The Business Observer Newspaper 21st April

NEWS

Issue 49

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April 21, 2016

Distributed with Times of Malta

Final stages for National Bank saga

e European Commission has informally approved proposed legislation for building energy performance regulations, relaxing the threat of fines of over €33 million. see page 3 >

Vanessa Macdonald

PHOTO: CHRIS SANT FOURNIER

The government’s consultants are expected to present their final arguments for the valuation of the National Bank on May 5, with the bank’s shareholders hoping to be given the chance to challenge them during the final hearing expected as early as June.

Consultants Ugolino, Nun and Chilton drew up the government’s version of the valuation in June 2015, setting it at zero, while former banker Anthony Curmi, on behalf of the shareholders, argued that they were owed almost €325 million.

The government’s argument is that the bank was “illiquid and insolvent” and that it therefore does not owe a cent in compensation to the shareholders.

But Mr Curmi’s report calculated that the National Bank was worth €61.4 million adjusted for inflation, and furthermore that the shareholders should be compensated for the income they would have derived – based on what the government got when it created Bank of Valletta to take-over from the National Bank.

He has argued that the government benefitted from around €430 million from that shareholding over the past 42 years, through everything from the current share price and dividends, to its sale of its shares to the public (Uni Credit’s shareholding is not included in this amount).

There are 350 shareholders from the former National Bank of Malta, which was taken over by the government following a run on the bank in 1973. These are being represented by the NBM Shareholders’ Association.

Court cases were instituted by shareholders and their heirs in 1992 against the Prime Minister, the Finance Minister and the Administration Council which briefly ran the bank in 1973.

In October 2014, the Constitutional Court of Appeal presided

by Mr Justice Tonio Mallia, Mr Justice Noel Cuschieri and Mr Justice Joseph Azzopardi confirmed two judgments handed down earlier that year by Mr Justice Joseph Micallef. It confirmed that 82 shareholders’ rights were breached when they were forced to surrender their stakes without compensation.

Mr Justice Micallef has since then been hearing submissions from the two sides in an attempt to come up with the amount of the compensation that has to be paid.

Sources pondered whether he would try to find a technical expert to wade through the reams of testimony to come up with the compensation, with another source saying in such a case, should the two sides fail to agree on who the expert should be, the solution might be to have separate teams come up with figures which would then be averaged out.

Should the amount be substantial, the next problem would be for the government to come up with the funds, with Mr Curmi saying in the past that the most logical way to do this without affecting the Budget would be to assign an equivalent amount of BOV shares to the National Bank shareholders.

NEWS A Maltese-listed company, Pefaco, has denied all knowledge of a claim made in the international media that it has been under investigation in France for the past four years. see page 5 >

NEWS AAT Research has brought a new chief executive officer on board, Wolfgang Storf, who is determined to get its life-changing autism products to all those who need them. see page 6 >

NEWS e European Parliament has approved new data protection laws which will harmonise a number of aspects – including much higher fines for infringements, Data Commissioner Saviour Cachia explains. see pages 10 and 11>

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Malta gets EU nod for new energy law The EU Commission has informally informed the Building Regulation Office (BRO) that its proposed building energy legislation is in line with EU directives – allowing it to breath a sigh of relief as Malta had at one point been facing a minimum €33 million fine.

The government had issued a legal notice in 2012 meant to bring Malta in line with the 2010 EU Directive on the Energy Performance of Buildings –but the European Commission disagreed with several points in the technical document. The issue escalated to the point where the European Commission issued a “reasoned opinion” but in July 2014, it gave Malta some breathing space after it was convinced by the BRO of its intentions to rectify the situation, sparing the island the possibility of being taken to the European Court of Justice.

The BRO has since drafted a replacement encompassing the European Commission’s feedback, which was first issued for public consultation and is now being subjected to interministerial scrutiny. It is expected to be in place around the first week of July 2016.

“e BRO has been working to bring around 85,000 existing buildings sold between 2009 and 2015 in line with the Directive” In the meantime, the BRO has issued legal notice 434/2016, which came into force on January 1, 2016, applicable for buildings which are being designed under the ‘new regime’, based on “Technical Document F Part 1: Minimum Energy Performance Requirements for Buildings in Malta”.

The BRO has also been working to bring around 85,000 existing buildings sold between 2009 and 2015 in line with the Directive. The number of EPCs issued by the BRO rose from 139 certificates in 2013 to just under 1,500 certificates in 2014 to 8,482 certificates in 2015, as the backlog is slowly tackled.

BRO head, Michael Ferry, told The Business Observer that the office is committed to ensuring that by end 2016 all successful applications for a development permit submitted by 2010 will have a registered EPC.

By law, anyone selling, constructing or renting a building is obliged to present an energy performance certificate (EPC) during the period of promise of sale or rental agreement or on the contract date.

The owner of the building may be fined between €500 and €5,000 if an EPC is not presented within 60 days.

Moreover, Mepa will not issue a building permit unless it is accompanied by a design rating application and the Inland Revenue Department actively reminds buyers about

the need for such certification with every promise of sale.

As part of the Directive requirements, guidelines were also developed to instruct real estate agents, other stakeholders in the building industry and the public regarding the requirement for advertisements for property to include energy performance indicators.

These became binding regulations in 2016 and have now been uploaded on to the BRO’s website.

The BRO has also been working to solve another bottleneck: the number of approved assessors. Eight courses for nondwelling assessors were held in 2015, resulting in 139 new ones registered with the BRO. “The future months and years at last look much less bumpy and, in this regard, one would be in a better position to pave the way for new initiatives within the ambit of the energy performance of buildings,” Mr Ferry said.

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NEWS

Maltese-listed company embroiled in French inquiry The Pefaco Group has denied stories in the international media about involvement with the Bolloré Group, which is being investigated in connection with port concessions in West Africa, saying it was at the disposal of the judicial authorities should any clarification be required.

However, perhaps more alarming was that the international media also claimed – as background to the news story – that Pefaco has already been under investigation for four years by the French financial crimes unit.

The Pefaco spokesman said that this was “news to them”.

“From reading the news, we learned about the ‘French investigation’, and we immediately contacted the authorities via our legal counsel to let them know that we are at their entire disposal to provide any required clarification if any investigation is in course,” he told The Business Observer.

Grupo Pefaco was established under Spanish law 20 years ago, and is present in 13 countries on three continents.

Its subsidiary Pefaco International is registered in Malta and has shares listed on the Malta Stock Exchange.

The Financial Times reported last week that French prosecutors are investigating whether the Bolloré Group – which already operates 17 ports in Africa – was helped by the chairman of Grupo Pefaco, Francis Perez (the CEO of the Maltese subsidiary), to get concessions for ports in Guinea and Togo.

“Grupo Pefaco and its chairman Francis Perez are surprised that reference has been made to them in this case, as they have no connection of any nature with the activities and businesses of the Bolloré Group.

“They consider it deplorable that doubt has been cast on Grupo Pefaco, known in Africa for its dynamism, its contribution to local employment and its social activities and they intend to take firm action to protect the honour, reputation and image of the company,” a company spokesman said from its headquarters in Swatar.

Grupo Pefaco specialises in the leisure & gaming and the hospitality industries. The group, headed by its founders Mr Perez and Olivier Cauro, has more than 3,000 employees in 13

countries. Pefaco International installs and operates slot machines in gaming halls and bars in Africa under its trademark Lydia Ludic. The company has more than 280 gaming halls and

350 partner bars, with a turnover of €43 million and a profit of €.1 million in 2014.

The spokesman said Pefaco International was not being investigated by the Maltese authorities.

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NEWS

AAT set for internationalisation AAT Research has head hunted Wolfgang Storf, the former CEO of Novartis-Sandoz in South Africa, as the five-year-old company gets ready for international growth.

“It’s a great opportunity for me as I think AAT has a unique approach to problem solving in the field of brain stimulation and brain modulation. Brain imaging is a fast growing space with the development of solutions in the areas of depression, epilepsy, anxiety, autism and so on.

“Neurotechnology solutions like the ones we are working on – non-invasive, non-pharmacological solutions – present minimal side effects as compared to typical pharmaceuticals.

“The company is right at the beginning of its growth cycle, which makes it a very exciting and challenging time for me to be here. In my career to date, my main focus has been on growing businesses and transforming them into international organisations. This is one of my core goals for AAT,” he said.

AAT Research was founded by neuroscientist Adrian Attard Trevisan, who developed the world’s first neurofeedback device for home use by children with autism after working on it for some eight years.

The headband, branded as Mente, is worn for 40 minutes a day and uses sound waves to control delta brain waves – which normally subside during waking hours but which remain active in persons with autism.

The product has been optimised since then, and the company has also joined up with international teams researching the potential for brain implants to help epilepsy patients.

But the new chief executive officer, who has 20 years’ experience in this industry, is poised to take the company across the divide between innovation and research to commercialisation.

At present several hundred people use the Mente system but that it just a fraction of the potential when you consider that it affects one per cent of the population, a pretty significant number.

Persuading doctors around the world that it works is clearly a starting point, which will emerge from clinical studies, he admitted. “It is very important for us to have validation from medical specialists and physicians.

One way of achieving this is through having

“It is very important for us to have validation from medical specialists and physicians”

independent clinical studies, which show how effective the product is,” he said.

In the meantime, he said that the company has to be ready to cope with growth, which could be dramatic, especially if it is not limited to the current autism products: neuroscience also offers great potential for depression and epilepsy. “Depression is a significant chal-

lenge for society as every year, 20 per cent more people are diagnosed with it.

This is a tremendous challenge for the healthcare system and the community.

And we will be able to contribute when our portfolio expands and hits the market,” he said.

“My first focus is a 100-day plan to set the right priorities with regards to market attractiveness, so that we can decide which markets to target first in terms of size potential and barriers to entry,” he said.

“The product must have a wider reach to be able to benefit from economies of scale.

We think that we will be ready to target new markets this year.”

This means looking at different business models, from having distributors to its own affiliates, and perhaps tweaking them for different markets. The company outsources its manufacture and has 25 staff –

but there is plenty of room to grow in its new colourful offices at the Life Sciences Park. He was open-minded when asked about Malta’s role should the company expand dramatically.

“The location is always about what is best for the company. It is essential for us to have a strong partner able to improve the quality of the product while at the same time as reducing costs. It is important for us to remain competitive,” he said.

Dr Attard Trevisan will now take up the role of chief scientific officer and director of product, while Mr Storf will work on getting the products to as many patients as possible, starting with autism therapy.

“What drove me to come here was Adrian: I saw how innovative this company is and how passionate he is. I think we have a very highly developed team which is very performance-oriented, ready to go the extra mile, and this is an amazing start.”

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INDUSTRY FOCUS

Logistics: the challenge to fill northbound freight According to the latest statistics, the trade deficit in Malta widened by 45.9 per cent year-on-year to €558 million in February 2016 – the highest trade gap on record.

This statistic is no doubt of great concern to economists who view it in terms of value-added and employment.

But for shipping and freight companies it aggravates one of their most pressing problems: containers and trucks that come

here nearly full – but leave more or less empty.

Jimmy Cutajar, the managing director of Global Freight Solutions, understands the limitations: “Malta’s exports mostly consists of electrical machinery, mechanical appliances, fish and crustaceans, pharmaceutical products and printed material,” he said.

“The island does not offer natural resources to tap into, thus it is very hard to counter the

deficit through this channel.

This can only imply that we have to work harder and explore other manufacturing niches not tapped before.

“It is easier said than done since most of the world’s production of goods has moved to the Far East.

We have recent success stories such as in the pharmaceutical industry, however this is not enough.” However, he warned that Malta could not just roll over

“Malta has to continue its hard work by diminishing bureaucracy and support investors”

and accept defeat – and said there were many avenues that could still be pursued.

“Malta has to continue its hard work by diminishing bureaucracy to support investors who think outside the box,” he said, adding that governments needed to entice investors by abolishing lengthy bureaucratic procedures – and supporting development.

His suggestions were all ones that have roots in Malta and which

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INDUSTRY FOCUS

could be nurtured: food manufacturing, further sustained through R&D of aquaculture; and the manufacturing of specialised engineered products within the maritime, oil and gas industry.

The government has already stated its intention to set up free trade zones (FTZ) in the hope of creating a new logistics sector.

Kevin Filletti, the sales manager of Attrans Ltd, believes that the opportunities for Malta – thanks to its strategic position in the Med and EU membership – are immense.

“The logistics sector could be one of the island’s main industries and will definitely be able to create new job opportunities. We could attract various commodities as the FTZ eliminates bureaucratic requirements such as customs tariffs and quotas.

“We could use our sea connectivity from the Far East to warehouse goods in Malta under FTZ and then despatch by sea, road or air to mainland EU or North Africa.

“A typical activity carried out in an FTZ area is the Onward Supply Relief (OSR). This is a VAT exemption on importing goods to Malta from a non-EU Country.

Once despatch is done, duty is paid in Malta and cargo can travel freely in the EU under free circulation.

“Considering the imbalance of trade between importation and exportation, FTZ would help trailer operators like us decrease our costs on north-bound routes as it would close the gap between import/export,” he enthused.

One of the keys to the future is adaptation and diversification, and this is just as true for the Maltese economy as a whole as it is for the freight forwarding sector.

Michael Quattromani, Global Freight Solutions’s operations director, sincerely believes that the freight forwarding industry in Malta is poised for growth in the coming years – but that they need to move with the times.

“One of the keys to the future is adaptation and diversification, and this is just as true for the Maltese economy as a whole as it is for the freight forwarding sector”

“Many freight forwarding companies have already begun adapting their strategies to focus on more innovative business models that will help them succeed in a changing environment. They are adopting new growth strategies, redesigning their networks and improving their cost structures to meet the new challenges,” he said, adding that the

freight forwarding industry as a whole was still in the early stages of development.

“Fragmentation and intense competition highlight a market in which competitors offer similar and limited services. We all know that customers demand more, hence companies in Malta are focusing on their core competencies,

such as marketing, research and development and manufacturing, while outsourcing secondary competencies such as transportation and logistics that can consolidate resources more effectively.

“Additionally, price is becoming more and more important when selecting freight forwarding, service providers. In this way,

local players will be able to compete with foreign competitors, drive down costs and increase profitability,” he said.

Competition does not frighten Anthony Schembri, the managing director at Agritrans Logistics Ltd, which he considers to be natural – and inevitable.

“Competition is quite healthy for every sector within the market because without competition there would not be any growth. It is the pressure that leads to the development of guidelines to be proactive and offer the best service for existing and also future clients,” he said.

However, there is one aspect of competition which is having an impact on local manufacturing and subsequently freight companies: imports from Sicily.

“Of course, there is an unfair playing field in competition within Sicily due to the fact there are unauthorised people operating without any of the required licences. Unfortunately, the authorities know about such illegal operations and still no action has been taken,” Mr Schembri said.

“To make matters worse, companies like us are affected by the expensive maritime fees due to excessive bureaucracy within the system. All of these factors are jeopardising our daily operations.”

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NEWS

Contractual clauses may fall foul of data protection Companies that share data – on both clients and employees – with countries outside the EU will have to wait to see how they will be impacted by new legislation which should be introduced over the next two years.

These companies currently on so-called ‘standard contractual clauses’ (SCC), set up by the European Commission’s Data Protection Directive of 1995, which were considered sufficiently robust to deal with the transfer of data from controller to controller, as well as from controller to processor – such as an EU bank which has a call centre in Asia or an EU company which uses a server in the US – which also applies to data in the Cloud.

The issue revolves around the EU’s insistence that data should only be shared with approved third countries – who must have their own dependent data supervisory authority.

The US, however, did not meet this criteria and the compromise was to establish the ‘Safe Harbour’ agreement of 2000, which worked on a self-certification basis and was criticised in three external EU evaluations. However, in the absence of an alternative, it remained in place until it was challenged by an Austrian, who objected to his data being sent by Facebook in Ireland to servers in the US – prompted by the 2013 revelations by Edward Snowden.

SAVIOUR CACHIA

He argued that these showed that the “US did not offer sufficient protection against surveillance by the public authorities”.

The case was upheld by the European Court of Justice, which found that the legislation

“is is one of the aspects of a new data protection regulation, approved by the European Parliament, which is seen as a real game changer” “compromised the essence of the fundamental right to respect for private life”, in effect meaning that not only was Safe Harbour invalid but that SCCs and Binding Corporate Rules had to be reviewed. The implications were vast and in the

interest of pragmatism, they were allowed to stay in force until a better system was found.

The result of this was the EU-US Privacy Shield agreed in February 2016, which imposes stronger obligations on companies in the US

– but an EU Working Party this week asked the Commission for more clarifications.

This is one of the aspects of a new data protection regulation, approved by the European Parliament, which is seen as a real game changer. Online portal ComputerWeekly gushed that it represented “the most significant global development in data protection law since the EU Data Protection Directive, which has struggled to remain relevant in an age of mass information sharing”.

The ‘current uncertainty surrounding data transfer mechanisms may negatively affect local

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businesses but many other aspects of the General Data Protection Regulation should be welcomed by them.

“The regulation will streamline a number of issues that vary greatly from member state to member state – so this should be welcomed by businesses which like clarity,” Malta’s Data Commissioner Saviour Cachia said.

One of these issues is the applicable fines acoss members states: in Malta, the maximum fine for a breach is €23,000 but the UK’s and Germany’s is around €250,000 and Google was recently fined €900,000 in Spain.

The new General Data Protection Regulation imposes much stricter data protection compliance – with severe penalties of up to four per cent of a company’s worldwide turnover.

The regulation was first put forward in 2012, and member states have two years in which to implement it – although as a regulation, it differs from a directive which needs to be transposed to member states’ legislation.

It will also create more consistency between the Data Protection Commissioners in different member states. The regulation establishes that when there is activity across multiple member states, the Data Commissioner in the ju-

PRINCIPLES

The seven principles of Data Protection:

NOTICE

Individuals must be informed that their data is being collected and about how it will be used. They must provide information about how individuals can contact the organisation with any inquiries or complaints.

SECURITY

Reasonable efforts must be made to prevent loss of collected information.

DATA INTEGRITY

Data must be relevant and reliable for the purpose it was collected for.

ACCESS

CHOICE

Individuals must have the option to opt out of the collection and forward transfer of the data to third parties.

Individuals must be able to access information held about them, and correct or delete it if it is inaccurate.

ONWARD TRANSFER

ENFORCEMENT

Transfers of data to third parties may only occur to other organisations that follow adequate data protection principles.

risdiction where the company is headquartered will be recognised as “the lead” authority.

“This is going to be particularly welcome for multinational companies that apply the same company policy across markets,” he explained.

Although the regulation will make policies and fines uniform across member states, there will undoubtedly be instances when national data commissioners may disagree. The regulation therefore envisages a European Data Protection Board whose decisions will be binding.

There must be effective means of enforcing these rules.

The impact on companies will be varied, depending on their operation – but the regulation will impose a risk-based approach.

The regulation may also introduce a third category besides personal data and anonymous data: pseudonymous data, which would still be regarded as personal information and therefore would be subject to data protection guarantees.

Pseudonymous data is used, for example, by drug companies as it allows the identification of an individual used in a drug trial – in case follow-up is needed – but

without additional information being kept. The pseudonymous data would be kept separate from the identity.

Anonymous data, which does not allow identification of an individual, is excluded from the scope of the regulation.

“Crucially, the regime affecting pseudonymous data is less stringent. For example, profiling based exclusively on the processing of pseudonymous data is presumed not to significantly affect individuals,” US firm Hogan Lovells wrote.

“In addition, member states are likely to be given the option to

“Member states are likely to be given the option to specify exceptions to the consent requirement with respect to the processing of health data”

specify exceptions to the consent requirement with respect to the processing of health data, provided that such data is anonymous or, if anonymisation is not possible, pseudonymous in accordance with the most advanced technical standards.”

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CASE STUDY

PKF studies benefits of vocational training A PKF study into the labour activity rate for females aged 15 to 24 attributed it partly to the high rate of early school leavers. e government hopes to solve this by introducing vocational training – but how effective is this? A second study was carried out to check its impact, with the help of the Education Ministry and Mcast. PKF explains the results.

The present report on Vocational Educational Training is a follow up to a former study on females in the workforce. Can you provide a brief backdrop and explain what prompted the further study?

Our first study last November was conducted by our in-house qualified statisticians, in collaboration with the key stakeholders, namely the Ministry for Education and Employment, the Employment & Training Corporation, the National Council of Women and the GRTU. The initial study was inspired by recent findings of the National Statistics Office which show that in Malta the highest female activity rate was recorded in 2014, at 52.1 per cent.

This rate has increased substantially over the years, but it is still not close to the overall EU average of 66.5 per cent.

Of all the results, the most striking was that females in the youngest age group (15-24) gave the highest readings for females in employment overall. Females in this age group should ideally be furthering their education, yet they are the ones least doing so as they join the workforce earlier.

The high employment rate of young females bears a relationship with early school leavers (ESL).

This is being addressed through the National Vocational Educational Training (VET) initiative. Seeking to unearth how far VET courses can be said to alleviate the number of early school leavers fuelled the second and present study.

Briefly introduce the ESL factor and VET initiative respectively.

As defined by the Ministry of Education and Employment, ESL

refers to students between 18 and 24 who have finished compulsory school and who do not have at least five SEC passes Grade 1 to grade 7 and are not in education or training.

In the author’s own lay-man understanding, VET is a developing policy aimed at creating opportunities for furthering of education through other than conventional ways, typically having a more hands-on approach to the subject in question.

There are recognised obstacles that traditional examination and assignment structures have elicited over time. VET shifts the focus to a more field-work

“VET is a developing policy aimed at creating opportunities for furthering of education through other than conventional ways, typically having a more hands-on approach to the subject in question” oriented educational culture that allows one to excel by using diversified tools to measure progress, achievement and ultimately qualification.

As the leading VET promoter and provider, Mcast offers 170 IVET full-time and over 300 CVET part-time vocational courses which range from certificates to

degrees over the six levels covering different sectors.

Please explain the methodology and scope of the recent study entitled ‘A study on the link between early school leavers and vocational and educational training’.

During the present study, the 15-24 age group was specifically targeted when identifying students following VET levels 1 and 2 courses.

The aim of this study was to determine with some certainty whether the students in this agegroup that are presently following VET courses could be said to have somehow lessened the early

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school leavers camp, hence making VET a champion of service to the national economy in its own right. In this sense the focus on females was not retained.

Naturally, early school leavers – as well as the VET courses – are not gender specific and apply to both males and females. Hence, while the 15-24 age group was singled out in the first study with specific reference to females, the present second study targeted the same age-group but addressed both genders.

The method was simple and, thanks to the support of Mcast, we followed an in-person class-room style survey across three institutes covering both Mosta and Paola.

Respondents came from the Institute of Creative Arts, the Institute of Business and Commerce and the Institute of Information and Communication Technology, comprising 18 per cent, 30 per cent and 52 per cent of total students respectively.

The sample size was 50 VET students, of which 70 per cent were male and 30 per cent were female.

The male dominance is not truly aligned with the overall student population at Mcast following VET courses, which in 2014 stood at 59 per cent males and 41 per cent females, as outlined below.

“e courses explored met expectations of nearly 100 per cent of participants which is extremely positive and encouraging” In 2014, there were 4,184 students following VET courses, of which 2,487 were males and 1,697 were females. For the two years, 2013 and 2014 (the latest figures available), the total student population in Mcast reached 6,500 of whom males were 2,650 and 3,850 females.

Briefly explain the results.

All respondents (69 per cent) were between the ages of 16 and 17. This statistic suggests a strong inversely proportionate relationship between ESL and VET. Just under a quarter of the respondents (24 per cent) were between the ages of 18 and 20 and just seven per cent were over the age of 21. This strengthens the relevance of VET since it has succeeded in attracting students who are further removed from compulsory schooling years, and who notwithstanding returned to the student mind-frame.

When testing the correlation between gender and the exposure to information regarding courses, it was observed that the ratio of males that were not exposed was higher than that of females. This shows that even though females seemed to be more exposed, the amount of females actually entering these

courses is lower in comparison with the number of males.

A suggestion to improve attendance by females is more effective marketing of such courses. This might possibly lead to even more students entering VET courses.

Moreover, such advertisements must somehow convey the message (more clearly than at present perhaps) that the courses are aimed equally at both genders,

so as to reduce any existing stigma on certain courses.

The courses explored met expectations of nearly 100 per cent of participants – which is extremely positive and encouraging.

The fact that there are many more level 2 students than level 1 students shows promise in the sense that the majority of these students could cope well with above minimum level (level 1 courses) thus

underlining the vitality of the VET initiative that is successful in realising persons’ potential.

Finally only 30 per cent of VET students interviewed were female.

That there is such a male dominance is a compelling aspect perhaps to be further delved into in a separate study.

This reality poses several further questions such as: are the available VET courses directly or indi-

rectly more geared towards males? Or are young females perhaps not to be swayed irrespective what array of choices in educational opportunity is placed before them, perhaps because they are raising children, possibly singlehandedly? These and other questions are to be answered in further studies going forward.

Contact info@pkfmalta.com for a copy of the study.

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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

Publishers Allied Newspapers Ltd. Content House Group Ltd.

No room to hide at BOV

Allied

N E W S PA P E R S

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

Will the truth about what is going on with regard to ‘lending malpractice’ at Bank of Valletta ever emerge? And, perhaps more to the point, if it does, would anyone believe it?

Unfortunately, this is not a simple case of political jibes. It matters to us all. BOV is a bank of systemic importance, supporting more than half the Maltese economy. It hardly helps that the other main bank in Malta, HSBC, is currently struggling to reverse the decline in profits, returns and morale under its former CEO Mark Watkinson.

And the context is not limited to banking. The country is struggling to fight its corner with regard to changes to taxation being pushed by the OECD, the G20 and the European Commission – and make no mistake, if we are forced to change the current imputation system, it would be nothing short of a catastrophe unless our political parties manage to pull the same rope to ensure it does not hang us.

And this is certainly no time for cheap jibes against the chairman of the Malta Financial Services Authority, Joe Bannister, particularly if their motivation turns out to have been spurred by a sore loser.

Nationalist MP Kristy Debono first made claims about lending malpractices in Parliament last January. BOV asked its internal audit to investigate and in early April its interim report showed that it had so found “no evidence”. She scoffed, saying that it “left much to be desired” as it did not look into individual files.

The bank’s CEO, Mario Mallia, although only recently appointed, is the bank’s long-standing expert on risk, and he wrote an opinion piece to explain how the claims being made by Ms Debono were simply not possible because of the safeguards in place, both within the bank and externally.

He referred to dual filters introduced in 2014 which looked at not only the business case of loan applications but also the risk involved.

He pointed out that the bank’s operations were scrutinised by the MFSA, the European Single Supervisory Mechanism, the European Central Bank and the Joint Supervisory Team.

He said the allegations had been forwarded to its external auditors, as well as to the local and European supervisors, but Ms Debono is standing by her claims, although she says that she cannot reveal her sources.

One thing is clear. If BOV or any bank gives inappropriate loans, these may not surface for a while. Loans do not go bad on Day One. They would start off well but start to show cracks years later. But if the business case is not sound, and the risk is too high, make no mistake, they will go wrong. And you can rely on the fact that each and every bad account will be examined during the routine Asset Quality Reviews. And you had better believe that anyone involved in that loan will be called to task.

If there really are inappropriate loans being given to people or companies with dubious creditworthiness, whether because of their political creed, the economic impact of their projects, or their affiliations, all those involved would do well to remember this and come forward.

Whining to Ms Debono who can hide behind parliamentary privilege is not going to save them. Whining that they are afraid of coming forward is not going to save them. There is the Whistleblower Act and the MFSA could investigate anonymous claims as long as details are given.

BOV is too important to the economy for any whiff of scandal – plausible or not – to be ignored.

Advertising Enquiries Tel: 21 320713 E-mail: info@contenthouse.com.mt Advertising sales Petra Urso Publications sales manager Kurt Cauchi Advertising sales executive Lindsey Napier Marvic Cutajar Advertising sales coordinators Printer Progress Press Ltd.

Progress PRESS

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

BUSINESS OPINION

Choosing the right recruitment agency is crucial Joanne Bondin Deciding on changing a job can be quite a challenging process and we need to appreciate that those looking for a job, more often than not, feel vulnerable, especially when circumstances force them to move on from their current workplace. This is when candidates need to find a partner whom they can trust with their future for them to find a stable and reliable new job.

We are very concerned. Over the past few months we have come across a number of cases of unethical behaviour and we find this worrying because not only can it damage the prospective job seeker but such incidents undermine the reputation of our sector at large.

Two weeks ago The Business Observer carried an article about a number of cases of unethical behaviour by some recruitment companies who fail to adhere to basic ethical principles such as protection of their candidates’ personal data.

Misco has built a very strong reputation in the field of recruitment and HR consultancy. We abide by a very strong work ethic and our processes are based on over 30 years of experience in best practice.

We are highly trusted because we have always adhered to the highest levels of operations especially when it comes to safeguarding the privacy of our candidates seeking employment and how we

“Reckless action could betray the trust that job seekers have in the recruiters like us who have been upholding the highest levels of best practice for over 30 years” handle the personal information that they give us.

This is a very fragile field of operations because we are dealing with people and their careers.

Candidates are first and foremost

people, not just a transaction, so the human element is very central in the way we work. People come to us with hopes for their future and we tackle each and every case according to its mer-

its, as our relation may determine a person’s career path and his or her future. A false step could jeopardise everything.

This is why we are seriously concerned. Reckless action could

betray the trust that job seekers have in the recruiters like us who have been upholding the highest levels of best practice for over 30 years.

Misco has been notified of a number of serious cases that sometimes go against the very basic principles of data protection and confidentiality.

We have come across individuals who have had their CV sent out to other companies without their consent.

We came across situations where a recruitment company interviewed a candidate and later disclosed the candidate’s identity to the present employer leading to loss of his job.

We have also come across cases of discrimination based on gender, age and marital status.

People are being treated like products when in actual fact, we are speaking of careers and the future of hard-working individuals who are after a stable future for themselves and for their families.

Everyone comes with a past and everyone carries a baggage. But prospective candidates have to be chosen on the merit of their qualifications, their aptitudes and their personal capabilities.

This is extremely serious because it is crucial for candidates to trust us. Only if they trust recruitment agencies can they build a sound relationship with them which will help them find the best placement for a successful and long-term career.

Joanne Bondin is the head of selection and recruitment at Misco.

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NEWS

Better public purchasing The EU has introduced new public procurement rules which will simplify procedures for public administrations and companies, promote a more socially and environmentally responsible economy, and help to prevent corruption and increase transparency.

All EU member states were required to have legislation in place

by April 18 to implement these rules – but it is not clear whether Malta is ready. In January, there were still three legal notices that were as yet to be published to bring Malta in line with the directive. Questions sent to the ministry as to what stage these legal notices have reached were not received at the time of going to print.

The new EU Procurement Directive for over 250,000 public contracting authorities is designed to open up the EU’s public procurement market to competition, prevent ‘buy national’ policies and promote the free movement of goods and services.

It will also recognise environmental and social considerations, as well as innovation aspects, to be taken into account when awarding public contracts, encouraging particular public policy objectives.

Malta has already enacted various changes to the procurement system to help SMEs, which mirror the ones in the new directive.

For example, the new directive lays down that contracting authorities will be encouraged to divide large contracts into smaller parts, allowing smaller companies to participate in large tenders.

Rules which excluded smaller companies from tenders on the basis of their annual turnover figures have also been relaxed and the new rules limit possible turnover requirements to just twice the contract value.

The European Single Procurement Document (ESPD) is expected to considerably reduce the administrative burden for businesses by enabling them to electronically selfdeclare that they fulfil the required conditions to participate in a public procurement procedure.

Only the successful tenderer will need to provide full documentary evidence but, in the future, even this obligation could be lifted once evidencecan be linked electronically to national databases.

The new rules also take a more holistic view of value for money.

“It is not just a question of minimising cost but looking at what else can be achieved through procurement,” the European Commission said.

“Public authorities can now provide incentives to companies to develop socially responsible products and services. The awarding of a contract will no longer depend on price alone.”

“e new rules also take a more holistic view of value for money”

Public procurement spending acounts for around 14 per cent of EU GDP every year, so it is clearly a magnet for corruption, and the Commission believes that the new Directive will also help in this respect by

introducing stronger guarantees for sound procedures.

“More efficiency will free up billions in public money – just a one per cent increase in efficiency will lead to savings of €20 billion,” the Commission said.

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STOCK MARKET REVIEW

Understanding movements in MGS prices Edward Rizzo Almost a year ago, on May 14, 2015, I published an article entitled ‘Why have MGS prices suddenly dropped?’, to explain to retail investors the rationale for the sharp drop in Malta Government Stock (MGS) prices between the first half of April 2015 and midMay 2015.

During that three- to four-week period, medium- and long-term MGS prices suffered steep declines of between 600 and 800 basis points following the extraordinary rise over the previous 16 months to record levels between April 9 and April 16, 2015.

In the article, I mentioned that prices and yields of MGS mirror

movements in the benchmark German bund and those of other periphery countries with similar ratings to those of Malta (BBB+).

Our assumption remains that MGS prices are based on a basket composed of German Bunds and periphery bonds.

One of the major credit rating agencies, Standard & Poors, classifies three eurozone countries within the ‘BBB’ rating category, namely, Malta (BBB+/positive); Spain (BBB+/stable); and Italy (BBB-/stable).

As such, our view is that the basket used by the Central Bank of Malta to determine MGS prices on a daily basis is indeed composed of the German bund and the sovereign bonds of Spain and Italy.

This may be compared to the basket of currencies that used to make up the value of the Malta lira. Prior to the pegging of the Malta lira to the euro as from May 2005 ahead of the adoption of the euro in 2008, the daily value of the Malta lira was composed of the euro (70 per cent), sterling (20 per cent) and dollar (10 per cent).

As such, movements in prices and yields of government bonds of

Germany, Spain and Italy determine the changes in MGS prices on a daily basis – and hence may be very erratic.

Generally, movements in bond markets follow from statements and decisions by the major central banks (especially the European Central Bank in the case of the eurozone including Malta) and the publication of economic data, including inflation readings. The

“Investors must accept the fact that... our sovereign bond market is more aligned to the dynamics of the eurozone markets”

data on inflation has become particularly important over recent months since this determines the likelihood of the ECB introducing additional stimulus measures or otherwise.

The primary objective of the ECB’s monetary policy is to maintain price stability. The ECB aims at inflation rates of below, but close to, two per cent over the medium term.

Investors must accept the fact that since Malta joined the euro, our sovereign bond market is more aligned to the dynamics of the eurozone markets. Bond markets may indeed fluctuate rapidly from one period to the next and this was especially evident during the course of 2015 and the first few months of this year. In view of the

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STOCK MARKET REVIEW

extreme monetary stimulus measures being adopted by the European Central Bank, there is an increased degree of daily volatility in European bond markets including for Malta Government Stocks.

In fact, in recent weeks, the 10-year German bund yield dropped below a level of 0.10 per cent or 10 basis points for the first time since the first half of 2015.

The 10-year German bund yield had reached a low of 0.05 per cent on April 17, 2015, but rallied strongly to almost one per cent in June 2015 before subsequently retreating to end 2015 at around the 0.55 per cent level.

Yields continued to decline at the start of 2016 on increased speculation of extended easing measures by the ECB. On March 10, the ECB announced various measures to combat continued weak economic data and low inflation. The deposit rate was reduced from -0.3 per cent to -0.4 per cent and contrary to popular expectations, the ECB also announced a reduction in its refinancing rate from +0.05 per cent to zero.

The other measures introduced by the ECB included an increase in the quantitative easing (QE) programme by €20 billion to €80 billion per month as from April 2016 coupled with an extension to investment grade non-financial corporate bonds as well as a series of four targeted longer-term refinancing operations (TLTRO II) starting in June with a maturity of four years each.

These various measures coupled with a downward revision in euro GDP growth and continued deflationary concerns saw yields drop to 0.088 per cent on April 7.

Following the decline in yields, some retail investors have questioned why the prices of some of the MGSs that had already been in issue last year are still below the record prices registered last year.

The table shows a comparison of the record prices reached last year to those seen in recent weeks.

As an example, the 3% MGS 2040 had traded up to a high of 119.33 per cent in April 2015 and dropped to 103.34 per cent in early July 2015 before rising back to over 111 per cent last week. Despite the sharp upturn over recent months, the price of the 3% MGS 2040 is

In other words, investors need to understand that it does not necessarly follow that MGS prices will retain these record levels until the QE programme comes to an end and eventually official interest rates also start to edge higher in the years ahead. As was evident in recent months, yields may rise (bond prices may drop) well in advance of an upward movement in official interest rates.

Further clarity from the Central Bank of Malta in respect of the criteria behind the calculation of MGS prices would be welcome to ensure that market operators can provide proper explanations to retail investors. A more educated investor base is especially important to deal with the situation when yields again start to rise from these exceptionally low levels ahead of the end of the QE programme in the coming years and local investors will then be faced with the first real bear market for bonds too. still 781 basis points below last year’s high. This is one of the examples that is confusing quite a number of local investors.

The pricing differences for some of the other medium- and longterm bonds is not as large. For example, the 4.65% MGS 2032 had traded up to a high of 141.78 per cent and after dropping to 127.77 per cent by July 13, 2015, it recovered to 140 per cent.

Since many retail investors have large exposures to MGS and the market mainly revolves around the indicative bid prices quoted by the Central Bank of Malta on a daily basis, investors need to understand the main criteria that determine MGS prices. As such, it would be helpful if the Central Bank provides additional information on the methodology used for the determinantion of prices on a daily basis.

Does the Central Bank follow a basket similar to the case at the time of the Malta lira? Or has the composition of the basket changed over recent months? In other words, has an increased weighting been attributed to the periphery nations or vice versa?

The movements in eurozone yields and MGS prices last week again may have confused many of the retail investors who try to

“It would be helpful if the Central Bank provides additional information on the methodology used for the determinantion of prices on a daily basis” understand such changes on a daily basis. Despite the upturn in eurozone bond yields to a high of 0.18 per cent for the 10-year German Bund (representing a doubling of the yield over the previous week), the prices of many of the longer-term MGSs climbed to fresh 2016 highs on April 14.

The recovery in yields was possibly due to upbeat German inflationary data. In fact, fresh data showed that German consumer prices rose by 0.8 per cent in

March from the previous month and by 0.1 per cent over the corresponding period last year. Inflationary data for the eurozone was revised upwards, taking the single currency out of deflation territory for March 2016 following a decline of 0.2 per cent in February. In fact, consumer prices were confirmed to be unchanged in March on a year-on-year basis, compared to the initial estimate of -0.1 per cent.

Due to the inverse relationship between yields and bond prices, one would have expected MGS prices to also move in tandem with eurozone bonds and decline as a result of the rally in yields. On the other hand, however, MGS prices edged higher at a time of rising yields across the eurozone.

Some important lessons should be learnt from the volatility in the bond markets since the start of 2015. Nothwithstanding that recent statements from the European Central Bank clearly indicate that official interest rates will not be rising in the foreseeable future, yields across the eurozone bond markets change rapidly from one day to the next.

As such, bond prices are determined by yields (which in turn reflect inflationary expectations, etc) and not by movements in official interest rates.

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

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BUSINESS UPDATES

An elevated experience of work by Herman Miller Herman Miller’s Living Office is a high-performing workplace that delivers an elevated experience of work for people, and helps organisations achieve their strategic goals. Its products are based around the notion that offices should exalt the people who work in them.

The desks are built to complement the requirements of each of the end users, where care is given to the holistic well-being of each individual, while the chairs are

built to support moves that enable one’s posture. Thanks to the patented PostureFit technology, one can maintain proper posture with less fatigue.

“At Fino, we believe that offices should be designed around the understanding of people, their work and the tools they need to succeed,” says Dave Hosken, Fino’s commercial sales manager.

“Our experience with Herman Miller’s office furniture is that it provides a place where people

work not because they have to, but because they want to.”

“Herman Miller is synonymous with innovation in contemporary interior furnishings, solutions for healthcare environments, and related technologies and services.

We are proud to represent it and offer it to our esteemed clientele in Malta”, he concluded.

A vast choice of Herman Miller office furniture can be viewed and experienced at Fino’s showroom in Mrieħel.

Sleeping problems?

Obstructive sleep apnoea (OSA) is a common and debilitating condition and can affect people at any age, although is most prevalent from middle age onwards. It is characterised by loud snoring with episodes of silence.

In OSA, the upper part of the air passage behind the tongue narrows and often blocks during sleep, causing an interruption in breathing.

Each brief awakening required to reopen the airway passage destroys the normal sleep pattern and sleep is severely disrupted. This prevents the sleeper from enjoying sufficient deep sleep to feel refreshed and energetic the next day.

Sleep apnoea’s short-to-medium term symptoms include chronic fatigue, mental confusion and lower testosterone count, which reduces libido, and is associated with erectile dysfunction but is also linked to many other serious conditions if left untreated over the long term. OSA can also be a contributing factor to hypertension, stroke, diabetes, heart disease and, ultimately, heart failure.

Continuous positive airway pressure (CPAP) is the most effective and non-invasive treatment offered to OSA sufferers. This therapy is designed to stop the air passage from narrowing or collapsing during sleep by acting as a splint.

To find out more about CPAP call on 2134 4345, send an e-mail to admin@technoline-mt.com or visit www.technoline-mt.com.

HSBC Bank Malta announces board of directors during AGM HSBC Bank Malta plc held its annual general meeting on April 15 where all the ordinary resolutions on the agenda were approved in accordance with the bank’s memorandum and articles of association.

Subject to regulatory approval, the following persons were appointed or reappointed to sit on the bank’s board of directors: Saviour sive Sonny Portelli – chairman; Andrew Beane; Christopher Davies; Tanuj Kapilashrami; Philip Farrugia Randon; Andrew Muscat; John Bonello; Juanito Camilleri; Maryanne sive Sue Vella.

With the exception of Andrew Beane, all the directors are non-executive directors. Ms Vella who is

a new member of the board, is replacing Caroline Zammit Testaferrata Moroni Viani.

During the meeting, the bank’s chief executive officer, Andrew Beane, stated that the comment published in a local Englishlanguage newspaper on April 11 that the HSBC annual report omits directors’ package details, was inaccurate.

The bank’s 2015 financial statements contain all the information that the law and the international financial reporting standards as adopted by the EU require on all matters, including emoluments paid to directors.

HSBC MALTA CEO ANDREW BEANE ADDRESSING SHAREHOLDERS WITH BOARD OF DIRECTORS.

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BUSINESS UPDATES

Montaldo Insurance employees collect funds for Puttinu Cares

ATTENTION TO DETAIL, BENTLEY STITCHING AND ALL-ROUND LUXURY CHARACTERISE THE NEW CABIN INTERIORS OF THE AIRX 9H-YES AIRCRAFT.

AirX listed amongst the world’s top 10 private air charter companies The influential online magazine Billionaire.com has listed AirX, which operates out of its head office at the Cottonera Waterfront in Malta, amongst the top 10 private air charter companies in the world.

Described as a newcomer on the scene, Billionaire.com remarked that AirX was a private air charter operator offering excellent service and high safety standards. The excellent review added that, “it is no wonder AirX is fast becoming a favourite of the jet set”.

Commenting on this great achievement and rave review, AirX chairman John Matthews said, “There are 831 operators in the world offering private jet charter services but only 10 made it to the top of Billionaire’s listing. It is an extraordinary achievement for AirX to be recognised amongst the world’s 10 best private jet charter companies in the world.

This is further recognition of our first class service and position as market leaders worldwide.”

AirX provides private charter flights across Europe to clients who normally include A-list celebrities, such as Hollywood movie stars, pop artists, royal families, top corporate executives, sport teams and government ministers. It is currently expanding its fleet and workforce as part of a strategic growth plan to become the leading private air charter operator in Europe and beyond. www.airx.aero

THE LATEST BOEING 737-500 TO JOIN THE AIRX FLEET REGISTERED IN MALTA UNDER THE CALL SIGN 9H-YES.

As part of the team-bonding activities organised by Montaldo Insurance Agency Ltd, the employees hold monthly Casual Days, during which they donate money towards a charitable cause.

This year, employees and management donated the funds collected to Puttinu Cares.

In the photo, Paula Naudi Montaldo (left) and Marilyn Vella from Montaldo are seeing presenting the cheque to Angele Cuschieri (right), vice chairperson of Puttinu Cares Foundation.

Montaldo Insurance Agency Ltd is at 98/2, Melita Street, Valletta. For more information, call 2123 8500 or send an e-mail to info@montaldo insurance. com.

Number of major retail brands sign up to customer service assured programme A number of major retail brands which include the Debenhams Stores, iCentre Store, SunLab, Royal Travel, VIP, BigMat and Cynergi Health and Fitness Centre have signed up to the Customer Service Assured (CSA) Programme.

The CSA Programme focuses on providing retail businesses and organisations with the necessary support, tools, skills and professional expertise in customer experience management.

The programme equips organisations with timely and regular customer insight data as well as innovative and well-designed customer experience/sales training sessions led by training consultant Paul Vincenti.

“Customer experience in today’s business world is central to the success and longevity of our brands,” said United Department Stores general manager Kevin Gollcher, franchise representatives of Debenhams in Malta. “We have partnered with Customer Service Assured to ensure that our Debenhams brand can keep

creating enticing experiences for our customers. Through the CSA Programme we have set a platform for all our Debenhams employees to engage in continuous cuttingedge customer service training.”

Annually, Customer Service Assured awards a ServiceMark certification to organisations and retail outlets that manage to earn

high ratings from the mystery shopping studies and customer surveys that are independently and regularly carried out throughout the year.

A yearly audit of the outlets customer complaint system is also assessed.

For more information, visit www.csamalta.com.