485100D7B8FYJ8Q4CR24 2021-11-01 2022-10-31 485100D7B8FYJ8Q4CR24 2020-11-01 2021-10-31 485100D7B8FYJ8Q4CR24 2022-10-31 485100D7B8FYJ8Q4CR24 2021-10-31 485100D7B8FYJ8Q4CR24 2020-10-31 ifrs-full:IssuedCapitalMember 485100D7B8FYJ8Q4CR24 2020-10-31 ifrs-full:SharePremiumMember 485100D7B8FYJ8Q4CR24 2020-10-31 ifrs-full:RevaluationSurplusMember 485100D7B8FYJ8Q4CR24 2020-10-31 ext:OtherReservesExcludingRevaluationSurplusMember 485100D7B8FYJ8Q4CR24 2020-10-31 ext:CapitalContributionReserveMember 485100D7B8FYJ8Q4CR24 2020-10-31 ifrs-full:RetainedEarningsMember 485100D7B8FYJ8Q4CR24 2020-10-31 485100D7B8FYJ8Q4CR24 2020-11-01 2021-10-31 ifrs-full:IssuedCapitalMember 485100D7B8FYJ8Q4CR24 2020-11-01 2021-10-31 ifrs-full:SharePremiumMember 485100D7B8FYJ8Q4CR24 2020-11-01 2021-10-31 ifrs-full:RevaluationSurplusMember 485100D7B8FYJ8Q4CR24 2020-11-01 2021-10-31 ext:OtherReservesExcludingRevaluationSurplusMember 485100D7B8FYJ8Q4CR24 2020-11-01 2021-10-31 ext:CapitalContributionReserveMember 485100D7B8FYJ8Q4CR24 2020-11-01 2021-10-31 ifrs-full:RetainedEarningsMember 485100D7B8FYJ8Q4CR24 2021-10-31 ifrs-full:IssuedCapitalMember 485100D7B8FYJ8Q4CR24 2021-10-31 ifrs-full:SharePremiumMember 485100D7B8FYJ8Q4CR24 2021-10-31 ifrs-full:RevaluationSurplusMember 485100D7B8FYJ8Q4CR24 2021-10-31 ext:OtherReservesExcludingRevaluationSurplusMember 485100D7B8FYJ8Q4CR24 2021-10-31 ext:CapitalContributionReserveMember 485100D7B8FYJ8Q4CR24 2021-10-31 ifrs-full:RetainedEarningsMember 485100D7B8FYJ8Q4CR24 2021-11-01 2022-10-31 ifrs-full:IssuedCapitalMember 485100D7B8FYJ8Q4CR24 2021-11-01 2022-10-31 ifrs-full:SharePremiumMember 485100D7B8FYJ8Q4CR24 2021-11-01 2022-10-31 ifrs-full:RevaluationSurplusMember 485100D7B8FYJ8Q4CR24 2021-11-01 2022-10-31 ext:OtherReservesExcludingRevaluationSurplusMember 485100D7B8FYJ8Q4CR24 2021-11-01 2022-10-31 ext:CapitalContributionReserveMember 485100D7B8FYJ8Q4CR24 2021-11-01 2022-10-31 ifrs-full:RetainedEarningsMember 485100D7B8FYJ8Q4CR24 2022-10-31 ifrs-full:IssuedCapitalMember 485100D7B8FYJ8Q4CR24 2022-10-31 ifrs-full:SharePremiumMember 485100D7B8FYJ8Q4CR24 2022-10-31 ifrs-full:RevaluationSurplusMember 485100D7B8FYJ8Q4CR24 2022-10-31 ext:OtherReservesExcludingRevaluationSurplusMember 485100D7B8FYJ8Q4CR24 2022-10-31 ext:CapitalContributionReserveMember 485100D7B8FYJ8Q4CR24 2022-10-31 ifrs-full:RetainedEarningsMember iso4217:EUR iso4217:EUR xbrli:shares
Registration number C 92104
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate
Financial Statements
For the year-ended 31 October 2022
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
Contents
Page
Directors, Officers and Other Information
1
Directors’ Report
2 – 6
Statement of Directors’ Responsibilities
7
Corporate Governance – Statement of Compliance
8 – 11
Remuneration Report
12 – 13
Statements of Profit or Loss and Other Comprehensive Income
14
Statements of Financial Position
15
Statements of Changes in Equity
16 – 17
Statements of Cash Flows
18
Notes to the Financial Statements
19 – 53
Independent Auditor’s Report
54 – 62
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
1
Directors, Officers and Other Information
Registration:
AX Real Estate p.l.c. (formerly AX REAL ESTATE LIMITED) was registered in Malta as a Liability Company under the Companies Act, Cap. 386 of the Laws of Malta on 6 June 2019, with the registration number C 92104.
Directors:
Mr Angelo Xuereb
Ms Denise Xuereb
Mr Michael Warrington (appointed 23 rd November 2021)
Dr Christian Farrugia (appointed 23 rd November 2021)
Mr Joseph Lupi (appointed 23 rd November 2021)
Mr Christopher Paris (appointed 23 rd November 2021)
Mr Stephen Paris (appointed 23 rd November 2021)
Secretary:
Dr David Wain
Registered office:
AX Group
AX Business Centre
Triq id-Difiza Civili
Mosta, MST 1741
Malta
Country of incorporation:
Malta
Company registration number:
C 92104
Auditors:
Ernst & Young Malta Limited
Regional Business Centre
Achille Ferris Centre
Msida, MSD 1751
Malta
Principal bankers:
Bank of Valletta p.l.c.
Labour Avenue
Naxxar
Malta
Legal adviser:
Dr David Wain
AX Group
AX Business Centre
Triq id-Difiza Civili
Mosta, MST 1741
Malta
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
2
Directors’ Report
The Directors present their annual report and the audited financial statements of AX Real Estate p.l.c. (formerly AX REAL ESTATE LIMITED) (“the Company”) and its subsidiaries (collectively, “the Group” or “the Estates Group”) for the year-ended 31 October 2022.
Principal activities
The Company acts as the holding company of the Estates Group within the AX Group p.l.c. group of companies (“the AX Group”). The Estates Group is involved in the letting of a diverse portfolio of real estate to subsidiary companies of AX Group p.l.c. and third parties.
Performance review
Company
During 2021, the AX Group went through a reorganisation exercise, with the ultimate aim of consolidating the main property letting activities of the AX Group into one newly formed division under AX Real Estate p.l.c. (formerly AX REAL ESTATE LIMITED) and thus forming the Estates Group.
The Board resolved to approve the change in status of the Company from a Private Limited Liability Company to a Public Limited Liability Company also during 2021. As a result, the Company’s name was changed from AX Real Estate Limited to AX Real Estate p.l.c. with effect from 23 November 2021.
On 23 November 2021, the issued share capital of AX Real Estate p.l.c. was increased by EUR12,450,000 though a bonus issue of 99,600,000 ordinary ‘A’ shares of a nominal value of EUR0.125 each in favour of the-then Existing Shareholders, by virtue of the capitalisation of retained earnings. On 30 November 2021, the Company issued 150,000,000 ordinary ‘B’ shares of a nominal value of EUR0.125 each and EUR0.2084 per share in share premium in favour of AX Group p.l.c. by virtue of the capitalisation of a loan due to AX Group p.l.c. amounting to EUR50,000,000.
In January 2022, the Company obtained a sanction letter from a local credit institution for a Loan Facility amounting to EUR15,000,000 which has been provided to enable the Group to further support its initial costs related to the extension of the Suncrest Hotel in Qawra and for the redevelopment of the Verdala Hotel site in Rabat. The Loan Facility is repayable in full within 2 years from the date of the first drawdown.
In February 2022, the Company was listed on the Malta Stock Exchange, with 25% of the ordinary ‘A’ shares being taken up by the general public. Through this transaction, the Company raised EUR13,648,644. In conjunction with the share issue, the Company also issued EUR40,000,000 unsecured bonds redeemable in 2032. The general public subscribed to EUR18,354,600 bonds whilst the remaining EUR21,645,400 bonds were allocated to AX Group p.l.c. through the part conversion of the existing intra-group loan with the Company. These bonds are unsecured and subject to the terms and conditions in the prospectus dated 6 December 2021.
The Company received dividends of EUR10.8 million (2021: EUR17 million) from its subsidiaries and recognised an increase in the fair value of its investment property, the warehouses at Hardrocks Business Park and the Falcon House offices, of EUR1,033,961 (2021: EUR3,824,451). The Company’s profit before tax amounted to EUR10,411,386 (2021: EUR20,974,082).
Group
The Group was formed in October 2021 following the reorganisation mentioned above. As a result, the performance of the Group in 2021 represented the results of the Company for the year and that of the subsidiaries as from the acquisition dates of when the Company acquired control of the subsidiaries (Note 4). On completion of the reorganisation, the Group entered into long-term lease agreements of 20 years with the respective operating companies of the AX Group responsible for the operation of the relevant properties.
The financial year ended 31 October 2022 represents the first full year results of the Group since it was formed. The Group generated EUR8,909,902 in revenue which consists of EUR8,155,774 in rental income from the lease of the Group’s investment properties and EUR754,128 in sales of property, representing the sale of the remaining apartments at Targa Gap Complex in Mosta. The new office development at Falcon House in Sliema as well as the remaining offices at AX Business Centre in Mosta were fully taken up by third parties during the year.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
3
Directors’ Report – continued
Performance review – continued
The Group recognised an increase in the fair value of its investment properties of EUR2,787,449 (2021: a decrease of EUR23,720,268) reflecting new lease agreements entered into and changes to the existing lease agreements. The decrease in 2021 arose following the-then new lease agreements entered into by the Group since the property values are established through the discounting of rental income over the specific projected period and a discounted terminal value. Such movements in the fair value that arise from the restrictions imposed by the lease agreements with related parties within the AX Group are then fully reversed in the AX Group consolidated financial statements, where such investment properties are shown as own use properties under property, plant and equipment.
In February 2022, the Group obtained the full development permit for the redevelopment of the Suncrest Lido in Qawra. This was another important milestone for the Group to ensure that the Suncrest extension and Lido redevelopment (Phase 1 of the Qawra redevelopment) are delivered within the stipulated time frames. Works at Suncrest are progressing at a steady pace and it is expected that the hotel will reopen by May 2023 as planned. By the end of October, the foundations of the Verdala Hotel in Rabat were at an advanced stage.
Finance costs amounted to EUR3,288,902 (2021: EUR62,645), which mostly comprise interest due to related parties, interest on the above-mentioned bond and interest on bank loans.
The Group’s profit before taxation for the year amounted to EUR7,061,725 (2021: loss before tax for the period of EUR23,073,286).
As at year-end, the Group’s net assets stood at EUR142,032,510 (2021: EUR78,698,042). The increase is mainly attributable to the capitalisation of the loan due to AX Group p.l.c. amounting to EUR50,000,000 and the listing of new shares on the Malta Stock Exchange as mentioned above. The Group’s balance sheet remains sound with a gearing ratio of 43.6%.
As at date of reporting, all properties owned by the Group are fully taken up and leased for periods between 6 months to 20 years. In addition, the positive recovery experienced in the tourism industry augurs well for the Group in achieving the budgeted rental income from its hotels in the forthcoming year. Despite the positive trajectory projected, Directors and management are cautiously monitoring the situation to ensure a sustainable growth as well as a healthy performance.
Financial key performance Indicators
Group Company
*The Group measures Adjusted Earnings before Interest, Tax, Depreciation and Amortisation (“Adjusted EBITDA”) as operating profit/(loss) after adjusting for gain/(loss) on revaluation of investment properties. This key performance indicator is not defined by International Financial Reporting Standards but can be directly calculated with reference to the Statement of Profit or Loss.
Year ended
Year ended
Year ended
Year ended
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Revenue
8,909,902
796,597
11,386,724
17,281,793
Adjusted EBITDA*
7,548,266
709,627
10,694,148
17,149,631
Operating profit/(loss)
10,335,715
(23,010,641)
11,728,109
20,974,082
Profit/(loss) after tax
3,597,510
(21,158,728)
7,083,365
20,011,987
Basic earnings/(loss) per share
0.01
(0.09)
Total equity and liabilities
286,863,726
238,228,197
178,364,864
139,547,748
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
4
Directors’ Report – continued
Going concern
Having made an appropriate assessment of going concern as discussed in Note 2.1 to these financial statements, the Directors, at the time of approving these financial statements, have determined that there is reasonable expectation that the Group has adequate resources to continue operating for the foreseeable future and will meet its financial obligations as and when they fall due. For this reason, these financial statements have been prepared on a going concern basis.
Principal risks and uncertainties
The Company is exposed to risks inherent to its operation and can be summarized as follows:
1.Strategy risk
Risk management falls under the responsibility of the Board of Directors. The Board is continuously analysing its risk management strategy to ensure that risk is adequately identified and managed. The Audit Committee regularly reviews the risk profile adopted by the Board of Directors.
2.Operational risks
The Company’s revenue is mainly derived from rental income charged to related parties and hence the Company is heavily dependent on the performance of the AX Group. The Company regularly reviews the financial performance of the AX Group of companies to ensure that there is sufficient liquidity to sustain its operations.
3. Legislative risks
The Company is governed by a number of laws and regulations. Failure to comply could have financial and reputational implications and could materially affect the Company’s ability to operate. The Company has embedded operating policies and procedures to ensure compliance with existing legislation.
Financial risk management and exposures
Note 33 to the financial statements provides a detailed analysis of the financial risk to which the Company is exposed.
Dividends and reserves
A net interim dividend of EUR0.0125 per ordinary share equivalent to EUR3,429,209 was declared during the year. The Directors do not recommend payment of a final dividend.
As per the Registration Document dated 6 December 2021, it is the Group’s intention to pay out the majority of the Group’s distributable profits earned during the year, provided that a minimum balance of EUR1 million in cash is retained within the Group at any given time. The interim dividend referred to above was paid in July 2022 in line with the indication given in the above-mentioned registration document. The extent of any dividend distribution will depend upon, amongst other factors, the profit for the year, the Directors’ view on the prevailing market outlook, financial projections and forecasts, any debt servicing and repayment requirements, financial covenants and other restrictions contained in its facilities and other credit arrangements, the cash flows for the Company, working capital requirements, capital investment commitments and other investment opportunities and the requirements of the of the Companies Act, Cap. 386 of the Laws of Malta.
Events after the reporting period
In January 2023, Suncrest Hotels p.l.c., a subsidiary of the Company, obtained a sanction letter from a local financial institution for a Loan Facility amounting to EUR30,500,000 which has been provided to enable the Group to further support its costs related to the extension of the Suncrest Hotel in Qawra and Lido redevelopment. The Loan Facility bears interest of 4.25% p.a. and the outstanding loan amount is repayable over 15 years from the date of the first drawdown, inclusive of a 12-month moratorium period.
In January 2023, the Company declared an interim dividend amounting to EUR3,429,209, in line with the indication given in the above-mentioned registration document.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
5
Directors’ Report - continued
Directors
In accordance with the Company’s Articles of Association, the present Directors remain in office. The Directors who held office during the year were as listed on page 1.
Information pursuant to Capital Markets Rule 5.64
The authorised share capital of the Company is EUR500,000,000 divided into 2,000,000,000 ordinary ‘A’ shares of a nominal value of EUR0.125 each, and 2,000,000,000 ordinary ‘B’ shares of a nominal value of EUR0.125 each. The issued share capital of the Issuer is EUR34,292,087.50 divided into 97,193,600 ordinary ‘A’ shares of a nominal value of EUR0.125 each, and 177,143,100 ordinary ‘B’ shares of a nominal value of EUR0.125 each, subscribed for, allotted and taken up as follows:
AX Group p.l.c.
(C 12271)
-72,854,900 ordinary ‘A’ shares of a nominal value of EUR0.125 each, fully paid-up, and
-177,143,100 ordinary ‘B’ shares of a nominal value of EUR0.125 each, fully paid-up
AX Finance Limited
(C 6867)
-2,000 ordinary ‘A’ shares of a nominal value of EUR0.125, fully paid-up,
Shares in public hands
-24,336,700 ordinary ‘A’ shares of a nominal value of EUR0.125, fully paid-up
The Company’s share capital is divided into two classes of shares, specifically, ordinary ‘A’ shares and ordinary ‘B’ shares. Ordinary ‘A’ shares and ordinary ‘B’ shares will entitle holders thereto the same rights, benefits and powers in the Company, save that ordinary ‘B’ shares shall not entitle their holders to vote on any matter at any general meeting of the Company, save in the following instances:
(i)in respect of a resolution which has the effect of reducing the capital of the Company;
(ii)in respect of a resolution for the winding up of the Company; and
(iii)in respect of a resolution which has the effect of directly affecting the rights and privileges of ordinary ‘B’ shareholders.
The shares are freely transferable in accordance with the rules and regulations of the Malta Stock Exchange applicable from time to time.
On the basis of the information available to the Company as at 31 October 2022, no shareholder other than AX Group p.l.c. has direct or indirect shareholding in excess of 5% of the Company’s total issued share capital.
Every shareholder owning twelve per cent (12%) of the issued share capital of the Company having voting rights or more shall be entitled to appoint one Director for each and every twelve per cent (12%) of the issued share capital of the Company having voting rights owned by such shareholder and such shareholder may remove, withdraw or replace such Director at any time. Any appointment, removal, withdrawal or replacement of a Director to or from the Board of Directors shall take effect upon receipt by the Board of Directors or the Company secretary of a notice in writing to that effect from such shareholder. Any shares of the Company having voting rights not utilised for appointment of Directors may be used to fill the remaining unfilled posts of Directors at the annual general meeting of the Company or at an extraordinary general meeting convened for the purpose of electing Directors.
The rules governing the appointment, election or removal of Directors are contained in the Company’s Articles of Association, Articles 84 to 87.3. A resolution approved by the shareholders in a general meeting in which shareholders holding at least seventy-five percent (75%) of the shares of the Company having voting rights are present is required to amend the Articles of Association.
The Chairman is appointed by the shareholder holding at least fifty percent (50%) of the shares of the Company having voting rights.
The powers and duties of Directors are outlined in Articles 82 to 121 of the Company’s Articles of Association. In terms of Article 22 of the said Articles of Association, the Company may, subject to the provisions of the Maltese Companies Act, 1995 acquire any of its shares.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
6
Directors’ Report - continued
Information pursuant to Capital Markets Rule 5.64 - continued
It is hereby declared that, as at 31 October 2022, the Company is not party to any significant agreement pursuant to Capital Markets Rule 5.64.10 and 5.64.11.
Furthermore, the Board declares that the information required under Capital Markets Rules 5.64.5 and 5.64.7 are not applicable to the Company.
Statement of responsibility pursuant to the Capital Markets Rules of the Malta Financial Services Authority
The Directors confirm that, to the best of their knowledge:
The financial statements give a true and fair view of the financial position of the Group and the Company as at 31 October 2022, and of the financial performance and the cash flows for the year then ended in accordance with the requirements of the International Financial Reporting Standards (IFRSs) as adopted by the EU and the requirements of the Companies Act, Cap. 386 of the Laws of Malta; and
In accordance with the Capital Markets Rules, the Directors' Report includes a fair review of the development and performance of the business and the position of the Group and the Company, together with a description of the principal risks and uncertainties that the Group and the Company face.
Auditors
Ernst & Young Malta Limited have expressed their willingness to continue in office and a resolution for their re-appointment will be proposed at the Annual General Meeting.
Approved by the Board of Directors and signed on its behalf on 27 February 2023 by Mr Angelo Xuereb (Chairman) and Ms Denise Xuereb (Chief Executive Officer) as per the Directors’ Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report 2022.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
7
Statement of Directors’ Responsibilities
The Directors are required by the Companies Act (Chap. 386) to prepare financial statements in accordance with International Financial Reporting Standards as adopted by the EU which give a true and fair view of the state of affairs of the Company at the end of each financial year and of the profit or loss of the Company for the year then ended. In preparing the financial statements, the Directors should:
-adopt the going concern basis unless it is inappropriate to presume that the Company will continue in business;
-select suitable accounting policies and apply them consistently;
-make judgements and estimates that are reasonable and prudent;
-account for income and charges relating to the accounting period on the accruals basis;
-value separately the components of asset and liability items; and
-report comparative figures corresponding to those of the preceding accounting period.
The Directors are responsible for ensuring that proper accounting records are kept which disclose with reasonable accuracy at any time the financial position of the Company and which enable the Directors to ensure that the financial statements comply with the Companies Act (Chap. 386). This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. The Directors are also responsible for safeguarding the assets of the Company, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
8
Corporate Governance – Statement of Compliance
Pursuant to Capital Markets Rule 5.97 issued by the Malta Financial Services Authority, AX Real Estate p.l.c. (formerly AX REAL ESTATE LIMITED) (“the Company”) is hereby reporting on the extent of its adoption of “the Code of Principles of Good Corporate Governance” (“the Code”) previously established by the Malta Stock Exchange. The Board has reviewed its Corporate Governance practices and an explanation of how the Principles of Good Governance have been applied is contained in this report.
The Company acts as the holding company of the Estates Group within the AX Group of Companies. The Company holds a number of warehouses and office buildings which it rents out. Its primary function is the funding of the Group as and when the demands of its business so require, and accordingly is economically dependent on the subsidiaries.
Compliance
Although the adoption of the Code is not mandatory, the Board has considered the principles embodied in the Code and has noted the Code’s recommended practices aimed towards the fulfilment of these same principles. The Board has also taken into account the nature of the Company’s structure, business activities and operations and in the light of such considerations it has formulated the view that the Company was generally in compliance with the Code throughout the period.
The Board
The Board of Directors of AX Real Estate p.l.c. (“the Board”) is currently made up of seven Directors, three of whom are independent from the Company or any related Group Company. Pursuant to generally accepted practices, as well as the Company’s Articles of Association, the appointment of Directors to the Board is reserved exclusively to the Company’s shareholders.
The present Directors are Mr Angelo Xuereb, Ms Denise Xuereb, Mr Michael Warrington, Dr Christian Farrugia, Mr Joseph Lupi, Mr Christopher Paris and Mr Stephen Paris. Messrs Farrugia, Lupi and S. Paris are independent non-executive directors. In the opinion of the Board, the independent non-executive directors are free from any significant business, family or other relationship with the Group, its shareholders or its management that would create a conflict of interest such as to impair their judgement.
Mr Angelo Xuereb has been appointed as Chairman of the Board and Ms Denise Xuereb as the Chief Executive Officer of the Company.
The Board acknowledges its statutory mandate to conduct the administration and management of the Company. The Board’s functions are governed by Chapter 5 of the Capital Markets Rules and the Code of Corporate Governance for Listed entities.
The Board is also responsible for ensuring that the Company installs and operates effective internal control and management information systems and that it communicates effectively with the market.
The Board met eight times during the year under review. The Board has a formal schedule of matters reserved to it for decision. Directors receive board and committee papers 10 days in advance of meetings and have access to the advice and services of the Company Secretary. Directors may, in the furtherance of their duties, take independent professional advice on any matter at the Company’s expense.
The Company, due to its continuous oversight and communication with its shareholders, has not established a performance evaluation committee chaired by a non-executive Director in order to carry out a performance evaluation of its role.
Mr Angelo Xuereb indirectly, through AX Group p.l.c., holds a controlling interest in the Company. Mr Michael Warrington holds the position of Group Chief Executive Officer with the majority shareholder AX Group p.l.c., whereas Ms Denise Xuereb holds directorship positions within other entities in the AX Group. Mr Christopher Paris holds a non-executive directorship position with AX Group p.l.c.
The Company’s management ensures that it provides Directors with relevant information to enable them to effectively contribute to Board decisions. All Directors have access to independent financial advice at the expense of the Company should they require.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
9
Corporate Governance – Statement of Compliance – continued
Audit Committee
The Committee is chaired by Mr Stephen Paris, and its other members are Dr Christian Farrugia and Mr Christopher Paris. As described above, all three Directors forming the audit committee are non-executive Directors and the majority of its members are independent from the Company or the AX Group of Companies. Mr Stephen Paris is considered by the Board to be competent in accounting and, or auditing in terms of the Capital Markets Rules.
The Company Secretary acts as secretary to the committee which also receives the assistance of the Group Chief Executive Officer; Ms Denise Xuereb, and the Chief Financial Officer; Mr Joseph Borg. The Audit Committee met six times during the year under review.
Remuneration and Nomination Committee
The Remuneration and Nomination Committee (the “RemNom Committee”) is composed of Dr Christian Farrugia (Chairperson), Mr Michael Warrington and Mr Joseph Lupi. Dr Farrugia and Mr Lupi are independent non-executive Directors.
In its function as remuneration committee, the RemNom Committee is charged with the oversight of the remuneration policies implemented by the Group with respect to its senior management. Its objectives are those of determining a remuneration policy aimed to attract, retain and motivate directors, whether executive or non-executive, as well as senior management with the right qualities and skills for the benefit of the Company. It is responsible for making proposals to the Board on the individual remuneration packages of directors and senior management and is entrusted with monitoring the level and structure of remuneration of the non-executive directors. In addition, the RemNom Committee is responsible for reviewing the performance-based remuneration incentives that may be adopted by the Company from time to time, and is authorised to determine whether a performance-based bonus or other incentive should be paid out or otherwise.
In its function as nomination committee, the RemNom Committee’s task is to propose to the Board of Directors candidates for the position of director, including persons considered to be independent in terms of the Capital Markets Rules, whilst also taking into account any recommendation from shareholders. It is to periodically assess the structure, size, composition and performance of the Board of Directors and make recommendations to the Board of Directors regarding any changes, as well as consider issues related to succession planning. It is also entrusted with reviewing the Board of Directors’ policy for selection and appointment of senior management.
The RemNom Committee was formed during the year and had not met by the reporting date. The Directors and Executives were appointed prior to the listing of the Company and prior to the formation of the RemNom Committee. Their remuneration for the year had no variable components. No nominations were received from the Company’s members for directors’ nomination by the deadline of the 17 th June 2022. The Directors were all re-appointed at the Annual General Meeting held during the year.
Given that every Director retires from office at the Annual General Meeting, the Company does not consider it necessary to have in place a succession policy. However, the recommendation to have in place such a policy will be kept under review.
Dealings by Directors and Senior Officers
Conscious of its responsibility for monitoring dealings by Directors and senior officers in the Company’s securities, the Board approved a Code of Conduct for Securities Transactions by Directors, Executives and Employees in compliance with Capital Markets Rules 5.102 to 5.116. The Code provides guidance to the Company’s officers and serves as a minimum standard of good practice when dealing in the Company’s securities. Each Director has declared their interest in the share capital and debt securities of the Company to the other members of the Board. In accordance with the provisions of the Articles of Association of the Company, any actual, potential or perceived conflict of interest must be immediately declared by a director to the other members of the Board. In the event that the Board perceives such interest to be conflicting with the Director’s duties, the conflicted director is required to leave the meeting and both the discussion on the matter and the vote, if any, on the matter concerned, are conducted in the absence of the conflicted director.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
10
Corporate Governance – Statement of Compliance – continued
Internal Control
The Board is ultimately responsible for the Company’s system of internal control and for reviewing its effectiveness. However, such a system is designed to manage rather than eliminate the risk of failure to achieve objectives, and can provide only reasonable, and not absolute, assurance against material misstatement or loss.
A policy is in place, laying down the minimum required reports that should be made available to the Board in order to keep it informed in a structured and systematic manner on the operational and financial performance of the Company.
Risk Identification
Management is responsible for the identification and evaluation of key risks applicable to their areas of business. Risks may be associated with a variety of internal or external sources including control breakdowns, disruption in information systems, competition, natural catastrophe and regulatory requirements. The Board is responsible to review its risk management policies and strategies and oversee their implementation to ensure that identified operational risks are properly assessed and managed.
Relations with Shareholders and with the Market, including Institutional Shareholders
The Company recognises the importance of maintaining a dialogue with its stakeholders to ensure that its strategies and performance are understood. The Company communicates with bondholders and shareholders by way of the Annual Report and Financial Statements and by publishing its results on a six-monthly basis during the year, and through company announcements to the market in general.
The Board has also implemented an Investor Relations Program, which aims at giving Bond and Equity holders rewards to be used within the AX Group to foster loyalty. This program, which is managed by AX Group p.l.c. executives, includes the issue of the AX Investors Loyalty Card and the periodic dissemination of the AX Group Newsletter.
The Board endeavours to protect and enhance the interests of both the Company and its shareholders, present and future. The Chairman ensures that the views of shareholders are communicated to the Board as a whole. The Board ensures fair and equal treatment towards holders of each class of capital and ensures that any decisions take into account the interests of future shareholders as well.
The Company also communicates with its shareholders through the Company’s Annual General Meeting (“the AGM”).
General Meetings
The manner in which the general meeting is conducted is outlined in Articles 71-81 of the Company’s Articles of Association, subject to the provisions of the Companies Act.
The Annual General Meeting of the shareholders shall be convened within seven months of the end of the financial year. During the AGM the members will confirm the annual financial statements, the directors’ and auditors’ reports for the year, decide on any dividends recommended by the board, if necessary; elected directors, appoint auditors and set their remuneration. A presentation will be given to the shareholders present showing how the company operated in the light of prevailing economic and market conditions, and an assessment on future prospects will be given. The Chairman arranges for all directors to attend the Annual General Meeting.
In addition, and in terms of Article 73 of the Articles of Association of the company, the board of directors may convene an extraordinary general meeting. If at any time there are not in Malta sufficient Directors capable of acting to form a quorum of the Board, the Directors in Malta capable of acting, or if there are no Directors capable and willing to act, any Member or Members of the Company holding in aggregate not less than five per cent (5%) of the Equity Securities conferring a right to attend and vote at general meetings of the Company, may convene an extraordinary general meeting in the same manner, as nearly as possible, as that in which Meetings may be convened by the Directors.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
11
Corporate Governance – Statement of Compliance – continued
General Meetings – continued
Adequate notice of general meetings must be given to shareholders as outlined in Articles 74 of the company’s Articles of Association.
All shareholders registered in the Shareholders’ Register on the Record Date as defined in the Capital Markets Rules have the right to attend, participate and vote in the general meeting. A shareholder who cannot participate in the general meeting can appoint a proxy by written or electronic notification to the company.
Corporate Social Responsibility
The Company is conscious of its responsibility towards the society in which it operates. It promotes environmentally friendly measures such as the reduction in the Company’s carbon footprint as well as encourages its employees to lead a healthy and active lifestyle.
Furthermore, the AX Foundation, which is the charitable arm of the Group, is devoted to supporting people living with invisible disabilities, with its primary focus being on the autism spectrum. AX Foundation was originally founded in 2006 to provide support to people who are going through social, mental or physical difficulties. Along the years AX Foundation has supported numerous other NGOs.
Approved by the Board of Directors on 27 February 2023 and were signed on its behalf by Mr. Angelo Xuereb (Chairman) and Ms. Denise Xuereb (Chief Executive Officer) as per Directors’ Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report 2022.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
12
Remuneration Report
Remuneration Policy
The Remuneration Committee have prepared a Remuneration Policy that will be submitted for shareholders’ approval during the upcoming AGM later this year. The proposed Remuneration Policy will seek to deliver and retain a fair and transparent remuneration for the Board of Directors, including the Company Secretary and the incumbent Chief Executive Officer and Chief Financial Officer of the Company (the ‘Executives’) with a view towards aligning the best interests of all stakeholders whilst safeguarding the interests and sustainability of the Company.
In order to achieve these strategic objectives, the proposed Remuneration Policy will provide a remuneration framework that defines the principles and guidelines to be applied in determining the remuneration to be paid to the Board and the Executives.
In general, to establish remuneration appropriately the RemNom Committee shall be guided by the extent of responsibilities and experience of the individual concerned.
The proposed Remuneration Policy, shall establish an appropriate remuneration to the individual Directors and Executives and shall consider the following factors:
I.The expectation that Directors and Executives are to be appropriately dedicated to their role;
II.The time, commitment and dedication required by Directors and Executives in accordance with their duties and the affairs of the Company; and
III.The provision of a fair, attractive, and competitive remuneration, benefits, and conditions, that are commensurate to the level of experience, expertise, qualifications, professional status and responsibilities of the appointed Directors and Executives.
The emoluments payable to the Board refer to the total fixed remuneration of the Directors.
In order to manage conflict of interest, the individual Directors appointed as members of the RemNom Committee shall not be present when his/her appointment, remuneration or other matters relating to him/her are being discussed by the RemNom Committee. If the member absenting himself/herself from such discussions relating to him/her is the Chairperson, another member of the RemNom Committee shall chair the meeting during the Chairperson’s absence.
The RemNom Committee shall on annual basis ensure that the said Emolument remains commensurate with the performance of the individual concerned, as well as market conditions.
The duration of service of Directors is regulated by the Articles of Association of the Company. Directors are appointed to the Board of Directors by the shareholders at a general meeting and shall hold office until the next general meeting. The appointment of Executives is subject to employment laws and regulations. The engagement of both Directors and Executives are governed by a written engagement contract clearly setting out the duties, roles, responsibilities and remuneration.
Remuneration paid to Directors
The proposed Remuneration Policy shall regulate the aggregate emoluments of all Directors in any one financial year, and any increases thereto which shall be such amount as may from time to time be determined by the Company in a general meeting.
Furthermore, the remuneration of the Directors is a fixed amount per annum and does not include any variable component relating to profit sharing, share options or pension benefits. The Directors’ aggregate annual remuneration for the financial year under review, as approved by the Board, amounted to EUR175,000. This included EUR46,667 of directors’ fees relating to the previous financial year. For the purposes of clarity, although several Directors sit on various committees of the Company, such Directors did not receive extra remuneration for occupying such roles during the year under review. It is the shareholders, in terms of the memorandum and articles of association of the Company, who determine the maximum annual aggregate emoluments of the Directors by resolution at the annual general meeting of the Company. The maximum aggregate amount fixed for this purpose during the last annual general meeting was EUR200,000.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
13
Remuneration Report - continued
Remuneration paid to Directors – continued
The following table provides a summary of the remuneration for the year ended 31 October 2022 for each individual Director:
Fixed Remuneration
Variable Remuneration
Share Options
EUR
EUR
EUR
Mr Angelo Xuereb
Executive Chairman
25,000
-
-
Ms Denise Xuereb
Executive Director & Chief Executive Officer
25,000
-
-
Mr Michael Warrington
Executive Director
25,000
-
-
Dr Christian Farrugia
Non-Executive Director
25,000
-
-
Mr Joseph Lupi
Non-Executive Director
25,000
-
-
Mr Christopher Paris
Non-Executive Director
25,000
-
-
Mr Stephen Paris
Non-Executive Director
25,000
-
-
Remuneration paid to Executives
The aggregate remuneration paid to executives of the Group, other than the Chief Executive Officer who is also an Executive Director, amounted to EUR120,000 during the year under review. In addition to the fixed remuneration, the total compensation received by the Executives may include a discretionary variable remuneration based on company performance as well as the individual’s performance. However, there was no variable remuneration paid to the executives during the year.
The average employee remuneration (excluding Directors and Executives) on a full-time equivalent basis amounted to EUR31,400 during the year under review.
FY2022 represents the first full year results of the Group since it was formed, thus affecting the comparability of such figures as disclosed in the notes to these financial statements.
There were no termination of Directors or executives during the year and therefore no compensation paid for any such terminations.
The contents of the Remuneration Report have been reviewed by the external Auditors to ensure that it conforms with the requirements of Appendix 12.1 to Chapter 12 of the Capital Market Rules.
Approved by the Board of Directors on 27 February 2023 and were signed on its behalf by Mr. Angelo Xuereb (Chairman) and Ms. Denise Xuereb (Chief Executive Officer) as per Directors’ Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report 2022.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
14
Statements of Profit or Loss and Other Comprehensive Income
for the year ended 31 October 2022
The notes on pages 19 to 53 form an integral part of these financial statements.
Group
Company
Year ended
Year ended
Year ended
Year ended
Notes
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Revenue
7
8,909,902
796,597
11,386,724
17,281,793
Other operating income
8
115,669
1,192
71,796
-
Other operating costs
9
(1,191,066)
(73,785)
(478,293)
(117,785)
Staff costs
10
(286,239)
(14,377)
(286,079)
(14,377)
Gain/(loss) on revaluation of investment property
17
2,787,449
(23,720,268)
1,033,961
3,824,451
___________
___________
___________
___________
Operating profit/(loss)
10,335,715
(23,010,641)
11,728,109
20,974,082
Finance income
11
14,912
-
1,085,344
-
Finance costs
12
(3,288,902)
(62,645)
(2,402,067)
-
___________
___________
___________
___________
Profit/(loss) before taxation
7,061,725
(23,073,286)
10,411,386
20,974,082
Income taxation
14
(3,464,215)
1,914,558
(3,328,021)
(962,095)
___________
___________
___________
___________
Profit/(loss) for the year
3,597,510
(21,158,728)
7,083,365
20,011,987
___________
___________
___________
___________
Basic earnings/(loss) per share
15
0.01
(0.09)
Other comprehensive income
-
-
-
-
___________
___________
___________
___________
Total comprehensive income/(loss)
3,597,510
(21,158,728)
7,083,365
20,011,987
____________
____________
___________
___________
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
15
Statements of Financial Position
as at 31 October 2022
The notes on pages 19 to 53 form an integral part of these financial statements.
The financial statements on pages 14 to 53 were approved by the Board of Directors on 27 February 2023 and were signed on its behalf by Mr. Angelo Xuereb (Chairman) and Ms. Denise Xuereb (Chief Executive Officer) as per Directors’ Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report 2022.
2022
Group
2021
2022
Company
2021
Notes
EUR
EUR
EUR
EUR
ASSETS AND LIABILITIES
Non-current assets
Intangible assets
16
2,128
2,660
2,128
2,660
Investment property
17
260,255,000
232,547,548
12,650,000
11,270,000
Investments in subsidiaries
19
-
-
108,630,280
93,630,280
Loans receivable
19
-
-
46,372,639
34,225,199
___________
___________
___________
___________
260,257,128
232,550,208
167,655,047
139,128,139
___________
___________
___________
___________
Current assets
Inventories
20
438,198
910,857
-
-
Trade and other receivables
21
14,107,338
3,603,501
3,054,121
400,079
Current tax assets
-
162,824
531,012
-
Cash at bank and in hand
22
12,061,062
1,000,807
7,124,684
19,530
___________
___________
___________
___________
26,606,598
5,677,989
10,709,817
419,609
___________
___________
___________
___________
Total assets
286,863,726
238,228,197
178,364,864
139,547,748
___________
___________
___________
___________
Current liabilities
Trade and other payables
23
4,856,133
1,495,934
436,080
294,249
Bank borrowings
24
2,118,858
2,751,193
-
-
Other financial liabilities
25
6,404,455
5,338,760
3,984,024
12,360,094
Debt securities in issue
26
1,024,110
-
1,024,110
-
Current tax liabilities
552,890
-
-
3,635
___________
___________
___________
___________
14,956,446
9,585,887
5,444,214
12,657,978
___________
___________
___________
___________
Non-current liabilities
Trade and other payables
23
354,595
625,111
-
-
Bank borrowings
24
21,943,976
8,461,779
15,000,000
-
Other financial liabilities
25
45,437,579
120,821,015
30,390,069
105,773,516
Debt securities in issue
26
39,500,567
-
39,500,567
-
Deferred tax liabilities
27
22,638,053
20,036,363
975,771
882,334
___________
___________
___________
___________
129,874,770
149,944,268
85,866,407
106,655,850
___________
___________
___________
___________
Total liabilities
144,831,216
159,530,155
91,310,621
119,313,828
___________
___________
___________
___________
Net assets
142,032,510
78,698,042
87,054,243
20,233,920
___________
___________
___________
___________
EQUITY
Capital and reserves
Share capital
28
34,292,088
50,000
34,292,088
50,000
Share premium
28
41,374,079
-
41,374,079
-
Revaluation reserve
28
40,407,988
38,502,470
3,874,095
2,922,851
Other reserves
28
330,752
330,752
-
-
Retained earnings
28
25,627,603
39,814,820
7,513,981
17,261,069
___________
___________
___________
___________
Total equity
142,032,510
78,698,042
87,054,243
20,233,920
___________
___________
___________
___________
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
16
Statements of Changes in Equity
for the year ended 31 October 2022
GROUP
Share
Share
Revaluation
Other
Capital
Retained
capital
Premium
reserve
reserves
contribution
earnings
Total
Notes
EUR
EUR
EUR
EUR
EUR
EUR
EUR
Upon formation of Group
1,200
-
-
-
3,500,000
171,933
3,673,133
Acquisition of subsidiaries
-
-
59,941,720
330,752
-
39,362,365
99,634,837
-
Loss for the year
-
-
-
-
-
(21,158,728)
(21,158,728)
Other comprehensive income
-
-
-
-
-
-
-
___________
___________
______________________
___________
___________
___________
___________
Total comprehensive loss for the year
-
-
-
-
-
(21,158,728)
(21,158,728)
Issue of share capital
48,800
-
-
-
-
-
48,800
Reversal of capital contribution
28
-
-
-
-
(3,500,000)
-
(3,500,000)
Fair value movement of investment property, net of tax
-
-
(21,439,250)
-
-
21,439,250
-
___________
___________
___________
___________
___________
______________________
___________
At 31 October 2021
50,000
-
38,502,470
330,752
-
39,814,820
78,698,042
Profit for the year
-
-
-
-
-
3,597,510
3,597,510
Other comprehensive income
-
-
-
-
-
-
-
___________
___________
______________________
___________
___________
___________
___________
Total comprehensive income for the year
-
-
-
-
-
3,597,510
3,597,510
Capitalisation of reserves
28
12,450,000
-
-
-
-
(12,450,000)
-
Capitalisation of shareholder loan
28
18,750,000
31,250,000
-
-
-
-
50,000,000
Issue of shares at a premium
28
3,042,088
10,124,079
-
-
-
-
13,166,167
Dividends
28
-
-
-
-
-
(3,429,209)
(3,429,209)
Fair value movement of investment property, net of tax
-
-
1,905,518
-
-
(1,905,518)
-
___________
___________
___________
___________
___________
______________________
___________
At 31 October 2022
34,292,088
41,374,079
40,407,988
330,752
-
25,627,603
142,032,510
___________
___________
___________
___________
___________
___________
___________
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
17
Statements of Changes in Equity – continued
for the year ended 31 October 2022
The notes on pages 19 to 53 form an integral part of these financial statements.
COMPANY
Share
Share
Revaluation
Capital
Retained
capital
premium
reserve
contribution
earnings
Total
Notes
EUR
EUR
EUR
EUR
EUR
EUR
At 31 October 2020
1,200
-
-
3,500,000
171,933
3,673,133
Profit for the year
-
-
-
-
20,011,987
20,011,987
Other comprehensive income
-
-
-
-
-
-
__________
__________
_________
_________
__________
___________
Total comprehensive income for the year
-
-
-
-
20,011,987
20,011,987
Issue of share capital
48,800
-
-
-
-
48,800
Reversal of capital contribution
-
-
-
(3,500,000)
-
(3,500,000)
Fair value movement of investment property, net of tax
-
-
2,922,851
-
(2,922,851)
-
__________
__________
__________
__________
__________
___________
At 31 October 2021
50,000
-
2,922,851
-
17,261,069
20,233,920
Profit for the year
-
-
-
-
7,083,365
7,083,365
Other comprehensive income
-
-
-
-
-
-
__________
__________
_________
_________
__________
___________
Total comprehensive income for the year
-
-
-
-
7,083,365
7,083,365
Capitalisation of reserves
28
12,450,000
-
-
-
(12,450,000)
-
Capitalisation of shareholder loan
28
18,750,000
31,250,000
-
-
-
50,000,000
Issue of shares at a premium
28
3,042,088
10,124,079
-
-
-
13,166,167
Dividends
28
-
-
-
-
(3,429,209)
(3,429,209)
Fair value movement of investment property, net of tax
-
-
951,244
-
(951,244)
-
__________
__________
__________
__________
__________
___________
At 31 October 2022
34,292,088
41,374,079
3,874,095
-
7,513,981
87,054,243
__________
__________
__________
__________
__________
___________
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
18
Statements of Cash Flows
for the year ended 31 October 2022
Group
Company
Year ended
Year ended
Year ended
Year ended
2022
2021
2022
2021
Notes
EUR
EUR
EUR
EUR
Cash flows from operating activities
Profit/(loss) before taxation
7,061,725
(23,073,286)
10,411,386
20,974,082
Adjustments for:
Amortisation of intangible assets
16
532
-
532
-
Movement in fair value of investment property
17
(2,787,449)
23,720,268
(1,033,961)
(3,824,451)
Dividend income
7
-
-
(10,769,231)
(17,000,000)
Movement in expected credit losses
9
8,855
(870)
48,467
55,046
Amortisation of bond issue costs
12
55,494
-
55,494
-
Interest expense
12
3,233,408
62,645
2,346,573
-
Interest income
11
(14,912)
-
(1,085,344)
-
___________
___________
___________
___________
Operating profit/(loss) before working capital changes
7,557,653
708,757
(26,084)
204,677
Movement in inventories
472,659
-
-
-
Movement in trade and other receivables
(3,718,975)
(309,229)
(2,702,509)
(69,021)
Movement in trade and other payables
2,186,527
(193,024)
72,366
70,901
___________
___________
___________
___________
Cash flows from/(used in) operating activities
6,497,864
206,504
(2,656,227)
206,557
Interest paid
(519,587)
-
(122,084)
-
Interest received
14,912
-
14,912
-
Taxation refunded
64,925
-
-
-
___________
___________
___________
___________
Net cash flows from/(used in) operating activities
6,058,114
206,504
(2,763,399)
206,557
___________
___________
___________
___________
Cash flows from investing activities
Purchase of intangible asset
16
-
(2,660)
-
(2,660)
Purchase of investment property and movement in capital creditors
17
(31,646,306)
(233,167)
(346,039)
(233,167)
Movement in loans to subsidiaries
-
-
(29,040,023)
-
___________
___________
___________
___________
Net cash flows used in investing activities
(31,646,306)
(235,827)
(29,386,062)
(235,827)
___________
___________
___________
___________
Cash flows from financing activities
Movement in bank loans
12,849,862
53
15,000,000
-
Issue of share capital
13,166,168
48,800
13,166,168
48,800
Proceeds from new debt securities in issue
17,799,673
-
17,799,673
-
Movement in shareholder loan
(3,738,047)
-
(3,282,017)
-
Dividend paid
(3,429,209)
-
(3,429,209)
-
___________
___________
___________
___________
Net cash flows from financing activities
36,648,447
48,853
39,254,615
48,800
___________
___________
___________
___________
Net movement in cash and cash equivalents
11,060,255
19,530
7,105,154
19,530
Cash and cash equivalents at beginning of year
1,000,807
-
19,530
-
Movement in cash Upon formation of Group
-
981,277
-
-
___________
___________
___________
___________
Cash and cash equivalents at end of year
22
12,061,062
1,000,807
7,124,684
19,530
___________
___________
___________
___________
The notes on pages 19 to 53 form an integral part of these financial statements
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
19
Notes to the Financial Statements
1.GENERAL INFORMATION
AX Real Estate p.l.c. (formerly AX Real Estate Limited) (C 92104) is a public liability company incorporated in Malta. The Company acts as the holding company of the Estates Group within the AX Group. The Group is involved in the leasing of a diverse portfolio of real estate to subsidiary companies of AX Group p.l.c. and third parties. The Company’s registered office is at AX Group, AX Business Centre, Triq id-Difiza Civili, Mosta, MST 1741, Malta.
The Board resolved to approve the change in status of the Company from a Private Limited Liability Company to a Public Limited Liability Company during 2021. As a result, the Company’s name was changed from AX Real Estate Limited to AX Real Estate p.l.c. with effect from 23 rd November 2021.
2.BASIS OF PREPARATION
The financial statements have been prepared in accordance with the requirements of the International Financial Reporting Standards (IFRSs) as adopted by the EU and the requirements of the Companies Act, Cap. 386 of the Laws of Malta. The financial statements have been prepared on a historical cost basis, except for investment property which is stated at fair value.
The preparation of financial statements in conformity with IFRSs as adopted by the EU requires the use of certain accounting estimates. It also requires the Directors to exercise their judgement in the process of applying the Company’s accounting policies. Significant accounting policies are disclosed in Note 5 and accounting estimates are disclosed in Note 6.
These financial statements are presented in Euro (EUR) which is the Company’s and the Group’s functional currency. The accounting policies set out below have been applied consistently to all periods presented in these financial statements.
2.1 Going concern
During the year ended 31 October 2022, the Company recorded a profit before tax of EUR10,411,386 (2021: EUR20,974,082) including dividends of EUR10.8 million (2021: EUR17 million) from its subsidiaries. As at reporting date, the Company’s current assets exceeded its current liabilities by EUR5,265,603 (2021: current liabilities exceeded its current assets by EUR12,238,369).
During the year ended 31 October 2022, the Group recorded a profit before tax of EUR7,061,725 (2021: a loss before tax of EUR23,073,286). As at reporting date, the Group’s current assets exceeded its current liabilities by EUR11,650,152 (2021: current liabilities exceeded its current assets by EUR3,907,898).
The Group is involved in the leasing of a diverse portfolio of real estate to subsidiary companies of AX Group p.l.c. and third parties. The majority of the current operative commercial leases are those entered into between the Group and operating and trading companies within the AX Group. Consequently, the risks inherent to AX Group’s operations will affect the ability of those companies to operate efficiently, which in turn could have an effect on their ability to pay the rent due and or may result in lower variable rental income in the case of lease agreements featuring a combination of fixed and variable rent components. Management of the AX Group has prepared a cashflow forecast for the AX Group and has concluded that the AX Group will be able to sustain its operations over the foreseeable future in a manner that is cash flow positive.
Accordingly, based on information available at the time of approving these financial statements, as a result of the strength of the Group’s financial position and performance, as well as the AX Group’s financial position and performance and availability of financing, the Directors have reasonable expectation that the Group and the Company will meet all its obligations as and when they fall due over the foreseeable future and therefore, that the going concern basis adopted for the preparation of these consolidated and separate financial statements is appropriate.
Profitability
FY2022 represents the first full year results of the Group since it was formed. The Group generated EUR8,909,902 in revenue which consists of EUR8,155,774 in rental income from the lease of the Group’s investment properties and EUR754,128 in sales of property, representing the sale of the remaining apartments at Targa Gap Complex in Mosta. The new office development at Falcon House in Sliema as well as the remaining offices at AX Business Centre in Mosta were fully taken up by third parties during the year.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
20
Notes to the Financial Statements – continued
2.BASIS OF PREPARATION – continued
2.1 Going concern – continued
Profitability - continued
The Group has reported adjusted EBITDA, which reconciles to operating profit/(loss) before gains/(losses) on revaluation of investment properties, of EUR7,548,266 (2021: EUR709,627) in 2022 which corresponds to 85% (2021: 89%) of revenue.
Liquidity and capital funding
In 2021, the Group obtained a full development permit for the redevelopment of the Verdala site in Rabat, and another full development permit for the extension of the Suncrest Hotel in Qawra. Construction works on both projects started during 2021 and continued during 2022. During 2022, the Group also obtained the full development permit for the full redevelopment of the Suncrest Lido in Qawra.
In order to part finance the Suncrest and Verdala Hotel developments, the Group went through a reorganisation exercise, with the ultimate aim of consolidating the main property letting activities of the Group into one newly formed division under AX Real Estate p.l.c. (formerly AX Real Estate Limited). In February 2022, the Company was listed on the Malta Stock Exchange, with 25% of the ordinary ‘A’ shares being taken up by the general public. Through this transaction, the Company raised EUR13,648,644. In conjunction with the share issue, the Company also issued EUR40,000,000 unsecured bonds redeemable in 2032. The general public subscribed to EUR18,354,600 bonds whilst the remaining EUR21,645,400 bonds were allocated to AX Group p.l.c. through the part conversion of the existing intra-group loan with the Company. These bonds are unsecured and subject to the terms and conditions in the prospectus dated 6 December 2021.
In January 2022, the Company and the Group obtained a EUR15 million bridge loan from a local bank to part finance the Suncrest hotel extension and the Verdala hotel development. The loan is repayable within 2 years of first drawdown. In January 2023, the Group has secured another loan facility from a local credit institution in the amount of EUR30.5 million, for the purpose of financing the completion of the Suncrest Hotel development, including the lido redevelopment. This facility is expected to be drawn down throughout 2023/2024 and will be repaid within 15 years with a 12-month moratorium period on capital repayments. As at 31 October 2022, the Group had a gearing ratio of 43.6% which is expected to increase following the drawdown of the above mentioned facility. The drawdown from this loan facility is expected to take a number of months.
Cashflow forecast
Management has prepared a forecast for the Group covering two years from reporting date in order to assess the impact of the current situation on the businesses, contemplating the continued recovery from the COVID-19 pandemic. The forecast reflects the capital expenditure on the Suncrest and Verdala projects and their respective financing as explained above.
AX Group p.l.c.’s business update
The AX Group is primarily engaged in four main business sectors namely, Care, Construction, Hospitality and Estates but is also involved in property development and renewable energy.
The hospitality division of the AX Group managed to reach budgeted revenues for 2022 despite the turbulent first few months of the year. In fact, revenue from the hospitality division increased by 61% in 2022 over 2021 despite the Suncrest hotel in Qawra being closed for the whole year. This reflects the continued recovery from the COVID-19 pandemic. The Healthcare division registered an increase in revenue of 8.1% compared to 2021. The independent apartments at Hilltop Gardens Retirement Village were fully occupied by the reporting date. On the other hand, the uncertainty of the COVID-19 pandemic continued to hinder the expected recovery in occupancy at the Simblija Care Home in the first half of the year with elderly people still reluctant to move into a care home environment. However, from May 2022 onwards the Home experienced a steady recovery in occupancy as restrictions started to be lifted and life inched to normality. The Construction division was largely involved in two main internal developments, the extension of the Suncrest Hotel in Qawra and the redevelopment of Verdala site in Rabat.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
21
Notes to the Financial Statements – continued
2.BASIS OF PREPARATION - continued
2.1 Going concern - continued
AX Group p.l.c.’s business update - continued
In February 2022, following the military conflict between Russia and Ukraine, the European Union and other countries announced several packages of restrictive measures against Russia, as well as personal sanctions against a number of high-ranking individuals. Due to the growing geopolitical tensions, since February 2022, there has been a significant increase in volatility on the securities, commodities and currency markets, as well as a significant depreciation of the Ruble against the US dollar and the Euro. The AX Group entities, including the Estates Group, do not have direct exposures to related parties and/or key customers or suppliers from those countries.
Management of the AX Group has prepared a cashflow forecast considering significant events and transactions that have occurred or are expected to occur subsequent to year end. AX Group's forecast is based on the assumption that, upon its redemption date being 6 March 2024, the 6% AX Investments p.l.c. 2024 bond will be repaid or rolled over. Such repayment is dependent on the AX Group’s ability to raise further liquidity. As a result, management of the AX Group is currently considering alternative financing options, including the issuance of a new bond by AX Group p.l.c., with the proceeds therefrom committed to be advanced to AX Investments p.l.c. in line with the parent company guarantee provided by AX Group in terms of the current bond’s offering memorandum.
Management of the AX Group has also considered a stress tested scenario to assess the AX Group’s resilience and ability to handle unforeseen challenges. Under all scenarios tested, the Group is expected to continue to have sufficient liquidity relative to the funding available to it. Management also notes that a number of the AX Group’s properties are unencumbered and could potentially be used as a guarantee in obtaining additional financing from banks should the need arise.
3.TRANSACTION BETWEEN ENTITIES UNDER COMMON CONTROL
As explained above, during FY2021, the AX Group went through a reorganisation exercise, with the ultimate aim of consolidating the main property letting activities of the AX Group into one newly formed division under AX Real Estate p.l.c. (formerly AX Real Estate Limited). The shares in a number of subsidiaries of AX Group p.l.c. were sold to AX Real Estate p.l.c. (formerly AX Real Estate Limited) to form this new subgroup. This transaction was deemed to meet the definition of a transaction between entities under common control per IFRS3 - this is defined as a transaction in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory.
Management has elected to account for the transaction between entities under common control by recognizing the assets and liabilities of the companies being acquired at their carrying amount and that the consolidated income statement reflects the results of the combining parties. This method is referred to as the “pooling of interests method”, whereby the logic of pooling is that there is no change in control.
In applying the pooling of interest method, the Company had elected not to restate comparatives for periods prior to the transaction, such that the transaction under common control was accounted for from the date of transaction, being the acquisition dates of when the Company acquired control of the subsidiaries and accordingly the consolidated financial statements of the Group were not restated for periods prior to the combination under common control occurring.If the Group had existed from the start of the year ended 31 October 2021, the revenue in FY2021 would have been EUR8,466,208 and the total loss for the year would have amounted to EUR30,663,121, following a loss on disposal of sale of land incurred by a subsidiary prior to the reorganisation.
4.BASIS OF CONSOLIDATION
Subsidiaries are those companies in which the Group, directly or indirectly, has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights.
The consolidated financial statements comprise the financial statements of AX Real Estate p.l.c. (formerly AX Real Estate Limited) (“the Company”) and its subsidiaries (collectively, “the Group”) as at 31 October 2022. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
22
Notes to the Financial Statements – continued
4.BASIS OF CONSOLIDATION – continued
Specifically, the Group controls an investee if, and only if, the Group has:
-Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee)
-Exposure, or rights, to variable returns from its involvement with the investee
-The ability to use its power over the investee to affect its returns
Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
-The contractual arrangement(s) with the other vote holders of the investee
-Rights arising from other contractual arrangements
-The Group’s voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of OCI are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.
These consolidated financial statements comprise the Company and its subsidiaries, namely:
Date of
Group % of equity
acquisition
and voting rights held
2022
2021
Central Leisure Developments Limited
12 October 2021
100
100
Heritage Developments Limited
12 October 2021
100
100
Holiday Resorts Limited (merged into Suncrest Hotels p.l.c.)*
15 October 2021
-
100
Palazzo Merkanti Leisure Limited
26 October 2021
100
100
Royal Hotels Limited
29 October 2021
100
100
Simblija Developments Limited
15 October 2021
100
100
Skyline Developments Limited
12 October 2021
100
100
St. John’s Boutique Hotel Limited
26 October 2021
100
100
Suncrest Hotels p.l.c.
15 October 2021
100
100
* The merger of Holiday Resorts Limited into Suncrest Hotels p.l.c. became effective on the 10 December 2021, on which date Holiday Resorts Limited was struck off from the Malta Business Registry. The Draft Terms of Merger stipulated that the transactions of the company being acquired are accounted for in the annual accounts of the acquirer as from the 1 November 2021, this being in line to the provisions of article 358 of the Companies Act, Chapter 386 of the Laws of Malta. Holiday Resorts Limited’s rights, obligations, assets and liabilities have been
amalgamated with those of Suncrest Hotels p.l.c. as from this date.
The registered address of all subsidiaries is AX Group, AX Business Centre, Triq id-Difiza Civili, Mosta MST 1741, Malta. The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
23
Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied in the financial statements presented, unless otherwise stated.
5.1 Standards, interpretations and amendments to published standards endorsed by the European Union effective in the current year
The accounting policies adopted are consistent with those of the previous financial year, except for the following amendments to IFRS effective during the year:
-Amendments to IFRS 16 Leases: Covid-19- Related Rent Concessions beyond 30 June 2021 (issued on 31 March 2021) (effective for financial years beginning on or after 1 April 2021)
-Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2 (issued on 27 August 2020) (effective for financial years beginning on or after 1 January 2021)
-Amendments to IFRS 4 Insurance Contracts – deferral of IFRS 19 (issued on 25 June 2020) (effective for financial years beginning on or after 1 January 2021)
These amendments and interpretations do not have an impact on the financial statements of the Group. The Group has not early adopted any standard, interpretations or amendments that have been issued but are not yet effective.
5.2 Standards, interpretations and amendments to published standards as adopted by the EU which are not yet effective
Up to date of approval of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but which are not yet effective for the current reporting year and which the Group has not early adopted but plans to adopt upon their effective date. The new and amended standards follow:
-Amendments to IFRS 17 Insurance Contracts: Initial Application of IFRS 17 and IFRS 9 – Comparative Information (issued on 9 December 2021) (effective for financial year beginning on or after 1 January 2023)
-Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction (issued on 7 May 2021) (effective for financial year beginning on or after 1 January 2023)
-Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies (issued on 12 February 2021) (effective for financial year beginning on or after 1 January 2023)
-Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates (issued on 12 February 2021) (effective for financial year beginning on or after 1 January 2023)
-IFRS 17 Insurance Contracts (issued on 18 May 2017); including Amendments to IFRS 17 (issued on 25 June 2020) (effective for financial year beginning on or after 1 January 2023)
-Amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets; and Annual Improvements 2018-2020 (all issued 14 May 2020) (effective for financial year beginning on or after 1 January 2022)
The changes resulting from these standards, interpretations and amendments are not expected to have a material effect on the financial statements of the Group.
5.3 Standards, interpretations and amendments that are not yet endorsed by the European Union
These are as follows:
-Amendments to IAS 1 Presentation of Financial Statements:
i.Classification of Liabilities as Current or Non-current (issued on 23 January 2020);
ii.Classification of Liabilities as Current or Non-current – Deferral of Effective Date (issued on 15 July 2020); and
iii.Non-current Liabilities with Covenants (issued on 31 October 2022)
-Amendments to IFRS 16 Leases: Lease Liability in a Sale and Leaseback (issued on 22 September 2022)
The Group is still assessing the impact that these new standards will have on the financial statements.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
24
Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.4 Revenue
The Group recognises revenue from the following major sources:
i.Rental income
ii.Sale of inventory property – completed property and property under development
iii.Dividend income
i.Rental income
The Group earns revenue from acting as a lessor in operating leases which do not transfer substantially all of the risks and rewards incidental to ownership of an investment property. Rental income arising from operating leases on investment property is accounted for on a straight-line basis over the lease term and is included in revenue in the statement of profit or loss due to its operating nature, except for contingent rental income which is recognised when it arises. Rental income includes a variable component that is recognised as it accrues. Initial direct costs incurred in negotiating and arranging an operating lease are recognised as an expense over the lease term on the same basis as the lease income.
ii.Sale of inventory property – completed property and property under development
The sale of completed property constitutes a single performance obligation and the Group has determined that this is satisfied at the point in time when control transfers. For unconditional exchange of contracts, this generally occurs when legal title transfers to the customer. For conditional exchanges, this generally occurs when all significant conditions are satisfied. Payments are received when legal title transfers.
iii.Dividend income
Dividends are recognised as revenue in the statement of profit or loss when the right of payment has been established.
5.5 Employee benefits
The Group contributes towards the state pension in accordance with local legislation. The only obligation of the Group is to make the required contributions. Costs are expensed in the period in which they are incurred.
5.6 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised from the time that expenditure for these assets and borrowing costs are being incurred and activities that are necessary to prepare these assets for their intended use or sale are in progress. Borrowing costs are capitalised until such time as the assets are substantially ready for their intended use or sale. Other borrowing costs are recognised as an expense in the profit and loss in the period in which they are incurred.
5.7 Leases
The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Company and Group as lessor
Leases in which the Company and the Group do not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss and other comprehensive income due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
25
Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.8 Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received, and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate are expensed. When the grant relates to an asset, it is recognised as income in equal amounts over the expected useful life of the related asset.
5.9 Taxation
i.Current income tax
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted at the reporting date in the country where the Group operates and generates taxable income.
Current income tax is charged or credited to profit or loss. Current income tax relating to items realised directly in equity is realised in equity and not in the statement of profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
The charge for current tax is based on the taxable result for the period. The taxable result for the period differs from the result as reported in profit or loss because it excludes items which are non-assessable or disallowed and it further excludes items that are taxable or deductible in other periods.
ii.Deferred income tax
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit.
Deferred tax is measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted by the reporting date.
Deferred tax liabilities are realised for all taxable temporary differences and deferred tax assets are realised to the extent that it is probable that taxable profits will be available against which the deductible temporary differences can be realised.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to settle its current tax assets and liabilities on a net basis.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
26
Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.10 Fair value measurement
The Group measures non-financial assets such as investment properties at fair value at each balance sheet date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
-In the principal market for the asset or liability, or
-In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
-Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities
-Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
-Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
5.11 Investment in subsidiaries
Subsidiaries are all entities over which the investor has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.
Company
Investments in subsidiaries are initially recognised at cost, being the fair value of the consideration given, including acquisition charges associated with the investment. Subsequent to initial recognition, the investments are measured at cost less any accumulated impairment losses.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
27
Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.12 Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
i.Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs.
In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
i.Financial assets at amortised cost (debt instruments)
ii.Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments)
iii.Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments)
iv.Financial assets at fair value through profit or loss
Financial assets at amortised cost (debt instruments)
Financial assets at amortised cost (debt instruments) are the most relevant to the Group. The Group measures financial assets at amortised cost if both of the following conditions are met:
-The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and
-The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently measured using the effective interest rate (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
The Group’s debt instruments at amortised cost includes loans and receivables, trade and other receivables and cash and cash equivalents.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
28
Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.12 Financial instruments – continued
i.Financial assets – continued
Subsequent measurement – continued
Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments)
The Group measures debt instruments at fair value through OCI if both of the following conditions are met:
-The financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets; and
-The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and impairment losses or reversals are recognised in the statement of profit or loss and computed in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss.
The Group holds no financial assets in this category.
Financial assets at fair value through OCI (equity instruments)
Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument by instrument basis.
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the statement of profit or loss when the right of payment has been established, except when the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.
Financial assets at fair value through profit or loss
Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI are measured at fair value through profit or loss (FVTPL). Specifically:
-Investments in equity instruments are classified as at FVTPL. However, a company may designate an equity investment that is neither held for trading nor a contingent consideration arising from a business combination as at FVTOCI on initial recognition.
-Debt instruments that do not meet the amortised cost criteria or the FVTOCI criteria are classified as at FVTPL.
In addition, debt instruments that meet either the amortised cost criteria or the FVTOCI criteria may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognising the gains and losses on them on different bases.
Financial assets measured at FVTPL are subsequently measured at fair value at the end of each reporting period, with any fair value gains or losses including foreign exchange gains and losses, recognised in profit or loss.
Where applicable, dividend income is recognised with other dividend income, if any, arising on other financial assets within the line item ‘Investment income’. Where applicable, interest income is disclosed within the line item ‘Investment income’. Fair value gains and losses are recognised within the line items ‘Investment income’ and ‘Investment losses’ respectively.
The Group holds no financial assets in this category.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
29
Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.12 Financial instruments – continued
i.Financial assets – continued
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised when:
-The rights to receive cash flows from the asset have expired, or
-The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement.
ii.Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Group’s financial liabilities include loans and borrowings, debt securities in issue and trade and other payables.
Subsequent measurement
For purposes of subsequent measurement, financial liabilities are classified in two categories:
-Financial liabilities at fair value through profit or loss
-Financial liabilities at amortised cost (loans and borrowings)
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in the statement of profit or loss. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied. The Group has not designated any financial liability as at fair value through profit or loss.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
30
Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.12 Financial instruments – continued
ii.Financial liabilities – continued
Subsequent measurement – continued
Financial liabilities at amortised cost (loans and borrowings)
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss.
iii.Impairment of financial assets
The Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, there is objective evidence of impairment as a result of one or more events that has occurred since the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.
Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
General approach
Under the general approach, the Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). The assessment of whether lifetime ECL should be recognised is based on significant increases in the likelihood or risk of a default occurring since initial recognition rather than on evidence of a financial asset being credit-impaired at the reporting date or an actual default occurring.
Lifetime ECL represents the ECLs that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
31
Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.12 Financial instruments – continued
iii.Impairment of financial assets – continued
General approach – continued
The 12-month ECL is calculated by multiplying the 12-month Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD). Lifetime ECL is calculated on a similar basis for the residual life of the exposure.
The Group considers a financial asset to be in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
For financial assets for which the Group has no reasonable expectations of recovering either the entire outstanding amount, or a proportion thereof, the gross carrying amount of the financial asset is impaired.
Simplified approach
For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
iv.Offsetting of financial instruments
Financial assets and financial liabilities are offset, and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
5.13 Impairment of non-financial assets
All other assets are tested for impairment in terms of this accounting policy except for financial assets measured at fair value through profit or loss, inventories, deferred tax assets and investment property measured at fair value.
At the end of each reporting period, the carrying amount of assets, including cash-generating units, is reviewed to determine whether there is any indication or objective evidence of impairment, as appropriate, and if any such indication or objective evidence exists, the recoverable amount of the asset is estimated.
An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the higher of fair value (which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date) less costs of disposal and value in use (which is the present value of the future cash flows expected to be derived, discounted using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset). Where the recoverable amount is less than the carrying amount, the carrying amount of the asset is reduced to its recoverable amount, as calculated.
Impairment losses are recognised immediately in profit or loss, unless the asset is carried at a revalued amount, in which case, the impairment loss is recognised in other comprehensive income to the extent that the impairment loss does not exceed the amount in the revaluation surplus for that asset.
Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss has been recognised.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
32
Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.14 Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses.
Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit or loss in the expense category that is consistent with the function of the intangible assets. The annual rates used are as follows:
Website 20% per annum
An intangible asset is derecognised upon disposal (i.e., at the date the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising upon derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss.
5.15 Investment property
Investment property is property held to earn rentals or for capital appreciation or both. Investment property is recognised as an asset when it is probable that the future economic benefits that are associated with the investment property will flow to the entity and the cost can be measured reliably.
Investment properties are initially measured at cost, including transaction costs. Subsequent to initial recognition, investment property is stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in fair values of investment properties are included in profit and loss in the period in which they arise, including the corresponding tax effect. Fair values are determined by a professionally qualified architect on the basis of market values.
Investment properties are derecognised either when they have been disposed of (i.e. at the date the recipient obtains control) or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in profit and loss in the period of derecognition. The amount of consideration to be included in the gain or loss arising from the derecognition of investment property is determined in accordance with the requirements for determining the transaction price in IFRS 15.
Transfers are made to (or from) investment property only when there is a change in use. For transfer from investment property to owner-occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use.
5.16 Inventories
Property held for development and re-sale is stated at the lower of cost and net realisable value. The cost includes the purchase price of the property and development costs incurred to date. Net realisable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing and selling. The cost of development and common costs are apportioned on the basis of the costs absorbed during the stage of development and the cost of land is apportioned on the basis of the floor area.
Cost incurred in bringing each property to its present location and condition includes:
-Freehold and leasehold rights for land
-Amounts paid to contractors for development
-Planning and design costs, costs of site preparation, professional fees for legal services, property transfer taxes, development overheads and other related costs
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
33
Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.16 Inventories - continued
When an inventory property is sold, the carrying amount of the property is recognised as an expense in the period in which the related revenue is recognised. The carrying amount of inventory property recognised in profit or loss is determined with reference to the directly attributable costs incurred on the property sold and an allocation of any other related costs based on the relative size of the property sold.
5.17 Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits and short term, highly liquid investments readily convertible to known amounts of cash and subject to significant risk of changes in value. For the purpose of the statement of cashflows, cash and cash equivalents consist of cash in hand and deposits at banks, net of outstanding overdrafts.
5.18 Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares are recognised as a deduction from equity.
5.19 Dividends
Dividends to holders of equity instruments are recognised as liabilities in the period in which they are declared. Dividends to holders of equity instruments are debited directly in equity.
5.20 Provisions
Provisions are recognised when the Group and the Company have a present obligation as a result of a past event, and a reliable estimate can be made of the amount of the obligation. Provisions are measured at management’s best estimate of the expenditure required to settle the present obligation at the financial reporting date and are discounted to present value when the effect is material. Provisions are reviewed each financial reporting date and adjusted to reflect the current best estimate.
5.21 Related parties
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities.
6.SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
In preparing the financial statements, the Directors are required to make judgements, estimates and assumptions that affect reported income, expenses, assets, liabilities and disclosure of contingent assets and liabilities. Use of available information and application of judgment are inherent in the formation of estimates. Actual results in the future could differ from such estimates and the differences may be material to the financial statements. These estimates are reviewed on a regular basis and, if a change is needed, it is accounted for in the year the changes become known.
Except for the below, in the opinion of the Directors, the accounting estimates, assumptions and judgements made in the course of preparing these financial statements are not difficult, subjective or complex to a degree which would warrant their description as significant in terms of the requirements of IAS 1 (revised) - ‘Presentation of financial statements’.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
34
Notes to the Financial Statements – continued
6.SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS - continued
Estimates
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year, are described below.
Fair value of investment property
The Group uses the services of professional qualified valuers to revalue investment property on a rotation basis. The professional valuers take into account market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
In the years in which an independent valuation is not obtained, management reperforms fair valuations of the properties by verifying and updating all major inputs to the last independent valuation report prepared by an external independent valuer. Internal methods are therefore aligned with those used by external valuers. On a yearly basis, management assesses each property’s change in value to determine whether the change is reasonable and holds discussions with the independent valuer, as necessary.
The highest and best use of a non-financial asset takes into account the use of the asset that is physically possible, legally permissible and financially feasible, as follows:
-A use that is physically possible, takes into account the physical characteristics of the asset that market participants would take into account when pricing the asset (e.g. the location or size of a property).
-A use that is legally permissible takes into account any legal restrictions on the use of the asset that market participants would take into account when pricing the asset (e.g. the zoning regulations applicable to a property).
-A use that is financially feasible takes into account whether a use of the asset that is physically possible and legally permissible generates adequate income or cash flows (taking into account the costs of converting the asset to that use) to produce an investment return that market participants would require from an investment in that asset put to that use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. As described in Note 17, the Group uses valuation techniques that include inputs that are not always based on observable market data in order to estimate the fair value of land and building and investment property. Note 17 provides detailed information regarding these valuation methods and the key assumptions used in performing such valuations.
Recoverability of loans receivable
The entity determines the expected credit loss allowance on the subsidiary undertaking loans based on a probability of default and a loss given default as described further in Note 5.12 to these financial statements. The Directors have assessed the recoverability of loans receivable by reference to the financial position and performance of the related party borrowers for the reporting period, as well as the cash flow projections of AX Group p.l.c. (“the Group”) of which the Company is a subsidiary. As described further in Note 2.1 to these financial statements, management of the AX Group has prepared a forecast for the AX Group in order to assess the impact of the current situation on the businesses. The base case scenario contemplates the continued recovery from the COVID-19 pandemic whilst cautiously reflecting the impact of inflationary pressures on the operating costs of the Group. Management has also considered a stress tested scenario, in which the economy recovers at a slower pace than forecasted in the base case.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
35
Notes to the Financial Statements – continued
7.REVENUE
Revenue by category of activity:
Group
Company
8.OTHER OPERATING INCOME
Group
Company
9.OTHER OPERATING COSTS
Group
Company
Year ended
Year ended
Year ended
Year ended
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Sale of property and real estate
754,128
-
-
-
Rental income
8,155,774
796,597
617,493
281,793
Dividend income
-
-
10,769,231
17,000,000
____________
____________
__________
__________
8,909,902
796,597
11,386,724
17,281,793
____________
____________
__________
__________
Year ended
Year ended
Year ended
Year ended
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Ancillary services
115,669
1,192
71,796
-
____________
____________
__________
__________
Year ended
Year ended
Year ended
Year ended
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Auditors’ remuneration
For audit services – statutory audit
43,000
12,000
15,500
12,000
For audit services – other assurance
-
1,500
-
1,500
For non-audit services
2,700
300
300
300
Cost of constructing property sold
472,659
-
-
-
Movement in allowance
for expected credit losses
8,855
(870)
48,467
55,046
Amortisation of intangible assets
532
-
532
-
Water and electricity
48,255
-
8,615
-
Repairs and maintenance
74,472
1,679
10,847
1,679
Marketing costs
9,391
-
8,307
-
Professional fees
170,817
37,796
147,830
37,796
A nnual listing fees
50,700
-
50,700
-
Commissions
50,346
-
20,000
-
Bank charges
119,587
76
97,402
76
Other administrative costs
139,752
21,304
69,793
9,388
____________
____________
__________
__________
1,191,066
73,785
478,293
117,785
____________
____________
__________
__________
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
36
Notes to the Financial Statements – continued
10.STAFF COSTS
Group
Company
The number of employees (including the Directors) at the end of the year were:
11.FINANCE INCOME
12.FINANCE COSTS
* The Group has continued work on the extension of the Suncrest Hotel in Qawra. This project is expected to be completed by May 2023. The project is partly financed through the debt securities in issue and a loan facility with a local financial institution. The amount of borrowing costs capitalised during the year ended 31 October 2022 as part of additions to investment property was EUR436,226 (2021: nil). The rate used to determine the amount of borrowing costs eligible for capitalisation was 3.75% + 3-month Euribor, which is the EIR of the specific borrowing.
Year ended
Year ended
Year ended
Year ended
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Personnel costs
Wages and salaries
279,161
13,531
279,001
13,531
Social security costs
7,078
846
7,078
846
____________
____________
__________
__________
286,239
14,377
286,079
14,377
____________
____________
__________
__________
Group
Company
2022
2021
2022
2021
Management and administration
10
3
10
3
___________
___________
___________
___________
Group
Company
Year ended
Year ended
Year ended
Year ended
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Interest on amounts receivable from related parties
-
-
1,070,432
-
Other interest income
14,912
-
14,912
-
___________
___________
___________
___________
14,912
-
1,085,344
-
___________
___________
___________
___________
___________
___________
___________
Group
Company
Year ended
Year ended
Year ended
Year ended
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Interest on bank loans and overdrafts
574,140
21,454
191,548
-
Interest on debt securities in issue*
587,884
-
1,024,110
-
Interest on amounts payable to related parties
2,071,384
41,191
1,130,915
-
Amortisation of bond issue costs
55,494
-
55,494
-
___________
___________
___________
___________
3,288,902
62,645
2,402,067
-
___________
___________
___________
___________
___________
___________
___________
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
37
Notes to the Financial Statements – continued
13.KEY MANAGEMENT PERSONNEL COMPENSATION
14.INCOME TAXATION
Reconciliation of income tax expense/(credit) for the year and the accounting profit/(loss) before taxation multiplied by Malta’s domestic tax rate of 35%:
Group
Company
Year ended
Year ended
Year ended
Year ended
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Directors’ compensation
Short-term benefits
175,000
-
175,000
-
Other key management personnel compensation
Key management personnel compensation included under other administrative expenses
120,000
10,000
120,000
10,000
__________
__________
__________
__________
Group
Company
Year ended
Year ended
Year ended
Year ended
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Current income tax
-for the year
650,790
-
3,234,584
-
-losses surrendered by parent company
211,735
186,079
-
79,761
Deferred tax through profit or loss
2,601,690
(2,100,637)
93,437
882,334
__________
__________
_________
_________
Income tax charge/(credit)
3,464,215
(1,914,558)
3,328,021
962,095
__________
__________
_________
_________
Group
Company
Year ended
Year ended
Year ended
Year ended
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Profit/(loss) before taxation
7,061,725
(23,073,286)
10,411,386
20,974,082
__________
__________
__________
__________
-Tax thereon at 35%
2,471,604
(8,075,650)
3,643,985
7,340,929
Tax effect of:
Lower rates of tax on investment property
1,784,736
6,212,319
(251,486)
(456,684)
Lower rate of tax on rental and other income
(856,076)
(51,250)
(97,961)
(19,726)
Dividend income not subject to tax
-
-
-
(5,950,000)
Other permanent differences
63,951
23
33,483
47,576
__________
__________
__________
__________
Income tax expense/(credit) for the year
3,464,215
(1,914,558)
3,328,021
962,095
__________
__________
__________
__________
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
38
Notes to the Financial Statements – continued
15.BASIC EARNINGS/(LOSS) PER SHARE
The basic earnings/(loss) per share has been calculated on the Group’s profit for the year of EUR3,597,510 (2021: loss for the period of EUR21,158,728) divided by the weighted average number of ordinary shares in issue during the year.
Considering the re-classification of ordinary share capital, bonus issue of shares and loan capitalisation referred to in note 28, the calculation of basic loss per share for the financial year ended 31 October 2021 has been adjusted retrospectively from a loss per share of EUR366.99 to a loss per share of EUR0.09, reflecting such changes in the number of shares, as the weighted average number of shares in issue has been restated from 57,655 to 232,073,425.
16.INTANGIBLE ASSETS
Group and Company
Website
EUR
Cost
At 01.11.2020
-
Additions
2,660
___________
At 31.10.2021
2,660
Additions
-
___________
2,660
2022
___________
Amortisation
At 01.11.2020
-
Amortisation
-
___________
At 31.10.2021
-
Amortisation
532
___________
At 31.10.2022
532
Net book value
___________
At 31.10.2022
2,128
___________
Net book value
At 31.10.2021
2,660
___________
Group
2022
2021
Weighted average number of shares in issue
249,342,480
232,073,425*
*restated in 2021
EUR
EUR
Basic earnings/(loss) per share
0.01
(0.09)
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
39
Notes to the Financial Statements – continued
17.INVESTMENT PROPERTY
Group
Company
EUR
EUR
Fair value
At 31 October 2020
-
6,349,418
Upon formation of Group
6,349,418
-
Upon acquisition of subsidiaries
248,337,100
-
Additions
1,581,298
1,096,131
Revaluation
(23,720,268)
3,824,451
__________
__________
At 31 October 2021
232,547,548
11,270,000
__________
__________
At 31 October 2021
232,547,548
11,270,000
Additions
24,920,003
346,039
Revaluation
2,787,449
1,033,961
__________
__________
At 31 October 2022
260,255,000
12,650,000
__________
__________
The Group recognised an increase in the fair value of its investment properties of EUR2,787,449 (2021: a decrease of EUR23,720,268) reflecting new lease agreements entered into and changes to the existing lease agreements. The decrease in 2021 arose following the-then new lease agreements entered into by the Group since the property values are established through the discounting of rental income over the specific projected period and a discounted terminal value.
Valuation process
Investment property is revalued by professionally qualified architects on the basis of assessments of the fair value of the property in accordance with the international valuation standards and professional practice on a rotating basis.
In the years where an independent valuation is not obtained, management reworks the fair value of the property by verifying all major inputs to the independent valuation report, assessing any property valuation movements when compared to the prior year valuation report and holds discussions with the independent valuer, as necessary. Internal methods are therefore aligned with those used by external valuers.
The Group entered into long-term lease agreements of 20 years with the respective operating companies of the AX Group responsible for the operation of the relevant investment properties with effect from dates ranging between 1 July 2021 to 1 January 2022. For all properties, given the contractual obligations under the leases, their current use equates to the highest and best use.
The Group is committed to develop the Suncrest Hotel extension and the opposite lido as well as the Verdala Hotel in Rabat. The Group has no further restrictions on the realisability of its investment properties and no contractual obligations to purchase, construct or develop investment properties or for repairs, maintenance and enhancements.
The Group’s property has been determined to fall within level 3 of the fair value hierarchy. The different levels in the fair value are defined in Note 5.10.
Details of the investment property and information about their fair value hierarchy as at the end of the year:
Type of Property
Level 3
Total
Date of valuation
Commercial property
251,685,000
251,685,000
31/10/2022
Residential
8,570,000
8,570,000
31/10/2022
Total
260,255,000
260,255,000
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
40
Notes to the Financial Statements – continued
17.INVESTMENT PROPERTY – continued
The Group’s policy is to recognise transfers into and out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer. There were no transfers between levels during the year.
Description of valuation techniques used and key inputs to valuation of investment properties
For investment property categorized under Level 3 of the fair value hierarchy, the valuation was determined by a combination of the market approach and the income capitalization approach as applicable.
Type of Property
Valuation Technique
Inputs
Sensitivity
Residential property amounting to EUR4,160,000 (2021: EUR3,840,000)
Income capitalisation approach
Income capitalization approach: total projected stabilised EBITDA of EUR740,688 (2021: EUR520,800) using an average growth of 2% (2021: same), discount rate of future income of 11.83% (2021: same).
The higher the capitalisation rate, the lower the fair value. The higher the rental income and growth rate the higher the fair value
Commercial property amounting to EUR20,775,000 (2021: EUR18,995,000)
Income capitalisation approach
The inputs used to calculate the total value of the property is an annual return in the range of EUR40 to EUR260 (2021: EUR40 to EUR200) per square meter at a capitalisation rate ranging from 5.75% to 6% (2021: same).
The higher the capitalisation rate, the lower the fair value. The higher the rental income and growth rate the higher the fair value
Commercial property amounting to EUR6,220,000 (2021: EUR4,790,000)
Income capitalisation approach
Income capitalization approach: total projected stabilised EBITDA of EUR1,728,273 (2021: EUR1,215,200) using an average growth of 2% (2021: same), discount rate of future income of 11.83% (2021: same).
The higher the capitalisation rate, the lower the fair value. The higher the rental income and growth rate the higher the fair value
Commercial property amounting to EUR187,560,000 (2021: EUR163,672,642)
Income capitalisation approach
The main inputs used are a fixed rental income of EUR9,830,231 (2021: EUR9,569,663) per annum, increasing by 2% (2021: same) per annum and a discount rate between 9-9.75% (2021: 8.5-9.75%) and a variable rent with a discount rate of 11.83-13.83% (2021: 11.8-13.8%).
The higher the capitalisation rate, the lower the fair value. The higher the rental income and growth rate the higher the fair value
Commercial property amounting to EUR37,130,000 (2021: EUR36,859,906)
Income capitalisation approach
The main inputs used are a rental income of EUR1,650,000 per annum, increasing by 2% per annum and a discount rate of 7.75% (2021: same).
The higher the capitalisation rate, the lower the fair value. The higher the rental income and growth rate the higher the fair value
Residential property amounting to EUR4,410,000 (2021: EUR4,390,000)
Comparative methods (Market approach)
The valuation of investment property was based on market rates for comparable advertised properties taking into account the size, fit out of the subject units, location of the property and current situation of the residential and commercial property market (2021: same).
The higher the market rates, the higher the fair value
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
41
Notes to the Financial Statements – continued
18.LEASES
Group as a lessor
The operating leases relating to the investment property owned by the Group have terms between 1 and 20 years. The lessee does not have the option to purchase the property at the expiry of the lease period. The income earned under the operating lease amounted to EUR8,155,774 (2021: EUR796,597).
At the end of the reporting period, the lessee had outstanding commitments under non-cancellable operating leases, which fall due as follows:
Company as a lessor
The operating leases relating to the investment property owned by the Company have terms between 1 and 20 years. The lessee does not have the option to purchase the property at the expiry of the lease period. The income earned under the operating lease amounted to EUR617,493 (2021: EUR281,793).
At the end of the reporting period, the lessee had outstanding commitments under non-cancellable operating leases, which fall due as follows:
2022
2021
EUR
EUR
Within one year
9,990,970
7,082,554
Between two and five years
55,385,384
50,476,494
Over five years
228,703,385
242,403,113
___________
___________
294,079,739
299,962,161
___________
___________
2022
2021
EUR
EUR
Within one year
684,481
593,816
Between two and five years
2,038,323
1,965,354
Over five years
4,133,650
4,186,600
___________
___________
6,856,454
6,745,770
___________
___________
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
42
Notes to the Financial Statements – continued
19.FINANCIAL ASSETS
Company
Investment in subsidiaries
The consolidated financial statements comprise the results and position of the Company and the Group as at 31 October 2022, which is a common year-end of all subsidiaries forming part of the Group. The list of subsidiaries consolidated is disclosed in Note 4. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Details of the reorganisation exercise that the AX Group went through and the business combinations under common control to form the new Estates Group in 2021 are disclosed in Note 3 to the financial statements.
Subsidiary undertakings loans
The subsidiary undertakings loans are unsecured, carry interest at 3.25% to 3.75% + 3-month Euribor (2021: 3.25% + Euribor) and are repayable on 31 October 2031. The entity determines the expected credit loss allowance on the subsidiary undertaking loans based on a probability of default of 0.16% (2021: 0.16%) and a loss given default of 100% (2021: 100%).
Investment in
subsidiaries
Subsidiary undertakings loans
EUR
EUR
Cost
At 1 November 2020
-
-
Additions
93,630,280
34,280,245
_____________
_____________
At 1 November 2021
93,630,280
34,280,245
Additions
-
27,195,259
Capital contribution during the year
15,000,000
(15,000,000)
_____________
_____________
At 31 October 2022
108,630,280
46,475,504
_____________
_____________
Expected credit loss
At 1 November 2020
-
-
Movement for the year
-
55,046
_____________
_____________
At 1 November 2021
-
55,046
Movement for the year
-
47,819
_____________
_____________
At 31 October 2022
-
102,865
_____________
_____________
Net book value
_____________
_____________
At 31 October 2022
108,630,280
46,372,639
_____________
_____________
At 31 October 2021
93,630,280
34,225,199
_____________
_____________
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
43
Notes to the Financial Statements – continued
20.INVENTORIES
21.TRADE AND OTHER RECEIVABLES
(i)Trade and other receivables are non-interest bearing and repayable on demand.
(ii)Amounts owed by subsidiaries are non-interest bearing and have no fixed date of repayment.
(iii)Amounts owed by other related parties, which include advance payments to related party suppliers, rent receivable and other balances, are non-interest bearing and have no fixed date of repayment.
(iv)Included within accrued income is an amount of EUR 762,602 (2021: nil) of rent receivable that should become receivable from other related parties once invoiced.
22.CASH AND CASH EQUIVALENTS
Cash and cash equivalents included in the cash flow statements comprise the following:
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Property held for development and re-sale
438,198
910,857
-
-
___________
___________
___________
___________
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Trade receivables (i)
164,011
159,972
21,200
36,282
Amounts owed by subsidiaries (ii)
-
-
2,659,192
-
Amounts owed by other related parties (iii)
9,356,342
2,789,513
60,703
123,813
Other receivables (i)
147,793
504,343
8,221
196,663
Indirect taxation
598,764
-
146,323
-
Advance payments to third party suppliers
3,029,902
-
118,481
-
Prepayments and accrued income (iv)
810,526
149,673
40,001
43,321
___________
___________
___________
___________
14,107,338
3,603,501
3,054,121
400,079
___________
___________
___________
___________
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Cash at bank and in hand
12,061,062
1,000,807
7,124,684
19,530
___________
___________
___________
___________
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
44
Notes to the Financial Statements – continued
22.CASH AND CASH EQUIVALENTS - continued
The Group and the Company engaged in the following significant non-cash investing and financing activities during the year:
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Non-cash investing activities
Investment in subsidiaries
-
-
-
93,630,280
Capital contribution to subsidiary
-
-
15,000,000
-
Non-cash financing activities
Capital contribution
-
(3,500,000)
-
(3,500,000)
Capitalisation of reserves
12,450,000
-
12,450,000
-
Capitalisation of shareholder loan
50,000,000
-
50,000,000
-
Debt securities assigned to
parent company
21,645,400
-
21,645,400
-
23.TRADE AND OTHER PAYABLES
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Trade payables (i)
1,608,361
528,780
162,468
72,430
Other payables (ii)
885,563
1,135,549
57,752
108,882
Indirect taxation and social security
-
208,384
-
2,180
Accruals and deferred income (iii)
2,716,804
248,332
215,860
110,757
___________
___________
_________
_________
5,210,728
2,121,045
436,080
294,249
___________
___________
_________
_________
Current
4,856,133
1,495,934
436,080
294,249
Non-current
354,595
625,111
-
-
___________
___________
__________
__________
5,210,728
2,121,045
436,080
294,249
___________
___________
__________
__________
(i)Trade payables are non-interest bearing and repayable within a 60-day term.
(ii)Other payables of the Group include an amount of EUR766,752 (2021: EUR998,880) payable to the Planning Authority in relation to permits acquired for the Suncrest Hotel extension and the Verdala Hotel projects as disclosed in Note 17 to these financial statements. This balance is governed by repayment agreements entered into between two subsidiaries with the Planning Authority and is repayable over a number of years.
(iii)Included within accruals is an amount of EUR888,141 (2021: nil) of additions to investment property that should become payable to other related parties once invoiced.
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
45
Notes to the Financial Statements – continued
24.BANK BORROWINGS
Bank loans are repayable as follows:
The bank loans are secured by general hypothecs over the group assets, by special hypothecs over various immovable properties, by pledges over various insurance policies and identified receivables, and by personal guarantees of the ultimate controlling party. They bear interest at 3.25% to 4.25% (2021: 3.25% to 5.15%) + 3-month Euribor per annum. There are no undrawn facilities as at year end in addition to the bank borrowings above.
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Bank loans
24,062,834
11,212,972
15,000,000
-
___________
___________
___________
___________
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
On demand or within one year
2,118,858
2,751,193
-
-
Between two and five years
19,541,903
5,508,864
15,000,000
-
After five years
2,402,073
2,952,915
-
-
___________
___________
___________
___________
24,062,834
11,212,972
15,000,000
-
___________
___________
___________
___________
Current
2,118,858
2,751,193
-
-
Non-current
21,943,976
8,461,779
15,000,000
-
___________
___________
___________
___________
24,062,834
11,212,972
15,000,000
-
___________
___________
___________
___________
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
46
Notes to the Financial Statements – continued
25.OTHER FINANCIAL LIABILITIES
(i)Amounts owed to parent for related party debt are unsecured, bear interest of 3% + 3-month Euribor and are repayable on 31 December 2034.
(ii)Amounts owed to subsidiaries are largely unsecured working capital balances, interest free and have no fixed date of repayment.
(iii)Amounts owed to other related parties for related party debt, except for an aggregate amount of EUR15,047,500 which bears interest of 6.25% and is repayable on 31 December 2034, are unsecured, interest-free and have no fixed date of repayment.
26.DEBT SECURITIES IN ISSUE
Group and Company
During 2022, AX Real Estate p.l.c. issued an aggregate principal amount of EUR40,000,000 (2022 – 2032), having a nominal value of EUR100 each, bearing interest at the rate of 3.5% per annum. These bonds are unsecured and subject to the terms and conditions in the prospectus dated 6 December 2021. The bonds are listed on the Official Companies List of the Malta Stock Exchange. The quoted market price as at 31 October 2022 for the 3.5% bonds (2022 – 2032) was EUR97.01. The fair value of the bonds as at 31 October 2022 amounted to EUR38,265,665.
As at year-end, the Company had a balance of EUR39,500,567 from this bond issue. The amount is made up of the bond issue of EUR40,000,000 net of the bond issue costs of EUR554,927, which are being amortised over the life of the bonds (EUR55,494 in amortisation bond issue costs during the year ended 2022). EUR21,645,400 of these bonds were assigned to AX Group p.l.c. as part conversion of the loan payable by the Company.
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Amounts owed to parent (i)
31,626,970
105,773,516
31,521,329
105,773,516
Amounts owed to subsidiaries (ii)
-
-
1,728,417
11,238,640
Amounts owed to other related parties (iii)
20,215,064
20,386,259
1,124,347
1,121,454
__________
__________
___________
___________
Total other financial liabilities
51,842,034
126,159,775
34,374,093
118,133,610
__________
__________
___________
___________
Current
6,404,455
5,338,760
3,984,024
12,360,094
Non-current
45,437,579
120,821,015
30,390,069
105,773,516
__________
__________
___________
___________
Total other financial liabilities
51,842,034
126,159,775
34,374,093
118,133,610
__________
__________
___________
___________
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
47
Notes to the Financial Statements – continued
26.DEBT SECURITIES IN ISSUE – continued
Group and Company – continued
27.DEFERRED TAX LIABILITIES
2022
2021
EUR
EUR
At beginning of year
-
-
Bonds issued during the year (net of bond issue costs)
39,445,073
-
Bond issue costs amortization for the year
55,494
-
___________
___________
39,500,567
-
Accrued interest
1,024,110
-
___________
___________
At end of year
40,524,677
-
___________
___________
Falling due within one year
1,024,110
-
Falling due between two and five years
-
-
Falling due after more than five years
39,500,567
-
___________
___________
40,524,677
-
__________
__________
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Arising on:
Provision for doubtful debts
(43,695)
(27,132)
(36,229)
(19,266)
Unabsorbed tax losses and capital allowances
(1,808,252)
(1,666,706)
-
-
Revaluation of investment property
24,490,000
21,730,201
1,012,000
901,600
___________
___________
___________
___________
22,638,053
20,036,363
975,771
882,334
___________
___________
___________
___________
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
48
Notes to the Financial Statements – continued
28.SHARE CAPITAL AND RESERVES
Group and Company
On 11 November 2021, the authorised share capital of the Company was re-classified from EUR500,000,000 divided into 2,000,000,000 ordinary shares of a nominal value of EUR0.25 each to EUR500,000,000 divided into 2,000,000,000 ordinary ‘A’ shares of a nominal value of EUR0.125 each, and 2,000,000,000 ordinary ‘B’ shares of a nominal value of EUR0.125 each. Ordinary ‘A’ shares and Ordinary ‘B’ shares shall entitle the holders thereof to the same rights, benefits and powers in the Company, except that Ordinary ‘B’ shares shall not entitle their holders to vote on any matter at any general meeting of the Company save in the following instances: in respect of a resolution which has the effect of reducing the capital of the Company; in respect of a resolution for the winding up the Company; and in respect of resolution which has the effect of directly affecting the rights and privileges of Ordinary ‘B’ shareholders. On the same day, the issued share capital of the Company was re-classified from EUR50,000 divided into 200,000 ordinary shares of a nominal value of EUR0.25 each to EUR50,000 divided into 400,000 ordinary ‘A’ shares of a nominal value of EUR0.125 each.
On 23 November 2021, the issued share capital of the Company was increased by EUR12,450,000 though a bonus issue of 99,600,000 ordinary ‘A’ shares of a nominal value of EUR0.125 each in favour of the Existing Shareholders, by virtue of the capitalisation of retained earnings. On 30 November 2021, the Company issued 150,000,000 ordinary ‘B’ shares of a nominal value of EUR0.125 each in favour of AX Group p.l.c. by virtue of the capitalisation of a loan due to AX Group p.l.c. amounting to EUR50,000,000 at EUR0.3334 each, split as to EUR0.125 per share in nominal value and EUR0.2084 per share in share premium.
In February 2022, AX Group p.l.c. managed to successfully list AX Real Estate p.l.c. (formerly AX Real Estate Limited) on the Malta Stock Exchange, with 25% of the ordinary A shares being taken up by the general public. Through this transaction, the Company raised EUR13,648,644 with shares issued at EUR0.5608 each, split as to EUR0.125 per share in nominal value and EUR0.4358 per share in share premium.
A dividend amounting to EUR3,429,209 was declared during the year-ended 31 October 2022 (2021: none).
Share premium
The share premium reserve represents the amount by which the fair value of the consideration received for shares issued exceeds the nominal value of the shares, net of equity issue costs of EUR482,478.
Revaluation reserve
The Group and Company’s revaluation reserve arises on the gains or losses from the revaluation of investment property, since net gains or losses from fair value adjustments in the Statements of Profit or Loss are reallocated by the Group and the Company away from retained earnings as part of the statements of changes in equity. When the revalued property is sold, the portion of the property revaluation reserve that relates to that asset, and is effectively realised, is transferred directly to retained earnings.
2022
2021
EUR
EUR
Authorised
2,000,000,000 ordinary A shares of EUR0.125 and
2,000,000,000 ordinary B shares of EUR0.125 each (2021: 2,000,000,000 ordinary shares of EUR0.25 each)
500,000,000
500,000,000
___________
___________
Called up issued and fully paid up
97,193,600 ordinary A shares of EUR0.125 and
177,143,100 ordinary B shares of EUR0.125 each (2021: 200,000 ordinary shares of EUR0.25 each)
34,292,088
50,000
___________
___________
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
49
Notes to the Financial Statements – continued
28.SHARE CAPITAL AND RESERVES - continued
Group and Company - continued
Retained earnings
The reserve represents accumulated retained profits that are available for distribution to the Company’s shareholders.
Other reserves
The “Other reserve” represents the excess of the net assets succeeded to by one of the AXRE subsidiaries over the share capital issued upon the amalgamation of a past entity in a transaction dating back to 1989.
Capital contribution
During the year ended 31 October 2020, an amount payable by the Company to its parent AX Group p.l.c. was capitalised into a contribution. During the year ended 31 October 2021, as noted in Note 3 to these financial statements, the AX Group went through a reorganisation exercise. AX Group p.l.c. sold the shares held in the subsidiaries for a consideration net of reversal of past capital contributions.
29.CONTINGENT LIABILITIES
At 31 October 2022, the Group had the following contingent liabilities, for which no provision has been made in these financial statements:
-A third party is claiming damages from a subsidiary for injuries suffered. The court adjudicated the case in favour of the third party and awarded the sum of EUR78,906 in damages which the subsidiary has appealed in terms of both responsibilities and quantification of damages. The subsidiary is fully covered by insurance.
-As at year-end, subsidiaries had provided guarantees in favour of third parties amounting to EUR171,332 (2021: EUR96,219).
-The Commissioner of Lands is claiming for damages for alleged illegal occupation of land forming part of the Suncrest Lido and Sunny Coast Leisure Centre. The AX Group is currently in negotiations with the Commissioner to settle the matter amicably. AX Group p.l.c. has undertaken a commitment to pay any compensation eventually agreed with the Commissioner of Lands in order to settle this case.
30.CONTINGENT ASSETS
A subsidiary of the Group was awarded the sum of EUR40,986 in compensation for services rendered with the third party appealing the judgement.
31.CAPITAL COMMITMENTS
Commitments for capital expenditure with respect to the development and completion of a number of projects as at 31 October 2022 stand as follows:
2022
EUR
Authorised and contracted 20,874,083
Authorised but not contracted 19,343,546
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
50
Notes to the Financial Statements – continued
32.RELATED PARTIES
The parent company of AX Real Estate p.l.c. (formerly AX Real Estate Limited) is AX Group p.l.c., a limited liability company, which is incorporated in Malta. The individual and consolidated financial statements of the Company and the Estates Group respectively are incorporated in the consolidated financial statements of AX Group p.l.c., the registered addresses of which is AX Group, AX Business Centre, Triq id-Difiza Civili, Mosta MST 1741, Malta. The ultimate controlling party is Mr Angelo Xuereb, who holds a controlling interest in the equity of the parent company.
Group and Company
All entities in which Mr Xuereb has control, has significant influence or is a member of the key management personnel are considered to be “related parties” in these financial statements. Related parties also comprise of key management who have the ability to control or exercise a significant influence in financial and operating decisions.
Balances with related parties are disclosed in Note 19, Note 21, Note 23 and Note 25.
Transactions with related parties
The Group and Company entered into transactions with related parties as follows:
Group
The Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Rental income from parent company
371,583
17,135
19,133
-
Rental income from related parties
6,950,170
568,767
177,308
96,250
Sale of property and real estate
310,000
-
-
-
Interest income from loans to subsidiaries
-
-
1,070,432
-
Interest on loan from parent company
1,130,915
-
1,130,915
-
Interest on loans from other related parties
940,469
41,191
-
-
Investment property additions
8,056,398
-
74,762
-
Dividend received from subsidiary
-
-
10,769,231
17,000,000
Dividend declared to parent company
3,124,975
-
3,124,975
-
Capitalisation of loan from parent company
50,000,000
-
50,000,000
-
Debt securities assigned to parent company
21,645,400
-
21,645,400
-
Interest on bonds payable to parent company
549,550
-
549,550
-
Capitalisation of reserves
12,450,000
-
12,450,000
-
Capital contribution to subsidiary
-
-
15,000,000
-
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
51
Notes to the Financial Statements – continued
33.RISK MANAGEMENT OBJECTIVES AND POLICIES
The most significant financial risks to which the Company is exposed to are described below.
The Group and the Company are exposed to credit risk, liquidity risk and market risk through its use of financial instruments which result from its operating, investing and financing activities. The Group’s and the Company’s risk management is coordinated by the Directors and focuses on actively securing the Group’s and the Company’s short term to medium term cash flows by minimising the exposure to financial risks.
Credit risk
The Group’s and the Company’s credit risk is limited to the carrying amount of financial assets recognised at the date of the statement of financial position, which are disclosed in Notes 19, 21 and 22.
The Group and the Company continuously monitor defaults of customers and other counterparts and incorporate this information into their credit risk controls. The Group and the Company’s policy is to deal with creditworthy counterparties.
None of the Group’s and the Company’s financial assets are secured by collateral or other credit enhancements.
The credit risk for liquid funds is considered to be negligible, since the counterparties are reputable institutions with high quality external credit ratings.
Quoted investments are acquired after assessing the quality of the relevant investments. Cash is placed with reliable financial institutions.
Liquidity risk
The Group’s and the Company’s exposure to liquidity risk arises from its obligations to meet financial liabilities, which comprise bank borrowings, debt securities in issue, trade and other payables and other financial liabilities. Prudent liquidity risk management includes maintaining sufficient cash and committed credit facilities to ensure the availability of an adequate amount of funding to meet the Group’s and the Company’s obligations when they become due.
At 31 October 2022 and 31 October 2021, the contractual maturities on the financial liabilities of the Group and the Company were as summarized below. Contractual maturities reflect gross cash flows, which may differ from the carrying values of financial liabilities at the date of the statement of financial position.
Group
2022
Less than 6 months
From 6 to 12 months
From 1 to 5 years
More than 5 years
Total
EUR
EUR
EUR
EUR
EUR
Bank borrowings
1,763,829
1,207,908
20,343,285
2,573,240
25,888,262
Debt securities in issue
1,400,000
-
5,600,000
47,000,000
54,000,000
Other financial liabilities
6,404,455
-
-
45,437,579
51,842,034
Trade and other payables
1,933,250
206,079
354,595
-
2,493,924
Total
11,501,534
1,413,987
26,297,880
95,010,819
134,224,220
2021
Less than 6 months
From 6 to 12 months
From 1 to 5 years
More than 5 years
Total
EUR
EUR
EUR
EUR
EUR
Bank borrowings
2,269,226
825,812
6,308,321
3,213,842
12,617,201
Other financial liabilities
5,338,760
-
-
120,821,015
126,159,775
Trade and other payables
852,333
186,885
625,111
-
1,664,329
Total
8,460,319
1,012,697
6,933,432
124,034,857
140,441,305
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
52
Notes to the Financial Statements – continued
33.RISK MANAGEMENT OBJECTIVES AND POLICIES – continued
Liquidity risk - continued
Company
Foreign currency risk
Foreign currency transactions arise when the Group and the Company enter into transactions denominated in a foreign currency.
The risk arising from foreign currency transactions is managed by regular monitoring of the relevant exchange rates. The Directors consider foreign exchange risk exposure to not be material and accordingly a sensitivity analysis disclosing how profit or loss and other comprehensive income would change as a result of a reasonable possible shift in foreign exchange rates, is not considered necessary.
Interest rate risk
The Group and the Company’s exposure to interest rate risk is limited to the variable interest rates on borrowings. This applies to all of the Group’s bank borrowings as per note 24 whose applicable interest rates are linked to either the 3-month Euribor or the bank’s base rate, as well as the amounts owed to parent as per note 25 whose applicable interest rate is linked to the Euribor. Based on observations of current market conditions, the Directors consider an upward or downward movement in interest of 1% to 2% to be reasonably possible. However, the potential impact of such a variance is considered immaterial. The movement in the interest rate basis points is based on the currently observable market environment, showing a significantly higher volatility than in prior years.
34.CAPITAL MANAGEMENT
For the purpose of the Group’s and the Company’s capital management, capital includes issued capital, and all other equity reserves attributable to the equity holders of the parent. The primary objective of the Group’s and the Company’s capital is to maximise the shareholder value.
The Group and the Company manage their capital structure and make adjustments in light of changes in economic conditions. To maintain and adjust the capital structure, the Group and the Company may adjust the dividend payment to shareholders or issue new debt. The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group includes within net debt Interest bearing loans and borrowings, trade and other payables and other financial liabilities less cash and cash equivalents.
2022
Up to 12 months
From 1 to 5 years
More than 5 years
Total
EUR
EUR
EUR
EUR
Bank borrowings
562,500
15,187,500
-
15,750,000
Other financial liabilities
3,984,024
-
30,390,069
34,374,093
Debt securities in issue
1,400,000
5,600,000
47,000,000
54,000,000
Trade and other payables
220,220
-
-
220,220
Total
6,166,744
20,787,500
77,390,069
104,344,313
2021
Up to 12 months
From 1 to 5 years
More than 5 years
Total
EUR
EUR
EUR
EUR
Other financial liabilities
12,360,094
-
105,773,516
118,133,610
Trade and other payables
181,312
-
-
181,312
Total
12,541,406
-
105,773,516
118,314,922
AX REAL ESTATE P.L.C.
(formerly AX REAL ESTATE LIMITED)
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
53
Notes to the Financial Statements – continued
34.CAPITAL MANAGEMENT - continued
2022
2021
EUR
EUR
Interest bearing loans and borrowings
64,587,511
11,212,972
Other financial liabilities
51,842,034
126,159,775
Trade and other payables
5,210,728
2,121,045
Less: Cash and cash equivalents
(12,061,062)
(1,000,807)
Net debt
109,579,211
138,492,985
Share capital
34,292,088
50,000
Other reserves
107,740,422
78,648,042
Total capital
142,032,510
78,698,042
Capital and net debt
251,611,721
217,191,027
Gearing ratio
43.6%
63.8%
No changes were made in the objectives, policies and processes for managing capital during the years ended 31 October 2022 and 2021.
35.COMPARATIVE INFORMATION
Certain amounts within the comparative financial statements have been reclassified or amended to achieve better comparability and conformity with the current period financial statements as at 31 October 2022.
36.SUBSEQUENT EVENTS
In January 2023, Suncrest Hotels p.l.c., a subsidiary of the Company, obtained a sanction letter from a local financial institution for a Loan Facility amounting to EUR30,500,000 which has been provided to enable the Group to further support its costs related to the extension of the Suncrest Hotel in Qawra and Lido redevelopment. The Loan Facility bears interest of 4.25% p.a. and the outstanding loan amount is repayable over 15 years from the date of the first drawdown, inclusive of a 12-month moratorium period.
In January 2023, the Company declared an interim dividend amounting to EUR3,429,209, in line with the indication given in the above-mentioned registration document.
Ernst & Young Malta Limited
Regional Business Centre
Achille Ferris Street
Msida MSD 1751, Malta
Tel: +356 2134 2134
Fax: +356 2133 0280
ey.malta@mt.ey.com
ey.com
54
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Real Estate p.l.c. (formerly AX Real Estate Limited)
Report on the audit of the financial statements
Opinion
We have audited the consolidated and separate financial statements of AX Real Estate p.l.c. (formerly AX Real Estate Limited) (the “Company”) and its subsidiaries (the “Group”), set on pages 14 to 53, which comprise the consolidated and separate statement s of financial position as at 31 October 2022, and the consolidated and separate statements of comprehensive income, the consolidated and separate statements of changes in equity and the consolidated and separate statements of cash flows for the year then ended, and notes to the consolidated and separate financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated and separate financial statements give a true and fair view of the financial position of the Group and the Company as at 31 October 2022, and of their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU (“IFRS”) and the Companies Act, Cap. 386 of the Laws of Malta (the “Companies Act”).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs) and the Companies Act. Our responsibilities under those standards and under the Companies Act are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group and the Company in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) as issued by the International Ethics Standards Board of Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in accordance with the Accountancy Profession (Code of Ethics for Warrant Holders) Directive issued in terms of the Accountancy Profession Act, Cap. 281 of the Laws of Malta, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
55
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Real Estate p.l.c. (formerly AX Real Estate Limited) - continued
Report on the audit of the financial statements - continued
Key audit matters incorporating the most significant risks of material misstatements, including assessed risk of material misstatements due to fraud
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.
Fair valuation of the Group’s investment property
The Group holds investment property, which is being further described in Notes 5.15, 6 and 17 to the accompanying financial statements, accounting for 90.7% of its total assets as at 31 October 2022. Investment properties are stated at fair value, which reflects market conditions at the reporting date.
The Group uses the services of professional qualified and independent valuers to revalue the investment properties on the basis of assessments of the fair value of the property in accordance with international valuation standards and professional practice. The valuations are arrived at by a combination of the income capitalisation approach and the market approach as applicable. In the years in which an independent valuation is not obtained, management reperforms the fair value of the property by verifying and updating all major inputs to the last independent valuation report prepared by an external independent valuer. Internal methods are therefore aligned with those used by external valuers. On a yearly basis, management assesses each property’s change in value to determine whether the change is reasonable and holds discussions with the independent valuer, as necessary.
The valuation of property at fair value is highly dependent on estimates and assumptions such as the capitalisation rate, rental income and respective growth rate under the income capitalisation approach; and the market prices for comparable advertised properties under the market approach.
Therefore, due to the significance of the balances and the estimation uncertainty involved in the fair valuation of properties, we have considered the fair valuation of investment property as a key audit matter.
56
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Real Estate p.l.c. (formerly AX Real Estate Limited) - continued
Report on the audit of the financial statements - continued
Key audit matters incorporating the most significant risks of material misstatements, including assessed risk of material misstatements due to fraud - continued
Fair valuation of the Group’s investment property - continued
Our audit procedures over the fair valuation of investment property included amongst others:
•evaluating the design and implementation of key controls over the Group’s property valuation process by inquiring with the valuation process owners;
•performing tests relating to the valuation of the Group’s property, focusing on management reviews over the property valuations by inspecting management workings and analyses, and minutes of meetings of the board and audit committee where such valuation was discussed;
•obtaining an understanding of the scope of work of the professional valuers by reviewing the latest available valuation reports and considered the independence and expertise thereof;
•obtaining an understanding of the process followed by management in the years where an independent valuation is not obtained and an update is performed internally;
•including a valuation specialist on our team to assist us in assessing the appropriateness of the valuation approaches applied, as well as evaluating the reasonability and validity of key assumptions and estimates used in the valuations by comparing to independent sources and relevant market data and conditions; and
•performing procedures over the accuracy and completeness of the inputs used in the valuations in the light of our understanding of the business and industry developments, historical data and other available information.
We also assessed the relevance and adequacy of disclosures relating to the Group’s fair valuation of investment property presented in Notes 5.15, 6 and 16 to the accompanying financial statements.
57
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Real Estate p.l.c. (formerly AX Real Estate Limited) - continued
Report on the audit of the financial statements - continued
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon other than our reporting on other legal and regulatory requirements.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors and those charged with governance for the financial statements
The directors are responsible for the preparation and fair presentation of the financial statements in accordance with IFRS and the requirements of the Companies Act and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group and the Company or to cease operations, or have no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s and the Company’s financial reporting process.
58
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Real Estate p.l.c. (formerly AX Real Estate Limited) - continued
Report on the audit of the financial statements - continued
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
•identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
•obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Company’s internal control;
•evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors;
•conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and the Company to cease to continue as a going concern;
•evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation;
•obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
59
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Real Estate p.l.c. (formerly AX Real Estate Limited) - continued
Report on the audit of the financial statements - continued
Auditor’s responsibilities for the audit of the financial statements - continued
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
60
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Real Estate p.l.c. (formerly AX Real Estate Limited) - continued
Report on other legal and regulatory requirements
Matters on which we are required to report by the Companies Act
Directors’ report
We are required to express an opinion as to whether the directors’ report has been prepared in accordance with the applicable legal requirements. In our opinion the directors’ report has been prepared in accordance with the Companies Act.
In addition, in the light of the knowledge and understanding of the Group and the Company and its environment obtained in the course of the audit, we are required to report if we have identified material misstatements in the Directors’ report. We have nothing to report in this regard.
Other requirements
We also have responsibilities under the Companies Act to report to you if in our opinion:
•proper accounting records have not been kept;
•proper returns adequate for our audit have not been received from branches not visited by us;
•the financial statements are not in agreement with the accounting records and returns;
•we have not received all the information and explanations we require for our audit.
We have nothing to report to you in respect of these responsibilities.
Appointment
We were appointed as the statutory auditor of the Company on 28 October 2020. The total uninterrupted engagement period as statutory auditor, including previous renewals and reappointments amounts to 3 years.
Consistency with the additional report to the audit committee
Our audit opinion on the financial statements expressed herein is consistent with the additional report to the audit committee of the Company, which was issued on the same date as this report.
Non-audit services
No prohibited non-audit services referred to in Article 18A(1) of the Accountancy Profession Act, Cap. 281 of the Laws of Malta were provided by us to the Group and the Company, and we remain independent of the Group and the Company as described in the Basis for opinion section of our report.
No other services besides statutory audit services and services disclosed in the annual report and in the financial statements were provided by us to the Group and the Company and its controlled undertakings.
61
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Real Estate p.l.c. (formerly AX Real Estate Limited) - continued
Report on other legal and regulatory requirements - continued
Report on compliance with the requirements of the European Single Electronic Format Regulatory Technical Standard (the “ESEF RTS”), by reference to Capital Markets Rule 5.55.6
We have undertaken a reasonable assurance engagement in accordance with the requirements of Directive 6 issued by the Accountancy Board in terms of the Accountancy Profession Act (Cap. 281) - the Accountancy Profession (European Single Electronic Format) Assurance Directive (the “ESEF Directive 6”) on the annual financial report of AX Real Estate p.l.c. (formerly AX Real Estate Limited) for the year ended 31 October 2022, entirely prepared in a single electronic reporting format.
Responsibilities of the directors
The directors are responsible for the preparation of the annual financial report, including the consolidated financial statements and the relevant mark-up requirements therein, by reference to Capital Markets Rule 5.56A, in accordance with the requirements of the ESEF RTS.
Our responsibilities
Our responsibility is to obtain reasonable assurance about whether the annual financial report, including the consolidated financial statements and the relevant electronic tagging therein comply in all material respects with the ESEF RTS based on the evidence we have obtained. We conducted our reasonable assurance engagement in accordance with the requirements of ESEF Directive 6.
Our procedures included:
•Obtaining an understanding of the entity's financial reporting process, including the preparation of the annual financial report, in accordance with the requirements of the ESEF RTS.
•Obtaining the annual financial report and performing validations to determine whether the annual financial report has been prepared in accordance with the requirements of the technical specifications of the ESEF RTS.
•Examining the information in the annual financial report to determine whether all the required taggings therein have been applied and whether, in all material respects, they are in accordance with the requirements of the ESEF RTS.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion
In our opinion, the annual financial report for the year ended 31 October 2022 has been prepared, in all material respects, in accordance with the requirements of the ESEF RTS.
Matters on which we are required to report by the Capital Markets Rules
Corporate governance statement
The Capital Markets Rules issued by the Malta Financial Services Authority (“MFSA”) require the directors to prepare and include in their annual report a statement of compliance providing an explanation of the extent to which they have adopted the Code of Principles of Good Corporate Governance and the effective measures that they have taken to ensure compliance throughout the accounting period with those Principles.
The Capital Markets Rules also require the auditor to include a report on the statement of compliance prepared by the directors. We are also required to express an opinion as to whether, in the light of the knowledge and understanding of the Group and the Company and its environment obtained in the course of the audit, we have identified material misstatements with respect to the information referred to in Capital Markets Rules 5.97.4 and 5.97.5.
6 2
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Real Estate p.l.c. (formerly AX Real Estate Limited) - continued
Report on other legal and regulatory requirements - continued
Matters on which we are required to report by the Capital Markets Rules - continued
Corporate governance statement - continued
We read the statement of compliance and consider the implication for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements included in the annual report. Our responsibilities do not extend to considering whether this statement is consistent with the other information included in the annual report.
We are not required to, and we do not, consider whether the Board’s statements on internal control included in the statement of compliance cover all risks and controls, or form an opinion on the effectiveness of the Company’s governance procedures or its risk and control procedures.
In our opinion:
•the corporate governance statement set out on pages 8 to 11 has been properly prepared in accordance with the requirements of the Capital Markets Rules issued by the Malta Financial Services Authority
•in the light of the knowledge and understanding of the Group and the Company and their environment obtained in the course of the audit, the information referred to in Capital Markets Rules 5.97.4 and 5.97.5 are free from material misstatement
Under the Capital Markets Rules we also have the responsibility to:
•review the statement made by the Directors, set out on page 3, that the business is a going concern, together with supporting assumptions or qualifications as necessary.
We have nothing to report to you in respect of these responsibilities.
Remuneration report
The Capital Market Rules issued by the MFSA require the directors to prepare and include in their annual report a Remuneration Report. Such report includes the contents as prescribed in Appendix 12.1 of the Capital Market Rules.
As referred to in Capital Market Rule 12.26N, the auditor is required to check that the information that needs to be provided in the remuneration report, in line with the terms required by Chapter 12 of the Capital Market Rules including Appendix 12.1, has been included in such report.
In our opinion, the remuneration report set out on pages 12 to 13 has been properly prepared in accordance with the requirements of the Capital Market Rules issued by the MFSA.
The partner in charge of the audit resulting in this independent auditor’s report is
Christopher Balzan for and on behalf of
Ernst & Young Malta Limited
Certified Public Accountants
27 February 2023