Malta Industrial Parks is undergoing financial restructuring, aiming to stop running at a deficit within a year’s time and clearing its “substantial” debt within two or three years.
Chief executive officer and deputy chairman Joshua Zammit was clearly appalled at the financial situation he found when he joined the company from Air Malta two-and-a-half months ago, and although the bank loans are covered by government guarantees, he said the situation was clearly not sustainable.
MIP, set up in 2001 and operational in 2004, administers some 800 factories – around 2.1 million square metres in all – in various industrial estates around Malta, to companies whose applications are approved by Malta Enterprise.
MIP’s accounts have been audited until 2010 but never finalised – so this was clearly one of the first things on Mr Zammit’s agenda, along with drawing up a mission statement and outlining the company’s values.
Although Malta Enterprise is a government corporation and MIP is a limited liability company falling under the Companies Act, the two entities shared many resources. They now have separate boards and MIP, now chaired by Tony Zahra, is paying for any services it outsources to ME.
However, MIP does not negotiate the rental or tax incentives – and must therefore provide factories, the cost of which will never be covered by the income from the tenant. To add to its financial woes, it recently paid millions for the site in Luqa that was vacated by Air Malta after nearly 30 years.
The National Audit Office report for 2011 indicated that the Government had issued over €70 million worth of letters of comfort to MIP.
Mr Zammit, who travelled extensively as the vice-president for Actavis before he went to Air Malta, appreciates that Malta Enterprise’s remit was not only to look at the commercial side of applications for factory space but at the macro-economic bigger picture – but still believes that MIP’s numbers should add up.
“Malta Enterprise assesses the business plan and looks at investment and job creation. But we have been giving companies long-term agreements when the reality is that business models change and the agreements are not flex-ible enough. For example, the agreements do not encourage innovation and technology investment as this may result in a reduction in the workforce which could invalidate the agreement,” Mr Zammit explained.
In the past the debt was partly blamed on enforcement and poor administration, but he admitted that it was not fair to talk about rent arrears when some of the factories were in a poor state.
“How could you expect companies to pay when they had a leaking roof?” he asked.
“The stock is very tired and in need of refurbishment. Tens of millions of euro would be needed to bring it up to scratch. Removing and storing asbestos roofs and pipes alone would cost €10 million,” he said, confirming that a programme for these works has been drawn up.
One problem is that MIP can only increase the revenue for each factory as opposed to increasing the number of clients. And MIP is bound by the tenants’ agreements. So how will he clear the deficit and ultimately the debt?
That will be revealed in due course, he promised.
He is not only worried about the financial side, though. He also believes that there is much that could be done to improve MIP’s operations. Indeed, factory tenants were decidedly sceptical when he turned up there as, he said, no-one from MIP had ever been to see them before.
“They were very defensive at first because they expected some sort of inspection or enforcement,but once we reassured them that we were there to learn more about their business and to see whether they had any problems, obviously everything changed,” he said, holding up a stack of visiting cards and adding that he has been meeting three or four companies a day.
Tens of millions of euro would be needed to bring (the factory stock) up to scratch. Removing and storing asbestos roofs and pipes alone would cost €10 million
“Sometimes it is a matter of sitting down with entrepreneurs who have great ideas but no business plan. I believe that we should try to help them get their affairs in order, rather than shutting them down and evicting them. That is the way to get success stories which help the Maltese economy ...,” said Mr Zammit.
One of the more frustrating aspects for companies was the delay in getting replies to their applications for factory space – whether new or to expand. He spoke about some companies that had been waiting years who were only now being given answers – whether positive or negative.
At the last two ME board meetings, 46 applications were dealt with – “more than in the past 10 years!” he quipped.
The financial situation also affects MIP’s contractors and Mr Zammit has promised to tighten up the payment schedule, saying it was most unfair for them to have to wait unreasonable lengths of time for payment.
When it comes to product, he is aware of the important role that MIP plays as virtually the only owner of factory space.
The estates in Bulebel, Marsa and Corradino are nearly full, while Ta’ Qali and Xewkija are full. The only available space is at Ħal Far. A long-term plan – taking into account the changing needs of manufacturing – is being drawn up which will plan ahead.
Apart from its finances and operations, Mr Zammit believes it is important for MIP to also consider its 50 staff and to have a comprehensive human resources approach.
“We need to review our outsourcing as we have considerable in-house skills, and if you entrust someone with a project, it gives them ownership,” he said.
“We don’t produce anything. We provide a service. So the most important thing is the contribution from our people.”