Palumbo Malta Shipyards has reported a profit before tax of €1.56 million for 2013, compared with €2.96 million the year before.

In line with common practice, it exploited the good results of the year to write down €1.5 million in inventory, and its administrative expenses were almost three times as much, without which the profits would have slightly less than double 2012’s profit.

The company now has €2.05 million in retained earnings but the directors did not recommend a dividend.

The results were filed with the Company Registrar at the beginning of the month.

Managing director Antonio Palumbo was upbeat about another year of profits: “I did not come here to open a charity. After all these decades, the Maltese can finally take pride in the fact that there is someone who is actually paying the government taxes because the shipyard is making a profit.”

This is the second year that the shipyards made a profit since Palumbo was given a 30-year concession in 2010 (see table).

During that time, the shipyards increased the full-time employee headcount from 78 to 150 (55 of them exclusively for the shipyard), a far cry from the thousands employed just a few years before the privatisation. The wage bill – down to just €1.6 million – is an important, if controversial, part of the yards’ business model, maintaining flexibility through the use of subcontracted labour.

Under the terms of the agreement, Palumbo was also obliged to invest €23.5 million in the first five years. As at December 2013, it had invested €17.8 million.

The company will also pay a government fee for €70 million in 30 years plus €18 million for the asset purchase in 10 years. The accounts show that it has already paid €8 million as at 2013 towards the government fee and asset purchase.

‘But 2015 has had an auspicious start...’

Mr Palumbo is upbeat about the prospects for the coming year, in spite of pressure on the price of oil which has resulted in oil companies dramatically cutting their spending – particularly on exploration, and many oil rigs being “mothballed”.

“The market is very fluid at the moment. But we have enough enquiries and enough work. We have worked on over 1,000 ships since we took over, and hosted a handful of rigs in 2014, as well as working on a substantial number of boats offshore too. We might also be starting a project soon on a very large gas-carrying ship,” he said.

“Personally I am very positive. It is not necessarily what we would have chosen as we had to face many unforeseen problems. This has all taken up energy which should have been spent on marketing and looking for new opportunities. But 2015 has had an auspicious start...”

We want to make a long-lasting contribution to the economy, and not just by paying tax, but by leaving a positive impact on the community

He is pragmatic about the price of oil, which more than halved since June but which is now climbing up again.

“This is a market with periodic cycles. We should not make a drama out of it in either a positive or negative sense. We have to be proactive and venture into other areas that are picking up, until the sector recovers,” he said.

“The price has fallen very quickly and could rise again just as quickly. If it stays this low for a whole year, perhaps it would be time to call it a ‘crisis’ but certainly not after just a few months.”

Bloomberg claims that hundreds of rigs will be scrapped as a result of the low cost of oil, but Mr Palumbo does not see that as an area that Malta will compete for.

“This activity is being carried out successfully in the Far East and other Eastern European countries, hence it is more difficult for us to compete as we are operating in a region where the running costs are higher, labour rate is more expensive, the environmental obligations are nothing to compare and we have to ship most of the resultant waste out of the country,” he said.

However, he sees the government’s intention to dedicate Marsa Shipbuilding to oil and gas as being a step in the right direction.

“I have lived – and still live – within a competitive market at an international level. I have nothing to fear from local competition. Quite the contrary, it will push us to improve; it stimulates me.

“It will also put Malta on the map. I always give the example that in Rome, London or Naples, within a few hundred metres, you find a concentration of outlets relating to film or fashion.

“They create their own dynamism. It will be the same with this: the more activity there is in Malta, the better for all of us,” he said.

Palumbo’s yard looks cleaner and more organised with each passing year. At the entrance, floral wreaths were placed against the monument, laid there to commemorate the 20th anniversary of the Um el Faroud explosion, an important reminder to the younger employees about occupational safety, he said.

“I am still not satisfied. We have three objectives: quality; safety; and environment. These are fundamental to our success. We need to improve on all these aspects if we are to compete – especially in the Mediterranean.

“We are still in a very weak position when compared with emerging countries. We have to update our management and procedures, to use our time more efficiently.

“We are also trying to reduce our overheads. We finally, after considerable time, got the permits for a photovoltaic installation which will save us millions of euros – but it is has been almost halved in scope as the EU funds were less than expected.

“One area where we have not made any headway is in the reintroduction of the apprenticeship scheme. We have reached out to the educational institutes – but unfortunately, without success so far.

“We want to make a long-lasting contribution to the economy, and not just by paying tax, but by leaving a positive impact on the community.”