APS Bank is not directly publicly owned but has always had a special character since it belongs to the Church and is one of the two smaller local banks traditionally considered Maltese.
Its small size relative to the two bigger banks provides it with opportunities and also certain threats, usually stemming from economies of scale.
APS is reaping the fruit of some very steady and farsighted planning in opening new branches in very strategic positions, the last one of which is in Paola. The physical branches have to be supported by IT and trained staff and balancing this tripod is what makes expansion delicate and potentially tricky.
During the last three years, the bank's issued share capital was increased by Lm4.5 million (including Lm1 million during 2004), making a total of Lm6 million. The solvency ratio is high so one assumes that the capital is in support of future expansion plans. During the last four years, lending to customers increased at 25 per cent per annum compounding while deposits grew by nearly 15 per cent per annum compounding.
For the year to December 2004, APS was blessed with an improvement in all items making up operating income, which, in such a tough environment, is particularly commendable.
Last year, customer deposits increased by 8 per cent to Lm189 million while loans to customers were up by a whopping 27 per cent, ending 2004 at Lm76 million. Nearly half of the Lm16 million increase in loans came from lending to households and individuals and the bank increased its loans to the "electricity, gas and water supply" sector by nearly Lm5 million.
Interest receivable on loans, advances and debt securities increased while interest payable fell and, as a result, net interest income increased by 23 per cent to Lm5.2 million. All other individual revenue heads increased over 2003, namely: dividend income, fees and commissions receivable, trading profits, net gains on financial instruments, and other operating income. These items totalled Lm0.8 million in 2003 and Lm1 million in 2004, an increase of 22 per cent. Total operating income increased by 23 per cent to Lm6.2 million.
Administration expenses and depreciation increased only slightly but provisions for impairment losses jumped from Lm0.18 million in 2003 to Lm0.48 million in 2004, partly as a result of a bigger loan book but also because of higher specific provisions.
Profit before tax increased by 53 per cent to Lm2 million, or Lm1.3 million after tax (Profit after tax 2003: Lm0.8 million). Great results.
Maltacom
Maltacom's preliminary results for 2004 show, in a nutshell, that it has been turning itself into a formidable cash machine. It managed to reduce debtors from Lm32 million at the end of 2003 to Lm24 million last December and pay off Lm11 million in bank borrowing and other creditors. Net cash from operating activities increased from Lm17 million in 2003 to Lm21 million in 2004.
From presentations to stockbrokers, Maltacom seems to be concentrating on providing technically sophisticated services, at the best price it could persuade the regulator to let it charge, keep close watch on costs, and collect what was due. In contrast to its previous strategy of setting up many small companies to try and catch even sometimes fleeting profit opportunities, it is now concentrating on projects likely to make a sizable impact on its group profit line, making good use of both its huge market penetration and its capacity, including its capital resources. I think that this strategy, which came into focus these last two years or so, is the right and proper one to follow.
In spite of the competition, Maltacom maintained sales and, if one adjusts for a number of one-off items in the 2003 and 2004 financial statements, one would still finish off with slightly improved operating results. The one-off items included 2003's provision for VAT and impairment of assets, revenue from the sale of Vodafone shares (and related dividends and service payments), and contributions for pensions.
Cost control is, of course, critical in view of the pressure on the traditional fixed line service. The reduction in such revenues may have somewhat stabilised due to the recent introduction of tariffs that more faithfully represent cost but both return on capital and return on capital employed were down in 2004 compared to 2003, although both are at good levels.
In view of the increasing importance of VOIP, Maltacom is currently upgrading its platform to facilitate operations in this area. The main company and the subsidiaries are being extremely active with new marketing, commercial, IT and technical initiatives. In brief: it's tough going, but Maltacom is on the ball. Importantly, management is following opportunities and executing what needs be done independently of the impending privatisation of the remaining shares in government hands. The board, rightly in my opinion, took the view that privatisation is government's business, in its role as shareholder, and that management should continue doing what needs be done, without losing time.
A disclosure agreement has been signed with the Privatisation Unit and the group is preparing an information memorandum. Where the privatisation goes, that is where the price is likely to go.
Simonds Farsons Cisk
Again here we have a very capable management dealing with a highly competitive situation, mired in continuous change. For the year ended January 2005, Farsons still managed to push sales up by 8 per cent, mainly by consolidating the newly acquired businesses. Gross profit was also 4 per cent ahead at Lm9.8 million.
Under normal conditions in a beverage company, such an increase in turnover and gross profit trickles down to operating profit but in the face of increasing competition, lower consumer disposable income, and a "softer" summer, the group saw a lower operating profit of Lm1.3 million (2004: Lm1.8 million), partly compensated for by property value gains. Profit before tax was Lm0.8 million (2004: Lm1.1 million). For this financial year there was a tax charge, not a tax write-back as in the 2004 financial year.
Over the last number of years, Farsons strategically placed itself in a position to be able to benefit from a much more open and liberalised market.
This year, for example, Farsons packaged 2 per cent more in volume terms than the previous year following an agreement with Anheuser Busch to bottle Budweiser in Malta.
Assets are also being worked harder and bigger capacity built. Property holdings are being held and managed by a specialised company within the group and, according to Louis A. Farrugia, group chief executive, by means of the investment, announced recently, of "Lm14 million over a period of six years, we would be upgrading and restructuring all our production facilities in the most efficient way possible given the changes in market conditions and packaging regulations on soft drinks."
Paul V. Azzopardi is managing director of Azzopardi Investment Management Limited (www.azzopardi.com) which is licensed by the MFSA to provide investment services, including stockbroking. The company is involved in acting as sponsoring and corporate stockbroker for various listed companies, including Simonds Farsons Cisk plc. Mr Azzopardi or related parties, including the company, and their clients, have an interest in securities mentioned.
This article is only meant to provide information, which the writer believes to be accurate at the time of writing, and is not intended to give investment advice and its contents should not be construed as such.
The value of securities, and the currencies in which they are denominated, may go down as well as up. Readers are requested to seek professional financial advice tailored to their own personal circumstances.
pva@onvol.net