excessively strong dollar, a return of oil price strength and a liquidity black hole.

Other risks didn’t quite make it into the ‘Top 10’ but there are some that are still worth mentioning. On the upside, maybe the US economy will finally return to its earlier vibrancy, in the process becoming once again the world’s ‘consumer of last resort’.

On the downside, the rouble collapse raises the spectre of Russian capital controls while Latin America seems economically to be going from bad to worse. Then there are broader political themes, not least the rise in support for anti-European and anti-immigration political parties throughout Europe.

Stephen King is chief global economist, and Fredrik Nerbrand, global head of asset allocation, HSBC Bank plc

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INDUSTRY FOCUS

ST JOHN’S CO-CATHEDRAL IS UNDERGOING MAJOR RESTORATION.

Restoring Valletta to its former glory Anthony Manduca The revival of Valletta is gathering momentum with major restoration works, the final stages of the Renzo Piano project, the growth of luxury boutique hotels, increased night-life and a boom in the property market.

Why is there so much interest in Valletta? Alexiei Dingli, the capital city’s mayor, says that ever since Malta joined the EU it was clear that one of the main priorities of successive governments was to restore Valletta to its former glory. It is no coincidence, he says, that in the past seven years, the total amount of money spent on Valletta supersedes the amount spent in the previous two decades.

“Governments are obviously focusing their efforts on the revival of the city. This has been accelerated further by the award given to Valletta of European Capital of Culture in 2018. And I haven’t even mentioned the other important events such as the CHOGM or the EU Presidency,” he says.

Prof. Dingli says that the surge in investment in Valletta was felt from the first months of 2010 when the European Capital of Culture project was still in its embryonic stage. This was also possible because of “courageous” decisions which governments took over the years, such as changing St George’s Square from a car park to a living space, the Renzo Piano project and many others.

Prof. Dingli says this focus on Valletta is not surprising as the capital city is an architectonic jewel which is visited by millions every year, and the living symbol “of what we were, what we are and what we want to be in the future”.

He says he is confident Valletta is on the right track and he is constantly urging the authorities to continue investing in the city “so that we will reach our targets”. Valletta, he

points out, should be there to set the standards we would like to reach.

“The policies and business models concerning boutique hotels, tables and chairs and heritage are creating new opportunities which seem to be flourishing inside the city. Once they are tried and tested, they can be easily adopted by other localities as well.

Valletta was in the past the springboard for the urbanisation of the island, it is today the spark which will ignite the regeneration of Malta through the cultural revival.”

Prof. Dingli says he is very confident that the Piano project will act as a major catalyst for Valletta’s image and economic revival.

“If we see how people reacted to Pjazza Teatru Rjal I think we can deem that it was a huge success. If we just look at the stairways on either side of the entrance, they have captured the imagination of many.

He feels Valletta should be branded as a city which respects its past while looking forward towards its role as a modern European capital city.

“I believe the city should use its glorious history as a context while providing visitors with contemporary interpretations. We should not see Valletta as a museum space. It is a living space; a baroque canvas where artists can experiment; a school where we can reinterpret our past, our culture and help us discover who we are.

“It should be an intercultural city which accepts everyone’s view and which creates this critical think-thank whereby we can discover where we’re going.

Valletta should also offer new high qualitative experiences to its visitors, ranging from culinary ones to performances.

actually an asset which can stand alone. Valletta is not only the place for a sightseeing daytrip but actually a destination in itself which can offer accommodation, shopping, cultural entertainment and fine dining,” he says.

Dr Zammit Lewis says Valletta is a fundamental component of the government’s quest to develop the country’s tourism appeal.

“Such a quest is based on the need to extend our tourism season even further by offering a product which is attractive all year round and is based on an authentic and distinct Maltese offer. In the past tourism to Malta was a summer affair and revolved around the beaches and the coastal resorts.

Nowadays the more discerning, frequent-travelling visitor seeks places like Valletta. We are indeed privileged and lucky to have such

“We are indeed privileged and lucky to have such a treasure ready at hand. Historic cities do not simply come into being but take centuries to develop” I’m sure that the final puzzle piece, the Parliament building, will be no different. It’s already being featured in the most important architectural journals. People already want to see it. The business community is looking forward to its completion and it believes that it will continue to enhance the aesthetics of the city.

“The message which it symbolises is a very powerful one, whereby it is welcoming people into a 450year-old city which is not stuck to its past but which is alive and forward looking. I think all of these ingredients will give Valletta the impetus which it needs to move forward and attract further investment.”

“I think we should brand the Valletta experience; an experience which only residents of Valletta understand; an experience which is unique and which you can find only in the city.”

Tourism Minister Edward Zammit Lewis believes Valletta is a “selfcontained gem” along the lines of historical city centres elsewhere: an urban setting of churches, palaces and patrician townhouses within the confines of two magnificent harbours and a world-class system of defensive walls and fortifications.

“Malta has finally realised that the city it had long abandoned in terms of its historic and aesthetic values is

a treasure ready at hand, as historic cities which are also Unesco World Heritage Sites do not simply come into being but take centuries to develop.”

Asked about the government’s policy regarding the opening of new hotels and restaurants in Valletta, Dr Zammit Lewis says the government is very sensitive about the city’s particular urban fabric and the need to balance its regeneration in a way which does not lead to any oversupply of any one specific type of offer or development.

“We also have good reason to believe that the investors who are spending their money in this regen-

eration exercise are people who have a huge and sensitive understanding of the product they are dealing with. The government’s ultimate objective is to channel this interest in the best way possible so as to make it sustainable for all parties concerned.”

Mepa is also actively playing its part in Valletta’s revival. Joe Scalpello, Mepa’s policy coordination manager, says that in order to facilitate and encourage the rehabilitation and revitalisation of Strait Street and the Old Civil Abattoir (Biċċerija) in Valletta, the authority, in collaboration with the Ministry for Transport and Infrastructure, has published for public consultation a new policy for these areas “to be transformed into a creativity and multi-cultural hub both through new activities and physical interventions.”

This proposed policy (GV31), which takes into account the Government’s Vision for Valletta 2018, seeks to promote a diverse range of uses and activities connected to, or in support of, the promotion, teaching and practice of culture and local crafts.

High-intensity activities such as bars and music venues shall be directed towards the core of the hub between St Lucy Street and St Christopher Street, whereas lowerintensity uses such as teaching studios, independent retail outlets, exhibition spaces and tourism accommodation shall bedirected to the upper floors of the core area or towards the periphery of the hub.

GV31, adds Mr Cappello, “will endorse interventions on the physical fabric of the street and its buildings which enhance their conservation value, where specific attention will be given to the restoration and integration in the design schemes of particularly important signs, mural inscriptions or painted

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“Valletta is an architectural gem. e past 10 years have seen it change for the better” adverts which evoke memory links with the history of the street.”

The Valletta 2018 Foundation also has a role to play in Valletta’s economic resurgence. A spokesperson for the Foundation says it is contributing to the capital city’s economic revival through the work it has been appointed to do by the government in the coordination of the preparations for the hosting of the title of European Capital of Culture 2018 in Malta.

“Hosting the European Capital of Culture can bring a number of economic benefits to a city, as can be seen from the lessons learned since 1985 when the first such title was awarded to Athens. Economic benefits are not the reason for the European Commission to run this project, which is part of Creative Europe, but over the years the close links among cultural expression, innovation in the arts, the public appeal of culture and the pull the creative industries have had on creative classes of workers and other visitors, particularly tourists, has led to significant impacts on a city’s economy,” the spokesperson says.

“The priority of preparations for Valletta 2018 lies in human capacity building through training, skills development, artistic networking and exchange and audience development, which aim to make the arts and culture more accessible, sus-

tainable and of a higher quality on a long-term basis. All this is to be accompanied by similarly long-term investment in cultural and general infrastructure and transportation for the benefit of Maltese citizens and visitors alike.”

According to Jeffrey Buttigieg, regional director of RE/MAX, a leading real estate agency, “with the consistent embellishment of Valletta, it has developed into an ideal opportunity to invest in commercial and residential property, so much so that we have plans to open an office in the capital in the beginning of the year.

Valletta by night or by day is full of life. We foresee a huge boom in the real estate market of Valletta within the next 18 months.”

Ray Attard, CEO of the Manoel Theatre, says that interest in Valletta’s revival has grown for a number of reasons.

“As a Unesco World Heritage Site and now as the focus of the 2018 City of Culture its place on the international map has undoubtedly been firmly established. As a consequence cultural tourism has increased. The addition of a substantial number of very good restaurants and bars has also lured the locals back to Valletta.

“The Manoel Theatre has always been one of the major attractions of the city, both as one of the most beautiful and historic of buildings

THE PIANO PROJECT HAS THE POTENTIAL TO ACT AS A MAJOR CATALYST FOR VALLETTA’S IMAGE AND ECONOMIC REVIVAL. Photos: Darrin Zammit Lupi

and as a major contributor to the cultural scene. In response to the growth of Valletta as an entertainment location, as opposed to it just being a daytime working city, the theatre continues to provide and develop its eclectic programme of performances covering most genres of music, dance and drama.”

He points out that one notable project that has had a significant positive effect in reviving Valletta during the leanest of months is the annual Valletta International Baroque Festival, “which is marketed internationally and has now taken its place among the major baroque festivals on the global cultural map, which is attracting a new type of visitor to our city.”

Businessman Leonard Cassar, who has three brand-name retail shops in Merchants Street, believes Valletta offers many business opportunities besides retail, and he has now set his sights set on the catering business.

“Valletta is an architectural gem. The past 10 years have seen it change for the better. Largely thanks to the EU funds allocated, its beauty and business potential have been enhanced,” he says.

He adds the improvements he would like to see include “camouflaging” the cranes around the Grand Harbour and injecting more life into it with Great Siege re-enactments, as this would help tourism.

He also believes that more retail businesses would help make Valletta a primary choice as a shopping location.

Francis Spiteri Paris, managing director of Perry Ltd, a leading real estate company, says that the restoration that Valletta is experiencing “is akin to a renaissance”.

“The Renzo Piano project has been added to the many worldrenowned attractions that Valletta boasts,” he says.

The Malta Philharmonic Orchestra, which mainly performs concerts at the Manoel Theatre and the Mediterranean Conference Centre, is also doing its part to boost Valletta’s image.

Sigmund Mifsud, chairman and CEO, says the orchestra has diversified into various fields and has invested in projects that are original and different.

One such production is ‘The Everlink’, which is a spectacular audiovisual presentation that will take place at the end of January at the Eden Cinemas. The music was specifically composed by Reuben Pace – a commission by the orchestra – and the visuals are produced by the Department of Digital Arts at the University of Malta under the coordination of Dr Vince Briffa.

“The orchestra is also committed to spreading its wings overseas, and this will surely happen in the forthcoming Tour of China that will begin on December 26 and end on January 8. The MPO will be playing at no less than nine major theatres in the city of Shanghai. There will also be the opportunity to showcase local talent in the form of soprano Clare Ghigo as well as an original Maltese composition by Christopher Muscat,” he says.

After the China Tour, the MPO will also be involved at the Valletta International Baroque Festival, an event which has become one of the calling cards of the international music-loving community. There will also be a concert in aid of the charity foundation Inspire at the end of January, where acclaimed oboist and conductor Diego Dini Cacci will lead the MPO in a programme of Italian and German works at the Sir Temi Zammit Hall at the University of Malta.

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INTERVIEW

FROM LEFT: BRYAN CRUICKSHANK (KPMG), JAMES BONELLO (CRIMSONWING), RICHARD FLEMING (KPMG), DAVID WALSH (CRIMSONWING) AND PIERRE ZAMMIT (CRIMSONWING).

Photo: Darrin Zammit Lupi

‘Our plan is to triple the business’ KPMG recently announced a €26 million offer to acquire Crimsonwing. RICHARD FLEMING, head of advisory at KPMG UK, spoke to ANTHONY MANDUCA about the implications of the acquisition. Bryan Cruickshank, global head of IT advisory for KPMG UK, David Walsh, Crimsonwing CEO and founder, James Bonello, Crimsonwing managing director and Pierre Zammit, operations director, Crimsonwing, also contributed to the interview.

Why is KPMG interested in acquiring Crimsonwing?

There are a number of reasons.

We were attracted to the very high calibre of the people in the business, the very high quality of the product and the solutions they provide for their clients. We were very much attracted by the clients’ stories and the feedback by those clients has been outstanding.

And then the whole Microsoft dynamics is very interesting and the EIP (enterprise information portal) system is really growing.

There really isn’t a huge competitor in the marketplace, so that’s a real opportunity for Crimsonwing to go forward. When you combine the e-commerce aspect, then that was a really complementary fit.

When you say there isn’t a competitor, what exactly do you mean?

We see our broad competitive landscape at KPMG as the Big Four accounting firms plus corporations like IBM, and while there are very big practices around, you really haven’t seen one of those players pick on Microsoft dynamics, yet this is the product which is really starting to take market share. So for us its gives us an additional benefit of giving us a niche in the market to really go after and seek to dominate.

Also, while Crimsonwing has a large client base in Malta, it’s actually serving clients from Malta in the Netherlands and the UK.

“We were attracted to the very high calibre of the people in the business”

Is it quite normal practice for a company such as KPMG to acquire an IT company?

Yes, it is. I run our advisory business which has about 5,000 people.

About 1,000 of these routinely seek to answer big clients’ questions, so we have a pretty sophisticated programme at the moment. I think I can conclude a couple of major transactions in the broader technology space by the end of January.

What are your plans for ‘KPMG Crimsonwing’?

We have big exciting plans. At the moment Crimsonwing has about 300 people in its business, of which 200 are in Malta. Our plan in the near term is to seek to double that, and that also includes

doubling the size and scale within Malta. The only thing that will limit that will be our inability to access the talent within Malta. Whereas at the moment Crimsonwing is predominantly serving clients in Malta, the UK and the Netherlands, increasingly their client base are requiring their services to be deployed in other geographies because lots of these companies had other jurisdictions.

We see a much bigger opportunity here, certainly across Europe, to become the implementation partner of choice for Microsoft.

We should be in Germany, we should be serving France and we should be serving Italy. If we can access the talent pool from Malta, then Malta will continue to grow to feed that opportunity.

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What about Crimsonwing’s clients?

David Walsh, Crimsonwing CEO and founder: Our clients are aware of our acquisition by KPMG – they have welcomed the fact that KPMG are on board – there are lots of benefits for our customer base. When you look around there are so many positive attributes. Convincing our staff, clients and shareholders has been a relatively straightforward affair. It’s a proud moment for us and for Malta.

The other really interesting thing for us too is actually that our acquisition within our own KPMG network will be raising the interest levels of our American colleagues as well as our colleagues in other major countries. It’s also attracting really huge interest and excitement at Microsoft.

What main region would you like KPMG Crimsonwing to expand to?

Typically it’s Europe. However, at the moment the issue is not where we expand to, but rather being able to access the talent so that we can serve the client. We think the UK opportunity is huge and expanding in a much bigger way, so that country is important. The same can be said about Holland. However, anywhere across Western Europe in particular there exist large-scale opportunities for us to get into. The skills that Crimsonwing has are fundamentally in short supply.

KPMG has offered €26 million for Crimsonwing. How did you arrive at that figure and at what stage is your offer?

We went through an evaluation process, a due diligence process, there’s a negotiation process and then we arrived at that figure. As Crimsonwing is a publicly-listed business, I don’t have the final details but the price is a premium, I think, to the share price. There are now a number of regulatory hurdles to overcome, but we are targeting a completion date for January 20.

How will the setting up of KPMG Crimsonwing benefit Malta’s economy?

It will in a number of ways. What we should see is increased employment in Malta and therefore that contributes towards tax revenue and economic growth, and our plan over the next four or five years is to triple the business if we can get the right type of skills set.

I think the other area where the Maltese economy will benefit is that one of the things KPMG specialises in is actually adding the business knowledge and the business information to technology. This isn’t just

RICHARD FLEMING, HEAD OF ADVISORY AT KPMG UK. Photo: Darrin Zammit Lupi

about taking a software package pushing into the business. We have the business knowledge about how to make that work. Crimsonwing certainly has some of that, but KPMG makes its living doing that.

David Walsh, Crimsonwing’s founder and CEO, is to be the chief executive of KPMG Crimsonwing. What message does this send and what other plans are in the pipeline for the new management structure?

I think it’s a great message and a testament to David Walsh who built this business up with his management team. David is very much part of the business going forward and is very committed to helping Crimsonwing on its journey to being part of KPMG. It’s really a vote of faith in the quality of the management team of this business. We are keeping Crimsonwing as a separate business and it will be jointly owned by KPMG’s firms in the UK, the Netherlands and Malta.

What will the acquisition of Crimsonwing by KPMG mean for shareholders of Crimsonwing?

It means they get their money out

and they cease to become shareholders of the organisation, so essentially they have sold their interest in the business.

What about the training aspect?

Bryan Cruickshank, Global Head of IT Advisory for KPMG UK: We see this as more than a lowcost venture, it’s a solution centre.

There is expertise in Malta which we will be using to train our professionals across Europe, so we’ll be attracting people back into Malta in order to train them up in the relevant functional capabilities of the applications we are dealing with so that they are more effective when they are deployed to these services in the field. We can think of Malta as a professional training centre for our European professionals.

How did Crimsonwing staff react to this acquisition offer?

James Bonello, Crimsonwing managing director: The staff at Crimsonwing have welcomed this news. This will put us very much on the fast track – the type of projects that we are going to attract are not going to be local but global projects. The size

“e issue is not where we expand to, but rather being able to access the talent so that we can serve the client”

And KPMG’s clients?

Bryan Cruickshank, Global Head of IT Advisory for KPMG UK: The client reaction to Crimsonwing has been very positive.

Clients that have got complex international projects see that the KPMG involvement will help. It’s exactly the same for KPMG clients; I think this is a demonstration that we are absolutely serious about helping our clients transform their businesses and putting in the capabilities in order to build the enabling systems.

So there’s been a hugely positive feedback from KPMG clients as well for what we’re doing, and indeed Microsoft, who are very important in all of this, and who made it very clear that they see this as a real statement of intent.

The partnership that they see emerging is very differential to what they have with others. They see us as the business transformation partner.

What about the reaction of the Maltese government?

Richard Fleming: The reaction has been very positive because of the growth story and what this deal means for Malta.

of the clients, the complexity, the opportunities for the staff are going to be tremendous.

How will this acquisition help recruitment?

Pierre Zammit, operations director, Crimsonwing: This will make us more attractive as a recruiter. With the KPMG badge, we should be more attractive to the young generation, and hopefully will be able to reach the ambitious targets we are looking at.

12

e Business OBSERVER

| December 18, 2014

CASE STUDY

Boutique hotels flourishing FRANKIE SPITERI (LEFT) AND JANKARL FARRUGIA.

Vanessa Macdonald Until quite recently there were only a handful of boutique hotels on the islands. There are now 13 applications for new ones to be built in Valletta alone, and a number of others are already well established.

But the enthusiasm to create a new niche product needs to be complemented by a touch of pragmatism, according to the company running Palazzo Prince D’Orange.

“Not every building can be turned into a boutique hotel and not every boutique hotel will be profitable.

Only the strongest will survive,” director Frankie Spiteri warned.

“It is all about finding the right place, at the right time and being able to offer the right skills.”

Mr Spiteri’s thesis was about niche tourism and he is a firm believer in the need to focus on higher-end tourists rather than on volume, which he believes will eventually start to level off and perhaps even decline. These will want something new and exciting.

“We talk so much about product ... Boutique hotels and corporate hospitality fill an important gap in the market,” he said.

Mr Spiteri and his partner Jankarl Farrugia had worked together at the Corinthia head office, with the former bringing experience in IT for the hospitality industry and the

latter insight into destination management, among other things.

They decided to set up Hospitality Ventures and trade under the brand of Hotelogique, focusing on small but high-end properties. Valletta was the natural place to start.

The palazzo, their first property, demonstrates some of the issues that they highlighted for others interested in this segment.

“It had been bought and done up by a Dutch couple and was originally going to be a hotel. However, we felt that it would be better to go for short lets, as the units are large suites, with their own kitchens.

“But we also realised that the ‘hotel’ approach had many benefits

and kept a concierge who could help the guests with everything that they required, whether a yacht charter, a personal chef service or wedding registrar. The units also have housekeeping services with full turndown,” Mr Farrugia explained.

One of the main factors to bear in mind is that there is a huge difference between short lets in real estate and short lets in hospitality.

“The former think in terms of a few months while the latter is about days. And then there is another entirely different sector to be considered by the property owner – corporate housing, which caters for foreigners here for finite projects or awaiting their permanent housing,” Mr Spiteri said.

The palazzo was entrusted to them 18 months ago and it has proved to be a great success, with the owner investing further to add a spa and gym, with more refinements planned in the future – including a communal breakfast area to complement the impressive piano nobile with its Chippendale chairs and open fireplace.

The management concept was a win-win situation, and one that they strongly recommend.

“It is tempting to try to run a hotel yourself, but the skills you need for a boutique hotel are perhaps even more sensitive than for a large hotel,” Mr Farrugia said.

“There is a very fine line between profit and loss as the over-

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CASE STUDY

THE SKILLS YOU NEED FOR A BOUTIQUE HOTEL ARE PERHAPS EVEN MORE SENSITIVE THAN FOR A LARGE HOTEL.

heads are spread across fewer units. You have to juggle between offering expensive services and keeping the price right.”

The first approach is always an objective one: is the property suitable for a boutique hotel or for short lets?

“It is important to carry out a feasibility study if you want to ensure success – and banks want to see that people have done their homework,” Mr Spiteri said.

“It is pointless investing in something that will not give you a return. The idea is to improve the asset. But not all properties will give a good- enough return.

It depends on their location and on numerous other factors like the finish, the amenities and so on. We have actually turned down a property as we felt that long lets would actually give a better return to its owner.

“And you have to consider how many units you could have. A serviced apartment would need to be around 60 square metres, while hotel room sizes have to be economically feasible.

The decision to offer short lets of 3-5 days was based on corporate executives who tend to travel often and relish the personalised feeling of the units. However, they were pleased to see a considerable number of leisure travellers too, from America, Australia and Britain.

“Boutique hotel rooms or units like these offer a welcome relief after anonymous hotel rooms,” Mr Farrugia said.

Hospitality Ventures is already expanding rapidly, with a new chain of boutique hotels, to be branded Quaint Boutique Hotels, opening in Nadur, Xewkija, Għajnsielem, Sannat and Sliema. A property offering 14 luxury suites will also open next year in St Julian’s.

“Location is very important. In Gozo, we realised that there are the top-end hotels and farmhouses but little in-between. And we also realised that the appeal of Gozo lies in the villages. So all the hotels will be in the core, right on the piazza,” Mr Farrugia said.

The properties there belong to developer Joe Portelli, who

“The more there are, the better.

Conference and incentive travel is getting more and more anxious to find something special. If there are enough boutique hotels in a location, it means that the delegates could be spread among them, for a more personalised experience” brought Hospitality Ventures in at the very start – which they believe is a crucial factor in their eventual success.

“The earlier the management team is brought in, the better, as there are a number of decisions that need to be made at the planning stage. For example, do you need an exit strategy? If the owner might want to change the use of the building in the

future, that could have a bearing on whether to have en suite bathrooms and kitchenettes, which limit you to hospitality and make it hard to revert to a real estate proposition,” Mr Spiteri explained.

The proliferation of boutique hotels will ultimately create a momentum for this niche that one or two hotels alone could never do – and with so much focus coming

Valletta’s way when it is the European Capital for Culture in 2018, the capital city will be able to offer a wide range of options.

“The more there are, the better.

Nowadays, conference and incentive travel is getting more and more anxious to find something special. If there are enough boutique hotels in a location, it means that the delegates could be spread among them, for a more personalised experience.

“And once we can offer Gozo too, then it means that there will be a twinning option,” Mr Spiteri said.

“Marketing boutique hotels is difficult because the cost has to be recouped through such a small number of rooms. It helps to work with someone who already has extensive contacts across the industry,” Mr Farrugia said.

Hospitality Ventures is at a crossroads as it will soon have to scale up to cope with the new properties in its portfolio.

“We are already working with four different owners and we will definitely continue to grow,” Mr Farrugia said. www.hotelogique.com

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e Business Observer is Malta’s leading business newspaper distributed with Times of Malta every fortnight.

Editorial Vanessa Macdonald, Head of Content (Business), Times of Malta.

EDITORIAL

Main challenges for next year

Publishers Allied Newspapers Ltd. Content House Group Ltd.

Allied

N E W S PA P E R S

A M E M B E R O F T H E A L L I E D G R O U P O F C O M PA N I E S

After 18 parliamentary sittings and no fewer than 52 hours of debate on the Budget for next year, many are still not quite clear as to the real state of the country’s economy. Politicians from the two main parties give a different picture, with those on the government side highlighting the advances made in practically all sectors and the Nationalists pointing to the red light showing in some aspects of the economy.

At times, the discourse is so vastly different from each other that they make it sound as if they are speaking of two different countries altogether.

However, since most people have come to expect this with every presentation of the financial estimates, few give serious attention to what the politicians say in the debates. All that many care about is what they are going to get out of the Budget and how much more they are going to pay in taxes.

To boot, this year’s Budget was completely overshadowed by a shooting incident involving the driver of a Cabinet minister (since removed), a matter that developed into a major political issue.

It is greatly disturbing that politicians are invariably unable to come round to discuss in a completely objective manner such a bread-and-butter issue as the Budget. What ought to be an exercise in seeing, among other things, how best to utilise the government’s financial resources, is turned into a political charade, similar to what the country experiences at election time.

Keeping the finances in order and reducing the national debt will remain the country’s two main challenges next year, more so if the

government wants the European Commission to lift the excessive deficit procedure against Malta. According to the Minister of Finance, the government is aiming to reduce the deficit to 1.6 per cent of gross domestic product next year. He admits the target is very ambitious, but he is banking on an economic growth rate of 3.5 per cent.

Even this may be a bit ambitious.

The minister, Edward Scicluna, is confident that this year the deficit will be of 2.1 per cent of GDP. He is also expecting the national debt to fall to 69 per cent. Employment is up and, at 5.6 per cent, the unemployment rate is the third lowest in the EU. However, the situation is not all that plain sailing for the Opposition, whose spokesman on finance argues that, despite all the government’s declarations that the government’s finances are on track, it appears that the targets for this year would be missed.

As to the Budget for next year, it is not just the Opposition that is expressing some doubts. Even though, as the Finance Minister said, the European Commission may have accepted the Budget for next year, it said Malta was off-track in debt reduction.

There are a number of other key issues that have yet to be cleared up. One of the most important is how exactly are the energy tariffs cuts going to be financed in the period up to the time the energy project comes on stream.

Also to be factored in is the subsidy for public transport. Difficulties in manufacturing industry should not be downplayed either. In short, while the economy has continued to move ahead, there are problems that require close attention.

Advertising Enquiries Tel: 21 320713 Email: info@contenthouse.com.mt Advertising Sales Petra Urso Publications Sales Manager Jordan Bonello Advertising Sales Executive

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A M E M B E R O F T H E A L L I E D G R O U P O F C O M PA N I E S

BUSINESS OPINION

e quest for innovation

Malcolm Bray Countries can grow by expanding their labour resources, such as by encouraging more women to remain in the labour force, or through capital deepening, in the form of higher levels of investment.

However, it is innovation which can ensure permanently higher growth rates.

The World Economic Forum considers innovation as one of the pillars for global competitiveness, stating that for countries to move towards higher value-added activities there is need for “an environment that is conducive to innovative activity and supported by both the public and the private sector”.

When one thinks of innovation, it is easy to focus only on large innovations such as the discovery of new medicine or a breakthrough in engineering technology. However, innovation is much wider as a concept. It also includes new ways of doing things or small improvements to existing products.

This perspective is more relevant to a small country like Malta, since the resources which can be

allocated to research and development are limited when compared to large economies.

Nonetheless, when one considers that products which have revolutionised business in recent years – such as Facebook, to name just one – have been initiated by young people with limited initial resources, one should not a priori exclude the possibility of revolutionary ideas emerging from a small country.

In Malta, however, there seems to be lack of an innovative spirit.

Indeed, the education curriculum and mentality do not foster an inquisitive and entrepreneurial spirit. There seems to be excessive reliance on the government to spearhead economic activity. People seem to believe that it is the government’s exclusive role to come up with ideas for growth.

There is also need for a vibrant private sector, not only companies but even individuals who are working hard to innovate.

In order to foster an innovation culture there is need for a young cadre of entrepreneurs who are willing to challenge the status quo in every aspect of business. This requires people who are able to think outside the box, and take nothing as given. This is the idea behind creative destruction, associated with modern growth economics (referred to as endogenous growth in the literature) which focuses on the process of how new technology/ideas/products constantly replace older ones.

In this respect, one has to be very careful when designing education curricula. Too much

RENAUD LAPLANCHE (CENTRE), FOUNDER AND CEO OF LENDING CLUB, CELEBRATES WITH COMPANY EXECUTIVES THEIR IPO AT THE NEW YORK STOCK EXCHANGE ON DECEMBER 11. PHOTO: BRENDAN MCDERMID/REUTERS

“ere is lack of venture capital in Malta, which needs to be addressed” emphasis on the teaching of knowhow is backward looking, in the sense that students are being brought up to be familiar with existing products rather than how to improve existing products. Students need to also understand the fundamentals underpinning a product, in order to be able to experiment how to improve on it.

A recent example of a business idea, called Lending Club, shows

the extent to which innovative entrepreneurs are not willing to take anything as given. Normally one would consider banks as being the specialist lenders, but the people behind Lending Club were able to challenge that view and move towards peer-to-peer lending. This enables borrowers to undercut bank interest rates and offer lenders the possibility of earning higher returns than on traditional

deposits. So far this was a success story, as certified through the launch of the company on the New York Stock Exchange on December 11.

Besides a rethink of curricula to encourage students from a young age to be innovative, rather than indoctrinated copycats, there is also need for a supporting financial infrastructure. In this respect there is lack of venture capital in Malta, which needs to be addressed. Investing in innovation is inherently risky – most of the attempts will fail – but the few which succeed make such attempts worthwhile to consider. A country which does not innovate is doomed to lag behind the other more innovative economies.

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APPOINTMENTS

Local CEO for Geneva-based IMC

MD for Heritage Group

The Geneva-based Investment Migration Council (IMC) has appointed Bruno L’ecuyer as its first chief executive officer. The former head of business development at FinanceMalta will be based in Malta.

IMC is the worldwide association representing professionals from the investment migration and the citizenship-by-investment industry, Mr L’ecuyer will lead the formulation and achievement of the IMC’s mission, strategy and goals, in close collaboration with the board.

“As the IMC enters the next phase of growth, the appoint-

Heritage Group has appointed Neville Carabott as the new managing director to continue the recent investment drive in its Malta operations.

Dr Carabott joins Heritage from Vistra Malta, a corporate services outsourcing firm, where he was a board director. Prior to this, Dr Carabott worked in the financial services team at Hogan Lovells LLP and the worldwide securities services department at JP Morgan in London.

ment of Mr L’ecuyer to this key role will be pivotal in driving forward our strategic initiatives, including setting standards on a global level, interacting with other professional associations, governments and international organisations,” said IMC chairman Dimitry Kochenov. www.investmentmigration.org

Financial controller for Pendergardens Claudia Nicole Abela will be taking over as financial controller of Pendergardens Developments in the coming weeks.

Ms Abela was previously a director at Camper and Nicholsons Marinas International.

Heritage, which recently moved to brand-new offices in SmartCity, has also been granted a depositary licence by the Malta Financial Services Authority, expanding the range of services it can provide.

Additionally, Heritage has strengthened the board with the appointment of non-executive director Noel Vella. Mr Vella brings a wealth of knowledge to the business, having gained experience at Clive Capital LLP, Chirin Capital and Shell Pensions Management UK.

Security head for MIA

Middlesea reorganises

Patrick Murgo has been appointed head of security at Malta International Airport, replacing Patrick Cuschieri who recently resigned.

Mr Murgo joined the company as procurement executive last April. He has extensive experience in security, working as the head of the fire and rescue department at the airport between 2004 and 2009, and then as director of the Civil Protection Department.

Middlesea Insurance has redesignated two of its chief officers to bring its organisational structure into line with the Mapfre global organisation.

Keith Mallia Milanes is now assistant general manager for technical affairs, and Fernando Docampo assistant general manager for commercial affairs. Both report directly to MSI president and CEO Alfredo Munoz Perez.

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STOCK MARKET REVIEW

Is Maltapost in need of additional capital resources?

MaltaPost plc - Profits, Equity & Return on Equity For the years ended 30 September 2009 - 2014

Edward Rizzo Edward Rizzo is a director at Rizzo, Farrugia & Co. (Stockbrokers) Limited.

On December 9, Maltapost plc published its financial statements for the year ended September 30, 2014, and the directors recommended that during the forthcoming annual general meeting being held on January 16, 2015, shareholders approve an unchanged net dividend of €0.04 per share. Moreover, similar to previous years, shareholders will have the option to receive the dividend either in cash or by the issue of new shares at the attribution price of €1.16 per share.

In previous years there was a very high take-up of new shares as opposed to a cash dividend, primarily due to the shareholding structure of Maltapost with Lombard Bank owning more than 65 per cent. This implies that the company actually only paid a very low cash dividend on a yearly basis and retained further capital resources. In fact, despite a high dividend payout ratio – assuming a cash dividend to all shareholders – total shareholder funds of Maltapost grew from €10.9 million in September 2009 to €18.2 million in September 2014.

Scrip dividends are normally used by companies which require additional capital resources to fund ongoing investment programmes.

Moreover, the most common users of scrip dividends are banks that are typically in constant need of additional capital to sustain a growing loan book and also in view of changing regulatory requirements.

The balance sheet of Maltapost is rather ‘peculiar’, with no bank borrowings or debt financing and with high levels of cash (although some are held on behalf of third parties such as the utility companies on whose behalf money is collected from customers), as well as available-for-sale financial assets totalling €3.3 million. Given this balance sheet structure, the need for a continued scrip dividend by the company is questionable.

The market is not aware of any immediate capital expenditure requirements by the company. If the company aims to purchase certain property assets, wouldn’t it be more advantageous for shareholders that Maltapost slightly leverages its strong balance sheet and takes on some bank borrowings to fund such an acquisition, given the current low interest rate environment?

Profitability & Total Dividends ( millions)

20

35.0%

18 30.0%

Pre-Tax Proft

16 25.0%

14 12

20.0%

Total Equity

10 15.0%

8 6

10.0%

4 5.0%

2 0

Return on Equity (pre-tax)

0.0%

2009

2010

Some years ago Maltapost borrowed €4 million to partly fund the acquisition of certain key properties, and this borrowing had been repaid by the company within a short period of time, given its positive cash flow generation.

The cash flow statement for the last financial year shows that Maltapost acquired €1.9 million in property, plant and equipment and purchased financial assets for a value of €0.6 million during the year. Given the decision by the directors to opt for another scrip dividend, at the next AGM shareholders would be pleased to learn about the company’s capital expenditure requirements and why debt financing is not being considered as a financing option.

Take-up of shares as opposed to a cash dividend on an annual basis

by Lombard Bank, as the majority shareholder, with some of the other investors opting for a cash dividend implies that Lombard’s stake is gradually increasing over the years once the new shares are allotted.

On October 25, 2012, Maltapost announced that its largest shareholder, Redbox Ltd (a fully-owned subsidiary of Lombard Bank) intended to increase its stake in the postal operator from the level of 67.72 per cent at the time to not more than 74.5 per cent. The announcement failed to disclose the way in which the majority shareholder intended to increase its shareholding, i.e. via purchases of shares on the secondary market or via the periodical scrip dividend allotments. The shareholding had only increased to 69.2 per cent by November 2013 (the latest information available). This indicates how difficult it has been to achieve its objective through the acquisition of

2011

2012

2013

2014

shares from current shareholders via the Malta Stock Exchange. In fact, due to the company’s shareholding structure – with over 2,000 shareholders having very small stakes – it has not been easy for Lombard to increase its equity stake. The scrip dividend method could therefore be considered as the most viable solution to achieve Lombard’s objective, officially announced more than two years ago.

The scrip dividend decision should also be analysed in the light of its impact on the company’s financial ratios, most notably the

“Given this balance sheet structure, the need for a continued scrip dividend by the company is questionable” return on equity which is a widelyused indicator by financial analysts worldwide to gauge a company’s performance. Although the posttax return on equity improved to 10.6 per cent during the last financial year, compared to 8.3 per cent the previous year, this must be viewed over a longer-term period.

The post-tax return on equity in 2009 and 2010 was just below 20 per cent – a very attractive return for the company’s shareholders.

The reason for the decline in the ratio was twofold: a decline in profits from circa €2.0 million in 2009 and 2010 to €1.8 million in 2014, coupled with an increase in the company’s equity base from €13 million in 2010 to €18.2 million in 2014. This ratio shows that the company did not manage to employ the extra capital in a similarly profitable way for the benefit of all shareholders.

The 2014 financial statements show a profits rebound after two disappointing years when profits dropped following the adverse impact from the higher regulatoryinduced costs related to crossborder mail which were not recovered from higher postage rates.

The increase in certain postage tariffs in November 2012, followed by others in April 2013 and January 2014, is now having a positive impact although profits are still below the record levels of 2009 and 2010.

In this respect, Maltapost warned that “the high fixed-cost base of the Universal Service Obligation needs to be re-evaluated so as to ensure its long-term sustainability.”

In December 2013 the MCA concluded that no further changes in universal service tariffs would be required before financial year 2016.

Given this recent statement by the directors, investors should be informed whether Maltapost is making any representations to bring forward any further hikes in postage rates in order to mitigate the higher costs being incurred.

In last week’s announcement, Maltapost also confirmed that its strategy “remains focused on securing a reasonable share of the growing parcels market, while enhancing and consolidating a diversified portfolio of services to

counter the irreversible decline in letter mail volumes”. The company’s portfolio of services expanded with the introduction of document management, invoice processing and printing, the Send On mail forwarding service from UK to Malta and other services.

In the financial services sphere, on September 30, 2014 Maltapost launched Posta Pay & Save in conjunction with Lombard Bank. This is an interest-bearing account with a passbook allowing customers to receive funds and deposit cheques as well as to make payments or withdraw money.

Maltapost shareholders would be pleased to hear how this longawaited product was received and how positively this is likely to impact the company’s financial performance in the coming years.

Maltapost had also intended to enter the insurance sector, but in December 2013 the company announced that its aim of securing an agreement for its new subsidiary to act as an insurance agent of Middlesea Insurance plc would no longer be pursued.

Maltapost claimed at the time that it still intends to provide insurance-related services, but over the past 12 months no further mention was made of any developments in this respect. Shareholders ought to be informed of whether the company still intends to pursue its plans.

The AGM will provide the right forum for details on any capital expenditure plans, the funding options being considered and the strategic initiatives being taken by the company to help profits recover to their past record levels.

Rizzo, Farrugia & Co. (Stockbrokers) Ltd, “RFC”, is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the company/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. RFC, its directors, the author of this report, other employees or RFC on behalf of its clients, have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent, and may also have other business relationships with the company/s. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither RFC, nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report. © 2014 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved

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BUSINESS UPDATE

Project management – enterprise-wide system implementation It is dangerous to underestimate the complexities of an enterprise-wide system implementation, as they cover multiple business areas that have to work in harmony to achieve the required level of efficiency. The complexities need to be anticipated at project commencement and taken into consideration through the planning, implementation and rollover phases.

Such an investment is expected to yield benefits for a business: greater consistency across departments, increased efficiency and cost reductions.

So an organisation can re-examine its processes and design them with the system advantages in mind, rather than replicating what is already in place.

Project management of any system implementation goes far beyond the technology as its primary impact is on the business, and so users must be willing to

accept and enable the change.

Managing change effectively ensures that the new system meets the users’ expectations and they feel part of the process, and so less likely to resist it.

One of the most effective ways to ensure users feel included in the project is through regular communication and updates.

The knowledge of how to manage all the different components that make up a project increases with experience and with a good understanding of the tools available.

Therefore, when considering how to structure your project, you are more likely to have a successful project and realise the benefits from your investment if you put someone with experience in the driving seat.

This item was written by Eric Muscat, IT Advisory Partner at KPMG.

Undeniably British, indisputably Fred Perry The popular fashion brand’s Men’s Authentic Collection is the spirit of originality. Recognised by classic twin tipping and the signature laurel wreath, the Fred Perry shirt was different from the start.

Fred called it ‘the shirt that fits’.

This season holds a contemporary take on Fred Perry iconic sportswear styles. Find new colours in Twin tipping, pique and tricot fabrics, and colour-blocking.

Historically British rural prints have been reworked this season alongside Fred Perry trademarks to create sharply modern updates from the Authentic Knitwear collection. Wrap-up in Classic Aran knits, Donegal-effect yarns and outerwear styles, given new warmth with a quilting effect.

Recognisable Fred Perry styles such as the button-down oxford are also given a new lease of life in herringbone and corduroy.

This season also sees the return of Drake’s of London materials adopted into the range. Iconic Drake’s prints are married with classic Fred Perry colours to deepen the collaborative element and create prints that were exclusive to Fred Perry.

Stay warm and stylish in Fred Perry’s Winter Collection available from Fred Perry stores in Merchants Street, Valletta and St Anne’s Square, Sliema.

RE/MAX to open three new offices in 2015 KEVIN AND JEFF BUTTIGIEG AT THE RECENT OPENING OF THEIR PORTOMASO OFFICE.

RE/MAX Malta has announced that it will be opening three new offices in the first quarter of 2015, including an office in the capital city of Valletta. The other two locations will be Naxxar and Mosta.

Speaking about the expansion of the company, Kevin Buttigieg, CEO of RE/MAX Malta, stated, “We will finish off 2014 with a 25 per cent plus increase in sales and letting turnover, whereas our agent count and opened offices will be at 240 and 17 respectively.”

This year the company opened in Bay Street, Ibraġ and most recently at the Portomaso Marina.

This was in accordance with its three-year business plan set out last December, whereby it plans to open six other offices by the end of 2016.

Mr Buttigieg added, “Our continued focus on market research, niche markets, training and exclusive listings has allowed us to penetrate not only the ‘for sale by owner’ market, which is a major stakeholder, but we have also increased market share across the board.”

Last year the company celebrated its 10th year in business by launching a charitable foundation, the RE/MAX & Friends Foundation.

“In 2014 we raised over €30,000 and we expect to collect over €60,000 in 2015. The funds from 2014 will be distributed to noble causes such as L-Istrina and IdDar Tal-Providenza, while we have already donated a substantial amount to the Pink October event,” Mr Buttigieg concluded.

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e Business OBSERVER

| December 18, 2014

BUSINESS UPDATE

Faddal b’Suċċess – RTK programme by VFM Valletta Fund Management (VFM), a member of the BOV Group, is producing an inform-ative and educational programme on RTK Radio titled Faddal b’Suċċess.

This programme, aired on the last Tuesday of the month between 5:15pm and 6pm, aims to provide the general public with information related to investments.

Through this programme, VFM will help current and prospective investors understand the basics of investments. Listeners are also encouraged to participate through live calls in order to seek further information or clarifications on any aspect of the topic of discussion during the programme.

A total of eight sessions will run until the end of June 2015.

The subjects to be discussed will include topics such as ‘The benefits of monthly investing’, ‘Market factors that influence your investments’, ‘How political and economic news may impact your investments’, ‘The investment process when selecting bonds and shares in a Fund’ and ‘How Funds are actually priced’.

Since its inception in 1995, VFM has always been committed to increasing financial literacy and has played an important role in providing financial consumer education initiatives such as

presentations, business break-fasts and market report updates on both the local and inter-national markets which are made available on the company’s website, among others.

The radio programme is one of the initiatives being undertaken by VFM as part of its corporate social responsibility, where it strives to help educate both the present generation as well as the next in financial matters and to provide the general public with the necessary knowledge on investments.

This enables the public to understand the benefits and risks of investment products.

Photo DOI Pierre Sammut

An efficient service for your domestic and commercial water leaks CHI Consultants Ltd have been in operation for the last three years. Coming from a background of engineering and marketing, a couple have put their expertise together and focused their attention on taking an innovative stance on the product and services the company offers.

During the last year, the company’s main focus was to offer an efficient and excellent service with regard to domestic and commercial water leaks. The water leak detection service offered is a non- destructive testing of the plumbing system, for finding the location of the leak/s present. This location of the leak can be found through wall tiles, floor tiles, parquet, ceiling and so on. Non-destructive services for rain water ingress detection and leaky terraces or roofs are also offered. Recommendations on leak repairs are given on site and pro-

fessional plumbing services are also available. The service is a great success and has also helped the company in developing collaborations with many other professionals in the area to help in solving many of the issues they encounter in this regard.

The company has thereafter continued to grow and strengthen its product and can today offer a solid service with regard to nondestructive leak detection using pipe testing, infrared thermography to find the leak area, consultation on repairs, repairing of the leak, reporting of findings and job tracking so that the service runs smoothly; and all for very affordable prices.

For further information or an appointment please contact Rubyanne on 79839810 or send an email to info@chi.com.mt.

Malta Digital Games Association launched Leading representatives of Malta’s digital games industry have come together to announce the launch of the Malta Digital Games Association (MDGA). This is a long-time project of Maltese law firm Chetcuti Cauchi Advocates and a number of digital games players which the firm advises in Malta.

The launch of the MDGA was held on December 1, and was inaugurated by Minister for the Economy, Investment and Small Business Christian Cardona and Parliamentary Sectary for Gaming Jose’ Herrera, with managing partner of the firm, Dr Jean-Philippe Chetcuti, moderating the event. Nick Porsche of Dorado

Games (now the chairman of the MDGA) gave a detailed briefing about the association.

The MDGA launch emphasised that the newly-formed association is an industry body aimed at promoting cooperation among digital games industry leaders in Malta, educating the public regarding digital games, and making Malta more attractive as an international digital gaming hub.

The Malta Digital Games Association was spearheaded by eight founding members, namely Chetcuti Cauchi Advocates, 4A Games, Bigpoint, Codemasters,

Dorado Games, Exient, Karma Holdings and Play Magic.

This initiative is in line with the government’s strategy to make Malta an ICT hub.

During the launch, minster Cardona emphasised the importance of supporting this industry through government initiatives that attract such investments to Malta.

Parliamentary Secretary Herrera referred to the financial service, i-gaming and maritime industry and showed the government’s willingness to repeat the success of these sectors for the digital games industry in Malta.