Creating an effective communications strategy

Article #724 by Edward Rizzo - Published Weekly

In several of my articles in the past, I regularly argued for the need for companies whose equity is listed on the Malta Stock Exchange to adopt a more effective communications strategy for shareholders in line with customary procedures adopted by companies listed across the larger and more developed international stock exchanges. Investors need to be kept regularly informed of ongoing financial and business developments (beyond the statutory financial statements twice a year) and in normal circumstances, this generally helps market liquidity which is one of the main reasons for companies to obtain a stock exchange listing in the first place.

My public remarks intensified in more recent years when the requirement to publish Interim Directors’ Statements was removed. Between 2007 and 2015, the regulations across the EU obliged companies to publish Interim Directors’ Statements on a semi-annual basis not later than six weeks before the end of their reporting period. Essentially, for those companies with a December financial year-end, key financial highlights for the first quarter of the year were published in May and an announcement in November detailed business developments and key financial highlights covering the third quarter of their financial year.

Ever since the formal obligation was removed in Malta in line with amended guidelines across the EU, a number of companies (especially the larger ones) continued this good practice but this was not replicated by all equity issuers. Moreover, in most instances, there was an evident lack of consistency in the level of information provided to the market by those companies that continued to issue such statements.

In recent weeks, a number of the equity issuers in Malta provided updates to the market and the main highlights released by each of the companies is summarised below.

Malta International Airport plc disclosed that total revenues amounted to €32.3 million during the first nine months of 2021 (Q1 to Q3 2020: €25 million; Q1 to Q3 2019: €77.3 million) and EBITDA more than doubled to €15.8 million (Q1 to Q3 2020: €6.8 million; Q1 to Q3 2019: €49.6 million). The airport operator announced that it generated a profit before tax of €6.19 million (Q1 to Q3 2020: loss of €1.45 million; Q1 to Q3 2019: profit of €41.7 million).

Bank of Valletta plc stated that profits before tax for the nine-month period up to September 2021 amounted to €46.5 million compared to €40.6 million in the same period in 2020.

HSBC Bank Malta plc announced that it generated a profit before tax of €25.2 million during the nine-month period ended 30 September 2021 which is significantly higher than the €12.2 million generated during the comparable period in 2020. Moreover, excluding one-time restructuring provisions and related transformation costs amounting to €3.4 million, the adjusted profit before tax stood at €28.6 million.

International Hotel Investments plc significantly upgraded its EBITDA projections for 2021 as a result of signs of recovery across the global travel industry. IHI is now expecting to generate a consolidated EBITDA of over €24 million for the current financial year which is substantially higher than the earlier forecasts of €11 million (June 2021) and €15 million (October 2021). However, quite understandably, it is still 65% lower than the record EBITDA of almost €70 million generated in the 2019 financial year.

BMIT Technologies plc announced that during the nine-month period ended 30 September 2021 revenues increased by 6.8% to just over €19 million (Q1 to Q3 2020: €17.9 million); EBITDA increased by 5.5% to €8.4 million and profit before tax amounted to €6.4 million (+6.7%).

MedservRegis plc noted that during Q3 2021 (following the share-for-share exchange that took place on 25 June 2021), revenues amounted to €11.2 million and EBITDA amounted to €1.6 million. During the first half of the year prior to the merger of Medserv and Regis, an EBITDA of €2.89 million was generated in H1 2021 when excluding a one-time impairment allowance of €1.33 million. As a result, the combined MedservRegis Group generated an aggregate adjusted EBITDA of €4.5 million during the nine-month period from January 2021 to September 2021.

Harvest Technology plc revealed that profit before tax amounted to €3.13 million between January and September 2021, representing a growth of 9% over the same period in 2020 (€2.88 million). Harvest also reiterated its target of achieving a profit before tax of €4 million for the 2021 financial year which would be in line with the forecast provided in December 2020 but 18% higher than the projections at the time of the IPO in November 2019. The company also announced a net interim dividend of €0.016 per share which was paid by 26 November 2021.

It is disappointing to note that only 7 equity issuers have published such updates in recent weeks. One hopes that the other companies understand the need for regular and detailed announcements to enable investors to remain abreast of industry-wide developments.

These semi-annual interim statements help reduce the lengthy period between one financial reporting period to the next which can be up to 8 months between the releases of the half-year financial report and the audited annual results. For example, a company with a December year-end publishes its half-year results by August and its annual financial statements by the end of April. This is far too long for the investing community and the publication of the November Interim Directors’ Statement is a good initiative to disclose the Q3 figures which is important for shareholders and financial analysts.

Apart from the Interim Directors’ Statements or Trading Updates as they are referred to in some international markets, a very common initiative by most of the larger companies in the UK is the publication of a ‘pre-close trading update’ in January to disclose key trends as at year-end ahead of the publication of the annual financial statements.

This is an additional initiative that companies in Malta should seek to adopt in order to enhance the newsflow across the capital market. The investing community as well as financial market participants need regular and detailed announcements from the various companies to remain abreast of industry-wide developments.

Companies listed on the MSE should seriously contemplate adopting a more effective communications strategy for shareholders in line with customary procedures adopted by companies listed across international stock exchanges. Investor relations is an area which needs to be given much more importance by companies listed on the MSE. This has surely been one of the limiting factors across the Maltese equity market in recent years.

A more detailed and effective communication strategy by the equity issuers is possibly one of the only ways for investor sentiment to begin to improve following the significant setback as a result of the shock arising not only from COVID-19 but also from the political and economic uncertainty that has dominated the local media since November 2019.

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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.

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