The Business Observer Newspaper 4th December Issue

INTERVIEW

Issue 15

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December 4, 2014

Distributed with Times of Malta

Mario Cutajar is determined to make the civil service more efficient and effective, as well as more transparent and accountable. What has he managed to do in 18 months? see pages 10 and 11 >

NEWS Malta’s reputation in Ireland was sullied by the collapse of the Setanta insurance group but liquidator Paul Mercieca hopes that, by January, the compensation process will start for the thousands affected. see page 3 >

BOV pays €4.6m to extend House of Four Winds lease Vanessa Macdonald Bank of Valletta has paid €4.6 million to extend its lease of the House of Four Winds from around 40 years to a temporary emphyteusis of 65 years.

The contract was signed last September though it was not announced by the bank.

A few years ago, when the government started working on Valletta’s City Gate project, it wanted the bank to move BOV International out of the block on South Street as this was to be

demolished to create a square alongside the Royal Opera House.

The bank was paying just a few thousand euros a year for the site. The House of Four Winds was eventually agreed upon as a substitute.

The property, mainly rooms added in the 20th century to a residence thought to date back to the 1800s, lies on the Valletta bastions with a stunning view of Marsamxett Harbour. It was formerly used by various government ministries but had been left vacant since then parliamentary secretary Jason Azzopardi relo-

cated to offices closer to the Finance Ministry.

The bank agreed to transfer the remaining lease to the new building and signed the deed in 2010. The House of the Four Winds was demolished and replaced by a sleek, minimalist and modern hard stone building, a project which cost “sevenfigures”. BOVI moved to the chairman’s offices on the other side of Zachary Street and the chairman took over House of Four Winds.

However, with around 40 years left to go on its lease, the bank

paid the government a lump sum of €4.575 million to extend this by 25 years. It also agreed to pay €33,750 a year as ground rent.

The bank also paid €267,880 in stamp duty on the deed.

The government owns 25.23 per cent of the shares in BOV. When asked why BOV had paid this amount to extend a long lease, BOV spokesman Kenneth Micallef said: “You will appreciate, however, that your questions are related to a commercially sensitive matter which we would not discuss publicly.”

NEWS The Maltese Jeremie scheme for SME loans was seen by other member states as one of the best of its kind. Parliamentary Secretary for EU funds Ian Borg believes that ‘Jeremie II’ will be even better. see page 5 >

CASE STUDY MSV Life has been waiting eight years for third pillar pensions to materialise but it is very disappointed with the result and is already warning that the incentives are not enough to motivate people to save. see pages 12 and 13 >

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NEWS

THERE WERE 75,000 POLICYHOLDERS WHO WERE STRANDED WITH NO MOTOR INSURANCE COVER WHEN SETANTA SHUT DOWN.

Changing the Maltese pensions landscape Matthew Brincat

Setanta report by mid-January The Maltese liquidator appointed to sort out the mess left by the collapse of the Irish Setanta insurance company, Paul Mercieca, hopes to be in a position to make an application to the Irish Courts to access the appropriate compensation fund by mid-January.

The Irish Courts’ “accountant” administers the Irish Insurance Compensation Fund, which will be compensating eligible claimants.

Setanta had collapsed at the beginning of 2014 when it was admitted that it did not have enough funds to cover eventual claims.

Paul Mercieca has had to collate information on four different types of compensation that might be requested. There were 75,000 policyholders who were stranded with no motor insurance cover when Setanta shut down; these will be expecting a refund of their premiums.

There are also around 2,000 claims for accidents which were submitted to Setanta and were not settled before it shut down.

To add to the complications, there are also around 400 claims which ended up in court, including personal injury claims; clearly the actual amount due for these will not be known until the cases reach judgment. And finally there is a two-year period during which new claims can still be filed: claims are

“e Irish media have quoted £35 million as being the total due for claims but, once the pending court cases are factored in, the figure could increase” still being submitted – although the rate has obviously slowed down considerably – and Setanta has six employees handling them.

Mr Mercieca said he had appointed actuaries to help him assess the potential claims so that he could come up with an indicative figure for the total compensation that will be required.

The Irish media have quoted £35 million as being the total due for claims but, once the pending court cases are factored in, the figure could increase.

The compensation will need to come out of Setanta’s assets – which are all liquid – and the fund. However, the latter cannot compensate for premiums paid and it can only pay up to 65 per cent of claims or £825,000, whichever is the lowest.

It can also only pay individuals – and since many of Setanta’s clients were companies who had group motor insurance policies, Mr Mer-

cieca will have a hard time trying to come up with an equitable split of the money available.

“I hope to file the necessary application in the Irish courts by mid-January as this to me is fundamental in helping to unlock the claims situation,” Mr Mercieca said.

Setanta was registered and regulated in Malta. However, it operated in Ireland and, like other insurers, paid into the Irish Insurance Compensation Fund.

However, this is the first case of its kind and the numerous entities involved are all anxious to get it sorted out – and as fairly as possible – sooner rather than later.

The Irish media has followed the case closely, repeatedly asking why Ireland would be responsible for the compensation – and not Malta.

As part of his remit, Mr Mercieca is also reviewing Setanta’s history in order to establish what went wrong and when.

On Wednesday November 12, Prof Edward Scicluna launched the Third Pillar Pension scheme, encouraging low income earners to start saving for their retirement. Interestingly, a regulatory framework for ‘private’ pensions has been in place since 2002 under the Special Funds (Regulation) Act, supported by the retirement directives issued by the Malta Financial Services Authority (MFSA).

If one had to take a snapshot of the Maltese pensions industry so far, the statistics show that since 2009 the pensions market has grown to 13 retirement scheme administrators (RSA), with circa €1.1 billion assets under management.

However this industry is mainly focused on managing foreign sourced monies by schemes which qualify as QROPS (Qualifiying Recognised Overseas Pension Schemes) in terms of UK legislation.

The introduction of the Third Pillar Pension schemes was therefore the next step in augmenting the Malta pension sector. The latter was launched by means of an amendment to the Income Tax and the Social Security acts which paved the way for new fiscal incentives aimed at encouraging Maltese residents, especially low income earners, to start saving for their pension by investing in private products which may be offered by local banks, life insurance companies, investment managers and financial institutions licensed to sell these products.

Therefore, any Malta taxpayer will be able to obtain a tax credit against income tax chargeable in Malta. This will be applicable on any contributions made by a person to any personal retirement scheme or premiums paid in respect of a qualifying policy of insurance.

The tax credit will be equal to the lower of 15 per cent of the aggregate of the contributions or premiums paid; and €150.

This means that, if a taxpayer falls within the 15 per cent income tax bracket, s/he can utilise €1,000 of his/her annual income to contribute to a personal retirement

scheme or a qualifying insurance policy without paying tax on that €1,000 income. If, on the other hand, a taxpayer falls within the higher tax bracket or would want to contribute more than €1,000 every year in such scheme or policy, the maximum tax saving of the taxpayer would be €150. This tax credit will only be available in respect of qualifying schemes or policies of insurance as may be prescribed by the Commissioner for Inland Revenue.

Currently, only an authorised RSA licensed by the MFSA may administer a retirement pension scheme, which is also separately licensed in its own right. An RSA would therefore be responsible for the overall operation of a retirement scheme and carry out the day-today administration of that scheme for the benefit of a scheme member.

The launch of the fiscal incentives for third pillar pension schemes is also expected to trigger the ‘coming into force’ of the Retirement Pensions Act of 2011. The latter will update the current legal framework in order for Malta to have specific legislation on private pension schemes and will enable the MFSA to introduce the updated Pension Rules by the end of 2014.

It is also worth noting that the Pension Rules should also consolidate the current withdrawal or ‘drawdown’ rules in order to ensure that scheme members receive ‘sufficient income’ throughout their retirement. These rules should also provide further clarity as to the role of certain service providers linked to pension schemes, including clarity on the roles of asset managers, back office administrators, custodians, auditors and financial advisors, who should all be geared towards providing pension scheme members with retirement income to supplement their government pension.

Dr Brincat, a Senior Associate of GANADO Advocates, leads the Private Pensions team of GANADO Advocates and is also the General Secretary of the Malta Association of Retirement Scheme Practitioners (MARSP) – mbrincat@ganadoadvocates.com

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Malta again voted the Most Favoured Fund Domicile in Europe For the second consecutive year, Malta has been coveted with Europe’s Most Favoured Domicile award at the Hedge Funds Review 13th European Fund of Hedge Funds Awards 2014.

The European Fund of Hedge Funds Awards remains the only signature event held exclusively for the European fund of hedge fund sector and as such continues to attract the top names from the industry.

The Hedge Fund Awards are determined on the basis of a rigorous methodology that provides quantitative and qualitative analysis and voted by an impartial panel of judges which include top professionals from the funds industry.

Kenneth Farrugia, chairman of Finance Malta and the Malta Funds Industry Association, said: “Accession to the European Union 11 years ago marked the start of Malta’s journey towards becoming the international fund domicile it is today. The island’s hedge fund industry has continued to grow year-on-year, solidifying its position as a fund domicile of international repute and I am delighted that Malta’s value proposition has been recognised once again this year by the judges of the well-respected and pre-eminent Hedge Fund Review Awards.

“Malta’s competitive advantage is evidently underpinned by the presence of an accessible and pro-business regulator, a strong operational infrastructure driven by high quality, legal, audit and fund consultancy services as well as the presence of service clusters in the asset servicing space. These critical success factors are frequently mentioned by fund promoters as the key criteria influencing their choice of Malta as a domicile.”

Malta continues to be pro-active in this field and the Malta Financial Services Authority earlier this year issued rules for the setting up of Loan Funds which were the first of their kind to be issued by a national supervisory authority in Europe and which in turn have spurred a number of enquiries by international fund promoters seeking to use investment fund vehicles to invest in loans.

The MFSA also recently issued a consultation document aimed at Private Equity Funds in order to further strengthen Malta’s appeal in this space.

Anatoli Grech, executive secretary of the Malta Funds Industry Association said: “The recognition of Malta as the Most Favoured European Fund Domicile has been awarded for the second consecutive year.

This clearly shows that Malta has further strengthened its reputation as a world class financial jurisdiction and its appeal to the various hedge fund stakeholders seeking to establish funds in a European domicile.

This indeed augurs very well for the fund’s industry in Malta and all the industry’s stakeholders”.

Increased funding for SMEs The government will be allocating €15 million to the latest SME funding initiative, considerably more than what it had allocated to the popular Jeremie initiative.

Since the amount guaranteed by the government could be leveraged by the financial intermediary, it could result in anything from €60 million to €90 million of loans.

BOV had decided to leverage the guarantee put up by the government for Jeremie – €10 million originally, with another €2 million put up later, by almost six times. During the period of the instrument, over 700 loans were granted, amounting to €62 million.

The SME Initiative is closely linked to the original Jeremie, and will be based on the same concept of a guarantee that frees up banks to offer loans to SMEs with less collateral requirements.

The government is currently awaiting final approval of its operational programme proposals and the tender will soon be launched by the European Investment Fund (EIF) asking

for proposals from financial intermediaries.

“Only Bank of Valletta was chosen for Jeremie but it is probable that more than one provider will be selected for the SME Initiative,” Parliamentary Secretary for EU Funding Ian Borg said.

The scheme should be ready to launch by around June 2015, and will draw on various EU funds (European Regional Development Fund and European Agricultural Fund for Rural Development), including Cosme and Horizon 2020.

“It is probable that more than one provider will be selected for the SME Initiative” “The SME Initiative was put forward by the European Commissioner for Regional Policy, Johannes Hahn, in an effort to transport cohesion policy into an EU-wide investment strategy.

The days of unconditional money like grants and ‘blank cheques’ for regional policies are over,” Dr Borg said.

“Over the years we have seen fewer grants and more financial instruments.”

Most member states prefer to have a mix but Dr Borg is sceptical about grants as he is concerned that the award criteria are often very subjective. In fact, Malta is one of the few member states pursuing this SME initiative at the moment.

“I believe that this initiative is more transparent and more accountable, especially since it is handled through a regulated financial intermediary,” he said.

The most important difference from the original Jeremie is that more of the risk is being transferred from the bank to the government, as the guarantee on the borrowed amount is going to be raised from a maximum of 23 per cent of the total to 80 per cent.

Additionally, the financial intermediaries will also be obliged to allocate around one fifth of the total towards innovation.

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NEWS

Handful of applicants approved for citizenship Vanessa Macdonald Five applicants have so been given approval in principle for Maltese citizenship, according to sources.

Their applications were submitted by different agencies, one of which was Henley.

A few weeks ago, Chetchuti Cauchi Advocates announced that the first approvals had been granted under the Individual Investor Programme which grants foreigners Maltese citizenship. However, the Home Affairs Ministry had declined to say how many had been issued.

‘Approval in principle’ means that the applicants have passed the rigorous due diligence process, which is being carried out by a variety of entities, including the agent, Identity Malta, the police and one of a handful of specialist international companies contracted for this purpose. Once the information has been gathered – a typical dossier could run to hundreds of pages – a multidisciplinary team meets to assess the outcome.

The due diligence process continues until the actual naturalisation and should any information come to light after the citizenship has been awarded, the law gives the government the right to withdraw it.

The applicants have already paid €10,000 as a deposit and will now need to pay the balance of €640,000. Although most of the applicants are already renting property in Malta, they have four months in which to either rent or buy. They also have to buy €150,000 worth of government stocks. The applicants must also provide proof of health insurance within the four months. Although some of the applicants have been in Malta for years, others will need to wait until they have been here for 12 months.

“It is very encouraging to see that many of them are actively seeking investment opportunities here in Malta”

“Clearly, many of the applicants are interested in a Maltese passport because it gives them mobility within the EU. But it is very encouraging to see that many of them are actively seeking investment opportunities here in Malta,” the sources said.

“We have already seen enquiries about real estate, holding companies, back office work and more.”

They said that a number of enquiries did not reach application stage as there was a ‘robust’ filtering system in place to ensure that those not eligible – for reasons varying from age to inappropriate connections – did not waste time and money.

There have been over 300 applications from over 30 nationalities so far.

KPMG announces offer to acquire Crimsonwing KPMG has made an offer to acquire Crimsonwing, an international IT company focusing on Microsoft Dynamics and eCommerce business solutions.

KPMG’s offer values Crimsonwing at €26 million.

If successful, the acquired business will become known as KPMG Crimsonwing and will be jointly owned by KPMG’s firms in the UK, Netherlands and Malta.

Crimsonwing’s Founder, David Walsh, will be chief executive of KPMG Crimsonwing which will combine KPMG’s current Microsoft Dynamics teams in the UK and Netherlands with Crimsonwing to create an overall team of approximately 350 people. The combined entity has a goal of more than doubling in size over three years.

Founded in 1996, Crimsonwing is an award-winning consultancy providing industry-specific business, mobile and cloud solutions for international clients related to Microsoft Dynamics and e-Commerce. Crimsonwing has developed market leading software incorporating their own intellectual property for industries such as print management and property lease management and for membership organisations.

The proposed acquisition is consistent with the firm’s strategy of building an advisory practice which combines business expertise with the underlying technology capabilities required to implement business solutions. If successful, it will follow the acquisition of Safira, a provider of Business Process Management solutions, and Cynergy Systems, a digital and mobile specialist.

Tonio Zarb, senior partner of KPMG in Malta, said: “This announcement represents a significant step in the growth of our advisory practice. The deal will

make KPMG the largest professional services employer on the island. It will help us to employ even more people in Malta and provides us with access to European-based clients. Combining Crimsonwing with our own dynamics consulting team will strengthen and cement KPMG’s position as a leading business partner of Microsoft.

“The new venture provides an exciting opportunity for clients and staff alike and a real springboard for growth. The combination of KPMG Crimsonwing’s high quality technology expertise with KPMG’s broader business skills will make us

“e deal will make KPMG the largest professional services employer on the island”

our clients’ partner of choice when it comes to delivering business transformation enabled by Microsoft technologies.”

David Walsh, founder, and continuing CEO of Crimsonwing, added: “This deal helps us to meet our clients’ growing demands for broader business skills and for international reach to support multicountry implementations. With KPMG’s support and its global platform, we will be in a better position to support our clients to transform their businesses and ensure they get the full benefit from their investments in new technology and information systems.”

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INDUSTRY FOCUS

ird pillar pensions: a first step?

Anthony Manduca The Bill amending the Social Security Act to allow third pillar pensions – making it possible for people to voluntarily take up a private pension to top up their State pension – was approved by Parliament last month.

Under the new law an individual may invest up to a €1,000 in an Individual Savings Account and benefit from interest earned from the investment in interest-bearing securities/deposits without deduction of withholding/tax; and up to €1,000 in a Personal Retirement Scheme and benefit from a tax credit not exceeding €150 for every €1,000 invested during any one year. Couples will be treated as two individuals and may invest €2,000 in each scheme.

According to Philip von Brockdorff, the head of the

Department of Economics at the University of Malta, the recent Bill amending the social security Act regarding third pillar pensions is long overdue.

“It will make it possible for people to voluntarily take up a private pension to top up their Social Security pension. The fiscal incentives will encourage take-up.

What is also necessary, however, is a regulatory framework protecting individuals who take up this option,” Dr von Brockdorff said.

“By supplementing their incomes during retirement years, and with an increasing life expectancy, individuals would hope to afford the needs of living as elderly persons. However, they would need to revisit their consumption and savings decisions during their working lives.”

Dr von Brockdorff said that, from a fiscal perspective, the third pillar will not address the sustainability of

social security pensions and further reforms, including revisiting the retirement age to reflect life expectancy, are required. Reforms to date didn’t go far enough, he pointed out.

This notwithstanding, he believes the development of third pillar pensions is a step in the right direction and could stimulate private savings as well as creating business opportunities for the financial sector.

“In my view, they will play an increasingly important role in securing retirement income. My research has shown that individuals who will retire in the future will be worse off than retirees who have retired in recent years or who will be retiring in a few years time.

This unequal distribution of financial resources across generations, especially for low-income earners, also needs to be addressed.”

Robert Attard, a partner at EY Malta said that the new Bill broke new ground by allowing an ad hoc tax credit in respect of contributions to private pension schemes.

“The benefit is capped at the lower of 15 per cent of contributions paid and the sum of €150. A €150 tax credit is always a €150 tax credit but the amount will be revised from time to time because the law incorporates a revision mechanism allowing the minister to increase the tax credit from time. In addition, the same legislative instrument introduced a capped tax exemption on income from certain savings. Act XXXVII is a first step,” he said.

Justin Caffrey, managing director of Harbour Pensions, said that the third pillar initiatives are an opportunity for middle to low income earning families to gain some tax relief and to save for their retirement.

“This is a tried and tested approach in most other EU countries and a first step for Malta to assist its citizens in developing prudent strategies to provide for their future needs. In this respect one could look into promoting institutional pensions possibly by providing fiscal incentives to employers who contribute to such pensions”.

Mr Caffrey said that working with employers and secure investment strategies administrators like Harbour Pensions see a great opportunity for Maltese citizens to take control of their financial future.

“Pension investment is all about low risk, fiscal benefits and a longterm strategy. We believe the building blocks are now firmly in place. A regular monthly commitment over a time horizon of 20 to 30 years can achieve a very sensible retirement fund, beating inflation but not exposing the fund to excessive volatility.

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“is is a tried and tested approach in most other EU countries and a first step for Malta to assist its citizens in developing prudent strategies to provide for their future needs” “It is very important to work with a firm that has a proven track record in large scale pension administration, advisers who understand the retirement needs of the Maltese and an investment strategy that can afford you the peace of mind that your future has been secured,” he said.

Angela Tabone managing directorand CEO of Citadel Insurance plc said: “In Malta as in the rest of Europe, not only are we living longer but we are enjoying a healthier old age.

Based upon EU mortality statistics the current life expectancy of 76.7 years for men and 82.6 years for women is set to rise to 84.6 and 89.1 respectively by 2060.

“Coupled with reducing birth rates, relying on state pensions alone may prove to be insufficient. Without making our own provision, in the future we may expect to be healthier but not necessarily wealthier. Citadel Insurance, as a leading provider of life insurance plans, is well placed to help their customers achieve all their future financial goals.”

The Malta Insurance Association believes that while the incentives introduced are a step in the right direction, it should be a process which evolves and improves over time.

“The MIA has advocated for years that savers need that extra push, through fiscal incentives, to encourage them to take the plunge. However, the MIA believes that the incentives are not significant enough to encouraging savers to set aside money for their retirement on a long-term basis. The target market of these incentives is very small and the MIA anticipates that the take-up of such schemes will be negligible,” Adrian Galea, the director general of the MIA said.

Mr Galea said Malta is probably one of the very few countries which has introduced private, nonmandatory third pillar schemes before introducing mandatory second pillar schemes.

“Pensions have been on the national agenda for a long period of time. Sustainability of pensions is also on the EU’s radar screen. It would be a mistake if this country tackles this issue in fits and spurts.

This is no ‘ticking the box’ exercise but a process where both parties should work hand in hand for longerlasting solutions,” he said Mr Galea said the government, together with all interested stakeholders, should embark on a programme aimed at raising financial literacy levels starting from the younger generation at school.

“Although we all contribute towards our national insurance, we cannot expect the government to continue providing that safety net we rely on after retirement. If we wish to maintain those life standards at that stage of our lives, we need to plan ahead and save more for our retirement.”

However, Mr Galea said the MIA applauds the government for the initiative taken in implementing an electoral promise and introducing third pillar pensions in Malta.

The Ministry for Finance explained that the people will not be able to start to receive retirement benefits before the age of 50 or after the age of 70 except in those cases where the scheme/arrangement provides that the payment is made by reason of the disability or death of a member.

On retirement, a maximum of up to 30 per cent of the assets of a member in a scheme/

arrangement may be paid as a cash lump sum. The remaining assets shall be used to provide a retirement income through an annuity or drawdown arrangement in accordance to set regulations.

The ministry said: “The schemes will be regulated by the MFSA under the Retirement Pensions Act and the Insurance Business Act, and so providers will need to conform to the requirements specified under these Acts.”

Asked whether people will be allowed to invest in risky funds a Finance Ministry spokesman said: “The investment rules will be set by the MFSA and not by the

“Given the long term nature of these investments, it is highly unlikely that providers will invest in risky assets”

government. This is the practise in every European country. That said, existing rules specify that the investment policy should be clearly specified or agreed with the scheme member and there should be clear disclosure awareness by client of applicable risks.

“Assets are to be invested in a prudent manner and in the best interest of members in accordance with set provisions contained in the Pensions Regulatory Framework. They should be properly diversified, and not be used in transactions with members or connected entities.

Schemes may not grant loans to members or borrow on their behalf for property. Schemes may borrow only short-term in relation to asset management and should not engage in leverage.”

However, the spokesman added that it must be made clear that this is a private scheme and there are no implicit government guarantees.

“The caveat that ‘the value of investments may go up or down’ needs to be emphasised. However given the long-term nature of these investments, it is highly unlikely that providers will invest in risky assets.”

What about the possibility that if there are too many providers mar-

ket forces may eventually mean some will give up and close down?

How can this be prevented or managed?

The ministry spokesman said that in order to be granted a license under the Retirement Pensions Act or the Insurance Business Act, one passes through a very rigid process.

“This is much tougher than the regime for normal investment services companies. It is fairly unlikely that an insurer or a pension fund would close down after having been set up with the high level of capital required. If any business decides to close down, it would have to transfer its assets to another provider or else give them back to individuals with the condition that they place them in another personal retirement scheme.

“It is important to emphasise that retirement pension providers are very different from investment service providers. Their regulatory regime is much stricter and will attract only relatively strong and well-funded providers. It is highly unlikely that there will be many providers. In fact, in small countries like Malta, the number of providers tends to be very small.”

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INTERVIEW

More ‘civil’ and more ‘service’

MARIO CUTAJAR IS HEAD OF THE CIVIL SERVICE.

e appointment of MARIO CUTAJAR as the head of the civil service after the election was met with some raised eyebrows, mostly because of his somewhat militant reputation as deputy secretary general of the General Workers’ Union until 2002. VANESSA MACDONALD challenged his performance since then.

About six months ago, a report was drawn up which came up with 50 recommendations on ways to improve the civil service. It was never made public. Why not?

It was an internal report, presented to the government in 2012, which focussed on 25 years of recivil service reform. Although not made public, we talked openly about what was in it. As a new administration, we made our own assessments and agreed with many of the report’s conclusions – including one which said the public service has lost the enthusiasm for reform.

The recommendations were not cast in stone. For the first time, we are consulting with heads and assistant

heads in all the ministries, trying to communicate what we believe needs to be changed. And there are a lot of changes to be made.

My alarm bells go off when people say they are ‘consulting’ as that is usually a euphemism for ‘nothing is going to happen’. What are you actually doing?

The last Budget showed the impact of the increased accountability.

For the first time, the public service was able to review the measures from Budget 2014, where we succeeded and where we did not.

Also, various ministries simplified processes. For example, the government knows when you were

born and when you will retire, but there is no data management. Why should you have to actually apply for your pension? So in the first year, we allocated resources to be able to manage the data.

Another initiative was to look at recruitment. We would entrust a government entity with millions of euro but make it go to the Public Administration Human Resources Office (PAHRO) to employ a clerk. It was just ridiculous. So we compiled a manual and laid down the need for a business plans, which would be approved by the Finance Ministry and PAHRO. As long as you are within those limits, there is no need to refer to PAHRO.

There was a reason for the system.

Employment in the public service was always potentially open to abuse.

For a clerk? Do you honestly believe there was no abuse just because PAHRO was there? How would they know who is being brought in?

It would only approve the recruitment, not which particular person.

These controls were there to curtail abuse, as you said, as well as to cut down on overemployment and to ensure transparency.

But did that happen? Can you really say that by centralising recruitment, you solved anything?

Incidentially, I have to say that HR does not exist in the civil services, it is just payroll and personnel.

The last exercise in capacity building was carried out in 2012 and I stopped it. It turned out to be an exercise in marketing: if you were able to sell your idea, then you would get what you wanted. But that should not be the criteria on which you should succeed.

There needs to be a delegation of authority and people should be held responsible and accountable.

Financing has already been made accountable through the Fiscal Responsibility Act, but next year we will focus on the delegation of duties in ministries – in other

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words, permanent secretaries. The permanent secretary is not a supervisor but the ministry’s chief executive officer. He or she needs to ensure that things are being done in the right way. Recruitment or the creation of new positions should be left directly to the permanent secretariat of each ministry.

One of the first things you did when appointed was to ask for the resignation of all the permanent secretaries. You have defended this before but the perception remains that you were vindictive and that the move was politically motivated.

It was the right thing to do and we do not need to defend that. It was planned beforehand and we take responsibility for it. Looking back, I still think it was the right thing to do – as I did at the time. First of all, I cannot understand how it can be seen as being politically motivated when the people who were there were also politically appointed!

The structure that we have in place must be understood. You have the minister with the chief of staff on one side and the political team. And on the other side, you have the permanent secretary with the administration...

We were brought up on the British comedy Yes, Minister. And the principle was a split between the chief of staff and the permanent secretary who was supposed to provide continuity between one legislature and another. And to tweak the minister when there was a conflict between the political and national interest.

Continuity does not come from a person but from a structure.

When a government changes there were hiccups...

There were months when no decisions were taken. It took ages to find files...

All I can tell you is that dossiers are prepared at the end of a legislature and there was a hand-over. I insist that there were no hiccups.

That is one of the good things about the civil service: circumstances change, governments change, people change, but the machine keeps working.

In 2008, the workforce was just over 39,500. In 2013, it went up to nearly 47,000. Weren’t we supposed to be cutting down the civil service, as it was competing for resources with the private sector?

It is not creeping up. We already explained that, if the health and education divisions need more people, we employ them, whether they are learning support assistants or nurses. They are really the only two divisions of any size where I do not ask when they come to us with requests; I just sign. And they do not come with requests for labourers. They come asking for professionals.

So the perception of a government bursting at the seams with messengers with nothing to do is no longer correct? Or with people who clock in and then disappear for the day to pursue other hobbies?

Definitely not. Of course, I am not going to say that everything is perfect. But even if you look at other

governments in the EU, the workforce is growing because there is now so much regulation relating to the EU and funding. There are new circumstances which mean more people are required.

The rate of absenteeism and sick leave in the civil service is high.

The MEA recently said sick leave in the public sector was twice what it is in the private sector. Are you clamping down on this?

I am convinced that sick leave is a thermometer. You need to see what the cause is; I believe it is a shortage of motivation and job satisfaction. That is what we need to focus on, and some of what we are doing now should address these issues. For example, we launched a suggestion box in October and got over 100 ideas. It may not seem like much but it is all about empowerment. When you stop asking people, they stop having ideas. Some good ideas emerged – two of them were put into the Budget.

There is palpable gap between where decisions are being taken and where they are implemented.

You mentioned that you do not have an HR office but just a personnel office. Is that going to change?

I am still toying with the idea.

Traditional culture is a hard nut to crack, based on rules and records. I am not Don Quixote fighting windmills. If we still need the personnel function, why should I try to change that into an HR function if I would probably not succeed? It might be better to split the roles. But I am still debating this.

A few weeks ago I interviewed the Auditor General and there are clearly a lot of shortcomings in the public administration, especially when it comes to projects which end up over-budget and overtime. Do you follow them up?

In the past this was not done, but it was one of the first things I did: I asked them to pull out all the reports from the NAO and the Internal Audit and Investigations Directorate (IAID) of the past five years and to see what the recommendations were, and what was and could be done.

The first that we tackled was the Contracts Department as we knew that there was a problem. The average in 2013 in the EU for a contract award is 108 days, while our average was over 250 days. We had to do something about this.

There was a real problem when it came to EU funds as we stood to lose millions of euro. We created a fast-track system for these projects and brought the time down to 178 days. The people who carried out this pilot project are now running the Contracts Department.

We also revived the Management Efficiency Unit, which had been left languishing. It is now back at the centre of what we do, with more people who have been split between ministries.

We realised that the problem was not the Contracts Department but the quality of the tender documentation submitted by the ministry concerned. It is all down to lack of training about the call for tender process which meant that the specifications were not as good as they could be and needed to be

11

“e workforce is growing because there is now so much regulation relating to the EU and funding. ere are new circumstances which mean more people are required” reviewed. So we are training people and sending them to the ministries to ensure that problems will be avoided from the outset.

How many cases did IAID handle?

There were around 50 this year.

The IAID takes time to complete its reports as it is also short-staffed. It is very hard to source auditors.

I think that this is another area where we made changes and strengthened the system. It is working with permanent secretaries to ensure that its recommendations are put into practice. Or at least most of them. As from this

year, the implementation of recommendations will form part of performance criteria.

It is no use setting a budget if ministries feel that they can go over budget and just get subventions... Are you going to be more rigid?

By the end of the year, we will have in place a plan on how the Budget measures will be implemented, in which quarter, and for how much. This will be followed up every month by this office and

by Cabinet. At the end of six months, we will look at where we

are so that, if we are off track, there is still enough time to do something about it.

Isn’t it about time that half days were phased out?

It is just a perception that everyone has half days in summer. Each department has its core hours when there is most activity and then you need full staff. But outside those hours, we can afford to be flexible.

But not for Customs... Traders constantly lament about the extra costs incurred outside hours etc.

That is a tradition. But the department has the tools which would enable it to be flexible if it wanted.

Are you going to insist on this being changed?

I like to leave it up to ministries to do things their way. But when I see things escalating, then we intervene. They know about it.

Isn’t it about time you gave them a bit of a kick up the backside?

Oh, I have been giving a lot of kicks up the backside. There is a queue, Vanessa, a real queue...

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e Business OBSERVER

| December 4, 2014

CASE STUDY

MSV LIFE HAS BEEN GEARING UP FOR PRIVATE PENSIONS FOR EIGHT YEARS.

MSV Life proposes 11th hour tweaks to third pillar pensions MSV Life is proposing a number of tweaks to the third pillar pension rules that should be issued by the end of the year – warning that without them, take-up might be very disappointing.

MSV Life has been gearing up for private pensions for eight years, employing British pensions expert Stuart Fairbairn to start setting out its vision. It was the first company to introduce a retirement product, even when there was no legislation to support it – but now that the framework for third pillar pensions has finally been approved, the company fears that it will not work.

“As the leading provider of life insurance savings and retirements, we have been gearing up for this since a long time ago. We have always worked very closely with the authorities and given our feedback.

We also worked very closely with the Pensions Working Group,” CEO David Curmi said.

“We complicate things by talking about first, second and third pillars, but what it all boils down to is having enough savings. The more people save from an early age, the more they can have a dignified time in

retirement.” Until now, there were no fiscal incentives to save up for retirement but Bill 64/65, which was unanimously approved in Parliament, was intended to change this.

However, Mr Curmi believes that the incentives – a tax credit of 15 per cent on up to €1,000 a year – will not be enough to incentivise those who do not already save to do so.

“I do not think the incentive is sufficient to change behaviour, but at least it is a first step,” he said.

The problem for companies mulling over whether to enter the market will be whether the regime will attract new savers – or merely cannibalise those who already put savings into other products.

“The majority of people who were already saving €1,000 a year will opt for this scheme because they get €150 back as a tax credit. Clearly, their financial advisers will recommend that they move to more taxefficient products,” Mr Curmi said However, although the framework has been announced in the four-page bills, the devil – as they say – is in the detail. The government has not yet said at what age people will be able to tap into the

“We complicate things by talking about first, second and third pillars, but what it all boils down to is having enough savings” retirement fund they have built up.

“Will it be 50 or 55? We think it will be 10 years before the actual retirement age,” Mr Fairbairn said. The government has also to determine what percentage of the fund can be withdrawn as a tax-free lump sum.

During the consultation period, a figure mentioned was 30 per cent.

The percentage that can be withdrawn as a lump sum could undermine the whole point about saving for retirement – as it will be likely be

spent on one-offs like a holiday or family wedding. But Mr Curmi said that other countries learned through experience that, the more flexibility you give to savers, the more likely the scheme will be successful. “If you tell them that they cannot touch their savings before they stop working at 65, for example, it would not work,” he said.

Mr Fairbairn explained that the percentage should also be flexible, explaining that, if people saved up €15,000 over 15 years, they might end up with €20,000.

“Can you really restrict people to taking just 30 per cent as cash and the rest as income when the income will be negligible? I hope that there will be a rule which says that, if your fund is less than a certain amount, you can take it all as cash,” he said. In fact, the UK, which has passed through various reforms to its pension system, has just removed the mandatory annuity condition completely.

However, there is another issue: what happens to the balance, from a fiscal point of view? “We do not know what will happen to the balance to be paid as an annuity. Is it

going to be taxed as income, as the first pillar pension is? The first pillar pension is €11,700 for someone retiring today, which means that it is below the income tax threshold unless people have other income.

“But what would happen to third pillar pensions? Will the government tax the balance of your fund at your marginal tax rate – which could be 35 per cent? If that is the case, then the product is unlikely to be attractive! There are already more tax efficient products. This is my personal concern. The government has to come up with a tax regime that is more attractive than what is currently available in the market,” Mr Curmi warned.

The tax incentives in most countries are the saver’s marginal rate of tax. “The idea behind this is that you probably pay more tax when you are working than when you retire.

So you know that you are getting more tax relief now than you will be paying on the lump sum in the future,” Mr Fairbairn explained.

With or without better fiscal incentives, MSV Life is also looking at other ways to increase the take-up.

One of these is to introduce the con-

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CASE STUDY

cept of workplace savings. For years, the successive governments have argued that employers could not afford to pay into a mandatory occupational pension. But that is not the only solution. Mr Fairbairn believes that the UK eventually came up with the best framework – auto-enrolment – but it was a long learning curve.

“In 2006, the UK started off with a system whereby all employers over a particular size have to offer access to a stakeholder pension. That had limited take up and the next version was for employers to also contribute – but only if the employee contributes. The next model was for the employer to contribute three per cent if the employee did. There was still limited take-up.

“The latest version was autoenrolment where the employee is automatically enrolled in the scheme and three per cent deducted from his or her salary, which the employer matches – but there is an opt out,” Mr Fairbairn explained.

“That model would not work initially in Malta. It would impose a cost on employers which they say they are not in a position to sustain.

But we suggested a variation, which would solve it,” Mr Curmi added.

The idea is for auto-enrolment but leaving it voluntary. Every employer over a certain size would offer access to a scheme through the workplace, with all employees automatically enrolled. The employee would decide how much to put aside and the employer would not contribute.

“This would overcome investor inertia as people do not like having to take decisions, fill in applications forms, go to a financial adviser to set things up, and so on. The employee would have the choice to opt out but the reality is that very few do. ” There is another positive aspect: The scheme would be in place for the next step, should the government ever decide to go for a mandatory second pillar.

Of course, workplace savings do not rely on the government. MSV Life is going to embark on a campaign next year to encourage companies to start offering its schemes, setting the minimum at as little as €50 a month.

MSV Life hopes this will start to promote a culture of savings. Mr Curmi warned that it is not just low-income earners who fail to put anything aside for the future.

BRITISH PENSIONS EXPERT STUART FAIRBAIRN.

MSV LIFE CEO DAVID CURMI.

“e government has to come up with a tax regime that is more attractive than what is currently available in the market”

“e state pension in Malta is too generous and it is not sustainable”

“It is a misconception that high income earners have enough savings or assets to keep their standard of living. People are earning high salaries from a young age but they spend all they earn and do not save.

One solution would be for high income earners to forego salary increases and to ask for that money to be set aside in a retirement product.

But Fringe Benefit regulations mean that the amount being put aside would still be counted as income when paid out and would be subject to income tax as a fringe benefit.

“We have been advising governments for 10 years to change this,” Mr Curmi said with visible frustration. “We understand that there need to be rules on fringe benefits.

But there should be a tax credit for this just as there is on individual savings.”

MSV Life is already investing €3.5 million in IT solutions to cope with its retirement products, but how many other providers will have the market share to justify this amount of investment – especially in the early years when take-up of third pillar pensions is slow and mostly cannibalisation? Mr Fairbairn pointed out that there are nine QROPS providers who provide pensions solutions for overseas clients.

provider. That should all be in the rules.”

The rate of investment return promised by the providers will clearly be a big selling point and there is no indication of how this risk appetite would be regulated in the rules. “There will be regulation and safeguards, for example that assets would have to be held under custody,” Mr Fairbairn said.

Other selling points will be the products themselves and how suitable they are for different ages, incomes and payments, and also product charges. They both hope that there will be financial literacy campaigns to ensure that people understand these new concepts.

Of course, the third pillar pension is not only about the adequacy of people’s income in retirement but also about the sustainability of pensions from the government’s point of view. Next spring an EU report will focus on public finances in relation to demographic trends.

“The assumptions have been released and the impact on public finance looks quite horrendous. At the moment, pensions account for 10 per cent of GDP but by 2050, that will go up to 16 per cent.

“The state pension in Malta is too generous and it is not sustainable.

“Would they offer individual pensions for €1,000 a year? No. The administration involved means it is not worth it!” he said.

There are five life insurance companies, who would probably all have the infrastructure to look at third pillar pensions. The schemes could also be offered by investment service providerss, general insurance companies and banks.

“You have to have strong investments and policy administration.

Insurance companies are ideally placed on both sides. Also insurance companies and banks have very tough regulatory oversight. I prefer not to comment on investment service providers,” Mr Curmi said. The most important thing is that providers are around for the long-term, since the average client relationship would be 25 years.

Should the government or the MFSA try to limit the number of providers, to ensure that all are sustainable? Mr Fairbairn believes that it should be left open, leaving to market forces and competition to work.

“The most important thing is portability so, if you are not happy with the underlying investments that the company is making, you should be able to move to another

The national average wage here is €16,100 and that in the UK it is €35,000. But the state pension in Malta is €11,000 while in the UK it is just €7,000. That is a huge difference!” Mr Fairbairn said.

“The UK has realised that state pension is there to provide a level of dignity, a phrase [pensions expert] David Spiteri Gingell always uses. In the UK they have slowly but surely restricted increases in state pensions so that they were gradually whittled down compared to income. And what they saved as pension payments went as tax incentives to employers and people to do themselves. That is what we need to do. But it will take a long time as you cannot reduce a state pension. We need to cap it now...”

Mr Curmi nodded.

“A pension promise is easy to make but expensive to keep. This is like linking your retirement age to longevity. Governments don’t like to say it as it is unpopular. But it is also something that we are going to have to do at some stage.

“Every country has changed tack and Malta is in a fortunate position.

Since we are the last to introduce voluntary savings, we should learn from everyone else’s experience – not through our mistakes.”

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

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

EDITORIAL

Publishers Allied Newspapers Ltd. Content House Group Ltd.

e argument for a bridge The debate over a bridge to Gozo has understandably looked at the environment impact it would cause, the impact of interfering with the undefinable ‘getting away’ feeling that comes from getting onto a ferry, as well as whether there should even be a bridge or a tunnel.

However, one aspect that is being overlooked is the cost of doing nothing.

The current three ferries operated by Gozo Channel are already 15 years old and have another 15 years of reasonable life left. Since the bridge has a 100 year life span, we are looking at replacing the ferries at least three times. Assuming that they would be replaced by something similar (and new, rather than second-hand), you are looking at an average of €15 million each, €135 million in all.

The ferries also require €6 million in staffing costs, as well as €3.5 million in fuel and €1 million for repairs and maintenance according to Gozo Channel’s financial report for 2011. Over a 100-year period, that works out to €1.05 billion taking the most simplistic view that these costs would remain the same. So just keeping the ferry service going would cost us €1.19 billion.

Gozo Channel in 2011 brought in €12 million in tickets and other revenue, which would translate into €1.2 billion over 100 years, again assuming all remains the same.

On paper, this would mean breakeven. Of course, even if both costs and revenue increase, this is far from reality at the moment, because Gozo Channel made a loss of €2.6 million for the years ended 2012 and 2013, and will continue to do so until the current PSO expires.

Against this we have the bridge, which would cost €800 million to build, with €4 million for annual maintenance: total cost would be €1.2 billion.

What about revenue? Here we have to assume that the government would levy a toll on the bridge and, for the purposes of this argument, that it would be as much as the ferry, on the premise that people would be willing to pay as much as they do now but be spared the waiting time, the passage and the disembarkation, as well as the ability to cross to Gozo at any time of day and night.

What else will the bridge deliver that the ferries do not? Much is being made of the fact that it would be available in all weather, and even if the reality is that very few crossings are cancelled, for those stranded, even one is too many.

Would it increase the traffic? The Chinese consultants believe that it would, from around 3,000 vehicles a day to 5,500 by 2021. Part of that would come from natural growth but some would come from the additional ease of travel.

For example, 42 per cent of passengers leave their cars behind, and it is estimated that 40 per cent of them would take a car if there were a bridge.

Hotels will lose out because people could visit for the day and not stay over. Restaurants will win because it will be more feasible to pop over for dinner and drive home. Companies would be able to relocate to Gozo because they would be able to tap into Gozitan as well as Maltese workers.

Gozitan workers and students could go home every night. Manufacturers would no longer face the hassle of transport – even if the costs remain the same.

Is this an argument in favour of the bridge? It is too complex to weigh up all the winners and losers – but at least let us look beyond the staggering original investment and compare it with the cost of the ferries over a 100-year period.

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BUSINESS OPINION

Traffic freakonomics

Malcolm Bray Daily traffic chaos in Malta is a clear example of market failure, a situation where the private interests of individuals are resulting in undesirable effects which are impacting negatively the rest of the population. The situation has worsened so much that previously unthinkable solutions are called for. The country has reached a point where shock therapy economic policies are needed. The country’s standard of living and growth prospects could be seriously undermined if the traffic problem is not immediately addressed.

Time wasted in traffic has a direct effect on the level of stress as well as on the level of productivity. A conservative estimate would place the daily cost at around €0.8 million per day. This is based on the assumptions that the gainfully occupied population – over 162,000 people – waste half an hour a day in traffic (50/50 resulting in lower output because of late arrival at work and in foregone leisure time), using the

hourly cost estimates for working and non-working time (from a study on commuting costs in Malta), respectively at €15.07 per hour and €4.61 per hour.

Traffic is a situation where the demand for road usage exceeds the road network supply. In recent years demand for road usage increased at a very rapid pace while the road supply network failed to keep up. To rebalance the situation, we need a holistic approach aimed primarily at reducing demand.

Since the country is already heavily built up, expanding the number of roads would only destroy further the little remaining greenery. There is a limited possibility to boost supply by introducing flyovers at key strategic junctions, such as the notorious

Marsa, Kappara and Lija roundabouts. Activities which reduce the supply of roads, such as temporary road closures because of private works, should also entail a high price tag with a clear time limit. Moreover, as a general policy, non-urgent maintenance works should be carried out at night rather than during the day.

This will inevitably raise costs but will achieve cost savings in terms of less time lost because of traffic delays.

Car usage can only be drastically reduced if the cost of owning a car is significantly increased. Fiscal measures are necessary to make the use of private transport significantly less attractive than at present. There are various options, ranging from the possibility of introducing a

higher VAT rate on car purchases to scaling up car licences according to annual kilometres driven.

Car-pooling should also be encouraged. This can be achieved if the concept of free parking is abolished, perhaps through the introduction of parking meters across the whole country. This system could be fine-tuned according to the locality and the time of the day. Other options include the possibility of zone access fees and higher charges for driving tests.

On the other hand, public transport should be incentivised to shift demand away from private car use. This requires a high level of investment in good and efficient buses, as well as other modes of transport, such as by sea or monorail. Most people

“Public transport should be incentivised to shift demand away from private car use. is requires a high level of investment in good and efficient buses, as well as other modes of transport, such as by sea or monorail.

Most people would not dream of driving through London, so imagining a situation where public transport is the main mode should not be a heresy”

would not dream of driving through London, so imagining a situation where public transport is the main mode should not be a heresy.

Traffic resulting from the intense use of the road network at specific periods can be tackled through more balanced use. One possibility could be to prohibit the use of heavy vehicles during rush hour. A more creative solution could entail a rethinking of working times. In an age where so many services can be provided over the internet, there is much less need for everyone to start working at the same time!

Another long term solution worth exploring is to decentralise commercial and admin istrative activities. Businesses should be encouraged to set up shop or relocate to less congested areas. This can be done by, for example, introducing an annual location tax. Areas which normally attract huge traffic can face such taxes while other towns could remain tax free. On a similar note, government departments need not be concentrated in the Valletta area.

The naïve might challenge these suggestions as being too radical. In reality the economy is already facing huge costs because of traffic problems. Just like the best seller book Freakonomics has shown, economic principles can be used to understand and deal with practically all aspects of human life, including finding a solution to the traffic problem in Malta.

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APPOINTMENTS

New chief New consumer business risk officer head at Vodafone for BOV PREMIER CAPITAL PLC CHAIRMAN MELO HILI (LEFT) AND MCDONALD’S CENTRAL EUROPE AND RUSSIA PRESIDENT KHAMZAT KHASBULATOV WITH MCDONALD’S LATVIA CREW.

Maltese-owned Premier Capital celebrates 20 years of McDonald’s in Latvia Maltese-owned Premier Capital plc, the developmental licencee for McDonald’s in the Baltic states, recently marked the brand’s 20 years in Latvia with an event in Riga.

To this day, the Riga outlet is the most visited restaurant in the

region, with an average 9.6 million guests every year. Premier Restaurants, Premier Capital’s operating company, now runs 11 McDonald’s restaurants in Latvia, representing an investment of €15.9 million.

Go appoints HR chief Ayrton Caruana has been appointed as chief human resources officer at Go. Mr Caruana joined Go in 2008 and occupied various senior management roles within Go’s HR department.

Over the past years Mr Caruana played an important role in various company and HR initiatives that led to a complete transformation of Go’s human resources function, workforce structure and organisational design.

In November 2013, Mr Caruana was appointed as head of human resources.

Vodafone Malta has appointed Tamás Bányai as its new head of consumer business.

Mr Bányai brings with him 15 years’ experience in marketing, sales and customer experience in customer-focused operations.

Since 1999, Mr Bányai served in a number of key positions at Vodafone Hungary, including that of head of consumer marketing between 2009 and 2012.

Most recently he served as head of retail, responsible for managing the entire Vodafone Hungary retail network of over 200 stores (including franchises).

Miguel Borg has been appointed chief risk officer at Bank of Valletta.

Mr Borg joined the bank in 2007, and is currently the bank’s chief economist.

He has held a number of key senior positions, the most recent being that of executive head risk management.

Mr Borg will be responsible for the measurement and management of all financial and non-financial risk of the BOV Group including credit risk, operational risk, conduct risk, reputational risk, banking regulation, capital management and economic research.

The bank also announced two new designations of existing chief officers: Elvia George as chief finance officer and Kenneth Farrugia as chief business development officer.

Group financial controller for Global Capital Shawn Bezzina has been appointed Group Financial Controller of Global Capital plc.

Mr Bezzina joined the company as financial controller in October 2008. In his new role, Mr Bezzina will lead the company’s overall finance and control functions.

The Malta Financial Services Authority recently approved the appointment of Reuben Zammit as chief executive officer of Global Capital plc and subsidiaries Global Capital Life Insurance Limited, Global Capital Health Insurance Agency Limited and Global Capital Financial Management.

Kamsky takes over FATTA Michael Kamsky has been appointed president of the Federated Association of Travel & Tourism Agents – Malta Mr Kamsky is currently general manager at The Westin Dragonara, a post he has held since 2007, having previously served as the hotel’s director of sales and marketing since 2003.

Among many other achievements, he was responsible for

opening the Air Malta office in Switzerland, subsequently taking over as manager for France and also spearheaded the establishment of the Malta-Sicily Express Ferry with Virtu Ferries and the Emirates Airlines flights between Dubai and Malta.

Mr Kamsky has also served as a council member of FATTA.

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?? REVIEW STOCK MARKET

Plaza keeping abreast of a dynamic market

Edward Rizzo Edward Rizzo is a director at Rizzo, Farrugia & Co (Stockbrokers) Limited In the interim directors’ statement of Plaza Centres plc published on October 23, the company revealed that occupancy levels during the third quarter of 2014 continue to rise leading to an uplift in revenue and pre-tax profits compared to the corresponding period in 2013.

During the first six months of the current financial year ending December 31, 2014, Plaza’s revenues increased by 10.7 per cent to €1.15 million, earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 8.4 per cent to €0.95 million and pre-tax profits climbed by 18 per cent to €0.71 million.

Following the strong performance during the first half of the year and the announcement of a continued increase in occupancy and profitability also during the summer months, I met up with the CEO Lionel Lapira to understand the factors behind this continued success for the company.

Mr Lapira confirmed that, while all retail units are leased out with the exception of a small catering outlet on Level 2 which is being vacated, the current occupancy level for the office space is 97 per cent and this should increase to 100 per cent during the early part of next year.

The Commercial Centre has a total rentable area of 10,600 sqm split up as to 4,600 sqm dedicated to the retail outlets across four floors and 6,000 sqm for offices.

However, the large majority of revenue is generated from the retail units and the CEO indicated

that the various retail outlets contribute almost 70 per cent of overall revenue with the balance from the office facilities. The major challenge for the company over the last two years was to lease out the office area vacated by their previous largest tenant in 2012.

Plaza embarked on a complete refurbishment of the office space spread over two floors and the area was also split into various offices to attract a number of different tenants so as to reduce the dependency on a single tenant again. The refurbishment was completed in mid-2013 and during the course of last year and this year Plaza was successful in signing lease agreements for all these units with various international companies operating out of Malta.

Moreover, as a result of the strong demand for office rentals in such a central location, the company also converted the restaurant on the penthouse level to office facilities and also relocated its management office to a lower floor in view of the higher demand for offices on the penthouse level as opposed to the lower floors.

While this naturally led to an overall improvement in rental income for the company, Plaza’s CEO also confirmed that the changes to the office area in terms of the refurbishment programme and the higher number of tenants that signed up, also translated into a higher rent per square metre.

This is possibly one of the reasons for the double-digit growth in the company’s turnover during the first six months of the year. The improved rental income from the office area will also positively impact the company’s financial performance in the immediate future.

Moreover, the CEO confirmed that rates in the retail area were maintained despite the onset of increased competition in recent years from more modern shopping malls in the immediate vicinity and also in other parts of the island. Plaza’s rental agreements with retail tenants are in the large majority fixed and not based on the performance achieved by the outlet. This is very different to its main competitor in Continued on page 20

“e improved rental income from the office area will also positively impact the company’s financial performance in the immediate future”

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Plaza’s upcoming challenge Continued from page 19 the area, Tigne Mall plc, which has most agreements with tenants structured with a minimum base rent and a top-up mechanism should the outlet exceed certain pre-established revenue targets.

When questioned on what led Plaza on the one hand to maintain rates for retail units and on the other hand to improve office occupancy at higher rates, Mr Lapira explained that the decisions taken by the company over recent years for a total refurbishment programme split into various phases definitely served its purpose.

Plaza first refurbished the retail floors in 2009 followed by the office area in 2012 and 2013. Currently works on the modernisation of the façade are in the final stages.

The CEO also commented that, while it is important to maintain the building regularly to keep abreast of market dynamics, it was equally important to continue providing a good level of service to tenants, customers and employees of the office units. Naturally, the location of the Commercial Centre is also a key determinant

and Plaza’s location is excellent since it is in the heart of what has become a much busier shopping and entertainment area. The significant increase in catering outlets along the high street and promenade is also testament to the strong rise in visitor flows to the Sliema area.

Plaza’s CEO, however, admitted that the biggest disadvantage of the Commercial Centre as opposed to other competing destinations both for retail and office units is the lack of parking facilities. Although this does not seem to have deterred the new tenants from taking up the vacated office space despite the increase in office availability in close proximity to Plaza and in other locations across Malta, Mr Lapira indicated that the company is actively seeking ways of alternative parking arrangements to better accommodate tenants and their employees in this respect.

Another upcoming challenge for the company could be the termination of the contract with the local franchisee of McDonalds.

The agreement expires on August 1, 2015 and when pressed on whether there is any indication of whether this will be extended or

terminated, the CEO couldn’t comment but assured shareholders that the company has various alternatives which would include the re-modelling of Level 0 where the present fast food outlet is located.

In the past, Plaza’s property was independently valued every three years. Mr Lapira confirmed that this revaluation exercise is currently taking place and the results will be revealed at the time of the publication of the annual financial statements which normally takes place in March.

When questioned on the indications of the results of this exercise, the CEO argued that, although this is ongoing, the hard work by the company over recent years to improve office occupancy should indeed be reflected in the valuation.

The last valuation conducted in 2011 attributed a value of €25.6 million to the property and this did not require any revaluations or impairment since it was equivalent to the latest value in the company’s books. On the other hand, the previous valuation of 2008 resulted in an uplift of €1.5 million. The current net asset

value per share of €0.72 as at June 30, 2014 is largely composed of the value of the property and any increase in the property value should be likewise reflected in a higher book value at the year-end.

Following the strong performance in the first half of the year and the confirmation from the company that this trend has since continued, Plaza is in a strong position to continue maintaining attractive dividends to shareholders since it is on course for a record financial performance. Plaza’s equity was always tailored for income-oriented investors seeking diversification away from traditional bonds.

Given their similar business models, Plaza Centres plc, Tigne Mall plc and Malita Investments plc all rank in this way, providing such investors with a wider range of options to spread their investment portfolio. Other property companies with a similar business model should consider the pros and cons of going public and seeking an equity listing given the very strong demand from retail and institutional investors for investments providing regular and sustainable income streams.

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

BUSINESS UPDATE

EY and University of Malta sign collaborative agreement EY and University of Malta’s TAKEOFF Business Incubator officially launched a series of events aimed at providing insights and guidance to budding entrepreneurs seeking to embark on innovative projects or who wish to take their business to the next level. Entitled ‘Exceptional Entrepreneurs’, the series will be addressed by alumni of EY’s Global Entrepreneur Of The Year™ (EOY) programme.

The aim of the series is to bring up and coming entrepreneurs face to face with, literally, Exceptional Entrepreneurs – men and women who rose to the top of their game by being the most creative, innovative and insightful.

They will be sharing their knowl-

edge about building successful international ventures from the ground up.

The EY EOY programme is considered to be the world’s most prestigious business award.

Launched in 1986 in the United States, it is held in more than 145 cities and in more than 60 countries worldwide. A ‘who’s who’ of both developed and emerging markets, these alumni include many household names. LinkedIn’s Reid Hoffman and Jeff Weiner, and Rovio founder Mikael Hed are recent EoY National Award winners, whilst Guy Laliberté, Founder and CEO of Cirque du Soleil, and Michael Spencer of ICAP plc are recent Global winners. Over half of today’s top 100 Nasdaq companies have won the EOY Award.

Ronald Attard, EY Malta’s Country Managing Partner said: “through this partnership we aim to provide a valuable platform with exceptional entrepreneurs who will not only share their success stories, but also answer questions and discuss pathways and strategies.”

The Rector, Prof. Juanito Camilleri, said, “this initiative will support ongoing efforts at the University to encourage the entrepreneurial spirit among students,

EY MALTA’S COUNTRY MANAGING PARTNER RONALD ATTARD (LEFT) SHAKING HANDS WITH UNIVERSITY RECTOR PROF. JUANITO CAMILLERI AS EVARIST BARTOLO, MINISTER FOR EDUCATION AND EMPLOYMENT, LOOKS ON.

and provide entrepreneurs at TAKEOFF and individuals involved in the broader local startup community, with the opportunity to learn firsthand from some of the world’s most influential and innovative highgrowth entrepreneurs.”

Evarist Bartolo, Minister for Education and Employment thanked both EY and the University of Malta for their commitment and for offering this mentoring opportunity to entrepreneurs.

“Sharing your ideas with the people who have been successful in their business path will not only give the right insight, but will surely empower the audience to keep working at converting their ideas into working ventures.”

The Exceptional Entrepreneurs series will cover a number of topics with experts from different economic and financial spheres. Follow us on our Facebook page EY Malta Careers to find out more.

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BUSINESS UPDATE

Evergreen Lines awards Malta Representative Agency

PARLIAMENTARY SECRETARY FOR COMPETITIVENESS AND ECONOMIC GROWTH JOSÉ HERRERA ADDRESSING THE EY CONFERENCE.

HSBC supports dialogue on important growth sectors of transport and logistics The Parliamentary Secretary for Competitiveness and Economic Growth José Herrera highlighted the significance of logistics and transport and their potential role as a key economic pillar for Malta during the breakout session of ‘Malta: A regional centre of excellence for Trade & Logistics’ on the sidelines of EY national conference held recently.

Present for the conference was Michel Cordina, Head of

Commercial Banking at HSBC Bank Malta, which sponsored the session as part of HSBC’s commitment to nurturing the transport and logistics sectors and the internationalizing of the Maltese economy.

The Bank was the main sponsor of Malta’s first-ever transport and logistics awards, TransLog Awards 2014, given away during a prestigious award ceremony night held recently.

Enterprise resource planning also for medium and small companies Flexibility and quick response are hallmarks of business competitiveness. Access to information at the earliest possible time can help businesses serve customers better, raise quality standards and assess market conditions. Enterprise resource planning (ERP) is a key factor in instant access.

Although some think that ERP systems are only for large companies, this is not the case. Medium and even small companies can also benefit from the ERP approach.

This is possible if the ERP system being employed is a modular system where one can implement only the necessary modules and add more as the business grows.

The use of information systems to add value to the organisation is strongly influenced by organisational structure, culture and change. No system alone will successfully be implemented if there is

no willingness to adapt and change existing processes.

Businesses need to ensure that improvements or completely new IT systems help lower costs, increase profits, improve service or achieve a competitive advantage.

These can be achieved through the use of various modules which most ERP systems provide, including accounting, sales, purchasing, distribution, warehouse management, asset management, project costings and business intelligence tools.

The smart use of an ERP system in today’s ever evolving operating environment, where customers, competitors, suppliers, shareholders and financiers are closer to each other, enables businesses to have information available on demand consistently.

This is critical for an organisation to not only survive but to thrive.

Evergreen Lines, which is the fifth largest shipping line on a worldwide basis, operates 180 ships and calls at 240 ports worldwide including Malta, where it is represented by MBL Shipping Agency.

As part of its quality system to ensure efficiency and best service to its clients, Evergreen Lines assesses the performance of its agents through an Agency Performance Evaluation system, which monitors the performance of the agent on a quarterly basis on issues such as customer care, business development, equipment control and accuracy of documentation.

During the general agents meeting of Evergreen Lines which was held in Paris on November 14, the Malta agent, MBL Shipping Agency, was awarded as the Best Improving Agent Award for registering the highest rating in all the fields of assessment.

The managing director of MBL Shipping Agency, Godwin Xerri, was presented with this prestigious

award by Marcel Chang, Vice Group Chairman, Evergreen Lines.

MBL Shipping Agency services conform to the requirements of ISO 9001-2008 – an accreditation that the company achieved and maintained since 2011.

Imports of goods from European countries With the vast information available on the world-wide-web about importation of goods, people have become sharply knowledgeable about the market as well as the competition in the field. Indeed, the public demand has become more sophisticated and advanced.

Thomas Smith Freight Forwarding division can move cargo to Malta swiftly, efficiently and costeffectively, be it by trailer or container. This service has been offered in its enhanced and evolving stages since the early days of Thomas Smith Group, now in its 166th year.

Whereas in the past Thomas Smith’s trailer service was a result of the representation of a trucking company, Thomas Smith now improved considerably its control on the product and the service, by having partnered with one of Europe’s leading logistics service company, Rhenus Logistics.

Rhenus boasts years of experience and presence in international markets with more than 390 locations worldwide, and offering complete geographic coverage of Europe. Given this working agreement with Rhenus Logistics,

Thomas Smith is able to provide a major service upgrade, which also includes a consignment tracking system. Contact us by e-mailing us on trailer@tcsmith.com.

Thomas Smith Group is one of the longest established service group of companies on the island, specialising in international shipping services and insurance with a leading market position as a port agency and in freight forwarding, project cargo, logistics, reefer cargo, airfreight, groupage, trailers and full load containers.

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BUSINESS UPDATE

Domestic and international transportation solutions At Arrow Express, we make it easy for you to choose us. Our vast and flexible range of domestic and international transportation solutions are built around your individual requirements.

Our services include: Airfreight & Dangerous Goods – Arrow Express offers a full freight forwarding service to and from practically every corner of the world on a door to door,door to airport or airport to door basis.

International Courier – Our international courier service provides a global solution to move your time-sensitive parcels on a door to door basis in an efficient and cost-effective manner.

Seafreight – We can offer a seafreight service for LCL (Less than Container Load) or FCL (Full container Load) to/from many destinations throughout the world.

Trailer Services – We are able to offer an unrivaled service at competitive rates, even on the most challenging jobs, no matter how small or how large your shipment is.

Time Critical Courier Service – This door to door service is offered on a 24/7/365 basis and operated on a ‘next flight out’ criteria.

Domestic Courier/Errand Service – Our Domestic courier/Errand service ensures that you have your own personal messenger service whenever time is short.

Project Cargo – At Arrow Express we understand your requirements and offer a complete and seamless service from start to finish for any freight project we handle, be it conference material, music equipment or a fully blown movie set.

Customs Brokerage – All customs brokerage is handled inhouse by our trained personnel via an intranet link with local customs authorities.

Logistics ,Warehousing & transhipment – We are able to offer warehousing in both free-zone and non-bonded areas as well as deconsolidation, sorting, repackaging, re-labelling, and re-shipping consignments in one or several lots.

Planning to secure a dignified future Angelo Xuereb, CEO of AX Group The concept behind any private pension scheme should be that of guaranteeing fair means with which people can relatively keep their accustomed standard of living. This is the lifestyle we are promoting through our recently launched Hilltop Gardens Retirement Village – planning to secure a dignified future.

Located on the outskirts of Naxxar and commanding open views, Hilltop Gardens Retirement Village is a first of its kind in Malta which becomes operational in the last quarter of 2015. Clients of 60 years or over have the opportunity to acquire one of 150 high-end finished apartments combined with an independent lifestyle designed around them to create a unique active ageing experience.

Yet it will also offer the peace of mind that as the needs and dependencies of the elderly change over

time, the necessary customised clinical and domiciliary care will be provided.

The project is unique not only because it will be creating an inspiring community for the elderly who want more from their retirement but also because it will challenge the local stereotypes tied to ageing by acknowledging the huge contribution that people can still make later in life.

While promoting active ageing and optimising the opportunities for health, participation and security, Hilltop Gardens will be offering multidisciplinary, ancillary and support services as well as a wide range of facilities which create an unrivalled environment designed for modern retirement living.

Residents will also benefit from the provision of assisted daily living services, a wide range of hotel type services as well as at-home care support from our on-site professional team.

Company Services Providers get top international insight at MFSA workshop The Institute of Directors’ Malta Branch (IoD) chairman James Satariano reported that over 130 delegates attended the workshop for company service providers (CSPs) organised by the IoD in conjunction with the Malta Financial Services Authority (MFSA) and the Malta Institute of Management (MIM).

During his opening address, Mr Satariano stressed that Malta’s solid reputation as a trusted international financial and business centre depends on improved standards in corporate governance.

The packed hall was then addressed by keynote speaker Dr Barker, the Director of Corporate Governance and Professional Standards at the Institute of Directors in the UK. Dr Barker said that the limited liability company is the cornerstone and building-block of the modern economy. However, while it can be used for legitimate purposes, it was important to understand that it can also be the vehicle for criminal purposes. This negatively impacts the reputation of the entire economic system. This, he said, is what all jurisdictions must

THE INSTITUTE OF DIRECTORS’ MALTA BRANCH IN CONJUNCTION WITH THE MALTA INSTITUTE OF MANAGEMENT AND THE MALTA FINANCIAL SERVICES AUTHORITY HELD A WORKSHOP ON NOVEMBER 13 AT THE MFSA IN MRIE EL ATTENDED BY 130 COMPANY SERVICE PROVIDERS. DR ROGER BARKER, THE DIRECTOR OF CORPORATE GOVERNANCE AND PROFESSIONAL STANDARDS AT THE INSTITUTE OF DIRECTORS IN THE UK WAS THE KEYNOTE SPEAKER.

manage to maintain integrity. Dr Barker said The Company Service Providers Act 2013 is a positive step

forward for the integrity of companies in Malta but it is not the end of the journey. The workshop,

moderated by Ogilvy CEO Edwin Ward, was held at the MFSA’s building in Mrieħel.