The Malta Stock Exchange (MSE) has released its annual report for the year 2020, in which it revealed a drop of €0.43 million or 10.5 per cent in the profit before tax recorded by the Company for the year when compared to 2019, which it says emanates from one-off gains on disposal of financial assets of €548,500 recorded in 2019.

The annual report shows that the MSE’s revenue decreased only marginally by €51,000 to €7.01 million, while operating and administrative expenses decreased by €242,000, or 6.7 per cent, attributed both to continued vigilance in cost management as well as to the non-realisation of various expenses due to the COVID-19 disruptions.

This overall reduction in administrative costs resulted despite a marginal increase of €23,000 or 1.3 per cent in the MSE’s wages bill.

The year-on-year decrease in operating profits, which has been been attained for four out of the last five years, led to the MSE registering record operating profits.

Meanwhile, positive contributions from the Malta Stock Exchange Institute (MSEI) led the MSE Group to report record revenues of €7.13 million.

The MSE said that despite the unprecedented environment within which the local and international economy operated during the majority of last year, its performance remained “relatively stable”.

“Throughout 2020, the Malta Stock Exchange has shown resilience and executed a seamless changeover to remote working operations of the market infrastructure, which continued during the year with uninterrupted service to its customers and stakeholders,” said Chief Officer Simon Zammit.

Malta Stock Exchange Chairman Joseph Portelli

Chairman Joseph Portelli said that the MSE’s “lacklustre turnover” was “primarily due to investor inertia, and a significant drop in the number of corporate new issues coming to the main market, which amounted to only one equity and six corporate bonds.”

The Prospects MTF and the Institutional Financial Securities Market (IFSM) also showed subdued trading activity. However, although corporate capital raising activity declined significantly, the Maltese Government issued 17 bonds in addition to its normal Treasury Bill issuance.

Mr Portelli noted that the balance sheet position remains very healthy, with a net asset value of over €11 million (€10.2 million in 2019).

He said that a cautious dividend policy has been maintained to ensure that the Exchange remains adequately capitalised to be able to withstand adverse market conditions and extreme circumstances, adding however that the Board will consider raising its dividend in 2021, in what he described as “a testimonial to our optimistic economic and business outlook over the coming years”.

In 2020, the Exchange continued to place a strong focus on areas such as compliance, risk and cyber security, and the introduction of an employee training policy ensured that all staff participated in training programmes pertaining to compliance, risk management, cyber security and other subjects that were provided by the MSEI.

The Institute continued on its mission to improve financial literacy and offer cost-effective short courses on a myriad of subjects to the public, as well as courses aimed at practitioners in the financial services sector. In 2020, MSEI offered 80 courses and attracted 1,121 participants in spite of the challenges encountered in converting to an online environment and the market uncertainty that undoubtedly impacted companies’ investment in their staff training budgets. The Institute also applied and obtained funding for another project from the EUPA national agency. These two projects are being led and co-ordinated by the MSEI, with the participation of several other European entities, to create training in the area of entrepreneurial use of blockchain technology and to improve financial literacy.

Malta Stock Exchange Chief Executive Simon Zammit

Mr Zammit meanwhile referred to the market sentiment during 2020, which was obviously dominated by the unforeseen global and local circumstances caused by the COVID-19 pandemic.

He said that the initial positive sentiment quickly dampened during the second quarter and throughout the rest of the year as the economic instability created by the pandemic continued to unfold, noting that as trading volumes and market liquidity started to decrease in the second quarter of the year, the levels of unsatisfied orders in the market started to increase.

This negative market sentiment “undeniably” had an impact on market volumes, prices and capitalisation, continued Mr Zammit.

Total market turnover for 2020 decreased by €163.6 million or 33.6 per cent when compared to the previous year and stood at €324 million.

The largest decrease in trading volumes was experienced in the Malta Government Stocks segment which fell by 46.1 per cent or €139.4 million, followed by the equity segment which decreased by 34.3 per cent or €30.6 million.

The corporate bond segment registered an increase of €6.4 million or 6.7 per cent when compared to the previous year.

While the overall market capitalisation of €13.6 billion as at the end of the year showed an increase of 5.2 per cent from the €13 billion as at the end of 2019, the market capitalisation of the equity segment fell by 12.2 per cent, dropping €579.7 million of its value from the beginning of the year.

The fall in share prices throughout the year was also reflected in the MSE Equity Total Return Index, which fell to its lowest level for the year at the beginning of November when it closed at 7,067.578 and closed the year at 8,471.335, down 11.9 per cent from 9,615.70 at the end of 2019.

Similarly, primary market activity slowed down considerably in 2020, when compared to previous years, as issuers seemed to put on hold plans to issue financial instruments until market conditions were more predictable.

This sentiment was clearly evident in the Prospects MTF market, where several issuers, having already approached the Exchange with proposals to admit securities, decided to put their plans on hold.

Likewise, in the Regulated Main Market, only six corporate bonds were newly listed when compared to the 16 in 2019. On the other hand, with regard to Malta Government Stocks, a total of 17 new bonds were listed, when compared to the eight listed in 2019.

On the equity side, the Exchange welcomed a new company to the market that listed its shares on the Regulated Main Market following a successful IPO.

Business Development - Launch of Real Estate Investment Trusts

Throughout 2020, the Exchange continued to develop the framework for the introduction of trading in Real Estate Investment Trusts (REITs), which was officially launched on 10th December 2020. The new REITs bye-laws provide for the introduction of financial instruments that give investors the possibility to earn dividends by investing in real estate companies that operate in the property rental business.

Business Development - Green Bonds Market

Concurrently with the REITs project, the Exchange initiated the development of the regulatory framework to support the listing and trading of Green Bonds in the local market. In Q3 2020 the proposed framework was drawn up and various discussions were held with stakeholders. MFSA approved the proposed byelaws in Q1 2021.

Refurbishment

Due to the COVID-19 pandemic and the move to a work-from-home policy, the presence of staff physically at the Exchange was limited. This situation offered favourable circumstances for the refurbishment project and the upkeep of the Exchange’s premises to continue, albeit with logistical and organisational challenges.

Works conducted during 2020 included the servicing of the generator, the installation of additional security camers in the upper level, the installation of new, modern water, the installation of metal gates on the front part of the Exchange building, and the replacement of an intruder alarm system, fire-fighting equipment, CCTV cameras, and a card reader system due to damage sustained during lightning storms.

The refurbishment works continued with the removal of the open balcony on level one of the building, which was replaced with the installation of steel beams and a solid frame structure on top, serving as a platform on which laminated parquet flooring was mounted.

Moreover, the floor on level -1 was renovated to a new, aesthetically pleasing dining area.

Human Resources

As at the end of the year, the Exchange’s staff complement stood at 53, split on a gender basis between 36 females and 17 males. Consistent with the previous year, this largely reflects the gender split throughout most of the grades in the organisation. The complement included 25 staff in the managerial grades, 18 in the supervisory grades and four in the officer grades. The staff complement also included six non-clerical staff, split between three males and three females.

The Exchange continued to promote staff training, both externally and at the MSE Institute. In total, 40 staff members and directors attended 127 courses.

Document Scanning

The Exchange embarked on an exercise to decrease the number of archived boxes and thereby reduce the annual document storage cost. This entailed analysing the contents of each archived box, scanning the documents and transferring the contents to the respective department’s electronic archive.

Corporate Social Responsibility

As in past years, the Exchange extended its support to various cultural, educational and philanthropic causes. The Malta Community Chest Fund and Puttinu Cares were two of the organisations that received the MSE’s financial support in 2020.

On the educational front, the MSE sponsored and supported the 4th European Congress of Qualitative Inquiry (ECQI), organised by the Department of Banking and Finance of the University of Malta.

Exchange Operations - Regulated Main Market

Total market turnover for 2020 stood at €324 million, a decrease of 33.6 per cent (€163.6 million) when compared to 2019.

The Malta Government Stocks (MGS) segment fell by 46.1 per cent or €139.4 million when compared to the previous year, followed by the equity segment which decreased by 34.3 per cent or €30.6 million.

On the other hand, the corporate bond segment registered an increase of 6.7 per cent (€6.4 million).

Market capitalisation as at the end of the year stood at €13.6 billion, an increase of 5.2 per cent (€667.5 million) from €13 billion as at the end of 2019. The largest percentage gain occurred in the Treasury Bills market which increased by 114.8 per cent (€344.8 million).

This was followed by the MGS and the corporate bond markets, where the value increased by 14.8 per cent (€897.2 million) and 0.28 per cent (€5.1 million), respectively. The market capitalisation of the equity market fell by 12.2 per cent or €579.7 million compared to 2019.

The MSE Equity Total Return Index closed at 8,471.335, down by 11.9 per cent from 9615.70 at the end of 2019. The Index fell to its lowest level at 7,067.578 on 4th November and peaked at 9,585.86 on 18th February.

There was one equity listing by Harvest Technology plc during 2020, which had an initial market capitalisation of €34.2 million. Plaza Centres plc delisted part of its issued share capital, since it cancelled 2,750,000 shares after effecting a buy-back from its shareholders.

A total of six corporate bonds were issued during the year with a total value of Є176 million, of which €13.7 million were rolled over from existing bonds and €162.3 million consisted of new capital.

This is less than half the amount that was issued in 2019, when a total €378 million capital was raised from 16 bond issues. In 2020, four corporate bonds with an aggregate value of €114.3 million were redeemed. In the previous year seven bonds were redeemed, which amounted to €128 million.

A total of 17 MGSs (eight in 2019) were issued during 2020, having a value of €1.3 billion (€352.5 million in 2019). The total nominal value of redeemed MGSs amounted to €462 million (€435.9 million in 2019).

A 62+ Malta Government Savings Bond, amounting to €95 million, was issued by the Government of Malta; however, these were not admitted to listing and trading.

In 2020 a total of 100 Treasury Bills were issued with a combined value of €2 billion compared to 82 issues in 2019 totalling €1.19 billion. An aggregate of 81 Treasury Bills with a total value of €1.65 billion were redeemed in 2020, compared to 83 Treasury Bills with a combined value of €1.18 billion in 2019.

Exchange Operations - Institutional Financial Securities

In 2020 two securities were listed under IFSM with a market capitalisation of €53.2 million and seven securities with a value of €96.5 million were redeemed. There was no trading activity registered on IFSM throughout 2020.

Exchange Operations - Prospects MTF

At the beginning of 2020, five prospective issuers approached the Exchange to discuss potential admission to Prospects MTF. However, the COVID-19 pandemic had an impact on the Prospects MTF market, and the applications were put on hold due to the economic uncertainty, both locally and globally, throughout the year and, consequently, no securities were admitted in 2020.

Nevertheless, during Q4 2020, one prospective issuer showed its intention to proceed with its application by formally submitting the application documents for admission to Prospects MTF.

On 9th January 2020, an equity admission was suspended, and this was eventually cancelled on 21st February 2020, due to the Issuer’s inability to fulfil its obligations under the Prospects MTF Rules.

Following the above, the number of Prospects MTF admissions at the end of the year totalled 23 securities (22 corporate bonds and one equity).

During 2020, two Corporate Advisors had their authorisation suspended and eventually cancelled. Another four Corporate Advisors voluntarily resigned during the year. These six Corporate Advisors did not have active mandates with any Prospects MTF Issuers at the time of their cancellation/resignation.

By the end of the year, 15 firms were authorised by the Exchange to act as Corporate Advisors to prospective or admitted Prospects MTF companies.

Market turnover in 2020 totalled €3.69 million, spread over 694 trades. This is 10.3 per cent higher than the previous year, when €3.35 million in turnover was registered, made up of 555 trades.