2 JANUARY 2002

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Victor Zammit and the Price Club fiasco
Prior to this year, businessman Victor Zammit was known for his involvement in the Birkirkara football club and for his other business activities, which afforded him newspaper headlines every now and then. However, with the emergence of the Price Club fiasco, which left its creditors scrambling for the funds, Zammit undoubtedly became one of the main business newsmakers of 2001. Following is a brief chronology of the debacle’s developments

The Price Club disaster was a devastating blow for the man from Birkirkara, who manages his local football club, and who has now admitted that it was a mistake to have become involved in the supermarket business.

Mr Zammit was on the Board of Directors at the Price Club, but he was a non-executive at the food store chain. In an interview with The Malta Financial and Business Times this year, he told Ray Abdilla that he regretted not being able to involve himself in the daily affairs of the supermarket chain.

After the Price Club debacle he still reiterated that the supermarket industry in Malta had to change to survive. However, he insisted that the problems that the Price Club faced were mainly related to financing, management and anomalies in the supply chain which exist only in Malta.

The Price Club chain once generated one of the largest turnovers in Malta - over Lm22 million. The business concept, in the beginning, was based on huge discounts. The new management which took over the chain in 1998 tried to change the objective of the business from one based only on discounts to one of ‘better service’. This plan which required substantial capital to materialise - like changing the product mix and the actual layouts of the stores - could not be finalised due to the inability to raise the necessary financing from local institutions. Moreover, the information technology supporting the business when the new management took over three years ago was non-existent and investment had to be made in this area as well. Hence, the financial strain of these investments had a negative result on the normal trading.

In January of this year rumours already had it that the Price Club was in dire straits and was having trouble with the creditors. But things looked more promising when less than a month later, Price Club Supermarkets were in the process of extending their chain by another two, opening one in Naxxar and another in Attard. Contrary to rumours that the Price Club chain was not doing well, the management had said that it was in line to expand the services in Malta and Gozo.

But after a couple of months many food stores suppliers were complaining that the Price Club’s debts were piling up.

There was talk that a foreign buyer could step in and rescue the ailing business – discussions about the possibility of a take-over with two major companies, one English and the other one from Libya were ongoing. The GRTU announced itself as totally against selling the Price Club to a foreign firm. The association also said that it had long been warning the government to keep a close watch over what was happening at the Price Club as the company obtained an ever-growing dominant share in the market.

Rumours of problems were then confirmed when the General Workers’ Union announced in a statement that up to 400 workers had been told that their employment was being terminated.

Meanwhile the UHM quoted the company as telling the union that it had been forced to sack the workers despite all the efforts it had made to overcome the financial difficulties it found itself in.

In July a newly-set-up creditors’ committee said that a large number of businesses and individuals are owed money by Price Club - money which is owed to them as a result of normal trading transactions and which is now well overdue for settlement. The impact on these businesses and individuals as a result of this situation was serious and should not be underestimated, they warned.

Their worst fears were realised when the directors told creditors that they could no longer honour their financial obligations and that Price WaterhouseCoopers were to investigate the true state of its finances. It was revealed that the supermarket giant owed its trade creditors Lm8.5 million.

Meanwhile, talks with the Libyan company LAFICO continued in the hope that a take-over could still happen.

However, nothing happened, and, in September, the creditors’ patience was running out. They voted to give the owners of the supermarket chain a 3 October deadline for concrete proposals and what the creditors call a "workable solution".

The news was then announced that the Italian Company Novacom had agreed with the Price Club directors to buy a majority stake in the supermarket chain. Although the creditors appeared interested in the offer, when it failed to materialise, they asked the courts to appoint a liquidator with a view to filing their cases in court.

Some, however, still wanted to give Novacom director, Giorgio Petricich, a bit more time in the hope that he would make a firm guarantee over what they were owed.

This didn’t materialise and in the last weeks of the year, more creditors filed cases against the Price Club directors and even PriceWaterHouse Coopers.

Mr Zammit is involved in other profit-making companies but his main activity and base is at Biochemicals Int. Ltd. At first, catered only for the local market but over the years it developed own brands, which are now being exported to over 40 different countries. The Men Only and Action Replay brands are now well established in important markets. The impact of this expansion on the overseas markets necessitated a growth in its operations. The MaIta Development Corporation allocated another factory to the company last year. Infrastructural works have now been completed and the new machinery will be installed in the coming months. Hopefully, the factory will be fully functional by early next year.

He is also the Chairman of the Birkirkara football club, which he took over in 1996, and had planned a five-year strategy which he still believes has worked well. Birkirkara FC today is established as one of the main clubs on the Islands.

The Business Times, Network House, Vjal ir-Rihan San Gwann SGN 07
Tel: (356) 382741-3, 382745-6 | Fax: (356) 385075 | e-mail: editorial@networkpublications.com.mt