‘Biggest rise in our cost base was in labour market, which remains an employee’s market’ – AX Group CEO

AX Group CEO Michael Warrington on Monday highlighted the growing pressures felt by widespread staff shortages, prompting rises in staff costs.

His comments came as part of AX Group’s 2022 Annual Report, where the group stated that it recorded a €1.3 million pre-tax loss during the year, as it continued to recover from the effects of the COVID-19 pandemic. While revenue increased by eight per cent from the previous year’s figure to €38.3 million, costs also rose significantly, primarily those related to staff, which went up by 39 per cent to €16.3 million.

Founded in 1975 by Chairman Angelo Xuereb as a civil engineering firm, AX Group has since diversified its operations by expanding its business portfolio to also include restoration works, hotels, restaurants, care homes, and other projects.

Mr Warrington said that the start of the financial year was a “somewhat turbulent period” due to a resurgence in COVID-19 cases which carried on into the early part of 2022.

“Thankfully by early summer, business volumes started increasing once again and this trend continued throughout the rest of 2022,” he remarked.

However, 2022 also brought with it a new factor of uncertainty through the war in Ukraine, and while there were indications that Russia was preparing for war, AX Group and Mr Warrington expected “good sense to prevail”, but “sadly it did not”. “The fall-out from the war for AX Group was not on our output side, but on our supplies, with costs of most of our business inputs rising sharply,” he added.

“In the construction and development divisions, the prices of steel, concrete and other building materials rose substantially and remained so for much of the year. In the hospitality and care businesses we saw significant increases in the costs of food and related products. The lockdown in China put further pressure on the timing and cost of deliveries from that part of the world,” he explained.

“However, the biggest rise in our cost base was experienced in the labour market which remains very much an employee market,” Mr Warrington said. Staff shortages are prevailing at “many levels” and is “somewhat restricting operational efficiency” as well as the ability of AX Group’s businesses to “move forward” at the pace that the management wishes.

During the year, AX Group selected more than 500 new staff members that were required for the group’s various projects and operations, primarily those related to the development of the Suncrest Hotel in Qawra.

Despite the “limitations”, he noted that 2022 was a “year of significant change”, and he looks back positively at what the group achieved during the year.

“Our biggest achievement during 2022 was the speed at which we undertook the construction of the Verdala site. I had reported in 2021 that the old hotel was demolished in the latter part of that year. Construction work commenced in earnest in early 2022 following a long period of constructing the foundations for this marvellous building. Works are progressing on site very rapidly,” he remarked.

He added that AX Group is currently undertaking “very significant investments” and the need to strengthen its capital base and to raise funds to finance this investment led to it approaching the stock market during the year. The group had previously consolidated its investment property into a new structure, named Real Estate plc, which was listed on the Malta Stock Exchange in February 2022, during a time when the market was undergoing a “very strong shift”, as inflationary pressures and the war in Ukraine “shifted investor confidence”. He remarked that the market seems to be returning to a “degree of stability” as central banks around the world are regaining control over inflation and supply chains stabilise.

“As we move forward into 2023 and beyond, we are strengthening the group’s managerial and administrative backbone to ensure that we can maximise internal efficiencies and retain the strong momentum we have achieved today,” he said, before expressing gratitude to Mr Xuereb.

Also commenting on the performance, Mr Xuereb said that 2022 was not only characterised by a “significant level of activity, but also by a great deal of strategic focus”. He stated that he is confident that the group’s Verdala Hotel project will be completed and the hotel will be opened in the second quarter of 2024, with its residential apartments being completed before that time.

“I am pleased to state that all our divisions achieved their budgeted revenue targets during 2022. I am also confident that this growth will continue in 2023 and beyond,” he added.

However, he also remarked that AX Group has remained “prudent” in its financial management, as it increases its leverage to finance significant investments. Mr Xuereb confirmed that AX Group continues to search for “new investments and projects” that will help it achieve its growth objectives, which can only be done through “strategic investments in new and innovative projects”. He explained that the group completed a photovoltaic installation on the roofs of the blocks at its Hilltop Gardens Retirement Village, and is “actively studying new possibilities in the renewable energy sector”.

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