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Mercury Group Financial Analysis

111.Mercury

Mercury Towers Ltd acts as Mercury Group’s parent company and also guarantees the bond. Mercury Group is relatively new, with the oldest company within the Group incorporated during 2016. Apart from the parent company, the Group consists of Mercury Projects Finance plc (Issuer) and Mercury Car Park Ltd.

The parent company owns land measuring circa 7,702sqm in St Julian’s, which is currently being developed into a mixed use development ‘Project’ comprising, amongst others, a tower (incl. 279 apartments), a boutique hotel, retail and commercial activity, as well as an underlying car park. The Issuer, issued two bond series during 2019 amounting to €22.5m. Out of this issue, €5.7m were earmarked for bank loans refinancing which was originally used for the acquisition of land, while the remaining proceeds of €16.4m were utilised for investments within the Group’s real estate Project.

FY19 financial results: Realisation of profits from the sale of units

In FY19, the Group reported a revenue figure of €9.0m (FY18: €4.0m). This revenue was generated from the sale of 106 units, which pertains to the airspace of these units within the tower. It is important to note that the development and finishing of these apartments is being performed by another related company which does not form part of the Mercury Group.

In its FY20 Financial Analysis Summary (FAS), the Group explained that during FY19 it experienced delays in constructing the Project. Previous forecasts assumed that by end of FY19, the Group would sell units up to level 29 whereas only contracts until level 17 were entered into by end of FY19. In view of this delay, the Group incurred a loss of €1.4m for 2019.

COVID-19 impact on the Group

Despite the significant impact of the pandemic both on a global and local scale, the Group reported that, to date, it has continued to operate without significant disruptions, even during the more challenging months of the pandemic. In fact, the Mercury Tower is now almost built in shell form, with the commencement of finishing works in Mercury House and in the lower levels of the tower.

Notwithstanding the above, the Group noted that currently certain works are being negatively impacted by restrictions on the availability of imported skilled workforce for specialised work. This may result in the Group experiencing a delay in terms of the Project’s completion date. The Group also noted that the Project may also be affected if local and overseas suppliers and contractors would not be in a position to provide the material and personnel when due.

FY20 Outlook and beyond

The Group is forecasting the sale of an additional 134 units during FY20, therefore number of units remaining for sale after year-end should be 27 units. It is worthy to note that the Guarantor will retain the remaining 12 apartments (total of 279 apartments) as part of its 5-star hotel offering. The Group is still assessing the abovementioned delay and has not yet set a specific opening date for the hotel, although this will be operated by the Group, through a hotel management agreement with an international renowned hotel chain, Meliá.

To date, the Group sold 96% of it forecasted units for sale in FY20, which in total are expected to generate €21.4m revenue. Net of direct and selling costs, the Group expects to generate €6.2m in EBITDA for FY20, translating into an EBITDA margin of 28.8%.

In view of the anticipated improvement of the Group’s financial performance for FY20, the interest cover is expected to improve to 6.2x in FY20. Similarly, the Group expects to lower its gearing (net debt / EBITDA) to 3.6x in FY20.

Based on the expected improvement in the Group’s financial performance, management reported that they do not foresee the need of further financing, however, should the need arise, management confirmed they have in place the necessary banking facilities. Consequently, the Group expects to generate sufficient cash throughout this financial year that should cover all of its financial commitments, including the next bond interest due on 27 March 2021.

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