The Business Observer Newspaper, 5th May 2016

InTErvIEW

Issue 50

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May 5, 2016

Distributed with Times of Malta

Shareholders might be bewildered by the fact that Bank of Valletta’s profits keep going up while their dividends keep going down, but CEO Mario Mallia explains that it is for their own good. see page 5&6 >

nEWS Refugees should be seen as an opportunity to fill skills gaps, rather than as a challenge. Eurochambres CEO Arnaldo Abruzzini believes that social partners are finally appreciating the potential. see page 3 >

State guarantees should be capped Vanessa Macdonald Government guarantees should be capped and anything over the threshold should need parliamentary approval, the Fiscal Advisory Council has recommended.

The chairman of the council, Rene Saliba, said that the outstanding level of government guarantees, as a percentage of GDP, was “rather high” in Malta and that it was worth considering the introduction of specific new legislation.

The government issues a guarantee as security when a state entity applies for a loan or overdraft facility from either a local or foreign lender.

Government guarantees reached €1.4 billion in 2014 – up from just €893 million in 2009.

This includes €225 million to restructure Enemalta’s guarantee, and €31 million for Electrogas, until the European Commission approves the security of supply agreement between it and Enemalta.

In an interview with The Business Observer (see pages 10 and 11), Mr Saliba explained that the government’s borrowing powers were very clearly defined by laws dating back decades,

Top five (2014) Enemalta Malta Freeport Corporation Malta Industrial Parks Water Services Corporation Foundation for Tomorrow’s Schools

€523m €227m €117m €93m €72m

Contingent Liabilities GovErnMEnT GuaranTEES Total in 2014 €1,403,270,738 Total in 2013 €1,257,929,437 Total in 2012 €1,242,675,071 Total in 2011 €1,142,575,151 and require parliamentary approval. “But when it comes to guarantees there are no such controls, no limit and no procedure that it has to follow with regards to parliamentary approval.

“It is more a matter of informing Parliament rather than requiring its approval. The council is suggesting that there should be more

explicit legislation to govern this area, both in terms of procedures and also perhaps an upper threshold that could be subject to parliamentary approval.

For instance, in the case of the Treasury Bills or overseas borrowing, the minister needs to present a parliamentary resolution if he wished to have the ceiling raised.

“Legislation to cap the amount of outstanding government guarantees and establishing parliamentary approval for it to be exceeded would be one way of improving governance in that area as even though guarantees are not a debt, they are a contingent liability. And in the case of default, what is a contingent liability becomes a real liability,” he said.

The council’s chief economics analyst, Malcolm Bray, noted that such contingent liabilities were closely followed by international agencies – all the more because Malta stands out among other member states.

According to Eurostat data for 2014, Malta’s government guarantees represent 16.8 per cent of its GDP, the fourth highest rate after Greece (28%), Austria (26.5%) and Finland (25.8%).

InTErvIEW e Malta Fiscal Advisory Council has some controversial recommendations, including a non-transactional property tax aimed at providing less volatile fiscal revenue streams. Chairman Rene Saliba explains. see page 10 & 11 >

SToCK MarKET rEPorT Edward Rizzo’s annual analysis of the dividends shows that the downturn of the previous years seems to have stabilised. see page 18 &19 >

e Business OBSERVER

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May 5, 2016

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NEWS

Partners sought for EU integration effort Eurochambres is hoping to rein in more partners for an EU-wide effort to integrate refugees, seeing them not as a challenge to society and the business community – but an opportunity to fill skills gaps.

President Arnaldo Abruzzini, speaking to The Business Observer after an intervention at the recent conference organised by The Economist, said the proposal had been widely welcomed by various stakeholders, ranging from local and regional authorities to unions, and from colleges to religious organisations.

It is not clear whether any partners from Malta will sign up. So far, the Employment and Training Corporation has confirmed that it will not be taking part.

The European Refugees Integration Action Scheme was drawn up to bring together various initiatives already introduced over the years by various member states, such as mentoring programmes in Austria and vocational education programmes in Germany.

“Clearly, we cannot simply extend established domestic training programmes,” Eurochambres explained, noting that these would need to take into account everything from validating the competence of the refugees to language and culture aspects.

Over a million refugees entered Europe last year and a further million are expected to enter this year. Nearly a quarter of asylum seekers and refugees are aged between 16 and 25.

Eurochambres is proposed to coordinate the scheme – which will require an stagerring estimated €962 million financing – from “public administrations, including the EU institutions”, as well as donors and sponsors.

To succeed, it would need support beyond the Eurochambres members, and Mr Abruzzini said the scheme was being extended to business organisations from the southern shore of the Med. Would the money be worth it?

Asked how many jobs it would create, he admitted that it was difficult to make a precise forecast: “But based on pilot schemes

Financial services catching up on traders Financial and insurance services companies make up 15.6 per cent of the 87,971 companies registered on the island, rapidly catching up with wholesale and retail trade activities which accounted for 20 per cent in 2015.

The past five years have seen a dramatic change. In 2010, according to the National Statistics Office, there were 73,116 registered businesses – meaning the island has seen a 20 per cent increase. And at that time, financial and insurance services only accounted for 10 per cent of activity.

“And jobs are one of the reasons that all these people are drifting from their own countries: they have no economic future” we have already run in different regions in Europe, we might say that our goal would be to create at least 200,000 jobs for refugees.

“Certainly this will not entirely solve the migrant problem as there are millions out there. But economic studies support the idea that if we give a job to one out of each 10, that will stabilise the situation of the family environment of that one person, in a way that will actually carry on to the other nine.

“But the same scheme could later also be applied to migrants

and then the figures would be completely different,” he said.

The role of the southern Mediterranean was hotly debated during the conference, with arguments being made for both geoeconomic forces and geo-political ones. Mr Abruzzino believes that they go hand in hand – to a point: “The policies set by governments are creating a widening gap between the political and the environments.

“I referred in my intervention to the foundation of the European Union, which was after all a

political decision based on a business reality: coal and steel. It was all about precise business factors.

“What we are witnessing these days is that the political environment is going another way, taking a different path to the business one. We should reconcile the two.

“The aim is clearly not to negate the impact of politicians.

Countries have to be run by politicians and not by businessmen. But we should reconcile the two visions as business is what creates jobs. And jobs are one of the reasons that all these people are drifting from their own countries: they have no economic future. That is why we appeal to political leaders to reconsider the huge contribution that the business community can give to the stabilisation of the region. This should be done through an economic growth and not through political decisions.”

“e past five years have seen a dramatic change” In third place now is professional, scientific and technical activities.

The pace of activity has been increasing, with 6,262 companies being created in 2010 – but almost double that (11,721) last year.

The number of businesses closing down has been fluctuating between 3,000 and 4,000 a year – apart from outlier 2011, when 10,686 companies were taken off the register.

The size of companies has remained strongly biased towards microenterprises which employ less than 10 people, 85,673 out of the 87,971 or 97.4 per cent.

There were only 100 companies which employ more than 250 people, and 440 which employ between 50 and 249.

e Business OBSERVER

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May 5, 2016

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INTERVIEW

A share in success Bank of Valletta reported a pre-tax interim profit of €68.5 million but reduced its dividend payout to 22 per cent post-tax. Chief executive officer MARIO MALLIA explained to Vanessa Macdonald that the profit had to be seen in the long-term context.

Why am I interviewing you and not the chairman, as has been the practice for years? Is it to send some subtle message that the chairman is non-executive?

I am the chief executive officer of the bank and I lead the executive. The board sets the strategy and the chief executive officers see that it is executed. I am the custodian of strategy as communicated by the board and I oversee its implementation.

A local newspaper recently carried claims about a lack of due diligence when opening Libyan accounts. This is particularly alarming when banks are being criticised for taking months to open accounts…

Nowadays, people say that it is easier to rob a bank than to open

a bank account. The consciousness about money laundering has grown a lot so we do our due diligence in accordance with international standards in order to minimise that risk.

We do not only rely on our own knowledge but have undertaken three separate consultation exercises to ensure that our measures are in line with expectations.

It does not mean that something might slip through, just as there might be the occasional bad debt when you give a loan.

The bank has repeatedly said that there are numerous procedures in place to prevent the sort of abuse with regards to lending that MP Kristy Debono is claiming. Do top executives – or board members – ever write to managers with

personal introductions to clients?

If so, could that not be construed as implied pressure to approve that client’s application, even if they are told to judge it on its merits?

I do not know of any letters of introduction. I certainly never interfere in my managers’ decisions. We have a set-up based on a dual sanctioning system and if I had an interest in getting a loan approved, I would need to convince not one department but at least two – which is not realistic.

A chain is only as strong as its weakest link. There might be staff

who are afraid of missing out on promotions, or those who want to curry favour with their seniors. If that happened, are you convinced that their decisions would be caught on the way up through the system?

Any such letter of introduction would be kept on file. The due diligence would then kick in and in the case of a loan we are giving money, not receiving it, so we are not just talking about the due diligence that we would do on new account holders but also the credit risk side.

There are numerous filters. I believe that the system is working well. Our

levels of non-performing loans has stabilised – the remaining ones are mostly legacy loans. We are seeing very few new ones since we introduced this new system.

Prime Minister Joseph Muscat referred recently to ‘saving the banks’. Was he referring to BOV and loans to government entities, such as Enemalta?

I don’t know what he was referring to but I can confirm that BOV was not subject to any government intervention over these past years.

Continued on page 6

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e Business OBSERVER |

May 5, 2016

INTERVIEW

Capital buffer to protect shareholders Continued from page 5

justified by the risk. It is not the accounting profit we look at but the risk/return ratio. We started with trusts, which were never a core operation of the bank. We will review other lines but there are no serious curtailments being considered at the moment. But we do not exclude that there may be in the future – particularly in peripheral areas.

But BOV has a heavy amount of government lending. Are government loans covered by guarantees or not?

We require guarantees for some government companies but not for others. It depends on the risk of the project. However, we consider government lending to be the lowest risk possible.

Enemalta was not. The government has made it quite clear that it was close to default on hundreds of millions of euro. Was BOV’s loan to it covered by a guarantee?

I clearly cannot comment on individual customers. But in general, I can say that government lending is our lowest risk lending.

Obviously today it is subject to restrictions by international regulators who are trying to cut the bond between the sovereign and the banking system. We saw in 2008 how toxic that could be.

They are now saying that we should limit our exposure – not only lending but also government bonds. We hold government paper to maturity, unless we find some compelling reason to sell. But we plan in the long-term to reduce our exposure to government debt.

If you do not invest as much in government paper, your Treasury has to go for riskier options. With your background in risk, you must view this with concern…

You are right. It is a great challenge. We have to keep in mind two things. The first is the profitability of the bank: we cannot use our liquidity in a careless way but must try to maximise profit.

But the second consideration is risk, as today profitability takes second place to risk. I prefer to go for a lower return asset and have marginal returns but ones which have a wellcontrolled risk profile.

MARIO MALLIA

“Investment opportunities today are limited and the bank has a lot of liquidity – a ‘welcome problem’ as it is a sign of strength – but we have to deploy it somewhere and margins will suffer” Investment opportunities today are limited and the bank has a lot of liquidity – a ‘welcome problem’ as it is a sign of strength – but we have to deploy it somewhere and margins will suffer.

We just reported very good results but the strains are there and margins are under pressure because we are refusing to raise our risk profile – obviously at the cost of profit.

Interim profits were up 16 per cent.

How long can you continue to argue that shareholders have to accept lower dividends, down to 22 per cent from the 33 per cent policy in place for years? How long before they start to seek better equities to invest in?

We are trying to balance dividend expectations with the capital requirements of the bank.

BOV, unlike many other European banks, never had to seek government help so we were never recapitalised. So while other banks were recapitalised in a big leap, our capitalisation went up slowly but surely every years.

Because of evolving regulation, including the Recovery and Resolution Directive, there is no way to get help from the government in the case of a crisis, so you have to build up your own capacity.

Now with bail-in procedures, if a bank is not sufficiently capitalised and something goes wrong, they are the ones who would suffer, not the depositors. So capital protects the shareholders. The easiest, most direct way and least costly way to do this is to retain more profits by controlling dividend payout.

We know shareholders expect a dividend but we need to educate investors that shares are not a deposit account from which you expect interest every year. A dividend is only distributed if there are sufficient profits and if the company does not need more capital buffers.

And the net asset value of the bank is mirrored by the share price, as the former is the real value of the bank. So the retention of profits increases net assets, which is reflected in the share price as well.

You are shutting down trust business because of the risk involved.

Are there any other business lines being reviewed?

Our business model is constantly being reviewed. We are very careful to ensure that the return we get is

The bank embarked on an international strategy through representative offices overseas. What is happening now?

Today the world is coming to Malta whereas before Malta was going out there to cater for it. We are internationalising our balance sheet by staying here! So we are no longer looking at a network around the world, perhaps one or two strategic places around the world where we would have an office.

Will you review the branch network? And what will the new development at Fleur de Lys be used for?

That will be our premium banking centre for high net worth customers. At the moment, the head office has a mix of operations and customer facing units. The latter will go to the other side of the road.

Our biggest project at the moment is our core banking transformation, which is the replacement of the core system. We will redesign our business processes and network around the potential that the new state-of-the-art system will provide.

This will improve customer response time. That will lead to a change in processes and also in the use of space in our branches. We need privacy for more investment advisory services, for example, which is sometimes lacking.

People are becoming more aware that they have to support their lifestyle with their own savings, whether through pension or savings schemes. And demand will only keep growing. This is an area that the bank finds of great interest.

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e Business OBSERVER |

May 5, 2016

OPINION

Friedman forgotten?

Robert Coenen Suppose there were a world with stable prices in which a cup of coffee costs the same next year as it costs today. Would that be a bad world, a world without a future?

Your father and grandfather told you to save money for a rainy day.

To make sure that in the future you could use your piggy bank to buy the bike you always wanted. And so you did. You believed the things your father and grandfather had told you.

You knew that your mother was keeping some money for unexpected expenses. You knew that saving couldn’t be bad.

They were wrong.

In the world according to Frankfurter Mario, saving should be punished by a least two per cent per year. When your father bought a life insurance policy in order to make sure you could study and your mother had some put aside to bury him, your father thought about the future. He made provisions for an event he couldn’t control. He was a responsible man.

In a world of stable prices, a world without inflation, employers would still face price fluctuations due to demand and supply. Fixed and variable costs can be projected. They would, however, not be hostage to unnatural growth by devaluation.

The opportunity to create new products and services would not be compromised. Inventions have never been restricted or created by inflation.

Your cup of coffee and that bike – while you have been stuffing that piggy bank to the rim – will be available thanks to the savings advised by your father. Your house improvement and or maintenance could be planned. You would not be confronted with the insecurity of an instable economy of “inflation growth”.

If bankers set a target of two per cent inflation, and the national economy grew by two per cent, the national economy didn’t actually grow by one cent.

Economic growth as predicted by the World Bank for “Old Europe” for 2016 is somewhere between 1.5 and two per cent. But that’s no real growth at all. That’s make believe.

Growth means something got larger by internal energy. If an employer sells exactly the same number of bikes this year as last year, his company didn’t grow. That’s not bad: it means he has a stable company and his employees have a secure job. Their salaries can be paid based on the predictable turnover.

His company could grow by producing a new type of bike (say an electrical one) which would create additional turnover and employment. He would have to invest in new technology, additional premises, hire new employees. That would be good, natural growth. If a farmer grows onions his turnover next year would be based on the number he could grow on the land area available. His insecurity is the weather.

Our bike company also has insecurity about the weather, but to a lesser degree than the onion farmer.

Two different and competing systems are on offer to mitigate for that insecurity. The onion farmer could buy “weather-insurance”, a mutual system in which a lot of people share the weather-risk, based on a database of the past. Or the onion farmer could go to the mercantile exchange and sell his harvest on a future day.

“Do not be afraid of zero inflation...

It makes your savings worthwhile” That’s betting; that’s speculation.

The onion-soup factory could buy up the harvest and make sure we all have onion soup next year. The onion-soup factory would have predictable prices for the coming year.

Both farmer and factory have a pertinent and essential interest in stability and sustainability. But prices would be set by the market of demand and supply – not by inflation.

Governments and bankers don’t save money. Both believe in lending and spending. If you started that piggybank 10 years ago and inflation diminished your savings by two per cent a year, you would have roughly 78 per cent of what you thought to have. But if you hadn’t saved at all, and borrowed the money from your father or the local bank, you wouldn’t have to pay back 100 per cent at the end of the 10 years – but only 78 per cent. Governments spend the money of future generations because the spenders will be retired when a rainy “pay day” comes calling. They know that the money they got from the

market will have less purchasing power on some sunny day. Even better: they will never pay back at all.

They will issue a “roll-over” bond and postpone national debt till our children are replaced by our grandchildren and they be replaced with our grand-grand-children and so on.

But it isn’t fair, isn’t it!

Milton Friedman agreed to that and proposed the Friedman Rule: a monetary policy rule which essentially advocated setting the nominal interest rate at zero.

Friedman was the main proponent of the monetarist school of economics. He maintained that there was a close and stable association between inflation and the money supply, mainly that inflation could be avoided with proper regulation of the monetary bases growth rate.

He famously used the analogy of “dropping money out of a helicopter” in order to avoid dealing with money injection mechanisms and other factors that would overcomplicate his models.

Inflation is a source of tax revenue for the government and if inflation were reduced other taxes would have to be increased in order to replace the lost revenue.

If a zero-sum budget were to be implemented, government would have to economise in such a way that stable taxes and expenditure would balance.

Do not forget: taxation is a system used by governments to extract money from people by the use of law.

Taxation is a reflection of the values of those in political power; it is not related to the purpose of good government. Taxation rates are based on the limit to prevent revolution!

So do not be afraid of zero inflation, it might be good for us. It makes your savings worthwhile, even intellectually honest, since your debt will be not deflated too.

Although some economists argue against zero inflation, they base their studies on the premises of the clairvoyant. If our cup of coffee cost the same next year and our son could buy that bike he has been saving for, I would like to meet the economist who can prove this to be bad.

Inflation is a redistribution policy which awards those in debt and punishes those who save and our future generation.

Let’s stop Super Mario!

e Business OBSERVER

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May 5, 2016

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INDUSTRY FOCUS

Office, sweet office It used to be so simple. You went to work, took the cover off your typewriter, spent eight hours wheeling and dealing, and went home. Now, work and home are interchangeable, typewriters have been replaced by leased computers using apps in the cloud, and eight hours have stretched to every single waking hour thanks to always-on devices.

And the changes do not stop there. Mauro Mordini, the country manager for Regus, explains that leasing is not only an option for equipment and software, but also for offices, as companies opt to free up capital for productive investment.

“Businesses are very comfortable with software as a service and cloud computing – moving away from the need to physically own the asset.

“Workspace as a service is the next logical development. Fewer businesses are willing to commit to expensive long-term leases and are finding cost-effective alternatives in flexible workspace.

“Every business wants to reduce overheads, but cashflow is particularly key for start-ups and

SME businesses still looking to get established. These businesses can take flexible office space on an as-needed basis, freeing up funds for essential building blocks such as marketing and recruitment,” he said.

The blurring of work and home has also pushed demand for office locations that offer more of a lifestyle as employees want to be able to eat and exercise nearby, for example, stopping to pick up shopping on the way home.

Alex Montanaro, the head of Exalco Group Business Centres, believes that most forward-looking companies pay attention to the quality of their offices, and to the lifestyles of employees.

“There is no doubt that a wellplanned, aesthetically pleasing office contributes towards a feel good factor among employees, which in turn leads to more efficiency at work.

“Long hours are spent at work in offices, and it therefore stands t o reason that employees need to have working environments designed to be as stimulating as

possible, and which blend in with their lifestyles.

“In fact apart from working areas, for instance, modern office layouts include relaxation and leisure areas, and amenities that suit the lifestyles of the office users, a trend which will be more prevalent in new office developments,” he said.

Omnistat director Frangelica Schembri Camilleri has seen con-

siderable improvements to home office furniture but warns that a workstation at home needs to be carefully designed for productivity and comfort.

“The home office is a viable alternative to commuting to a corporate facility.

“Yet in its simplest form a home office has specific requirements such as adequate space and good light sources along with well-

planned furniture,” she said.

Thankfully manufacturers have moved well beyond the industrial looking metal desks and filing cabinets of the past.

“Most major office furniture manufacturers are looking at systems that suit home environments with the idea of implementing mobile desks that can be positioned to provide work stations and filing when needed,” she said.

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e Business OBSERVER |

May 5, 2016

INTERVIEW

Keeping tabs on taxes After the sovereign debt crisis, it was clear that member states had to get their public finances in order. Strengthening governance in fiscal policy was a priority and new legislation mandated the setting up a fiscal council in each member state to oversee the budgetary performance and identify potential risks that could undermine fiscal sustainability. e Malta Fiscal Advisory Council, set up by the Fiscal Responsibility Act in 2014, has just issued its first annual report. Chairman RENE SALIBA told Vanessa Macdonald his small team was taking an active role.

How much leeway were member states given with regards to the setting up of the council, particularly in terms of executive powers?

The mandate given to the Maltese council is wider than that of many other fiscal councils in the EU, which reflects the local authorities’ commitment to have a proper framework of governance.

For example, not all fiscal councils are authorised to put up recommendations: some of them are only empowered to see the extent to which, for example, macroeconomic projections and fiscal projections are robust and sustainable.

Also, the EU legislation gives the council the mandate to endorse macroeconomic projections but leaves the endorsement of fiscal projections optional. We do both.

Having said that, some governments actually delegate the process of creating the forecasts – which we do not, due to logistics and resources.

We do look at the projections turned out by the Finance Ministry to see these are robust and sustainable an ongoing basis. The legislation obliges us to issue an opinion on all publications issued by the Finance Ministry, not just specific ones, including annual and mid-year reports, the stability programme updates and the draft budgetary plans.

Why is it important for the Fiscal Council to oversee projections?

Obviously when the government is planning its programme it might be aiming to reach a certain fiscal target – say a deficit reduction – and one way of reducing that ratio would be to be overoptimistic in its economic growth outlook. Many countries were very overoptimistic and the actual results were completely out of line with the projections.

The advent of fiscal councils and the rule-based approach has meant that governments have been much more prudent in the way they prepare fiscal forecasts as they know that they will be very carefully scrutinised.

It is interesting to see that whereas the Commission was traditionally considered to be the more conservative, in some respects the forecasts being produced by the Finance Ministry are on the low side compared to those of the Commission. The Commission’s outlook on the debt ratio

appeared to be more optimistic than those of the Finance Ministry, with the former saying by 2017 it will be below the 60 per cent benchmark. Of course, only hindsight will prove which is correct!

You can exert influence but you have no executive powers. You could not, for example, stop a Budget because you think it is nonsense.

Even in other countries, the approach is always for the Fiscal Council to issue an opinion but it could definitely not do more. The Fiscal Council is not there to override parliamentary rule; that would go against democracy.

However, the council’s opinion carries weight. By endorsing the forecast – or otherwise – and issuing recommendations where it feels that they are warranted, the Fiscal Council alerts public opinion whether things are going wrong or whether there are certain risks which need to be addressed.

And the fact that the Fiscal Council is in touch with international in-

RENE SALIBA

stitutions like the International Monetary Fund, the European Commission, rating agencies and so on, is another way to draw attention to areas that need highlighting.

One area that other fiscal councils resort to is the ‘comply or explain’ approach, where the government either has to comply or, if it has other views, needs to explain it in a public way.

In Malta, so far at least, this is not the case. The legislation does not provide for it and we rely more on informal consultations with the finance ministry on a regular basis which are delivering the results we would want at this stage.

For example, the ministry released a document in June with an

“e advent of fiscal councils and the rule-based approach has meant that governments have been much more prudent in the way they prepare fiscal forecasts as they know that they will be very carefully scrutinised”

appendix giving its reaction to the recommendations we had made in April to the Stability Programme update. So although there is not a formal ‘comply or explain process’, there is feedback, showing where appropriate whether they will follow-up or take action.

The Fiscal Council is still at the capacity building stage but we hope that eventually this practice could be taken on board locally in a formal way. It is a principle that many other EU Fiscal Councils feel should be a common standard.

Do you only make recommendations reactively or do you raise issues proactively? And what reaction has there been from the government and Finance Ministry to your recommendations?

A combination of both. There are certain areas where the Fiscal Council has put up its recommendations on issues that show that there are certain risks. But we also try to be preemptive and propose ideas to be followed up.

Other things are left for the bilateral discussions.

e Business OBSERVER

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May 5, 2016

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INTERVIEW

RECOMMENDATION ■ Extend the average maturity of government stocks Long-dated paper would lock in government debt at a rate which is exceptionally low, maximising on the historically low interest rates from the point of view of debt servicing costs.

It also lowers the roll over risk as each time you go back to the market you depend on the extent to which people will take it up and also the cost of that demand. Once you have locked people in, that risk is avoided or postponed until it matures.

In recent years the retail sector in Malta has displayed an exceptionally brisk demand for government paper, notwithstanding the continuous decline in interest rates. And households in Malta – those taking up to €100,000 – have been an anchor, ensuring stability when the sovereign market elsewhere collapsed during the crisis.

This stability is still being shown as successive issues of government paper are oversubscribed by households.

The government’s allotment policy has historically been to give priority to the retail sector which means that institutions are crowded out. That is why there are cases when the Treasury issues additional auctions purely for the institutional investors.

The international debate on the extent to which banks should continue to be exposed to sovereigns beyond a certain threshold is still ongoing and needs to be monitored very closely as it has financial stability implications.The international community might set very rigid thresholds beyond which banks

should not be holding government paper.

One needs to be very cautious about how to introduce such measures, to avoid the possibility of very destabilising shocks.

Obviously the fact that this debate has been going on for a number of years means various banks have been taking preemptive action. In certain countries, banks have already started to shed their exposure.

You have to be careful: banks should not be forced to move out rapidly because that could create another crisis. And one should be careful that this will not lead to banks investing in lower quality paper and riskier pastures, especially in a low interest rate scenario where there could be asset price bubbles in certain areas.This is a very sensitive and hot area because of its potential implications overseas. No decision has yet been taken by the international community but the banks have definitely repositioned themselves in the market to prevent overexposure.

RECOMMENDATION ■ Use Individual Investor Programme funds to create long-term sustainable growth Seventy per cent of the revenue from the Individual Investor Programme will to go to the Development Fund rather than being put into the Consolidated Fund. We see this as a prudential – and positive - measure that the proceeds are not fully going into the recurrent Budgetary process but that part of it is hived off for longer-term deployment.

It is worth pointing out that even though only 30 per cent is going into the Consolidated

Fund, for statistical purposes, Eurostat considers the entire amount to have an impact on the deficit and debt – which is why the ratio of deficit to GDP was 1.5 per cent, whereas due to local legislation, only 30 per cent will show up in Malta’s reporting.

In simple terms, our recommendation is that the 70 per cent should not lull us into considering it to be money in our pocket which we can then spend …

From the point of view of implications for future budgets, it will all depend on how that amount in the Social and Development Fund will be deployed. The Council recommended that one should avoid committing those funds to projects which would create additional burdens on the Budget in future years. Rather it is important to consider the acquisition of financial assets, for example. The Development Fund could take up equity in high priority public projects, which would indirectly contribute to growth in other fields, while long-term loans to viable projects would mean that the funds have not been transferred, creating additional burdens in future.

So we should be vigilant about how this money should be used.

RECOMMENDATION ■ Consider a property tax system which is not based on transactions Revenue has been very buoyant in recent years and has exceeded expectations, but some of the contributing sources might be more volatile than others and might not sustain their current high level of contribution. It is very important as a preemptive measure to

consider additional sources of revenue to compensate for possible shortfalls in certain areas. One area which could be studied is tax on property.

When you tax transactions, you are at the mercy of the level of transactions so it is better to have something of a more recurrent nature.

A tax on underdeveloped vacant property – as a disincentive through fiscal means to avoid hoarding – was mentioned in the Budget and we understand that this area is now being discussed with the stakeholders to see how it could go forward.

But there could be other ways of looking at taxation on property. We know this is a sensitive subject but we also know that in certain respects Malta stands out as one of the exceptions in Europe with regards to the way that property is taxed.

We have a very high level of property ownership which is good, as households are very asset rich – although not necessarily liquid – but also one needs to look at the long-term perspective of the sustainability of public finances and how it could be partly strengthened through new ways of looking at property taxes.This is an area that needs to be studied to assess the social and economic implications. At this stage, we are asking for the issue to be studied. We cannot hide behind a status quo, arguing that things should always stay the same.

Ideally, there should be a study group with the relevant stakeholders to look at this with a fresh mind, without assuming that all that has happened in the past should necessarily be continued in the future if it contributes to an improvement in the situation!

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e Business OBSERVER |

May 5, 2016

CASE STUDY

Property market is booming The property market is booming, as is evidently clear from the amount of cranes and real estate agent boards. In 2015, over €2 billion worth of property was sold, representing 15,557 contracts.

This is an increase of 35 per cent in just two years.

But, taking a cue from the highrises planned for the future, is “up” the only way?

The directors at Belair, a leading real estate agency, are torn. They are clearly happy about the growth, but they do so with an element of concern that people will get carried away.

“This is a bullish market but we are concerned that people are forgetting the long-term nature of

property as an investment and they are not considering that things could change – particularly when it comes to ‘buy to let’,” managing director Ian Casolani said.

“They are basing decisions on the best case scenario. When times are good, we tend to forget the bad times. But what if interest rates go up or if rental demand goes down? Investors must be sure that they would be able to sustain the mortgage because, if things changed and they were forced to sell, they might find themselves doing so at a time when many others are doing the same thing…”

Director David Aquilina urged people to do their homework.

“I know that there is a fierce debate at the moment about who should do valuations. But without going into the merit of who should do it, the important thing is that investors look at the real value of the property,” he said.

What they want to prevent is people buying property “at any cost”, to the extent that they are being irrational about the price they pay or about its location, which will have a huge impact on the return on their investment. And this is not only limited to property buyers but also to developers, particularly those who do not have decades of experience to temper their enthusiasm.

The property market in Malta has been through a boom before,

and survived without the bubble bursting as it did in some other countries. After the boom prior to EU accession, the banks put the brakes on by introducing prudent lending. Now, it seems the market is being driven by perception, and the feel-good factor which comes from such buoyant sales. However, they believe that the situation is fairly stable at present.

“Of course, there are threats to our taxation system but we are fortunate in that tax is only aspect of why so many foreign companies have come here, including the skills base, services and the lifestyle,” Mr Casolani said.

The ‘lifestyle’ aspect is one of the main things driving the future of

the sector, both for offices as small companies set up to get a foothold on the island expand into operations, and for their expatriate staff.

This is one reason that Mr Aquilina is optimistic. A number of “exciting projects” are in the pipeline over the next few years, which offer just that: a lifestyle rather than just accommodation, with leisure and retail solutions as part of the complex.

“For years, the top end of the market has been about the limited availability at Portomaso, Fort Cambridge and Midi. A sector overheats when there is not as much supply as there is demand.

So a broader choice – and one which includes more affordable

e Business OBSERVER

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May 5, 2016

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CASE STUDY

(FROM LEFT): BELAIR DIRECTORS JEAN CAMILLERI, IAN CASOLANI AND DAVID AQUILINA

“According to the tax authorities, only 1,000 properties were sold to foreigners (through AIP) in the past four years. e difference is the average price: €400,000, compared to €128,000 overall.”

units – is a great thing for all involved,” he said.

Naxxar director Jean Camilleri agrees that it is now all about lifestyle, which is on the drawing board for the projects proposed at the former Exchange, and Corinthia and the former Institute

of Tourism Studies at St George’s Bay, to name but a few.

“All these are promising to offer the edge that is simply not available in many developments. It is a myth to say that there are numerous vacant properties which could solve the bottleneck in supply.

Most of them are simply not what foreigners want,” he said.

Having said that, although foreigners are providing the new “demand”, they are by no means the only drivers of the sector, even though statistics are patchy.

According to the tax authorities,

only 1,000 properties were sold to foreigners (through AIP) in the past four years. The difference is the average price: €400,000, compared to €128,000 overall.

“The Maltese are always our base market and the impact of the first time buyers’ scheme on sales

has been well documented,” Mr Casolani added.

They also traditionally tend not to be highly leveraged – meaning that they are able to “wait it out” if the outlook worsens, something that the Belair directors believe will help the sector if ‘irrational exuberance’ is allowed to overcome common sense and the natural nose for a bargain for which the Maltese are better known.

“Foreigners would react to a swing in the market or a change in personal situation far more quickly than a Maltese would. A Maltese would almost never sell at a loss, whereas a foreigner might,” he said.

Maltese might be the foundations of the market, but Mr Camilleri, however, feels that there is still a long way to go when it comes to selling to foreigners.

“We have been talking about branding Malta for so long. A lot has been done and many entities – including Belair – do road shows and take part in exhibitions. But it is a drop in the ocean. We are just one of hundreds.

“The new developments will make a difference as they are a niche market. People do not only want to buy. They also want to feel that a property is a good investment. As the prices increase, so do expectations.”

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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

On course for yachting It is hard to believe that, just two decades ago, the two political parties were arguing heatedly about plans for the Cottonera waterfront which had highlighted the need for a comprehensive vision for the area – as well as a proper understanding of what the yachting industry needed.

At one point, an artist’s impression was released showing a sort of carousel along the marina, around which yachts were berthed. It was quite an extraordinary concept as the yachts would probably have had to be lifted in and out of there by crane: they certainly would not have been able to manoeuvre into the spaces. It was symptomatic of the lack of knowledge about the sector, a lack of knowledge which had led a trade union leader to dismiss the highly-specialised coating services for superyachts to being akin with panel beating and car spraying.

At that time, when ministers talked about yachting, the public perception was that this was about berths in marinas for local boat owners, and perhaps the brokerage and chandlery services that went along with that supply. The Royal Malta Yacht Club gave a new dimension to the sector when it got Rolex on board as a sponsor for the Middle Sea Race, as it suddenly showed that yachting events could put Malta on the international media map.

But for it to be viewed as an economic activity which generated jobs and revenue? That did not come easily.

The stakeholders did not help. There were various failed attempts to get some form of association going to represent their views, from

VAT on yachts to duty free fuel, from the need for hardstanding space to the potential for clustering.

Unfortunately, when a sector is at its most dynamic, it is also at its most competitive. Stakeholders compete for top brands not yet represented here, and for concessions not yet allocated.

They remain focussed on their own growth without being able to step back to realise that there is far more to be gained from pitching in together.

The ‘industry focus’ which recently appeared in The Business Observer (April 7) shows how far things have come as the sector matured.

As operators consolidated their market share, they put more energy into building up resources, from training staff to capital investment.

We now have a series of yards catering to yacht refits, engineering companies specialising in niche services and companies catering for registration, leasing and even financing. Slowly but surely, as more business comes Malta’s way, the companies are realising that this would never have been possible had there only been one operator, one agent, one yard. Malta has carved out its own little place on the yachting map and companies are already looking beyond Malta’s shores, offering services abroad and coming up with innovative services, from crew training to fractional ownership.

There were times over the past 20 years where the fragmentation of the sector was really holding it back. Now, there is little which would stop it from soaring. Not a moment too soon.

Publishers Allied Newspapers Ltd. Content House Group Ltd.

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BUSINESS OPINION

Closing the loop of the circular economy

Mark Anthony Camilleri

Business and industry have customarily followed an economic model built on the premise of ‘take, make, consume and dispose’.

When goods wear out or are no longer desired, they are often discarded as waste. Such linear models assume that raw materials and resources are abundant, available and cheap to dispose of. However, reputable scientists are envisaging that reserves of some of the key elements and minerals will be depleted within the next century or so.

Arable land continues to disappear. Plastic waste dumped into our seas kills millions of fish, seabirds and sea mammals. And global warming – only one of the effects of carbon emissions from fossil fuels – is causing serious problems.

Inevitably, the world’s growing populations and their increased wealth is leading to greater demands for limited and scarce resources.

Boulding’s famous 1966 paper, The economics of the coming spaceship Earth, anticipated that man would need to find his place in a cyclical ecological system capable of

continuous reproduction of material. He went on to suggest that at the other end, the effluents of the system are passed out into non-economic reservoirs, including the atmosphere and the oceans.

It may appear that there is a perennial conflict between economic development and environmental protection. Today’s society and its economic models still rely too heavily on resource extraction and depletion.

But there is scope for using resources more efficiently: there could be better eco-designs, waste prevention and reuse of materials. Studies have revealed that environmental responsibility can often result in net savings to businesses, while reducing emissions.

The World Economic Forum (2014) indicated that a shift towards a circular economy (CE) could generate over $500 million in material cost savings, 100,000 new jobs and prevent 100 million tons of waste globally, within just five years. There is clearly a business case for CE as significant resource efficiencies could bring a new wave of smart, sustainable growth and competitiveness.

The basis of the CE approach lies in extracting the embedded costs of resources, through reusing, repairing, refurbishing, recycling and restoring materials and products throughout their life cycle. Arguably, what used to be regarded as ‘waste’ could be turned into a valuable resource for business and industry.

The CE concept could also be a response to the aspiration for sustainable growth in the context of increased regulatory pressures to have controlled operations management

“Arguably, what used to be regarded as ‘waste’ could be turned into a valuable resource for business and industry” and environmentally-responsible practices. Coherent policy frameworks and appropriate legislation could help to raise the bar for more responsible behaviour among public and private organisations.

Initially, the CE approach was being championed in western countries by a number of environmental NGOs. However, the European Commission recently encouraged businesses to reuse, recycle and reduce resources to prevent the loss of

valuable materials. It explained that, “new business models, better ecodesigns and industrial symbiosis can move the community towards zerowaste; reduce greenhouse emissions and environmental impacts”.

Europe has already started to lay the ground work toward this transition. In fact, ‘Resource Efficient Europe’ was one of the EU2020’s flagship ideas. This initiative involved the coordination of crossnational action plans and policies on

the formulation of sustainable growth. The EU’s CE proposition was intended to bring positive environmental impacts, real cost savings, and greater profits. The EU (2014) also indicated that improvements could translate to net savings of €600 billion, or eight per cent of annual turnover (for EU businesses), while reducing total annual greenhouse gas emissions by two to four per cent. This EU communication anticipated that the market for ecoindustrial products would double between 2010 and 2020. It also posited that internationally, resource-efficiency improvements are in demand across a range of sectors.

Although the circular economy is a relatively new notion, there could be potential pitfalls in its policy formulation and application. Businesses and industries would probably resent changes imposed on their established behaviours. It is very likely that they would opt to retain the status quo, where they are ‘locked-in’ to their traditional linear models. The terms that are actually being used to describe both linear and circular economies are potentially misleading, as both combinations already exist, but in very different contexts. The CE approaches may still be perceived as novel, risky and complex. Moreover, macro-environmental factors, including political, economic, social and technological issues could also impact on CE behaviours.

Future research should begin to incorporate the latest ecological knowledge into our understanding of economic models and systems, without silencing the social and human dimension.

e Business OBSERVER

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APPOINTMENTS

TBWA boosts its ranks Alter Domus appoints Fiorella Ellul has joined TBWA-ANG as its general manager, using her extensive experience with Microsoft, Alliance Trust and BMH Group to help her focus on operations and account management.

Ms Ellul will assume responsibility for the day-today running of the agency and provide creative business leadership across TBWA-ANG clients.

The agency has also recently appointed Craig Macdonald (inset) as digital creative director.

head of depositary services

FIORELLA ELLUL (LEFT) AND CHAIRMAN JULIANNE GRIMA

Alter Domus, a provider of fund and corporate services, has appointed Ramon Bondin as the new head of depositary services.

Mr Bondin joined Alter Domus in April 2015 as a manager in the corporate services department, focusing on licensed entities, mainly alternative investment fund managers.

Before joining Alter Domus, Ramon worked with another local service provider and was authorised by the MFSA to hold compliance and risk management positions with licensed entities. Alter Domus Malta Fund Services (Malta) Ltd was issued with a Category 4b Investment Services Licence to act as a depositary in April 2015. Alter Domus offers depositary services in Malta, Luxembourg, and UK, with over $8 billion in assets under depositary.

New director general at Customs Joseph Chetcuti has been appointed as the new director general of Customs, within the Ministry for Finance.

Prior to this new post, Mr Chetcuti held the position of director of excise, increasing the revenue of the Excise Directorate by 60 per cent.

The same improvement was experienced in the express freight office which Mr Chetcuti headed prior to

his move to the excise directorate. In all, Mr Chetcuti has 30 years of experience in the Customs force.

He has already announced his commitment to review procedures in order to reduce administrative burdens on compliant traders without, at the same time, compromising the overall supply chain security.

Consul for Philippines takes oďŹƒce Roger Strickland has been made the honorary consul in Malta for the Philippines, aimed at strengthening Philippines-Malta relations and providing services for the Filipino community based in Malta.

The consul intends to enhance collaboration through a variety of joint initiatives, trade delegations as well as the setup of a MaltaPhilippines Investment Board. He also intends to work towards a double taxation treaty.

Over the past few years, the Filipino community in Malta has doubled and figures are rising even further.

Apart from opportunities in the healthcare sector and for household workers, there is also increased demand for professional jobs such as auditors and accountants.

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e Business OBSERVER |

May 5, 2016

STOCK MARKET REVIEW

e 2016 dividend league table

Edward Rizzo

Following the end of the 2015 annual reporting season last week, the updated dividend league table is now complete and it is possible to compare the dividend returns across the local equity market.

The 2016 dividend league table is based on the net dividend to shareholders in respect of the 2015 financial year and the current market price of the respective shares. Since some companies benefit from tax incentives and distribute dividends out of tax free profits or reduced tax compared to the standard 35 per cent, the dividend league table is based on the net dividends being proposed or paid to shareholders. This provides a better comparison as opposed to the gross dividend.

The 2016 dividend league table should not be looked at in isolation. A comparison with the previous year’s league table provides some interesting observations including the factors that led to such fluctuations.

In general, while there had been a marked downturn in yields

depicted in the league tables in the previous two years (between 2014 and 2015), dividends across the overall equity market are now not significantly lower when compared to last year’s dividend league table.

Bank of Valletta ranks in top position for the third successive year with a dividend yield of 3.3 per cent compared to 3.6 per cent in 2015. BOV’s overall dividend to shareholders was largely unchanged in the last two financial years while its share price edged 8.3 per cent higher over the past 12 months. Since BOV’s financial year ends in September, they have a somewhat different reporting calendar to most of the other companies. Last Friday, BOV reported its interim results for the six months ended March 31, 2016.

Profits after tax increased by 11 per cent to €44.6 million during the first half of their current financial year and dividends by 8.3 per cent as the bank seeks to increase its capital partially via retaining higher levels of profits. In fact, the chairman gave a strong indication

of lower dividend payout ratios going forward.

The number two position in the 2016 dividend league table goes to HSBC Bank Malta plc – this is also the equity that gained most places since last year as it moved up from 12th position. The reason behind this increase was two-fold: on the one hand the dividend increased by 20.5 per cent from 2014 to 2015; and on the other hand, the share price declined by 13 per cent over the past year. The combination of these two changes helped the net dividend yield improve to 3.1 per cent from 2.3 per cent in 2015.

It is also worth highlighting that HSBC’s equity is the only one

among the dividend paying equities whose price declined over the past 12 months.

GO plc is ranked in third place with a net yield of 2.9 per cent compared to 2.3 per cent (11th position) in 2015. The improvement in the league table is due to the sharp increase in dividend to shareholders as the net dividend increased by 43 per cent from €0.07 per share paid last year in respect of the 2014 financial year to €0.10 per share. This is being distributed shortly after approval from shareholders during the annual general meeting next week.

On the other hand, the growth in the dividend was partially offset

“Dividends across the overall equity market are now not significantly lower when compared to last year’s dividend league table”

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STOCK MARKET REVIEW

by the increase in the share price of 16 per cent over the last 12 months, although this is not adjusted to take account of the dividend in kind of €0.331 per share distributed to all GO shareholders by way of shares in Malta Properties Company plc.

Plaza Centres plc maintained its position in fourth place and the dividend yield was also largely unchanged from one year to the next at 2.8 per cent. It is interesting that the growth in the dividend of 6.7 per cent was matched by an almost identical increase in the share price over the past 12 months of 8.3 per cent.

Within the same sector, Malta Investments plc ranks in 5th position with a dividend yield of 2.6 per cent (the minimal increase in the dividend was outweighed by the seven per cent increase in the share price) while Tigne Mall plc ranks 10th with a net yield of two per cent. The yield of Tigne Mall declined from last year’s level of 2.4 per cent as the 20 per cent growth in dividends was more than offset by a 43 per cent rally in the company’s share price.

Medserv plc’s dividend yield declined from 2.6 per cent to 2.5 per cent although the equity improved its position in the league table to 6th. Similar to GO, the total dividend distributed to Medserv shareholders improved by 43 per cent although for the 2015 financial year this was distributed as an interim dividend in December 2015 ahead of the rights issue and debt funding required to conduct the acquisition of METS in February 2016. The slight reduction in yield was impacted by the 49.6 per cent increase in Medserv’s share price over the past 12 months. The combination of the high absolute dividend and the increase in the share price was surely welcomed

by Medserv shareholders.

While all companies either left their dividends unchanged or hiked their distributions to shareholders, Malta International Airport plc is the only company that reduced the dividend to shareholders. The overall dividend in respect of the 2015 financial year declined by 9.1 per cent from €0.11 per share to €0.10 per share.

This, however, must also be seen in the context of the sharp increase in the final dividend in respect of 2014 which was paid to shareholders in June 2015. One of

the reasons for the reduction in dividend, despite a further increase in profitability, may be the significant capital expenditure programme over the coming years which the company announced in December 2015.

The only new entrant to the 2016 dividend league table is Midi plc as it declared its first dividend since its IPO in December 2010. The net dividend of €0.007 per share, which will be paid after approval at the annual general meeting also next week, gives a yield of 1.8 per cent on the current share price of €0.39.

However, it is also worth highlighting that the share price has recovered by a further 34.5 per cent over the past 12 months following the sharp decline to a low of €0.21 in November 2014 and January 2015.

On the other hand, 6pm Holdings plc is the only company that exited from the dividend league table. Although profits after tax more than doubled in 2015 to £1.69 million, the directors did not recommend the payment of a dividend in the light of the interest being shown by third party investors in taking over the company.

The other IT company, RS2 Software plc, is the lowest ranked company in terms of dividend returns. Although RS2 is proposing a 25 per cent increase in dividends, this was outweighed by the superior share price performance as the equity surged by 142 per cent over the past twelve months.

International Hotel Investments plc, Fimbank plc and Grand Harbour Marina plc again do not feature in the 2016 dividend league table as all companies failed to pay dividends to their shareholders.

Malta Properties Company plc also failed to declare a maiden dividend to shareholders. However, this was highlighted in their prospectus dated October 16, 2015 where the directors explained that the company would be unable to pay a dividend in the first two to three years following listing in view of its funding requirements to develop a number of the properties in their portfolio and until such time as the new commercial space being developed is eventually leased out.

Dividends distributed by a company in one particular year should not be the sole overriding factor influencing an investment decision. As a start, the sustainability

NET DIVIDEND YIELD 02/05/2016

EQUITY 1

Bank of Valletta plc

3.27%

2

HSBC Bank Malta plc

3.09%

3

GO plc

2.86%

4

Plaza Centres plc

2.75%

5

Malita Investments plc

2.58%

6

Medserv plc

2.46%

7

Malta International Airport plc

2.28%

8

MaltaPost plc

2.02%

9

6pm Holdings plc

1.96%

10

Tigné Mall plc

1.96%

11

MIDI plc

1.79%

12

Mapfre Middlesea plc

1.74%

13

Simonds Farsons Cisk plc

1.63%

14

Lombard Bank Malta plc

1.21%

15

RS2 Software plc

0.72%

“Dividends distributed by a company in one particular year should not be the sole overriding factor influencing an investment decision” of the current dividend is very important due to a multitude of factors that can affect dividend payments from one year to the next such as a company’s shortand medium-term business prospects, expansion plans and funding requirements as well as regulation affecting a particular industry. These factors, among others, may adversely affect a company’s dividend from one year to the next and impinge on the suitability of such an equity in an investment portfolio for income-oriented investors.

Grand Harbour Marina, from being the highest yielding equity in 2013 and the second highest in

2014 to no dividends in the following two years, is a good case study in this respect. Moreover, the stiff regulation across the banking sector with specific emphasis on dividend distributions is another very clear example which many local investors are now surely aware of.

In addition to the historic or ideally the future potential dividend returns from a particular company, investors would do well to take account of the growth prospects of a company before deciding whether to proceed with an investment in the company as part of their diversified investment portfolio. Investors should not only invest in companies with a

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. © 2016 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved

dividend income stream. They should also gain some exposure to companies that may not be particularly appealing from a dividend perspective but may offer sizeable growth prospects due to certain strategies being adopted. This is especially relevant for the various local companies actively seeking international expansion, most of which have seen their share prices strongly outperform other companies over the past few years thereby producing overall returns to shareholders far superior to those with a relatively attractive dividend payment.

The return on equity (ROE) is a good indicator which investors should also take into account when considering which companies to invest in. A review of the ROEs across the local equity market will be published next week.

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

e Business OBSERVER

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BUSINESS UPDATES

Showers 2016 to reach new heights this summer e highly-anticipated poolside extravaganza known to thousands as ‘Showers’ returns to sun-soaked Malta on Saturday, July 16, for its fourth consecutive year this summer, promising yet another instalment of unbridled fun alongside major deejays Ruby, Alvin Gee, Daniel Pereaux, Mahoney, Seb Sooka, B2B Marquis, and top headliner Morten. e pioneering concept was first unveiled by dynamic duo Pierre Lindh and Martin Pettersson, two highly-experienced event organisers who made the unique event a truly unprecedented success back in 2013 when Showers (then known as Champagne Wars) made a huge splash at Villa Rosa, its first venue. As the event’s reputation grew, a change in location was required and Café del Mar Malta (Buġibba) was selected as Showers’ stunning new home. e lavish event consistently offers partygoers and pleasure-seekers an unforgettable VIP Ibiza-inspired

Quality products and service at Omni Stat Since it opened its doors in 1999, Omni Stat has managed to establish partnerships and very good relationships with some of the leading European furniture and interiors companies, including Compir, Flycom, GiCinque Cucine, Vittoria Mobili, Beta, Frajumar, Gual, Original Parquet, Wall & Deco’ and Floover. The most recent addition to its list of partners is Rifra.

The main objectives of the company are to supply value for money products and ensure aftersales service. With this in mind the company has secured orders from hotels, offices and the domestic sector.

Another factor which has also

contributed to its success is the special and personalised attention it gives to customers. The company’s mission is to ensure the highest customer satisfaction with affordable prices. It believes that different customers have different needs and means. Although it ascertains that the high range and quality products makes it different, Omni Stat firmly believe that its added value is due to the quality service offered.

A vast range of the products are very well displayed in a modern showroom spread over an area of 1,600 square metres situated in Mdina Road, Attard. Clients are attended to by very professional sales representatives.

experience, with the 2016 edition raising the bar to new heights by placing an even stronger emphasis on ensuring that attendees enjoy every minute of the occasion, from run-up to the event, to the party proper and beyond.

Showers will once again be hosted at the idyllic Café Del Mar, where revellers can treat themselves to some high-end entertainment, catch a breathtaking golden sunset and enjoy world-class performers right by the island’s only infinity pool of its size.

Showers 2016 will literally reach new heights this season with its long-anticipated Party in the Sky, a two hour on-board afterparty created in partnership with Air Malta in line with the airline’s health and safety regulations. e event promises 141 passengers a one-way ticket to fantastic fun, and a final stop in vibrant Ibiza to enjoy the day and nightlife on the island. www.showersevent.com

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e Business OBSERVER |

May 5, 2016

BUSINESS UPDATES

Arkadia Group is Waitrose’s International Partner of the Year Arkadia has been honoured with the Waitrose International Partner of the Year Award by the leading and award-winning British food retailer in recognition of its top performance in representing and growing the Waitrose business in Malta and Gozo.

Waitrose products are available in the two Arkadia foodstores in Portomaso and Gozo, and the two Arkadia FoodExpress outlets in Swatar and Paceville.

“Every year, Waitrose scrutinises the performance of its brand where it is represented abroad to be considered for an award in recognition of the support received,” said Waitrose international sales manager, Chris Place. “It is with great pleasure that we announce Arkadia as this year’s winner for their constant effort to grow the visibility and demand for Waitrose exclusive products in Malta and Gozo.”

The recognition was based on Arkadia’s growth in sales of Waitrose products of over 70 per cent over the past year. Waitrose also praised Arkadia’s first-class merchandising standards – particularly in the home department in Arkadia Commercial Centre, Gozo, the continuous promotion of the

BJ Marine launches new website BJ Marine, Malta’s largest new and used boat sales network, has launched a new website. The slick new design and stylish user interface make browsing boats for sale a smooth and enjoyable experience for Maltese and international clients. BJ Marine has been established in Malta for nearly 30 years and is the largest international broker in the market. The company represents top boating brands across five offices, and is the numberone dealer for Beneteau in the UK and Ireland, the exclusive dealer for Sea Ray in Malta and Ireland as well as an official representative for Cranchi, Fountaine Pajot, Wauquiez and Greenline.

Visitors to the site will find hundreds of used boats for sale in Malta, all around the Mediterranean and across the world. BJ Marine’s strategically located offices in the UK, Ireland and Malta make it the first choice, whether you’re buying a new or used boat, selling your own boat or looking to upgrade. The expertise of the BJ Marine team and the company’s international reach result in the best service around. Check out the new BJ Marine website now and browse the hundreds of new and used boats on sale at www.bjmarine.net

Waitrose brand across the Maltese territory and the expansion of chilled produce.

“I’m delighted with the way the relationship between us has developed since the early days of trading in 2013, and I still believe that there is more to come as Arkadia continues to expand further. The Waitrose management sends its congratulations to the Arkadia team for this well-deserved award,” said Place.

Arkadia introduced Waitrose in Malta in 2013, in response to customers’ increasing demand for quality in what they eat. Arkadia are the sole providers of Waitrose’s exclusive ranges: Duchy Originals, Essential Waitrose, Heston from Waitrose, Love Life, Waitrose Organic, Seriously, and Cooks’ Ingredients.

The British food industry is a major force in global culinary trends and produce from the British Isles is celebrated and increasingly well-known through the abundance of personality and celebrity chefs and TV foodies. In fact, Waitrose partners with top chefs and authors Delia Smith and Heston Blumenthal to select ingredients and create some ingenious and mouth-watering dishes, as well as to advise customers on cookery, bakery and entertaining tips.