The Business Observer Newspaper - 26th March

INTERVIEW

Issue 22

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March 26, 2015

Distributed with Times of Malta

Chinese Ambassador Cai Jinbiao would like people in Malta to take a holistic view of the social, economic and environmental progress his country has made, especially with so many collaborations planned. see pages 10 and 11 >

NEWS

Barts will give Gozo €9m cash Kurt Sansone Gozo will receive a cash injection of up to €9 million annually when the Barts medical school starts operating at full capacity, initial studies have shown.

The proposed medical school will receive its first student intake for the scholastic year starting in September 2016. The full complement of 300 students will be reached after five years.

Last week, Barts entered into a 15-year agreement with Malta Enterprise, a government agency, to operate a medical school on Gozo.

Health Minister Konrad Mizzi told

The Business Observer initial studies showed that a 300-student campus would create a cash injection of around €100 million over the 15-year span.

The figures took into consideration students’ lodging needs, per diem spending, visiting relatives and the wages of non-academic staff such as cleaners, who are likely to be Gozo residents. “Malta Enterprise has estimated that the medical school will be equivalent to a factory employing 500 people,” Dr Mizzi said, adding this was a substantial input to the Gozo economy.

The Barts medical school be part of the Gozo Hospital health hub the

government wants to create along with St Luke’s Hospital.

But Barts will not be building the campus itself. The actual structure will be built by a private investor that has to be chosen after the government issues a request for proposals to gauge interest in a €200 million overhaul of the Gozo and St Luke’s hospitals.

The health plan will seek private investment for public healthcare facilities while allowing the investor to develop private hospitals for paying medical tourists in Gozo and St Luke’s.

Dr Mizzi said medical tourism in Gozo had the potential

to contribute around €13 million annually, excluding hospital fees.

Malta Enterprise figures show that the joint contribution of the Barts campus and medical tourism in Gozo would be equivalent to a cash injection of approximately €20 million per annum.

“This is equivalent to €667 per capita for Gozo,” Dr Mizzi said.

Gozo’s economic contribution amounted to €385.8 million in 2013, equivalent to five per cent of Malta’s GDP, according to figures released by the National Statistics Office last December.

It has taken a few years, but Agribank has finally got coverage for its customers under the Depositor Compensation Scheme. see page 3 >

INTERVIEW It was clear that Fimbank was going to report losses, but the scale of them still took people by surprise. Interim CEO Simon Lay has the unenviable task of clearing up the mess. see pages 5 and 6 >

Medical students expected to pay €35,000 a year Medical students at Barts’ new campus in Gozo will be paying €35,000 a year for tuition, considerably more than the £9,000 (€12,400) they would be paying in London.

But the Dean of Education Anthony Warrens believes there will be considerable demand for the 60 places each year on the five-year course.

“There are a number of reasons why students would opt to come here. For a start, the number of places in medical schools in

the UK is finite and not everyone gets in, in spite of their eligible grades.

“Studying in the US is also more onerous as they must do a first degree before starting medical school,” he said, noting that the campus will be governed by the British General Medical Council.

This is the third attempt to set up an international medical school in Malta in the past few decades.

Barts is one of Britain’s leading medical and dental schools with 1,600 undergraduates and 750 postgraduates. The school has a strong emphasis on research and attracts £40 million annually in research income.

“We think that we are good at medical education. We have been doing it for 800 years.

We wanted to expand our activities but our Continued on page 3

CASE STUDY e Infinitely Xara group is putting its resources to good use by maximising the activities of its various venues. General manager David Spiteri believes that for boutique hotels like Xara Palace, synergies are vital for success. see pages 12 and 13 >

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NEWS

Agribank customers are now covered by depositor scheme Agribank customers are now covered by the MFSA’s Depositor Guarantee Scheme, two-and-a-half years after the bank got its licence.

Agribank was one of a handful of banks which were licensed in Malta around 2012 – when the scheme was still building up. The MFSA at the time decided that none of the new banks would be immediately covered by the scheme.

“When the crisis hit in 2008, governments introduced the schemes to cover the first €100,000 worth of deposits, in an effort to build up trust in the financial system.

“But the Deposit Compensation Schemes in the EU had to build up and it is no secret that they were not deep enough to cover all the deposits of all the banks.

“The government was afraid to put any more stress on the local scheme, so it decided to put us and other banks ‘on hold’. Was it discriminatory? Did the MFSA have the right to keep us ‘on hold’? We knew before we got the licence that this would be the case – so to be fair, it was not a surprise. But it did not mean that we were happy!

“We were in an awkward position as we were licensed to sell products but our customers would not have been covered by the scheme if we were to collapse,” he explained.

Agribank made the initial contribution to the fund – a flat fee of €20,000 – which meant it complied with the law that says banks must be part of the scheme. But it did not pay the regular contributions based on its eligible depositor base – and its depositors were not covered by the scheme.

It was an unprecedented and anomalous situation, and one which made it into the foreign media. The Guardian columnist Patrick Collinson wrote an article on the “bizarre banking loophole that has opened up in Malta”. He also quoted from the MFSA’s response to his queries: “On May 16, 2012, the MFSA issued a policy under which it prohibited or limited any newly licensed credit institutions from

Maltese doctor at Barts put the idea Continued from page 1

PHOTO: CHRIS SANT FOURNIER

“Without deposits, it had to sustain its loans through much more expensive wholesale funding from a London bank – and the losses mounted, reaching over £300,000 in 2012/2013” creating undue liabilities on the local deposit compensation scheme”.

“I do not know of any other jurisdictions which acted this way,” CEO Roderick Psaila said.

“We have a very risk-averse business model – we lend to British farmers, who are very asset-rich and who have extremely low defaults.

And we use deposits to fund our advances. So at first we decided to go ahead with the launch of our first deposit products in March 2013, making it very clear to our UK customers that they were not covered

by the scheme. We felt that, if the interest rate was a bit higher, it would be attractive enough for customers to accept the additional risk. They were an instant success but, even though customers were told that they were not covered and accepted it in writing, there was always the possibility that it could be challenged. Just five weeks later, we decided to ‘stop’ their take-up by changing the terms and conditions which made them very unattractive to customers,” he said. “It was a kick in the teeth,” he admitted bitterly.

The bank, which works exclusively through price comparison websites, found itself in an awkward position with regards to its customers, but even more so with regards to its operation. It had already committed to premises in Skyparks and had taken on staff. Without a product to offer, the bank’s deposits were more or less mothballed.

Without deposits, it had to sustain its loans through much more expensive wholesale funding from a London bank – and the losses mounted, reaching over £300,000 in 2012/2013. However, last year, it reported a profit, albeit a small one.

In January, it managed to reassure the MFSA that it was robust enough, and was added to the scheme. It is now finally able to go to market again, offering various deposit products and is planning to add two more staff to its current complement of 12.

opportunities to do so in the UK are limited because of government restrictions. So overseas was our next option,” he said.

Prof. Warrens said that the idea to have satellite campus in Malta came from a Maltese gynaecologist who works at Barts. A meeting was then set up with then Health Minister Godfrey Farrugia and Education Minister Evarist Bartolo around November 2013.

Barts has been liaising closely throughout the discussions with the chief executive officer and medical director at Gozo General Hospital.

“They have been extremely helpful in pointing us in the right direction to develop a high quality programme,” the professor said.

“Gozitans will have a high quality medical facility on their doorstep, which is perhaps now not as well developed as it might be,” he said.

“We will engage a large number of high quality teachers, some of whom will come over from London, giving them the opportunity to contribute to the Maltese health economy. I think it will be a win-win situation.”

“And of course, there is the potential for research, which is one of the most attractive things as far as my colleagues at Queen Mary were concerned. We are very much a research-led university. We have a relationship with Malta Enterprise which has encouraged us to participate in the Life Sciences initiative they are developing in San Ġwann.

We are very keen and already started very preliminary conversations about research areas in which we might collaborate.”

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INTERVIEW

Factoring in the chance of success After the abrupt departure of Fimbank’s founder at the end of the year, SIMON LAY was appointed as ad interim CEO with a tough mandate to turn the bank’s dismal fortunes around. He told VANESSA MACDONALD that the turnaround has already started.

Fitch has downgraded the bank to BB- from BB for both your Issuer Default Rating and your viability rating. It cited your “high risk appetite”, “significant deterioration in asset quality” and “unstable and weak earnings”.

And that was before this year’s results reported pre-tax losses of $53.4 million. How did the group allow things to get so bad?

Adverse market conditions in regions in which we operate impacted our bottom line in 2014 as did certain deficiencies within some of our international factoring businesses, particularly in India and Russia. These issues have now been addressed and going forward, I expect to see a consolidation of our investments.

We will focus our energies on strengthening further our governance, risk structures and internal control capabilities, which should result in an improved business model, which will then yield greater profitability and returns for our shareholders.

Will the shareholders need to make a further capital injection and, if so, of how much? How much more are they willing to put into Fimbank?

During our annual general meeting on May 8, 2014, shareholders approved two rights issues over a period of two years in order to raise a minimum of $100 million by issuing ordinary shares.

The first rights issue generated $48 million in new equity, and the board of directors may decide to proceed with the second rights issue in the coming months as originally planned. However, no decision in this regard has as yet been taken.

Having said that, we are encouraged by the support of our shareholders, in particular Burgan Bank and United Gulf Bank. Our controlling shareholders believe in Fimbank’s business model, and

SIMON LAY

are committed to supporting the group in overcoming the difficulties experienced in 2014, and a return to better times.

Have they given you a deadline for turning things around?

Although no formal deadline has been set, my brief is to lead this organisation through a period of readjustment, prioritising sustainable profitable growth in the shortest possible time. The bank’s turnaround strategy implies a period of consolidation where the focus will be on a rapid improvement in financial performance, the implementation of

measures that aim at reversing the current causes of distress, and overcoming internal constraints, all the while retaining our customers at the centre of our strategic considerations.

We shall also be strengthening further our business model. I can assure you that the turnaround has started; we are working seriously and hard and are anxious to see results.

Is there a restructuring on the cards? Will there be consequences for staff numbers?

The restructuring of non-core activities has already started. We

are performing a comprehensive cost-risk-benefit review to establish an effective structure which will also serve to avoid duplication of resources across the group. We need to cut costs, and part of the cost-savings exercise will require some modest job cuts across all group entities, but this will not be a significant part of the process.

We will be focused on deploying our resources more efficiently to key business sectors which offer profit potential, while exiting from other businesses.

Impairments stood at $50.7 million. Is there any chance that

Fimbank will be able to recover some of this amount, given that recovery efforts so far have failed?

The recovery of impaired assets tends to be a long processes as various legal and other remedies are pursued. As you can imagine, we are taking this issue very seriously and we will be setting up a dedicated recoveries team to focus specifically upon the recovery of impairments across the group, to complement steps already being taken by our regional offices. We are optimistic of some recoveries Continued on page 6

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NEWS

Hoping for quick turnaround in 2015 Continued from page 5 but this will be a long-drawn process which may span across future financial years – one that requires patience.

Your operating income actually increased, from $33 million to $49 million. And your loan book also grew from over $740 million in 2013 to $980 million. Now that the impairments have been taken on board, does this mean that the bank could actually start to show a profit next year?

The bank is hoping for a quick turnaround in our 2015 results, although market conditions always play a part in this process.

At Fimbank, we have a robust global trade finance platform which places us in a strong position to capture a good share of a large global trade finance market.

Our ambition still remains that of maintaining our position as a leading provider of trade finance services worldwide.

The business is there and it is profitable; we have been regularly profitable in the past and remain confident of our underlying model and strengths.

In 2014, you pulled out of Slovenia and you have now announced that you are ‘discontinuing investments’ in Russia. But other overseas associations like Egypt and Brazil and your subsidiary in India are also not performing well. Wouldn’t it be wiser to cut your losses there too and focus on the areas where the bank is doing well?

Apart from suspending the Slovenian acquisition, we will also be closing units that are underperforming. We recently announced that we would be pulling out of Russia, and the board took a decision in this regard to discontinue the FactorRus operation, which will no longer form part of the Group’s investment strategy.

Although we do not anticipate similar scenarios in our other international operations, every

put pressure on cost-efficiency.

This is one of the areas we are addressing as a matter of priority and one way of doing that is to grow and scale up without necessarily increasing the global footprint and increasing resources disproportionately.

business unit is under review. The overall expectation is to make a positive contribution to the bottom line by all constituent parts.

Fimbank has been building up shareholding in most of its overseas joint ventures. Will having a majority shareholding make a difference in turning things around?

Securing a controlling interest permits us to adopt a centralised control model. Going forward, the different risk-management framework for all our international operations will be co-ordinated through a centralised location. The rapid deployment of a common risk, controls and compliance framework will permit us to build a platform that enables decisions through understanding the inherent risks, improved clarity of risk gaps, as well as more effective monitoring capabilities. Therefore, in answer to your question, yes, taking control and performing these changes will make a difference in turning things around.

The overseas activities focus mostly on factoring – reflecting your predecessor’s background – but this seems to be where your impairments are coming from.

Which activities are making money for the bank and why don’t you put more resources into these?

We are currently in the process of allocating our available resources more efficiently. We cannot afford to invest for the future in non-profitable entities on an indefinite basis or to carry insufficiently profitable products, services or lines of business.

Therefore each business unit is under review and a decision on where to allocate capital and resources will then be taken based upon that entity’s ability to contribute profitability to Fimbank’s bottom line within a reasonable timeframe.

Given the current economic crisis in Greece, was 2014 the right time to open an office there?

“e fact that Fimbank has a European ‘passport’ is a definite advantage for us” Greece presented us with an opportunity in a very specific segment of business. The team running our branch in Greece are local specialists who have firsthand experience of the Greek trade finance sector. They are focusing on export business, and the exposure to a Grexit is largely mitigated by focussing on this business line. The branch is overseen by the group head office functions in Malta and local decisions require central approval in accordance with Group policies.

What would happen if Fimbank were to face a stress test or the ECB’s asset quality review?

How would it fare?

We can in fact compare the 2014 conditions to a real-life stress test for the Fimbank Group. Despite last year’s developments, group liquidity remains strong, while at the end of 2014, capital adequacy, measured in terms of Basle III/CRD 4 requirements, stood at 13.8 per cent for Total Capital, of which 13.3 per cent is Tier 1. These figures are significantly above the minimum regulatory requirements and prove the resilience of

the Fimbank Group’s business model. That said, we have not modelled a stress test based on the ECB’s comprehensive assessment criteria although we are looking into that also in anticipation of the process if we were to come to it.

My guess is that impairments would not be much higher. We have been conservative in the impairment provisions taken, following prudent accounting and regulatory standards.

Fimbank has a very different business model to retail banks.

How do you benchmark against other trade finance banks with regards to return on equity and cost/income ratios?

We usually tend to look at other trade finance banks such as British Arab Commercial Bank, UBAF and Banca UBAE. Excluding the 2014 performance, the return on equity would be well within peer-group average or even better.

Fimbank’s cost/income ratio is higher than the peer-group average. This underlines one of the chronic difficulties which any bank of our size faces, that is, limitations of scale and scope which

It was always assumed that United Gulf bank and Burgan Bank bought shares in Fimbank (61.2% and 19.72% respectively as at 2014) to get a foothold into Europe via Malta’s EU membership. Apart from opening an office in Greece and your existing entity in London (LFC), has this opportunity been leveraged at all?

The principal interest of United Gulf Bank and Burgan Bank has always been to invest in Fimbank’s trade finance model and global footprint, not solely our presence in Europe. Our focus at this stage will remain on consolidation, and there are therefore no definite plans to increase our footprint in Europe, or anywhere else for that matter. That said, the fact that Fimbank has a European ‘passport’ is a definite advantage for us and our shareholders and enhances the scope and value of our franchise.

You were appointed ad interim but it was not specified for how long. What happens next?

I was appointed Acting CEO of Fimbank plc ad interim with effect from January 1, 2015. Our controlling shareholders believe in Fimbank’s business model and are committed to supporting the group in overcoming the difficulties experienced in 2014 and I agreed to oversee this transition.

My job is to direct an effective turnaround strategy, which focuses on consolidation and implementation of measures that will effectively address the issues which impacted negatively upon our financial performance in 2014.

I do not have a specific timeframe for this but I believe this initial process will take at least a year to complete, after which we will review the strategy and resources required.

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INDUSTRY FOCUS

More incentives for incentive travel DB SAN ANTONIO’S CONFERENCE FACILITIES

Conference and incentive travel has recovered considerably, with 86,000 visitors last year, compared with just 77,000 the year before. This is even better than the 84,000 arrivals in 2012, and particularly good news for the tourism sector as they are estimated to generate at least three times as the average tourist.

Although it is just 7.7 per cent of inbound business travel, the MICE sector also helps to mitigate the seasonality issue, since this business is concentrated during the shoulder months.

Michael Cutajar, the PR and communications executive at the Malta Tourism Authority, is upbeat about the future of this sector: “Compared to leisure travel, the MICE business is more sensitive as it is very much dependent on good economic and business performance. Although it has not yet returned to pre-recession levels of activity, it has navigated the economic downturn successfully and confidence levels have been rising.

Corporate events largely depend on the performance of key sectors such as information and communi-

cations technology, automotive, pharmaceutical and construction.

As confidence is growing once again in all of these sectors, incentive travel is picking up again after a break during the recession.

What has Malta got to offer? The climate is an obvious factor, as are the value for price and flight connections. There is also a variety of events happening all year round.

But Malta is competing against other Mediterranean destinations and cities, meaning that it needs to focus on excellent service.

Mark Gatt, managing director of EC Meetings, agrees, saying the sector requires passion.

“This is an industry that demands extremely high standards, long hours and painstaking attention to detail. We deal with demanding, well-travelled clients, and the end result always has to be top notch. ‘Good’ is simply not good enough.

“Service standards on the island have improved considerably in recent years, but we are still very far from where we need to be.

The same can be said of our physical infrastructure, the built

“e MICE sector also helps to mitigate the seasonality issue, since this business is concentrated during the shoulder months”

environment and the state of our countryside.

There needs to be a concerted, national effort to improve standards across the board – and that is a challenge not just for our industry, but for the country as a whole,” he said.

GLASS TROPHIES AND CORPORATE GIFTS BY MDINA GLASS

At one time, the industry used to talk about hosting MICE events for thousands of delegates, which never materialised, with one or two notable exceptions. Mr Gatt of EC Meetings does not see events of over 2,000 persons becoming more frequent, for two main reasons: availability of suitable venues and hotels, and accessibility: “Currently we only have one indoor venue that can accommodate over 2,000 persons for a conference or dinner event, which can be off-putting for prospective clients. Of course we have some beautiful outdoor venues that can take 2,000 people plus, however, we are then faced with an accessibility challenge.

“Bringing in a large number of people on scheduled flights in the summer months is a daunting task, and the costs of chartering multiple aircrafts may also be offputting,” he said.

For events of around 1,000 guests, however, Malta has a

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INDUSTRY FOCUS

lot to offer. The area of St Julian’s, particularly, is an ideal location for this size of group.

“The fact that the hotels are within walking distance of each other is looked upon very favourably by clients since it cuts down transfer times and slashes costs. To really capitalise on these advantages we need to embellish and upgrade the surrounding area, maintain or grow the existing bedroom stock, and develop a conference centre close by that would cater for both meeting and dining spaces. I hope government gives serious consideration to the White Rocks area, which has the capacity to complete what is an already very attractive package,” Mr Gatt concluded.

For MICE unique venues, especially historical ones, turn a regular event into something memorable, Edward Bonett, the director of sales at Infinitely Xara, stressed.

“MICE clients look at venues that offer something different from what a hotel would normally offer. There are a number of venues spread across all areas of Malta. These vary from 16th century venues up to modern villas and venues that can cater for large events and meetings.

“Most of the time, events within hotels are not allowed to have music till late and due to branding, they might not always have the flexibility that an independent venue is able offer, both in terms or prices and service,” he said.

Charmaine Camilleri, the sales & marketing manager of Seasons Events Caterers also felt that the government should stop leasing historic sites out to the private sector – and make the available ones adequate to accommodate guests.

This sentiment was echoed by Chiara Hensel Ellul, director of sales at Le Méridien St Julians Hotel & Spa. “Many meeting planners are impressed with Malta’s cultural heritage and diversity, especially when considering our size, which makes it easy to get around. We are lucky to have a number of sites available to use for such events, although I think our government needs to consider restoring some sites and

BANQUETING AT INFINITELY XARA

having a better system in place for MICE groups,” she said.

It is not only external venues that need to be available, but also facilities within hotels. Both Ms Camilleri and Ms Hensel Ellul stressed that technology plays an important role as meetings and events get more tech-savvy with clients wanting the latest audio visual equipment.

But it is not only about the conference or meeting itself. Ivan Borg Ferrando, the general manager of db Catering & Events, said that hotels had to offer a range of facilities for the guests.

“Free Wi-Fi today is a necessity for all delegates as it is their connection to the office and family life. And many delegates have fitness routines that they would not want to disrupt, so a fitness centre and spa are very important. And because their programmes often include some free time, it is good for the venue to offer entertainment activities in the hotel or nearby, such as a casino, cinemas and shopping areas.

“Resorts would also need to provide free transport to the main centres or towns,” he said.

Christopher Gingell Littlejohn, the director of sales and marketing at InterContinental Malta, believes that delegates also want to leave with a flavour of Malta – in more ways than one.

“e tourism authority should promote venues which do not form part of hotels”

“The provision of opportunities for participants to discover and learn about the Maltese islands, in the limited time they have available, is what differentiates one conference destination and the services it offers, from another.

“Offering MICE customers truly individual experiences can present itself in a number of ways, including; the type of cuisine available during functions, activities outside of the conference venue (and the ability for individual participation), or to bring a local experience to delegates during their participation in the event,” he said.

The aspect of accessibility was also highlighted by Paul Selis, the director of On Site Malta, who said that flight connectivity was a big factor in MICE. “Although Malta nowadays is connected very well to a large part of Europe by direct flights, many of these are offered by low-cost carriers, which are not really the preferred type of airlines for MICE due to limitations in booking facilities.

In addition legacy airlines’ fares to Malta are relatively high.

“These factors combined with a much easier supply of information via the web result in even long-haul destinations vying successfully for the same business we’re after,” he said.

Mr Bonett of Infinitely Xaraagrees that Malta needs to remain competitive from a price aspect too. He argued that the government should reduce Vat on all tourist services from 18 per cent to 7 per cent – the same as for accommodation.

“This will enable all service providers (except hoteliers) to lower their prices and be more competitive when it comes to other destinations,” he said.

It is not only the fiscal advantages that are limited to hotels. Mr Bonnett believes that marketing support should also extend to other stakeholders.

“The tourism authority should promote venues which do not form part of hotels. Most of the time, promotional material is focused solely on the destination as a resort and/or ideal meeting venue. But why not try to generate additional revenue for transport companies, guides and reps, and historical sites as well as the venue itself?”

There are clearly many reasons that conferences generate so much more money than normal tourists, ranging from lavish dinners, innovative team building ideas, top level transportation and boat and jeep excursions. They also spend considerable amounts on exhibition stands and collateral, and even corporate gifts.

Pamela Said, the retail manager at Mdina Glass, explains that these often have a ‘Malta’ angle.

“The Maltese cross is a popular and iconic symbol, but a lot of clients go for something a bit more tailored and unique. Luckily, because we produce all corporate gifts and trophies ourselves, we can cater for pretty much any requirement, from reproducing scenes of local landmarks to emblems relating to the Maltese islands and more.

Engraving is also taken care of inhouse and that gives us a large degree of flexibility when it comes to that local touch.

“We can also produce something inspired by the particular brand, company or event itself,” she said.

Mr Cutajar of the MTA had one last point to make about the sector: its indirect benefits.

“Over the years, Malta drew a number of large-scale, high-profile conferences, involving various international blue chip companies and political world leaders to the island,” he said.

“You cannot underestimate the importance of this exposure in the long term.”

The Malta Tourism Authority works closely with the industry to develop new initiatives, projects and products.

In order to assist the trade to tap lucrative business from new markets (US & Canada, Japan, China, Gulf and the Middle East, South Africa, Turkey and South America), two specific schemes were launched by the authority’s MICE segment unit.

The MTA’s licensed trade partners, such as conference hotels and destination management companies (DMC), were given assistance with familiarisation trips from the above markets. An additional scheme was dedicated to DMCs with the MTA’s Quality Assured seal, for sales initiatives in the above markets, over and above the standard scheme.

The MTA also renewed the MTA Association scheme – an incentive scheme for international and European associations which do not have a local representative in Malta, in order to attract business in the shoulder months.

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INTERVIEW

Paving a new Silk Road Vanessa Macdonald In July 2014, not long after Malta had signed a wide-ranging memorandum of understanding with China, the president of the General Workers’ Union, Victor Carachi, expressed his dismay at the public reaction.

He could not understand why people were afraid “that China was some sort of dragon ready to devour us”.

He is not the only one perturbed by this reaction. The Chinese Ambassador to Malta, Cai Jinbiao, also longs to improve the perception of China, believing it is based on very outdated information.

“In the past four decades China has opened up and achieved considerable progress, economically, socially and in its exchanges with foreign countries,” he said, sipping his herbal tea on the cream leather sofas in the formal reception room at the embassy in St Julian’s.

The embassy has outgrown its premises and is planning to move as soon as possible to a much larger site in Pembroke. The move comes at a time when Chinese involvement in Malta is growing rapidly, after a period of relative inactivity under the previous government – certainly when compared to the investments made in the 1970s and 1980s.

Shanghai Electric Power (SEP) has taken an active stake in Enemalta’s future and the MoU signed last summer covers a multitude of infrastructural projects, from the building of a breakwater in Marsamxett to aircraft maintenance bases. But there are frequent comments in the media implying that the money being offered comes with strings attached.

Mr Cai blames this on a myopic view of China, which fails to take in the considerable progress made.

“Over the decades, achievements spread from the countryside to the coastal areas, where industrial zones were set up, providing preferential policies to foreign investors.

We went from labour-intensive

SHANGHAI ELECTRIC POWER HAS INVESTED HEAVILY IN THE DELIMARA POWER STATION. PHOTO: DARRIN ZAMMIT LUPI

projects and ‘assembled in China’ products to very rapid development. The average growth rate was about 10-12 per cent.

“We also made significant progress in environmental protection, people’s livelihood and human rights. Now we have reached the stage where we are looking from an economic point of view at quality rather than speed and quantity, and the National People’s Congress recently heard Premier Li Keqiang signal the ‘new normal’, which would put more emphasis on quality, growth and innovation, rather than size and speed,” he said.

“Over the years, state-owned companies and private companies developed and are now very capable of taking up projects in China and overseas. It is against this backdrop that Shanghai Electric Power wanted to go international. Ten or 20 years ago, if you invited a Chinese company – say in the energy sector – to tackle an overseas project, they would not have been able to do that,” he said.

It is widespread – if controversial – practice that intergovernmental deals are based on assistance leading back to contracts for the donor government’s companies. In the

case of China, the same principle seems to have been applied to many of the projects listed in the MoU. But Mr Cai stressed that in many cases, this is what the Maltese government wanted.

Take Covec, which was asked to do the feasibility study for a monorail – and then get the construction contract if the government decided to go ahead with the project. The ambassador stressed that Covec, which has wide experience in this field, would be quite happy as one of many bidders for the project – but stressed that this was not what the Maltese government had asked for.

Another infrastructural project whose feasibility study was entrusted to a Chinese company was for the bridge to Gozo – the first project the Maltese government wanted to rope China into soon after it was formed, he said.

The China Communication Construction Company (CCCC) has concluded its report but the Chinese government is well aware that public opinion is still mixed on whether there should be a bridge, a tunnel or neither.

“CCCC was also only tasked with the feasibility study. The govern-

ment has not really got to the stage of asking anybody – either CCCC or another foreign company – about the construction of the project. It is still far from that. Obviously, this company is happy to provide assistance to the department concerned to see whether it is possible to build it. Technically, the distance and depth of water and other practical conditions are good for a bridge.

But whether people like it is really for the Maltese side to decide,” he said tactfully.

For SEP, the formula for cooperation was mutually agreed upfront.

He explained that SEP chairman Wang Yundan came to Malta for a short visit in summer 2013 and after meeting government officials, the two sides started to talk about the possibility to cooperate on upgrad-

ing Malta’s electricity generation.

“The government went there, saw the facilities and saw how they performed, especially with regards to electricity losses, which were much higher in Malta.

“After much talk, the two sides decided SEP would be a minority shareholder in Enemalta and would forge a joint company as a service centre to both manage and service projects here and possible projects in the region. Also SEP would help upgrade the Delimara Phase III power plant. These were the elements of the project.

“This is a commercial contract.

On behalf of the Chinese government, we always encourage our capable companies to use their investment and managerial skills to enter foreign countries. So it

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INTERVIEW

is under this backdrop that SEP negotiated with Enemalta,” he said.

“SEP has other investments in other European countries. So if there is a regional service centre here, it will not only service the Delimara plant but also take care of the management of the other projects. And the two sides can also explore the possibility of making full use of solar energy here as if they combine forces, they could come up with better ideas.

“Recently, I read a report that the percentage of renewable energy in Malta is a bit low but if they can work together, the level of renewable energy could rise,” he said, adding that so far, there had not been any talk of manufacturing PVs in Malta.

The MoU with Malta is a small part of a much greater attempt to revive the Ancient Silk Road of 200BC. China would like to revive the spirit of this major trading route.

It was first mooted in 2013, when Premier Xi Jinping travelled to Kazahkstan and Indonesia and proposed to build a Silk Road Economic Belt and a 21st century Maritime Silk Road.

“The idea is to have better connectivity. In China we have a slogan that ‘better roads lead to a better life’. In this era of globalisation, no country can achieve full economic development without cooperating with other countries.

“The idea is not only to trade but to have more cooperation in infrastructure building, more people-topeople exchanges. Along these two ‘roads’, over 60 countries are involved and so far we have over 50 of them expressing interest – including Malta. Malta is interested in the Maritime Silk Road because it occupies a very strategic position in the Mediterranean.

“But the concept is inclusive, not exclusive. Any country on the road or near it that has any interest in it is welcome to talk to us. Any ideas can be brought up for either a bilateral or a multilateral project,” he said.

In order to facilitate these two ‘roads’, preparations for an Asian Infrastructure Investment Bank have already started with dozens of committed members – including the UK and possibly Australia, to the dismay of the US which is questioning its corporate governance.

CHINESE AMBASSADOR TO MALTA, CAI JINBIAO. PHOTO: MATTHEW MIRABELLI

“In this era of globalisation, no country can achieve full economic development without cooperating with other countries” A Maritime Silk Road Fund was also set up with $40 billion to finance future projects.

“This is a key area for our foreign policy, for our diplomatic corps to explain the meaning of the Silk Road and to get countries to come up with projects and make full use of the future preferential funding terms.”

In spite of all the optimism relating to present and future projects, one past issue that still hasn’t been fully sorted out is granting visas for Chinese wanting to visit Malta.

There has been progress since the entire system was clamped down following cases of abuse, and it now takes around two weeks. However, tourism arrivals fell from over 6,000 in 2011 to under a thousand the following year, slowly climbing back up to 3,200 in 2014.

Mr Cai pointed out that the facilitation of travel was very important.

“China has already reached agreements with a great number of countries on visa exemptions for diplomatic and service passports or ordinary passports. And with the United States and Canada, we agreed to provide multi-entry visas for businessmen for as long as 10

years, and as long as five years for students,” he said.

He acknowledged that Malta might not be able to reach such bilateral agreements because of its EU membership but he said sooner or later, the EU would also have to talk about visa exemptions. In the meantime, however, he suggested that ways should be found to speed up the process.

“In the past two years, the efficiency of visa application reviews has speeded up. According to EU regulations, certain information should be provided during the application but in the future, that could be simplified.

“The Chinese Embassy in Malta is quite efficient at issuing visas to Maltese officials, businessmen and tourists. We should do things reciprocally. I see progress but I feel more measures could be taken to encourage people to come to Malta. If we can get more people who travel to London, Paris and Rome, for example, to come to Malta, then it would drastically increase tourism revenue,” he said, noting that outbound Chinese tourists broke the 100 million mark in 2014 for the first time.

The lack of a direct flight is clearly a deterrent but Mr Cai revealed that talks were already under way – and that his original scepticism over whether there would be sufficient demand to sustain capacity had been overcome.

“Recently I learned that managers from Hainan Airlines came here to do a feasibility study and the two sides could start talking about a charter airline first and then have a regular airline,” he said, but declined to be drawn on whether the other side was the Maltese government or Air Malta.

“The information I got was that Malta would not be the only destination. If they can strike a deal, a plane can come from any city in China to Malta and then connect to other major cities in Europe and then come back to China.”

A look at Hainan’s route map shows how strategic a fit Air Malta’s route network would be. Hainan is the largest privately-owned air transport company and the fourth largest Chinese airline in terms of fleet size – but its 500 domestic and international routes only reach a few European countries. Would

Hainan be interested in taking a stake in Air Malta? Mr Cai insisted he did not have any details about the talks, and had only heard about them from the Maltese ambassador in China.

“When I talked to him I found that there is the possibility [of direct flights] because they have already identified an airline in China and the two sides have already met and talked,” he said with a coy smile.

Relations have been overshadowed in recent months by allegations of abuse at Leisure Clothing.

The court recently found that there was enough evidence for two directors to be tried for human trafficking and the exploitation of Chinese and Vietnamese employees.

Mr Cai has taken a personal interest in this case, and is still sceptical about the claims.

The company was set up in the late 1980s, but the textile industry has been facing huge challenges with rising labour and textile costs.

To remain competitive, a few years ago it took on Chinese and Vietnamese workers.

“Last July, three Vietnamese of these tried to illegally smuggle themselves into Sicily but were stopped by immigration. This was a breach of your laws and should be dealt with. But they then started to accuse the factory of not paying them well and came up with a story about their living and working conditions.

“I visited the factory and talked with the workers and they are all happy with their job there. There are more than 10 Vietnamese workers but only three have this problem.

The others are happy with their pay and work. And the working and living conditions are not as poor as mentioned by some corners of the media.

“I heard from people who know the factory well that the living conditions of the workers are better than 25 per cent of the housing conditions in Malta. Of course, there is always room for improvement. I understand that in recent months, the company already did its best to provide higher salaries and better conditions, and they shortened the hours at the weekend. They even organised events to mark the Spring Festival and took them to Sicily and places of interest in Malta. But I can absolutely assure you that this is not a case of human trafficking,” he said.

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e Business OBSERVER

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CASE STUDY

THE STUNNING VIEW MAKES INFINITELY XARA’S MDINA PROPERTIES HIGHLY SOUGHT AFTER.

Boutique hotels need to collaborate The boutique hotels sprouting up in Valletta would need to collaborate, sharing functions like administration and marketing if they are to survive, David Spiteri, the general manager of Infinitely Xara insisted.

This is partly because the small number of rooms makes it very challenging to cover overheads.

But it is also because there may simply be too many of them for all of them to survive.

“Take wine bars. A decade ago there were hardly any, and then they started mushrooming everywhere, many of them without a proper market assessment and without a business plan. Many of them were simply not sustainable and changed hands a couple of times,” he said.

“The return on investment is very low for the amount of work and hours that you have to put in.

It really has to be a passion. It is

not that different with boutique hotels. It is the latest craze and I fear that investors are allowing their enthusiasm to run away with them.”

At the moment, 11 boutique hotels have permits in Valletta, with another 15 interested. He stressed that to succeed, a boutique hotel needs a location, a sound business plan, and careful decisions on where to position itself in the market.

“It is so easy to underestimate what it takes to run to a boutique hotel. Xara Palace has only 17 rooms so each room that is empty represents 7 per cent your revenue lost. Clearly, 100 per cent occupancy every day is nearly impossible to succeed. And yet as a five-star hotel, it still has to have a top chef, round the clock concierge and so on. This is why even big hotels leapt at the chance to build extra floors and

spread their costs across even more rooms.

“I think that many of the ones that are opening now in Valletta will either have to be family-run businesses whose motivation is not a huge financial return – or they will need to collaborate and share their fixed costs.

“Running a boutique hotel is completely different to running a large one where the overheads are spread across hundreds of rooms.

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CASE STUDY

And very often, each room is completely different, not only in terms of furnishing and style but in terms of type. In a large hotel, you can slot a reservation into any one of a dozen similar rooms. In a boutique hotel, you cannot really offer a room with a Jacuzzi to someone who wants a presidential suite!” he said.

The promotion of a boutique hotel without an internationally recognised brand is tricky enough.

It is even harder for Xara Palace since Mdina is not the top locality that a touristplanning to come to Malta would search when looking for hotels.

“This is why you need to have a strong online presence which comes up on the top few listings of a search,” he said.

Xara Palace has succeeded in making a name for itself in various ways. Its relative isolation, discreet entrances and long-term, loyal employees have made it a favourite with celebrities who cherish their privacy – although Mr Spiteri smiles politely and avoids the subject. Its romantic location and award-winning restaurant, De Mondion, have also made it into a sought-after hotel for celebrations from birthdays to anniversaries.

It is tempting to forget that success does not come overnight for established groups like Infinitely Xara.

The company started out with a four-star hotel in Qawra but the Xara brand started with the hotel in Mdina 15 years ago. It was the perfect location for a boutique hotel but the Silent City imposed its own limitations in terms of noise and opening hours.

Besieged by requests from customers who wanted to hold events there, the Zammit Tabona family decided to open a site which would be able to cater for everything from confere nces to birthday parties and weddings. Two and a half years ago, it converted its former disco site at Saqqajja into Xara Lodge, with eight purpose-built rooms – close enough to the hotel to act as an extension but far away

PHOTO: ALAN CARVILLE

DAVID SPITERI

enough to skirt its restrictions.

It even has a swimming pool, used as a quiet summer lido – as well as an additional venue in its own right.

“The facilities mean that we can host a corporate event from breakfast and conference, through to a pool party and then dinner!” he said.

By the time Xara Lodge had opened, Infinitely Xara had also

“Running a boutique hotel is completely different to running a large one where the overheads are spread across hundreds of rooms”

become the operator of Palazzo de Piro, owned by the Metropolitan Cathedral Chapter. The group has a long-term contract but it is hoping to extend it even further, enabling it to invest further in the enormous site, which spans the footprint of three houses. Last November, it converted a storeroom into Sala Panoramica, which seats 200 theatre-style, with stunning

views over the Mdina fortifications. It also set up two museums on the site, as well as a cafe and bistro.

With all three locations up and running, the amount of work skyrocketed and it was no longer feasible for all the operations to be handled by the family alone.

In November 2013, Mr Spiteri was recruited as the group’s first general manager, able to draw

on both his experience with a hotel and a destination management company.

He needs it: the group’s 170 employees handle as many as 100 weddings in a year, as well as all the other corporate and private events.

“We once had 14 events over the course of 24 hours,” he said, stressing that daily interaction with staff was vital.

“We once had the whole place done up as a Norwegian pub for fans during the World Cup – and then reorganised for a seated UK wedding the next. You have to be flexible... and very fast.

“Banquetting is never going to be the same as the fine dining that we offer at Xara Lodge and Palazzo de Piro but we rotate our 40 chefs between the outlets, which works well and ensures that the standards remain high.”

The group remained a hostage to its own success. Its guests still badgered the group to cater for its parties. At first De Mondion used to accept a few selected bookings, but with Xara Lodge’s extensive kitchens at its disposal, it decided to start offering outside catering.

“This means we are using our facilities efficiently and maximising all our resources,” he said, listing some of the many sites it has served at, from open air ones to heritage locations.

“The kitchens can cater for thousands, so really very often the limiting factor becomes how many chairs, trays and glasses you have... which can all be bought or hired.”

There is, as they say, no peace for the wicked, although the 29year-old has hardly had time to stop long enough to think about it. The group is hoping to clinch two major events this year, but it is not only about numbers. As a member of Relais Chateaux, the group will be hosting the dinner for its annual meeting this November.

“There will be quite a few Michelin starred chefs among the delegates, which will be quite daunting,” he smiled.

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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

When blood is thicker than water The case for a Family Business Act is not always fully appreciated. Why, the sceptics ask, should a family business be treated any differently to any other business?

The reasons were made amply clear earlier this week when a committee set up in September 2013 presented its recommendations, which will now be considered by Cabinet before a White Paper is issued.

There are still a lot of blanks to be filled in, not the least of which are any fiscal incentives, clearly outside the remit of the committee.

The main task faced by the committee was to establish the criteria for what will be considered an eligible family business. Since they run the whole gamut from the leading family-owned empires encompassing dozens of companies, to the sole operator of a small factory or shop, this is no small job.

When coming up with the criteria, the committee kept in mind the point behind having a Family Business Act in the first place: ensuring that the transition from one generation to another goes smoothly and successfully.

Commercially-owned companies do not have the same limitations.

Shareholders do not have any sentimental attachment to the company and there is little emotion involved when it comes to appointing its executives. On the other hand, a company whose shareholders are there for a return on their investment is unlikely to hold out indefinitely when it runs into the red. A family business is far more likely to.

But although 83 per cent of family-businesses want it to be transferred to the next generation, according to the National Statistics Office, only 30 per cent do, and only 10 per cent make it to the third generation.

Lawyer Max Ganado pointed out that the act should encourage consolidation, rather than the all-too-familiar fragmentation. His point is

worth noting. In far too many cases, too many family members are appeased with roles, irrespective of their capability but also irrespective of the need for more and more layers of management, with its resulting crowding out of non-family members.

It is not easy. The founder naturally finds it hard to pick and choose between his or her spouse, children, their spouses and so on. Many of them bury their heads in the sand and do nothing, leaving it until they retire or die, without anointing a clear successor.

Are they doing their successor – and their company – a great disservice? One leading businessman recently said that he had not appointed a successor “to keep all the potential candidates on their toes” but is that truly the best way to handle such a complex situation? Is it the best way to motivate, to lead, to ensure that everyone knows what is expected of them? Wouldn’t it be better to let them concentrate on success rather than on undermining each other and trying to gain an advantage over their rivals?

A speaker from the European Commission, Marko Curavic, said that business succession should ideally be phased over 10 years.

To qualify for any benefits under the Family Business Act, companies will have to present their shareholding, voting rights, executive roles and more. The committee said it hoped that this process would force them to step back and take a dispassionate look at the situation – and come up with a succession plan, as well as all the other recommended frameworks, such as family councils and dispute resolution mechanisms.

Family businesses in Malta employ 40,000 and they have been instrumental in helping the economy ride out the storm. Anything that can be done to help them survive and flourish can only be a good thing.

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BUSINESS OPINION

e economic dynamics of the minimum wage

John Cassar White The debate on the minimum wage is rarely conducted in a clinical, unemotional way. Malta introduced its minimum wage legislation in the 1970s while Britain whereas introduced a national minimum wage 15 years ago. Political as well as social action leaders from time to time rekindle the debate on the minimum wage. Consensus on the way ahead is today as unlikely as it has been in the last two decades.

Caritas has often urged the government to seriously consider revising upwards the minimum wage because at its present level it no longer guarantees decent quality of life for those who depend on it for survival. Politicians, while publicly showing empathy with those living on the minimum wage, rightly base their calculations on what the cost of raising the minimum wage will be for employers.

Reconciling these equally important considerations will never be easy.

With elections in the UK fast approaching, Chancellor George Osborne has proposed an increase of about 10 per cent in the UK minimum wage. His conservative colleague and London mayor Boris Johnson disagrees.

Writing in The Daily Telegraph he said: “We should be humbly thanking the super-rich, not bashing them.” I think Boris Johnson made more sense when speaking about bendy busses than on what social fairness should look like.

The latest development in the minimum wage debate in the UK is the publication of a report on the minimum wage by the Resolution Foundation think-tank chaired by professor Sir George Bain, who was the mastermind behind the introduction of the minimum wage in Britain 15 years ago.

Speaking weeks before the publication of this report, Bain made a very fair evaluation of the merits and weaknesses of the minimum wage system: “The minimum wage has been a clear

success but the world has changed in the 15 years since it was introduced. We now know the policy has not caused unemployment, and there is broad political support. But with more than one in five workers in Britain suffering from low pay, it’s time to talk about how we strengthen the minimum wage for the year ahead.”

Dan Silver, co-director of the Social Action & Research Foundation, wrote: “Where lost jobs

have been replaced, it is quite often through low-paid- lowskilled jobs that provide employees with little security. There is stark evidence of people adapting to survive in places where opportunities for standard employment have drastically reduced and many examples of people living in a condition in which they are moving in and out of low-paid work.”

One of the negative impacts of the minimum wage system in the

“One of the negative impacts of the minimum wage system in the UK, and indeed also in Malta, is that many employees are starting work on the minimum wage and failing to secure pay rises for years after”

UK, and indeed also in Malta, is that many employees are starting work on the minimum wage and failing to secure pay rises for years after, as it has become the going rate in some sectors. There are also a large number of workers who are earning barely more than minimum wage because a ‘ripple effect’ has failed to transpire.

Bain is realistic about the challenges facing anyone trying to reform the minimum wage mechanism: “Reform of the minimum wage will be hard to get right – it would be easy to damage a policy that works well. But our discussions suggest there are ways to take a more assertive and ambitious approach while still keeping the flexibility of the current system.”

The Bain report recommends that the government should “broaden its work on low pay beyond the minimum wage by setting an explicit ambition to reduce the proportion of workers who are low paid”.

I understand this to mean that there should be social and fiscal policies that support workers earning low wages. But we have to wait to see more detail on what is being proposed.

More controversially, the Bain report proposes that the Low Pay Commission should be given more power to “pressure some employers to go beyond the national minimum when they can afford to”.

We need to conduct our own minimum wage debate and learn from the experiences of others.

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NEWS

Banif profits to rise fivefold Banif Bank (Malta) will report profits for 2015 that are five times higher than those for the previous year, according to Paulo Machado Fernandes, the chief officer for financial markets and investments.

In spite of this positive result, its head office will still be forced to sell the bank, along with its other international operations in Brazil and the Cape Verde Islands, by 2017.

The head office reported that the aggregate losses from these operations, which have been classified as “discontinued” in its financial report, amounted to €18.3 million (2013: €75.2 million). Last December, it sold Banif Mais to a French credit group for €410 million.

The divestment condition was imposed by the European Commission after the parent company in Portugal received state aid. The divestment is similar to the forced sale of Volksbank in Malta after its parent company in Austria received state aid, and similarly has nothing to do with whether the assets being sold are profitable or not.

“It is all about market compensation, as the bank is getting an advantage over its competitors who did not get assistance,” Adrian

Coppini, chief officer for corporate services, explained.

There have been a number of investors interested in buying the bank – but none of them have so far been shortlisted. The transaction is being handled by the investment bank of the head office in Portugal and the bank executives in Malta are not involved, beyond ensuring that all the latest information is available for any due diligence being carried out by interested buyers.

Mr Machado Fernandes believes that this approach is very important. “Our job is to keep operations going – and growing. If we start mixing the two realities, it creates noise which would distract us,” he said.

The results for 2014, which will be released in a few weeks, will show that the returns on equity are closing in on those of other banks’ on the local market. In 2013, it made a pre-tax profit of €253,000, with net impairments of €1.3 million.

Even though the bank was not one of the three which needed to undergo an Asset Quality Review by the European Central Bank, it opted to carry out its own stress test and found that there would be no material impact. Any impact would be much less than other banks, Mr

Machado Fernandes said, adding that the bank also managed to comply with regulatory capital requirements, even though it had forecast that it would require an injection of €17.5 million in the second half of 2014 to do so.

“The capital ratio reflects capital on one side and risk-weighted assets on the other. The capital is not increasing by injection but from our results, while on the other side of the equation, the bank managed in 2013 and 2014 to focus on segments where there is less risk.

“We improved our capital ratio by 20 basis points and we expect to do more this year because of the results. Obviously a further capital injection would be welcome because it would strengthen the bank’s capital ratios,” Mr Machado Fernandes said.

The ticking clock has not had any impact on its growth strategy. Banif Bank (Malta) opened two branches in 2014 – bringing the branch network up to what they consider to be “the right size” to meet current client requirements.

And in addition to planning to recruit seven to nine more staff in 2015, it is also considering launching investment services.

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e Business OBSERVER

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STOCK MARKET REPORT

Plaza seeks expansion after record financial performance Edward Rizzo Last week, Plaza Centres plc published its 2014 financial statements showing a 19 per cent increase in pre-tax profits to a record level of €1.5 million. The improved financial performance, which was very much in line with expectations given the results of the first half of the year and the disclosure in the November interim statement, was both as a result of higher revenue as well as lower expenses, namely finance costs.

Plaza reported that turnover grew by 10.4 per cent to €2.39 million reflecting the increase in average occupancy levels to 93 per cent compared to 81 per cent in 2013.

The higher occupancy levels came about from the success of the leasing of the office spaces which had been vacated by their largest tenant in 2013. Although the average occupancy during 2014 was 93 per cent, this increased to 96 per cent by the end of the year and to 100 per cent during the first quarter of 2015.

Operating expenses increased by 17.7 per cent to €0.42 million although the majority of this increase is due to a bad debt provision of €40,793 with respect to a catering outlet which ran into financial difficulties. Meanwhile, finance costs dropped by 26.6 per cent to €0.14 million reflecting the better interest rates contracted by the company after it switched its banking facilities in August 2013.

In last week’s announcement, Plaza indicated that occupancy within the complex during 2015 is expected to remain at the same average levels of 93 per cent achieved in 2014. Although occupancy improved to 100 per cent in the first quarter of 2015, the company expects four outlet leases to be termi-

nated during the year. However, Plaza indicated that it is already in negotiations with prospective tenants and anticipates that it will conclude new leases in the third and fourth quarter of 2015. This important development was discussed at length during a meeting with the CEO Lionel Lapira shortly after the publication of the results.

Mr Lapira indicated that three of the tenants are retail outlets which for varying reasons will be terminating their leases. The other outlet is a sizeable catering unit. When questioned on the possibility of McDonalds’ terminating its lease – it expires on July 31, 2015 – the CEO stated that discussions are still ongoing but indicated that other potential tenants are already showing a very keen interest in the area presently occupied by McDonalds’ should they decide to vacate their operation on Level 0 following the sizeable investment in their stand-alone outlet not far off from the Plaza shopping centre.

The CEO also confirmed that demand for retail and catering units was still very strong despite the intense competition in the sector and the growing threat from online shopping among Maltese customers. The company has a waiting list of tenants and for this reason, the CEO is confident that average occupancy will be within the same levels in 2014 despite

the lead time required for new operators to enter into any vacated retail or catering units.

Mr Lapira explained that the tenant mix was very important for the success of any commercial centre and the company is seeking to ensure that new catering establishments start operating in the complex to improve the catering mix currently on offer.

Although the office areas are presently fully occupied, the CEO also confirmed that the company has a waiting list of new tenants wishing to lease office space while some existing tenants are also seeking additional space due to expansion plans. Mr Lapira agreed with a comment recently attributed to Ray Fenech of the Tumas Group, who opined that demand from certain international operators relocating to Malta is “insatiable”. As such, despite the sizeable increase in availability due to upcoming projects in the immediate vicinity and other locations, it is unlikely that Plaza will run into any difficulties to maintain full occupancy of its office space despite the lack of parking facilities.

Plaza’s CEO believes that the company’s main weakness is the absence of parking as part of the complex and the shortage of parking in the immediate vicinity. Mr Lapira is adamant in seeking to address this issue in anticipation of the more intense competition emerging

“Plaza indicated that occupancy within the complex during 2015 is expected to remain at the same average levels of 93 per cent achieved in 2014”

PHOTO: CHRIS SANT FOURNIER

in the years ahead from upcoming office developments in close proximity such as Pendergardens, Midi’s Business Centre and the Metropolis in Gżira apart from other large projects in other locations such as Smart City, the Mrieħel Towers of Tumas Gasan and the planned new business centre by Malta International Airport plc.

Plaza’s CEO indicated that discussions are ongoing with the owners of a large site in close proximity to the complex as well as with the authorities with a view to addressing this parking shortage.

Although Mr Lapira was noncommittal on the possibility of reaching an agreement within the

current financial year, he indicated that discussions are taking place regularly. An agreement could also see the company increase its retail and office space in the years ahead, through a phased development.

Plaza’s historic dividend distribution since the initial public offering in May 2000 has been remarkable with a consistently strong dividend payout to shareholders. Following the record financial performance in 2014, the directors recommended the payment of a final net dividend of €0.0268 per share representing a 12.6 per cent increase over the previous year’s net dividend of €0.0238 per share. The dividend payout

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STOCK MARKET REPORT

ratio declined to 80 per cent as the company retained additional profits to create a cash buffer in order to partly support the ongoing maintenance programme and also eventual expansion plans.

Notwithstanding the additional cash retained by the company, Plaza would undoubtedly also need to resort to additional debt funding which should not pose a problem given the currently conservative leverage position.

In fact, Plaza’s gearing level dropped below 15 per cent in 2014 following the partial repayment of bank borrowings but more importantly following the increase in shareholder funds, not only due to the profit retention but also as a result of the property revaluation.

Plaza’s property is revalued every three years and last week the company reported that the value of its ‘property, plant and equipment’ increased to €32 million from €28 million in 2011. The property valuation is conducted by an independent qualified architect based on the commercial value of the land and its location as well as on the lease contracts in hand.

Furthermore, the property value is also dependent on the discount rate applied. Given the prevailing low interest rate scenario, this would also have contributed to the increase. This also helped shareholders’ funds rise by 15.7 per cent to €23.79 million resulting in a net

asset value of €0.842 per share, a key metric for property companies.

Plaza’s equity is the second best performer since the start of 2015 with a remarkable appreciation of 43.1 per cent to a new record share price of €0.93. Following the announcement by the European Central Bank of the quantitative easing programme and the resultant sharp decline in yields across the sovereign and corporate bond markets, local investors also turned a keen eye to equities in the search for yield. The reaction was immedi-

ate with a steady increase in the share prices of those companies offering an attractive yield given the low interest rate environment.

Notwithstanding the strong rally in Plaza’s share price, the dividend yield of Plaza, following the 12.6 per cent increase in dividends for 2014, still ranks among the highest across the local equity market. At 4.43 per cent gross (2.88 per cent net of tax), Plaza’s yield is still well above yields on Malta Government Stocks.

Plaza’s equity could therefore remain in the limelight especially

in the coming weeks since the shares will continue trading ‘cum-dividend’ until close of trading on Thursday April 23.

Following divident payment , investors will remain attentive to Plaza’s announcements on occupancy levels as well as upcoming expansion plans, the latter being the major driver for future growth over and above the contracted increments in lease payments.

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

e Business OBSERVER

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March 26, 2015

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BUSINESS UPDATES

A supplement that helps hearts run smoothly

Demonstrating the feasibility of electric vehicles in Malta DemoEV is a LIFE+ funded EU project coordinated by the Ministry for Transport and Infrastructure.

The project has demonstrated the feasibility of full electric vehicles for Malta but also the efficiency of such vehicles for the Maltese islands.

Vehicles were driven on different terrains all over the islands for over 18 months, in different climatic conditions, and demonstrated that electric vehicles were suitable in the rain, off-road and up-hill.

Total mileage coverage

298,413.11km

Total CO2 saved

68 tons

Total battery electric vehicles utilised

24

Total number of charging points

90

Total number of trained participants

188

Total number of promotional events in which DemoEV was present

14

Total number of private citizens, companies, organisations and Government entities taking part

133

Total number of kWP from photovoltaic energy generated during this period

227.835 kWP

Total number of kWH of charges effected by DemoEV participants

38,100.35kWH

Nowadays people lead busier and more stressful lives, meaning that preventative measures against heart disease, such a healthy diet and exercise, are vitally important.

Ateronon, ‘The Tomato Pill’, is a natural supplement that helps to maintain healthy heart function. It is packed with easily absorbed lycopene – one of nature’s most powerful antioxidants and antiinflammatories. Ateronon’s patented formulation includes LactoLycopene with added thiamin and selenium to help protect the heart naturally.

Studies show that taking Ateronon once a day dramatically increases lycopene levels in the blood within eight weeks. These levels can be maintained by continuing to take Ateronon daily.

Ateronon is available from leading pharmacies across Malta and Gozo, and is distributed locally by ATG, St Julian’s Road, Birkirkara. For more information, contact ATG on tel. 2124 2017 or send an e-mail to info@atg.com.mt.

Rent anything in Malta online Kiribiss.com is a useful Maltese website which caters specifically for Malta’s rental market.

It is an online directory but has some major improvements which benefit both the service or item provider and the customer.

It better assists rental customers in locating rentals from all over Malta, creating a nationwide rentals network for locals and international visitors online.

Kiribiss facilitates contact between owner and client for finding and securing a variety of rental services and products from 12 categories, all from one platform.

The major advantage compared to similar websites is that Kiribiss lists all the individual items (or inventory) from a sup-

plier, with each item having a dedicated and SEO optimized page, keywords, images, video, description and more.

This will assist the indexing by search engine bots to rank the item higher for a search.

If someone is looking to ‘rent a smoke machine’ for example, this is what they’ll type in the search bar because they may not know the name of the supplier.

The item will come up, and the client can contact the owner of the smoke machine directly.

All major social media channels are utilised to further increase the exposure of the rentals online and increase referrals. With Kiribiss.com, anyone can really rent anything in Malta.

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e Business OBSERVER

| March 26, 2015

BUSINESS UPDATE

Raising Malta’s profile through the launch of GamingMalta Affordable quality healthcare solutions Healthcare products should be of high quality, and Medina Healthcare’s primary aim is to ensure that affordably priced products from top international suppliers make it to local private and public healthcare providers.

Established in May 2008, Medina Healthcare is a local leader in the distribution of quality health-related products, with a portfolio that includes the latest and most up-to-date products for infection control, decontamination and sterilisation, surgery, anaesthesia, hand hygiene

control, wound care, intensive care, pain management, incontinence management, quality management and monitoring, and geriatric care.

The company aims to stay on top of the industry and on the pulse of ever-changing advancements. Clients need to be in the know and the company sees it as its duty to help them. In this regard, keeps itself updated so as to always remain a source of information for customers within the areas in which it operates.

For more details, visit www.medinahealth.com.mt.

GamingMalta, a new foundation tasked with promoting Malta as a gaming jurisdiction of excellence, was officially launched some days ago at The Casino Maltese in Valletta by the Parliamentary Secretary for Competitiveness and Economic Growth, José Herrera and the Malta Gaming Authority (MGA)’s executive chairman, Joseph Cuschieri.

The Parliamentary Secretary highlighted the government’s commitment towards the gaming industry in Malta, maintaining, “the purpose of GamingMalta is to promote and raise Malta’s profile as a leading international gaming jurisdiction in terms of licensing and regulation of gaming companies, as well as a centre of excellence in the ongoing evolution of the gaming industry.”

Mr Cuschieri, also underscored GamingMalta’s aim to develop Malta as a differentiated brand of excellence in all aspects related to the industry and to implement the authority’s brand strategy and road map

for the industry: “Gaming Malta is an important strategic step to take Malta’s gaming sector to the next level so that it continues to stand out, through innovation, quality and diligence.”

HSBC honours employees for excellence at annual staff gathering HSBC Malta honoured six employees and a team who typified the values and culture of excellence of the bank during this year’s annual staff gathering. The HSBC Malta Staff Townhall 2015 is one of the major initiatives within the bank’s internal communications programme.

The employee excellence awards celebrate individuals and teams who live the HSBC values and demonstrate excellence in providing exemplary services to the bank and its customers.

Nearly 100 staff, managers and teams were nominated in this year’s seven categories. The winners of the excellence awards were Joe Cachia for the Dependable Award 2015, Bernard Grima for the Connected Award 2015, Charlene Camilleri Zarb for Outstanding New Recruit Award 2015, Brian Cilia for Open and Inclusive Award 2015, Mark Spiteri for Customer First Award 2015, and Daniela Cassar and Maureen Micallef for the Social Responsibility Award 2015.

The Helicanus Project team won the Team Award 2015. The members of the winning team were Marie Kristie Galea, Ray Schembri, Elaine Scerri De Giorgio, Andre Cutajar, Graziella Dimech, Naomi Bugeja, Audrey Aquilina, Mariella Fitzerald, Joseph Farrugia and Joseph Sammut.

EMPLOYEE EXCELLENCE AWARDS CELEBRATE INDIVIDUALS AND TEAMS WHO LIVE THE HSBC VALUES.