Looking at Middlesea Group's figures for the year ended December 31, 2003, and before the impact of taxation, one would see only a marginal improvement over the previous year.
But one must keep in mind that the results have been somewhat depressed by the big storm last September and the higher costs of catastrophe reinsurance. The first shaved off nearly Lm2 million while the second cost Middlesea an additional five per cent of net earned premium.
Profit before tax for 2003 was Lm1.4 million (2002: Lm1.3 million) but taxation, as seems to be becoming more and more the practice, skewed the figures because 2003's charge of Lm27,312 was in sharp contrast to 2002's credit of Lm521,070. In 2003, after tax, the group made Lm0.4 million less than the previous year but, in this case, the profit after tax figure is not so meaningful.
Middlesea gave stockbrokers and other intermediaries a very good presentation about the group, addressed by its chairman and main driving force Mario C. Grech, and by the top people of the four principal companies making up the group, namely Middlesea Insurance itself, Middlesea Valletta Life Assurance (of which Bank of Valletta holds 49 per cent of the shares), International Insurance Management Services (IIMS) and Progress Assicurazioni, the last being an Italian company.
Middlesea Insurance paid policyholders insured for storm damage and paid higher reinsurance.
But, with the insurance prices getting firmer and the group expanding its operation, the company managed to increase gross premiums written from Lm31 million in 2002 to Lm34.6 million in 2003.
On its general business technical account, it lost Lm0.5 million but made Lm0.2 million on life.
IIMS is very much the group's administrative arm and caters for one captive insurance company. It now has two new captives in the pipeline. Maybe captives would prove to be a growth industry after all. The two success stories are Middlesea Valletta Life Assurance (MSV) and Progress Assicurazioni.
MSV has good products, is supported by half of Malta's bank branches and has a similar market share. The group's share of its profit was Lm0.7 million.
During the presentation I was impressed by the work achieved by Progress in just three years. Progress has great ambitions, spread further in central and southern Italy, tiptoed into Piedmonte, and already produced 63 per cent of gross premiums written by the group.
Claims experience seem to be in line. Indeed, the loss ratio improved over 2002, thus allaying one of the main anxieties. The emphasis seems to be on growth and the group expects that, in time, Progress will loom over the other three companies.
Malta International Airport - securing the bottom line
MIA recently published its preliminary results. During the year ended March 31, 2004, operating income went up by Lm1 million over the previous year to Lm14.3 million even though passenger traffic was up by just one per cent.
The company was candid and said that the one million liri principally came because it imposed a security fee of 55 cents, levied on each departing passenger.
As it happened, most of the increase trickled down to profit. I say most because, although operating costs did increase compared to the previous year, they did so mostly due to the company this year having to charge a full year's worth of rent and technical service payments instead of just eight months'.
I would presume that security costs during the year under consideration were indeed higher than the previous year but probably these increases were partly offset against economies in other areas, keeping total operating costs under control. But, if so, this is not mentioned and the notes accompanying the results tend to throw one off in the wrong direction.
The company is trying to attract new airlines to Malta and in this regard MIA reports "negotiations with various companies". It is also trying to boost its cargo traffic and the cruise-and-fly segment, in association with Viset who are promoting Malta's cruise facilities.
The company intends to develop the surrounding land via the planned Mediterranean Business Park. MIA says the project is still "at a concept stage"; so this must be a working title for the project and one which should not be taken too much to heart since it can otherwise itself limit the spectrum of concepts considered.
MIA has Lm2.5 million in the bank and liabilities of Lm27 million, excluding provisions for liabilities and charges. On some Lm21 million of shareholder funds it reported a profit of Lm1.6 million, an after-tax return of 7.6 per cent.
In good times, profit could be substantially more but probably not enough to carry the new project without an issue of further shares. The company has already presented the project to prospective investors at the Mipim fair in Nice earlier this year so the project may not be too far off.
The price-earnings ratio is a high 35 probably supported by the national character of this important company, which is bound to have rather stable earnings.
Paul V. Azzopardi is managing director of Azzopardi Investment Management Ltd (www.azzopardi.com) which is licensed by the MFSA to provide investment services, including stockbroking. 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.