The Business Observer Newspaper 25th August

INTERVIEW

Issue 58

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August 25, 2016

Distributed with Times of Malta

Now that the Prime Minister has made it clear that the Freeport expansion is not on the cards, Freeport Corporation CEO Aaron Farrugia says the only thing to do is look ahead. see pages 8 and 9 >

AREA 3

MALTA NEWS Cairn Energy paid $5.8 million to the government for its oil exploration licence according to its interim reports – but has still not decided whether to commit to further studies in Area 3. see page 5 >

Two-thirds of Life Sciences Park taken up A total of 28 tenants have already had their formal submissions evaluated and approved by Malta Enterprise for them to be offered tenancy at the Malta Life Sciences Park.

Of these, 18 are already operating at the park, Malta Enterprise confirmed.

The European Development Regional Funding (ERDF), which co-financed the project, envisages supporting 40 entities in order for the MLSP to be sustainable – although sustainability is obviously dependent on the revenue paid by the tenants.

The ERDF conditions also require that MLSP will support start-ups, innovative processes, products and markets through networking and collaboration.

The park was first mooted in 2010 and was originally meant to cost €20 million, with completion due in 2012/2013. By the time the

project actually started in 2012, the investment had already gone up to €38 million. The centre took over 11,000 square metres at the San Ġwann industrial estate previously occupied by Malta Enterprise and was completed in 2014.

Malta Enterprise has been trying to allocate space to companies which would complement each other, creating clusters that would dovetail

“Space is allocated to companies that complement each other”

with other sectors of the Maltese economy, sources said.

So far, the companies moving there are involved in medical device development, pharma and technology development, scientific services, food technology development, medical research and regulations, training and education, software development, DNA testing and generics development and testing, patent systems development, pharmaceutical formulations and laboratory services and networking.

Malta Enterprise’s investment promotion section has for the past 24 months been trying to identify tenants, and is in contact with a number of local and international experts in the trending life sciences sectors in order to find potential players who may be interested in setting up operations.

NEWS It is easier to say ‘no’ than to run the risk of taking the wrong decision – but that doesn’t mean Finance Minister Edward Scicluna is going to let regulators take the easy road. see page 6 >

OPINION In the run up to the Budget, the Malta Chamber of Commerce, Enterprise and Industry says it hopes that lessons were learnt from the mistakes of the past when policies were announced without any prior consultation or proper implementation plans. see page 13 >

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August 25, 2016

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NEWS

Changing the economic landscape e government recently released its Pre-Budget document in the run up to this year’s Budget, which gives a snapshot of some important economic indicators, benchmarked against other places, or caputuring trends over decades.

The Maltese economy has changed dramatically over the past 15 years since 2000, according to the Pre-Budget Document released by the Finance Ministry. The influx of financial services and gaming has all but eclipsed the manufacturing heydays of textiles and then ST Microelectronics.

TOP THREE IN 2000 Wholesale and retail trade

13.7%

Transportation and storage

7.8%

ATTRACTING MORE VISITORS

71.8%

Malta welcomed 1.8 million tourists in 2015 but the figures are even more impressive when compared to its peers.

Growth in arrivals in 2015

Expenditure in 2015

Global

Global

Malta

Malta

Manufacture of electronic products

6.7%

Other

Growth in arrivals in 2016 January-April

TOP THREE IN 2015

Global

Wholesale and retail trade

Malta

11.1%

Cruise traffic in Malta

Arts, entertainment and recreation

9.2%

2014/5 2015/6

72.9%

*FORECAST (SOURCES: NSO, UNWTO)

6.8%

Financial and insurance activities

MAKING WORK PAY The government has been introducing measures to ‘make work pay’, using a mixture of carrots and sticks to get people from dependence on the benefit system to employment, training and corporation.

Between December 2014 and July 2016, over 3,200 claimants left the benefits system and found employment.

The number of people not in employment, education or training in Malta dropped from 10.9 per cent in 2006 to 9.8 per cent last year, according to Eurostat. Malta has the sixth lowest percentage in the European Union and while the average rate in the EU increased, it dropped in Malta.

Other

(BY GROSS VALUE ADDED – SOURCE NSO/FINANCE MINISTRY)

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August 25, 2016

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NEWS

Oil exploration hit by low prices Cairn Energy has still not decided whether to commit to a 3D seismic survey of Area 3, saying it would first conclude the 2D seismic and geological evaluation currently underway.

Carin is the operator for the area, the only one where any level of exploration is currently underway.

Under the terms of the 2012 exploration study agreement, Cairn has to take a decision one way or the other before the end of 2018.

In its interim results for the first half of 2016, Cairn reported $98.6 million costs for unsuccessful explorations, almost three times the $33.8 million reported at the end of December 2015.

The only exploration costs listed in its results were $31.4 million, of which $5.8 million were for the Malta licence.

Area 3 covers an area of 6,000 sq.km area in the hands of Melita Exploration, a wholly-owned subsidiary of Rockhopper Exploration Plc. Phoenicia Energy Company and Melita Exploration had pulled out of the concession for Area 4 in January 2015 after the first exploration phase, which involved the drilling of the Haġar Qim well.

The reduction in oil companies’ profits is hurting high risk exploration more than it is production. A PwC report on trends for 2016 noted that, as a response to the drop in the price of oil, companies were slashing outlays: “They are expected to cut capital expenditures by 30 per cent in 2016. Already, some $200 billion worth of projects have been cancelled or postponed,” it warned.

SICILY

PANTELLERIA

LINOSA

AREA 3

MALTA LAMPEDUSA

CAIRN ENERGY HAS YET TO DECIDE WHETHER AREA 3 MERITS FURTHER EXPLORATION. GRAPHIC: DESIGN STUDIO

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August 25, 2016

NEWS

Finance Minister keeps up pressure on regulators Finance Minister Edward Scicluna has kept up the pressure on regulators to relax their discretionary powers, saying that the current situation was not beneficial to the economy.

“I know how the regulators work and there is an element of risk aversion: it is easier to refuse a licence than to take a risk. And things are taking far too much time on all fronts,” he said.

The minister first pointed a finger at regulators during his speech at the recent 25th anniversary party of the Malta Stock Exchange, when he said: “Regulators must understand that the objective was ultimately financial stability to achieve economic growth and create jobs – and not to stifle investment.

Regulators have tremendous discretionary powers. We respect their independence, but people will judge them not for their bureaucratic practices but on whether they participated in the development of the country.”

Speaking to the Business Observer, he said the higher level of regulation was a “normal and justified knee-jerk reaction to the financial crisis”.

“There was too much risktaking and very little supervision of the somewhat vague capital controls and so on. Various pieces of legislation were introduced in quick succession after 2008. I was elected to the European Parliament at that time so I saw it all taking shape. I had brought this up with Jonathan Hill when he was the Commissioner for Financial Services and in his last speech he made reference to the arsenal of financial regulation,” he said.

Mr Hill had said that as part of the Capital Markets Union action plan, it was important to look at the financial services legislation that the EU had passed “to make sure it is working as intended”.

“Respondents to our Call for Evidence have said that overall the measures put in place following the crisis are working well, but that in places our legislation is not proportionate enough, that it could be weighing down the amount of financing available to the wider economy and that the compliance burden is too heavy,” he said.

Prof. Scicluna likened the various pieces of legislation to medication. “Each pill may be working on its own but we have not yet examined the overall impact of this cocktail of medications. The doctor would need to see whether they work together and what the side effects are,” he said.

The minister did not pick on any particular institution but rather said that new and established institutions, from the European Banking Union to the Single Supervisory Mechanism, all wanted to flex their muscles.

“We do have a problem because there is not enough credit.

There is too much bureaucracy and duplication, whether it is anti-money laundering or financial regulation per se. I feel that there is an overkill.

“Business people went to the Prime Minister to complain that banks were closing their accounts and so on. I don’t want to interfere in banks’ practices but everybody is scared of the legislation which we built ourselves and we are now in a situation where we cannot move.”

“We do have a problem because there is not enough credit. ere is too much bureaucracy and duplication, whether it is anti-money laundering or financial regulation per se”

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August 25, 2016

INTERVIEW

No use crying over spilled milk

Last December Freeport Corporation CEO AARON FARRUGIA told the Business Observer that the Freeport was already handling 3.1 million TEUs a year – worryingly close to its capacity of 3.5 million but that getting more space was clearly going to be controversial. He was right: the Prime Minister has now stated that he was against its expansion. Dr Farrugia told Vanessa Macdonald that the important thing was to look ahead to new opportunities.

The Freeport expansion has been ruled out.

How does it affect its future plans?

Clearly, you have to take note of all political decisions and look forward – our remit is to maximise the use of the land available and that is what we are going to do.

The Freeport has a footprint and the corporation’s remit is to use it as efficiently as possible. That is what it will have to do in the future.

The operators have already reacted and are planning new systems and new investment – while also shifting their investments according to the international markets and their business plan – as they did in the past.

Every project proposed in Malta at the moment is being caught between those who lobby for development and those who lobby in favour of the environment – it has been this way since time immemorial. We somehow need to find a balance.

I appreciate the country’s circumstances.

You said the Freeport needed more space. If it does not have that space can it cope with more turnover and bigger ships? Recently you had the largest container ship to visit Malta...

The investment throughout the years, both by the government and the private sector in the Freeport, together with our strategic location has resulted in Birżebbuġa ranking 12th

among the top European ports and is the third largest transhipment and logistics centre in the Mediterranean region. We managed to attract mega-alliances and world leading shipping companies. We are already geared up to receive the largest ships in the world. Land management through land use planning is now important more than ever to maximise existing land use.

The decision has not been welcomed – prompting the Malta Employers’ Association to say that the Freeport should not be turned into a political football.

It is not my remit to make political statements. However, if the government does one

thing, environmentalists would criticise it and if it does another, it gets criticised by the other side. The space is what it is.

If the quay space cannot cope with bigger ships could we lose shipping lines?

That is not an issue. The corporation just spent $15 million on dredging it a year ago to 17m in depth, so we can cope with not only present ships but also the ones that will be built in the future.

They will not go to our competitors as there are two factors that make you an attractive port: the dwell time – how long it takes to unload or reload a ship – and the country’s security. And we rank highly on both.

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August 25, 2016

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INTERVIEW

The government has been talking about free trade zones for some time. What is happening?

A few weeks ago, the Prime Minister again spoke about a logistics hub and said the call for interest was a work in progress and also said it would be in Ħal Far. Our vision as a Freeport Corporation was to have an international logistics hub and it is going to happen. The only difference is that we were anticipating an area closer to the Freeport. Ħal Far is also an ideal place between the airport and the Freeport.

I am very satisfied that this is happening.

We have done a number of studies on free trade zones in various jurisdictions to see how they could work best.

Who would regulate the free trade zones: you or Malta Enterprise?

The Malta Freeport Act is being revised to the Malta Free Trade Zones Act. The aim is that any free trade zone in the country, wherever it is, would fall under an authority and we would take on that role as the Malta Free Trade Zones Authority.

Naturally, Malta Enterprise and Malta Industrial Parks will also have a strategic and administrative role to play – not least in attracting the right companies, both local and foreign.

If someone comes with a business proposal, it would be Malta Enterprise that has to vet it and Malta Industrial Parks which has to allocate appropriate space. What does the Freeport Corporation know about jobs created and value added?

I have looked at procedures in other jurisdictions like Dubai, Qatar, Oman and even

other ports are doing and where free trade zones are being created.

There are also other developments that you have to take into account, like what is going at with the Suez Canal area development and the impact of Brexit. Shipping lines will now need to consider the use of British ports once they are out of the EU and new legislation is in place.

CEO AARON FARRUGIA

“e international logistics hub may or may not also be a free trade zone” places in Europe like Antwerp and Rotterdam.

Malta Enterprise’s role is to get the investment to Malta and to offer incentives while MIP administers the factory space.

The international logistics hub may or may not also be a free trade zone. I would assume it will be, but it is by no means confirmed – that is in the government’s hands.

The hub could be developed by the private sector or as a public/private partnership but if it is designated as a free trade zone, then the corporation – as the authority – would administer and regulate the private operators who are allocated space. I do not see the roles as conflicting but as complementary.

What if the logistics hub is not a free trade zone? Is there another site that would be suitable?

Our role – through the new legislation – will be to advise the government on where these could be located. But so far, only the Ħal Far site has been identified, and only as a logistics hub.

What about the logistics policy?

That is in Malta Enterprise’s hands. Malta Freeport Corporation gave its input and advice. We were asked for information which we provided. You have to keep up to date with the mergers of shipping lines, what

Ablecare had said that oil companies would want a ‘free trade area’ at Marsa Shipbuilding so that they could bring equipment in and out without having to go through customs. Are there any plans to do that?

If there are, I am not aware of them. Obviously, the economic benefits of a free trade zone are enormous. These are political decisions. Take Mrieħel. That could also be an economic zone. Does it make sense for it to be a free trade zone?

And there are also other models: China has special economic zones, which are very similar. We could evaluate how these would fit into EU legislation.

I believe that the ‘blue economy’ is the way forward for our country. Malta was very successful in a number of sectors from pharmaceuticals to gaming and financial services.

The blue economy is the next step. I am on the governance board of Malta Marittima which was set up to coordinate all the maritime activities.

The private sector is also involved through the Malta Maritime Forum. We are all on the same wavelength: seeking the creation of favourable economic conditions to the advantage of our country.

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August 25, 2016

CASE STUDY

Many hands make light work More and more companies are realising the value of teambuilding but to get the best out of it, it helps to have a few tips from the experts. Gianni Zammit and Josef Gafà of Jugs shared their golden rules with the Business Observer.

1. Each company is different When it comes to team building, there is no ‘off the shelf solution’... what you need depends on which sector you work in, how many departments there are, what the headcount is and, most important of all, what you want to get out of it.

Teambuilding ranges from a simple social event which gives your employees the chance to meet outside the work environment, to intense sessions which delve deeply into character traits.

2. Get management on board Very often, teambuilding is suggested by the head of human resources but it is also important to get management on board.

This is not only because they have to pay for it but because they would gain from the experience!

Problems within companies are usually down to communications, trust and silos, which can only be solved by having both a horizontal and vertical solution.

3. Don’t underestimate the impact of a social event A major target of teambuilding is establishing connections between colleagues. Do not underestimate how little contact there may be between people on different floors – let alone different branches. Very often they only talk on the phone or communicate via e-mail. Imagine how much more cooperative they would be if they have met and spent some time together. This is even more valid when there are departments

that have conflicting interests, like sales and compliance.

If you know your colleagues on a social basis then they are less likely to take unnecessary sick leave as you are more appreciative of the burden that you are putting on them.

4. Teambuilding is a great way to involve new people Teambuilding is very effective when there are new members – whether new members of staff joining the company or a ‘lock, stock and barrel’ merger or acquisition. A fun event, like games on the beach, is a great way to break the ice when you have two sides that are wary of each other.

Dealing with people who do not know each other is challenging. This is why how you split teams is crucial. Do not let them do it of their own accord, as they will naturally stick to their own cliques and to those they know.

This would be so counter-productive that it is probably better to do nothing!

You could do it randomly by giving out coloured wristbands, but it is even better if you create teams in a more structured way, for example, spreading managers across teams.

5. Avoid too much competition Having a winner is not always the best outcome, as it could create an even bigger rift! One game that Jugs uses is called Route 66. Instead of teams competing against each other, each one builds a different element, like a car, a bridge and so on. They all need each other and they need to

JOSEF GAFÀ (LEFT) AND GIANNI ZAMMIT. PHOTO: MATTHEW MIRABELLI

“You can also shuffle the composition of the teams so that more people are exposed to each other”

coordinate, so the car and the bridge must be the same size, for example. You can also shuffle the composition of the teams so that more people are exposed to each other.

6. Bigger is not always better Sometimes, a company will want a social event for all its employees, but once you start to delve more deeply into teambuilding, smaller groups might work better.

For a classroom-style session, 20-30 is the max as this enables the facilitators to bring out an amazing amounts of traits. Do you want to know who has leadership potential and those who are so passive that they fail to reach their potential? Do you want to know who works well under pressure and who is destructively competitive? Then keep groups small.

Jugs was also amazed at the success of using teambuilding for a company that was recruiting several people at a time. It enabled the company to learn far more about the 40 candidates than questioning them via a traditional panel would ever have done.

7. Once is never enough Teambuilding has an immediate and palpable impact on staff but it is not a magic wand. It is a process. The effect will start to wear off after just a few weeks and if you really want your events to count, then see teambuilding as a regular drug and not a one-off injection.

And doing something every three years is not really going to achieve much.

Events don’t have to be externally organised. Plan a cook out. Take them on a walk.

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CASE STUDY

Team-building leads to a sense of being united, higher morale and higher performance, according to research published in the International Journal of Current Research a few years ago. The figures – 89.1 per cent, 76.6 per cent and 78.1 per cent respectively – show the impact of organising these events.

One company in Malta has measured the impact even more directly. It started to organise a mandatory hour at the end of the workday on Fridays for people to get together over a drink – and reduced sick leave by 75 per cent.

But Gianni Zammit and Josef Gafà are happy to admit that they don’t really need numbers any more to persuade clients to invest in their staff.

“When we started out 15 years ago, we used to have almost only foreign clients as the concept was still relatively unknown in Malta.

Get a speaker. Buy cupcakes. Ideally, you should do something every quarter. It does not have to be complicated.

And follow it up with feedback, especially the analytical events. If people have made all that effort to engage, then let them know that the information will not just get shelved. Use it to organise training and to assess career paths.

8. Be prudent about involving family Teambuilding is about just that – the ‘team’... so be prudent about including family as this is about creating connections

“Getting a work-life balance is very challenging nowadays and if families can see where you work it can really help”

between colleagues who work together.

Participants might be distracted by their family’s presence and anxious that they are not bored, especially since they might not know anyone else. And employees might not feel as comfortable letting their hair down in case it is misconstrued.

Having said that, getting a work-life balance is very challenging nowadays and if families can see where you work and get to know the people you are talking about it can really help. After all, families have to be very supportive of work and long hours, and an event that includes the

But big Maltese clients followed and nowadays even small companies are interested. They now see it as investing in their people not spending on them,” Mr Gafà said.

The idea behind team-building is to improve productivity by maximising staff interaction both horizontally and vertically.

Over the years, Jugs has developed its services, creating three distinct divisions which complement each other and offer a one-stop shop for clients – audiovisual, teambuilding, and what it calls ‘evening’ events like shows and themed parties.

“Conference and incentive clients, for example, would come for two to three days and usually need all three services,” Mr Zammit said.

But team-building is clearly the closest to their heart, allowing them to use the full spectrum of creativity and innovation that their team brings together. family – like an open day – can change the perspective of what the spouse does, let alone help children to appreciate what the parent does.

9. Add another dimension If time permits, combine teambuilding with training. Take the edge off an intense technical training programme, with social teambuilding or use teambuilding to identify the personalities and help the trainer be more effective.

And consider adding a philanthropic aspect to the teambuilding. It could be a great way to raise money for a favourite charity.

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August 25, 2016

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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

Share and share alike We can no longer bury our heads in the sand about the sharing economy.

London is the latest city to launch a broadside against car ride provider Uber – but unlike other places which have done so aggressively, the British capital is trying more subtle ways to curb its growth, including compulsory language tests.

There have been protests against Uber in Italy, Brussels, France, Brazil and the US, almost all organised by ‘official’ taxis and their unions. Taxi drivers are howling at suddenly being faced by the latest disruptive technology which has threatened their livelihood.

The Uber mobile app allows consumers with smartphones to ask for a ride, from drivers who use their own private cars. Since it was launched in 2009 with just $200,000 in seed capital, the service has grown incredibly fast – it is worth an estimated $62.5 billion – and is already available in 507 cities in 66 countries.

Uber, and its many mimics, is part of the so-called sharing economy that included other apps like AirBnB, which has also raised howls from the accommodation industry who feel it is unfair competition. They are part of a brave new world, a paradigm shift that the traditional world simply refuses to accept, preferring to dig its head into the sand in the hope it will just go away.

Here’s the bad news: it won’t.

Here’s the good news: consumers are benefitting, resources – whether cars, rooms or lawn-mowers – will be used more efficiently, and the sectors will be far better regulated than taxis and bed-and-breakfasts ever were.

Regulation was governments’ heavy-handed but at the time unavoidable way to protect its citizens. With time, the list of rules grew but the enforcement resources did not. Customers lost faith in the regulators’ ability – let alone determination – to stamp out abuse.

This is why it was naïve to see Uber and AirBnB as merely ways to undercut legal operators, or to rake in money without declaring it.

Whatever they started out as, Uber and AirBnB work because they had something that regulators did not: thousands and thousands of enforcers. Their business model was based on trust, the very same trust that consumers had lost in their governments and regulators.

And that trust came from empowering its users to praise and criticise. Whether through an app or through social media, rating a ride or a room or a restaurant was easy, instant and effective.

No matter how assiduously opponents try to portray its sharing economy competitors as unsafe and unregulated, the reality is that these business models rely on good rankings, and since comments and feedback are so visible and ubiquitous, there is far less chance of systematic abuse. Of course, there will always be the rogue element but isolating them is no longer down to whether there are enough enforcement officers – or whether they have been bribed. It is down to instant algorithms, which by their very nature are much harder to tamper with.

You cannot just become an Uber driver and you cannot get away with poor or shoddy services: there are numerous rules and the company will “deactivate” you if there is the slightest whiff of trouble. And with AirBnB, heaven help you if you have a bad day as a poor review will haunt you for eternity.

The ire of taxi drivers who paid dearly for their licences and hotels which invested heavily in their product are justified and no one would wish to see them disappear down the road of horse-drawn carriages and gas lamps. But the genie has been let out of the bottle and there is no going back.

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BUSINESS OPINION

Budget 2017: Investment opportunity

Anton Borg There is no doubt that amid a very turbulent international climate, our economy is experiencing strong economic growth overall. The resilience of the economy is acknowledged by the EU and the major independent credit rating agencies.

However, this buoyant momentum should not be taken for granted as there is a uniquely unstable international scenario around us. Surrounded by realities such as a looming Brexit, terrorism and political instability in neighbouring regions, the economy may not be allowed to coast on present achievements.

Following a vast and thorough consultation process, the Malta Chamber of Commerce, Enterprise and Industry advocated its vision and proposals for Budget 2017 with a main focus on two overarching priorities: the continued consolidation of public finances; and the implementation of policies that safeguard and enhance the many factors that contribute to competitiveness such as

energy costs, adequate labour supply and transportation.

In order to avoid situations similar to previous years, when policies were announced without any prior consultation or proper implementation plans, the chamber expects that lessons have been learnt from the mistakes of the past.

Firstly, having the country’s financial house in order is the main platform on which to ensure sustainable economic growth, continued job creation and improvements in the quality of life of all social strata.

Secondly, the chamber prides itself in being the foremost organisation striving to guarantee the island’s competitiveness on every possible occasion. The upcoming Budget must therefore introduce policies that tangibly improve the nation’s competitiveness.

Notwithstanding recent cuts in energy costs, the government must realise that the cost of energy is a fundamental competitiveness factor that remains comparatively and inexplicably high for industrial

consumers. The chamber has laid out a number of viable proposals to align energy costs with rates closer to EU averages such as another general reduction in the rates of energy, an overhaul of the night tariff system that renders offpeak operations more attractive, a system of purchasing flexibility from a variety of sources and an energy voucher scheme proportionate to investments carried out in renewable energy sources and efficient operations.

As the economy undergoes drastic reshaping, the labour market is being stretched to its limits and a number of gaps have surfaced in recent years.

The chamber supported the recent Making Work Pay initiatives that resulted in increased participation rates of females and the long-term unemployed.

Nevertheless, this is not enough and the chamber has long advocated the need for a holistic skills gap analysis coupled with the necessary updates to curricula.

On this note, the chamber is encouraged by Cabinet’s approval to

establish a National Skills Council tasked with narrowing the skills gaps. It is imperative that the adjustments the Council deems vital are implemented swiftly and effectively as otherwise Malta risks rendering its main resource less relevant and therefore unattractive.

The chamber also recommends recognition of foreigners as a vital human resource significantly contributing to present economic performances. A package of incentives to attract and retain foreigners in the national labour market is well overdue, coupled with the need for a simpler and more efficient process to obtain work and residency permits.

The chamber has constantly insisted that transportation is a value-added sector and economic enabler for the entire economy.

The present acute traffic situation is negatively impacting daily lives, the economy and the environment and the initiatives taken thus far do not fit into a coherent and holistic plan to address the gridlock currently crippling the country. With the launch of Trans-

“As the economy undergoes drastic reshaping, the labour market is being stretched to its limits and a number of gaps have surfaced in recent years”

port Malta’s National Transport Strategy 2050 and Transport Master Plan 2025, government clearly understands transportation’s strategic importance requiring major investment.

The guiding pillars proposed by the chamber are to have an economically, environmentally and socially sustainable plan, based on multimodal transportation infrastructure, stronger involvement of the private sector through PPPs, a competitive regulatory and fiscal environment and a realistic long term vision of the country’s transportation needs. In a similar vein, the chamber has continually iterated the vital strategic importance of a healthy national airline.

Its proposals lay out concrete recommendations on policies and strategies that, with correct and timely implementation, would preserve existing performance, sustain economic growth and improve areas of cost and non-cost factors that may hinder continued progress and prosperity for all strata of the economy and society if unchecked.

The government must treat the Budget in the context of a multiannual framework and a longterm strategy to achieve sustainable growth. In this regard, the Malta chamber commends the present economic performance and calls for investment of the proceeds generated by this prosperous economic cycle to safeguard the future wellbeing of Malta.

Anton Borg is the president of the Malta Chamber of Commerce.

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August 25, 2016

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APPOINTMENTS

Partner for Chetcuti Cauchi Advocates

Appointment at RS2 Daniel Galea has been appointed as the chief financial officer of RS2, replacing Fiona Ciappara Cascun, who will be resigning from her position but staying on as a consultant.

Mr Galea has led several finance teams in Europe, the US, Asia and the Middle East, bringing a wealth of international and financial risk management experience to the company.

During the course of his career, he was involved in various industries including biotechnology, aviation and professional services.

Tax lawyer Michelle de Maria has been made a partner at Chetcuti Cauchi Advocates. The appointments of Silvana Zammit last December and now Dr de Maria have brought the number of partners at Chetcuti Cauchi Advocates to six.

Dr de Maria started her career with Chetcuti Cauchi in September 2010. With over 20 years experience in tax and corporate law, she advises primarily on domestic tax law as applicable in an international context and a variety of cross border tax issues.

She also advises on tax issues relating to other entities or arrangements such as partnerships, foundations and trusts and the financial services sector as well as personal taxation.

CFO for PTL Holdings

Grant ornton appoints new marketing manager Grant Thornton has welcomed Nick Bilocca as the new manager for its marketing operations.

Mr Bilocca has over 15 years of handson marketing experience, having spent most of his career leading the communications efforts and managing the public relations and marketing campaigns for an array of clients in the real estate, catering, and service industries.

Founded in 1975, the Malta firm became

a Grant Thornton member in 1991. As a €4 billion global organisation of member firms with 42,000 people in over 130 countries and growing, the brand is respected internationally as one of the major global accounting organisations.

The Malta firm focuses on providing a full range of services including assurance, tax, advisory, specialist financial services, corporate, secretarial and administrative services.

Barbara Azzopardi has been appointed chief financial officer at PTL Holdings.

She joined the Hili Ventures Group in January 2012 as finance manager for Premier Capital. She was later appointed head of the finance team at Carmelo Caruana Co. Ltd in 2013 and in 2015 was appointed chief financial officer of Hili Co. Ltd.

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August 25, 2016

STOCK MARKET REVIEW

Hal Mann retracts from diversification strategy

Edward Rizzo In last month’s article we reviewed the three bond issuers which are mainly dependent on the local tourism industry and made reference to the obligation for most bond issuers to publish an updated Financial Analysis Summary (FAS) on an

annual basis. The principal objective of an FAS is that of assisting investors to obtain a better understanding of the financial strength and creditworthiness of an issuer and, in the case where the bond is guaranteed by another entity, of the guarantor of the bonds.

On June 27, 2016, Hal Mann Vella Group plc announced that it published its updated FAS dated May 31, 2016. This report provides a review of the 2015 financial statements, an analysis showing the variance between the actual results for 2015 and the original forecasts, the projections for 2016 and some important changes to the group’s business model.

It is worth recalling that when Hal Mann Vella published its

prospectus in connection with the €30 million secured bond issue in October 2014, the intention was to (i) refinance €13.7 million in bank loans; (ii) finance the modernisation of the Lija factory at a cost of €5 million; and (iii) finance the construction of a mixed-use development in Lija earmarked for lease to third parties at a cost of €7 million. The remaining net balance of €3.6 million was intended for general corporate funding purposes.

The prospectus detailed the group’s business strategy and the efforts to continue diversifying into the hospitality sector as well as the fashion retail business. Although the revenue and profit contributions at the time were still very immaterial in the context of the overall business

“Ebitda fell drastically to just €57,000, significantly below the forecasted figure of €2.1 million”

activities, the group had some interesting plans in both these sectors.

In the hospitality sector, the Hal Mann Vella Group owns two aparthotels (Mavina and Huli) and the Lovage Bistro, all located in Buġibba. At the time of the bond issue, an application had been submitted to the planning authority for the refurbishment of the Mavina hotel at an envisaged cost of €2.5 million, which was intended to be financed via new bank borrowings. However, the FAS published a few months ago revealed that the Hal Mann Vella Group has now leased out its two hotels as well as the restaurant to third parties for a period of 10 years.

In the fashion retail industry, at the time of the bond issue in Oc-

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August 25, 2016

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STOCK MARKET REVIEW

tober 2014, the Hal Mann Vella Group operated three Guess outlets and one outlet of Brooks Brothers. During the first quarter of 2015, the group acquired two further retail stores operating under the brand 7 Camicie and another outlet was opened as a warehouse clearance store.

Until last year, the directors were projecting that revenues from the fashion retail sector would increase to €2.4 million in 2016, thereby contributing circa 15 per cent of overall group revenues. However, the FAS dated May 31, 2016 confirmed that the group transferred the franchise/licence agreements of the various brands to a third party and also sold its inventories to the new operator of the three brands, thereby exiting this area of operation as the group was suffering losses in this business segment.

The recent changes to the overall business strategy of the Hal Mann Group are possibly a result of the disappointing financial performance in 2015 which is expected to deteriorate further during the current financial year.

The 2015 financial statements were first published on April 28, 2016 and the FAS gives much more detail than the annual report available online. The 2015 performance was well below the forecasts first published in the Prospectus dated October 6, 2014 and later reconfirmed in the FAS dated July 27, 2015.

While the group generated slightly higher revenues at €14.1 million when compared to FY2014 (or +1.9 per cent over the 2015 forecasts), this did not translate into higher earnings before interest, tax, depreciation and amortisation. Ebitda fell drastically to just €57,000, which is 88.5 per cent lower than the corresponding figure of 2014 of €497,000 and significantly below the forecasted figure of €2.1 million.

The 2016 projections were first available in the FAS published on July 28, 2015. At the time, the group was expected to generate revenue of €15.7 million and an Ebitda of €2.7 million. However, the FAS dated May 31, 2016 showed a significant revision to the 2016 projections. Revenues are now expected to amount to €15.1 million while Ebitda

is now estimated at a negative €2.9 million.

The operating loss before depreciation and finance costs expected during 2016 is mainly due to three one-off items, namely (i) a €2.5 million write-off in inventories; (ii) a provision for works-inprogress of €0.6 million; and (iii) a provision of bad debts of €0.5 million. Furthermore, the overall financial performance of the Hal Mann Group in 2016 is also expected to be negatively impacted by a €0.5 million loss related to the fashion retail business unit which was discontinued earlier this year and therefore does not feature within the Ebitda figure.

Another reason for the weakening performance in 2015 and 2016 is the additional costs incurred with respect to the new factories leased out in Ħal Far. Last year, Hal Mann Vella Group disclosed that it leased out a 14,000-squaremetre factory situated in Ħal Far for a period of 65 years. Moreover, the FAS dated May 31, 2016 reports that a second factory was leased out in close proximity to the initial factory.

No mention of these two major developments had been made during the bond issue.

The annual reports published over the past two years as well as the FASs failed to indicate the an-

“No mention of the leasing of two factories – both major developments – was made during the bond issue”

nual cost of the lease or the investment required by the group to deploy these factories. The reports simply stated that “the scope for acquiring this factory is to ease the operational flow at the Lija factory and to have sufficient capacity to consider new projects as and when they arise”.

The reconsideration of the diversification strategy into hospitality and fashion retail are comprehensible decisions in the circumstances. On the one hand, the fashion retail businesses were not profitable, while on the other hand, the group was about to embark on a €2.5 million refurbishment of one of its aparthotels.

Thus, through the leasing out of these hotels, Hal Mann Vella Group has now managed to save on this capital expenditure at a time when it is performing negatively, thereby giving it more flexibility in concentrating further on its core business while constructing the commercial premises for eventual leasing.

The information provided in the FAS was very useful for financial analysts and investors to keep abreast of developments within the Hal Mann Vella Group.

The senior executive management of the group, however, ought to have convened a meeting for financial analysts to provide further background behind the recent financial performance and future projections and the rationale for the important decisions taken in less than two years since the launch of the bond issue.

Given the higher number of companies using the bond market as well as the wider participation by the investing public due to the low interest rate environment, investor relations should start taking a more prominent role across most of the bond and equity issuers. The continuous flow of information to investors is fundamental for companies using the capital markets and the recent developments at Hal Mann Vella Group are a clear signal of the importance for investors and financial analysts to keep track of the financial strength of an issuer on a continuous basis.

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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August 25, 2016

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BUSINESS UPDATES

Façade of Auberge d’Italie returns to its glory days

Computime Software introduces Acumatica Computime Software, a leading provider of standard and customised business software and integration solutions for medium and large-sized organisations, has introduced Acumatica Cloud ERP to the Maltese market.

Built on the world’s best cloud and mobile technology and a unique customer-centric licensing model, Acumatica delivers a suite of fully-integrated business management applications, such as Financials, Distribution, CRM, and Project Accounting, on a robust and flexible platform. In an interconnected world, Acumatica enables customers to take full control of their businesses, play to their organisations’ unique strengths, and support their

clients by following them anywhere on any device.

Computime has a positive track record of more than 35 years and more than 100 successful local and international ERP and Business Software projects. One of the key drivers of our success is that we strive to set realistic expectations for the projects we undertake. Our ability to deliver projects on time and within budget is derived by our efficient and battletested implementation methodology, and a direct result of the quality of our business consultancy team.

To find out more on how your business can benefit from Computime Software and Acumatica Cloud ERP, E: info@computimesoftware.com or T: +356 2149 0700.

The façade of the Auberge d’Italie has been returned to its glory days after restoration works were completed.

Works included preservation of the façade and conservation of the bust of Grandmaster Gregorio Carafa in the marble monument on top the main entrance of the auberge.

Restoration and conservation works under the supervision of Heritage Malta started seven months ago with an expenditure of €140,000, and included consolidation so that particular details would not be lost.

Other restoration works undertaken included stone changing, replacement of three finials in the form of vases and even changing the colour of the apertures. All work done followed extensive research which was documented and retained for future reference.

These works are being done in preparation for Valletta’s Capital of Culture title in 2018 and form part of the plans to host the new National Museum of Arts, Muza. The latter is on the list of proposed projects for European Union financing and is expected to cost around €5 million.

For more information about Muza and events organised by Heritage Malta one can visit www.heritagemalta.org or muza.heritagemalta.org or follow Heritage Malta on Facebook.

Passenger charter flights in Africa and Europe Mediterranean Aviation Company Ltd, (Medavia) has been operating flights since 1978. The company was originally formed with the objective of providing air support for the oil and gas exploration and production companies in North Africa, and initially operated a fleet of Four Casa 212 aircraft.

The company now provides passenger charter flights in Africa and Europe, and presently operates a fleet of Turbo Propeller aircraft consisting of 19-seat Beech 1900D, 37-seat Dash 8100 and 50-seat Dash 8-315.

Over the years the company has operated out of bases in Luqa (Malta), Tripoli (Libya), Cairo (Egypt), Khartoum (Sudan), Nouakchott (Mauritania), Hassi Messaoud (Algeria), Cebu

(The Philippines), Athens (Greece), Rimini (Italy), Roros (Norway) and most recently Salerno (Italy).

Flights are presently being operated from Malta and Salerno to Tripoli, Lampedusa, Trapani, Salerno, Olbia, Split, Bari, Corfu and Zakinthos.

Medavia is also an air service provider to the United Nations World Food Programme, and has successfully operated in Africa and South East Asia on behalf of the UN. As an aircraft charter broker, it may provide small third-party executive jets to large airliners, dedicated air ambulance aircraft, and cargo aircraft. Medavia is a provider of aircraft handling services and flight representation.

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e Business OBSERVER

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August 25, 2016

BUSINESS UPDATES

Alternative to traditional SME financing options Last February, the Malta Stock Exchange launched Prospects, its new capital market platform geared towards offering a cost-effective admission solution to small and medium-size enterprises (SMEs). Since then, the Exchange has recognised four corporate advisors who are empowered to bring SMEs to the market, with a further four applications from entities seeking to be recognised as corporate advisors.

Prospect is aimed at SMEs looking to raise less than €5 million in capital through the issue of bonds or shares, or seeking a solution to addressing succession planning. It can help address succession-planning issues, which many family businesses tend to face beyond the second generation. In Malta, 99 per cent of all companies fall within the category of an SME and are generally family-run businesses.

Prospects is designed to open Malta’s capital market to small businesses, enabling them to grow, create jobs and to bolster our economy.

Under Prospects, the admission costs are SMEfriendly, starting at just €5,000 p.a., which is significantly more affordable than traditional listing options.

More information on Prospects can be found on www.smeprospects.com or by contacting Business Development at the Malta Stock Exchange.

Specialists in audio-video systems integration

CLIFF PACE, PRODUCT AND BUSINESS DEVELOPMENT MANAGER, MALTA STOCK EXCHANGE PLC

Top Technix specialises in audiovideo systems integration. The company offers a wide range of products for commercial premises such as nightclubs, bars, restaurants, offices, churches, educational facilities, and govermental premises. Top Technix’s product range includes projectors, projection screens, AV switchers, distribution amplifiers, video conferencing systems, PA systems, table mount solutions, and more.

Services range from consultation to design to the final installation of equipment. The company has over 20 years of experience in this field and considers itself as one of the leading companies in the sector on the island.

Top Technix supplies leading brands, including Optoma and Casio projectors, Reflecta projection screens, Kramer Electronics, Kindermann, DAS Audio, Ecler, and more.

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August 25, 2016

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BUSINESS UPDATES

10 years on and thriving!

As it celebrates its 10th anniversary, iAS looks back at where it started from, as a handful of people who aimed to give the local industry service that went the extra mile. Now a successful firm in the local construction industry, iAS is comprised of a much larger group of professionals, providing consultancy services in design and project management. Past clients include Lufthansa Technik Malta, Pendergardens, Gasco, Aviation Cosmetics, Barrakka Lift, Midi and many others. iAS employs a talented pool of design architects and structural engineers. From a management perspective the firm has a highly motivated professional team across

professions. Over the years the firm has invested heavily in this department to ensure a leading edge level of service. This allows the management team to foresee potential risks within projects as early as possible, allowing the necessary mitigation measures to be implemented.

The firm strongly believes in the necessity of good governance procedures. A management committee and a risk committee assist the managing director in the running of the firm while the board of directors spearheads the direction of the company. The board is chaired by a nonexecutive chairman specialising in business strategy.

High-quality printed products At Printagram, we take great pride in printing our products at the highest quality possible, using our own state-of-the-art technologies. Printed materials such as flyers, leaflets, postcards, folders, brochures, posters, banners, letterheads, business cards, catalogues, advertisements, clothing, and much more are available in brilliant digital printing quality.

Although our company is young, our team has had over 20 years of experience in printing and has been successfully offering our wide range of products to local and international clients. Our customers come first, always – we partner with you to understand your business, anticipate your

needs and help you communicate in the most compelling way possible. We are often able to catch subtle design or technical artwork issues and correct them, free of charge.

We collect orders from Malta and Gozo via e-mail and our Facebook page. Our well-coordinated processes enable us to optimally utilise our in-house printing and processing machines. The result is printing at very low costs, which we are glad to pass on to you.

Our office is based in Ta’ Xbiex and due to our location and our on-site printing facilities, we can offer same-day pick up for urgent orders.

Printagram, Testaferrata Street, Ta’ Xbiex

Yamaha Disklavier piano – the modern-day ‘player piano’ Yamaha created the Disklavier more than 25 years ago, the modern-day version of the ‘player piano’. Disklavier pianos are true acoustic pianos that incorporate fibre-optic sensing systems, high performance solenoids, and state-of-the-art computer technology. Besides having all the features and ability of a normal acoustic piano, these pianos can

very accurately record performances and play back with all of the expression and nuance of the original performance.

Over 25 years of continuous development has led to superior recording and playback features that are unparalleled in the industry. The Disklavier has maximum functionality with minimum fuss – use the ‘Timer

Play’ function to program the piano to play what you want, when you want. It is perfect for the lobby, greeting guests with piano music as they arrive – outshine the competition by providing live entertainment from a vast repertoire! There are more than 6,000 titles in the Yamaha music catalogue to choose from.

The E3 is more than just a top-quality piano. It is truly an all-in-one entertainment system. Whether playing the piano yourself or listening to recordings, the E3’s state-of-the-art speaker system will bring your music to life like never before.

More information can be found at www.europe.yamaha.com

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August 25, 2016

BUSINESS UPDATES

HSBC Global Asset Malta portfolio surpasses €1 billion

BDO Malta launches new website BDO Malta is proud to unveil its newly refreshed website, www.bdo.com.mt, which was launched last Friday. “After months of hard work, we are delighted to officially launch our new website, providing our global staff, current and prospective clients with an easy-to-navigate website, full of rich content and key contact details. It provides an engaging and high quality digital experience that takes advantage of the latest online technologies,” said CEO Mark Attard.

The site was built on the network’s new global web template, on which successive BDO member firm sites are going live several times a week. Benefiting from a global hosting platform, all sites on the BDO

global template present a single, coherent and globally consistent website style, optimised for all browsers and devices.

All BDO sites will have migrated to the common global template and platform by early 2017 and the website’s intuitive navigation, functionality, social media activity and rich media content work in the same way on every BDO website. “Our enhanced digital presence is essential as we continuously respond to the ever-evolving needs of our clients.

“We see it as just another way to provide our clients with an exceptional service,” said Allan Evans, global head of business development and brand marketing.

HSBC Global Asset Management (Malta) Ltd has grown past the €1 billion milestone in assets under management and distribution.

HSBC Global Asset Management Malta is part of the HSBC Global Asset Management network with €383 billion in assets under management as at December 2015 and has a presence in over 26 countries and territories worldwide. It specialises in the development and management of investment products and services for clients around the world.

HSBC Global Asset Management (Malta) Ltd managing director Muriel Rutland said: “The company

is marking 20 years of offering worldclass investment and advisory capabilities to clients in Malta. We have had remarkable success. In fact, our main focus is to maintain this healthy performance in the future.”

Incorporated in 1996, the company is a wholly-owned subsidiary of HSBC Bank Malta plc. It was later licensed by the MFSA as an Alternative Investment Fund Manager in 2014. It manages six funds: Malta Bond Fund, Malta Government Bond Fund, Maltese Assets Fund, International Bond Fund, Equity Growth Fund, and HSBC Property Investment Fund.

THE HSBC GLOBAL ASSET MANAGEMENT MALTA LTD TEAM (STANDING FROM LEFT) JESMAR CIAPPARA, STEPHANIA ABELA, GILBERT GRECH, MURIEL RUTLAND, GLEN MIFSUD, CHRISTINE FRENDO, DAVID LANZON, (SEATED FROM LEFT) JESSICA CASHA, REBECCA BORG, JOSIANNE FARRUGIA, LISA VELLA, CATHERINE FARRUGIA.

Quality energy-efficient windows ideal for the Maltese climate uPVC apertures provide thermal and sound insulation from which the homeowner benefits in terms of efficiency and lower energy bills.

They are highly secure and maintenance-free, suitable for use in all sorts of domestic settings, able to resist all kinds of weather, and adept at keeping out both water and wind, making them highly suitable for the Maltese climate.

Locally, Finestral – established in 2001 – was the first company to venture into the world of uPVC apertures manufacturing, and has been specialising in this line of business since 2006. The company has a broad variety of designs, colours and systems

available, each of which carries a 10-year warranty.

The company creates and supplies other utilities for home and properties, including made-to-measure glass roofing and skylights, skirting, wall cladding and metalwork.

Finestral has carried out a number of important projects on hotels, luxury villas and apartments. After 15 years of operations, the next stage is investing in a brand-new factory, whose premises will be more than 1,500sqm in size. The firm constantly invests in cutting-edge technology for its new grounds as well as training good employees to offer the best product on the island.