Last Updated on Thursday, 1 October, 2020 at 9:17 am by Andre Camilleri
SD Finance plc has announced that the Financial Analysis Summary, dated 28 September, prepared by MZ Investment Services Limited is available for viewing.
Key activities
SD Holdings Limited is the parent holding company of db Group and principally operates, through subsidiary companies, in hospitality, leisure and catering activities. The db Group owns and operates db Seabank Resort Spa, Mellieha Bay and db San Antonio Hotel & Spa, St Paul’s Bay. It also owns and operates the restaurant amenities at Adeera Complex in Mellieha, Nine Lives in Bugibba and AKI in Valletta and operates outlets under the Hard Rock Café and Starbucks franchises.
The Group also holds investments in associates who provide healthcare and catering services to hospitals and retirement homes; and catering services primarily to Air Malta and other airlines operating from Malta. Other associated investments operate in the hospitality and catering industries.
Hospitality operations
On 31 March, the directors reassessed the valuation of db Group’s principal operating properties, db Seabank Resort & Spa and db San Antonio Hotel & Spa, in view of the COVID-19 pandemic and resulting restrictions on the hospitality industry, as mandated by the health authorities, together with the closure of ports, which have significantly impacted the Group’s operations.
The 2020 valuation reassessment was primarily based on revised projected income streams which take into consideration a lower business activity in the next few years, until reaching the 2019 level of business and assumed normality by 2024.
The assumptions resulted in a revised revaluation surplus that is €11,000,000 lower than that recognised in 2019. This difference was accordingly adjusted and debited to the revaluation reserve, net of applicable deferred income taxes (net amount: €7,150,000).
db City Centre
On 1 February 2017, DB San Gorg Property Limited (a subsidiary company of the Guarantor) entered into a deed of temporary emphyteusis with the Commissioner of Land (on behalf of the Government of Malta) for a site having a total surface area of circa 24,000m2 and located in St George’s Bay, St Julian’s, Malta. The said property is earmarked for the development of the proposed db City Centre, described in further detail below.
The 99-year temporary emphyteutical concession is subject to a cash consideration of €15m, payable over a period of seven years, whereby the first payment of €5m was paid on signing of the said deed. The balance of €10m is payable in seven equal annual instalments as from January 2018.
Following Planning Authority approval, a further consideration shall be determined on the full extent of the developable area, which amount shall be due to government or vice-versa, as the case may be, payable over a period of seven years in seven equal annual instalments and calculated in accordance with the terms of a schedule annexed to the Emphyteutical Deed. Stamp duty of circa €3m was settled upon signing of deed. The payment of circa €8m (comprising the said first payment and stamp duty) was financed primarily through a bank facility. In terms of the deed, a total annual ground rent of €1,562,509 shall be payable to government, of which a total of €1,169,579 is to be allocated for redemption purposes based on a net floor space area of 51,030m2 (comprising residential, office space and garage space).
The afore-mentioned annual ground rent shall be temporarily reduced to €1,000 per annum until the earlier of: (a) the issuance of a certificate of completion by an architect; or (b) the lapse of five years from date of deed.
Subject to securing all necessary development permits, the property is earmarked as a mixed-use development encompassing a five-star hotel, residential tower, shopping mall, large underground car park and other amenities to complement the project. The aggregate development cost of db City Centre is estimated at circa €250m.
Hospitality and leisure
db Seabank Resort & Spa
Seabank Hotel and Catering Limited, a subsidiary of the Guarantor, owns the 539-room four-star db Seabank Resort & Spa, which occupies a land area of over 23,000m2 and is located in Mellieha Bay, Malta. The Seabank Hotel is an all-inclusive resort with seven themed restaurants, four bars, an external pool, a fitness centre and health spa. In 2015, a new entertainment complex was opened, which includes three restaurants, a bowling alley, a sports bar and a children club.
The Seabank Hotel continued to perform positively during FY2018 through FY2020 due to: (i) a favourable trend in tourism in Malta; (ii) its advantage as a newly refurbished property over other competing hospitality establishments; and (iii) the success of management in promoting the all-inclusive service package.
The hotel registered an increase of €1.6m (+7.6%) in revenue in FY2018, to €22.7m (FY2017: €21.1m) and a further 8.8% increase in revenue to €24.7m in FY2019 (+€2m). Thereafter, in FY2020, the hotel reported a marginal decrease of €0.4m in revenue to €24.3m.
Over the three-year period under review, the hotel’s occupancy level has been maintained above 80%, while RevPOR has increased from €137 in FY2018 to €158 in FY2019, but decreased back to €138 in FY2020. As to gross operating profit, the hotel reported a y-o-y increase of €1.2m in FY2018 (+11.2%) from €10.8m in FY2017 to €12.1m.
In FY2019, notwithstanding the 8.8% increase in revenue, gross operating profit decreased by €1.8m (-14.7%) to €10.3m (FY2018: €12.1m), resulting in a decline of 11% in gross operating profit margin from 53% in FY2018 to 42% in FY2019. Gross operating profit margin improved by 5 percentage points in FY2020 to 47%, which represented an increase in gross operating profit of €1.1m, from €10.3m in FY2019 to €11.4m.
db San Antonio Hotel & Spa
Hotel San Antonio Limited, a db Group subsidiary company, owns the 513-room 10-floor four-star db San Antonio Hotel & Spa, located in St Paul’s Bay, Malta. The San Antonio Hotel is an all-inclusive hotel with five themed restaurants, indoor, outdoor and rooftop pools, a fitness centre, a Hammam spa and conference facilities.
In FY2018, revenue increased by €1.6m (+9.6%) from €16.6m in FY2017 to €18.2m. The hotel registered an increase of €0.4m in gross operating profit in FY2018 to €7.7m (FY2017: €7.3m). FY2019 was another positive year for the hotel, where revenue increased from €18.2m in FY2018 to €19.8m (+8.6%), mainly on account of a €6 (+4.3%) increase in RevPOR to €146 (FY2018: €140).
More importantly, the hotel managed to improve its gross operating profit margin from 42% in FY2018 to 63% in FY2019, which resulted in a €4.7m (+61%) growth in gross operating profit to €12.4m (FY2018: €7.7m). In FY2020, revenue increased marginally by €0.1m from the prior year, but gross operating profit decreased by €0.6m or -4.8%, from €12.4m in FY2019 to €11.8m. Occupancy level was lower by 1 percentage point to 79%, while RevPOR increased by €1 to €147.
Hard Rock Café Malta
Sea Port Franchising Limited, a db Group subsidiary company, was awarded the Hard Rock Café franchise for Malta in 2000, pursuant to the terms of a franchise agreement entered into with Hard Rock International. A new franchise agreement is presently being negotiated and is due to be signed in the coming months.
The Group presently operates three Hard Rock Café outlets in the following localities:
• Bay Street Complex, St Julian’s – The property is subject to a concession agreement and an operator agreement with Bronville Limited and Baystreet Limited respectively. The restaurant covers an area of 600m2, has a seating capacity of circa 180 covers and includes a bar area, merchandise shop and internationally renowned rock ‘n’ roll memorabilia.
The term of the above-mentioned agreements are due to expire on 25 November and will not be renewed. The Group is currently in negotiations to relocate to an alternative site.
• Malta International Airport – Sea Port Franchising Limited operates a Hard Rock Bar at the Malta International Airport pursuant to a lease agreement, entered into with Malta International Airport plc, the term of which commenced on 1 January 2016 and is due to expire on 31 December 2022, subject to renewal. The Hard Rock Bar is situated in the departures lounge of the airport. In 2015, the Hard Rock Bar was fully refurbished and restyled.
• Valletta Waterfront – In 2005, Sea Port Franchising Limited entered into a lease agreement with Valletta Cruise Port plc following which it commenced operating a Hard Rock Bar with a seating capacity of circa 140 covers. The term of this lease agreement has been renewed on 1 March 2018 and will expire on 28 February 2030. During FY2020, this outlet was refurbished with an investment of circa €500,000.
Adeera Complex, Nine Lives Beach Club and AKI
Adeera Complex is operated by S.R.G.N. Company Limited, a subsidiary company of db Group and is located at Mellieha Bay, Malta (in close proximity to db Seabank Resort & Spa). During FY2018, the complex was renovated at a capital expenditure of €3m.
Adeera Complex houses three restaurants, a beach lido and a convenience store to service tourists. The property is leased from a subsidiary company – J.D. Catering Limited – which holds title of temporary emphyteusis granted to it by the Government of Malta and is due to expire on 31 July 2026.
In June 2019, db Group commenced operating Nine Lives beach club in St Paul’s Bay, Malta, following an investment of €2.5m. The club is situated on the water’s edge with a majestic view of St Paul’s Islands and offers a casual dining experience and entertainment facilities.
In February, with an investment of €1.2m, db Group opened AKI, a new restaurant and lounge bar in Valletta. Guests can taste signature Japanese-inspired dishes prepared with flavours to satisfy modern palates and contemporary styles.
Starbucks
The Group holds the exclusive license to operate and develop the Starbucks brand in Malta and Gozo, and accordingly plans to open 18 Starbucks outlets over a five-year period. Debar Limited was incorporated in February 2018 to operate and manage Starbucks outlets in Malta.
In FY2019, the company opened the first two Starbucks outlets in Malta at Vault 15, Valletta Waterfront and Adeera Complex, Mellieha. During FY2020, Debar Limited opened a third outlet located in the Piazzetta Business Plaza, Sliema and a fourth opening took place in June (FY2021) at the Islet Promenade, Bugibba.
Healthcare and catering services
Malta Healthcare Caterers Limited is a joint venture between db Group and James Caterers Limited, and is principally engaged in the provision of healthcare and catering services to hospitals and retirement homes, together with other related services, in Malta and Gozo.
In 2013, MHC Group acquired a site in Santa Lucija measuring circa 4,455m2 with the intention of eventually developing it into a 300-bed home for the elderly.
In 2017, MHC Group was awarded a 15-year concession for the construction of four new blocks and operation of an additional 500 beds at St Vincent de Paul Residence. The project was substantially completed in July at an aggregate cost of circa €35m.
In addition, MHC Group is to provide St Vincent de Paul Residence management services including nursing, caring, housekeeping and catering for the additional beds under a 15-year contract.
Furthermore, MHC Group completed in FY2020 a €4m fully equipped kitchen on-site and is providing catering services to the existing 1,100 beds within the residence under a 10-year catering public private partnership agreement.
Healthcare Division
The healthcare division of MHC Group comprises the following subsidiary companies:
• Healthmark Care Services Ltd – the company is engaged in the provision of health and social care services and training to the general public, hospitals and elderly retirement and nursing homes;
• Health Services Group Limited – the company is engaged in the provision of nursing services;
• Support Services Limited – the company is engaged in the provision of nursing, medical and clinical services.
At present, the healthcare division has a staff complement of circa 2,570 employees, including 267 professional nurses, 207 staff members providing domiciliary care for the elderly and over 2,096 trained care assistants.
The key agreements include: (i) the provision of nursing and care services under the Active Ageing and Community Care Directorate; (ii) the provision of care worker services at Mater Dei Hospital and other entities within the Health Department; (iii) the provision of care worker services at St Vincent de Paul Residence and Homes for the Elderly Community Care; and (iv) the provision of home help services.
Catering Division
MHC Group initiated operations in contract catering in 2007, after being awarded the contract to supply meals to in-patients at Mater Dei Hospital, St Luke’s Hospital and Sir Paul Boffa Hospital. In 2015, MHC Group ceased to supply meals to Sir Paul Boffa Hospital, but instead commenced servicing Sir Anthony Mamo Oncology Centre. This agreement shall expire on 16 November 2022.
MHC Group also provides catering and ancillary services to in-patients and staff of Gozo General Hospital (since 2013) and St Vincent de Paul Residence (since 2014). In aggregate, MHC Group serves in the region of 6,000 meals per day.
Airline Catering Services
The Group has a 30% shareholding in Sky Gourmet Malta Ltd, a company principally involved in the provision of catering and commissary services to airlines. On an annual basis, the company serves over 2 million airline meals and snacks. The other shareholders are James Caterers Limited with a 30% ownership and Do & Co., an Austrian catering company which is active in segments such as airline catering, train catering and international events catering.
During the financial years ended 31 March 2018 to 2020, the company serviced Air Malta and Ryanair, and other top-end carriers, on a regular or ad hoc basis. The relevant contract agreements for Air Malta and Ryanair expire on 31 March 2021 and 31 March 2022 respectively.
Other investments in associated companies
The Group owns 33.3% of Porto Azzurro Limited, a company that owns, manages and operates a three-star 125-room aparthotel located in Xemxija, Malta. The rooms and apartments are equipped with ensuite bathrooms, a fully equipped kitchenette and other amenities. The hotel has a 24-hour reception, a launderette, mini market, dedicated restaurant and a pizzeria, as well as a number of leisure facilities.
During the year ended 31 March, the company generated revenue amounting to €1.3m (FY2019: €1.6m) and gross operating profit of €0.4m (FY2019: €0.5m).
Senior management
Arthur Gauci will be resigning from the post of Chief Executive Officer effective 30 September. Gauci will continue to serve as a member of the Board and will take up the post of consultant to the Guarantor. The post of CEO will be occupied by Robert Debono from 1 October.
