Updates from local bond issuers (3)

This week’s article deals with the publication of the 2010 financial statements of Gasan Finance Company plc and Mizzi Organisation Finance plc.

Mizzi Organisation Finance plc

Mizzi Organisation Finance plc (MOF) is the financing company of the Mizzi Organisation. The bonds issued by MOF are guaranteed by the three main holding companies of the Mizzi Organisation namely Kastell Ltd, Mizzi Holdings Ltd and Consolidated Holdings Ltd and the operating company General Soft Drinks Co. Ltd.

The Mizzi Organisation does not qualify as a ‘group’ since there is no parent company and therefore it cannot prepare consolidated financial statements. However, the Mizzi Organisation compiles ‘combined’ financial statements made up of the consolidated financial information of all four guarantors and their subsidiaries as well as those of Falcon Wines & Spirits and Mizzi Motors.

In addition to the publication of the combined financial statements, the financial statements of all of the four guarantors are also available and an analysis of each of the four companies provides a better analysis of the trends within the organisation.

General Soft Drinks Co. Ltd and Kastell Ltd are the larger companies within Mizzi Organisation. General Soft Drinks (GSD) is mainly engaged in the production and sale of beverages, namely Coca Cola, Fanta and various other renowned brands of The Coca Cola Company. GSD was among the main revenue and EBITDA contributors of the Mizzi Organisation in recent years. During 2010, GSD’s revenue declined by 5.1 per cent to €22 million but EBITDA dropped by a larger degree to €3.6 million mainly due to the incidence of higher utility rates.

However, in the 2010 Annual Report, GSD states that an improvement in its operational performance is expected in future years. Kastell Ltd derives its revenue mainly from sale of motor vehicles, spare parts and servicing as well as the sale of foodstuffs through its Arkadia outlets.

Revenue from Arkadia improved by nine per cent during 2010 to €24.8 million but sales of motor vehicles and the provision of other services declined by 4.8 per cent to €19.3 million. This was due to the lower level of new car registrations in Malta following the new registration tax regime.

The level of EBITDA generated by Kastell Ltd declined to just over €1 million. The operations of the other two guarantors, Consolidated Holdings and Mizzi Holdings, are smaller. However, the incidence of lower new car sales in 2010 is evident in both these companies as well.

The overall turnover of the Mizzi Organisation dropped by 4.2 per cent to €100.3 million in 2010 while EBITDA decreased by 24 per cent to just over €8 million. Net finance costs of €3.39 million resulted in an interest cover of 2.5 times in 2010.

Although this is the lowest level in the last three years, an interest cover of 2.5 compares reasonably well with other bond issuers and should provide an adequate level of comfort for bondholders.

The total net borrowings of the Mizzi Organisation as at December 31, 2010 amounted to €65.9 million. Compared to shareholders’ funds of €84.6 million, the debt to equity ratio of 0.78 times is marginally unchanged over the level of 0.81 times as at December 31,2009.

In the 2009 Bond Issue Prospectus, it was stated that following an intensive investment programme by the Organisation in previous years (namely a new factory for General Soft Drinks; new car showrooms and garage facilities for the car importation businesses; new office buildings as well as the significant expansion in retail activities by the Arkadia Group), the plan was to reduce borrowing levels through sale of other surplus property and internal cash generation.

Gasan Finance Company plc

Gasan Finance Company plc (GFC) is a wholly owned subsidiary of the ultimate parent company Gasan Group Ltd (GGL). The assets pertaining to GFC consist of (i) the Gasan Centre in Mriehel; (ii) a number of properties within Il Piazzetta complex in Sliema; (iii) bills of exchange drawn by the automotive division and (iv) loans to companies within the Gasan Group.

The rental income received by GFC from the properties in Mriehel and Sliema together with interest receivable from the bills of exchange and the loans to Group companies amounted to €3.3 million in 2010.

This is substantially higher than the income which totalled €1.49 million during 2009. Bondholders may also wish to note that the balance sheet of GFC reveals total assets of €50.6 million as at December 31, 2010, composed of €29.8 million in property and €20.9 million in bills of exchange and loans to group companies. The Gasan Centre and the other properties within the Pjazzetta complex are rented out to companies within the Gasan Group as well as to third-parties. As such, although the bonds of Gasan Finance Company plc are not guaranteed by the parent company, Gasan Group Ltd, an overview of the performance of GGL is necessary since the finance company derives its income mainly from the Group.

The 2010 financial statements of Gasan Group Ltd reveal a slight increase in total revenue, excluding insurance premium, to €28.7 million.

Earned premiums, net of reinsurance, increased from €22.3 million in 2009 to €23.7 million. Although revenue from motor vehicle sales declined by 14.4 per cent due to the revision of the tax regime for car registrations, this was more than compensated for by other segments within the Gasan Group which continued to perform well.

Strong increases in revenue were registered from contracting, technical services as well as retail and other services.

Moreover, the contribution from insurance operations remained strong at €4.9 million although this was slightly lower than the level of 2009 primarily due to lower investment income.

Earnings before interest, tax, depreciation and amortisation (EBITDA) amounted to €7.6 million, representing a decline of 4.1 per cent over the previous year.

Net finance costs amounted to just over €1.8 million in 2010 resulting in an interest cover of 4.2 times. The interest cover of the Gasan Group is among the highest compared to other local bond issuers.

The overall result of the Group was impacted by changes in the values of investments held by the Group. During 2010, the Gasan Group recognised impairments of €5.3 million but also accounted for revaluations totalling €5.7 million.

The balance sheet of Gasan Group Ltd reveals that as at December 31, 2010, total assets amounted to €164.5 million and overall borrowings were €50.4 million.

Shareholders’ funds as at the end of 2010 of €71 million give a debt to equity ratio of 0.67 times. Gasan Group also made reference to the current crisis in Libya as it has been operating in Libya since 2006 through a number of jointly-controlled companies.

The Gasan Group revealed in its Annual Report that it has ensured that the balance sheet value of the investment in Libya as at December 31, 2010 does not exceed the estimated value of the assets that may be recovered.

Next week an analysis of the financial performances of companies listed on the Alternative Companies List (i.e. Bay Street Finance plc, GAP Developments plc, Hotel San Antonio plc, Melita Capital plc and PAVI Shopping Complex plc) will be published.

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 issuer/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. 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.

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