In my article of April 7 reviewing the performance of the local equity market during the first quarter of the year, I stated: “Following the amendment of the Transparency Directive by the European Commission and the removal of the obligation for companies to issue interim statements, it will be interesting to see how Maltese, listed companies will ensure that consistent newsflow is forthcoming to enable market participants to make better informed judgements when investing in local equities. There is very clear evidence that regular statements and company announcements enhance trading activity and liquidity in financial instruments”.

I was referring to the previous obligation within the Listing Rules for companies to publish interim directors’ statements, which was mandatory for all companies on a semi-annual basis not later than six weeks before the end of their reporting period. I had given the background to the removal of this obligation in an article on December 3, 2015, following changes to the EU Transparency Directive.

As the majority of companies listed on the Malta Stock Exchange have a December year-end and would have been obliged under the previous rules to issue their interim directors’ statement by mid-May, let’s see which companies maintained this practice.

Basically, in my opinion, there are two options available for companies to strengthen their investor relations programme.

Firstly, as was the practice in the past under the previous obligations of the interim directors’ statement, companies can explain the major trends, business developments and updates on its strategy.

Alternatively, a more detailed approach would be to also include quarterly key financials (such as revenue, Ebitda, pre-tax profit) and key performance indicators (such as Ebitda margin, return on equity etc). This is the method adopted by various companies in the UK even after the removal of the obligation to publish interim statements.

In their ‘trading updates’, as such announcements are now being called, Q1 figures and KPIs are released in April while the Q3 figures and KPIs are published in October. In this manner, investors are given Q1 and Q3 figures via these trading updates while the June half-year as well as the December figures are provided to the market via the semi-annual financial statements. This ensures that investors and the wider market are kept abreast of a company’s financial performance and business developments on a quarterly basis.

So, which Maltese companies issued updates to the market? Out of the 17 companies listed on the MSE having a December year-end, only eight companies recently published an announcement to update the market on developments since the start of their 2016 financial year.

Let me briefly highlight some of the more interesting aspects of four announcements issued in recent days. Of particular interest is the wording used by Medserv plc in their press release issued concurrently with their company announcement: “Although the listing rules no longer require listed companies to issue interim statements, in the interest of transparency and providing the market with information, the board of directors at Medserv have agreed to continue with their commitment to communicate with the market on a regular basis and will continue to issue interim reports”.

The IHI annual report also contained various other very important revelations

This provides an interesting explanation of the justification behind such company updates. Being transparent with the market is key to ensure a successful investor relations programme.

Medserv admitted that the low price of oil led inevitably to increased demands from clients for discounts on its services. Nonetheless, Medserv stated that it remained very busy and was continuing with its efforts to identify areas where it could gain additional cost efficiencies.

Medserv is also awaiting the conclusion of the international tender issued by a major IOC relating to the provision of a comprehensive supply base in Trinidad as well as for another contract related to an exploration well offshore Portugal while it is also continuing to study how it can penetrate other markets including Egypt and Iran. Medserv also published its 2016 financial forecasts last week in view of its obligations under the listing policies for their 2013 bond issue.

A very commendable announcement was that by Malta International Airport plc. Although the company issues monthly traffic statistics which give investors a very clear indication of the ongoing performance – given its reliance on passenger traffic, in the interim directors statement issued last week, MIA also provided revenue and profitability figures for Q1, the first time ever, showing a 5.1 per cent increase in revenue to €11.59 million and a 7.6 per cent rise in profits to €1.46 million.

On the other hand, RS2 Software plc did not provide financial figures or KPIs for the Q1 although it stated that its wholly-owned subsidiary RS2 Smart Processing Ltd engaged two new clients for managed services, namely a payment service provider in Germany and one of the largest acquirers in Europe.

International Hotel Investments plc also issued an interim directors statement. IHI noted that during Q1, it registered improved levels of revenues and operating profits. Moreover, IHI confirmed that although the hotel market in London experienced a challenging start to the year, the Corinthia Hotel London is still gaining market share in contrast to its competitor’s reduced levels of patronage. Strangely, IHI failed to provide an update to investors via this announcement on current business developments and on its strategy going forward. In fact, hardly 24 hours before the publication of the interim directors statement, IHI announced that its associate company owning the Corinthia Hotel in London and in which IHI has a 50 per cent stake (NLI Holdings Ltd), completed the acquisition of the Grand Hotel Astoria in Brussels.

Moreover, in the 2015 annual report sent to all shareholders last week ahead of the annual general meeting taking place on June 9, it emerged that the property in Brussels was acquired for £11 million.

The IHI annual report also contained various other very important revelations, namely (i) that the company signed a memorandum of understanding with a major corporation in Dubai, which is constructing a luxury residential and hotel resort in a prime location. This will eventually be managed as a Corinthia hotel; (ii) that the same corporation in Dubai is entrusting IHI with the non-branded, consultancy management of two of their existing luxury hotels in Dubai; (iii) that IHI entered into a non-binding memorandum of understanding with another globally-recognised investment fund for the development and management of a boutique hotel in Rome – this will eventually be managed as a Corinthia hotel once completed in 2019; (iv) that IHI is increasing its 20 per cent stake in Quality Projects Management (QP) to 100 per cent by acquiring the 80 per cent share held by Corinthia Palace Hotel Co. Ltd; and (v) that IHI will be launching another bond issue on the Maltese market which will be secured by one of the properties which has a significantly higher value than the bond issue.

The level of information contained in the 2015 annual report of IHI but which was not released to all the market via ad hoc company announcements or via the interim directors’ statement shows the inconsistency in maintaining a structured level of communications with the market.

Investor relations is an area which needs to be given much more importance by companies listed on the MSE should they wish to maintain a consistent level of interest and trading activity in their equity. This has surely been one of the limiting factors across the Maltese equity market in recent years.

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.

© 2016 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved.

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

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