MaltaPost registers profit of €1.1 million during the six months to March 31, 2009

MaltaPost's results for the six months ended March 31, 2009 were published on May 27. The postal operator announced that during the review period, it generated a total revenue of €10.5 million, representing a four per cent decrease from the record levels achieved in the six months to March 2008. The comparative period had been boosted by the increased mail volumes during the local general elections as well as from the sale of the philatelic/numismatic sets commemorating Malta's adoption of the euro on January 1, 2008. MaltaPost reported that during the first six months of the current financial year the lower sales figures can be attributed to a decrease in mail volumes and philatelic sales over last year which was only partially counteracted by an increase in inbound mail as a result of a continued growth in internet mail-orders.

Another two factors dented the company's performance during the first six months of the year in the form of a non-recurrence of last year's provision release related to a number of employees returning to government employment following MaltaPost's full privatisation, as well as the incidence of higher water and electricity tariffs. In fact, while employees costs dropped from €5.2 million to €4.9 million reflecting the lower headcount, other operating costs jumped by 13.8 per cent to €3.4 million.

Following the decline in revenue and increase in overall costs, earnings before interest, tax, depreciation and amortisation (EBITDA) dropped 26.2 per cent to €2.1 million with the EBIDTA margin similarly deteriorating to 20.4 per cent from 26.4 per cent in the six months to March 2008. MaltaPost's operating profit of €1.7 million represents a margin of 16.5 per cent, down from last year's margin of 22.2 per cent but still substantially higher than the operating margin of 9.2 per cent recorded in the six months to March 31, 2007.

After accounting for interest receivable of €0.2 million, the company's pre-tax profits amount to €1.9 million, representing a 26.2 per cent drop from the comparable period last year. The company incurred a tax charge of €0.8 million resulting in an after-tax profit of €1.1 million.

Shareholders' funds climbed by 11.3 per cent (€1 million) to €10 million following the creation of 1,129,795 new shares as a number of shareholders opted to receive the 2008 full-year dividend in the form of new shares at €0.77 per share rather than taking a cash dividend. The company's balance sheet remains very robust with no borrowings and a very healthy cash balance of €8.7 million as at March 31, 2009 together with financial investments of €4.2 million.

In the January 2008 IPO document, MaltaPost had indicated that as part of its strategy it intends to leverage on the expertise of its majority shareholder Lombard Bank to provide low-cost financial services through its postal branch network.

Apart from the encashment of government social welfare cheques which has already kicked off in some localities, MaltaPost had explained that it could also consider offering foreign exchange transactions and other savings products. In view of the continued decline in traditional mail volume and the effect on the company's financial performance, MaltaPost's shareholders are eagerly waiting for the introduction of such services to increase the company's revenue streams further.

However, no official statements have as yet been made by MaltaPost, although the directors again reiterated in the 2009 interim report the company's intention to provide such financial services. Some of the more successful privatised postal companies in Europe have introduced savings accounts, loans, private retirement plans, insurance services as well as investment products through their post office branch network.

In the meantime, MaltaPost have also introduced other products to its customers. Following the successful philatelic and numismatic issues in conjunction with last year's introduction of the euro, the postal operator has since launched the first series of the "Post Office Collection". This was reportedly a success with high sales figures within a short time frame.

Alternative uses of its branch network had also been earmarked by MaltaPost as an area for revenue enhancement. The company has already successfully concluded an exclusivity agreement with Melita plc and has also recently used its branch network to increase awareness of local investment opportunities. Further similar initiatives can only increase customer traffic to their branch network and this in turn should create further demand for new services which benefit the company and its shareholders.

An area mentioned during last year's IPO as a potential new opportunity is entry into the transport and logistics market, mainly courier and freight forwarding. This is a segment which is serviced by many of the successful European postal companies and MaltaPost's existing customer base and branch network provide an ideal launch pad for such initiatives.

This service has yet to be introduced. Meanwhile, in the 2009 interim report MaltaPost also announced that it intends offering back office processes. These services could include letter scanning, printing and performing mailshots for companies. In overseas markets, postal operators have also introduced printing of invoices and insurance policies, scanning and online distribution of incoming mail, messenger services and other initiatives to transform their operations from a purely letter delivery business.

The second half of MaltaPost's financial year is normally weaker than the first six months mainly due to the increased mail volumes surrounding the Christmas period. The MEP elections taking place in a few days' time however could have positively impacted the company's recent financial performance as candidates have again resorted to numerous mail shots ahead of Election Day thus helping mail volumes to rise.

The MaltaPost equity could be considered as a '"defensive" stock with a business model similar to a utility-type business. In times of economic uncertainty and turmoil, investors normally increase their exposure towards such companies since these tend to suffer from less volatility compared to other companies such as those involved in financial services, tourism and hotel sector and IT services. This is because mail volumes tend to remain at a rather high level even under cyclically difficult economic conditions.

MaltaPost's financial performance has hardly been impacted by the current international financial crisis and the decline in profitability so far this year is solely due to the natural loss of business from e-substitution as well as some extraordinary events in 2008 which were not repeated this year. Despite the overall expected decline in profitability for the 2009 financial year ending on September 30, the company is likely to maintain its 50 per cent dividend payout policy, thus providing shareholding with a healthy dividend.

Mr Rizzo is director of Rizzo, Farrugia & Co. (Stockbrokers) Ltd.

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