The Business Observer 22nd May 2014 Issue

INDUSTRY FOCUS

Issue 1

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May 22, 2014

Distributed with the Times of Malta

THE ITALIAN AMBASSADOR SAID THAT TRAILERS ON THE CATAMARAN HAVE FEWER RESTRICTIONS.

e government is drawing up a policy on logistics, seeing tremendous potential for Malta as a distribution and warehousing hub, building on what the country has already achieved in this sector. see page 9 >

NEWS

Sicilian traders are not the problem

e devil is in the detail. A number of tweaks were made since the Budget to make some of its clauses more workable. see page 3 >

– Italian ambassador

Vanessa Macdonald The solution to merchandise being brought down from Sicily is not more controls imposed on catamaran passengers but fewer controls on groupage containers that come in via Grand Harbour, Italian Ambassador Giovanni Umberto De Vito believes.

The ambassador was commenting on recent statements made by the Malta Chamber of Commerce, Enterprise and Industry about merchandise being brought into Malta transiting through Italy.

He was clearly less than amused by headlines last week highlighting concern at alleged abuse “by Sicilian traders” following the chamber’s intervention in Parliament regarding Vat, eco-tax and excise duty not being paid, creating an unlevel playing field for local retailers.

With the diplomacy you would expect, he asked: “Why Sicilian? Are we sure that the people who are

ITALIAN AMBASSADOR, GIOVANNI UMBERTO DE VITO

bringing in this merchandise are not Maltese or from any other country?” he said, revealing just a slight irritation at the chamber’s attempt to influence Parliament.

“Are these companies being investigated? We have requested information from the chamber but it has not been forthcoming and we have not been given any concrete proof.

“The European Commission is also reading these articles. Would they be interested in seeing additional controls and obstacles to the single market? I don’t think so!” he said.

The ambassador was planning to meet chamber president David Curmi to suggest that he works with his counterparts in Sicily and Italy to investigate any specific situation.

“The chambers of commerce have considerable information – this certainly does not need to be done at an intergovernmental level, unless it requires a change of policy,” he said.

In the meantime, sources at the chamber claim Sicilians were opting to pay Vat on sales in Malta, rather than in Sicily – but that there were no channels for exchange of information between the tax authorities to ensure that they were in fact paying Vat here.

Mr De Vito is, however, somewhat sceptical about these claims,

saying that Italian authorities were very strict when it came to fiscal enforcement.

“I am not aware that there has been a specific request from Malta for information to be exchanged – and even though cooperation on tax matters remains a very delicate issue, we would welcome any such request as being in the interest of both parties,” he said.

Malta has formed part of the single market for a decade but the phenomenon of merchandise being brought in without Customs supervision is a relatively recent one. Until a few years ago, groupage freight – consignments destined for different customers but dispatched in one container – was only sent to Malta via services such as Italian company Grimaldi.

These containers are taken to Ħal Far and are unloaded in the presence of Customs officials.

Continued on page 5 >

INTERVIEW Mario Vella took over as Malta Enterprise chairman a year ago and like his predecessors, he has his own ideas on how to achieve results. see page 12 >

ENTREPRENEURSHIP Garbo? Why did a Swedish company choose a Swedish actress’ name for a new i-gaming product? see page 30 >

e Business OBSERVER

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May 22, 2014

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NEWS

Mandatory prison term removed for tax offences The government has removed a rather draconian clause in the law which said that anyone found guilty of a tax offence for the second time would have to serve a mandatory jail term of a minimum three days.

This is one of a number of clauses originally in the Budget that has been tweaked by the government to iron out anomalies and make them more workable and equitable.

Reacting to the jail term provision removal, EY tax expert Robert Attard said: “This was quite harsh, especially when you take into account that not filing a return counts as a tax offence!

And because there was no judicial discretion, the court would have had no option but to send the offender to jail. This has happened in the past and there are a number of constitutional cases already challenging this. However, the law now also allows the judiciary to impose a fine for second offenders”.

The government has also changed the way in which shareholders’ dividends are taxed following the revision of tax bands on earned income.

Originally, the reductions were not going to apply to dividends, which would have created a twotier system that may have discouraged the payout of dividends.

In the past, shareholders would declare the gross dividends but would receive the net amount, with the Inland Revenue Department then granting a rebate based on the applicable tax rate.

The original solution was for the department to then make an adjustment for the different tax rates so that the rebate would remain based on a 35 per cent rate, with shareholders foregoing more and more rebate with each successive reduction in the rate on earned income from 35 per cent to 25 per cent.

Dr Attard noted that the government has solved this issue by sim-

ply restricting the rebate to the portion of dividends which, when combined with the shareholders’ other income chargeable to tax in Malta, does not exceed the threshold corresponding to the 25 per cent tax band as determined by the rates applied thereon.

Another clause in the Budget was for capital gains tax to also apply to debt claims – the passing on of loans. Dr Attard and other practitioners made several representations to the ministry on this point, explaining that it would have a very negative impact on interna-

tional business. They were successful and this clause was not in the Act which was finally published in the Government Gazette.

Another important change was made to the tax-free threshold for non-resident EU nationals who work in Malta. The eligibility – based on the percentage earned in Malta – was going to be changed in a way which would have brought the tax-free bracket down from €8,500 to around €700, a situation which would certainly have been legally challenged as being discriminatory.

The clause now makes it clear that as long as 90 per cent of the income is earned in Malta, the nonresident would be eligible for the same tax rates as residents, a formula in use in many other member states.

Dr Attard is already looking ahead and noted that the next Budget would need to make a few other changes to ensure that there was no discrimination on tax laws as a result of the Civil Unions Act, such as the removal of the joint reporting option for couples.

Rig to start Malta exploration The Noble Paul Romano rig, which will be used to drill the Ħagar Qim 1 well 150km to the south of Malta, has left Malta. Its official contract started on May 18 after it completed final inspection and certification tests.

The drilling rig will be operated

by Noble Energy of Houston, over a two-year contract with Genel, working in water depths of approximately 450m and targetting reservoirs at a depth of approximately 2,500m.

The original concession for the area had been granted Mediterranean Oil & Gas. Leni Gas and Oil took on a 20 per cent shareholding, which it halved and eventually sold the remaining 10 per cent stake to MOG for a nom-

inal $1. Shortly after, Genel bought a 75 per cent interest in the block from MOG for $10 million, leaving MOG with a 25 per cent shareholding.

Genel acquired its 75 per cent stake in the new Malta well, the first in over a decade, from MOG. Bill Higgs, chief executive of Mediterranean Oil & Gas, said: “We are very excited about Ħagar Qim and look forward to the imminent spud of this high-impact frontier exploration well. We will update shareholders once the results are known.”

In the past, 11 wells have been drilled offshore of Malta by various international oil companies without any commercial finds.

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May 22, 2014

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NEWS

< Continued from page 1

THE GOVERNMENT WILL BE OFFERING MORE LAND TO LOGISTICS COMPANIES.

MIP should be able to offer warehouses to investors – Minister Infrastructure Minister Chris Cardona is proposing changes to the law which would enable Malta Industrial Parks to offer government land to logistics companies.

At present, Malta Industrial Parks can transfer property to investors under the Disposal of Government Land Act. However, the Act is aimed solely at investors who will be setting up an industrial manufacturing base and does not give MIP much flexibility for other uses such as logistics.

“Chapter 268 of the Act states: ‘No land which belongs to or which is administered by the government shall be disposed of unless such disposal is made in accordance with the provisions of this Act’,” Dr Cardona said.

“Although the term ‘industrial project’ may appear to be wide in

meaning, particularly since there is no definition of the term ‘industry’ at law, in practice a number of deserving projects are borderline.

“They are therefore risky for candidates asking for direct allocation as any disposal which contravenes the principles of the Act would be null and void and the persons affecting the disposal in contravention of the law are liable to criminal proceedings.”

Dr Cardona also feels that the principle of granting factories and land solely under title of lease and title of emphyteusis respectively no longer makes sense.

“Today it is wholly impractical.

It should be virtually the opposite to make commercial sense. Investors need title as this means they can then use the factory

or land as collateral with the bank and so on. We need different options.”

Dr Cardona will now present Cabinet with proposals to extend the Act to cover projects which would in essence be industrial –not for speculation or entertainment, for example – but which would also allow industry-related projects and logistics, which would be mostly located at Ħal Far. As with the current procedure, Malta Enterprise’s investment committee would still assess the application in terms of value-added, even if the parameters for capital investment might differ from those applied to manufacturing.

“We would always need to keep in mind that any projects should be in line with the government’s

economic policy and that they would bring growth and development,” he said.

Dr Cardona’s proposal was spurred by his recent visits to the Gulf, as well as other requests – local and international – for logistics bases, which would incorporate elements of warehousing, international coordination of merchandise, and distribution.

“Let me give you a simple but practical example. When we visited the Gulf, we encountered investors who need a hub for halal products bound for Europe. Imagine how many people there are in Europe who rely on halal products... Millions! Could we offer them a hub solution in Malta?

Imagine the value-added it would bring. So, let’s change the law. Let’s get this moving!” he said.

When the larger catamarans were introduced by Virtu, they became a feasible alternative for trucks – and a way to bypass the Customs inspection at Ħal Far as the police regulation was never extended to the ferry.

Grimaldi is clearly vexed as this haemorrhage of its business. The fact that Joe Bugeja, the general manager of its Maltese company Malta Motorway of the Sea made part of the presentation in Parliament did not go unnoticed by Virtu. Grimaldi engaged a local legal firm which drew up 27 points about anomalies between the services.

It has also lobbied Valletta Gateway Terminals and the ambassador, while MMS director Guido Grimaldi was also in Malta recently and took the opportunity to present his case to Transport Minister Joe Mizzi.

“We believe that the authorities should put things right. It is not up to us to fight!” MMS managing director Ernest Sullivan said.

Ambassador De Vito would prefer a less confrontational solution.

“We should speed up the process for groupage containers. These are also being moved within the single market as any cargo originating from third countries will have been monitored at the point of entry into the EU. “So if we apply the same argument being made by the government about the fact that we form part of a single market insofar as the catamaran is concerned, then the controls at Ħal Far only make sense for ships entering Maltese ports from outside the EU. This would really make a difference, ensure a level playing field and ultimately benefit traders and consumers.”

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e Business OBSERVER

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COMMENT

Our vision for Europe

Paul Bugeja Europe in 2014 portrays different meanings. It means a large single market with a stimulating competitive environment, both capable of generating prosperity and technological innovation. It means a social model founded on individual rights, which has given rise to a degree of social cohesion that hasn’t been equalled anywhere else in the world. It means a great power that can play a significant role to the world stage. In recent months it has also meant the challenge of the single currency. But more than anything else, today, Europe means our future.

MHRA was one of the leading lobby groups supporting Malta’s membership in the EU when this matter was still a controversial issue. Today, 10 years later, MHRA is satisfied to note that we have now a common consensus. Our members are now debating together what is best for the industry’s future.

Feedback received by most of our MEP candidates has been tinged by local issues rather than European, but this was to be expected. The fact, however, remains that Europe is part of our social and economic fabric and is today an integral part of our future. When one considers that we have six Maltese MEPs out of the 751 who will get elected, it becomes even more evident that we need to make the right

choices and have the best brains representing us there.

Our vision for Europe is based on the need that business has to regain competitiveness to become sustainable. Business is not a cash cow to finance red tape, inefficiencies and corruption. Red tape, inefficiencies and corruption, however, are poison for the economy and consequently for the social agenda of Europe.

Economic competitiveness will lead to more and better jobs, a more secure and feasible social agenda and significantly a feel-good factor among European citizens – the foundations for economic growth.

Tourism has proved to be a key economic driver and job creator when the rest of the industries were crumbling across Europe over the past five years. Viewed from this perspective, tourism has positioned itself as key to the realisation in today’s realities of the European dream as was envisaged by the likes of Monnet, Schuman and the many other European giants who through years crafted a sui generis Union.

Collectively, we must therefore aim to secure a more competitive tourism sector regulated by smarter legislation and policies that embrace the subsidiarity principle, free from red tape, and that has easier access for European funds. It can only make sense to focus and invest in industries that provide significant returns in all economic and social aspects.

Significantly this vision is critical for Malta when one considers that tourism represents 30 per cent of GDP and 35 per cent of government’s cumulative revenues, substantially more than most other EU countries. In this perspective and looking ahead to the future, we as Malta need to see more value added from our MEPs on this front.

MHRA pledges to support them through our offices and networks in Brussels to push for the tourism agenda, in particular in promoting

“We also need concrete action to facilitate the entrance of tourists to Europe through the use of intelligent technical solutions to facilitate visa procurement, in particular for all BRICS” the Mediterranean dimension to tourism and hospitality. This is in line with our vision of setting up the Mediterranean Tourism Forum in Malta, because apart from being European, we are also Mediterranean.

We also expect our MEPs to lobby for the creation of an intergroup solely dedicated on tourism in the EP to include all relevant stakeholders. The aim of the intergroup will be to monitor all political developments with a likely impact on tourism sectors and ensure their interests are taken into account.

We are also expecting that one of our elected MEPs, with the support of all our political parties, commits to participate in the Transport and Tourism Committee, while all the other elected MEPs keep in mind the tourism agenda while working in the other committees.

Tourism impacts and is impacted in turn by so many other legislations in various areas. For

new and better jobs our MEPs need to understand that flexibility of working time arrangements is crucial for the maintenance of service within the hospitality industry.

Specifically, our elected MEPs cannot accept that our restaurants are made to pay a fee covering the cost of inspections – one of the legislations that is to be enacted shortly. Our elected MEPs must also ensure that any future EU legislation should not result in an effective ban on the use of fresh food.

Our future MEPs should also work hard to ensure fair competition in online distribution and in stopping the uncontrolled growth of the many unlicensed operations.

The future Regulation for Data Protection should not impose new obligations on the industry, especially the requirement to appoint a data protection officer. Tourism and catering operators need clear regulation of the audiovisual sector.

The legal regime applicable to hotel

bookings covered by the new package travel directive should not be less favourable than the existing legal framework.

Similarly, interchange fees must come down as these violate competition law, increase prices and are well above the real cost of processing cards.

We also need concrete action to facilitate the entrance of tourists to Europe through the use of intelligent technical solutions to facilitate visa procurement, in particular for all BRICS. Last but not least, maintain reduced Vat rates for tourism!

MHRA will pursue this communication process with the MEPs throughout the coming five years to ensure continuity and results.

Indeed, the challenges ahead are not few and easy but MHRA remains positive that Europe is our future.

Paul Bugeja is the president of the Malta Hotels and Restaurants Association.

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May 22, 2014

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INDUSTRY FOCUS

Logistics: the next frontier

Vanessa Macdonald The news that Economics Minister Chris Cardona is proposing ways to facilitate logistics in Malta could not have come a moment too soon for John Portelli. The Valletta Cruise Port CEO is also the president of the Malta branch of the Chartered Institute of Logistics and Transport, one of the first ever to be set up.

‘Logistics’ is a fairly recent buzz word in the Maltese economy but it has long and deep roots.

“Logistics has been around for as long as wars – as wars are all about armies getting the right things to the right place at the right time and in the right condition. All that has changed in the commercial world is

the addition of ‘and at the right price’,” Mr Portelli said.

“All you need to consider that Malta has €9 billion worth of exports – and all of those require logistics.”

The Libyan crisis a few years ago showed how well placed Malta was for humanitarian logistics, coping with everything from trucks and tents to medicines. But there are several other areas where Malta has a role to play, Mr Portelli believes.

“There is scope for the Freeport and Medserv to expand for example. They are both considering more warehousing.

“But there are also other activities beyond these locations. Malta is already one of the leading trans-shipment hubs for maritime trade in the

Mediterranean but we could do a lot more for aviation.

“We could easily be a distribution depot for international sales of pharmaceutical and retail products.

There are other questions to ask: Should we allow an element of partial manufacturing? This is where Malta Enterprise and Malta Industrial Parks have a role to play...” (See article on page 5) Mr Portelli believes that Malta has accumulated significant expertise over the years, thanks to the established manufacturing and services companies.

Joe Gerada, the managing director at Thomas Smith Group, agrees that skills are the key and believes the time has come for a more professional approach.

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“Local players in shipping and logistics are not subject to any level of competence or qualification. Any player can join the industry without any preparation or need to qualify.

This is not helping standards and there should be some level of minimum qualification to practise in the field,” he said.

He welcomed the government’s plans to introduce a policy for logistics and called for more space – ideally on the waterfront.

“Professional players need a site which should be considered a common user site, subject to similar terms and conditions for all, so that competition and standards of service can prevail. Adequate space is limited by Malta’s very geographical nature so giving previous scarce space to a limited number of players or one player, even if not competent, will reduce the level of service and Malta will suffer. At the end of the day the brand is Malta,” he said.

Apart from space for operations, he also sees other barriers to growth in this growing sector, such as instability in North Africa, as well as bureaucracy and lack of interdepartmental cooperation as issues do not site squarely with one specific authority.

But he is optimistic about the future opportunities.

“The country has a very solid reputation... We offer a high level of service, and consequently all Mediterranean movements can be tackled. From our company’s point of view, we believe our strength comes from belonging to solid specialised networks of professionals in various logistic fields, from employing good, competent and hard-working achievers, and from giving quality of service priority.

This has also resulted over the years in considerable goodwill and return business.”

Certainly some of the key players in the industry are investing in this growing sector. Express Logigroup International Freight Service CEO Jonathan Vella believes that as global trade flows become increasingly complex, they demand more and more flexibility in the supply chain.

“As a company you want to be alert to these changes, and the new situations and opportunities they offer. We at Express Logigroup understand that this requires innovative transport solutions, solutions that match our client’s specific needs,” he said.

“As company we have been investing heavily in our fleet to be able to expand our reach, but that alone is not enough. We have also been investing in procedures and staff training to keep quality checks and procedures in place. Presently, Express Logigroup is in the process of implementing the ISO 9001 standard which will be finalised and fully implemented in the coming weeks.”

Franco Azzopardi, the CEO of Express, expressed the hope that Malta Enterprise would include logistics as a qualifying activity for incentives especially in terms of investment tax credits.

He believes that making Malta a successful hub for logistics would rely on having sufficient connections by air and sea, noting that

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Logistics – Where are we now?

only have one Ro-Ro shipping line from Genoa could be a limiting factor.

“In spite of all the reforms, port charges are still expensive, making Malta less competitive. However, on the positive side we should lever-

age the sophisticated fiscal regime and advantageous financial services bundled in the Malta offering, using them for the movement of goods from the Far East through Malta to EU and North Africa,” Mr Azzopardi said.

The government is now looking at logistics as a new source of foreign direct investment, but there are already 3,600 local companies involved in the sector – of which 110 are institute members. The number may seem surprising but when you consider that according to the 2012 Transport Statistics, there are 1,500 land transport companies, 992 involved with sea transport and another 989 in warehousing, the figures quickly add up.

In all, the sector employs over 9,000 people – with 106 relatively large firms employing more than 10 people.

According to the NSO’s Malta in Figures, the transportation and storage sector increased by 34.6 percentage points since 2005 in terms of turnover, with the Transport Statistics reported €170 million in salaries and wages.

The Chartered Institute of Logistics and Transport (CILT) believes that the growth in the

sector will see more growth and is concerned that the skills might not be available. It is tackling this along two pillars.

It is footing a considerable part of the bill for a human capital survey, which will be started as soon as it has finalised support from other stakeholders. It has also been active on the education front and has been running courses for the past 15 years. Five years ago, the University of Malta introduced a higher diploma in transport and logistics management which saw its first graduates last year. The institute is the trustee for a fund which has been used to pay for books for the University among other things, while other studies are also underway or planned.

CILT organises regular conferences, each dedicated to one of the sectors involved, such as maritime and aviation. It is also in the process of drawing up a position paper on road transport.

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e Business OBSERVER

| May 22, 2014

INTERVIEW

Can old brooms still sweep clean?

Vanessa Macdonald Mario Vella is not exactly ‘new’ to Malta Enterprise. He had, after all, spent time as the chief executive officer of the Malta Development Corporation, which together with the Institute for the Promotion of Small Enterprise and the Malta External Trade Corporation were put into a blender in 2004 to form the new agency.

He was assigned the role very soon after the Labour Party come back to power in 2013 and his past role as a president of the party made it all too easy for critics to write his appointment off as a political one with no substance.

He was faced with the opposing pressures of getting the agency back on track – at least, the track he believed it should be on – without creating traumas...

“This place has gone through too many dramatic traumas. And the trauma in the past did not come from changes in governments or ministers but from the changes in chairmen who had each had a different vision.

“I did not want to create trauma.

We are not just talking about an organigram but about people,” the normally media-shy chairman said.

However, whether traumatic or not, Mr Vella has made several changes, all based on one simple

“We did best in terms of investment promotion when we microtargeted.

It is pointless blanket bombing. It is pointless doing generic promotion about how great Malta is. No one gives a damn about that.”

premise: taking Malta Enterprise back to its roots.

“We needed to redistribute resources towards attracting investment promotion. In a way that gets results,” he told The Business Observer.

“It was clear from the outset that Malta Enterprise was not focused on what it was meant to be doing. There is an accumulated institutional memory that has enormous value.”

To understand his point, it might be pertinent to trace the roots of Malta Enterprise back to their origins in 1959, when the Aid to Industry ordnance was introduced to incentivise industrial investment.

“Even then, observers realised that the country would need to become less dependent on military spending and that we would need to concentrate on selling goods and services out of the country. The notion that we need to export was fundamental,” he said.

“There was already the Industrial Development Board in London too. One of its members was Sir George Dowty who then brought Malta Rubber here – now Trelleborg after several changes in ownerships.”

Mr Vella believes that not much has changed since then, in spite of different political seasons. The basic reality is that the country can develop only if it exports and for that it badly needs foreign direct investment.

“That is not to say that local investment is not important. But FDI is always tied to exports. No one

comes here to invest in the local market as it is simply too small,” he said.

When he got there last year, he shook his head in disbelief as he felt that Malta Enterprise was doing “everything except what we were traditionally best at doing”.

“For example, why did we get involved with the Corporate Village idea at Mrieħel? This is nothing to do with the validity of the project.

But why would Malta Enterprise want to get involved in an office project which would compete with the private sector? Especially since there was an escape clause which meant the government would very likely have ended up taking most of the space if the private sector did not take it up!” he said.

Over the years, each chairman had his own idea of how to attract investment, ranging from having external offices or foreign multipliers to attending conferences and bring trade delegations here.

Mr Vella preferred to go for something he believes had been tried and tested, noting that only a handful of people were involved with investment promotion out of the 140 employees.

“We did best in terms of investment promotion when we microtargeted. It is pointless blanket bombing. It is pointless doing generic promotion about how great Malta is. No one gives a damn about that.

“But microtargeting means doing loads of homework before as you

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May 22, 2014

are not talking about targeting a country or even a city but about specific companies on the basis of concrete opportunities.”

The concept is simple: identify companies which have issues linked to their location, and offer them a very specific argument for why they should move to Malta, telling them what the costs would be and so on.

“If you have done your homework well, the chances of failure are much more contained. And you know exactly what you have spent,” he said.

“It is much more cost-effective than shooting wildly in the hope that something hits a target.”

However, this approach requires a very powerful research capacity – which was absent when he first went there.

“It was not considered to be important as it was assumed that investors would come of their own accord. That is not the way it works.

You have to go and look for them.

You also need people with the right skills to do this. And I found them here but they were simply not being used.

“Let us not beat around the bush.

There were a lot of people that were not being used and not only people of one political colour. We needed to bring back on board not the nonblues but the good! We were not using our accumulated institutional experience...” he said.

So far, so good. But is this approach working?

The usual way to judge Malta Enterprise’s performance is by the number of projects approved. Mr Vella rather bucks this trend as he has tried to – if anything – deflate the figures. For example, he has tightened up the definition of an ‘expansion’ to be one that really represents an increase in productive capacity.

But in spite of this, the numbers are what he described as “impressive”. This is in part due to the fact that the board now meets monthly – whereas before, the schedule was a bit more “erratic”, he said.

This means Malta Enterprise can now give applicants a reply within a month, as long as all necessary documentation has been provided.

The result is 182 projects of which 32 were new greenfield ones – that is projects started from scratch.

Another change is the type of

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■ e 132 FDI and local projects approved by ME in 2013 will carry a total investment of €166.3 million and are envisaged to create 2,611 new jobs.

investment being courted: Malta Enterprise is also looking for investment that does not require industrial factory space – around 30 per cent of applications at present.

“It is not clear that we have as much space as we need. But Malta Industrial Parks has our confidence and solidarity and we think it can solve the issues involved. The demand for logistical space is also an issue. There is space but we need to apportion it wisely and administer it wisely. I think we have made giant leaps forward,” he said.

Thinking outside the box has resulted in Malta Enterprise now at an advanced stage of negotiations with reputable universities to set up campuses, aiming not only at North Africa but also at the Mediterranean region.

He also had to ensure that the Life Sciences Park did not

turn into an iconic – but empty – building.

“The project sounded great and the building sounded greater. But although there were words aplenty, nothing was done to fill the place,” the chairman scoffed with another shake of the head.

To make matters worse, in his eyes, the €40 million tag meant that the rent Malta Enterprise would have had to charge tenants would have been so high that it would have been wildly uncompetitive.

He wanted to tweak the project in a way to make it affordable to investors – but he was frustrated by the onerous and inflexible conditions of the grant agreement.

“Any deviation from the agreement puts at risk the original sum promised through the European Regional Development Fund – €20 million of the total – and might actually incur a fine,

which is not normally peanuts,” he said.

He started going through the plans, furious to see how much space was not being maximised.

“Was it necessary to have a conference hall there? And was it essential to spend €5 million on plastic cladding – even if it is iconic and attractive!” he growled.

He found that there was not that much he could change. The plastic cladding had to stay but he “thought out of the box” and cut from other areas without major changes to the original cost-benefit analysis. One significant change was to dedicate one building to information technology, creating a ‘digital creativity hub’ which would complement and support the other activities in the park.

“We are now in a position to say that we are well ahead in allocating space there and we are talking to

major players in very, very innovative fields,” he enthused.

“I wish I could tell you more about them as I am sure you would be as excited about it as we are...

But there are very few players in these areas and it would be very easy to identify them.

“The most important thing is that we are attracting them on the basis of the good reasons why they should be in this particular building, in this country and in this region. We could not rely on cost structure – so we had to be innovative and offer something that others could not do...”

Changes to the focus. Changes to the structure. Changes to the existing projects. Will it work? How will his tenure as chairman be judged?

“The proof of the pudding is in the eating,” he shrugged.

“Let’s wait and see how it all works out in practice.”

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May 22, 2014

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e Business Observer is a new business newspaper distributed with Times of Malta every fortnight.

EDITORIAL

Is single market a reality?

Sometimes, one overlooked factor can turn a whole argument on its head.

The Chamber of Commerce, Enterprise and Industry has been clamouring on behalf of its members for more supervision of merchandise being brought into Malta on the catamaran from Sicily, claiming that the appropriate taxes and excise duties were not being paid.

The government has been strenuously defending the situation by stressing that we are part of the single market, with all the freedom of movement that this entails.

But Italian Ambassador Giovanni Umberto De Vito has challenged this by pointing out that rather than impose controls or surveillance on the trucks and trailers coming off the catamaran – reportedly under 100 a week – we should be asking why groupage freight coming in via any other portal has to go to Ħal Far as, after all, it too is being transported within the single market.

The current practice, in spite of EU accession, remains, according to operators, for groupage freight to be taken to the woefully inadequate Ħal Far centre, where the trailers are unloaded in the presence of customs officials. The operators must have their own bonded stores and incur additional costs in terms of both resources and time to release their imports – not to mention the activity it generates for haulers. At times, customs actually even do a scan on trailers as they are unloaded from the ships in Grand Harbour.

The reality is that the fine for not following this procedure is paltry – and it seems fairly common practice for operators to feel the risk is worth the time and effort gained.

It is no wonder that when catamaran operator Virtu introduced a larger ferry which could transport trailers, the operators saw a viable

and tempting alternative. And when, for whatever reason, these trailers were not obliged to go through the bonded stores in Ħal Far, it became a no brainer that they would opt for the catamaran service.

You have to ask: would an operator taking a truckload of goods from Germany to Italy be made to unload in the presence of a customs official?

This one factor raises many other questions. When the chamber says that it believes many trailers are brazenly unloaded without supervision, it may very well be Maltese operators who are defying the Ħal Far procedure.

There is another factor that cannot be overlooked: Maltese consumers are travelling up to Sicily, ordering furniture from showrooms there and having it delivered and installed. Single market.

Nothing wrong.

But it does mean that indignant claims about ‘Sicilian traders’ and tax evasion could be misleading.

At the moment, all sides have a valid – albeit myopic – point of view and it is clearly not the time for some knee-jerk reaction from the government, appeasing the Chamber by introducing market surveillance.

What is really required is a more scientific method of gauging the extent of the problem, rather than anecdotal evidence. The Chamber is trying to gather information on drops in sales in the retail sectors most affected, like furniture and wine and spirits. But finding out how much of it is due to illegal importation will be far harder to pin down.

The Ambassador suggests that the Chamber should work with its counterparts overseas rather than turn to the government and Parliament for sympathy. He also calls for the procedures at Ħal Far to be reconsidered. It may not solve illegal imports. But it would certainly be an important first step towards a level playing field.

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

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BUSINESS OPINION

Taking partisan baggage to the EP

Lino Spiteri Following the debate leading up to the voting that will take place on Saturday, one may easily feel that it is part of the run-up to a general election, rather than about membership of the European Parliament. Malta has to elect six members to do a European job in an important European forum.

But the rhetoric of the debate is all about politics in Malta.

It is natural enough that politics will come into the exchanges.

Even if that were not the case, politics would still rear its intrusive head, as it does in every discussion anywhere on the Maltese islands. By resorting to the usual tactics the political class is shortchanging the Maltese electorate.

The exchanges should, in the first instance, be about the European Parliament. What is it?

What does it do? What are its main concerns and how do we fit in them? What relevance does it have to Malta as a member and specifically so? How can our six members best contribute to the workings of the EP itself and, above all, to Malta?

These questions are not addressed at all. Instead, our politicians repeat themselves endlessly about domestic matters. The Labour leader and Prime Minister Joseph Muscat has also openly declared that Saturday should see him pitted against the Opposition leader to see which one of them is the better man.

The reason why he did that is easy to see – and it is purely domestic politics. The latest opinion polls continue to give him a better trust rating than the leader of the Nationalist Party and the Opposition, Simon Busuttil. On his part, Dr Busuttil did not take up the gauntlet. Instead he said the issue was the way the government was governing, an opportunity to send a message to it.

The two stances are fair enough in a general election campaign. But we are discussing Europe, not Malta. We should want to send to the European Parliament the best six individuals who can master the intricate workings of Parliament and cut out a good figure in the tasks they are given. They should also be the best individuals who can

stand up for Malta whenever her political and particularly economic interests are in play.

We should not send individuals already committed to give the government of Malta, and thereby Malta, as bad a name as possible by washing our dirty clothes over there. That is what has been happening in recent months to the detriment of Malta and her people.

We should tell whoever is elected that this is not what the European Parliament is for. It is an important third pillar of the European project. It is a place where to build sound relationships, as Dr Busuttil, Dr Muscat and others did when they were members of it. It is an opportunity to seek out every chance of bringing some more bacon home to Malta, to make the EP work as best as it can for the interest of Maltese Malta, especially now that there is no question about agreement on membership of the EU. This concept is easy enough to understand and one about which there should be no difference of opinion. Instead, the EP

candidates are conditioned by their parties to carry as much partisan baggage to Brussels and Strasbourg as possible.

Examples of how not to treat our relations with the EU abound. The latest one was aired by the Leader of the Opposition last week. He is alleging that the government ought to shoulder responsibility for a European Commission decision that will see Malta reducing fiscal incentives to its industries.

If that is the case, and apparently it is, Dr Busuttil, as a politician who first and foremost ought to have Malta’s interest at heart, should be taking on and criticising the European Commission, and trying to make it change its mind if that is at all possible.

Instead, Dr Busuttil implicitly accepted the Commission’s decision without a murmur and instead lambasted his country’s government, showing that his loyalty lay with partisan politics, rather than Malta. In addition to calling the government incompetent, he said the issue revealed the government’s lack of knowledge about the workings of the EU.

“It is an opportunity to seek out every chance of bringing some more bacon home to Malta, to make the EP work as best as it can for the interest of Maltese Malta”

I wonder how long it will take Dr Busuttil to realise that, aside from being disloyal to Malta, he was playing bad politics. The government of the day, whoever it is, has a substantial team of civil servant experts on EU affairs working from Malta and in the heart of the EU itself. They follow what is going on in the EU and prepare background for the political administration to act upon. The flow is bottom-up, not top-down.

Dr Busuttil, himself an expert on the EU, knows that well enough. His ferocious attack, therefore, was not really on the government, but on the team of EU expert civil servants. I doubt that they will take kindly to his wild charge that they have not been doing their job.

Aside from the political replies given to him by the Minister for EU affairs, Louis Grech, the Leader of the Opposition might have had some leg to stand on had he produced proof that the civil servants had given pertinent advice which the government ignored. He did not even hint that, let alone prove it. e approach and attack were purely partisan, lobbed over the head of an electorate which finds such things not easy to understand.

It was also a childish political effort, since the mud cannot stick.

Nevertheless it typified the Opposition attitude towards the EU. If this attitude is once again carried into the European Parliament, Saturday’s voting exercise will have been an expensive waste of time and money.

e Business OBSERVER

| May 22, 2014

17

CASE STUDY

e dynamics of success

RONALD CAMILLERI

It’s 9.15am and Nectar’s warehouse manager Ronald Camilleri sits down with a cup of coffee.

He’s smiling – and it is not because the coffee is particularly good. It’s because until recently, he would not have been able to take a break until around 11am.

Part of his job for the past 14 years has been to set up the route for around 24 trucks a day, delivering food and beverages to as many as 700 different outlets. In the past, he relied on a manual system, sorting invoices literally into piles.

But then, Nectar decided to automate and engaged Crimsonwing to create a solution based on Dynamics AX 2012, which would look after everything from route management to stock control.

“Work started in mid-January and it was not easy at first as we kept coming across additional elements that we wanted. But midFebruary it was up and running and the difference is amazing.

The route is worked out without human error and each van gets its own list. And so far we are only using the route management module. There are many

other features that we haven’t even started to use yet!” the 39-year-old said.

It is easy to see why Dynamics is Crimsonwing’s biggest growth area.

“In the Microsoft world, Dynamics AX is the top ERP product,” Crimsonwing’s head of Dynamics Stephen Abela said.

Dynamics, in a nutshell, takes various activities like human resources and payroll, sales and stock control, financial reporting and customer relations, and offers them in one package – and because it is an integrated solution, each of those functions can be cor-

“Many systems give you data. What we give you is information. What does it mean in practice? It means that a manager can distinguish between the bestselling item by quantity sold and the bestselling by profit margin!”

18

e Business OBSERVER

related to any other, something which is not possible when each activity is run on separate software.

In fact, the Marsa-based software company has taken on 40 new employees to cope with the surge in business – and the majority of them are working on Dynamics.

The product comes in three different ‘flavours’, ranging from the GP and NAV versions, which are suited to small and medium-sized enterprises to the top of the range AX which offers an array of functions that make it ideal for companies with a growth strategy. Some of the larger companies on the island, like Bank of Valletta, Malta International Airport and Melita use Dynamics.

“The scope is impressive. For example, you can bolt on a business intelligence module which provides managers and decisionmakers with an instant snapshot of the key performance indicators,” Mr Abela explained.

“Many systems give you data.

What we give you is information.

What does it mean in practice? It means that a manager can distinguish between the bestselling item by quantity sold and the bestselling by profit margin!”

In the challenging competitive world, information means being able to spot trends quickly, so that you can react quickly, he explained.

“For example, if you have a promotional campaign, you can monitor how effective it is and decide whether to extend it.”

However, it is not only large companies that can benefit. Mr Abela stressed that even SMEs need to know more about their performance than their accounts and their stock levels.

“They can start with a basic solution and then add to it as they grow. And it is very user-friendly so they do not even need to have a dedicated IT specialist to be able to use it,” he said.

The client list shows the versatility of the product. Nectar uses it as a route management system for its delivery vans across Malta, while a leading retail property manager in London uses it to manage its property leases. For food production companies, like Maypole and Golden Harvest, it handles not only production but also distribution, taking into account factors like expiry dates.

The product is constantly being expanded to cope with new areas.

| May 22, 2014

For example, in the UK, another module called Printvis is being offered for the printing industry, encapsulating everything from advertising bookings to the auction of printing jobs. The next area that Crimsonwing will delve into is retailing in large supermarkets, and it is also marketing a membership solution for associations and other non-profit making organisations.

Of course, the greatest deterrent for businesses who want to move to Dynamics is the headache of migrating data from the various systems.

“We understand this. It is a barrier, but we see this as a very important part of our implementation,” Mr Abela said. “On the other hand, customers also realise that having old software is a problem in itself that they will sooner or later have to tackle – especially companies which use homegrown software that is no longer supported.”

For Nectar’s Mr Camilleri all this is very interesting and exciting. But the bottom line is simple: He has saved hours of tedious work, hours that he can now spend doing something more productive. Once he has finished his coffee...

Government commits to more funding for SMEs The government will assist the private sector by providing more funding to SMEs, Economy Minister, Chris Cardona said.

“The government is committed to sustaining the critical success factors which make Malta such an attractive location for financial services investments”, said Dr Cardona in his opening speech at the seventh annual conference of FinanceMalta.

Dr Cardona was one of the 42 speakers featured throughout the conference, which attracts practitioners and exponents from the EU’s flourishing investment community.

Bearing the theme ‘Growth through Change and Adaptability’, the conference highlighted Malta’s commitment to triggering more growth through the provision of more

equity support, the adoption of the Solvency II Directive, the embracing of technological advancements and the implementation of a risk-based approach to deter money laundering.

The country has 26 credit institutions which hold €90 billion in assets and over 600 funds with a net asset value of almost €9 billion, according to Parliamentary Secretary for Competitiveness and Economic Growth José Herrera, who made the closing keynote address.

“The success of this event rides on the unyielding support of each of our sponsors, who have helped us put together our most successful conference yet.

The Finance Malta team would like to thank everyone for attending,” concluded event chairman and Finance Malta chairman, Kenneth Farrugia.

e Business OBSERVER

|

May 22, 2014

21

BUSINESS UPDATES

Now is the time to secure your Mġarr berth As the temperatures rise and the wind becomes friendlier for pleasure sailing, there is one place where boat owners love to find shelter at the end of a cruising day or to spend an envy-inducing weekend.

Mġarr Marina in Gozo is considered to be the destination of choice for yachters seeking a different space at which to berth their boat, while they enjoy the easy lifestyle the Żewwieqa Waterfront offers and being close to the best swimming zones of the Maltese islands.

A short holiday may be a costly affair, but to its credit the Mġarr Marina in Gozo offers the best private marina prices in Malta. With a 24-hour service and enchanting surroundings and facilities which have been recently embellished and upgraded, it has become the meeting place of Malta’s most discerning yacht owners.

To offer more opportunities to its 260 available berths, now it also boasts a 120-square-metre floating platform which can be used for

leisure and to accommodate smallto medium-scale events. The main scope, however, is to have an area where marina clients can relax, like as a small yacht club offering its clients a glass of wine while relaxing, listening to low background music or having a coffee away from the heat of the sun.

The marina is operated by Harbour Management Ltd. Since 2010, the company has invested over €2.5 million in the upgrading of the facilities at the Mġarr Marina by

replacing the old underwater anchorage systems and pontoon installations. The government has regenerated the area by refurbishing and embellishing the Żewwieqa Waterfront and surrounding areas.

Harbour Management Ltd is part of the Melita Marine Group, established in 1989, specialising in various sectors in the maritime industry, from superyachts to refitting, repairs, engineering and chandlery, oil and gas and power

generation. Over the last few years, the Group has expanded to enhance services to the commercial and passenger industries and offer ship agency services for vessels calling at the Maltese islands.

To avoid last-minute disappointments, book your summer berth at the Mġarr Marina now. For more information or to book a berth at the marina, contact general manager Gennaro Xerri on info@gozomarina.net, 9924 2501 or by visiting www.gozomarina.net.

HSBC networking event on leadership HSBC Bank Malta brought together business leaders from four prominent Maltese businesses for the second inter-company leadership development programme called ‘Crossover’.

HSBC Malta Retail Banking and Wealth Management (RBWM) head Paul Steel, Playmobil Malta CEO Mattias Fauser, Island Hotels Group CEO Winston J. Zahra, Lufthansa Technik Malta CEO Stephen Drewes, and Simonds Farsons Cisk CEO Norman Aquilina met with their respective employees at the Radisson Blu Resort, Golden Sands, to discuss how to tackle business challenges and the best practice for

addressing change. Each panel member shared effective strategies on the challenges of their companies, their expectations from their leaders and managers as well as advice on achieving personal success.

The programme helped the participants to build more relationship networking between companies and to seek new ways they can work together to address ongoing developments in an increasingly dynamic marketplace.

The companies will be working on a corporate social responsibility project together with the Richmond Foundation to increase awareness about mental health well-being.

CROSSOVER PARTICIPANTS AT THE INTER-COMPANY LEADERSHIP DEVELOPMENT PROGRAMME HELD AT THE RADISSON BLU RESORT & SPA, GOLDEN SANDS.

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e Business OBSERVER

| May 22, 2014

BUSINESS UPDATES

A fund that is a managed portfolio in itself – by John Bellamy

Choose Kia for your corporate fleet

THE NEW SPORTAGE BEING LAUNCHED BY CARS INTERNATIONAL.

A corporate fleet needs to incorporate a number of benefits – it may require small cars for running around during the day where the practicality of easy parking is important, to executive models for middle to top management.

Kia, locally represented by Cars International, has a vast range of cars to fulfil these corporate needs, from the Picanto, Rio, Cee’d, Pro_cee’d,

Venga, Carens and Sportage.

Kia gives a unique seven-year warranty, and the range enjoys top EuroNCAP safety awards and has won Red Dot Design Awards.

Investing in a Kia range is also cost-effective – Cars International offers the option for hire purchase, with reasonable rates which can be paid over five years. Service agreements are tailor-made for companies

e Maltese Insurance Association to welcome fellow members of Insurance Europe and delegates from around the world Insurance industry experts from around the world will be arriving in Malta for an International Conference on June 12, 2014.

‘The challenge of change – global insurance trends’ is the theme of the conference organised by Insurance Europe, the European insurance federation.

Due to be opened by Prime Minister Joseph Muscat, the conference will see several hundred industry experts attend what has fast become the global insurance conference to attend each year.

Keynote speeches will be made by the secretary general of the Financial Stability Board, Svein Andresen, and European Commissioner Michel Barnier. They will be discussing new international capital standards and predictions of initiatives the insurance industry can expect from the soon-to-be elected European Parliament.

There will be debates on key issues including pension reform, telematics, risk assessment and investment.

Leading a debate on natural catastrophe is Robert Tremblay, director of research at the Insurance Bureau of Canada. Modelling performance, the data available from open sources and

sharing information in a competitive industry are issues that many insurers will be tackling on a regular basis, and Mr Tremblay will be sharing his experiences of how he has overcome such issues.

Nick Sherry, a former senator from Australia who laid down the foundations of the modern Australian pension system, will be debating pension reform. He will be sharing his extensive experience of advising many countries in Europe and the Americas.

Sessions will also be led by executives from two of the world’s largest insurers. Jacques Amselem, CEO of Allianz Telematics, will be debating how technology is changing the face of insurance, and Laurent Clamagirand, CIO of Axa, will be discussing how to improve the investment environment for insurers.

To register for the conference please go to http://conference.insuranceeurope.eu.#

where genuine Kia parts are used to provide a greater guarantee for the vehicle and peace of mind for its driver.

To negotiate the best Kia package for your company, contact Cars International at Mdina Road, Qormi, on 2269 2120 or e-mail kiasales@ cil.com.mt. You may also visit the website www.carsinternational.com.mt or Facebook page Kia Motors Malta.

Globally, bond markets have been in a bull phase for the best part of 30 years. While we are not predicting an imminent reversal of this we do think it is prudent to add some asset class diversification that can reduce the risk and enhance the return. If we accept that it is likely that the capital returns from bonds, in the short and medium term, are likely to be flat at best, investors would do well to seek an alternative solution to achieve the growth that will be necessary to protect them against the longer term inflationary threat.

The Vilhena Global Balanced Multi Manager Fund was launched by Valletta Fund Management in March 2014. The Fund blends a broad range of collective investments, both active and passive, to create a highly diversified exposure to cash, bonds and equities. The objective of the fund is to maximise the total return, capital and income to investors over the longer term, while minimising the volatility. The strategic asset allocation comprises 60 per cent global fixed income and 40 per cent global equities.

JOHN BELLAMY – SUB INVESTMENT MANAGER OF THE VILHENA GLOBAL BALANCED MULTI-MANAGER FUND.

The opinions expressed herein should not be interpreted as investment advice. Investments should be based on the full details of the Prospectus and Key Investor Information Document which may be obtained from BOV plc branches/investment centres and other licensed financial intermediaries.

VFM is licensed to provide investment services in Malta by the MFSA. The Vilhena Funds SICAV plc is licensed by the MFSA and qualifies as a UCITS. Issued by VFM, TG Complex, Suite 2, Level 3, Triq il-Birrerija, LImrieħel, BKR 3000, Malta.

Tel: (356) 2122 7311, fax (356) 2275 5661, e-mail: infovfm @bov.com. www.vfm.com.mt

Deloitte Malta wins Tax Firm of the Year Award 2014

Deloitte was yesterday awarded Best Tax Firm of the Year in Malta by the International Tax Review during the 10th European Tax Awards dinner held at the Dorchester Hotel in London.

Malcolm Booker, CEO of Deloitte Malta, said: “We are very pleased to have won this award as it reaffirms our position as Malta’s leading tax practice which is internationally recognised for its excellence. This is the third time that Deloitte Malta has won.”

Among its recent innovations in 2013, Deloitte Malta set up a Malta tax desk in New York, launched the Deloitte Malta Online Tax Bundle 2013, developed a short

video entitled Malta Ready to Do Business, and visited over 46 cities to promote Malta as a business location.

The Malta tax practice of around 70 professionals also includes individuals from seven different countries that give an insight into the nuances of cross-border transactions with their home country.

It is led by Marc Alden, who commented: “Our growth and success allows us to offer interesting careers in tax to young lawyers and accountants, and we encourage those with a potential interest in this area to visit our website to find out more about our graduate, LLB, LLD, ACCA and ACA programmes.”

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e Business OBSERVER

| May 22, 2014

BUSINESS UPDATES

e ideal venue for your next business event 42 RE/MAX Malta Affiliates recognised for five and 10 years of service RE/MAX Malta has recognised its franchise owners, managers, associates and staff for having been affiliated with the company for over five and 10 years. This initiative, which was hosted by RE/MAX Malta this year, forms part of the company’s core ideology of rewarding its people for their successes.

Over 42 associates received a certificate, of which six received a 10-year anniversary certificate.

Speaking about the initiative, Josie Theuma, general manager of RE/MAX Malta, said: “Having 42 associates with such experience proves that we have the best working environment in the industry. We

are proud of having one of the lowest attrition rates and will continue to be innovative not only to improve our standards but to ensure that our people are always content.”

The company has over 170 associates and 40 administrative staff with an average experience of three years in the industry.

Surrounded by breathtaking views of the Mediterranean Sea, the Paradise Bay Resort Hotel’s unique position makes it the obvious choice as an ideal venue for your next business event.

The hotel offers a number of halls, suites and outdoor venues, including halls with sea views and natural light, which can host various tailor-made functions, conferences, business meetings or other related events. The property’s extensive grounds and outdoor venues also make it the perfect venue for larger events.

e conference rooms, equipped with all requirements, come in a variety of sizes and guarantee efficient working conditions. e food and beverage team can also assist clients in choosing the right catering requirements to complement your event.

Achieving a perfect business event is no easy feat. is is why the hotel takes pride in assisting clients every step of the way and ensure that your business event does indeed become one to remember. Contact the events department on 21 52 1166.

e next generation of services and products In a world where we are being continually digitised and depersonalised, providing a tailormade experience is increasingly important. We want a service that is, or at least appears to be, targeted to our needs; this is equally true of businesses as it is of individuals.

ICT is now the hub of everyone’s lives and underpins the major components of our daily existence. People and businesses are more available, mobile, in more locations and across more time zones than ever before.

Any new service must add value to our existing toolkit of services and the social media universe that surrounds us. It sounds trite, but to add

value, they must actually be valuable to the consumer, not just technically innovative or financially attractive to the distributor.

The key to providing the next generation of services and products is not necessarily in the creation of things brand new, but in the integration of existing systems into more advanced experiences that satisfy our requirements.

To put it a slightly different way, the next generation of products may involve the blending of existing services into solutions of more direct relevance to the way we live our lives and conduct our business today. For more information, visit www.ptl.com.mt or call 2144 5566.

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e Business OBSERVER

| May 22, 2014

BANKING & FINANCE

e 2014 dividend league table

Edward Rizzo The return on equity represents the profitability achieved in percentage terms compared to the capital invested by the shareholders, but another important ratio which is widely followed by investors is the dividend yield. This represents the dividend received by an investor compared to the current market price of the share.

Dividend income is an important consideration for a large majority of local investors. Naturally, if an investor purchased the shares at a different price to the current market price, the yield for such an investor is different to the one quoted in this table – the higher the purchase price, the lower the yield and vice versa. However, it may not be ideal to only use the yield based on the original purchase price. Investing is all about future returns and when purchasing shares, one is not guaranteed a dividend every year. The dividend is decided upon by the directors of a company annually and recommended for approval by shareholders based upon a number of factors including

profitability, company strategy, funding requirements, etc. As such, investors should look at the opportunity cost of retaining an investment in a certain company as opposed to investing in another company and among the factors to be considered, investors must also look at the sustainability of the current dividend and whether there are better opportunities elsewhere.

The dividend league table is based on the latest annual financial statements published by each company. As the reporting season for 2013 recently came to a close, the dividend league table represents the dividend paid in respect of the 2013 financial year compared to the current market price.

The yields of those companies that do not have a December year-end (Bank of Valletta, Simonds Farsons Cisk, MaltaPost and Crimsonwing) are based on their most recent financial year.

It is important to highlight that the league table is based on the net dividend yield and not the gross yield. The net yield provides a better comparison due to the different tax situations in certain companies. Dividends distributed by Middlesea Insurance, Simonds Farsons Cisk, RS2 Software and

Medserv are tax free in the hands of shareholders due to the beneficial tax situations of these companies.

Two of the three retail banks again rank among the top three dividend yielding companies. BOV tops the ranking with a net yield of 5.3 per cent per annum. The yield is based on the dividends distributed in respect of the 2012/2013 financial year which came to an end on September 30, 2013.

However, investors must also bear in mind that during the first half of the current financial year, BOV reported a 22 per cent decline in profits and likewise the interim dividend declared on April 25, 2014, and payable on May 23 is also 22 per cent below last year’s interim dividend. As such, the dividend yield for the current financial year is most likely to be below the 5.3 per cent level. BOV’s recent dividend declaration was not impacted by the new amendments to Banking Rule 09 since BOV had probably set aside sufficient reserves in the past.

On the other hand, the final dividend recently approved by shareholders of HSBC Bank Malta was severely impacted by the new legislation as well as the lower profitability generated and as a result of

“Investors should look at the opportunity cost of retaining an investment in a certain company as opposed to investing in another company”

Dividend Yield (after tax)

Equity 1

Bank of Valletta plc

5.30%

2

Grand Harbour Marina plc

4.62%

3

HSBC Bank Malta plc

4.21%

4

Malita Investments plc

4.12%

5

Plaza Centres plc

3.81%

6

Middlesea Insurance plc

3.79%

7

MaltaPost plc

3.57%

8

GO plc

3.56%

9

Malta International Airport plc

3.33%

10

Simonds Farsons Cisk plc

2.78%

11

6pm Holdings plc

2.65%

12

Tigne Mall plc

2.38%

13

Medserv plc

1.85%

14

Lombard Bank Malta plc

1.74%

15

RS2 Software plc

0.92%

16

Crimsonwing plc

0.76%

Data as at May 16, 2014 both factors, the final dividend declined by 34 per cent. The full-year adjusted dividend of €0.089 per share represents a net yield of 4.2 per cent per annum. One must also mention that the dividend yield of both banks improved in recent weeks following the decline in their respective share prices. The equities of both banks suffered doubledigit declines in the first five months of 2014 with BOV down 12.4 per cent and HSBC showing a loss of 10.6 per cent.

The second highest ranking equity in terms of dividend yield is

Grand Harbour Marina at 4.6 per cent. The decision by the directors to declare a dividend despite not concluding a superyacht berth sale in 2013 probably came as a surprise to many. However, it is a clear indication of the company’s policy of distributing excess cash to shareholders. The latest berth sale of €3.1 million took place in December 2012. In March 2013, GHM paid a net dividend of €0.12 per share and, more recently, the company declared a further dividend of €0.084 per share. The total payout since the recent berth sale amounted to €2.04 million. This probably indicates that future dividends are dependent on further berth sales to materialise.

In the property sector, Malita Investments and Plaza Centres rank in fourth and fifth position with yields of 4.12 per cent and 3.81 per cent respectively.

Tigne Mall ranks in 12th position but the recent dividend announced is not comparable to that of its peers since it was the maiden dividend following last year’s Initial Public Offering. Tigne Mall has a policy of distributing dividends every six months. If one were to include an estimate of the interim dividend that should be declared in September to the recent final dividend, the net yield would rise towards the 3.8 per cent level.

The business model of these three companies supports a sustainable and aggressive payout to shareholders since rental income is contracted and costs are mainly fixed, providing clear visibility on future financial performance. In fact, the equities of these three companies are mainly held by institutions or retail investors seeking regular income. The added advantage of holding shares in these companies for their dividend income, as opposed to a bond, is that the revenue of these companies is largely linked to inflation rates.

Revenue should therefore rise over time with a consequent positive

e Business OBSERVER

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May 22, 2014

impact on profits and dividends.

Such equities are therefore normally regarded as a hedge against inflation.

There are four other companies with yields within the range of 3 per cent to 4 per cent, namely Middlesea Insurance, Maltapost, Go and Malta International Airport. While Middlesea’s performance is very much dependent on financial market conditions and therefore the dividend is subject to possibly wide volatility, the distributions of Maltapost, Go and MIA may be considered more sustainable.

the period to September 30, 2013, the expectations are that profits would have also continued to rise during the second half and likewise the dividend to shareholders being recommended in the coming weeks, once the directors approve the March 2014 financial statements, will also improve over last year. This would increase the dividend yield from the current level of only 0.76 per cent.

Medserv recently reinstated a dividend which was approved at last week’s annual general meeting.

The yield is currently at 1.85 per

Others generally have also started to appreciate the importance of gaining an exposure in their portfolio to companies with potential for capital growth The past financial year of these three companies was not impacted by any major one-off items. This is different to last year’s league table when Go’s dividend for 2012 was above expectations as a result of the one-off gains from property and possibly also due to the fact that no dividend was distributed the previous year. Go’s dividend of €0.07 per share for 2013 seems sustainable going forward given the EBITDA and cash flow generation from operations as well as current banking facilities in place to finance upcoming investments. MIA’s yield has declined over the years not because of a reduction in dividend payments but due to the consistent increase in the share price. Likewise, the dividend of Maltapost has also remained constant but the increase in the share price also negatively impacted the yield when viewed on the basis of the current market price.

As one would expect, the companies in the IT sector are not ranked highly in terms of the dividend yield. Currently, 6pm is the highest at 2.65 per cent while RS2 and Crimsonwing are both below 1 per cent. These yields are not only low due to the requirement by such companies to maintain sufficient reserves to finance their ongoing international expansion but also in view of the strong increase in share prices in recent years. As an example, the total dividend of RS2 remained at €1 million for the 2013 financial year but following the increase in the share price by 165 per cent over the past 12 months, the yield dropped from 2.45 per cent in 2013 to 0.93 per cent.

The yield of Crimsonwing is based on the dividend declared for March 2013. Following the 28 per cent increase in interim profits for

cent. The decision by the company to recommend a dividend of €600,000, notwithstanding that in 2013 profits after tax amounted to €390,000, gives a clear indication of the company’s dividend policy.

This was highlighted by chairman Anthony Diacono in his brief address to shareholders at the AGM. Mr Diacono explained that although the company raised €20 million in debt to finance the company’s expansion in Malta and Cyprus, the directors still believe that shareholders should be rewarded accordingly in future years.

If Medserv manages to achieve its financial projections, one would expect an increase in dividends next year in line with the payout ratio adopted in previous years.

IHI does not rank in the league table since the recent dividend was not declared in respect of the 2013 financial year. It was announced on April 11, 2014, in conjunction with the sale of 11 of the London apartments. The dividend was also an interim dividend and did not require shareholders’ approval. In fact, it was paid to all shareholders last week. The dividend of €0.03 per share gives a net yield of 3.75 per cent on the current price but this could be considered as a one-off since it was financed by the sale of the residences. Although the company’s strategy is to continue to dispose of non-hotel assets and this was highlighted again in last week’s interview with chairman Alfred Pisani, due to political developments, it is unlikely that the commercial centre in St Petersburg would be sold in the coming months to finance another dividend next year. However, the chairman also mentioned the possibility of selling some of the hotels.

Although it would take a consider-

Rizzo, Farrugia & Co. (Stockbrokers) Ltd (RFC) is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements.

It has not been disclosed to the company/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon.

RFC, its directors, the author of this report, other employees or RFC on behalf of its clients, have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent, and may also have other business relationships with the company/s. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither RFC, nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report. © 2014 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved

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able time to conclude, a sale of any of the hotels could imply another attractive one-off dividend to shareholders in the future.

Although dividend income features among the more important considerations for a large majority of local investors, others generally have also started to appreciate the importance of gaining an exposure in their portfolio to companies with potential for capital growth and not only regular dividend income. In the initial years since the setting up of the Malta Stock Exchange, significant price appreciation by the two large banks rewarded shareholders and, more recently, MIA and Maltapost also recorded strong share price gains. Similarly, in the past two years, the significant share price appreciation by the IT companies proves the relevance of having exposure to carefully selected equities in one’s portfolio.

The equity market requires further companies to obtain a listing to provide added opportunities to investors to primarily seek dividend income, as well as other companies with business growth potential to provide capital growth to investors.

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

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e Business OBSERVER

| May 22, 2014

APPOINTMENTS

Association for supported employment Representatives of public entities and voluntary organisations who operate in the field of services related to the disabled have decided to form a national association – in line with other EU countries – which deals with supported employment.

Supported employment refers to entitlements or service provisions to assist people with

disabilities and mental illness to get work.

This initiative was spearheaded by the Federation for People with Disability which brought the stakeholders together. A statute has been set up and approved and officials were appointed as follows: chairman Joe Gerada; deputy chairmen Marthese Mugliette and Massimo Ellul; secretary general

Stefan Nicholas Vella; treasurer Robert Cilia; and members Carmen Grech, Henriette Baldacchino, Stelmart Khalil and Mauro Farrugia.

The Malta Association for Supported Employment will be joining the European Association for Supported Employment and taking a number of initiatives on the national level.

Agius new KM cargo chief Manuel Agius has been appointed as Air Malta’s chief officer cargo. He will form part of the airline’s senior management team reporting directly to chief executive officer Louis Giordimaina.

Mr Agius has over 30 years experience in the aviation industry and has been involved in a number of projects with Air Malta. He will be responsible for both cargo sales and operations and is being entrusted with setting up the division as an independent business unit.

Air Malta carries more than 7,500 tonnes of cargo each year that ranges from tuna to livestock, pharmaceuticals to microelectronics, not only on its flights but also on leased specialised freighter aircraft.

The department is also responsible to carry mail to and from Malta and offers courier services and warehousing facilities.

CFO for Premier Capital Dorian Desira has been appointed chief financial officer of the Premier Capital Group.

He joined the Premier Capital Group five years ago as finance manager with the Maltese subsidiary operating the restaurants.

In 2011, he was instrumental in setting up the company’s finance department in Greece and was also until recently the general manager for Premier Restaurants Ltd.

e Business OBSERVER

|

May 22, 2014

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COMMENT

EU Consumer Rights Directive:

Do you know what it means for your business?

Francis E. Farrugia The new EU Consumer Rights Directive aims to simplify consumer rights to bring the disparate regulations in various EU countries into line so that consumers will have the same rights across all member states – and also to strengthen and clarify those consumer rights when purchasing goods and services.

The aim of the directive is to achieve a real business-to-consumer internal market, striking the right balance between a high level of consumer protection and the competitiveness of businesses.

The deadline for the transposition of the directive into national laws was December 13, 2013. With only just two weeks of consultation, Malta managed to meet the deadline with the promulgation of the Consumer Rights Regulations by virtue of Legal Notice 439 of 2013, which revoked the Distance Selling Regulations of 2001. These regulations will be coming into force on June 13 in all member states.

According to the Malta Business Bureau, the introduction of the regulation will help Maltese businesses benefit from crossborder selling, bringing equal opportunities together for all operators; but with just a few weeks before the regulation comes into force, are Maltese businesses ready for the changes?

■ The introduction of an EUwide withdrawal period of 14 days.

The new 14-day cooling-off period starts not from the time that the order is placed but from the time the consumer receives all the goods they ordered (Article 10).

The right of withdrawal also applies if businesses sell services.

■ Some services, such as social services, healthcare, gambling, financial services, construction of new buildings, passenger transport services (exceptions exist) and others are excluded from the Regulation (Article 3).

■ The business will reimburse all payments received from the consumer, including, if applicable, the costs of delivery without undue delay and, in any event, not later than 14 days from the moment the business receives the customer’s withdrawal notification (Article 15). Businesses will have to clearly advise customers that they have to bear the costs of returning the goods and provide an estimate of this cost for larger goods at the outset of the contract. If businesses fail to do this, they will have to bear the costs of return in addition to delivery costs.

■ If a business has not complied with the information requirements on additional charges or other costs, or on the costs of returning the goods, the consumer shall not bear those charges or costs (Article 5 (6)). For additional costs (for example, extended warranty) to apply, the consumer has to agree expressly to such costs, i.e. consumers will need to actively tick a box to add services or payments. Pre-ticked boxes are banned. All pre-ticked boxes for supplementary services to purchase particular goods or services, such as travel insurance, car rental and baggage, are banned.

Customers will now have to actively tick the boxes should they wish to add the additional services rather than be forced to un-tick the boxes if they do not want these services.

■ Businesses will not be able to charge consumers more for paying

Businesses will have to clearly advise customers that they have to bear the costs of returning the goods and provide an estimate of this cost for larger goods at the outset of the contract. If businesses fail to do this, they will have to bear the costs of return in addition to delivery costs.

by credit card than the actual cost to the trader to offer such means of payment (Article 21).

■ Businesses will also need to inform consumers of their right to withdraw in writing. A consumer who is not informed will automatically be entitled to an extended withdrawal period of 12 months starting from the end of the initial 14-day period (Article 12).

There is a new standard withdrawal form specified in the directive. Businesses need to provide

consumers with this socalled ‘model withdrawal form’ to use when cancelling contracts. This is regardless if the sale happens online.

■ Businesses have to ensure that information on digital content is clearer, including its compatibility with hardware and software and the application of any technical protection measures, for example limiting the right for the consumers to make copies of the content. Consumers will have a right to withdraw from purchases of digital content, such as music or video downloads, but only up until the moment the actual downloading process begins.

In order to avoid administrative burden being placed on businesses, especially small businesses, member states were allowed to opt not to apply the

directive when the value of a transaction is below €50. Malta chose not to apply the directive to offpremises contracts under which the overall price payable by the consumer does not exceed €30.

These regulations shall only apply to contracts concluded on or after June 13, 2014.

Member states must inform the Commission about their use of regulatory choices provided by certain articles of the directives but, by April 28, a number of member states, including Malta, had not yet done so.

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e Business OBSERVER

| May 22, 2014

ENTREPRENEURSHIP

How Sliema view inspired 100 jobs Mikael Pawlo remembers the lunch well. Well, reasonably well, since the lunch lasted quite a few hours and was accompanied by “well, perhaps a few drinks!”, he chuckled. He and two childhood friends were talking about their futures and he was mulling what to do since he had just sold his PR company. His friends, Henrik Bergquist and Fredrik Sidfalk, had founded another big i-gaming company but had left several years earlier.

“How about if we do something together? Would it be possible to create an i-gaming company with responsibility?” he said.

“But if we did it in a very different way... If we did it in a way we could feel good about, and we treated our customers well?”

One of his friends called him soon after to say he liked the idea and it was only from then just a hop, skip and a jump till he was sitting in a balcony looking out over Tower Road in Sliema and Mr Green was founded in 2008.

Mr Pawlo also liked the idea that the company would offer a “green” gaming concept, allowing punters to set their own personal gambling limits when registering, a player protection concept which was groundbreaking at the time and is still uncommon.

“My competitors had a real laugh at us as they felt that we were cutting back our own revenue. But we really believed in what we were doing; we wanted to feel good

about giving people entertainment and it was a good way to create our own niche in the market which was already taken up by large companies,” he said.

“But it worked and we won a lot of loyal customers.”

Mr Green & Co. is running its business through subsidiary Mr Green Ltd in Malta, with Marcus Nylen as its CEO until recently, but it grew quickly and already employs 100 people here (in addition to 30 in Stockholm) from 16 different countries. In 2013, it made a profit of €6.5 million, almost double the 2012 figure, with revenue of €53 million.

The time had come for another initiative. This time, Mr Pawlo knew that there was an important niche that was being overlooked.

“If you ask people who the typical online player is, they would probably answer a man in his 30s. But the reality is that the average player is a female aged 43, probably because people only think of betting or action computer games and not social games,” he said.

But the female audience was clearly not being catered for.

Mr Pawlo wanted another iconic name, one that – like Mr Green – kept well away from the usual ones that relied on the words ‘bet’, ‘casino’ and ‘poker’. It was, he admitted with a smile, his wife who came up with the name Garbo, inspired by Swedish actress Greta Garbo.

“Garbo is short, easy to remember, iconic but accessible. We wanted something real and empowering to women” “I liked it immediately. It’s short, easy to remember, iconic but accessible. We wanted something real and empowering to women,” he explained.

The Garbo brand was launched in Sweden last October, with Mr Nylen as the CEO of the new company Dsrptiv Gaming Ventures and Sarah Psaila as its casino manager.

It has already surpassed their expectations. The team is made up of only five people but that is more than enough at the moment as it relies entirely on the Mr Green infra-

structure and customer care. They are now ready to expand into new markets “very quickly” he said, “certainly by the end of the year”.

Garbo has already made waves and has been nominated for three categories in the EGR Operator Marketing and Innovation Awards: Brand of the Year; Innovation in Mobile; and Innovative Start-Up. In the meantime, Mr Green Ltd, with new CEO Bo Wanghammar, is also nominated in two categories: Brand of the Year and Casino Marketing.

“We want to stay on top – which you can only do by constant improvement. Take today, for example. One of the team made a suggestion which would improve customer experience and we got all those involved together and started introducing the change within hours,” he said.“It’s really fun.”

Perhaps this is what sets entrepreneurs apart from mere mortals.

The fact that they still think of it as ‘fun’. The thrill means that they are constantly on the lookout for new opportunities and last week Mr Green acquired Malta-based Social Holdings, which offers a freeto-play casino game called Spin Tower Casino on Facebook.

“We bought it when it was still in the beta version! It hasn’t even been launched yet... But we think that it has a lot of potential. The competition in the US, such as Slot Mania, has some nine million users!”

It has been a manic six years but Mr Pawlo shows no sign of slowing down or resting on his laurels. He knows that he has an important decision to make: whether to keep the Spin Tower Casino brand or come up with a new name.

“Perhaps I need to ask my wife,” he laughed.

In 2013, it made a profit of €6.5 million, almost double the 2012 figure, with revenue of €53 million.