1 - 7 February 2001

Setting a new course

Malta’s national sea carrier is entering a new era as it consolidates its position and targets emerging markets. Sea Malta chairman Marlene Mizzi spoke to David Kelleher about the company’s work so far

Sea Malta presented its annual accounts last March. How has the company’s position improved since then?
I must say there has been a marked improvement in the accounts and our financial situation. We will be curbing further the losses this year and this is attributable to increases in business, our client base and strict control on expenditure. Other factors have also resulted in an increase in our core business.
When we bought the Maltese Falcon we laid a three-year forecast, by the end of which, we had planned to start seeing the light at the end of the tunnel. Now, the Maltese Falcon has been in operation for only 18 months and she has already made a significant difference to our bottom line but there is still some time to go before the situation could be turned round as we wish.
Another reason is that Sea Malta has been shouldering certain social obligations which have basically financial implications and which have always been shouldered by the national shipping line.

What is the role of government? I believe Sea Malta has asked the government for a capital injection rather than subsidies.
The role of the government vis-à-vis Sea Malta is dual. As a shareholder, the government decides on the fate, direction and support to the company. As the State, it assesses the importance or otherwise of a company to the economy, and devises policies which project this assessment. We have definitely not asked for subsidies.
Sea Malta never had, does not have subsidies and is not requesting subsidies. What we are requesting from the majority shareholder, which is the government, is to inject further capital. The business has progressed so much that extra capital is needed. Sea Malta has not received a capital injection for the past 27 years, in fact since the company’s inception.
Our request is nothing out of the ordinary but a normal request from the directors to the shareholders for a business seeking growth and expansion.

How much would the company require? And how would the capital be used?
The capital injection we are requesting will not be used to make good for the losses but for the company to be able to consolidate its business and to expand. Although handled to the best of our diligence, the recurring cash flow situation is hindering us from maximising the return on our existing resources and is seriously impairing the implementation process of our plans to be able to grow further. The funds will also go towards replacing one of our vessels with younger tonnage.

Which are the main areas that are causing a cash flow problem?
The problem is due to the company subsiding routes that are not giving us back the amount of cash that we are putting in them. Such a scenario cannot be sustained ad infinitum without jeopardising the long-term health of the organisation.

Sea Malta recently set up Flagstone Insurance Brokers. Why has the company moved into insurance?
When we set up Flagstone Insurance Brokers, one thing was very clear from the outset, that is, Sea Malta has been in the insurance business since the time of the MIB. Our people have come from the MIB after it was privatised and became Middle Sea Insurance. Thus, Sea Malta is not new to the insurance industry.
Flagstone is simply a new legal entity but we have been an insurance broker for the past six years. In the past we used to operate through Medpoint Brokers, but for commercial reasons it was time to re-structure and set up our own insurance brokerage company. This is old hat for Sea Malta.
The holding company has a substantial portfolio and expertise in insurance and our policy is to manage our assets including our human resources to the best of our abilities. We think this was a wise move.
Are there any intentions to also operate as an agency?
No. According to the MFSC we can either be one or the other. We do all classes of insurance except life, and not only marine. Flagstone Insurance Brokers is a distinct company with its own board of directors and management.
What are the possibilities of Sea Malta further raising its capital through a share issue, if not now, in the next couple of years?
Theoretically Sea Malta can float its share on the stock market to improve its liquidity but who would be interested in a company burdened by a loss-making operation to retain its social accountability? A company offers its shares if there are good investment prospects for the buyers. Therefore it would not make sense for Sea Malta to offer shares at present.
Having said that, the improvement registered in Sea Malta’s financial situation would have been more dramatic this year if bunkering prices had not increased to horrendous levels. These increases have eaten into our profits we would have otherwise made. It is safe to say that we would have broken even and our losses would have been cancelled out if bunker prices had not gone up.

The government has made it clear that a number of companies are to be privatised. What is your personal opinion on this issue and do you see a strategic partner for or full privatisation of Sea Malta in the future?
I agree with privatisation as long as it is not done solely for raising funds but to bring along efficiency and renewed dynamism. One also has to be careful which companies are privatised because some companies are more important or strategic than others and their sale could affect the economy.
Privatisation can inject the entrepreneurial initiative that you might not find in a government company. In case of Sea Malta this will not make much of a difference as the Company is a results-driven one and the sense of entrepreneurship is embraced across all management levels. Then again privatisation must occur in a very clever and structured manner.
As far as Sea Malta is concerned, one thing will never change. Malta is an island, we are surrounded by sea and the carriage of goods by sea is always going to be of paramount importance. The strategic importance of a carrier should not be undermined.
For this simple reason you cannot fly everything over, you cannot bring in goods by road or rail as an alternative. So once you break that sea link the economy is going to suffer. The argument would be to bring in someone else, yet there is another problem. Malta has only one ship owner with national interest and obligations, Sea Malta. The ship owner decides which routes to operate and where its ships go.
On the other hand the shipping agent does not have a say in the policy adopted by the owners they represent – thus if they decided to stop operating to Malta because a more profitable opportunity crops up elsewhere, they can do so freely. They have done so!
Sea Malta is a national carrier with 67 per cent shareholding by the State. The remainder is in private hands. Thus, this company is mainly owned by the State and operates in the interests of the industry and the economy. There is a huge difference between a Maltese ship owner and a foreign one, especially as far as social obligations are concerned.

Therefore foreign ship owners could hold the local industry to ransom?
Literally. They would still come, but freight-wise, they will hold the industry to ransom unless freight levels succumb to competitive market forces. With Sea Malta on the spectators bench the seafreight market will again be at the mercy of an oligopoly. One must not forget that freight and charges are a substantial part of the costings of industry and you cannot expect a foreign company to be worried about our economy.
If the carrier had to be privatised, assurances would have to be given that the service will continue. As we are living it day to day, we know that one cannot always match the commercial decisions with the social obligations. Will a private company play ball? The costs of shouldering these social obligations are real.
There are routes that cannot be stopped because they are important to industry. For example the Zebbug was in the drydocks for three weeks. A foreign owner would say sorry, but the vessel has to be dry-docked, and the service will stop. See what you are going to do. Sea Malta is not free to entertain such purely commercial decisions, which make financial sense.
Sea Malta chartered a vessel paying thousands of dollars a day, to ensure that we can continue giving a service. Will a private company do the same? We belong to the State and have to service the State. It is a real cost and this eats into our profits.

What about Sea Malta’s cruise liner plans?
We have set up Blue Waters Cruise services in conjunction with a private Maltese operator. We see that there is a lot of potential in the cruise business and it is only natural for Sea Malta to enter that business. We took part in the Miami Sea Trade Convention to present ourselves and get exposure. We have achieved slow but steady results. Sea Malta intends to pursue this business with a certain amount of aggression.

What other plans are in the pipeline?
There are a number of plans on the drawing board but I don’t believe it is commercially wise to reveal what they are. What we would definitely like to do this year is replace the mv Zebbug. She is 30 years old and recently underwent a special survey. She is also ISM certified and at the moment she is really “ship-shape”.
However, we are looking for younger and faster tonnage in order to move into different routes. If you have fast tonnage you can visit ports that at present cannot be reached. We want to go further and we want to serve our clients better.
On entering the European Union we will be able to shuttle goods between one port and another. This is known as cabotage. At present we are unable to do so, but on membership we will be able to collect domestic cargo from different ports. Cabotage will surely make a difference to the capacity utilisation of our vessels and therefore to our bottom line.
It would be very ironic to break up Sea Malta now. The EU is emphasising more and more on the importance of short sea-shipping because they want to take off the cargo from the roads and trains and move it to the sea. It would be ironic if Sea Malta had to retract at this moment in time, when other countries are beefing up their strategies to enhance their shipping business.