The Business Observer Newspaper 4th June

NEWS

Issue 27

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June 4, 2015

Distributed with Times of Malta

A recent court judgment may make it possible for dozens of tax offenders to claim for wrongful imprisonment – and may lead to the law being changed. see page 3 >

FEATURE

Maternity fund: firms to pay 0.3% of basic wages

David Darmanin wants Hotjar to be used to improve all websites all over the world. Watch out...It’s not such a wild claim. see page 5 >

INTERVIEW Vanessa Macdonald The private sector will have to pay more national insurance contribution for all employees – 0.3 per cent of basic wages – to build up a fund from which the 14-week maternity leave will be paid.

The fund was promised in the Budget 2015 speech after Malta extended the maternity leave to 14 weeks, prompting entities representing the private sector to complain about the financial burden it would represent.

Currently, employers pay 14 weeks of maternity leave at full wages for every pregnant employee who gives birth provided that the employee stays in employment for at least six months following her return to work.

The Malta Employers’ Association had warned in 2013 that the burden was discouraging companies from

employing women of child-rearing age – even if this stopped just short of discrimination.

To overcome this, the proposal was for all companies in the private sector to pay slightly more national insurance contributions, which would go into a trust fund from which maternity leave would be paid. The trust fund created will be administered through a board of

“e MEA has welcomed the scheme but has reservations about a few points”

trustees and overseen by the social partners, and will become effective as soon as the legal notice is issued – envisaged by year end.

The Ministry for Social Dialogue has advised that the premium contribution would be 0.3 per cent of the basic wage of all employees, calculated by taking the number of employed females, the annual basic wage, probability of maternity, probability of females who stop working before/during/after pregnancy and the number of female employees working in the public sector.

The contribution rate may be revised after two to three years. This has raised a red flag at the Malta Chamber of Commerce, Enterprise and Industry which is concerned that it could increase in the event that the fund was insufficient to cover the full cost of maternity leave in Malta.

According to the GRTU, which was briefed by the ministry, the

public sector will not benefit from the fund and will continue to pay its employees on maternity leave directly.

The MEA has welcomed the scheme but has reservations about a few points. It suggested that to expedite reimbursements, the employer should submit an application on the day the employee goes out on maternity leave – as this would give 18 weeks for processing the application. It is also in favour of retaining the obligation for the mother to work at least six months following her return to work, but proposed solutions for when this is not possible.

“Should the employee not work the full six months, or simply not turn up for work, the employer will still be reimbursed. It will be up to government authorities to collect the maternity leave payments from the employee – to be returned to the Continued on page 6

Identity Malta chairman Joe Vella Bonnici believes it would make sense to extend the citizenship scheme beyond the 1,800 cap – as long as it is successful. see pages 10 and 11 >

STOCK MARKET REVIEW Farsons’ plan to hive off its properties into another company is the latest in a series of recent groundbreaking changes within listed companies. see pages 18 and 19 >

e Business OBSERVER

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June 4, 2015

NEWS

Tax ruling may lead to claims of wrongful imprisonment A ruling by the Constitutional Court on a tax case could result in dozens of claims for wrongful imprisonment and major amendments to tax laws.

The Constitutional Court was asked to overturn a 2012 judgment of the Magistrates’ Court which could have sent Angelo Zahra to jail for as long as 18 months.

Mr Zahra, the sole director of Stratford Co. Ltd, was charged by the police after he failed to submit tax returns between 1998 and 2005. The Court slapped him with an administrative fine of €1,000 but the Attorney General appealed, insisting on a daily fine that could translate to an effective jail term.

The Court of Criminal Appeal found in favour of the Attorney General, imposing the additional daily penalty requested by the prosecution.

Mr Zahra’s argument that he was being charged twice for the same offence was dismissed. Subsequently, Mr Zahra filed a Constitutional Application to the First Hall Civil Court (Constitutional Jurisdiction) but even this application was dismissed.

His lawyer, Robert Attard, refused to give up on the case, filing an appeal to the Constitutional Court on the grounds that his client’s human rights had been infringed because he was being punished twice for the same crime.

This principle was established by the European Court of Human Rights in a case against Sweden last December, which said that a person who infringes VAT law cannot be subjected to two penalties for the same offence.

In Malta, a person who is in breach of tax laws (mainly VAT and Final Settlement System law) has to pay both an administrative penalty and a criminal penalty.

The Constitutional Court agreed that there were some instances when the administrative fine was “so severe” that it could be considered to be the equivalent of a criminal one.

The Constitutional Court found the Court of Magistrates’ judgment unconstitutional, declaring it null and void.

The police were ordered to pay Mr Zahra €800 in damages for the anxiety and frustration he faced due to the ruling of the Magistrates’ Court.

The judgment means that those jailed for breach of tax laws could now claim damages for wrongful imprisonment on the same grounds of double punishment.

It could also signal the death knell for clauses in the VAT Act which say that the institution of proceedings or the imposition of a penalty do not relieve the person from prosecution and liability to the payment of an administrative penalty.

Between 2004 and 2012, there were 120 people imprisoned for defaults in VAT payments, with sentences ranging from 12 to 49 months, according to a parliamentary question in 2012. Another 23 were found guilty of breaching VAT law between August 2013 and August 2014 after their fines were converted to imprisonment.

The present government has since made changes to the law to reduce the way in which fines accumulate.

“ose jailed for breach of tax laws could now claim damages for wrongful imprisonment on the same grounds of double punishment”

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FEATURE

When disruption means growth Did David Darmanin’s wife think “Third time lucky!” when he woke her up in the middle of the night to tell her about the great idea he had had?

He had already started two companies which he had had to give up on but he is the ultimate entrepreneur, ready to take risks and to learn from his experiences.

Speaking to him at the borrowed offices in Sliema he and his team have been using, it is clear he is himself still somewhat stunned at just what a great idea it turned out to be.

His entrepreneurial spirit was nourished by Young Enterprise, which his team went on to win at European level, and he even started an entrepreneurship foundation while studying. He graduated as a lawyer but it was not a good fit, and he went to work for a software company helping to analyse the site and its traffic and realised that he was becoming intrigued by what made some sites work better than others.

“There were tools to help website owners but they were very expensive and very disjointed. And the clients were obviously not happy as they knew they were not getting the information they needed.

“It was the perfect time for us to disrupt!” he said.

In June 2014, he and three other Maltese, and two Swedes got together to create Hotjar (there is now another person in Finland, as well as contractors ‘all over the place’).

The idea was to offer one tool costing $29 a month, a fraction of the thousands such tools normally cost: “We wanted to democratise it, by going for low price, high volume.”

The founders put in their own money, knowing that they would have to pay themselves till it got off the ground – and immediately set out to make their mark. Rather than developing the product, they first focused on enlisting clients. Within a month, they put up a website explaining what the service would do and asking for e-mails, promising benefits like free subscriptions for those who referred them to friends.

The strategy worked better than they could possibly have hoped: they accumulated a database of over 60,000 e-mails. Work started on the website, and by September 2014, a beta test version was up and running. By March this year, clients in over 100 countries were using it to analyse almost 23,000 sites.

It was time to launch Hotjar officially, offering heat maps showing where visitors lingered

DAVID DARMANIN

most, recordings of visitors’ movement through the site, feedback showing where visitors were getting stuck and frustrated and various other services.

“We work out what drives traffic to the site, what hooks visitors, and what barriers there are. And we offer loads of tips on how to improve it, the ‘Hotjar’ way,” he grinned.

Their innovative marketing approach has not changed. At the moment, they are offering a free basic package with the chance to upgrade to a premium product. Within weeks, Hotjar will be moving into its

new offices in St Julian’s – a few sofas, table soccer, fridges, no formal desks, no formal working hours or leave – and Dr Darmanin will sit down to adjust their strategy.

“I guess you could say we are a success. Six weeks after going live, we are already breaking even and we are now aggressively recruiting a few of the best and brightest around the world.

“We are on track for a turnover of €500,000 a year and we have already been approached by an investor but I don’t want to sell out. We want to go for the US market and will need

to grow but we want a strategic investor, not a buyer.”

Hotjar now has 29,000 subscribers, who use Hotjar to monitor 37,000 websites. He should be very happy but it will come as no surprise to know he is far from satisfied.

“We want everyone in the world to use this tool so that we can change the way websites work,” he said.

From anyone else, this might sound cocky. But as Dr Darmanin’s wife turned over to go back to sleep a year ago, did she ever imagine the idea would fly so high?

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June 4, 2015

NEWS

15% annual return from angel investing The majority of angel investors who helped companies through Go Beyond Investing are seeing annualised portfolio returns of over 15 per cent per annum, according to a study. Around 87 per cent of the 164 angel investors who made one investment made money – but the figure goes up even higher to 97 per cent for the 39 per cent of angel investors involved in five or more entities.

“Positive returns on the strongest performing investments far outweigh the losses on the failures,” the study showed.

Go Beyond Investing – which has an office at the Take Off Incubation Centre at the University – enables individuals to become angel investors, providing a platform, tools, training and expert angels.

The experience has been positive enough to encourage investors to go for more than one investment, with 80 per cent getting involved in a least three rounds of investment – and some involved in over 12.

The investor report – the first of its kind – covers the period between 2008, when Go Beyond

started with just 20 investors, to 2014, when it had already grown to a community of 192 – representing 25 nationalities. So far, 36 companies have benefited from €10.2 million in angel investing of which 29 companies are still active in the network.

The 36 companies are now worth €17.9 million, of which €12.5 million was returned by the seven companies which exited.

“This is 2.6 times the invested amount in these seven companies,” the report said.

“Given the stage in the portfolio’s life cycle,

the small number of failures and the fact that 80 per cent of the invested companies are still active will likely result in an even stronger future portfolio performance.”

Around 1,000 proposals are screened every year, of which 100 get through the first filter and go on to due diligence, and around 20 receive investment.

However, the report was excited to see that many of the companies received subsequent investment from their angels, and that the experience was positive enough for angels to invest in more than one company.

Two-thirds of angels made three or more investments across companies, with sums ranging from €29,000 to €1.45 million.

Go Beyond focuses on four sectors: consumer, industrial/ medical/technology, and ICT. ■ Those interested in becoming business angels should contact Jean Paul Barthet, operations manager and head of sales for Go Beyond Investing, on 2340 8321 or by e-mail: jeanpaul.barthet@go-beyond.biz

“Positive returns on the strongest performing investments far outweigh the losses on the failures”

Maternity rights in the workplace Continued from page 1 trust fund. Employees who do not comply will be subject to a fine in addition to the reimbursement.

“There should also be an understanding that returning employees may, in agreement with the employer, distribute the hours to be worked during the obligatory six-month period over a longer period of time on a reduced-hour basis. Such arrangements, which are beneficial to both employer and employee, are currently prohibited by the Department of Industrial and Employment Relations,” the MEA said.

One of the major concerns for employers is that many industries – due to the nature of their work – have a very low, or non-existent female labour force.

“The fund could consider exemptions for such companies where this is the case for a

“Employers in femaledominated sectors would benefit at the expense of employers in maledominated sectors” fairer distribution of the maternity leave burden,” the MEA said.

The GRTU was also concerned that employers in female-dominated sectors would benefit at the expense of employers in maledominated sectors.

It also wants assurance that the system does not involve additional expenses, such as for payroll software.

The GRTU also stressed that the reimbursement system should be efficient to prevent unnecessary cash flow concerns.

“The GRTU will continue to stress that any form of repayment or reimbursement should be passed on to employers with immediate effect upon payment to the mother in question.”

The Malta Chamber of Commerce, Enterprise and Industry also praised the scheme as “a fair one”, especially with reference to employers who employ a balanced mix of males and females.

But like the MEA and the GRTU, it is concerned that the scheme does not address the position of companies employing a majority of males, saying that it had raised this matter for discussion with the government.

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June 4, 2015

INDUSTRY FOCUS

Future bright for PVs There is no doubt that the photovoltaic industry has boomed in the last couple of years. Global solar photovoltaic capacity has grown from around five gigawatts in 2005 to a little under 140 gigawatts in 2013. This is enough to power over 45 million European households for a year – and is the equivalent of the electricity produced by 32 large coal power plants, according to the European Photovoltaic Industry Association.

And the trend is far from levelling off. By the end of 2015, global solar capacity is expected to reach more than 200 gigawatts, with China set to lead the way.

Malta has likewise seen demand grow, thanks to various government schemes. There were 2,700 applications for solar water heaters through a scheme launched in 2012, according to the Malta Resources Authority, while various PV schemes attracted some 12,000 applications.

Unfortunately, this rapid growth means that consumers have not yet had time to fully come to grips with either the environmental or technological options.

Ryan Xuereb, the managing director of Econetique, is an evangelist for alternative energy – particularly wind and solar – but he is also concerned that apart from many professional firms, there are unfortunately a few opportunists.

“The professionals are the companies which value the client and future business first and foremost. Hence, they engineer the system where all the components

and the installation are of the highest quality. Opportunists jump on the bandwagon with the main aim of selling as many systems as possible with the biggest margin possible.

“Unfortunately it is quite difficult for the end consumer to get his/her head around the technicalities of a PV installation. What happens is that most of the time the company with the best marketing prevails. Unfortunately, this does not always translate to the best quality, performance and longevity,” he said.

He believes that the need to safeguard standards applies at a national – not only domestic or industrial – level, particularly since government funds are being provided to subsidise installations.

“It is important not only to ensure the safety of the installation, but also to maximise the potential power generation from the system. Funds should be utilised to install the best system, fulfilling the optimal potential of the roof space available, for the longest period of time,” Mr Xuereb said.

Clearly, the way to achieve the best outcome is to incorporate plans for alternative energy as early as possible in the design – and to future proof the installation.

George Bugeja, the manager of Panta Lesco’s renewable energy division, stressed that clients’ energy requirements change over time.

“Our technical team’s biggest challenge is to understand the

“It is important not only to ensure the safety of the installation but also to maximise the potential power generation from the system”

SOURCE: STATISTA.COM

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INDUSTRY FOCUS

diverse requirements of each client before recommending a suitable way forward.

Being involved in the project right from the start allows us to come up with a customised design for renewable energy which meets the client’s current needs – but which can also grow with changing requirements over time,” he said.

Requirements change for a variety of reasons relating to demand, but also because clients realise the benefits of producing their own energy “Fortunately, the introduction of new technologies gives us increasing options for retrospective installations. Retrofitting a solution which was not identified at the design stage is a challenge, but technologies such as microinverters and smart modules can yield sufficient energy, even from areas of low production,” Mr Bugeja said.

The director of Energy Management Solutions Ltd, Jean Paul Micallef, recommends an energy audit as the ideal way to start, saying that this should not be seen as a one-time report but as an ongoing relationship.

“The facility manager and the energy auditing engineer should work together from the planning stage until the commissioning stage. And they need to take a holistic view,” he advised.

“We need to understand how the facility operates through effective communication and follow-up at the facility, using a bottom up approach, during which management has to involve all subordinates.”

The savings resulting from an energy audit can be substantial.

However, he said that apart from being cost effective and delivering a high return on investment, EMS reported even better indirect returns.

“I recall a case study which resulted in dramatic savings in energy consumption at a factory of around 50-60 per cent, but it also made the environment much more comfortable for operators, who in turn delivered better

“e facility manager and the energy auditing engineer should work together from the planning stage until the commissioning stage. And they need to take a holistic view” results in the quality control section,” he said.

Energy audits come up with options for various direct replacement technologies, such as solar

panels, solar thermal heating, LED lighting and building management systems. Mr Micallef warned that these alone may not give optimal savings as there may be limiting

factors such as roof space or limitations in the grid connection.

“The obvious quick win – if you have abundant roof space with

solar exposure throughout the year – is to invest in a quality photovoltaic plant. Don’t forget that the investment is for a period of 20-30 years, so the products selected, from panel and frame to inverters, must give a good performance and must offer reliable technology that delivers immediate product support and flexibility over its lifetime.

“In practice if you have a failed inverter and your system stops producing, how long are you ready to wait for a replacement?

Today, thanks to competition, you can even limit your risk by selecting products that effectively communicate with the facility owner should a fault arise on a particular panel.

“Apart from this, the manufacturers we deal with have in place customer support software that allows diagnosis of the fault and effective solutions are delivered within a few hours from detection.”

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June 4, 2015

INTERVIEW

Identity crisis or passport to success?

Vanessa Macdonald The chairman of Identity Malta, Joe Vella Bonnici, has no doubt about what will happen to the Individual Investor Programme once it reaches its 1,800 maximum.

“No one believes for a moment that if it were successful, and we brought in all the money expected, that it would not be extended.

“From an economic point of view it would be shortsighted to stop something if it works. Today, we get people coming to live in Malta for all sorts of reasons, from carers and nurses to chefs and waiters. If we have a choice, is this what we are going to stop? Or would you try to limit other migratory inflows? This is something which will have to be assessed in the light of where this country wants to go,” he said.

The Individual Investor Programme raised considerable political hackles, not to mention howls of patriotic protest, when it was first mooted in 2013. It was subsequently overhauled to make it more palatable to its critics – but with the first passports now being handed over, the drive to assess the economic impact is slowly but surely taking root.

Mr Vella Bonnici pushed a plate of Maltese almond biscuits past the flower arrangement on the board table at the Identity Malta office in the Mediterranean Conference Centre: “Would you like

one? Two applicants came here to take the oath of allegiance this morning so we laid on some sweets,” he said.

The government announced a few weeks ago that 13 foreigners had become Maltese citizens, with another 573 being processed.

Many of the 13 are people who had been living in Malta before the scheme was announced and who therefore already satisfied the 12-month residency. The others are being subjected to due diligence – a verification process – which involves a painstaking check of each and every document, each and every link, each and every signature by Identity Malta’s team of 20. It is hard to appreciate the scale of these checks. The application itself fills a standard file.

However, the filtering process starts with the authorised registered mandatories – agents – who must have access to sufficient

software to “know from day one who they are dealing with”.

“We have turned away some applicants – the numbers are not significant – for a variety of reasons ranging from their medical and police records to the fact that they are ‘politically exposed people’. It is in the agents’ interest to be thorough.

“It is very difficult to tell applicants at the eleventh hour that they did not meet the criteria, after they have paid a considerable amount of money – applicants pay a non-refundable €650,000 – and gone through certain processes. But we have had to do it,” the CEO of Identity Malta, Jonathan Cardona said.

There are now 113 agents including concessionaire Henley and Partners, which is no longer involved with the assessment of the applications, as was originally conceived.

“e legislation for the fund is ready and we are told that it is at an advanced stage of being set up”

So far, Identity Malta has handed over €12 million to the government, targeting about €50 million this year, of which 30 per cent will go to the consolidated fund with the balance going to an economic and social fund.

“The money collected so far is sitting with us,” Mr Vella Bonnici said. “The legislation for the fund is ready and we are told that it is at an advanced stage of being set up; we hope it will be done quite soon, within weeks.”

The fund, which is being handled by the Office of the Deputy Prime Minister, will be administered by an agency, also not yet set up. Until this is done, it is pointless to hazard a guess as to where the money could be spent, although it was announced that it would take “a longer term perspective of the economic and social needs of the country, from research and development, technological development,

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INTERVIEW

education, health”, Mr Vella Bonnici said.

Apart from the money collected from the application fee, applicants must either buy a property worth €350,000 or rent for at least €16,000 a year.

The majority of those whose application for citizenship is at an advanced stage are more interested in buying than renting – and they are spending far more than the minimum of €350,000.

“I don’t meet all the applicants but I do meet most of them – and we have not heard of anyone buying for much less than €1 million. And the highest so far is nearly €4 million,” Mr Cardona said.

So far, the numbers are hardly enough to skew the property market and Mr Vella Bonnici believes that with high-end developments coming on stream, like Pender Gardens, Metropolis and various high-rises, there will be enough on offer for even the most discerning buyers.

“But at the moment, it is tight,” he admitted.

Anecdotal evidence from real estate agents suggests that many of the applicants are coming to Malta with the intention to rent – but fall in love with the island and decide to buy.

“We haven’t really started to analyse the information as the obligation to rent or buy only takes force once they get the approval from us,” Mr Cardona said.

“But yes, we have a number of applicants who came here with the idea of going for the minimum possible but who end up buying.”

Identity Malta has to be given a copy of their purchase or rental agreement so it will eventually be able to analyse these figures, as well as monitor rented properties to ensure they do not sublet for five years.

“They need to give us an address in Malta when they apply and although they do not need to spend €16,000 as minimum rent at that stage, they do not tend to rent for much less than that,” Mr Cardona said.

“These are millionaires, even billionaires. None of them have had to go the bank to borrow money to pay for this programme, I assure you!”

Apart from the property requirement, the scheme was designed to encourage the applicants to forge ties on the island – not merely through a somewhat vaguely defined 12-month residence, but also through involvement in other areas.

“Our idea is to set up a postcitizenship relationship with them.

We have various ideas to ensure that, once they take citizenship, we remain in touch, telling them how the programme is going and bringing certain areas to their attention,” Mr Vella Bonnici said.

Mr Cardona added: “We need to find what they are passionate about whether it is sports or culture or social welfare. You can create a synergy like that.”

There are also obligations relating to investments, and here too, the citizenship scheme is punching above its weight, at least according to participants at a workshop during the Finance Malta annual conference.

Mr Cardona, a bit more thick-skinned after a year of controversy, shrugged.

“That is why this programme was created: to attract investment and high fliers to this country. Our budget to market ourselves out there is very limited – both in terms of money and human resources. This programme has managed to put Malta on the map of really successful individuals and helped them to understand what Malta is really about.

“We bring to their attention where Malta has been extremely successful, where we are global leaders, like the financial sector, i-gaming, maritime and aviation services. And it is working. We liaise with other authorities and ministries, from Malta Enterprise to Finance Malta, depending on their background or area of interest,” he said.

“Ultimately the country has to decide what benefits we are getting from citizenship and residence programmes and decide what it wants to do.”

Passport schemes being restricted Only a handful of countries offer direct citizenship – but while some of them are tightening them up to stem inflows, others are making them more liberal.

The scale of citizenship programmes is perhaps hard to appreciate. Hong Kong was being flooded by people from mainland China, while Canada had 64,000 applicants pending last year when it decided to close the scheme (Quebec retained its own scheme).

But while a number of jurisdictions are reviewing their eligibility criteria and conditions, including Singapore, the UK, Australia and Switzerland, other countries like Latvia, Antigua and Bulgaria are

anxious to tap even more of the growing demand.

The restrictions are not only coming from the granting countries: China and India are also seeking ways to stem the flow by restricting their citizens’ ability to hold more than one passport, and they – as well as South Africa – are also imposing currency controls, Nadine Goldfoot, a partner at Fragomen LLP in London, explained during the recent Finance Malta conference. The European Commission also has a say when the citizenship is granted by its member states, as this would grant them the same rights as any EU citizen. In fact, the Cypriot programme is being closely watched

by the EU. Interior Minister Socrates Hasikos reported recently that the scheme, which initially cost €28m, then €10m, then €5m to join, had boosted the economy by €2 billion from property sales and investments.

With an estimated 13.7 million high net worth individuals around the world, even a fraction of these seeking a second or third passport translates into huge demand for citizenship programmes.

Henley and Partners citizenship expert Christian Kalin had told BBC News last year that he estimated that every year, several thousand people spend a collective €1.5bn to obtain another passport.

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June 4, 2015

CASE STUDY

Industry not fully aware of benefits for clients Malta’s financial services may be the victim of its own unprecedented growth and evolution...

The lack of awareness of the rapidly changing financial solutions available means practitioners may not be nimble enough to offer the most effective solutions to clients, the managing director of Alter Domus Chris Casapinta warned.

“The Maltese jurisdiction is growing so fast, with so many new products being introduced that practitioners might not even have time to keep up with the exciting options they could offer their clients,” he said.

“Take securitisation vehicles.

Do we have practitioners with enough experience and exposure to propose them? It is useless having new laws and regulations unless you understand when they might be valuable tools for your clients.”

Securitisation has been a buzz word in Malta for almost eight years, offering an alternative – or complement – to bank financing.

But recent legislation introduced the concept of ‘securitisation cells’, which mean there is no contagion of liabilities between the different cells owns by investors.

“It is one of the first structures of its kind available in Europe, so there is naturally considerable interest, especially for investors interested in asset classes like real estate and shipping, which give an annuity,” he said.

The ‘first mover’ advantage that such innovative legislation

provides cannot be underestimated, particularly since Malta has to compete against long-established jurisdictions like Luxembourg and Ireland, he stressed.

Another area where Malta has held its own, in spite of competition, is in the fund management business. Malta, like other European member states, introduced the Alternative Investments Fund Manager Directive (AIFMD) in 2013.

But unlike other countries, it retained its ‘professional investor’ regime, which has attracted considerable attention from clients.

Another exciting area he believes has untapped potential is family offices – private companies that manage investments

“Another area where Malta has held its own, in spite of competition, is in the fund management business”

and trusts for a single family or group of families.

“These are very attractive as most of their clients are private high net worth individuals. I think in general we are improving and we are meeting their expectations... But I think we need to go a step further and exceed their expectations. Obviously, it will take a few years to improve our infrastructure and facilities,” he said.

However, when he talks about infrastructure it is not only better roads that he is talking about: he also means banks and related wealth management services.

“I know that we already have dozens of banks but we need big international names that are aimed at international clients, offering the full spec-

trum of wealth management services like portfolio management, special credit lines for special investments and private investments.

“Naturally we need to make a big distinction between how we serve retail clients, which we need to continue doing, and high net worth individuals who need more bespoke services.

“We are trying to attract some banks to operate in Malta. It is not easy as they need large investments to move from one location to another and the market may not be big enough to guarantee a positive costbenefit analysis.

“But we have to be aware that there is a time window of around three years, in my opinion, as we cannot be the ‘new kids on the block’ for too long. We need to move on to the next step.”

Mr Casapinta explained that Identity Malta, to a certain extent, has already addressed the need to offer a different environment to high net worth individuals by moving to the Mediterranean Conference Centre.

“At least those applying for citizenship get a good first impression. Applying for residence at Evans Building is not the best way to attract people to Malta,” he said.

The problem is that the country has to blow its own trumpet, and Mr Casapinta believes that organisations like Finance Malta cannot do this on their own.

“Organisations like Finance Malta have limited budgets so

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CASE STUDY

CHRIS CASAPINTA, MANAGING DIRECTOR OF ALTER DOMUS

private business and professionals should contribute so that the industry as a whole grows. And it does not only need to be financially. For example, Alter Domus continuously sends experts in securitisation and fund management, to pass on knowledge gained over the past 20 years,” he said.

Alter Domus started operating in Luxembourg in 2003, founded by two former partners at PwC. It grew rapidly and now has 28 offices and desks across four continents, offering the expertise of more than 800 experienced professionals. Its clients include eight of the 10 largest private equity houses and six of the 10 largest real estate firms in the world.

“Apart from retaining people in Malta and attracting non-Maltese, we should also look for Maltese people who have specialised overseas and bring them back to Malta, even if they are close to or past retirement”

Mr Casapinta was working in Luxembourg and saw the opportunity to open Alter Domus in Malta. He set up as a one-man office in 2010 but by 2012 he already had 10 staff and has 75 today.

“We outgrew our premises and are operating from three places at the moment, which is not efficient. We will be moving to new offices in Mrieħel in early July, bringing everyone under one roof.

The new offices can take 150 people so there is room to double our current workforce. And I am quite optimistic that we will manage to do that by end 2016,” he said.

Being part of such a global entity has no doubt contributed to the stellar growth, as Alter

Domus refers clients to Malta from its overseas offices – and the local office does the rest.

“We have a very healthy pipeline and some large fund managers who are looking at Malta. We cannot guarantee that they will act but, taking our past as a benchmark, we should be able to confirm them in the coming months. And that will change the landscape locally.”

The problems with such rapid growth go well beyond finding the right offices. Alter Domus, like so many other companies in the financial services sphere, is also looking for suitable recruits.

“We will be looking at recruiting mainly accountants or people from banking and finance, basically people who are number driven.

But we obviously also need support from compliance and regulatory experts, apart from others.”

Resources can be an issue so we need to think about this, not just as Alter Domus but also the industry. Although we should be retraining a number of Malta, we also need to look out of Malta.

“Our clients are international and communication can be better for foreigners. And also when it comes to technical expertise, the finance industry can be very specific so recruiting people specialised on asset classes like real estate and private equity or hedge funds, can be a challenge in Malta,” he said.

He believes that there are enough compelling reasons from foreigners to come here, ranging from the attractive tax rate for highly qualified professionals to the safe environment for families.

“Apart from retraining people in Malta and attracting nonMaltese, we should also look for Maltese people who have specialised overseas and bring them back to Malta, even if they are close to or past retirement.

“They still have a lot to offer, even as non-executive directors, or as consultants and mentors.”

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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

Changing the banking landscape

Publishers Allied Newspapers Ltd. Content House Group Ltd.

Allied

N E W S PA P E R S

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

The banking sector in Malta has been buffeted by many storms over the past few years – but everything now seems to be coming to a head. The banks in Malta are financially among the most sound in Europe but from a shareholding point of view, rarely has there been such upheaval on the cards, much of it fall out from what happened in the past.

HSBC Malta’s parent company is hoping to boost its languishing share price by announcing thousands of job cuts, and is threatening to move out of London. Could such dramatic changes leave Malta untouched? Although it is making a profit here, that is no longer enough. We seem to forget that corporates have no sentimentality and if they can get a better return elsewhere, they will move their capital without a second glance. Rumours that HSBC Malta would be sold if the right buyer were found have been doing the rounds for months; what if it were now actively looking for a buyer?

Two other banks are on the market because of the sins of their parents: Banif because of its majority Portuguese shareholder’s bailout and Lombard because of its majority Cypriot shareholder’s bailout.

Banif has until 2017 to sell 72 per cent of its shares, and it has been busy putting on its best face, set to announce much healthier profits – five times those of 2013.

Lombard, in the meantime, is waiting to see what Cyprus Popular Bank will do with the 49 per cent shareholding is has held since 2007.

A new special administrator was appointed in April to sell the overseas interests while it was announced last week that Investment Bank of Greece will help with the evaluation and possible sale.

But it is not clear whether there have been any serious nibbles for either Banif or Lombard (which has a 69 per cent stake in Maltapost that will also need to be dealt with). If no one comes forward and time runs out, what are the options?

There are other changes afoot, reflecting the way in which banks’ operations have matured since the heady days when new banks were appearing on every corner, interest rates became more competitive than discount supermarkets, and everyone talked in hushed voices about ‘high net worth individuals’.

The MFSA had to slap a few wrists in quiet and the Governor of the Central Bank, Josef Bonnici, did the same – a bit more openly.

Banks had to reposition themselves – and seriously rethink their business models.

The impositions did not stop there: banks could no longer give the dividends they wanted but had to get MFSA approval first. The European Central Bank made both Bank of Valletta and HSBC add millions in provisioning.

Yesterday, the Central Bank of Malta reclassified Mediterranean Bank as a core domestic bank, making it one of the systemically important banks – with all the responsibilities that implies. In the same review, Credit Europe was reclassified as an international bank instead of a non-core domestic bank.

The appearance of foreign shareholders really shook up the local banking sector, upping the standards, bringing in competition to improve consumers’ options, and improving career options.

Would their departure be as beneficial? The lack of ardent suitors would indicate that there are many more changes to come.

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

BUSINESS OPINION

Beliefs and employer’s cross to bear? omas Bugeja Although the majority of the Maltese population still defines itself as Roman Catholic, our society today includes a number of people with increasingly different religious traditions and beliefs.

Claims of religious discrimination at the workplace are still a rare occurrence. However, different religious beliefs can create tricky workplace scenarios, with employers finding it hard to decide where to draw the line.

Employers in other European countries are facing increasingly complex scenarios related to religious beliefs and the workplace. This happens more so in countries such as France, which advocate strict secularism, or laïcité as it is called in French, in the public sphere.

The European Convention of Human Rights, the European human rights-bible (or rather ‘holy text’ for political correctness’ sake), provides the right to ‘freedom of thought, conscience and religion’ which includes the right to manifest one’s religion or belief “either alone or in community with others, and in public or in private”. However, this right is subject to “limitations necessary in a democratic society” which among others includes “the protection of the rights and freedoms of others”.

In light of all this, does the employer have the right to limit a person’s “freedom of thought, conscience and religion” to safeguard and protect the interests of

his company? Can a Maltese employer in any way restrict an employee’s right to manifest or practise his religion at the place of work?

The answer to the above question is “yes” – but with a lot of ‘ifs’ and ‘buts’.

Employees around Europe know this, which is why many have challenged employer’s decisions to ban the wearing of headscarves at work, or the ‘no-jewellery policy’ in a hospital which banned an employee from wearing a cross around her neck. Contentious

decisions included employees being forced to work on weekly days of worship or religious feasts, or employees refusing to perform workrelated acts (e.g. an abortion) due to their personal religious beliefs.

All the above are usually resolved by attempting to strike a balance between the right to manifest one’s faith and the employer’s right to protect his company’s brand, identity or operations.

It is important to note that the Maltese Equal Treatment in Employment Regulations provide that notwithstanding legal

provisions prohibiting discrimination on a number of grounds – including religious belief – behaviour shall not be considered discriminatory if it is carried out “by reason of the nature of the particular occupational activities concerned, or if the context in which they are carried out, such a characteristic constitutes a genuine and determining occupational requirement” which is proportionate. In short, this means that the curtailing of religious freedom can only be excused when it is proportionate, genuine and required due to the nature of the job.

“e curtailing of religious freedom can only be excused when it is proportionate, genuine and required due to the nature of the job”

An excellent example of such genuine requirements can be seen in the European Court of Human Rights case Eweida v the UK, where four employees from different industries challenged the decisions of a UK Industrial Tribunal. Two of the applicants had been fired for refusing to remove a small cross which they wore around their neck at work. Mrs Eweida was a passenger-handling employee with British Airways, while Ms Chaplin was a healthcare worker in a state hospital. In its decision, the Court accepted Mrs Eweida’s pleas of discrimination but turned down Ms Chaplin’s, providing that while a discreet cross could not really cause serious prejudice to British Airways’ reputation and corporate image, Ms Chaplin’s cross had to be removed due to health and safety reasons involving healthcare staff working with patients.

Similarly in the Azmi case, a school’s decision to suspend a primary school teacher who refused to take of her niqab (veil covering the head and face) at work was confirmed as being legitimate, since the English Industrial Tribunal believed that the niqab hampered her interaction with students.

A potential Maltese case of the sort would obviously depend on the courts’ interpretation of the law and the case at hand. However, employers would do well to take legal advice to ensure the proper handling of such sensitive and delicate situations.

Thomas Bugeja works in the employment law department at Fenech & Fenech Advocates.

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APPOINTMENTS

Hili Ventures appoints Tarr as chairman Hili Ventures has appointed director Steve Tarr (left) as its new chairman, succeeding Melo Hili, who until now has held the dual post of chairman and chief executive officer. Mr Hili will now focus exclusively on his role of chief executive officer.

Mr Tarr will apply his broad business experience to lead the board and set its agenda, and guide directors to all the necessary information to ensure optimal decision-making outcomes.

Mr Tarr is a widely-experienced management consultant and sits on several boards in the UK, Malta

CEO for GFI Software

Minister meets new MSE board Finance Minister Edward Scicluna visited the Malta Stock Exchange on the occasion of the first meeting of its new board of directors.

The new chairman Joseph Portelli has almost three decades’ experience employed in various capacities within the financial industry in the US and in Malta. His most recent position was chief investment officer and managing director of FMG Funds, an emerging markets specialist.

He is a board member of APS Bank SICAV and other financial companies. He founded the Institute of Investment Analysis and is also a visiting lecturer at the University of Malta, and has taught courses at the Central Bank of Malta, Malta Institute of Accounting and other institutions. He is also a regular contributor to Times of Malta, writing about investment education.

MUBE elects general secretary MUBE members have elected Jonathan Bruno as general secretary for a term of three years. Mr Bruna has been an MUBE member for the last 22 years and formed part of the MUBE-Bank of Valletta group committee for the last two years.

He has recently seconded to the union’s administration where he is already playing an integral part of the renewed union’s secretariat.

Technical chief for Go

(FROM LEFT) TANYA SAMMUT BONNICI; JOSEPH PORTELLI (CHAIRMAN); FINANCE MINISTER EDWARD SCICLUNA; JOSEPH FALZON (DEPUTY CHAIRMAN); ABDALLA KABLAN AND STEVEN TEDESCO.

and Germany. Mr Tarr has delivered bespoke training programmes to thousands of people within organisations of all sizes in more than 30 countries since 1985.

“We envisage group turnover to grow from last year’s €200 million to €300 million. The separation of the leadership roles will ensure we are even more effective in guiding the business and our people to fulfill their potential,” Mr Hili said.

The other members of the board are Richard Abdilla Castillo (group finance director), Doris Danner (director) and Jesmond Mizzi (director).

Joseph Attard is taking over from Kelvin Camenzuli as the chief technical officer at Go, as from July 1.

Dr Attard joined Go in 1992 as a graduate professional officer and since then has held various positions locally and internationally in the telecommunications sector.

GFI Software, a provider of messaging and security software, has appointed software industry veteran Scott Brighton as its new chief executive officer.

Mr Brighton brings more than 25 years of experience. He joins GFI from Aurea Software, where over the course of two years he helped grow the company from $40m to $200m while vastly improving Ebitda margins and customer success. Prior to Aurea, Mr

Brighton served as CEO of Artemis International, a global project management software company. Earlier in his career, Mr Brighton held senior positions at Trilogy Software and A.T. Kearney.

Mr Brighton was appointed CEO following the sale of 100 per cent of the shareholding in GFI Software to new investors.

Details of the deal were not disclosed.

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STOCK MARKET REVIEW

e Farsons property spin-off Edward Rizzo Simonds Farsons Cisk plc’s annual presentation for financial analysts last Friday was lengthier than usual since it not only included the customary in-depth information on the performance of the past financial year but also two presentations on plans for its sizeable property interests.

The development of the large parcel of land in Mrieħel and the spin-off of the non-core properties into a separate publicly-traded vehicle had first been mentioned

by Farsons in 2008.

After several years while the company gradually relocated all manufacturing facilities and administration offices to the back end of the Mrieħel site and carefully studied the best use of this sizeable tract of land, a company announcement was issued last Friday informing the market that two applications had been submitted to the Malta Environment and Planning Authority (Mepa) in connection with the development of the Farsons Business Park.

Chairman Louis Farrugia gave a brief overview of the park and property spin-off while British architect Ian Ritchie, who is entrusted with the project with the support of Maltese engineers and other consultants, delivered a detailed presentation showing the transformation of the site.

The old brewhouse – which will be retained by Simonds Farsons Cisk plc and will therefore not be spun-off into the property holding company – will be restored and converted into a visitor centre including a beer academy, retail and catering facilities, and

SOURCE: IAN RITCHIE ARCHITECTS

the construction on the roof of a Cisk Sky Bar. The Farsons Business Park will comprise seven office blocks limited to five storeys each. Prof. Ritchie provided detailed images of how these would be constructed behind the historic facade and the courtyards that will separate each building. A multistorey car park will also be constructed, connected to each of the seven buildings and the old brewhouse.

Works on the business park are expected to commence towards the middle of next year in a phased manner. By March 2018, Farsons aims to complete the conversion of the old brewhouse and the first office block. Three other office blocks will be constructed

by October 2018, followed by the car park and overlying offices in January 2019. The last phase incorporating the final three office blocks should be completed by January 2020.

On completion, it will comprise over 18,000 square metres of office space, more than 1,200 sq.m. of food and beverage facilities and a car park of over 700 spaces.

“Works on the business park are expected to commence towards the middle of next year in a phased manner” The upcoming development does not include the area currently housing the Farsonsdirect.com retail premises and the other large tract of land also along the main road. This could possibly take place at a later stage once the Farsons Business Park is completed and fully operational.

During the meeting, Mr Farrugia provided initial details on the planned spin-off of the property assets into a separate public company which will also be quoted on the Malta Stock Exchange. The aim is to hive off properties that are not directly related to the core food and beverage business.

These comprise the Mrieħel facade, Trident House in Marsa (currently occupied by fully-

owned subsidiary Quintano Foods Ltd), the properties housing the franchised food businesses (namely Pizza Hut, Burger King and KFL) as well as some other properties currently leased out to third parties.

The segregation of the Farsons Group into two distinct, publiclytraded companies will also enable individual shareholders to decide whether to remain invested in both sectors or whether to focus specifically on one. Mr Farrugia also mentioned the possibility of attracting new strategic partners and shareholders to the property side of the business – either as an investor in the new property development company or in a particular development. This could be necessary if

Trident House and the adjacent parcel of land were to be developed into a high-rise commercial development, as had been indicated many years ago before the decision was taken to utilise the property for Quintano Foods.

The chairman indicated that the spin-off would take place via a dividend to the shareholders of Simonds Farsons Cisk plc at the time of the corporate action. The dividend will not be in cash but in specie, i.e. a distribution of shares in the property company equivalent to the same shareholding level as that previously held via Simonds Farsons Cisk plc.

The spin-off will take place during the first six months of 2017 and the overriding objective of the restructuring exercise is to maximise shareholder value and ensure the best use of the large property portfolio.

The total investment of the Farsons Business Park is estimated at €42 million and Mr Farrugia explained the various options being considered: a rights issue as well as debt funding via a bond issue or otherwise via bank borrowings.

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STOCK MARKET REVIEW

In reply to questions from the floor, he also announced that discussions were currently under way with the three dominant shareholders (Farrugia Investments Ltd, MSM Investments Ltd and Scicluna Estates Ltd, who together hold just under 80 per cent of the issued share capital of Simonds Farsons Cisk plc) on the rights issue and he expects a positive attitude towards additional investment by these family-owned companies.

The company announcement issued also indicated that the Farsons’ board of directors is additionally looking at funding options for the traditional food and beverage business. The major investment in this area is the new €27 million beer packaging, due to be completed in April 2016.

During the meeting, the chairman also mentioned an investment in additional office space overlying the current administration centre while in his statement to shareholders in the annual report, Mr Farrugia referred to the fact that the company’s management was considering other investments in the operations and distribution areas to ensure that the company can achieve its vision of truly becoming a regional player within the food and beverage sector.

One of these is the extension of the logistics centre to create additional storage following the increase in production capabilities, with the ultimate objective of generating up to 30 per cent of overall revenue from exports.

The confirmation of Farsons’ intention to hive off the property assets is an important milestone not only for the group, but also for the local financial market. Although this may not necessarily imply a new fundraising exercise at the outset for all investors – new shares will only be allotted to

shareholders of Farsons – by this newly-quoted company, every effort needs to be made by market participants, the Malta Stock Exchange, the MFSA and also government officials to increase the number of listed securities to ensure a wider choice for idle investors’ funds. These options must not only focus on the bond market but also the equity market, as a large number of retail investors are now also inclined to consider investing in shares.

The hiving off of the Farsons property company is still two

years away and could be preceded by a similar exercise by Go plc as they intimated in the press recently.

Failure to create new equity and bond investments could result in ‘bubbles’ forming in these asset classes as well as in the property market. Another scenario would be capital flight – with investors seeking overseas investments as an alternative to investing in their own country.

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. © 2015 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved

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BUSINESS UPDATE

Where do you park your hard-earned savings?

Inflation is the root of all-evil in an economy; it erodes the purchasing power of money and has caused untold damages causing the collapse of powerful nations.

That said, there are signs of late that governments/central banks have been overtly too hawkish on inflation and if we are not careful we may face a period of deflation.

Despite all the rhetoric of governments pontificating that one should have private savings for retirement, they need you to spend to get the economy back on track – or they’re out of a job.

Like all things in life, it’s about finding equilibrium. The balance between saving and spending is always a difficult one to assess. It is essential to maintain a level of cash in the bank for prudence but when it costs money to keep it in the bank, one has to ask why!

There are many offshore jurisdictions with tax-friendly policies that offer attractive investment opportunities to expatriates.

When choosing the right jurisdiction it is paramount to establish a number of key points: ■ Domicile status ■ Inheritance tax ■ If and when you will be returning home

Jan BJorKmann

To find out what investment opportunities are available to you, speak to a locally focused consultant with a comprehensive understanding of available options on how to invest your funds.

Jan Bjorkmann – Country Manager Malta at Blacktower Financial Management (International) Ltd T: 2149 6769; E: info@blacktowerfm.com Blacktower Financial Management (International) Limited is licensed by the Gibraltar FSC License 00805B.

exante Director Gatis eGlitis (left) anD ceo alexey KirienKo with PresiDent marie-louise coleiro Preca.

President hosts Exante directors e President of Malta, Marie-Louise Coleiro Preca, hosted the directors of Portomaso-based integrated brokerage and fund platform company Exante at the President’s Palace this week.

The directors of Exante said they both strongly admired the President for the much-needed campaigns and initiatives being done to improve the country’s social inclusion and standards of living in the past years of her presidential tenure.

charles Pace (left) anD his son christoPher

ird-generation auto dealers Following a decision to make a radical shift from catering to second-hand car sales, Mosta Auto Dealer was established in 1969 by Charles Pace and his father John Mary, who previously owned Castille Bar and Canberra Restaurant in Valletta. Climbing up the ladder from washing and polishing cars to managing the business and building a reliable reputation and an esteemed clientele along the way, Charles Pace has since seen Mosta Auto Dealer expand into an innovative multistorey car display establishment, which he now runs alongside his sons, Christopher and Karl.

The directors attribute the company’s strength to their ability to source low-mileage, one-owner cars which are under five years old from the local market, through their long-standing relationships with Malta’s leading brand agents.

Another extremely important factor is aftersales service. “We strive to make sure that every client is happy with the entire purchasing experience and go out of our way to solve any aftersales problems which commonly arise when dealing in the second-hand market. The quality of both our cars and our service is top priority for us,” Chris maintains.

Looking towards the future for Mosta Auto Dealer, the directors’ plans are true to their goals throughout the company’s 45 years of existence: “to continue providing the best service and vehicles for our clients, while keeping up to date and relevant in the everchanging and tricky market which we operate in.”

Mosta Auto Dealer, 139, 163, Constitution Street, Mosta. T: 2143 3255, 2143 3887, 2143 1825; M: 7748 0422; www.mostaautodealer.com

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June 4, 2015

BUSINESS UPDATES

Avanzia Taxand celebrates 10 years Avanzia Taxand marks its 10th anniversary celebrating its strategic vision of providing independent tax advice and corporate services to the world’s largest global organisations.

Avanzia Taxand was established on May 25, 2005, and today has a dedicated team of highly-qualified professionals and advisers specialising in taxation and other aspects of financial services, with an emphasis on multinational businesses. The firm has leveraged its role as exclusively Taxand Malta with Taxand, a global organisation now covering nearly 50 countries worldwide, with over 2,000 tax advisers and more than 400 tax partners globally.

Testament to this is Avanzia Taxand’s track record of providing award-winning service to its multinational clients. Apart from winning the prestigious National Tax Firm of the Year Award by the International Tax Review (ITR) in 2009 and 2013, in 2011 and 2014 it was named Malta Tax Firm of the Year by Corporate International. This year, the firm was once again chosen as Malta Tax Firm of the Year for 2015 by Corporate International and also won The European and Finance Awards 2015.

Avanzia Taxand is aiming to continue building the strong reputation it has earned. Walter Cutajar, managing director, commented, “since 2005 we have grown in number, depth and strength to be able to confidently navigate our clients’ tax needs.”