Wednesday 25 April 2018

Richard Curran: Malin Corp is paying the price for some self-infllicted wounds

Former Malin chief executive Kelly Martin previously received €55m in an exit deal from Elan
Former Malin chief executive Kelly Martin previously received €55m in an exit deal from Elan
Richard Curran

Richard Curran

When Irish people hear the world 'Malin', they think 'North'. But when it comes to Malin Corporation, the listed life sciences firm, so many things seem to be heading south.

The group's annual report, published last week, confirms the scale of severance payoff to its former chief executive Kelly Martin.

Martin had his contract terminated by Malin last September.

Under the terms of his contract, he was entitled to two years' salary plus double last year's bonus. In total, he was due €130,000 in cash plus a total of 765,000 shares in the company. The annual report discloses that Martin agreed to take €3.1m as a cash severance payment in lieu of those shares.

Given that Malin's share price was trading at around €7.70, valuing his severance stock at around €5.8m, his decision to take a lower cash sum might not reflect too well on his view of the future prospects of the company share price.

Martin previously received €55m in an exit deal from Elan Corp in 2013. He took over as chief executive of Malin in 2015. In 2016 he earned a total remuneration of €3m in cash and shares at Malin. Last year he received €91,000 in salary plus the €3.1m in severance deal. His remaining 1.98m shares in Malin are worth around €15.5m.

The company has simply not delivered for shareholders, which includes the State through an investment by the Irish Strategic Investment Fund of around €50m.

The new CEO Adrian Howd wants to cut operating expenses at the group by 33pc to €12m. Non-executive directors are taking a 25pc pay cut.

But the market is not convinced. In the annual report, the new chairman - former PwC managing partner and former Anglo Irish Bank director, Donal O'Connor - emphasised how much has changed. "Our share-price performance in 2017 has been disappointing," he wrote.

He believes the share price has been "significantly misaligned with the progress and value of our assets". Malin, he says, will adopt a more pro-active communications strategy with investors including a CEO quarterly newsletter and an investor day.

That could be interesting.

Malin is also providing an international private-equity valuation compliant valuation of its portfolio. Analysts welcomed this as improving transparency. It is extraordinary it hasn't happened before now.

Malin has invested a net €369m in cash in its investment portfolio. Its fair value estimate of its investee companies is €401m.

Its market capitalisation is €352m. The group reported a loss after tax of €107m last year. One of its bigger investments to date has been acquiring 65pc of Altan, a firm that manufactures injectable medications for hospitals mainly in the Spanish market. It could do with a few performance-enhancing injectables itself, given that it provides the bulk of Malin's revenues - which actually fell last year from €42.1m to €41.9m.

Despite forking out €34.5m for a 65pc stake in the firm, (Malin's second-largest acquisition), its performance and future plans warrant just three paragraphs in the annual report. Another €35m investment was in Nasdaq-listed firm Novan. Malin had a 16pc stake in this business but poor product trial results saw its Nasdaq shares plummet by over 83pc last year. Malin decided not to participate in a fundraising round and so it has been diluted to under 10pc. Its shareholding is valued at €6.7m.

The Malin board had been choc-a-bloc with former Elan directors, from Kelly Martin, Kyran McLaughlin and Kieran McGowan, to O'Connor, the new chairman. McLaughlin left the board late last year. A lead independent non-executive director at Malin earned around €73,000 last year by sitting on various board committees. The chairman's fees were nearly €100,000.

Last year, founder equity and Malin share-based payment charges amounted to €18m, in a business that lost over €100m.

Malin has struggled to find a winning formula so far. Of course, it only needs to get lucky with one of these investments to land something big.

But there are problems with the concept. A listed entity that invests in expensive and high-risk new health products is inevitably going to have some tough days.

Investors knew that went with the territory. But some of Malin's wounds have been self-inflicted.

Online shopping lurks behind College Green Plaza row

The proposal to create a traffic-free plaza at College Green in Dublin has drawn the ire of the city centre retail businesses. And it isn't surprising. Objections have been raised by groups representing retailers like Arnotts and Brown Thomas, claiming as many as 5,000 jobs in retail in the city centre could be lost.

A beautiful open plaza would be a tremendous addition to the city for tourist visitors and those who live close to it. It might well prove a nightmare for others trying to get across the city or for Dubliners considering a shopping trip to town.

But this isn't so much about traffic as it is about the future of retailing. If trends towards online continue, how many jobs will be lost in the city centre anyway?

City centre businesses know they have a battle on their hands, and it isn't just with Blanchardstown and Dundrum where drivers can go and park - it's with online, which has been growing steadily in Ireland.

They know the only way to fight it is by making the shopping experience as enjoyable and hassle-free as possible.

Dublin city centre could become an even bigger attraction for restaurants, cafes and shops selling takeaway sandwiches to office workers with a very continental plaza.

But its future as a retail destination for city dwellers is definitely under threat.

Not quite back to future on job numbers as tax take hits €20bn

It is great news that the number of people working in Ireland has basically returned to 2007 levels. Figures show there were 2.25m people working at the end of 2017, just 12,000 short of the all-time high of 2007.

How much income tax did those workers chip in back in 2007? The answer is €13bn. How much did virtually the same number of workers pay in income tax last year? The answer is €20bn.

It definitely isn't 2007 all over again.

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