The Business Observer Newspaper, 23rd February 2017

INTERVIEW

Issue 70

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February 23, 2017

Distributed with Times of Malta

During his term as president of the Malta Chamber of Commerce, Enterprise and Industry, Anton Borg has fought against unfair competition and raising the minimum wage, and guided members through the Libya crisis, Brexit and Trumponomics. see page 10 and 11 >

NEWS The government needs to bite the bullet and absorb Air Malta’s losses if it wants to save the airline – and should allow the new owners to negotiate fresh collective agreements, the Chamber of Commerce, Enterprise and Industry believes. see page 5 >

Value of ITS land must be linked to use – Deloitte Vanessa Macdonald The apparent discrepancy between the consultants’ valuation of the former ITS land in St George’s Bay and figures quoted in the media was down to the fact that it is a mixed use development project, with only about onefifth of the footprint earmarked for residential and office use, according to Deloitte partner Raphael Aloisio.

Deloitte was brought in as consultants by the government after one bid was received for the site, from the City Centre consortium, which includes SD Holdings, Seaport Franchising and the Seabank Hotel.

Seaport Franchising is the operator of the Hard Rock Café franchise in Malta, which plans to have a 371-room hotel operate under this brand.

Sources said the original bid was for €17 million, of which €6 million was to be paid as a premium and €11 million for conversion and redemption of ground rents. However, the Deloitte valuation set the value at €56 million, which has, nevertheless, been criticised with Partit Demokratiku leader Marlene Farrugia saying it should be closer to €200 million and real estate agents telling The Business Observer “these kind of deals are anti-competitive and will definitely deter foreign investors from coming here”.

Mr Aloisio said the bid had been accompanied by a detailed business plan drawn up by another of the Big Four firms, which prepared detailed financial projections for each of the three activities on the site: two towers with 200 units, a mall and the hotel.

Deloitte came up with dramatically different values for the land allocated for the three

CASE STUDY

separate activities: €1,250 per square metre of net developable area for the residential units (total value of €44.9 million); €325 per square metre for the gross developable area for the commercial activity (total value of €8.7 million); and €50 per square metre for the gross developable are for the hotel (total value of €2.5 million).

The valuation of the towers is based on the assumption that the development will have 36,000 square metres of net developable area and that only 1,770 square metres of the 25,000-square-metre site would be occupied by the towers, with roughly a further 3,600 square metres being allowed as the ‘public area’, which enables the developer to build more storeys.

The residential units will initially be subject to a ground rent of €1.170 million per annum, Continued on page 6

The executive coordinator of the eSkills Foundation, Carmel Cachia, is passionate about the need to convey the message that every industry needs digital input. see page 12 and 13 >

NEWS We tend to look at Malta’s performance in the healthcare sector in terms of medical outcomes but what about the economic performance? The Euro Health Consumer Index 2016 only ranked it 25th out of 35 countries. see page 17 >

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NEWS

Trade union membership up 2,176, employers’ associations dropping Trade union membership continued to increase last year, with 2,176 more people joining the 29 unions reporting to the Registrar of Trade Unions – but membership of employers’ associations fell.

Over the past 10 years, trade union membership rose by 16 per cent while that of employers’ associations also rose – but by six per cent.

Four new unions were registered in the July 1, 2015 to June 30, 2016, period: the Malta Association for the Counselling Profession, the Malta Police Association, the Association of Airline Operators Controllers and the Police Officers Union.

Why has the number of employers’ associations been dropping? Joe Farrugia, the head of the Malta Employers’ Association said there could have been dormant organisations which were no longer on the register, or mergers such as that of the Chamber of Commerce and the Federation of Industry in 2009.

He found the decline anomalous as the MEA’s membership has been increasing steadily year on year: by more than 50 per cent over the past eight years in terms of number of companies that are members of MEA. “In terms of coverage, our members today account for more than 35 per cent of all jobs in Malta and Gozo,” he said.

Is there still a role for employers’ associations given the evolution of industrial relations away from the militant “us and them” approach of the past to a more collaborative negotiation?

“The increase in MEA membership is clear proof in itself that employers’ associations are needed more than ever. Social dialogue is becoming more complex and important, both at national level and especially at enterprise level on industrial relations matters – both in a unionised and non-unionised environment. Employers do feel

“THE INCREASE IN MEA MEMBERSHIP IS CLEAR PROOF IN ITSELF THAT EMPLOYERS’ ASSOCIATIONS ARE NEEDED MORE THAN EVER,” - JOE FARRUGIA, HEAD OF THE MALTA EMPLOYERS’ ASSOCIATION. PHOTO: CHRIS SANT FOURNIER

TRADE UNIONS MEMBERS EMPLOYERS’ ASSOCIATIONS MEMBERS

2005/06

2010/11

2015/16

33

32

29

83,239

85,772

96,406

23

18

14

8,890

9,647

9,446

“e Chamber’s role is wider than merely industrial relations. Its principal mission is to actively represent companies from all economic sectors”

SOURCE: REGISTRAR OF TRADE UNIONS

the need for more professional support to help them practise their rights and simultaneously fulfil their obligations as employers. As long as employer associations respond to these needs they will remain relevant to the business community.”

The Chamber is recognised by the Commercial Code of Malta and is not obliged to register with

the Registrar of Trade Unions.

Having said that, the Chamber director general Kevin Borg confirmed that its membership count is also following a general upward trend, with a net increase of around six per cent in 2016.

Companies that are members of the Chamber now represent around 70 per cent of total employment in the private sector (excluding hotels,

restaurants, retail, construction, parastatal and entities owned by the Church). Its members also represent in excess of 87 per cent of all Maltese exports.

“The Chamber’s role is wider than merely industrial relations.

Its principal mission is to actively represent companies from all economic sectors and ensure that entrepreneurs enjoy the best com-

petitive environment and regulatory conditions possible for the conduct of business. Through its active internal structures with dedicated sector and policy-specific committees, the Chamber enables effective communication across all stakeholders as well as ensuring a series of value-added services to business not least in the field of internationalisation.”

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NEWS

Government should absorb Air Malta’s losses – Chamber Vanessa Macdonald The government needed to absorb Air Malta’s accumulated losses and allow a new airline to be formed which would not be encumbered with old working practices and collective agreements, the outgoing president of the Chamber of Commerce, Enterprise and Industry, Anton Borg, said.

In an exclusive interview in the last weeks of his position, he also said that the only way for the airline to survive would be to have equal shareholding between the government, a strategic partner airline, and investment through publiclylisted shares.

The formula being proposed by Mr Borg goes against the current government approach, which was for the State to retain majority shareholding of 51 per cent and to sell the rest to another airline. It also brings in the possibility of private investment – although not as a majority shareholding but rather through shares listed on the Malta Stock Exchange.

The model he suggested bears similarities to the approach taken when the Malta Shipyards was awarded to Palumbo, with the government absorbing the accumulated losses of the Drydocks, reducing the workforce through voluntary retirement, and allowing new employment agreements to be negotiated.

Mr Borg believes Air Malta is saddled with a history of mistakes: “Let us not forget how Air Malta got to this stage. There were a lot of mistakes made in the past; some were admitted but others are still there and cannot be rectified unless drastic action is taken.

“e strategic partner we require cannot have more than a third of the company”

“The operating costs of the airline are too high and need to be completely reviewed. No matter what the pilots’ association, the cabin crew association and the workers say, Air Malta will not survive unless practices are changed – and they know it.”

Although he did not mention Alitalia’s failed deal, he said he was completely against the idea of a strategic partner with a dominant position which would be able to dictate routes at the cost of Malta’s tourism sector.

“The strategic partner we require cannot have more than a third of the company,” he said.

He acknowledged that finding an investor willing to take only a third would not be easy, particularly for an airline with just eight aircraft, old working practices, and which has accumulated losses of €60 million.

“Not even the private sector would do that. So when you hear about the private sector taking over Air Malta, it is only because they are asking – maybe not publicly – for the government to take

over those €60 million losses. This is the only way to solve it,” he said.

“The government is going to have to do this, whether today or tomorrow. There is no other way.”

He pointed out that in commercial law, the owners would not be able to declare a dividend before those losses were recovered.

“Would you be willing – as a private individual – to put up money for shares listed on the Stock Exchange in a company that must first recover €60 million before paying out a dividend?

“The only solution would be to start a new company, with a clean

sheet, with new collective agreements with everybody.”

When asked what was to stop investors and another airline from setting up a new airline, he reacted immediately: “It would not be called Air Malta. It would not be the national airline. Do we want to give up our national airline? You have to look at the issue holistically. You can’t forget the tourism sector.

“You cannot rely on low-cost airlines. What if they decide to move out? If they did drop a destination, Air Malta would be able to step in… Put Air Malta’s losses in the perspective of the

whole tourism sector. When we say that we do not want to rely on a foreign airline, it is not because of nostalgia!”

Mr Borg also pointed out that the government has floated other companies to the public, and had not always retained a majority shar holding. “Many of them are still successful, and if the government needs assistance in the national interest, they can still get it from that company. That is the model that we should adopt: it is the private sector that makes it work.”

See interview on pages 10 and 11

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NEWS ??

‘Bidder’s projections were fairly aggressive’ Continued from page 1 higher than any other similar development.

Individual residents will have the right to redeem the ground rent at five per cent of the proportionate share of the ground rent, Mr Aloisio said.

“So the value of the residential part is for 1,770 square metres of built-up footprint on a larger site of approximately 5,300 square metres, which works out to €8,500 per square metre. But it is totally incorrect to apply the same calculation for the rest of the site, which is what Dr Farrugia seems to have done. The €8,500 per square metre is actually very much in line with what is being quoted as the value of land in Paceville but there you are talking about the value for purely residential use,” he pointed out.

Mr Aloisio said that, in their workings, they assumed that the apartments would sell for between €4,000 and €9,000 per square metre of gross floor area, which is in line with current rates and that the value attributed to the towers would increase if the eventual permits were to approve an increased developable area for residential and office use within the towers.

With regard to the hotel, the bidder’s projections were fairly aggressive, he continued, assuming a higher room rate and gross operating profit than any other hotel in Malta at present. Given the perceived risk, €80 million cost of development and associated interest, revenue per room and the fact that the concession has a restricted use and is for a non-redeemable 99-year term, Deloitte put the value at €2.5 million (using a discounted cash valuation model).

“I appreciate that other hoteliers may argue that they paid more to acquire private land but there is a key factor that should not be overlooked, apart from the 99-year lease and the restrictive use. For the first time in a contract of this type, there is an obligation on the concessionaire to pay a pre-determined uplift in value between the hotel value and the residential value if they manage to negotiate a change of use. And that rate is indexed over the years,” Mr Aloisio noted.

The same limitation on change of use applies to the commercial section –which is more or less the same size as The Point – that traditionally gives recurrent income, rather than a lump sum. This was valued by Deloitte at €8.7 million, giving a total for the whole site of €56 million.

He pointed out that, for the commercial footprint and the hotel, the developer

THE PRESENT ITS SITE IN ST JULIAN’S. PHOTO: MATTHEW MIRABELLI

“Deloitte confirmed that the concessionaire is projecting to invest in excess of €220 million for the development itself, €56 million for the land concession and about €30 million for interest and other acquisition and project costs”

would be paying an annual ground rent of €390,000, which, Mr Aloisio said, was “considerably higher” than any similar development on government land.

Deloitte confirmed that the concessionaire is projecting to invest in excess of €220 million for the development itself, €56 million for the land concession and about €30 million for interest and other acquisition and project costs.

If for illustrative purposes one were to consider the position of the concessionaire if he were to sell the whole project once completed (say within five years), he would probably be able to get in the region of €400 million, and once his costs and taxes were deducted, he would end up with €75 million as developer’s profit, a 25 per cent return – or five per cent per annum.

Mr Aloisio said that this was lower than the return of 30-35 per cent that would be typically expected for similar projects.

There is, of course, one other important aspect to the deal: the credit terms, which

will allow the consortium to pay a premium of €15 million for the site, the remainder coming from conversion and redemptions and ground rents.

Mr Aloisio indicated that the terms of payment afforded were not dissimilar to those given to similar projects in the past and that it would be incorrect to assume that the developer would not have to discount the apartment selling price if the obligation to redeem is to be absorbed by the buyer.

But sources in the real estate world, insisting on anonymity, were much more equivocal: “The ground rents and redemptions will be paid by the end user. Eight years interest free payment reduces the amount the consortium will pay to next to nothing. This will create an adverse effect on all investments in the surrounding area, give rise to conflict between developers, question the credibility of Deloitte and the credibility of the government for purposely creating an uneven playing ground.”

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INDUSTRY FOCUS

Technology in business Over the past years, technology has found its way into every aspect of a business’s operations, from payroll to stock control and from ecommerce to business intelligence. What do leading stakeholders see as the most exciting area that will benefit from technology – disruptive or not – in the coming years?

VINCE VELLA

Computime Software CTO Most organisations currently rely on IT solutions to manage their business processes but, as we move into the future, we will see that organisations will become even more data driven.

Traditional reporting on historic data will not be enough. To gain an edge, companies will need to act on real-time data. The ability to act quicker than the competition will become a key business advantage.

Moreover, advances in artificial intelligence, and the increased availability of these technologies, will permit organisations of all sizes to intelligently automate a number of business decisions and processes.

This can have an impact on various areas within an organisation.

Each client experience must be unique – providing customers with recommendations of their own preferred products and services, suited for their own needs and based on their specific profile.

Asset-intensive organisations will

have systems that can anticipate breakdowns and streamline maintenance. Internal inventory requirements will dynamically adapt to predicted demand trends. Marketing campaigns will automatically target individuals with the highest possibility of success. And so on.

In conjunction, the wider acceptance of cryptocurrency can have a substantial impact on existing business models.

These are surely exciting times ahead.

PETER BUGEJA

PTL general manager Technology continues to develop at a fast pace. In the business world, many have used technology to bring in speed and real value, a value that continues to expand when companies realise the unlocked potential that is unearthed by the additional computational power.

In the coming years, we shall see technological innovations that have been in an incubation phase come

to life. We will experience the sheer power of disruptive technologies becoming the norm within mainstream businesses.

The increase in computational power is making artificial intelligence (AI) become smarter and more capable of applying cognitive functions of the human brain in learning and solving problems. AI will rapidly achieve its demand and adoption across many business areas.

The health sector continues to be under substantial financial stress.

Finding ways of delivering enhanced patient outcomes and assisting healthcare clinicians (while, at the same time, achieve financial efficiency), will lead to the adoption of AI across the health sector.

AI solutions will provide healthcare professionals with quality information from electronic health records that are both relevant clinically and in real time. I anticipate that this will lead to further fiscal discipline through lower treatment costs.

Virtual reality is another prevalent area that is now capitalising on the increase in computational

power. While we are already seeing its increased use within a commercial environment, it will become more pertinent in the coming years within the health sector.

In line with targets to improve patient care and patients’ wellbeing, VR will become a key tool in this sector.

I firmly believe it will become a game changer in certain areas of patient care in the medium term.

JAMES FORTE

Megabyte Ltd head of software services Cloud computing is growing rapidly and the flexible nature of Cloud solutions offers an exciting future, particularly for small and growing companies.

Hybrid IT architectures provide the opportunity for businesses to scale out to a Cloud environment for specific workloads while maintaining other applications on premise. Migration to the Cloud enables companies to convert their CAPEX into OPEX, thus assisting them to grow without taking on enormous investments to manage a large IT infrastructure.

Hybrid clouds are designed to quickly scale up or down as business demands change.

Furthermore, the Cloud also offers businesses additional revenue streams such as online platforms to promote and sell their products and services. Once again, this allows them to reach a wider audience and grow their market with minimal capital expenditure.

Cloud technology has also enhanced our ability to work anywhere. Mobility allows companies to offer their services 24/7 from all around the globe. Employees can access data not only from their homes but also while travelling, making the organisation more responsive, flexible and productive.

The Cloud is encouraging smaller businesses to innovate and experiment while sustaining ongoing profitability. Ultimately, companies will understand the need to adopt the right processes and maximise advancements in technology if they want to grow their business.

In the coming years, we envisage more local companies embracing new integrated cloud technologies.

EDWIN ATTARD

SG Solutions Ltd business development manager (Office Automation) Digital media has been taking over in the past years and this trend will continue in the coming years. From simple photocopier to solutions offered by multifunction printers, all are designed to target the digital archiving of documents.

Digital archiving makes it easy to save and retrieve documents but,

then, security will become a concern, thus secure archiving and retrieval has to be inbuilt in such solutions and not as an afterthought.

The amount of digitised documents will also require an efficient document management system.

Video conferencing is also becoming more popular within the business community. This provides more work flexibility and saves time and travelling costs.

The digital media is also resulting in a bigger demand for projectors, the most popular being the ultrashort throw projectors, due to their portability. With the increase in conferences, training and marketing, interactive white boards are also becoming a valuable asset.

I believe the progress in the digital media will make it easier for businesses to have their employees working with flexibility, either from office or from home.

In the medical area, digital media will facilitate remote diagnostics and operations.

In general, the progress in digital media will enable businesses and employees to be more efficient and flexible.

STEPHEN ZAMMIT Lornit Ltd partner

In the business environment it will be the management who will be getting the most interesting tools in the coming years. Businesses have been capturing data through standard tools and storing it. Now is the time to feed that data into systems that can use it, to help decision makers at all levels, but mostly management.

The cost of technology will go down and will become more accessible to small and medium businesses. As the younger generations fill up the ranks within companies, use of technology will be more common but, more importantly, people would be more willing to depend on technology.

Tomorrow’s employees will perform company duties over their smart devices, such as check into work, disclose their whereabouts, register sales, transact with customers and send back reports. The tools they use will be capturing more data than we can imagine.

More use of technology will improve business productivity, efficiency, reduce costs and that is where we come in. This is where software creators like us will have loads of opportunity to provide technology that harvests this data from different sources to bring about software systems that are customisable, intelligent and very useful in assisting managers at all levels.

As companies strive to improve their e-commerce, web design has be-

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INDUSTRY FOCUS

come more and more important. We asked leading designers what works … and what doesn’t.

ALAN DARMANIN

MAURICE AQUILINA

Web design can be discussed at different levels and from different points of view. Two important aspects of web design that deserve attention are the cosmetic aspect, meaning how appealing the overall

M7Alpha Creative Studios director Websites are designed and created to elicit human interaction… a voluntary, non-forced act of engagement by people looking for something. And, no matter who these people are or where they are coming from, they share some universal behaviours that make them attracted or repellent to certain visual characteristics.

Nevertheless, some websites are built in ways that make these interactions difficult, impossible almost.

Supposedly ‘clever’ titles or navigation links which mean nothing to the visitor leave potential clients wondering what lies beneath and, very often, they just click away.

Clever design features the business name on the top left of the page and a straightforward introduction followed by text contrasting nicely with the background. Simplicity is the key.

Embrace negative spacing and give the eyes room to breathe. What works for print does not necessarily work on the web. When visitors land at your page they are full of questions, therefore position your content in such a way that, while they move through it, they’re absorbing your information and answering their own questions.

Work with human nature and not against it. Just keep asking yourself what would make everything clearer and you won’t go wrong.

MARCEL CUTAJAR Agilis IT Solutions managing director

Undoubtedly, the internet has changed the way companies must undertake their business. This, assisted with social media such as Facebook and Twitter, has changed the way companies can market their products and reach new clients.

This has, of course, led to new competition, bringing closer overseas companies that have similar products to sell.

The Maltese consumer has taken up this opportunity and it is a known fact that they frequently make online purchases. Unfortunately, this has not been the case with local businesses.

A good number of businesses have been hesitant to delve into ecommerce as they perceive it to require major investment and effort to maintain. Focus 360 Business Suite offers a comprehensive solution for businesses wishing to have a commercial trading presence in the eCommerce world. Focus 360 offers seamless connection between the back-office ledgers, including inventory modules, and the eShop.

The Focus 360 eShop enables a global reach and wider client base through the online website whereby it offers the facilities to market products via a professional and state-ofthe-art website. It supports a responsive and SEO optimised website providing an optimal browsing experience for clients.

For more details go to www.agilis.com.mt.

ISB Software director

site is and the psychological aspect that deals with how the human brain interprets the interface of a website and, subsequently, how the user interacts with it. Both should be in the web designer’s mind at all times during the design process.

More broadly speaking, however, the modern-day user expects to find a website, especially eCommerce

websites, to be mobile responsive.

Customers tend to not trust an eStore when they try to access a web portal on a mobile device and find it does not adapt to their screen. On average, more than 50 per cent of traffic to a website comes from a mobile device.

Furthermore, when dealing with web design for eCommerce, it is

critical to ensure that users have faceted search facilities, especially when the portal is home to thousands of products and hundreds of thousands of product variants (such as size, colour, specifications, etc.).

Users want to search, filter, narrow down the options and, ultimately, compare products before conducting a purchase.

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INTERVIEW

Passing on the baton Anton Borg will soon be stepping down as the president of the Malta Chamber of Commerce, Enterprise and Industry, but one of his biggest frustrations over the past two years is the lack of progress made in fighting unfair competition.

For some time, the Chamber has been complaining that merchandise was being brought in by road transport from Sicily which was not abiding by fiscal rules. And the introduction of excise tax to replace ecocontributions would only make it worse, he said, unless it was properly controlled.

The government has acknowledged the need for market surveillance but the Chamber has been waiting in vain for any attempts to control what is being brought into the country. One problem is that as intra-EU trade, checks cannot be too intrusive, as that would go against the idea of a single market.

“We believe every vehicle should be scanned electronically to reveal what it is bringing in – but they would not need to be stopped and searched. There must be a department backing up the scanners to ensure that what is being seen correlates with the documents. Sometimes not even a manifest is presented – in which case the person should either be made to hand one over there and then or by a certain deadline. It is simple and we do not know why it has not been implemented.

“The government has its own ideas and wants to see if they will work. Let’s see if we one day opt for this very simple and effective solution,” he shrugged with frustration.

He was also dismissive of the excise tax, saying that the net effect on the economy was €1 million from a total revenue of €5 million.

“If I were running a country, would I introduce a tax which was going to bring me €1 million? I would not even bother. It is not worth the administrative hassle. For us, the worrying aspect is that these excise taxes could be increased in every budget.

He also referred to claims of poverty, which have been tied in to calls to raise the minimum wage: “There is a contradiction in introducing this excise tax. The government is saying that some people cannot make ends meet but then taxes the shampoo that everyone has to use? It is not a consumption tax like VAT as these are basic products like shampoo and nappies,” Mr Borg said.

The Chamber, along with other employers’ associations, is awaiting feedback to their joint proposal for the minimum to be left as is – but to impose a deadline of a year after which the employee would have to be given a raise, which would be repeated in the second and third year. This was suggested to the consultant appointed by the government, economist Gordon Cordina, and they are now waiting for feedback.

“We do not believe that raising the minimum wage will solve the problem of poverty. However, raising it will cause havoc in the labour market as there would inevitably be a cascading effect. Of course, we also believe that people who cannot make ends meet need to be helped.

“The mandatory increment would work out to, say, around €150 a year and it would not be worthwhile for the employer to lose that person and train someone else, for that amount,” he said, acknowledging that if anything it would be in the employers’ interest to train the employee to im-

ANTON BORG. PHOTO: MARK ZAMMIT CORDINA

prove their value-added contribution to the company.

“It would reduce the number of people on the minimum wage with time and it avoids creating a big problem in terms of the domino effect by raising the minimum wage.”

Another issue which employers’ associations have been fighting has been liability for disabled employees – even when the employee has not notified the employer about that disability.

“You do not want a person who is disabled to suffer any accident at your place of work. Why should I employ someone with a disability that I am not aware of – but still be responsible if anything happened to them? This has happened. Imagine if I put someone to work on a grinding machine who has epilepsy that I am not aware of? If it is a data protection issue, then let us say so and solve it.

“There was an incident in Scotland where a Scammel went off the road and killed six people, because the driver had a medical condition. In the UK, the British Medical Association has now issued instructions that its members must inform employers’ of a disability irrespective of the employee’s wishes to keep it private. Doctors here must accept this. Why are we scared of doing this? No one takes ownership of this issue.

We have talked to everyone, at the MCESD, the Civil Liberties Minister, and so on. But

we all go our own way and nothing happens. What are we waiting for? The first major fatality before action will be taken?”

There is another issue that affects almost all the Chamber’s members: traffic. Mr Borg shook his head wearily: “The Prime Minister needs to decide who is going to take the bull by the horns and take ownership of the problem.

“The Chamber is ready to identify short medium and long term proposals and we have members who are ready to contribute towards this. The first is to inculcate a culture of car-sharing,” he said.

The Chamber wants people to understand how much it costs them to use a car: if four people working at an industrial estate, who start and finish work at the same time, were to share a car, they could save €10 a week each.

“Put that in the perspective of the average COLA of €2.50 over the past years!” he said.

He complained about the Mediterranean culture that anything goes, especially haphazard parking, and knee-jerk proposals to limit the times that delivery trucks could be on the road.

There is at least some glimmer of hope that the new Kappara and Addolorata junctions will make a difference, but he warned that the flyover concept allowing direct traffic to flow through in these two places was not enough.

“ere is at least some glimmer of hope that the new Kappara and Addolorata junctions will make a difference, but the flyover concept allowing direct traffic to flow through in these two places was not enough”

“Without a doubt there are other places which need to allow direct traffic to flow. An easy solution would be to use the Brussels model with roads dipping under junctions through tunnels. You don’t need a fly-over.

I am sure it is much cheaper,” he said.

An issue which has perhaps not received as much attention in the media is the decline in English language students, the only sector of the economy to see negative growth. In 2014, around 83,000 students came to study in Malta, with a reductions in both 2015 and 2016.

“A reduction of 13,000 is very worrying.

Admittedly, countries like Italy have introduced English much more widely into school curriculums so it is obvious that there would be a decrease from there. But the real bottleneck is visas,” he warned.

The decline is particularly important for the sector as visas are required by students from the southern hemisphere or Asia, who help schools overcome the seasonality of the sector, making them more sustainable.

“This won’t be solved by farming out the issuing of visas to the embassy of another country, which is what we did, as that other country may have a vested interest in not processing that visa.

“We have asked the Foreign Ministry to review this policy: not the use of another embassy as we do not have the resources to have an embassy in every country – but to study very well which country to give it to,” he said.

The Chamber has lobbied on behalf of its members on various issues: when the Libya crisis erupted, its task force helped – with the government’s cooperation – to resolve many problems faced by companies working there which had money or stocks tied up.

“Without the Chamber lobbying – and without the government’s help – a lot of companies would have suffered,” he acknowledged.

The problems in Libya are hardly over, with news roller coasting from negative to positive all the time.

He admitted that it was too early to say when an end might be in sight, even though timing will be crucial for those businesses

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INTERVIEW

that want to get first-mover advantage once opportunities became available.

That does not mean, however, that there is nothing companies can do now: Mr Borg believes that they should be preparing logistics routes which would link Asia, particularly China, with North Africa.

“There is a business opportunity to attract companies, say from China, to open a logistics centre in Malta in a free zone area. If they want to transfer the goods into the EU, they would pay the Common External Tariff, but if they want to send to goods to areas outside the EU, like North Africa then they would not need to pay duty.”

The idea has plenty of support: members from 50 logistics companies came together become members of FIATA, the international association for logistics companies.

A sub-committee was also set up – but their enthusiasm was dampened when no one submitted a bid for the logistics hub at Ħal Far, and the request for proposals was reissued by the government without changes.

Mr Borg has reservations about the way the concession is being offered: “I am personally not so much in favour of having one location as an extension of the Malta Freeport. I think logistics would work better if parts of premises were designated as a free zone area – like bonded stores – but controlled through technology and documentation.

“Unfortunately, the government is still going down the path of using the Ħal Far Groupage area and centralising it there. We have to give the government time to see whether this will work,” he shrugged.

“In theory it would not be wise to give it to one operator but in practice, when you see the size of the operation, it might be…

And Malta Industrial Parks is not a solution: it is already farming out the running of the industrial estates to us, so why would I give something like that to them? I don’t think it is their remit.”

The memorandum of understanding between MIP and the Chamber on industrial estates has had patchy success.

Mr Borg said that just as the success of business councils depended very much on the people in the committee, so did tenants’ associations.

However, the problems run deeper than just personalities. One was that there were huge differences between industrial estates – but all were being squeezed into the same format.

“For example, Bulebel and Technopark have clearly contained boundaries. But Marsa is much more diffuse with main roads criss-crossing it so it becomes much more complicated. It was important to appreciate that you could not have a ‘one size fits all’ template as estates differ and therefore need different solutions. So each agreement is now being negotiated separately.

“We do have new tenants associations being formed, some of which are more organised than others. We are not satisfied with the time it is taking but it depends on the tenants. Some of them need to stop complaining and do something about it,” he said.

Of course, it is not only local but also external factors that affect its members, Brexit being an obvious one.

“When a lower income country joins the EU, it reduces the average – which is why Malta lost its Objective One status.

When a large country with a large GDP leaves, the average will also go down…”

“It would be very presumptuous to say that we know what the effect of Brexit is going to be on Malta. We did a small survey just after the results came out which may have only reflected the impact on certain companies. We feel that although there are companies that will be hit, the number is

not large – even though the impact on those few might be significant. Even if the outcome might be positive, there might still be a period of painful adjustment,” he added.

“There is one definite consequence.

When a lower income country joins the EU, it reduces the average – which is why Malta lost its Objective One status. When a large country with a large GDP leaves, the average will also go down… This will almost certainly be the last programme that Malta will be a net beneficiary. We should be ready for that.”

Mr Borg will leave the Chamber with more members – but just as importantly younger ones. This was not the result of good fortune but deliberate outreach programmes: for example, it reached an agreement with Junior Achievement Young Enterprise and also managed to create the successful Leaders for a Day event, through which winning students got to spend a day with a CEO. It also launched a scheme with its three Gold Partners enabling them to introduce members of a certain age to the Chamber who were exempted from fees for the first three years.

And yet, so many of the issues that he faced two years ago remain unresolved. In spite of the fact that the Chamber’s members employ around 70 per cent of the country’s workforce – 95 per cent in the case of the financial services and telecommunications sectors – its voice is not always enough. The plodding pace of reform and resolution is one his predecessor will need to be prepared for.

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e Business OBSERVER

| February 23, 2017

CASE STUDY

CARMEL CACHIA HAS BEEN THE EXECUTIVE COORDINATOR OF THE ESKILLS MALTA FOUNDATION SINCE APRIL 2016.

Making the connections Carmel Cachia likes nothing better than to see a waiter come over to take his order in a restaurant armed with a tablet. It’s nothing to do with the food but rather the fact that it is all about applying digital skills.

Since April last year, he has been the executive coordinator of the eSkills Malta Foundation, leaving a long career in the private sector to help improve the digital agenda in Malta.

He found an established framework. The foundation was set up in 2014 and took over from the Malta Information Technology Agency (Mita)’s eSkills Malta Alliance. The foundation gave the former alliance an added layer of independence but still kept the crucial input of the private sector, ending up with a structure that, he said, was the envy of many its counterparts in other member states.

For example, its board members are representatives of Mita, the Malta Communications Authority, the Malta Gaming Authority, Malta Enterprise, the Malta Chamber of Commerce, Enterprise and Industry and the Education Ministry. That bridges a considerable amount of the gaps between demand and supply, and also allows the foundation’s team of two with its annual budget of just €250,000 to punch well above its weight.

The foundation taps into other multipliers too, such as student ambassadors and careers advisers, and social media, to reach as many beneficiaries as possible.

An entire wall of his office at Gattard House is dominated by a huge whiteboard with dozens of projects listed, each with progress bars across the time axis. He leafs through a notebook with pages and pages of topics to tackle

during the interview, packed with key messages that he wants to get across.

One important one is that the name ‘eSkills’ is perhaps a misnomer now, given the way that technology is developing.

“There are many stakeholders who believe that it should be called the ‘digital skills’ foundation,” he said. This is because the remit is not only about ICT capacity building but also about using digital skills in other industries.

“We want to create e-leaders, not necessarily people from ICT – but rather those who can introduce digital technology into companies. Take blockchain,” he said.

“Someone needs to propose the idea of introducing within his or her company, someone who can explain how it would benefit the company.”

Blockchain, the latest buzz word, seems set to be as disruptive a technology as the internet – and will similarly have an impact on many sectors. Mr Cachia had a word of caution, however: “In my opinion, we need to be careful. We could be the pioneers as Malta is very fast where technology is concerned. But we need to see how it pans out globally. The concept seems quite simple but there are many developments, each with their own implications – such as the legal aspects – and it is not always wise to be the innovator.

“The Internet of Things will also change very rapidly. It is already being called the ‘internet of everything’,” he quipped. “Everything needs to be designed with IOT in mind, from devices to gadgets.”

The vision would be useless unless Malta were able to match the people to the vacancies and the foundation is also working on

“Google has pledged to train millions of people and there are now digital workshops available for various subjects, e.g. for marketing. e foundation is trying to engage with them to launch it officially” bridging the gap between the educational side and industry.

“This is a big issue, not just in Malta, as education needs to be synchronised with industry. So we have been looking at the various curriculums, talking to industry and proposing changes. However, it takes years for changes to the curriculum to actually get to the classroom so maybe things should have started earlier…” he said.

“I also believe that we need to start at primary schools, not only in what we teach but in how we teach it. All school project assignments should be multimedia, to open up children’s skills.

And, of course, this should be backed up at home, even though some families tend to be quite conservative.”

It is important to know where the country stands now, especially given the rapid changes to the economic sectors over the last decade. However, it is not only new sectors like i-gaming that need ICT input: in fact, the foundation carried out a study last summer on the ICT skills needed in the industrial sector, analysing the needs of some 30 companies.

To keep the study as independent as possible, it was carried out in collaboration with an Irish en-

tity, FIT, which also provided resources. Although the formal results are not yet out, Mr Cachia said that there were no surprises in the preliminary findings.

“Locals are becoming specialists but industry prefers those with broader skills, which most foreigners have,” he said.

The results, which will soon be published, should make interesting reading for stakeholders, as there are already about 600 vacancies on the island, corroborating the findings of other studies.

He said that contrary to perception, many of the vacancies are for associate level technicians and not graduates.

“Of course, we still need experts but we also need many people who can translate their visions into reality. Developers do not need to have degrees. They could be Microsoft certified,” he said.

This led him to another important point: the importance of industry certification: “There are so many courses and they do not have to by vendor-specific like Microsoft and Cisco. There are so many topics that need to be covered,” he said, referring back to his point about having broader skills, “such as cybersecurity, systems

analysis, digital infrastructure and data analysis.”

Some of these courses give certification all the way up to degree level, although he cautioned those interested to do their research on the quality of the provider.

“Google has pledged to train millions of people and there are now digital workshops available for various subjects, e.g. for marketing. The foundation is trying to engage with them to launch it officially. It would be a chance to train the labour market as the courses are basic level so no prior knowledge is needed,” he said, also referring to other opportunities like the so-called Massive Open Online Courses available.

There is, of course, no shortage of foreign experts willing to come here, and he said the foundation had seen an increase in workers from both the EU and outside it, with “a shift in the number of British wanting to come here because of Brexit”.

The trick, he said, would be to balance making it easier for vacancies to be filled by qualified people and ensuring that Maltese who studied IT found jobs themselves. The key, he said, was to push for more mentoring by the imported experts, a subject that the foundation plans to take up more formally with industry in the coming months.

Mr Cachia talks about other projects planned for this year, highlighting the works to be done under Malta’s presidency of the EU – which he “was honoured” to present to the Commission on Malta’s behalf.

“We are doing studies, making recommendations, following up the action points. There are far too many studies that end up on a shelf gathering dust.”

e Business OBSERVER

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February 23, 2017

CASE STUDY

Digital Skills and Jobs Coalition The Digital Skills and Jobs Coalition –for which the eSkills Foundation is the Maltese national contact point – is one of the 10 key initiatives proposed by the Commission under the New Skills Agenda for Europe, presented in June 2016.

Dozens of partners, including over 30 organisations and groups such as European Digital SME Alliance, ESRI, SAP, ECDL and Google are pledging to further reduce the digital skills gap as part of the Digital Skills and Jobs Coalition.

Establishing national digital skills coalitions connecting public authorities, business, education, training and labour market stakeholders.

Developing concrete measures to bring digital skills and competences to all levels of education and training, supporting teachers and educators and promoting active involvement of business and other organisations.

Members of the Coalition commit to tackling the skills gaps at all levels, from high-level ICT specialist skills to the skills needed by all European citizens to live, work and participate in a digital economy and society.

“Europe lacks digitally skilled persons to fill job vacancies in all sectors”

Digital skills range from finding information online and sharing online messages to creating digital content such as coding applications.

Europe lacks digitally skilled persons to fill job vacancies in all sectors, missing out on up to 750,000 Information and Communication Technologies (ICT) professional jobs by 2020. More than a third of the labour force and, more broadly, around 45 per cent of European citizens have no more than basic digital skills.

The new Coalition builds on the work of the Grand Coalition for Digital Jobs, the eSkills for Jobs campaign and Education and Training 2020. Since 2013, the Grand Coalition led to the training of more than two million people in digital skills through over 80 supporting organisations and led to the setting up of 13 national digital skills coalitions in the member states.

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e Business OBSERVER

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February 23, 2017

15

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

Editorial Vanessa Macdonald, Assistant editor, Times of Malta.

EDITORIAL

A clean bill of economic health The latest report by the rating agency Fitch gives a clean bill of health to Malta’s economic situation with all major indicators pointing in the right direction. An A rating with a positive outlook for a small country at a time when economic growth in the EU remains sluggish as an achievement.

Some indicators are indeed encouraging. In 2016, GDP real growth amounted to 3.9 per cent and a similar rate of growth of 3.3 per cent is projected for 2017-2018. National income per head is improving when compared to the median of ‘A’ rated countries.

This economic growth is both the cause and the effect of ‘robust private consumption’. As unemployment levels are at a historically low level, people feel they can afford to spend more both on consumables and durable goods.

Growth was also experienced thanks to a strong export performance in the pharmaceutical, remote gaming, financial services and tourism sectors, probably helping Malta to achieve a solid current account surplus in the next few years.

Foreign direct investment remains robust at 47 per cent of GDP. The national debt has gone down to 59 per cent of GDP just below the 60 per cent maximum limit imposed by the EU regulations, even if this figure does not take into account government–guaranteed liabilities to state-owned companies. A welcome comment is that Enemalta is now considered as a ‘profitable company’ thanks to the electrical energy supply restructuring.

The fiscal deficit is estimated to have reached 0.7 per cent in 2016 and is expected to fall even further in 2017. The fly in the ointment is expected to be the next stage of restructuring of Air Malta. Fitch says the government expects private investors to take a stake in the airline

during 2017. But details about how this will be achieved remains a mystery as the government is unlikely to divulge its plans any time before the next election.

A rating agency grading is significant as it gives a snapshot of how analysts perceive the economic health of a particular country or company. Analysts also give a medium-term prediction of how they see economic developments evolving based on what is known at the time of writing their report.

But for a more thorough long-term view of the economic prospects of a country, one has to undertake some deep soul-searching to understand the social and economic risks that might evolve in the future. The health sector reforms, for instance, will have a direct effect on the country’s economic prospects in the next decade and beyond.

It is still not clear for many analysts where the present reforms are heading.

Are we moving to a strategy of privatisation of some of the health services? How will this impact ordinary people who are already feeling the effects of limited resourcing in the public health system?

The housing market is probably in a boom phase, helping local banks to be more profitable but exposing them to a major risks should there be a sudden downturn in the market. Fitch itself downgraded Bank of Valletta in the last few months as it argued that it needed to raise its capital to increase its cushion against possible downside outcome of concentration risk.

The clean bill of health by Fitch is likely to raise expectations for wage increases by trade unions, which, understandably, feel they need to share in this bonanza. Managing people’s expectations may be difficult so near a general election.

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BUSINESS OPINION

Proportionality in EU banking regulation

Mark Scicluna Bartoli With the onset of the global financial crisis in 2007, a number of government interventions were required to ensure that the financial system did not implode.This required the use of taxpayer funds to prop up ailing banks.The kneejerk reaction of politicians and regulators was to ensure that this never happens again.

Considering the costs of the financial crisis, the need for reform in banking regulation is widely acknowledged.From 2008, the EU Commission under Commissioner Barnier required the EU legislative machine to go into overdrive to draft and refine a plethora of banking regulation to set up the EU Banking Union.

As part of the setting up of the EU Banking Union, the Single Supervisory Mechanism kicked in on November 4, 2014 when the ECB took over the role of supervising European banks with the objective of preventing future bank failures. The Single Resolution Mechanism – the second pillar of the Banking Union – came into

force on August 19, 2014. This second pillar, through the Single Resolution Board and Single Resolution Fund, would ensure that if a bank does fail, there is a clear way to resolve it limiting the use of taxpayer money. The third and last pillar of the Banking Union is the European Depositor Insurance Scheme, a European scheme to complement national schemes which would protect depositor’s funds, should the bank requiring resolution not have sufficient money to pay back the depositors.

The fast-paced implementation of EU banking regulation and the fundamental principle of a single EU rule book may not always have allowed for the implementation of the principle of proportionality to be followed to the full extent possible.

What is the principle of proportionality?

A significant body of work in this field was undertaken by the European Banking Authority’s banking stakeholder group. The group highlights in its December 2015 report ‘Proportionality in Bank Regulation’, that the cumulative effects of every individual regulation and the complexity of these regulations may themselves be increasing the costs of the regulation more than the actual benefits that they were intended to transfer to the market.This is more acute for smaller banks with lower risk business models.

The US legislative system recognises the principle of proportionality in its banking regulation

“e European banking regulators are today more receptive to the principle of proportionality when compared to the years following the financial crisis” framework, where a two-tier banking regulatory system is implemented. This regulatory system categorises smaller community banks offering traditional services – which therefore carry less risk – as one tier (banks with less than $50 billion in assets under the Dodd-Frank Act) allowing them to offer less risky products to the market.

The larger investment banks fall into a second category which would require greater regulation and supervision.The above may

be an interesting approach for the European banking sector. However, one must admit that the European banking market is more diversified and would not permit the clear distinction between Main Street and Wall Street banks as in the US. The EU Commission, during a consultation process launched as part of its Capital Markets Union in October 2015 (‘Call for Evidence: EU Regulatory Framework for Financial Services’), sought input from stakeholders on how

the principle of proportionality could effectively be implemented in EU banking regulation.

Following feedback from stakeholders, the EU Commission in November of 2016, launched the revised CRR and CRD IV regulations presenting the principle of a small institution which requires less frequent reporting and disclosure requirements.

The European banking regulators are today more receptive to the principle of proportionality when compared to the years following the financial crisis. However, savings and retail banks call for the principle to be taken further into consideration in order to reduce the regulatory burden and additional costs involved. This will allow Europe’s locally focused banks to continue to serve the real economy by providing more loans to household and SMEs, and therefore increase growth and jobs.

This paradigm shift is an opportunity for a small member state like Malta when holding the presidency of the European Council to place the principle of proportionality higher on the EU agenda.

The revisions of CRR and CRD IV are seen as an opportunity which should not be missed, to introduce more proportionality in the regulatory framework applicable to the European banking sector.

Mark Scicluna Bartoli is the head of EU & Institutional Affairs at Bank of Valletta and is also responsible for Bank of Valletta’s Brussels EU Representative Office.

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NEWS

Malta lags in healthcare index Malta ranked 25th in the Euro Health Consumer Index 2016, out of 35 countries.

It was given 666 points, up from 663 points in 2015.

The index, by the Health Consumer Powerhouse, measures to what extent countries meet expectations of good, consumer – friendly healthcare.

Malta was deemed to have “decent accessibility”, but was not too “strong on treatment results.

“There seem to be gaps in the public subsidy system of Maltese healthcare. This is particularly prominent for drug subsidies; many Maltese do not bother with receiving a subsidy. The result is that Malta has little data on drug use!” the index report said.

The report adjusts the figures to reflect purchasing power, showing that Malta’s per capita spending was just over $3,000 – putting it in 20th place – with Luxembourg spending the most ($6,800) and Albania the least ($600).

The index showed that the publiclyfunded healthcare systems of Europe have steadily improved over the past 10 years. In 2015, only eight countries scored above 800 out of the maximum 1,000 points; last year that went up to 11 countries. In the 2008 report, the top country scored 84 per cent, while in 2016 the winner scored 93 per cent, with 11 countries scoring above 80 per cent.

The Netherlands topped the EHCI 2016 ranking with 927 points, only having broken the 900-point barrier in 2015. It overtook Switzerland, which got 904 points.

HCP founder and president Johan Hjertqvist said: “Value-for-money health systems are in the international searchlight.

What will be affordable and sustainable to countries with ageing populations, funding deficits and shortage of workforce? This is a tough nut to crack for national governments as well as to the European Commission and the OECD. We dare say that there is today enough knowledge to repair failing systems – but is there enough determination?”

The report is scathing about waiting times, saying that these were “a mental condition affecting healthcare administrators and professionals rather than a scarcity of resources problem”.

“Over the years, one fact becomes clear: gatekeeping means waiting. Contrary to popular belief, direct access to specialist

“It is inherently cheaper to run a healthcare system without waiting lists than having waiting lists” care does not generate access problems to specialists by the increased demand; repeatedly, waiting times for specialist care are found predominately in systems requiring referral from primary care, which seems to be rather an absurd observation.”

One of the important points the report made this year is that there is no correlation between accessibility to healthcare and the money spent.

“It is inherently cheaper to run a healthcare system without waiting lists than having waiting lists. Contrary to popular belief, not least among healthcare politicians, waiting lists do not save money – they cost money!

“Healthcare is basically a process industry.

As any professional manager from such an industry would know, smooth procedures with a minimum of pause or interruption is key to keeping costs low!” it said.

“This could explain the limited effect of showering €1 billion over Swedish counties to make them reduce waiting times.”

The report was honest about its own limitations, saying there was a shortage of pan-European, uniform set procedures for data gathering.

“The Health Consumer Powerhouse finds it far better to present the results, and to promote constructive discussion rather than staying with the only too common opinion that as long as healthcare information is not a 100 per cent complete it should be kept in the closet.”

Score

Maximum score

Patient rights and information

80

125

Accessibility

163

225

Outcomes

188

300

Range and reach of services

94

125

Prevention

95

125

Pharmaceuticals

48

100

TOTAL 666

1,000

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e Business OBSERVER

| February 23, 2017

STOCK MARKET REVIEW

e investor relations efforts of Maltese companies Edward Rizzo A few weeks ago I published an article about Malta International Airport plc in which I gave prominence to the fact that, very unexpectedly, the company took the liberty of publishing its financial targets for 2017.

I acknowledged the fact that this was an excellent initiative which shows the evident change in the investor relations strategy of the airport operator. I also stated that MIA is now the only Maltese company that is not only publishing its financial statements on a quarterly basis, but also providing key targets for the upcoming financial year.

This also made me reflect on the status of the investor relations efforts of other Maltese companies.

Only four companies whose equity is listed on the Malta Stock

Exchange issue financial forecasts, namely International Hotel Investments plc, Medserv plc, Midi plc and GlobalCapital plc. The financial information provided by these companies is more detailed compared to the financial highlights and key performance indicators published by MIA last month. However, this is a statutory obligation since these companies had offered bonds for subscription by the public.

Indeed, it is rather strange that nowadays investors have access to more information from bond issuers rather than equity issuers.

This diverging level of information will become more evident this year as various new bond issuers are likely to tap the market in the coming months and they will also be obliged to issue financial forecasts and continue to do so on an annual basis.

While the level of information being provided by bond issuers is indeed very positive as an investor has a right to have access to such important financial information so as to always be in a position to assess the creditworthiness of an issuer, equity investors should also have the same level of information.

In fact, equity investors should have a greater interest on the extent of the profitability expectations of a

company since the return for equity investors is dependent on potential capital growth and dividend declarations. It is worth highlighting that dividends to shareholders are not fixed from one year to the next as in the case of interest on bonds but very much impacted by the level of profits achieved and future investment requirements. As such, it is even more important that an effective investor relations programme is put in place by equity issuers in Malta to ensure that the investing public has sufficient information to make informed decisions when considering equity investments.

Apart from the need for equity issuers to start publishing financial forecasts on an annual basis similar

to what MIA disclosed last month and also similar to bond issuers in their annual Financial Analysis Summary (FAS), in recent years I also touched upon the need for a more transparent and effective investor relations strategy with the publication of detailed information and quarterly financials as part of the publication of the interim directors’ statements.

Unfortunately, the European Commission amended the Transparency Directive and removed the obligation for companies to issue interim directors’ statements. EU member states were required to implement this change by November 2015 and the Listing Rules of the MFSA were amended to remove

“It is rather strange that nowadays investors have access to more information from bond issuers rather than equity issuers”

this obligation towards the end of 2015. In an article in November 2015, I had explained that the rationale for the removal of the interim directors’ statements was that companies should not publish such information only twice a year (generally May and November for companies with a December year end), but regularly during the year when the information becomes available.

Over the past 14 months, it became clear which of the equity issuers on the MSE continued publishing interim directors’ statements and which companies stopped the issuance of such regular and important company updates.

While it is reassuring that nine companies continued to issue such statements last year, it is very disappointing that 11 companies failed to continue with this important initiative. Furthermore, three of these 11 companies are among the larger capitalised companies and also the ones with the largest number of shareholders.

Bank of Valletta plc currently has a market capitalisation of €920 million (by far the largest company on the MSE with a market weighting of almost 20 per cent) and has over 19,500 shareholders. Information similar to what was being disclosed

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STOCK MARKET REVIEW

in their semi-annual interim directors’ statements prior to November 2015 would surely be essential for these numerous investors and the market at large.

Nowadays, such an initiative is even more important in view of the current challenging environment for banks as a result of the impact of very stringent regulatory obligations, the negative repercussions from the historically low interest rate environment and, in BOV’s case, the urgent need for the raising of between €150 and €200 million in fresh capital as indicated by the outgoing chairman during the last annual general meeting in December 2016. The most recent report by the international credit rating agency Fitch Ratings, in which it downgraded BOV’s long-term rating and, among other items, highlighted that the bank’s risk controls “continue to lack the depth required for the risks it faces in its operating environment” would also call for more regular information to shareholders to update them on the progress achieved in addressing the shortcomings mentioned in this important report.

HSBC Bank Malta plc is the second largest company on the MSE with a market capitalisation of €738 million and has around 10,000 shareholders. Here again, HSBC did not issue any interim directors’ statement in May and November 2016. This becomes even more surprising given the fact that the parent company, HSBC Holdings plc, is listed on various stock exchanges worldwide and publishes detailed financial information on a quarterly basis as part of a comprehensive investor relations campaign.

GO plc also failed to issue an interim directors’ statement in November 2016 despite the fact that it had continued to do so in May 2016 after the obligation was removed in November 2015. GO plc also has a very large shareholder base and the information that it was previously providing to the market via such announcements was important for all shareholders. The other companies that also failed to publish interim directors statements last year after the obligation was removed are Lombard Bank Malta plc, Maltapost plc, Malta Properties Company plc, GlobalCapital plc, Grand Harbour

Marina plc, Midi plc, Santumas Shareholdings plc and also Simonds Farsons Cisk plc.

In my opinion, many equity issuers on the MSE therefore need to reconsider their investor relations strategy. The companies which have continued to publish their interim directors’ statements on a semi-annual basis (namely, FIMBank plc, Malita Investments plc, Mapfre Middlesea plc, Plaza Centres plc, RS2 Software plc and Tigné Mall plc) ought to consider also issuing financial guidance on an annual basis similar to what MIA did last month.

On the other hand, the 11 companies which did not continue publishing interim directors’ statements would need to implement two major changes to their investor relations strategy to become more in line with international best practice. Ideally, these companies should first reintroduce the publication of interim directors’ statements and include quarterly financial figures as well as other key performance indicators within such announcements. Moreover, these companies also ought to consider publishing financial guidance on an annual basis.

Incidentally, two of the companies that have bonds in issue which have an early repayment option during 2017 are also equity issuers. In the event that these issuers, namely Simonds Farsons Cisk plc and Grand Harbour Marina plc, opt for an early redemption and an immediate rollover by way of a bond exchange programme, they will henceforth be obliged to also publish financial forecasts as part of a financial analysis summary and publish such forecasts on an annual basis.

Companies listed on the MSE should seriously contemplate adopting a more effective communications strategy for shareholders in line with customary procedures adopted by companies listed across international stock exchanges.

Equity investors deserve having access to at least the same level of information that is being provided to bond investors.

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

“Many equity issuers on the MSE therefore need to reconsider their investor relations strategy”

Rizzo, Farrugia & Co. (Stockbrokers) Ltd, “Rizzo Farrugia”, 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. Rizzo Farrugia, its directors, the author of this report, other employees or Rizzo Farrugia 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 Rizzo Farrugia, 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. © 2017 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved

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BUSINESS UPDATE

HSBC Malta reports resilient profitability for 2016, increases dividends HSBC Bank Malta plc reported a profit before tax of €62.2m for the year ended December 31, 2016. This represents an increase of €15.4m or 33 per cent on the previous year.

“The bank made significant progress in 2016 through implementation of our strategic plan, achieving a level of profitability on an adjusted basis that was in line with our expectations,” Andrew Beane, chief executive officer at HSBC Bank Malta plc. “The local economy continues to perform well and the outlook remains favourable, although it is important that there is continued focus on diversification to avoid an undue level of concentration in certain sectors.”

“Banking is experiencing a more challenging environment driven by negative interest rates, increased

regulatory expectations for higher levels of capital adequacy and for compliance with the highest global standards of financial crime risk management.

“However, I believe HSBC is uniquely well positioned; we continue to exceed our end-point capital adequacy requirements; we have made transformational investments in financial crime risk management and we are well on the path to bring new digital innovation to Malta. Indeed we were particularly pleased to be recognised by The Banker Magazine as Malta’s best bank for 2016,” he said.

All three main business lines, Retail Banking and Wealth Management, Commercial Banking and Global Banking and Markets, continued to be profitable during 2016.

JOHN BONELLO, DIRECTOR AND CHAIRMAN OF THE AUDIT COMMITTEE, HSBC BANK MALTA PLC (CENTRE) SPEAKS AS RASHID DAUROV, CHIEF FINANCIAL OFFICER AND ANDREW BEANE, CEO (RIGHT), LOOK ON

GO posts robust results with €28.1 million pre-tax profit Nature Plus invests in new computerisation systems Nature Plus Limited was established in February 1998. Since its conception, the company has managed to establish international business relationships with foodstuffs suppliers and customers in various countries such as Spain, France, Malta, the US, UAE, Libya and Angola.

Today Nature Plus is continuously expanding its fields of operations to offer better and more efficient services to its customers. The company has set new standards in planning by employing fully qualified, highly motivated and creative staff. The business system of the company is mirrored in its latest computerisation systems. These have been developed in order to ensure that the supply of commodities to the customers is done more efficiently, and that there is a guaranteed flexibility in reacting in time to market and customer requirements.

This strategic market acquisition has been achieved by good planning which is done by Nature Plus’s motivated and qualified staff members, who run a very efficient organisation at minimum cost through constant improvements and innovations. This ensures that customers still receive the most competitive market prices available on the international scene, while maintaining customer specifications and quality standards.

GO plc published its financial results for 2016, showing a profit before tax of €28.1 million. The group’s robust performance was underpinned by significant year on year increases in revenues, which grew by €33.3 million to €157.0 million, and in Group Earnings before interest, tax, depreciation and amortisation (EBITDA) which grew by €10 million to €61.6 million, an increase of 19.4 per cent.

A dividend of €0.11 net of tax is being recommended.

2016 is the first full year in which GO is consolidating revenue generated by Cablenet, representing €29.1 million of the growth in group revenue. Revenue generated in Malta also increased, growing by 3.4 per cent to €127.9 million, due to the group’s consolidation of new revenue streams, following the acquisition of a controlling interest in its new ICT services subsidiary Kinetix, and 1.9 per cent growth in GO’s retail and wholesale activities.

GO experienced growth in all retail sectors, particularly mobile

and cloud-based services, except for legacy fixed voice services.

Furthermore, the continuing investment in Fibre-to-the-Home contributed to growth in GO’s

broadband client base as well as retail revenues. Cost of sales, administrative and related costs amounted to €131.9 million (2015: €97.5 million).

22

e Business OBSERVER

| February 23, 2017

BUSINESS UPDATE

BOV launches card promotion for Gozo carnival week Bank of Valletta is giving €2,500 to give away to ten cardholders, who use their BOV VISA cards at BOV POSs in Gozo, as part of a promotion for carnival week.

The promotion is aimed to encourage more cardholders to use their BOV cards for payments when shopping or dining out while in Gozo. Running between February 24 and February 28, participation is automatic. Cardholders earn a stake in the lottery by effecting a minimum transaction of €25 and a global spend of €100, with a BOV VISA card, at a BOV EPOS located in a Gozo establishment. Ten random card numbers from among the eligible cardholders will be drawn on March 10, 2017.

The winners will receive a cash prize of €250, once they give the correct answer to a skillbased question.

“Since carnival sees numerous cardholders travelling to Gozo, this incentive aims to reward BOV cardholders for their loyalty while supporting the Gozo business community by encouraging additional spend at their outlets during this promotion period,” said Ivo Camilleri, executive electronic banking at Bank of Valletta.

Additional information about this promotion can be found on www.bov.com, or by contacting BOV Customer Services Centre on 2131 2020.

New Regus Centre inaugurated in St Julian’s Workspace provider Regus has inaugurated its second centre at the Dragonara Business Centre in St Julian’s, offering space for 161 persons.

The new site takes up one-and-a-half storeys and includes 30 co-working desks, meeting room facilities, virtual offices and 270 square metres of common area. With the new centre, Regus will increase its total office space to 2,245 square metres, providing a total of 275 workstations and 86 offices.

It complements the original Regus site in Swatar, and shows that there is an “ever-growing demand by the international market for serviced office space,” Malta area manager Andrew Grech said. “What we are seeing here – in such a short time – shows that location is crucial for foreign companies as they want the external environment, and not just office space per se.” Mr Grech also noted that about 99 per cent of Regus clients in Malta are non-local.

Regus stated that the offices are ‘filling up fast’ since the soft opening at the beginning of December last year, with a number of companies from various sectors, including aviation, medicine, IT, gaming and finance, are making use of the spaces.

Mapfre’s global profit reaches €775 million Mapfre’s net profit for 2016 increased by 9.4 per cent to €775 million, in a year marked by good performances in its three main markets, Spain, Brazil and the US, and the outstanding results of Mapfre Re. The group’s revenue amounted to €27,092m, representing a 1.5 per cent increase over the previous year, while premiums increased by 2.2 per cent to €22,813m.

At the close of 2016, equity stood at €11,444m, a 10 per cent increase on the previous year, due to good market performance and the positive development of the main currencies. Moreover, shareholders’ equity increased by 6.4 per cent to €9,127m.

Total assets grew by seven per cent standing at €67,882m at year end.

“2016 was a very positive year for Mapfre. Our strategy, based on profitable growth, has allowed us to increase profits by almost 10 per cent and secure our position in the main markets,” said Antonio Huertas,chairman and CEO of Mapfre.

In Malta, Mapfre is represented by Mapfre Middlesea and Mapfre MSV Life. Mapfre Middlesea plc (C-5553) is authorised by the Malta Financial Services Authority to carry on both long term and general business under the Insurance Business Act, 1998. Mapfre MSV Life plc.