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Company Registration Number: C 88405
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated
Financial Statements
31 December 2023
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
Pages
Directors’ report 1 - 6
Corporate Governance - Statement of Compliance 7 - 18
Statements of financial position 19 - 20
Statements of profit or loss and other comprehensive income 21
Statements of changes in equity 22 - 23
Statements of cash flows 24
Notes to the consolidated financial statements 25 - 66
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
1
Directors’ report
The Directors present their report and the audited consolidated and parent company financial statements for the year ended 31 December 2023.
Principal activity
The principal activity of the Company, which forms part of the Melite Retail Group (the “Group”), is to act as a finance company by advancing amounts on loan to its subsidiary Melite Properties S.r.l (Melite Properties). The Company is the issuer of €9,250,000 secured bonds of a nominal value of €100 per bond redeemable at their nominal value on 23 November 2028 bearing interest at the rate of 4.85% per annum and having ISIN MT0002031202 (the “Bonds”).
The subsidiary holds leasehold rights over properties in Italy which it sub-lets to third parties.
Financial performance
Revenue for the Group, which was primarily generated from rental operations, amounts to €2,847,102 (2022: €2,443,677) - net of concessions granted to tenants amounting to €6,215 (2022: €26,039), resulting in a gross profit of €1,233,113 (2022: €883,762). The increase in gross profit over 2022 emanates from the increase in rental income upon the re-opening of outlets that were closed during the COVID-19 pandemic. The Group registered a loss before tax of €896,959 (2022: €805,262) after taking into consideration impairments on the value of leasehold premia and termination costs on rescinded leases of €552,039 (2022: €326,916).
Financial Position
The Group’s total asset base stands at €19,060,129 (2022: €20,357,612). The main non-current assets comprise right-of-use assets of €17,434,450 (2022: €18,294,845). At 31 December 2023, the Group’s current assets amounted to €582,112 (2022: €978,375) while current liabilities amounted to €1,610,193 (2022: €1,989,260). The Group’s non-current liabilities amounted to €19,420,773 (2022: €19,419,458) which mainly consist of borrowings of €9,752,104 (2022: €9,813,684) and lease liabilities of €9,668,669 (2022: €9,605,774).
Financial risk management and uncertainties
For principal risks and uncertainties, refer to Note 2, ‘Financial Risk Management’ that details the key risk factors including market risk, credit risk, liquidity risk and the Group’s approach towards managing these risks.
Business update
The Company’s dependence on Melite Properties
The Melite Finance Group is largely dependent on the business and prospects of its subsidiary, Melite Properties. As set out in the Company’s prospectus dated 12 th November 2018 (the “Prospectus”), the proceeds from the issue of the Bonds were loaned, in part, by the Company to Melite Properties for the purposes of: settlement of debts due, for the refurbishing and embellishing of retail outlets located in leading locations in Italy over which it enjoys the rights attached to the lease of such immovable property, and/or for acquiring such rights over additional retail outlets for sub-letting. The continued servicing and the redemption of the Bonds are dependent on Melite Properties being able to fulfil its repayment obligations towards the Company in terms of the said loan.
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Annual Financial Report and Consolidated Financial Statements - 31 December 2023
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Directors’ report - continued
Business update - continued
The current situation
Melite Properties’ principal operation consists of the sub-letting of retail outlets located in Italy, and therefore the longer-term prospects of the Melite Finance Group are intrinsically linked to developments in the retail real estate market in Italy, particularly the market for prime locations on the primary high streets of the Italian peninsula and islands. The Melite Finance Group’s commercial lease agreements typically relate to retail outlets located in high streets of cities such as Milan and Turin and in the main retail area of towns such as Pavia and Como.
As explained in the financial statements for the year ended 31 December 2022, both the retail and the commercial real estate landscapes in Northern Italy, where the vast majority of the Melite Finance Group’s stores are located, experienced unprecedented material disruption as a consequence of the COVID-19 pandemic. This led to a number of leases being rescinded or terminated during 2020 and 2021.
This course of action was necessary to channel all available cash towards safeguarding what the Board of Directors of Melite Properties believed to be the more valuable leases to secure the fulfilment of its obligations towards the Company and, in turn, the survival of Melite Finance Group .
During this time and despite the prevailing challenging economic climate, management was successful in sub-letting the remaining 19 stores to third party operators albeit at a discount as some concessions were granted on rental lease payments to tenants. The rentals on these stores started to return to pre-COVID rates as from January 2023.
The outbreak of war in Ukraine in February 2022 led to soaring inflation and rising interest rates which impacted consumer demand and dampened the outlook of the retail and commercial real estate sectors in Italy. The instability affecting the markets in which the Group operates was exacerbated by the outbreak of war in Gaza in October 2023, and remains prevalent at the date hereof.
In July 2023 the Treviso store was vacated after its tenant, Giadea S.r.l., advised that it would not be renewing the sub-letting agreement with Melite Properties. Management’s efforts over the subsequent months to sub-let the store on commercially favourable terms proved unsuccessful. As a result, and after consultation with Alter Domus Trustee Services (Malta) Limited acting in its capacity as Security Trustee, management rescinded the lease in November 2023 against the payment of an exit fee to the landlord.
At the end of 2023, Melite Properties held leasehold rights over a total of 18 stores which had a combined valuation of €6,951,994, (2022: combined valuation of 19 stores amounting to €8,127,274). This valuation reflects the Directors’ assessment of the fair value of the leasehold premia related to the stores following receipt of a valuation undertaken by Italian professional valuers.
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Annual Financial Report and Consolidated Financial Statements - 31 December 2023
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Directors’ report - continued
Business update - continued
Events after the reporting period
As explained in a company announcement on 15 March 2024 (MTE46), in February 2024, Giadea S.r.l., tenant of 10 out of a total of 18 stores, failed to pay the rent due for the month of January 2024. This led Melite Properties to terminate the lease contracts with Giadea S.r.l. in accordance with the provisions of the relative lease agreements. As all formal requests for payment sent were not entertained, Melite Properties submitted a claim with its insurance for reimbursement of rent due in respect of the months of January and February 2024 and for the payment of rent due for the month of March 2024, this being the three-month period covered by the insurance policy in question.
Notwithstanding the termination of the lease contracts and despite multiple solicitations from management and Italian legal counsel to vacate the stores, Giadea S.r.l. abusively retained occupancy of the 10 stores. Melite Properties sought to take the appropriate legal action to recover possession of the stores in the most cost-effective and time-efficient manner, and to safeguard its interests in respect of any unpaid rent as aforesaid. In the meantime, management continues to actively seek alternative tenants for the 10 stores in anticipation of it regaining possession thereof.
A prolonged delay in Melite Properties recovering possession of the stores for these to be leased to new third-party tenants would have a material impact on the financial position of the Company and on its cashflows.
In light of these developments and as announced on 12 April 2024 (MTE47), an extraordinary general meeting of the shareholders of the Company was convened to be held on the 19 th April 2024. During this meeting the shareholders of the Company were asked to consider the request made by the Board of Directors of the Company for financial support to be granted to the Company and Melite Properties, its wholly owned Italian subsidiary. This request for financial support was made by the Board of Directors of the Company in light of the recent developments in Italy as explained in the Company’s aforementioned announcement of the 15 March 2024 (MTE46).
In light of the fact that the shareholders and ultimate beneficial owners of the Company required additional time for the purpose of determining the extent and nature of the financial support necessary, the extraordinary general meeting was adjourned to the 26 th April 2024.
At the adjourned EGM, the following shareholders of Melite Retail, being indirect shareholders of the Company, informed the Company as follows:
(i)Alf. Mizzi & Sons Ltd (C 203) (“AMS”), holder of 40.30% of the issued share capital of Melite Retail, affirmed its commitment to provide the requisite support to the Company and safeguard the interests of holders of the €9,250,000 secured bonds issued by the Company in terms of a prospectus dated 12 th November, 2018 (the “Bonds”). For the purpose of providing such support, AMS has agreed to lend €9,250,000 (the “Loan Amount”) to the Company (the “AMS Loan”). The purpose of the AMS Loan shall be for the Company to make an offer in the market to repurchase in full the outstanding Bonds in issue (the “Buy Back”), for eventual cancellation. The Buy Back would be offered at par notwithstanding that the Bonds have been trading below par since mid-2020 (current market price €90.00). The AMS Loan is conditional on bondholder and regulatory approval of a resolution to discontinue the listing of the Bonds and on the Buy Back exceeding a pre-set minimum level of acceptances. Melite Retail shall provide security for this loan by way of a pledge over all the ordinary shares which it holds in the Company, in favour of AMS. Taking into account the security provided by the other Melite Retail shareholders as indicated in para (ii) and (iii) below, AMS is effectively relying solely on the Company’s assets for repayment of 77.7% of the AMS Loan;
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Annual Financial Report and Consolidated Financial Statements - 31 December 2023
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Directors’ report - continued
Business update - continued
Events after the reporting period - continued
(ii)Daystar Holdings Limited (C 16466), holder of 7.43% of the issued share capital of Melite Retail, and MMGH Ltd (C 343), holder of 9.70% of the issued share capital of Melite Retail, shall each support the Company in procuring the AMS Loan by providing security in the form of guarantees amounting to 7.6% and 9.7% (respectively) of any eventual shortfall in the repayment of the AMS Loan by the Company to AMS; and
(iii)Andrew Ganado Limited (C 29861), holder of 21.65% of the issued share capital of Melite Retail, and GAN Limited (C 27089), holder of 9.11% of the issued share capital of Melite Retail, shall each support the Company in procuring the AMS Loan by providing an undertaking to apply any funds receivable by them from Melite Properties in terms of existing loan agreements between the said companies (as lenders) and Melite Properties (as borrower) in providing a guarantee to AMS in respect of the AMS Loan in an amount which shall not exceed such amounts actually received by said companies from Melite Properties, which would be equivalent to up to 3.6% (Andrew Ganado Limited) and 1.4% (GAN Limited) of the Loan Amount.
The Board of Directors of the Company remains focussed on endeavouring to safeguard the interests of the bondholders to the best extent possible, and considers the AMS Loan and Buy Back to constitute the most viable means for securing bondholders’ interests through a return of the capital previously invested in the Bonds.
The Directors continue to consider the going concern assumption in the preparation of the Group’s financial statements as appropriate as at the date of authorisation for issue of the 2023 financial statements, as on the basis of the terms of the Buy Back it is reasonable to expect that bondholder and regulatory approval of a resolution to discontinue the listing of the Bonds will be passed and the Buy Back will exceed a pre-set minimum level of acceptances. However, the volatile conditions surrounding the retail and commercial real estate sectors in Italy, the impact of Giadea S.r.l’s default on the operations and financial position of the Group, and the tenancy risk that remains, compounded with the risk that the abovementioned regulatory and bondholder approvals and level of acceptance of the Buy Back may not be met, indicate the existence of a material uncertainty, which may cast material doubt on the ability of the Group to continue as a going concern.
Results and dividends
Results for the year are stated in the income statements and the statements of comprehensive income. The Directors do not recommend the payment of a dividend for the current year.
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Annual Financial Report and Consolidated Financial Statements - 31 December 2023
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Directors’ report - continued
Principal risks and uncertainties faced by the Company
The principal activity of the Company is to act as a finance company by advancing amounts on loan to its subsidiary Melite Properties. The subsidiary holds leasehold rights over properties that are all concentrated in the Italian property rental and retail sector which it sub-lets to third parties. The Company’s trading prospects are therefore, dependent on the performance of its subsidiary to which amounts have been advanced.
The ability of the Group to continue as a going concern is critically dependent on the aforementioned regulatory and bondholder approvals for the discontinuance of listing of the Bonds being obtained and on the success of the Company’s offer to acquire its Bonds in the market. If such approvals are not forthcoming and the set level of acceptance of the Buy Back is not met, the Board is of the view that given the Company’s current financial position and projected cashflows and given the ongoing prevailing risks inherent to its business operation, the Company will be unable to continue as a going concern over the course of the next twelve months.
As explained earlier in this Directors’ Report, the Directors continue to adopt the going concern basis in preparing the financial statements. However, the financial statements do not include any adjustments in the event that the assumptions do not materialise as planned.
Directors
The Directors of the company who held office during the year were:
Paul Mercieca - Chairman
Jacqueline Briffa
Christian Ganado
Stanley Portelli
Alan Frendo Jones (resigned on 25 July 2023)
In accordance with the Articles of Association, the Directors of the Company shall retire from office once at least in each 3-year period but shall be eligible for re-election.
Statement of Directors’ responsibilities for the financial statements
The Directors are required by the Maltese Companies Act (Cap. 386) to prepare consolidated financial statements which give a true and fair view of the state of affairs of the Group as at the end of each reporting period and of the profit or loss for that period.
In preparing the financial statements, the Directors are responsible for:
•ensuring that the financial statements have been drawn up in accordance with International Financial Reporting Standards as adopted by the EU;
•selecting and applying appropriate accounting policies;
•making accounting estimates that are reasonable in the circumstances;
•ensuring that the financial statements are prepared on the going concern basis unless it is inappropriate to presume that the Group and the parent company will continue in business as a going concern.
The Directors are also responsible for designing, implementing and maintaining 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, and that comply with the Maltese Companies Act (Cap. 386). They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
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Annual Financial Report and Consolidated Financial Statements - 31 December 2023
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Directors’ report - continued
Disclosure in terms of the Capital Market Rules
Going concern statement pursuant to Listing Rule 5.62
After making enquiries and considering the developments and circumstances that have been articulated in note 1.1.1, the Directors have reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. T he Directors continue to consider the going concern assumption in the preparation of the Group’s financial statements as appropriate as at the date of authorisation for issue of the 2023 financial statements.
Auditors
PricewaterhouseCoopers have indicated their willingness to continue in office and a resolution for their re-appointment will be proposed at the Annual General Meeting.
Statement by the Directors on the Financial Statements and Other Information included in the Annual Financial Report
The Directors declare that to the best of their knowledge, the consolidated financial statements included in the Annual Financial Report are prepared in accordance with the requirements of International Financial Reporting Standards as adopted by the EU and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and that this report includes a fair review of the development and performance of the business and position of the Company, together with a description of the principal risks and uncertainties that it faces.
Signed on behalf of the Board of Directors on 30 April 2024 by Paul Mercieca (Chairman) and Stanley Portelli (Director) as per the Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Financial Report.
Registered Office:
Level 3, Valletta Buildings,
South Street
Valletta
VLT 1103
Malta
30 April 2024
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
7
Corporate Governance – Statement of Compliance
Introduction
The Capital Markets Rules issued by the Malta Financial Services Authority require companies listed on the Official List of the Malta Stock Exchange to endeavour to adopt and observe The Code of Principles of Good Corporate Governance contained in Appendix 5.1 to Chapter 5 of the Capital Markets Rules (the “Code”).
Although the Code sets out (non-mandatory) recommended principles of good practice, the Board of Directors of the Company (the “Board” or the “Directors”) consider that such practices are generally in the best interests of the Company, its shareholders and other stakeholders, and that compliance with the Code evidences the Company’s and the Directors’ commitment to high standards of good corporate governance.
This Corporate Governance Statement (the “Statement”) sets out the organisational structures, controls, practices and processes in place within the Company and explains how these effectively achieve the goals set out in the Code. For this purpose, the Statement will make reference to the pertinent provisions and principles of the Code and set out the manner in which the Directors believe these have been adhered to. Where the Company has not complied with any of the principles of the Code, this Statement provides an explanation for such non-compliance. Reference in this Statement to compliance with the principles of the Code means compliance with the Code’s main principles and provisions.
The Board has carried out a review of the Company’s compliance with the Code during the period under review and is hereby reporting on the extent of its adoption of the provisions and principles of the Code for the financial period being reported, as required in terms of Capital Markets Rule 5.97.
Compliance
The Company has adopted a corporate decision-making and supervisory structure that is tailored to suit its requirements and designed to ensure the existence of adequate controls and procedures within the Company, whilst retaining an element of flexibility essential to allow the Company to react promptly and efficiently to circumstances arising in respect of its business, taking into account its size and the economic conditions in which it operates.
The Directors are of the view that it has employed structures which are most suitable and complementary for the size, nature, operations and level of complexity of the Company. Accordingly, in general the Directors believe that the Company has adopted appropriate structures to achieve an adequate level of good corporate governance, together with an adequate system of control in line with the Company’s requirements.
The Company has no employees of its own and its principal purpose is to act as a financing vehicle for the Melite Finance Group, consisting of the Company and its wholly owned subsidiary, Melite Properties S.r.l. As a result, the Directors deem some of the principles and provisions of the Code to be disproportionate or inapplicable to the Company, as explained further below.
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Annual Financial Report and Consolidated Financial Statements - 31 December 2023
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Corporate Governance – Statement of Compliance - continued
Principle 1: The Board
The Directors believe that for the period under review, the Company has generally complied with the requirements of this principle and the relative Code provisions.
The Board is composed of members who are fit and proper to direct and manage the business of the Company with honesty, competence and integrity. All the members of the Board are fully aware of, and conversant with, the statutory and regulatory requirements connected to the business of the Company and its status as a listed company and the Board is cognisant of its accountability for its own performance and that of its delegates. The Board of Directors is primarily responsible for:
•devising the corporate and business strategy of the Company;
•setting and reviewing internal policies, procedures and controls of the Company;
•the overall management and supervision of the Company;
•reviewing and evaluating internal control procedures, financial performance and business risks and opportunities facing the Company.
Melite Properties’ management, led by the former executive director of the Company, Mr Andrew Ganado, reported to the Board, at regular intervals or as and when the need arose.
Melite Properties management remains responsible for the overall day-to-day management of Melite Properties, being the main trading and operating arm of the Melite Finance Group.
In light of the resignation of the former financial controller of the Company (announced by way of company announcement MTE36 dated 29 April, 2022), the Company engaged a local accountancy firm to provide accounting support to the Company, as well as assist the Company with the bookkeeping, maintenance of accounting records, preparation of statutory consolidated financial statements, internal reports and other financial information, and compliance with its statutory financial reporting requirements.
The Board has delegated specific responsibilities to the Audit Committee, under formal terms of reference approved by the Board. Further detail in relation to the Audit Committee may be found in the sections headed ‘Principle 8’ of this Statement hereunder.
Principle 2: Chairman and Chief Executive Officer
Given that the Company acts as the financing arm of the Melite Finance Group and does not carry out other operations of its own, the Company has not appointed a Chief Executive Officer. Nevertheless, it has appointed a separate Chairman, whose role is to lead the Board. During the period under review, Mr Paul Mercieca (an independent non-executive director of the Company) occupied the post of Chairman.
At the same time, the responsibility for the day-to-day management of Melite Properties S.r.l., the latter being the operating and trading company of the Melite Finance Group, was subsumed into the role of the former executive director of the Company Mr Andrew Ganado.
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Annual Financial Report and Consolidated Financial Statements - 31 December 2023
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Corporate Governance – Statement of Compliance - continued
Principle 2: Chairman and Chief Executive Officer - continued
The Chairman is responsible for:
•leading the Board and setting its agenda;
•ensuring that the Board is in receipt of precise, timely and objective information to enable the Board to take sound and commercially reasonable decisions and effectively monitor the performance of the Company;
•encouraging and supporting active engagement by all directors for discussion of complex and contentious issues and ensuring that all directors are afforded ample opportunity to contribute to the issues on the agenda and present their views; and
•ensuring effective communication and relationship management with the Company’s shareholders.
Principle 3: Composition of the Board
In terms of the Articles of Association of the Company, the board of directors of the Company shall consist of a minimum of four (4) directors and a maximum of ten (10) directors.
Directors are appointed during the Company’s Annual General Meeting for periods of one year until the next annual general meeting, at which they may stand again for re-election. The Directors of the Company shall retire from office once at least in each three (3) year period, but shall be eligible for re-election. The Articles of Association of the Company clearly set out the procedures to be followed in the appointment of directors, the salient aspects of which are summarised hereunder:
•Any member or members who in the aggregate hold not less than two hundred thousand (200,000) shares having voting rights in the Company are entitled to nominate fit and proper persons for appointment as directors of the Company;
•In the event that there are either less nominations than there are vacancies on the Board, or if there are as many nominations as there are vacancies on the Board, then each nominated person shall be automatically appointed a director;
•In the event that there are more nominations than vacancies on the Board, then an election shall take place in accordance with the procedure laid down in the Articles of Association of the Company.
The Board is comprised of four (4) non-executive directors, all of whom were appointed upon incorporation of the Company. As at the date of this Statement, the Directors of the Company are:
Director Capacity Date of Appointment
Paul Mercieca Independent Non-Executive (Chairman)27 th September 2018
Stanley Portelli Independent Non-Executive 27 th September 2018
Jacqueline Briffa Non-Executive Director 27 th September 2018
Christian Ganado Non-Executive Director 27 th September 2018
Alan Frendo Jones, a Non-Executive Director who was appointed on the 27 th September 2018, resigned from the post on 25 th July 2023.
For the purpose of Code Provision 3.2, two of the Directors are considered by the Board to be independent within the meaning of the Capital Markets Rules, such independent Directors being Mr. Paul Mercieca and Dr. Stanley Portelli.
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Corporate Governance – Statement of Compliance - continued
Principle 3: Composition of the Board - continued
The non-executive Directors contribute to the strategic development of the Company and the creation of long-term growth of the Company and are responsible for:
•constructively challenging and developing strategy;
•monitoring reporting of performance;
•scrutinising performance of management; and
•ensuring the integrity of financial information, financial controls and risk management systems.
Save as disclosed above, none of the non-executive Directors of the Company:
(a) are or have been employed in any capacity by the Company;
(b) receive material additional remuneration from the Company;
(c) have close family ties with any of the executive members of the Board;
(d) have been within the last three years an engagement partner or a member of the audit team of the
present or past external auditor of the Company; and
(e) have a material business relationship with the Company.
In terms of Code Provision 3.4, each non-executive Director has declared in writing to the Board that he/she undertakes:
•to maintain in all circumstances his/her independence of analysis, decision and action;
•not to seek or accept any unreasonable advantages that could be considered as compromising his/her
independence; and
•to clearly express his/her opposition in the event that he/she finds that a decision of the Board may harm the Company.
Principles 4 and 5: The Responsibilities of the Board and Board Meetings
The Board of Directors is entrusted with the overall direction, administration and management of the Company and meets on a regular basis to discuss and take decisions on matters concerning the strategy, operational performance and financial performance of the Company.
In fulfilling its mandate, the Board assumes responsibility, to the extent applicable and possible to:
a) establish appropriate corporate governance standards;
b) review, evaluate and approve, on a regular basis, long-term plans for the Company;
c) review, evaluate and approve the Company’s budgets and forecasts;
d) review, evaluate and approve major resource allocations and capital investments;
e) review the financial and operating results of the Company;
f)ensure appropriate policies and procedures are in place to manage risks and internal control;
g) review, evaluate and approve the overall corporate organisation structure, the assignment of
management responsibilities and plans for senior management development including succession;
h) review, evaluate and approve compensation to senior management;
i)ensure effective communication with shareholders, stakeholders and the market.
In fulfilling its responsibilities, the Board continuously assesses and monitors the Company’s present and future operations, opportunities, threats, and risks in the external environment, and its current and future strengths and weaknesses in its internal environment.
The Board delegates certain specific responsibilities to the Audit Committee.
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Corporate Governance – Statement of Compliance - continued
Principles 4 and 5: The Responsibilities of the Board and Board Meetings - continued
The Board believes that it has systems in place to fully comply with Principle 5 and the relative Code Provisions, in that it adopts a system designed to ensure reasonable notice of meetings of the Board and to ensure that the Directors receive, where required, the relevant material for discussion in advance of meetings so as to provide adequate time for Directors to adequately and suitably prepare themselves and enable them to make an informed decision during meetings of the Board. In light of the high frequency of meetings held by the Board of Directors during the year under review, notice periods were often reduced to a minimum, however at all times seeking to allow for attendance by all Board members and, where necessary, Melite Properties’ management.
The Directors are assisted by the company secretary, who is consulted to ensure compliance with statutory requirements and with continuing listing obligations. The company secretary keeps minutes of all meetings of the Board and of its committees, which minutes are subsequently circulated to the Board as soon as practicable after the meeting.
The company secretary also maintains detailed records of all dealings - by Directors of the Company, directors of its subsidiary and senior management - in the Company’s Bonds, and assists the Board and senior management in being duly informed of and conversant with their obligations emanating from the Market Abuse Regulation (EU Regulation 596/2014) and ensuring compliance therewith, and prevention and detection of insider dealing, unlawful disclosure of inside information and, or market abuse. In particular, cognisant of the material consequences of non-compliance with MAR and the effects thereof on investor confidence and market integrity, the Board has in place written policies and procedures relating to the keeping of insiders’ lists, dealing in Bonds of the Company, and procedures for persons in possession of inside information.
The Directors have access to independent professional advice on any aspect of their duties and responsibilities, or the business and activities of the Company, at the Company’s expense should they so require.
In light of the difficulties and challenges encountered by the Company and the underlying business since the onset of the COVID-19 pandemic in March 2020, the Board felt the need to constantly monitor the evolving situation with a view of taking such measures as it may have considered necessary and appropriate in the circumstances, in a timely manner. A total of thirty-two (32) Board meetings were held during the year under review. The number of board meetings attended by the individual Directors for the year ended 31 December 2023 is as follows:
Name Capacity Meetings attended while in office
Paul Mercieca Independent Non-Executive (Chairman)31/32
Stanley Portelli Independent Non-Executive 28/32
Jacqueline Briffa Non-Executive Director 31/32
Alan Frendo Jones Non-Executive Director 17/18*
Christian Ganado Non-Executive Director 25/32
*resigned from office on 25 th July 2023
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Corporate Governance – Statement of Compliance - continued
Principle 6: Information and Professional Development
On joining the Board, Board members underwent an introductory induction programme, whereby the company secretary informed the incoming members of their statutory duties and obligations, the requirements and implications of relevant legislation, as well as their rights, duties, and obligations under the Company’s Articles of Association and internal policies and procedures.
The Directors received and reviewed periodic information on the Group’s financial performance and position.
Principle 7: Evaluation of the Board’s Performance
The Board does not consider it necessary to appoint a committee to carry out a performance evaluation of its role, as the Board’s performance is evaluated on an ongoing basis by, and is subject to the constant scrutiny of, the Board itself, the Company’s shareholders, the market and the rules by which the Company is regulated as a listed company.
Principle 8: Committees
The Directors believe that, due to the Company’s size and operations, it is not necessary to establish committees regarding remuneration, board evaluation and nominations as suggested by the Code and the Directors have formulated the view that these functions can efficiently and effectively be undertaken by the Board itself.
In view of the above, the Board undertakes an annual review of the remuneration structure applicable to Directors (specifically the independent non-executive Directors) and carries out a self-evaluation of the performance of the Board, as and when considered necessary. The aggregate remuneration that may be paid to the Company’s Directors is subject to the approval of the shareholders at the annual general meeting of the Company.
Audit Committee
In preparation of the listing of its securities on the regulated market, the Board established an Audit Committee (the “Committee”) and has formally set out Terms of Reference governing the scope of its composition, role, functions, powers, duties and responsibilities, as well as the procedures and processes to be complied within its activities.
The principal purpose of the Committee is to protect the interest of the Company and the Company’s shareholders and bondholders, and to assist the Directors in conducting their role effectively vis-à-vis its responsibilities over the financial reporting processes, financial policies and internal controls structures. The Audit Committee oversees the conduct of the external audit and acts to facilitate communication between the Board, management and the external auditors. The external auditors may be invited to attend the Audit Committee meetings. The Audit Committee reports directly to the Board.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
13
Corporate Governance – Statement of Compliance - continued
Principle 8: Committees - continued
Audit Committee - continued
The Audit Committee is expected to deal with and advise the Board on issues of financial risk, control and compliance, and associated assurance of the Company, including:
i.ensuring that the Company adopts, maintains and, at all times, applies appropriate accounting and financial reporting processes and procedures;
ii.monitoring of the audit of the Company’s annual accounts;
iii.facilitating the independence of the external audit process and addressing issues arising from the audit process, as applicable;
iv.reviewing of the systems and procedures of internal control implemented by management and of the financial statements, disclosures and adequacy of financial reporting;
v.making recommendations to the Board in relation to the appointment of the external auditors and the approval of the remuneration and terms of engagement of the external auditors, following the relative appointment by the shareholders in the annual general meeting;
vi.monitoring and reviewing of the external auditors’ independence and, in particular, the provision of additional services to the Company;
vii.considering and evaluating the arm’s length nature of related party transactions that the Company carries out to ensure that the execution of any such transactions are, indeed, at arm’s length and on a sound commercial basis and ultimately in the best interests of the Company;
viii.ensuring that the Company, at all times, maintains effective financial risk management and internal financial and auditing control systems, including compliance functions;
ix.assessing any potential conflicts of interests between the duties of directors and their respective private interests, or their duties and interests unrelated to the Company.
Additionally, it is responsible for monitoring the performance of the entity borrowing funds from the Company, to ensure that budgets are achieved and if not that corrective action is taken as necessary.
With reference to the Audit Committee’s role and function of evaluating any proposed transaction to be entered into by the Company and a related party, it should be noted that the Audit Committee has a crucial role in monitoring the activities and conduct of the business of Melite Properties S.r.l, in so far as these may affect the ability of the Company to fulfil its obligations in terms of the Bonds. Such role is specified in the Audit Committee’s Terms of Reference and also forms the subject of a contractual undertaking by Melite Properties S.r.l in favour of the Company (in the loan agreement regulating the transfer of part of the Bond issue proceeds by the Company to Melite Properties S.r.l), pursuant to which Melite Properties S.r.l has vested the Audit Committee of the Company with certain monitoring functions in light of the Company’s dependence on Melite Properties S.r.l.
The Audit Committee is made up entirely of non-executive Directors, the majority of whom are independent of the Company. Audit Committee members are appointed for a period of three years, unless, their position as member of the Audit Committee is terminated earlier by the Board; or a member of the Audit Committee resigns or is otherwise removed from his/her position as a Director of the Company (resulting in automatic termination of membership within the Audit Committee). During the year under review, the Audit Committee was composed of Paul Mercieca (independent non-executive director, Chairman of the Board and Chairman of the Audit Committee), Stanley Portelli (independent non-executive director and Audit Committee member) and Jacqueline Briffa (non-executive director and Audit Committee member), who commenced their second three year term as Audit Committee members in September, 2022.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
14
Corporate Governance – Statement of Compliance - continued
Principle 8: Committees - continued
Audit Committee - continued
The Chairman of the Audit Committee, appointed by the Board, is entrusted with reporting to the Board on the workings and findings of the Audit Committee. Mr Paul Mercieca occupied the post of Chairman of the Audit Committee during the period under review.
Paul Mercieca and Jacqueline Briffa are considered by the Board to be competent in accounting and/or auditing in terms of the Capital Markets Rules, based on their respective extensive experience occupying financial management and auditing roles within various private and public entities, as well as their respective skills and competencies in financial reporting, financial management, financial auditing and general financial advisory.
During the year ended 31 December 2023, the Audit Committee met four (4) times. The meetings were attended by all its members. In 2024, the Audit Committee is scheduled to meet at least four (4) times.
Principle 9: Remuneration Statement
In terms of Rule 8A.4 of the Code, the Company is to include a remuneration statement in its annual financial report which shall include details of the remuneration policy of the Company and the financial packages of the Board of Directors.
In terms of Article 63 of the Articles of Association of the Company, it is the shareholders of the Company in the General Meeting who determine the maximum annual aggregate remuneration payable to the Directors. The aggregate amount approved for this purpose by the Company’s General Meeting was €16,000 plus VAT.
None of the Directors of the Company is employed by the Company. The Directors are party to service contracts with the Company.
No part of the remuneration paid to the Directors is performance-based. None of the Directors, in their capacity as a Director of the Company, is entitled to profit sharing, share options or pension benefits.
The independent non-executive Directors received €16,000 plus VAT in aggregate for services rendered during the year ended 31 December 2023.
Principle 10: Relations with shareholders (and bondholders) and the market
The Company is committed to ensuring an open channel of communication with its shareholders, bondholders and the wider market. The publication of interim and annual financial statements, together with ongoing company announcements keep the market informed of developments relating to the Company and, in the case of bondholders, of developments pertinent to their investment in the Bonds. The Board feels that such communication provides the market with adequate information about its activities. In addition, the Company’s website (http://meliteproperties.com/melite-finance/) acts a central source of
information about the Company and its business.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
15
Corporate Governance – Statement of Compliance - continued
Principle 11: Conflicts of Interest
The Directors are fully aware of their responsibility to always act in the best interests of the Company and its shareholders irrespective of whoever appointed or elected them to serve on the Board.
On joining the Board and regularly thereafter, Directors and officers of the Company are informed and reminded of their obligations on dealing in securities of the Company within the parameters of law and Capital Markets Rules. The Company has also established an internal code of dealing and reporting procedures.
It is the practice of the Board that when a potential conflict of interest arises in connection with any transaction or other matter, the potential conflict of interest is declared, so that steps may be taken to ensure that such items are appropriately addressed. By virtue of the Memorandum and Articles of Association, the Directors are obliged to keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with that of the Company. The Board member concerned shall not take part in the assessment by the Board as to whether a conflict of interest exists. A Director shall not vote in respect of any contract, arrangement, transaction or proposal in which he/she has a material interest in accordance with the Memorandum and Articles of Association of the Company. The Board believes that this is a procedure that achieves compliance with both the letter and rationale of Principle Eleven of the Code.
Any material transactions with related parties, which pose intrinsic potential conflicts of interests, require the approval of the Audit Committee, which is charged with ensuring that such transactions are necessary for the conduct of the Company’s business and are transacted on an arm’s length basis.
Save as stated below, the Directors are not aware of any potential conflicts of interest which could relate to their roles within the Company:
•During the year under review, Christian Ganado was an officer of Melite Properties S.r.l, Melite Retail Limited, and other related companies of which Melite Retail Limited is the parent (the “Melite Retail Group”), while Jacqueline Briffa, Alan Frendo Jones (resigned on 25 th July 2023) and Stanley Portelli occupied the post of directors of Melite Properties S.r.l. For this reason, these Directors are/were (as applicable) susceptible to conflicts between the potentially diverging interests of the different members of the Melite Finance Group and the Melite Retail Group, respectively;
•Jacqueline Briffa and Alan Frendo Jones (resigned on 25 th July 2023) are officers of Alf Mizzi & Sons Ltd (C 203) and MMGH Ltd (C 343) respectively, and Christian Ganado is an officer and shareholder of Lidsdale Limited (Irish company registration number 316978). During the year under review, each of these companies was a shareholder of Melite Retail Limited (C 74224), the parent company of the Melite Group. Lidsdale Limited transferred the shares it held in Melite Retail Limited to its own shareholders save for one on the 8 th of April 2024. Potential conflicts may therefore arise between the interests of the Company and the Melite Finance Group on the one hand, and those of the shareholders of Melite Retail Limited on the other;
•In view of the lender-borrower relationship which exists between the Company and Melite Properties S.r.l, there may be situations which could give rise to conflicts between the potentially diverging interests of both companies. In these situations, the Directors shall act in accordance with the majority decision of those Directors who would not have a conflict in the situation and in line with the advice of outside legal counsel.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
16
Corporate Governance – Statement of Compliance - continued
Principle 12: Corporate Social Responsibility
The Directors seek to promote the adherence by management to accepted principles of corporate social responsibility in its management of the Melite Finance Group.
Non-compliance with the Code
The Directors believe that good corporate governance is a function of a mix of checks and balances that best suit the Company and its business. Accordingly, whilst there are best practices that can be of general application, the structures that may be required within the context of larger companies are not necessarily and objectively the structures for companies whose size and/or business dictate otherwise. It is in this context that the Directors have adopted a corporate governance framework within the Company that is designed to better suit the Company, its business, scale, and complexity, whilst ensuring proper checks and balances.
Taking the above into account and considering that the Code is not mandatory and that the provisions thereof may be departed from provided that reasonable and justifiable circumstances exist and are adequately explained, the Directors set out below the Code Provisions with which the Company does not comply and what are, in its view, a reasonable and justifiable basis for such departure from the recommendations set out in the Code relating to the composition of the Board.
Principle 4: Succession Policy for the Board (Code provision 4.2.7)
While the Board of Directors itself is responsible for the recruitment and appointment of senior management, the Company has not established a formal succession plan.
Principle 7: Evaluation of the Board’s Performance (Code provision 7.1)
The Board has not appointed a committee for the purpose of undertaking an evaluation of the Board’s performance in accordance with the requirements of Code Provision 7.1.
The Board believes that the size of the Company and the Board itself does not warrant the establishment of a committee specifically for the purpose of carrying out a performance evaluation of its role. Whilst the requirement under Code Provision 7.1 might be useful in the context of larger companies having a more complex set-up and a larger Board, the size of the Company’s Board is such that it should enable it to evaluate its own performance without the requirement of setting up an ad-hoc committee for this purpose. The Board shall retain this matter under review over the coming year.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
17
Corporate Governance – Statement of Compliance - continued
Non-compliance with the Code - continued
Principle 8A: Remuneration Committee (Code provision 8.A.1) and Nominations Committee (Code provision 8.B.1)
Principle 9: Relations with shareholders and the market (Code provision 9.3)
The Board has not established a Remuneration and/or Nominations Committee.
The Board has formulated the view that the size, structure and management of the Company are such that the establishment of an ad-hoc Remuneration Committee is not warranted, and the responsibility for the establishment, review and implementation of the Company’s remuneration policies has been retained within the remit of the Board itself. In particular, the Board notes that the current remuneration policy of the Company comprises purely fixed-rate remuneration, with no entitlement to any performance-based remuneration, or any entitlement to share options, retirement pension benefits or other benefits.
Furthermore, the Board believes that the formal and transparent procedure for the nomination and appointment of directors contained in the Articles of Association is commensurate to the size and operations of the Company, and does not consider the requirement to establish an ad-hoc Nominations Committee to be necessary for the Company.
There are no formal procedures in place within the Company for the resolution of conflicts between minority and controlling shareholders, nor do the Memorandum and Articles of Association of the Company contemplate any mechanism for arbitration in these instances.
Principle 9: Relations with shareholders and the market (Code provision 9.4)
The Company does not have a formal policy in place to allow minority shareholders to present an issue to the Board. In practice, however, the open channel of communication between the Company and minority shareholders via the office of the company secretary and the Chairman is such that any issue that may merit bringing to the attention of the Board may be transmitted via the company secretary or the Chairman, who is in attendance at all meetings of the Board of Directors.
Internal Controls
The key features of the Company’s systems of internal controls are as follows:
The Board is responsible for the Company’s system of internal controls and for reviewing its effectiveness. Such a system is designed to achieve business objectives and to manage rather than to eliminate the risk of failure to achieve business objectives and can only provide reasonable assurance against material error, losses or fraud.
Notwithstanding his resignation on 21 st September, 2021 as executive director of the Company, authority to manage the Company’s subsidiary was and remains delegated to Mr. Andrew Ganado within the limits set by the Board of Directors and the other Directors of Melite Properties S.r.l. In this respect, Mr.Ganado is responsible to control, report, monitor and assess risks and their financial implications, and report same to the said boards, and to take timely corrective actions where necessary.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
18
Corporate Governance – Statement of Compliance - continued
Internal Controls - continued
The Board also approves, after review and recommendation by the Audit Committee, the transfer of funds and other amounts payable to companies within the same group and ensures that these are subject to terms and conditions which are on an arm’s length basis.
Annual General Meeting
Annual General Meeting (AGM)
The AGM is the highest decision-making body of the Company.
All shareholders registered in the shareholders’ register at the relevant registration record date, have the right to participate in the AGM and to vote thereat. A shareholder who cannot participate in at the AGM can be represented by proxy.
A general meeting is deemed to have been duly convened if at least twenty-one (21) days’ notice is given in writing to all persons entitled to receive such notice, which must specify the place, the day and the hour of the meeting, and in case of special business, the general nature of that business, and shall be accompanied by a statement regarding the effect and scope of any proposed resolution in respect of such special business. The notice period may be reduced to fourteen (14) days if certain conditions are satisfied. The quorum of shareholders required is not less than 51% of the nominal value of the issued shares entitled to attend and vote at the meeting.
The agenda of the AGM will comprise of the ordinary business of the AGM, covering the presentation and approval of the Annual Financial Report and Financial Statements, the declaration of dividends, election of directors and the approval of their remuneration, the appointment of the auditors and the authorisation of the directors to set the auditors’ fees, together with any special business specified in the notice calling the AGM.
Extraordinary general meetings (EGMs)
The Directors may convene an extraordinary general meeting whenever they think fit. In addition, any member/s of the Company holding at least ten per cent (10%) of the equity securities of the Company conferring a right to attend and vote at general meetings of the Company, may convene an extraordinary general meeting. During the year under review, the Company held one EGM, on 18 th December 2023.
As explained in a company announcement published on 15 December 2023 (MTE44), during such meeting, the shareholders approved that the Memorandum and Articles of Association of the Company be replaced in their entirety with the new Memorandum and Articles of Association tabled at the meeting.
Approved by the Board of Directors on 30 April 2024.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
19
Statements of financial position
As at 31 December
Group
Company

|  | 2023 | 2022 | 2023 | 2022
| Notes | € | € | € | €
ASSETS |  |  |  |  |
Non-current assets |  |  |  |  |
Right-of-use assets | 4 | 17,434,450 | 18,294,845 |  | -
Property, plant and equipment | 5 | 84,464 | 125,188 |  | -
Investment in subsidiary | 6 | - | - | 3,000,869 | 2,148,432
Loans receivable | 7 | - | - | 5,290,234 | 6,505,626
Other cash at bank | 9 | 554,775 | 554,876 | - | -
Deferred tax asset | 12 | 404,328 | 404,328 | - | -
Total non-current assets |  | 18,478,017 | 19,379,237 | 8,291,103 | 8,654,058
Current assets |  |  |  |  |
Trade and other receivables | 8 | 445,571 | 650,284 | 12,991 | 118,036
Cash and cash equivalents | 9 | 136,541 | 328,091 | 23,870 | 81,763
Total current assets |  | 582,112 | 978,375 | 36,861 | 1 9 9,799
Total assets |  | 19,060,129 | 20,357,612 | 8,327,964 | 8,853,857

MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
20
Statements of financial position - continued
As at 31 December
Group
Company

|  | 2023 | 2022 | 2023 | 2022
| Notes | € | € | € | €
EQUITY AND LIABILITIES |  |  |  |  |
Capital and reserves |  |  |  |  |
Share capital | 10 | 6,532,406 | 6,532,406 | 6,532,406 | 6,532,406
Other reserves | 11 | 637,560 | 637,560 | 637,560 | 637,560
Accumulated losses |  | (9,140,803) | (8,221,072) | (8,602,419) | (8,221,074)
Net deficiency |  | (1,970,837) | (1,051,106) | (1,432,453) | (1,051,108)
Liabilities |  |  |  |  |
Non-current liabilities |  |  |  |  |
Borrowings | 13 | 9,752,104 | 9,813,684 | 9,289,664 | 9,351,244
Lease liabilities | 14 | 9,668,669 | 9,605,774 | - | -
Total non-current liabilities |  | 19,420,773 | 19,419,458 | 9,289,664 | 9,351,244
Current liabilities |  |  |  |  |
Borrowings | 13 | 92,673 | 89,047 | 92,673 | 89,047
Lease liabilities | 14 | 1,174,684 | 1,449,776 | - | -
Trade and other payables | 15 | 335,854 | 450,437 | 378,080 | 464,674
Current tax liabilities |  | 6,982 | - | - | -
Total current liabilities |  | 1,610,193 | 1,989,260 | 470,753 | 553,721
Total liabilities |  | 21,030,966 | 21,408,718 | 9,760,417 | 9,904,965
Total equity and liabilities |  | 19,060,129 | 20,357,612 | 8,327,964 | 8,853,857

The accompanying notes are an integral part of these consolidated financial statements.
The consolidated financial statements were approved and authorised for issue by the Board of Directors on 30 April 2024. The financial statements were signed on behalf of the Board of Directors by Paul Mercieca (Chairman) and Stanley Portelli (Director) as per the Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Financial Report.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
21
Statement of profit or loss and other comprehensive income
Year ended 31 December
Group
Company
2023
2022
2023
2022
Notes
€
€
€
€
Revenue
16
2,847,102
2,443,677
-
-
Cost of sales
17
(1,613,989)
(1,559,915)
-
-
Gross profit
1,233,113
883,762
-
-
Administrative expenses
17
(452,969)
(405,894)
(215,105)
(167,904)
Impairment on leasehold premia, net of recovery
18
(552,039)
(326,916)
-
-
Other operating income
19
33,988
257,010
255,159
271,306
-
-
Operating profit
262,093
407,962
40,054
103,402
Impairment of investment in subsidiary
6
-
-
(362,955)
(437,215)
Finance income
7
-
-
455,394
396,843
Finance costs
20
(1,159,052)
(1,213,224)
(491,066)
(494,192)
Loss before tax
(896,959)
(805,262)
(358,573)
(431,162)
Tax expense
23
(22,772)
(19,842)
(22,772)
(19,842)
Loss for the year
(919,731)
(825,104)
(381,345)
(451,004)
Attributable to:
Owners of the company
(919,731)
(825,104)
(381,345)
(451,004)
Total comprehensive expense
(919,731)
(825,104)
(381,345)
(451,004)
Attributable to:
Owners of the company
(919,731)
(825,104)
(381,345)
(451,004)
The accompanying notes are an integral part of these consolidated financial statements.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
22
Statements of changes in equity
Group
Share capital
Other reserves
Accumulated losses
Total

| Note s | € | € | € | €
Balance as at 1 January 2022 |  | 5,874,406 | 1,086,185 | (7,395,968) | (435,377)
Comprehensive expense |  |  |  |  |
Loss for the year – total comprehensive expense |  | - | - | (825,104) | (825,104)
Transactions with owners |  |  |  |  |
Ex-gratia contribution recevied from one of the shareholders of the parent company | 10 | - | 209,375 | - | 209,375
Issue of preference shares via conversion of capital contributions | 10,11 | 658,000 | (658,000) | - | -
Balance as at 31 December 2022 |  | 6,532,406 | 637,560 | (8,221,072) | (1,051,106)

Balance as at 1 January 2023 | 6,532,406 | 637,560 | (8,221,072) | (1,051,106)
Comprehensive expense |  |  |  |
Loss for the year - total comprehensive expense | - | - | (919,731) | (919,731)
Balance as at 31 December 2023 | 6,532,406 | 637,560 | (9,140,803) | (1,970,837)

MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
23
Statements of changes in equity - continued
Company
Share capital
Other reserves
Accumulated losses
Total
Note s
€
€
€
€
Balance as at 1 January 2022
5,874,406
1,086,185
(7,770,070)
(809,479)
Comprehensive expense
Loss for the year - total comprehensive expense
-
-
(451,004)
(451,004)
Transactions with owners
Ex-gratia contribution recevied from one of the shareholders of the parent company
1 0
-
209,375
-
209,375
Issue of preference shares via conversion of capital contributions
10, 11
658,000
(658,000)
-
-
Balance as at 31 December 2022
6,532,406
637,560
(8,221,074)
(1,051,108)
Balance as at 1 January 2023
6,532,406
637,560
(8,221,074)
(1,051,108)
Comprehensive expense
Loss for the year - total comprehensive expense
-
-
(381,345)
(381,345)
Balance as at 31 December 2023
6,532,406
637,560
(8,602,419)
(1,432,453)
The accompanying notes are an integral part of these consolidated financial statements.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
24
Statements of cash flows
Year ended 31 December
Group
Company
2023
2022
2023
2022
Notes
€
€
€
€
Cash flows from operating activities
Cash generated from operations
24
2,494,321
2,199,187
56,346
22,873
Finance costs
(448,620)
(448,623)
(448,620)
(448,620)
Finance income
7
-
-
455,394
396,843
Income and withholding tax paid net of refunds
(15,790)
(62,826)
(22,772)
(19,842)
Government grants received
2,159
19,955
2,159
19,955
-
-
Net cash generated from/(used in) operating activities
2,032,070
1,707,693
42,50 7
(28,791)
Cash flows from investing activities
Purchase of property, plant and equipment
5
(1,576)
(11,865)
-
-
-
Net cash used in investing activities
(1,576)
(11,865)
-
-
Cash flow from financing activities
Principal elements of lease payments
14
(2,087,244)
(1,814,717)
-
-
Exit payments on termination of leases
(26,000)
-
-
-
Proceeds from capital contribution
11
-
209,375
-
209,375
Repayment of bank loans
(100,400)
(104,300)
(100,400)
(104,300)
Net advances to landlords as security guarantees
(8,400)
(49,968)
-
-
-
Net cash (used in)/generated from financing activities
(2,222,044)
(1,759,610)
(100,400)
105,075
-
Net movement in cash and cash equivalents
(191,550)
(63,782)
(57,893)
76,284
Cash and cash equivalents at beginning of year
9
328,091
391,873
81,76 3
5,479
Cash and cash equivalents at end of year
9
136,541
328,091
23,870
81,763
The accompanying notes are an integral part of these consolidated financial statements.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
25
Notes to the financial statements
1.Summary of material accounting policies
The material accounting policy information applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
1.1 Basis of Preparation
The consolidated financial statements include the financial statements of Melite Finance p.l.c. (“the Company”) and its underlying subsidiary, Melite Properties S.r.l. (together referred to as “the Group”) and have been prepared in accordance with the requirements of International Financial Reporting Standards (IFRSs) as adopted by the EU and with the requirements of the Maltese Companies Act Cap. 386 of the Laws of Malta. The financial statements have been prepared under the historical cost convention.
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 judgment in the process of applying the Group’s accounting policies (see Note 3 - Critical accounting estimates and judgments).
1.1.1 Assessment of going concern assumption
The Group’s financial results for the year ended 31 December 2023 are impacted by impairment charges amounting to €436,969 (2022: €326,916) attributable to impairments, net of recoveries on leasehold premia. In view of the subsidiary’s losses referred to above, the parent company has reflected in its standalone financial information an impairment charge of €362,955 (2022: €437,215) on the carrying amount of the investment in subsidiary.
As at 31 December 2023, the Group is in a net current liability position of €1,028,081 (2022: €1,010,883) as a result of the recognition of lease liabilities on the Group’s rental commitments, in accordance with IFRS 16, with no corresponding asset recognised for the related rental income streams. As at year end the Company is also in a net current liability position of €433,892 (2022: €353,922).
Furthermore, as at the year end, the Group had a net deficiency of €1,970,837 (2022: €1,051,104). Besides the difficult trading scenario that the Group has experienced over the last few years reflected in the provision for impairment on leasehold premia amounting to €2,776,912 as at 31 December 2023 (2022: €2,559,943), the impact of IFRS 16 on the Group’s financial statements is a further reason for this deficiency. While the impact of IFRS 16 over the life of a lease is neutral, the initial years result in a higher finance cost being recognised than towards the end of the lease. The negative impact on the income statement as a result of IFRS 16 for the financial year ended 31 December 2023 is €131,051 (2022: €387,251) with a cumulative impact of €3,107,608 as at 31 December 2023 (2022: €2,976,557). The impact arises from the difference between the rental expense that would have been charged to the income statement had IFRS 16 not been applied and the finance cost on the lease liabilities and the depreciation on the right-of-use assets during the year. As the Italian commercial real estate and retail sector market recovers, and leases take their due course, it would also be expected that the net deficiency will recover.
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1.Summary of material accounting policies - continued
1.1 Basis of preparation - continued
1.1.1 Assessment of going concern assumption - continued
On 5 May 2023, the World Health Organisation (WHO) ended its declaration of COVID-19 being a public health emergency of international concern (PHEIC), although it still continued to refer to it as a pandemic. In Europe, the WHO launched a transition plan to manage the public health response to COVID-19 in the coming years and prepare for possible future emergencies. The release and abolishment of virus containment measures across the globe started to have positive impact on the global economies.
As mentioned in the Group’s financial statements for the year ended 31 December 2022, the global economic outlook clouded in early 2022 as Russia launched an invasion of Ukraine. After almost two years from the commencement of the crisis, the military actions are still ongoing. This geopolitical uncertainty resulting from the Russia-Ukraine conflict and the likelihood that changes may occur unexpectedly, is impacting various industries due to fluctuations in energy and agricultural commodity prices, foreign currency exchange rates, supply chain disruptions, restrictions to imports and exports and the availability of local materials and services and access to local resources. The situation is directly impacting entities that have significant operations or exposures in, or to, Russia, Belarus or Ukraine. The Group does not carry out any trading within these countries or entities incorporated in these countries.
These new conditions triggered new spiralling inflationary pressures across the world and pushed Central Banks to increase interest rates to manage demand with a view to curb inflation. In March 2023, the international financial sector was hit by a number of adverse developments in the banking industry which compounded the levels of economic uncertainty.
The Israel/Gaza conflict has escalated significantly after Hamas launched a major attack on 7 October 2023. The Group does not have any direct exposure to Israel and Gaza strip and if the situation does not deteriorate further, it is estimated that there will be no material impact on the Group’s financial results.
With the re-opening of stores in 2022 which were shut down due to the COVID-19 pandemic coupled with the rental rate increases as stipulated in the lease arrangements, the Melite Finance Group registered an improvement in revenue streams from rental of properties resulting in an improvement of overall financial performance over the previous year.
The Company’s dependence on Melite Properties
The Melite Finance Group is largely dependent on the business and prospects of its subsidiary, Melite Properties. As set out in the Prospectus, the net proceeds from the issuance of the Bonds were utilised for the purposes of: (i) the Company settling, in part, its debt to Melite Retail Limited; and (ii) insofar as the amount loaned to Melite Properties is concerned, (A) Melite Properties refurbishing and embellishing retail outlets located in leading locations in Italy over which, from time to time, it enjoys the rights attached to the lease of such immovable property, and/or for acquiring such rights over additional retail outlets for sub-letting; (B) Melite Properties settling a debt owed to Melite Retail Limited and (C) Melite Properties’ general corporate funding purposes. The continued servicing and the redemption of the Bonds are dependent on Melite Properties being able to fulfil its repayment obligations towards the Company in terms of the said loan.
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1.Summary of material accounting policies - continued
1.1 Basis of preparation - continued
1.1.1 Assessment of going concern assumption - continued
The current situation
Melite Properties’ principal operation consists of the sub-letting of retail outlets located in Italy, and therefore the longer-term prospects of the Melite Finance Group are intrinsically linked to developments in the retail real estate market in Italy, particularly the market for prime locations on the primary high streets of the Italian peninsula and islands. The Melite Finance Group’s commercial lease agreements typically relate to retail outlets located in high streets of cities such as Milan and Turin and in the main retail area of towns such as Pavia and Como.
As explained in the financial statements for the year ended 31 December 2022, both the retail and the commercial real estate landscapes in Northern Italy, where the vast majority of the Stores are located, experienced unprecedented material disruption as a consequence of the pandemic. This led to a number of leases being rescinded or terminated during 2020 and 2021.
This course of action was necessary to channel all available cash towards safeguarding what the Board of Directors of Melite Properties believed to be the more valuable leases to secure the fulfilment of its obligations towards the Company and, in turn, the survival of Melite Finance Group.
During this time and despite the prevailing challenging economic climate, management was successful in sub-letting the remaining 19 stores to third party operators albeit at a discount as some concessions were granted on rental lease payments to tenants. The rentals on these stores started to return to pre-COVID rates as from January 2023.
In July 2023 the Treviso store was vacated after its tenant, Giadea S.r.l., advised that it would not be renewing the sub-letting agreement with Melite Properties. Management’s efforts over the subsequent months to sub-let the store on commercially favourable terms proved unsuccessful. As a result, and after consultation with and the approval of the Security Trustee, management rescinded the lease in November 2023 against the payment of an exit fee to the landlord.
At the end of 2023, Melite Properties held leasehold rights over a total of 18 stores which had a combined valuation of €6,951,994, (2022: combined valuation of 19 stores amounting to €8,127,274), This valuation reflects the directors’ assessment of the fair value of the leasehold premia related to the stores following receipt of a valuation undertaken by Italian professional valuers.
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1.1 Basis of preparation - continued
1.1.1 Assessment of going concern assumption - continued
Events after the reporting period
As explained in a company announcement on 15 March 2024 (MTE46), in February 2024, Giadea S.r.l., tenant of 10 out of a total of 18 stores, failed to pay the rent due for the month of January 2024. This led Melite Properties to terminate the lease contracts with Giadea S.r.l. in accordance with the provisions of the relative lease agreements. As all formal requests for payment sent were not entertained, Melite Properties submitted a claim with its insurance for reimbursement of rent due in respect of the months of January and February 2024 and for the payment of rent due for the month of March 2024, this being the three-month period covered by the insurance policy in question.
Notwithstanding the termination of the lease contracts and despite multiple solicitations from management and Italian legal counsel to vacate the stores, Giadea S.r.l. abusively retained occupancy of the 10 stores. Melite Properties sought to take the appropriate legal action to recover possession of the stores in the most cost-effective and time-efficient manner, and to safeguard its interests in respect of any unpaid rent as aforesaid. In the meantime, management continues to actively seek alternative tenants for the 10 stores in anticipation of it regaining possession thereof.
A prolonged delay in Melite Properties recovering possession of the stores for these to be leased to new third-party tenants would have a material impact on the financial position of the Company and on its cashflows.
In light of these developments and as announced on 12 April 2024 (MTE47), an extraordinary general meeting of the shareholders of the Company was convened to be held on the 19 th April 2024. During this meeting the shareholders of the Company were asked to consider the request made by the Board of Directors of the Company for financial support to be granted to the Company and Melite Properties, its wholly owned Italian subsidiary. This request for financial support was made by the Board of Directors of the Company in light of the recent developments in Italy as explained in the Company’s aforementioned announcement of the 15 March 2024 (MTE46).
In light of the fact that the shareholders and ultimate beneficial owners of the Company required additional time for the purpose of determining the extent and nature of the financial support necessary, the extraordinary general meeting was adjourned to the 26 th April 2024.
At the adjourned EGM, the following shareholders of Melite Retail, being indirect shareholders of the Company, informed the Company as follows:
(i)Alf. Mizzi & Sons Ltd (C 203) (“AMS”), holder of 40.30% of the issued share capital of Melite Retail, affirmed its commitment to provide the requisite support to the Company and safeguard the interests of holders of the €9,250,000 secured bonds issued by the Company in terms of a prospectus dated 12 th November, 2018 (the “Bonds”). For the purpose of providing such support, AMS has agreed to lend €9,250,000 (the “Loan Amount”) to the Company (the “AMS Loan”). The purpose of the AMS Loan shall be for the Company to make an offer in the market to repurchase in full the outstanding Bonds in issue (the “Buy Back”), for eventual cancellation. The Buy Back would be offered at par notwithstanding that the Bonds have been trading below par since mid-2020 (current market price €90.00). The AMS Loan is conditional on bondholder and regulatory approval of a resolution to discontinue the listing of the Bonds and on the Buy Back exceeding a pre-set minimum level of acceptances. Melite Retail shall provide security for this loan by way of a pledge over all the ordinary shares which it holds in the Company, in favour of AMS. Taking into account the security provided by the other Melite Retail shareholders as indicated in para (ii) and (iii) below, AMS is effectively relying solely on the Company’s assets for repayment of 77.7% of the AMS Loan;
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1.1 Basis of preparation - continued
1.1.1 Assessment of going concern assumption - continued
Events after the reporting period - continued
(ii)Daystar Holdings Limited (C 16466), holder of 7.43% of the issued share capital of Melite Retail, and MMGH Ltd (C 343), holder of 9.70% of the issued share capital of Melite Retail, shall each support the Company in procuring the AMS Loan by providing security in the form of guarantees amounting to 7.6% and 9.7% (respectively) of any eventual shortfall in the repayment of the AMS Loan by the Company to AMS; and
(iii)Andrew Ganado Limited (C 29861), holder of 21.65% of the issued share capital of Melite Retail, and GAN Limited (C 27089), holder of 9.11% of the issued share capital of Melite Retail, shall each support the Company in procuring the AMS Loan by providing an undertaking to apply any funds receivable by them from Melite Properties srl in terms of existing loan agreements between the said companies (as lenders) and Melite Properties srl (as borrower) in providing a guarantee to AMS in respect of the AMS Loan in an amount which shall not exceed such amounts actually received by said companies from Melite Properties srl, which would be equivalent to up to 3.6% (Andrew Ganado Limited) and 1.4% (GAN Limited) of the Loan Amount.
The Board of Directors of the Company remains focussed on endeavouring to safeguard the interests of the bondholders to the best extent possible and considers the AMS Loan and Buy Back to constitute the most viable means for securing bondholders’ interests through a return of the capital previously invested in the bonds.
The Directors continue to consider the going concern assumption in the preparation of the Group’s financial statements as appropriate as at the date of authorisation for issue of the 2023 financial statements, as on the basis of the terms of the Buy Back it is reasonable to expect that bondholder and regulatory approval of a resolution to discontinue the listing of the Bonds will be passed and the Buy Back will exceed a pre-set minimum level of acceptances. However, the volatile conditions surrounding the retail and commercial real estate sectors in Italy, the impact of Giadea S.r.l’s default on the operations and financial position of the Group, and the tenancy risk that remains, compounded with the risk that the abovementioned regulatory and bondholder approvals and level of acceptance of the Buy Back may not be met, indicate the existence of a material uncertainty, which may cast material doubt on the ability of the Group to continue as a going concern.
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1.1 Basis of preparation - continued
1.1.2 New and amended standards and interpretations effective in the current year
In the current year, the Group and the company have adopted the following new and amended IFRS and International Financial Reporting Interpretation Committee (IFRIC) interpretations issued by the International Accounting Standard Board (IASB), which are effective for annual periods beginning on or after 1 January 2023. As explained in further detail below, except for the amendments to IAS 1 and IFRS Practice Statement 2, the adoption of these amendments to the requirements of IFRSs as adopted by the EU did not result in substantial changes to the Group’s and Company’s accounting policies impacting the Group and Company’s financial performance and position, including disclosures.
•Definition of Accounting Estimates – Amendments to IAS 8 (issued in February 2021) (effective for financial periods beginning on or after 1 January 2023). The amendments clarify the distinction between changes in accounting estimates, changes in accounting policies and the correction of errors. They also clarify how entities use measurement techniques and inputs to develop accounting estimates. The amendments had no impact on the Group and the Company’s financial statements.
•Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practise Statement 2 (issued in 2020 and 2022) (effective for financial periods beginning on or after 1 January 2023). The amendments aim to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their accounting policies with a requirement to disclose their ‘material’ accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures.
In addition, IFRS Practice Statement 2 has been amended by adding guidance and examples to explain and demonstrate the application of the ‘four-step materiality process’ to accounting policy information in order to support the amendments to IAS 1.
The amendments have had an impact on the Group’s disclosures of accounting policies, but not on the measurement, recognition or presentation of any item in the Group’s financial statements. With effect from these financial statements, the Group has consequently limited its disclosure of accounting policies to that information that is material.
•Deferred Tax related to Assets and Liabilities arising from a Single Transaction – Amendments to IAS 12 (issued in May 2021) (effective for financial periods beginning on or after 1 January 2023). The amendments to IAS 12 Income Tax narrow the scope of the initial recognition exception, so that it no longer applies to transactions that give rise to equal taxable and deductible temporary differences such as leases and decommissioning liabilities. The amendments had no impact on the Groups’ consolidated financial statements.
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1.1 Basis of preparation - continued
1.1.2 New and amended standards and interpretations effective in the current year - continued
•International Tax Reform – Pillar Two Model Rules – Amendments to IAS 12 (issued in May 2023) (effective for financial periods beginning on or after 1 January 2023). The amendments to IAS 12 have been introduced in response to the OECD’s BEPS Pillar Two rules and include:
o A mandatory temporary exception to the recognition and disclosure of deferred taxes arising from the jurisdictional implementation of the Pillar Two model rules; and
o Disclosure requirements for affected entities to help users of the financial statements better understand an entity’s exposure to Pillar Two income taxes arising from that legislation, particularly before its effective date.
The mandatory temporary exception - the use of which is required to be disclosed – applies immediately. The remaining disclosure requirements apply for annual reporting periods beginning on or after 1 January 2023, but not for any interim periods ending on or before 31 December 2023. The amendments had no impact on the Group’s consolidated financial statements as the Group is not in scope of the Pillar Two model rules as its revenue is less than the threshold stipulated by tax laws.
The Company has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.
1.1.3 Standards, interpretations, and amendments to published standards that are not yet effective
The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company’s financial statements are disclosed below. None of these Standards, amendments or interpretations have been early adopted by the Company. The Group and the Company intend to adopt these new and amended standards and interpretations, if applicable, when they become effective.
The following standards and interpretations are applicable in future periods but are not expected to have a material material impact on the Group and the Company’s financial statements:
Amendments to IAS 1: Classification of Liabilities as Current or Non-current (effective for financial periods beginning on or after 1 January 2024)
In January 2020 and October 2022, the IASB issued amendments to IAS 1 Presentation of Financial Statements to specify the requirements for classifying liabilities as current or non-current. The amendments clarify:
•What is meant by a right to defer settlement
•That a right to defer must exist at the end of the reporting period
•That classification is unaffected by the likelihood that an entity will exercise its deferral right
•That only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its classification
•Disclosures
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1.1 Basis of preparation - continued
1.1.3 Standards, interpretations, and amendments to published standards that are not yet effective - continued
Amendments to IAS 1: Classification of Liabilities as Current or Non-current (effective for financial periods beginning on or after 1 January 2024) - continued
The Board decided that if an entity’s right to defer settlement of a liability is subject to the entity complying with the required covenants at a date subsequent to the reporting period (“future covenants”), the entity has a right to defer settlement of the liability even if it does not comply with those covenants at the end of the reporting period. Furthermore, the Board specified that the requirements in paragraph 72B of IAS 1 apply only to liabilities arising from loan arrangements.
The amendments also clarify that the requirement for the right to exist at the end of the reporting period applies regardless of whether the lender tests for compliance at that date or at a later date.
IAS 1.75A has been added to clarify that the ‘classification of a liability is unaffected by the likelihood that the entity will exercise its right to defer settlement of the liability for at least twelve months after the reporting period’. That is, management’s intention to settle in the short run does not impact the classification. This applies even if settlement has occurred when the financial statements are authorised for issuance.
The amendments are effective for annual reporting periods beginning on or after 1 January 2024 and must be applied retrospectively. The 2022 amendments have not yet been endorsed by the EU. The directors of the Company have carried out an assessment to determine the impact the 2020 amendments will have on current practice and whether existing borrowing arrangements may require renegotiation.
The directors anticipate that the application of these 2020 amendments will not alter the classification of the liabilities and hence there will be no impact on these financial statements. However, the 2022 amendments are in the process of being assessed by the Group to determine their applicability and potential effect on the financial statements of the Group and the Company.
Lease Liability in a Sale and Leaseback - Amendments to IFRS 16 (effective for financial periods beginning on or after 1 January 2024)
In September 2022, the IASB issued amendments to IFRS 16 to specify the requirements that a seller uses in measuring the lease liability arising in a sale and leaseback transaction, to ensure the seller-lessee does not recognise any amount of the gain or loss that relates to the right of use it retains. The amendments are effective for annual reporting periods beginning on or after 1 January 2024 and applied retrospectively to sale and leaseback transactions entered into after the date of initial application IFRS 16. Earlier application is permitted, and that fact must be disclosed. The amendments are not expected to have a material impact on the Group’s financial statements.
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1.Summary of material accounting policies - continued
1.1 Basis of preparation - continued
1.1.3 Standards, interpretations, and amendments to published standards that are not yet effective - continued
Supplier Finance Arrangements – Amendments to IAS 7 and IFRS 7 (effective for financial periods beginning on or after 1 January 2024)
In May 2023, the IASB issued amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures to clarify the characteristics of supplier finance arrangements and require additional disclosure of such arrangements. The disclosure requirements in the amendments are intended to assist users of financial statements in understanding the effects of supplier finance arrangements on an entity’s liabilities, cash flows and exposure to liquidity risk. The amendments will be effective for annual reporting periods beginning on or after 1 January 2024. Early adoption is permitted but will need to be disclosed. The amendments are not expected to have a material impact on the Group’s financial statements.
1.2 Consolidation
Subsidiaries
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
The Group applies the acquisition method of accounting to account for business combinations that fall within the scope of IFRS 3. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed (identifiable net assets) in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of the acquiree’s identifiable net assets.
Goodwill is initially measured as the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired. If this is less than the fair value of the identifiable net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in profit or loss.
Upon consolidation, inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
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1.2 Consolidation - continued
When the Group ceases to have control, any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
In the Company’s separate financial statements, investments in subsidiaries are accounted for by the cost method of accounting, i.e. at cost less impairment. Cost includes directly attributable costs of the investment. Provisions are recorded where, in the opinion of the Directors, there is an impairment in value. Where there has been an impairment in the value of an investment, it is recognised as an expense in the period in which the diminution is identified. The results of subsidiaries are reflected in the Company’s separate financial statements only to the extent of dividends receivable. On disposal of an investment, the difference between the net disposal proceeds and the carrying amount is charged or credited to profit or loss.
1.3 Property, plant and equipment
Property, plant and equipment comprising furniture, fittings and fixtures is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.
Depreciation is calculated on the straight-line method to write off the cost of the assets to their residual values over their estimated useful life as follows:
%
Fixtures, furniture and fittings
12 - 15
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals of property, plant and equipment are determined by comparing the proceeds with carrying amount and are recognised within ‘operating expenses’ in the statement of comprehensive income.
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1.4 Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.
1.5 Financial assets
1.5.1 Classification
The Group classifies its financial assets as those to be measured at amortised cost
The classification depends on the Group’s business model for managing the financial assets and the contractual terms of the cash flows.
For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity instruments that are not held-for-trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI).
The Group reclassifies debt instruments when and only when its business model for managing those assets changes.
1.5.2 Recognition and derecognition
Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.
1.5.3 Measurement
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss.
Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.
At initial recognition, the company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset.
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1.5 Financial assets - continued
1.5.3 Measurement - continued
Interest income on debt instruments measured at amortised cost from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition of these instruments is recognised directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented as a separate line item in the statement of profit or loss.
Debt instruments
Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset. The Group classifies its debt instruments as follows:
•Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the statement of profit or loss.
Interest income from these financial assets is included in finance income using the effective interest rate method.
•FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that is subsequently measured at FVPL is recognised in profit or loss and presented net within other gains/(losses) in the period in which it arises.
Equity instruments
The Group subsequently measures all equity investments at fair value. Where the Group’s management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments are recognised in profit or loss as other income when the Group’s right to receive payments is established.
Changes in the fair value of financial assets at FVPL are recognised in other gains/(losses) in profit or loss as applicable.
1.5.4 Impairment
The Group assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a material increase in credit risk.
For trade and other receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables.
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1.6 Trade and other receivables
Trade receivables comprise amounts due from customers for services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are presented as current assets. If not, they are presented as non-current assets.
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less expected credit loss allowances (Note 1.5.4). The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in profit or loss. When a receivable is uncollectible, it is written off against the allowance account for trade and other receivables. Subsequent recoveries of amounts previously written off are credited against profit or loss. Impairment of financial assets is described in Note 1.5.4 above.
1.7 Cash and cash equivalents
Cash and cash equivalents are carried in the statement of financial position at face value. In the statement of cash flows, cash and cash equivalents include cash in hand and deposits held at call with banks.
1.8 Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, net of tax, from the proceeds.
Preference shares issued by the Company are classified as equity instruments as there is no contractual obligation to deliver cash or other financial assets to the shareholder or to exchange financial assets or liabilities with the holder or another party that are potentially unfavourable to the Company.
Incremental costs directly attributable to the issue of new ordinary or redeemable preference shares are shown in equity as a deduction, net of tax, from proceeds. The proceeds received net of any directly attributable transaction costs are credited to share capital.
1.9 Financial liabilities
The Group recognises a financial liability in its statement of financial position when it becomes a party to the contractual provisions of the instrument. The Group’s financial liabilities are classified as financial liabilities which are not at fair value through profit or loss (classified as ‘Other liabilities’) under IFRS 9. Financial liabilities not at fair value through profit or loss are recognised initially at fair value, being the fair value of the consideration received, net of transaction costs that are directly attributable to the acquisition or the issue of the financial liability. These liabilities are subsequently measured at amortised cost. The Group derecognises a financial liability from its statement of financial position when the obligation specified in the contract or arrangement is discharged, is cancelled or expires.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
38
1.Summary of material accounting policies - continued
1.10 Borrowings
Borrowings are recognised initially at the fair value of proceeds received, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the end of the reporting period.
Issue costs incurred in connection with the issue of the bonds include professional fees, printing, listing, registration, underwriting, management fees, selling costs and other miscellaneous costs.
1.11 Trade and other payables
Trade payables comprise obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
1.12 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
1.13 Provisions
Provisions for legal claims are recognised when the group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Provisions are not recognised for future operating losses.
Provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.
1.14 Taxation
The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
(a) 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 substantively enacted at the reporting date in the countries where the Group operates and generates taxable income.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
39
1.Summary of material accounting policies - continued
1.14 Taxation - continued
(b) Deferred tax
Deferred tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
(c) Value added tax
Expenses and capital expenditure are recognised net of the amount of sales (indirect) tax, except:
•When the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable
•When receivables and payables are stated with the amount of sales tax included.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.
(d) Foreign withholding tax
When the Company provides services including financing activities in certain countries, it may be required to pay taxes to the foreign tax authorities, calculated as a percentage of the total sales invoice value, at source on presentation of the invoice to the customer. In many jurisdictions, this amount is referred to as withholding tax. Such an amount paid or payable to tax authorities is accrued for and is charged to profit and loss and classified under the financial statement line item ‘income tax expense’ in the income statement.
1.15 Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable for the sale of services in the ordinary course of the group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts.
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group’s activities as described below.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
40
1.Summary of material accounting policies - continued
1.15 Revenue recognition - continued
(a) Sales of services
Revenue from services is generally recognised in the period the services are provided, based on the services performed to date as a percentage of the total services to be performed. Accordingly, revenue is recognised by reference to the stage of completion of the transaction under the percentage of completion method.
(b) Rental income
Rental income is recognised in profit or loss on a straight-line basis over the term of the lease.
(c) Interest income
Interest income is recognised for all interest-bearing instruments using the effective interest method.
1.16 Leases
(a) The Group is the lessee
At inception of a contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Leases are recognised as a right of use asset and a corresponding liability at the date at which the leased asset is available for use by the Group.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:
•fixed payments (including in-substance fixed payments), less any lease incentives receivable;
•variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date;
•amounts expected to be payable by the Group under residual value guarantees;
•the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and
•payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the respective lessee’s incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right of use asset in a similar economic environment with similar terms, security and conditions.
To determine the incremental borrowing rate, the Group:
•where possible, uses recent third-party financing received by the lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received;
•uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held by the Group, where there is no third party financing; and
•makes adjustments specific to the lease, e.g. term, country, currency and security.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
41
1.Summary of material accounting policies - continued
1.16 Leases - continued
(a) The Group is the lessee - continued
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Right of use assets are measured at cost comprising the following:
•the amount of the initial measurement of lease liability;
•any lease payments made at or before the commencement date less any lease incentives received; and
•any initial direct costs.
Initial direct costs include premia paid on leasehold property. Premium paid on leasehold property are shown at historical cost. Premium paid on outlets held under a contratto di locazione have an indefinite useful life. Therefore, such premia are not depreciated but are subject to an annual impairment test at the end of each financial year (Note 1.5.4). Premium paid on outlets held under a contratto d’affitto di ramo d’azienda are depreciated on a straight-line basis over the lease term of the leasehold property, net of any residual value.
The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset.
Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right of use asset is depreciated over the underlying asset’s useful life.
Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less.
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options are only included in the lease term if the lease is reasonably certain to be extended. Periods after termination options are included in the lease term unless it is reasonably certain that the lease will be terminated.
For leases of properties, the following factors are normally the most relevant:
•If there are material penalties to terminate (or not extend), the Group is typically reasonably certain to extend (or not terminate);
•If any leasehold improvements are expected to have a material remaining value, the Group is typically reasonably certain to extend (or not terminate);
•Otherwise, the Group considers other factors including historical lease durations and the costs and business disruption required to replace the leased asset.
The lease term is reassessed if an option is actually exercised (or not exercised) or the Group becomes obliged to exercise (or not exercise) it. The assessment of reasonable certainty is only revised if a material event or a material change in circumstances occurs, which affects this assessment, and that is within the control of the lessee.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
42
1.Summary of material accounting policies - continued
1.16 Leases - continued
(b) The Group is the lessor
Assets leased out under operating leases are included in right-of-use assets in the statement of financial position and are accounted for as per above. Rental income from operating leases is recognised in profit or loss on a straight-line basis over the lease term. The Group did not need to make any adjustments to the accounting for assets held as lessor as a result of the adoption of the new leasing standard.
1.17 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.
Government grants relating to costs are deferred and recognised in profit or loss on a systematic basis over the period necessary to match them with the costs that they are intended to compensate.
Government grants relating to the purchase of property, plant and equipment or other assets are included in non-current liabilities as deferred income and they are credited to profit or loss on a straight-line basis over the expected lives of the related assets.
Grants related to income are presented either as a credit in the income statement, separately under a general heading ‘other income’.
1.18 Borrowing costs
Borrowing costs which are incurred for the purpose of acquiring or constructing qualifying property, plant and equipment are capitalised as part of its cost. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale. Borrowing costs are capitalised while acquisition or construction is actively underway, during the period of time that is required to complete and prepare the asset for its intended use. Capitalisation of borrowing costs is ceased once the asset is substantially ready for their intended use or sale and is suspended if the development of the asset is suspended. All other borrowing costs are expensed.
Borrowing costs are recognised for all interest-bearing instruments on an accrual basis using the effective interest method. Interest costs include the effect of amortising any difference between initial net proceeds and redemption value in respect of the Group’s interest-bearing borrowings.
2.Financial risk management
2.1 Financial risk factors
The Group’s activities potentially expose it to a variety of financial risks: market risk (including foreign exchange risk, and cash flow and fair value interest rate risk), credit risk and liquidity risk. The Group’s overall risk management focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group did not make use of derivative financial instruments to hedge its risk exposures during the current and preceding financial years.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
43
2. Financial risk management - continued
2.1 Financial risk factors - continued
(a)Market risk
The Board provides principles for overall risk management, as well as policies covering risks referred to above and specific areas such as investment of excess liquidity.
(i)Foreign exchange risk
The Group is not exposed to foreign exchange risk because its principal assets and liabilities, are denominated in euro. The Group’s interest income, interest expense and other operating expenses are also denominated in euro. Accordingly, a sensitivity analysis for foreign exchange risk disclosing how profit or loss and equity would have been affected by changes in foreign exchange rates that were reasonably possible at the end of the reporting period is not deemed necessary.
(ii)Price risk
The Group is not exposed to price risk as the previously held equity securities have been disposed of during the financial year ending 31 December 2021. Consequently, the Group’s asset portfolio does not contain any financial instruments which are exposed to the risk of changes in market prices.
(iii)Cash flow and fair value interest rate risk
The Group is exposed to risks associated with the effects of fluctuations in the prevailing levels of the market interest rates on its financing position and cash flows. As at the reporting date, the Company has fixed rate interest-bearing assets comprising of amounts loaned to subsidiary. Accordingly, its revenue and operating cash flows are substantially independent of changes in market interest rates.
As at the statement of financial position date, the Group’s exposure to changes in interest rates on bank accounts held with financial institutions and on interest bearing liabilities was limited as the Group is predominantly subject to fixed interest rates. Accordingly, a sensitivity analysis disclosing how profit or loss and equity would have been affected by changes in interest rates is not deemed necessary.
At the reporting date, the interest rate profile of the Group and the Company’s interest-bearing financial instruments were as follows:
At 31 December
Group
Company
2023
2022
2023
2022
€
€
€
€
Fixed rate instruments
Interest bearing loan receivable from subsidiary (Note 7)
-
-
6,505,626
6,505,626
4.85% Secured Bonds 2028 (Note 13)
(9,250,000)
(9,250,000)
(9,250,000)
(9,250,000)
Total fixed rate instruments
(9,250,000)
(9,250,000)
(2,744,374)
(2,744,374)
Variable rate instruments
Cash and cash equivalents (Note 9)
136,541
328,091
23,870
81,763
Bank loan (Note 13)
(284,343)
(373,761)
(284,343)
(373,761)
Total variable rate instruments
(147,802)
(45,670)
(260,473)
(291,99 8)
Total fixed and variable rate instruments
(9,397,802)
(9,295,670)
(3,004,847)
(3,036,372)
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
44
2. Financial risk management - continued
2.1 Financial risk factors - continued
(a)Market risk - continued
(iii)Cash flow and fair value interest rate risk - continued
Based on the above, the board considers the potential impact on profit or loss of a defined interest rate shift that is reasonably possible at the reporting date to be immaterial.
(b) Credit risk
Credit risk refers to the risk that a counterparty will cause a financial loss for the company by failing to discharge an obligation. Credit risk arises from loans receivable from subsidiary, cash and cash equivalents and credit exposures to customers, including outstanding receivables and committed transactions.
The maximum exposure to credit risk at the end of the reporting period in respect of the Group’s and Company’s financial assets is equivalent to their carrying amount, which is analysed as follows:
At 31 December
Group
Company
2023
2022
2023
2022
€
€
€
€
Financial assets at amortised cost:
Loan receivable from subsidiary
(Note 7)
-
-
5,290,234
6,505,626
Trade and other receivables
(Note 8)
318,688
618,919
4,521
23,219
Cash and cash equivalents and
other cash at bank (Note 9)
691,316
882,967
23,870
81,763
1,010,004
1,501,886
5,318,625
6,610,608
The figures disclosed in the table above in respect of trade and other receivables exclude prepayments.
Loan receivable and trade and other recei vables
The Company’s loan receivable is due from subsidiary undertaking. The Company monitors intra-group credit exposures at individual entity level on a regular basis and ensures timely performance of these assets in the context of its overall liquidity manage ment.
The loss allowances for these financial assets are based on assumptions about risk of default and expected loss rates. The Company’s management uses judgement in making these assumptions, based on the counterparty’s past history, existing market conditions, as well as forward looking estimates at the end of each reporting period.
As at year-end, based on the Directors’ assessments of these factors and the equity position of the respective counterparty, no impairment charge is consi dered necessary.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
45
2. Financial risk management - continued
2.1 Financial risk factors - continued
(b) Credit risk - continued
The Group manages credit limits and exposures actively in a practicable manner such that there are no material past due amounts receivable from customers as at the end of the reporting period. The Group’s trade and other receivables, which are not impaired financial assets, are principally in respect of transactions with customers for whom there is no recent history of default. Management does not expect any material losses from non-performance by these customers.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. The Directors consider both historical analysis and forward-looking information in determining any expected credit loss. Trade receivables were analysed to identify a history of default with its customers and expected payment trends and settlement periods. Management estimates any risk of default to be minimal and the impact would thus be immaterial. Accordingly, since the historical loss rates and the resulting historical credit losses are deemed to be minimal, any changes to the macroeconomic variables consequently would not have a significant impact on credit losses.
Cash at bank
The credit risk for cash and cash equivalents is considered negligible since the counterparties are reputable banks with high quality external credit ratings. While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identifie d impairment loss was insignificant.
The following table provides information regarding the credit risk exposure on cash and cash equivalents with external credit ratings as at 31 December:
Group
Company
`
2023
2022
2023
2022
€
€
€
€
BBB+ to BBB-
670,239
804,595
2,793
3,391
AA-
21,077
78,372
21,077
78,372
691,316
882,967
23,870
81,763
(c) Liquidity risk
The Group is exposed to liquidity risk in relation to meeting future obligations associated with its financial liabilities, which comprise principally the bonds issued to the general public, lease liabilities and trade and other payables (refer to Notes 13, 14 and 15 respectively). Prudent liquidity risk management includes maintaining sufficient cash and liquid assets to ensure the availability of an adequate amount of funding to meet the Group’s obligations.
The Group’s liquidity risk is managed actively by ensuring that cash inflows arising from expected maturities of the Group’s advances to related parties effected out of the bond issue proceeds, together with any related interest receivable, match the cash outflows in respect of the Group’s bond borrowings, covering principal and interest payments, as referred to i n Note 13 and reflected in the table belo w.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
46
2.Financial risk management - continued
2.1 Financial risk factors - continued
(c) Liquidity risk - continued
The following table analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the tables below are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not material.
Contractual cashflows
Carrying amount
Total
Within 1 year
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
Group
€
€
€
€
€
€
Borrowings
9,844,777
12,255,857
549,025
549,025
11,157,807
-
Lease liabilities
10,843,353
14,282,215
2,045,687
1,895,852
4,808,539
5,532,137
Trade payables
335,854
335,854
335,854
-
-
-
Balance as at 31 December 2023
21,023,984
26,873,92 6
2,930,566
2,444,877
15,966,346
5,532,137
Borrowings
9,902,731
12,785,008
549,025
549,025
1,988,333
9,698,625
Lease liabilities
11,055,550
14,709,042
2,080,158
1,895,399
4,530,505
6,202,980
Trade payables
450,43 5
450,43 5
450,43 5
-
-
-
Balance as at 31 December 2022
21,408,71 6
27,944,48 5
3,079,6 18
2,444,424
6,518,838
15,901,605
Contractual cashflows
Carrying amount
Total
Within 1 year
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
Company
€
€
€
€
€
€
Borrowings
9,382,337
11,793,417
549,025
549,025
10,695,367
-
Trade payables
378,080
356,997
356,997
-
-
-
Balance as at 31 December 2023
9,760,417
12,150,414
906,022
549,025
10,695,367
-
Borrowings
9,440,291
12,322,568
549,025
549,025
1,525,893
9,698,625
Trade payables
464,674
464,674
464,674
-
-
-
Balance as at 31 December 2022
9,904,965
12,787,242
1,013,699
549,025
1,525,893
9,698,625
Contractual cashflows for trade payables exclude accrued interest which is included in the borrowings’ contractual cashflows.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
47
2.Financial risk management - continued
2.2 Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.
The Group monitors capital on the basis of the gearing ratio. The ratio is calculated as net debt divided by total capital. Structural borrowings include borrowings and lease liabilities, less cash and cash equivalents. The gearing ratios at 31 December were as follows:
Group
Company
2023
2022
2023
2022
€
€
€
€
Total borrowings (Note 13)
9,844,777
9,902,731
9,382,337
9,440,291
Total lease liabilities (Note 14)
10,843,353
11,055,550
-
-
Less: Cash in hand and in bank
(Note 9)
(691,316)
(882,967)
(23,870)
(81,763)
Net borrowings
19,996,814
20,075,314
9,358,467
9,358,528
Total equity
(1,970,837)
(1,051,104)
(1,432,453)
(1,051,108)
Total capital
18,025,977
19,024,210
7,926,014
8,307,420
Gearing
110.9%
105.5%
118.1%
112.7%
2.3 Fair values of financial instruments
At 31 December 2023 and 2022 the carrying amounts of cash at bank, receivables, payables, accrued expenses and short-term borrowings reflected in the financial statements are reasonable estimates of fair value in view of the nature of these instruments or the relatively short period of time between the origination of the instruments and their expected realisation.
The fair values of the interest-bearing loans receivable were not materially different from their carrying amounts at the end of the reporting period based on discounted cash flows using market interest rates prevailing at 31 December 2023 and 2022. The current market interest rates utilised for discounting purposes, which were almost equivalent to the respective instruments’ contractual interest rates, are deemed observable and accordingly these fair value estimates have been categorised as Level 2 within the fair value measurement hierarchy required by IFRS 7, ‘Financial instruments: Disclosures’. Information on the fair value of the Group’s bonds issued to the general public is disclosed in Note 13 to the financial statements. The fair value estimate in this respect is deemed Level 1 as it constitutes a quoted price in an active market.
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Annual Financial Report and Consolidated Financial Statements - 31 December 2023
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3.Critical accounting estimates and judgments
Estimates and judgments are continually evaluated and based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions present a risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. The Group’s management also makes judgements, apart from those involving estimations, in the process of applying the entity's accounting policies that may have a material effect on the amounts recognised in the financial statements.
3.1 Fair valuation of right of use assets
As at 31 December 2023, the Group’s right of use assets include leasehold premia amounting to €8,028,930 (2022: €8,648,481). These premia are fair valued on the basis of professional advice, given that such valuation requires the extensive use of judgement and estimates.
There is an active market for the transfer of property rights attached to leases of retail outlets located in Italy, whereby the current holders transfer their residual rights to the retail outlet to other parties for a consideration. The consideration paid typically reflects the differential between the current market rental rate for an outlet and the rental rate stipulated in the lease agreement with the landlord.
Valuations are performed annually using projected rental streams and the residual value of the property following lapse of the rental period, taking into consideration also the location of the property. The most material judgements and estimates affecting the valuations include projected rental streams, the residual value of the property and the current market rate for the leasing of outlets in the location of the outlet being valued.
The Directors obtained an assessment of the current market value of the property rights attached to its lease agreements from a specialised real estate valuer based in Italy. These valuations were used as a basis for the initial transfer of the property rights from Melite Italia S.r.l to Melite Properties S.r.l. The valuations were carried out by reference to the current average rental value per sqm (valore locativo mq/anno) for each outlet, which reflects external market factors including the supply and demand for retail outlets in a particular location. In this respect, the valuers made reference to data derived from recent comparable market transactions that would have occurred in the same street where each property is located.
For the purposes of the current year financial statements, the Directors have requested the valuer to update the valuation for the same property based on the market conditions as at 31 December 2023. The valuations are based on the same methodology assumed in the previous valuations used for the purposes of the initial transfer.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
49
4.Right-of-use assets
Right of use assets recognised during the course of the current financial year relates to leasehold properties and premia paid on such properties.
Group
Right-of-use assets
€
At 1 January 2022
Cost
26,171,436
Accumulated depreciation
(5,235,702)
Provision for impairment on leasehold premia
(2,233,027)
Net book amount
18,702,707
Year ended 31 December 2022
Opening net book amount
18,702,707
Lease remeasurement and modifications
1,401,992
Depreciation (note 17)
(1,482,938)
Impairment on leasehold premia (note 18)
(439,821)
Reversal of impairment on leasehold premia (note 18)
112,905
Closing net book value
18,294,845
At 31 December 2022
Cost
27,573,433
Accumulated depreciation
(6,718,645)
Provision for impairment on leasehold premia
(2,559,943)
Net book amount
18,294,845
Year ended 31 December 2023
Opening net book value
18,294,845
Lease remeasurement and modifications
1,610,769
Additions
24,395
Early termintion of leasehold agreements
(1,041,170)
Depreciation (note 17)
(1,549,916)
Depreciation released on termination of leasehold agreement
312,496
Impairment on leasehold premia (note 18)
(436,969)
Release of impairment losses on termination of lease agreements
220,000
Closing net book value
17,434,450
At 31 December 2023
Cost
28,167,422
Accumulated depreciation
(7,956,060)
Provision for impairment on leasehold premia
(2,776,912)
Net book amount
17,434,450
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
50
4.Right-of-use assets - continued
Lease liabilities are remeasured when a change to future contractual cash flows is identified and applied from the effective date. Remeasurements amounting to €1,635,164 were recognised during the year, by the Group, based upon:
-changes in indexation as certain leases contain a variable lease payment that is tied to the ISTAT, that is, the inflation index issued by the Italian National Institute of Statistics; and
-renegotiation of lease term leading to an extension of the lease term.
The income statements show the following amounts relating to leases:
Group
2023
2022
€
€
Depreciation charge of right-of-use assets (Note 17)
1,549,916
1,482,938
Interest expense (included in finance cost) (Note 20)
667,986
719,032
Expense relating to leases of low-value assets (included in administrative expenses)
13,360
5,683
Lease payments on rescinded lease agreements
26,000
-
Total amount recognised in profit or loss
2,257,262
2,207,653
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
51
5.Property, plant and equipment
Group
Fixtures,furniture and fittings
Total
€
€
At 1 January 2022
Cost
632,689
632,689
Accumulated depreciation
(459,874)
(459,8 74)
Net book amount
172,815
172,815
Year ended 31 December 2022
Opening net book value
172,815
172,815
Additions
11,865
11,865
Depreciation for the year (note 17)
(59,492)
(59,492)
Closing net book amount
125,188
125,188
At 31 December 2022
Cost
644,234
644,234
Accumulated depreciation
(519,046)
(519,046)
Net book amount
125,188
125,188
Year ended 31 December 2023
Opening net book value
125,188
125,188
Additions
1,57 6
1,57 6
Disposals
(130,531)
(130,531)
Depreciation released on disposal
130,531
130,531
Depreciation for the year (note 17)
(42,300)
(42,300)
-
-
Closing net book value
84,464
84,464
At 31 December 2023
Cost
515,279
515,279
Accumulated depreciation
(430,815)
(430,815)
Net book amount
84,464
84,464
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
52
6.Investment in subsidiary
Company
2023
2022
€
€
Year ended 31 December
Opening carrying amount
2,148,432
2,585,647
Capital contribution (note ii)
1,215,392
-
Impairment loss (note iii)
(362,955)
(437,215)
-
Closing carrying amount
3,000,869
2,148,432
At 31 December
Cost
11,022,987
9,807,595
Provision for impairment losses
(8,022,118)
(7,659,163)
-
Closing carrying amount
3,000,869
2,148,432
The carrying amount of the investment in subsidiary at 31 December 2023 and 2022 is an approximation of the fair value and is equivalent to the cost of the investment (including any contributions) net of impairment charges.
(i)In previous financial periods, by virtue of separate extraordinary resolutions signed by all the directors of the company and its underlying subsidiary, the company waived its right to receive settlement of certain amounts due from its subsidiary. These waivers were recognised as additional investment on the basis that these transactions represent capital contributions from the company amounting to a total of €6,174,526 as at 31 December 2022. During the previous financial year, the subsidiary resolved to set-off this capital contribution reserve against accumulated losses.
(ii)As disclosed in note 6, during 2023, the company resolved to further capitalise by way of capital contribution in terms of Italian law the amount of €1,215,392 being part of the loan receivable balance due from its subsidiary as at end of year.
(iii)The impairment losses on the investment in the subsidiary recognised in the statement of profit or loss during the year amounted to €362,955 (2022: €437,215). During the year, the company carried out a review of the recoverable amount of its investment in subsidiary, this led to the recognition of an additional impairment loss. In determining the amount of impairment, the Directors took into consideration several factors including: (a) the net asset value of the subsidiary which reported a decrease in the current year due to the losses incurred during the period, (b) future projected rental, (c) rental margins and (d) the fair value of the leasehold premia.
The subsidiary at 31 December 2023 and 2022, as shown below, is wholly owned and controlled by the Company and its results and financial position affected the figures of the Group. Unless otherwise stated below, the place of business of the subsidiary is the same as the country where the registered office of the underlying investee is situated.
Subsidiary
Registered office
Class of shares held
Percentage of shares held
2023
2022
%
%
Melite Properties S.r.l
Vittor Pisani 20, 20124, Milan, Italy
Ordinary shares
100
100
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
53
7.Loans receivable
Company
2023
2022
€
€
Non-current
Loans to subsidiary
5,290,234
6,505,626
The loans to subsidiary are subject to interest at a fixed interest rate of 7% (2022: 6.1%) per annum, are unsecured and repayable by not later than 23 November 2028. By virtue of a resolution signed by the board of directors of the two companies, it was agreed that effective from 1 January 2023, the interest rate on these two unsecured loans shall increase from 6.1% to 7% per annum. The interest charged on the loan amounting to €455,394 (2022: €396,843) is recognised in profit or loss and presented under the line item ‘Finance income’.
During 2023, the company resolved to further capitalise by way of capital contribution in terms of Italian law the amount of €1,215,392 being part of the loan receivable balance due from its subsidiary as at end of year.
8.Trade and other receivables
Group
Company
2023
2022
2023
2022
€
€
€
€
Current
Trade receivables (note i)
110,053
98,207
-
-
Amounts due from ultimate shareholders (note ii)
83,000
-
-
-
Amounts due from parent (note iii)
16,808
28,469
-
11,661
Amounts due from fellow subsidiary and other related parties (note iii)
2,185
1,376
811
-
Accrued income – fellow subsidiary, net of provision (note iv)
92,278
363,763
-
-
Prepayments and accrued income
126,883
31,365
8,470
94,817
Other receivables and indirect taxation (note v)
14,36 4
127,104
3,710
11,558
-
-
445,571
650,284
12,991
118,036
(i)Trade receivables represent rent receivables from lessees for the properties rented by the Group to third parties. The estimated fair values of receivables are the discounted amount of the estimated future cash flows expected to be received and approximate their carrying amount. These receivables are secured by corporate or bank guarantees equivalent to three-months’ rent.
(ii)The amounts due from the ultimate shareholders are unsecured, interest free and are repayable by not later than 31 March 2024. However, the Board has approved that the amount will be repaid by 30 th June 2024. Furthermore, the loan agreement stipulates that the borrowers have the option to set-off this receivable against amounts due to them by the Group (see note 13 below).
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
54
8.Trade and other receivables - continued
(iii)The amounts due from parent, fellow subsidiary and other related parties are unsecured, interest free and repayable on demand.
(iv)The Group had receivables from Melite Italia S.r.l., the previous tenant of the properties amounting to €1,339,622 (2022: €1,724,114) arising from rent payable and other amounts due from administrative support service fees. During 2020, Melite Italia elected to commence a process of voluntary administration (“concordato”) in terms of Italian law and this event triggered doubt over the Group’s ability to recover this balance and hence an expected credit loss provision of €1.3 million was recognised during the year ended 31 December 2020. During the year, the Group received funds from the concordato amounting to €337,361 (2022: €Nil) representing the secured portion of the amounts due. The expected credit loss provision as at 31 December 2023 stood at €1.2 million.
(v)As at 31 December 2022, included in the line item ‘Other receivables and indirect taxation’ are value added tax credits and refunds receivable from Authorities, arising from the Melite Italia ‘concordato’ amounting to €82,000.
9.Cash and cash equivalents and Other cash at bank
For the purposes of the statement of cash flows, cash and cash equivalents comprise the following:
Group
Company
2023
2022
2023
2022
€
€
€
€
Cash at bank and in hand
691,316
882,967
23,870
81,763
Less: Restricted cash (classified under ‘Other cash at bank’)
(554,775)
(554,876)
-
-
-
-
-
Cash and cash equivalents in the
statement of cash flows
136,541
328,091
23,870
81,763
Cash and cash equivalents include €554,876 (2022: €554,876) of other cash deposits which are held by Banca Intesa Sanpaolo. Such deposits are subject to regulatory restrictions and are therefore not available for general use by the entities within the Group over the next 12 months. Therefore, these have been classified to non-current assets under the line item ‘Other cash at bank’.
10.Share capital
Group and Company
Redeemable
Ordinary
preference
Shares
shares
Total
No of shares
No of shares
No of shares
Authorised
As at 1 January 2022
10,000,000
-
10,000,000
Redesignation of 658,000 ordinary shares to
redeemable preference shares (note i)
(658,000)
658,000
-
As at 31 December 2022 and 2023
9,342,000
658,000
10,000,000
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
55
10.Share capital - continued
Group and Company
Redeemable
Ordinary
preference
Shares
shares
Total
€
€
€
Authorised
As at 1 January 2022
10,000,000
-
10,000,000
Redesignation of 658,000 ordinary shares to
redeemable preference shares (note i)
(658,000)
658,000
-
As at 31 December 2022 and 2023
9,342,000
658,000
10,000,000
Total authorised share capital
9,342,000
658,000
10,000,000
2023
2022
€
€
Issued and fully paid
5,874,406 (2022: 5,874,406) ordinary shares of
€1 each
5,874,406
5,874,406
658,000 (2022: 658,000) redeemable preference
shares of €1 each
658,000
658,000
Total issued share capital
6,532,406
6,532,406
On 27 September 2018, the company was incorporated with an issued share capital of €250,000 made up of 250,000 ordinary shares of €1 each. Subsequently, on 5 November 2018, a further 5,624,406 shares of €1 each were issued and allotted to the Company’s parent as consideration for an amount due by the Company to its parent.
On 19 November 2021, one of the shareholders of the parent company advanced €448,625. On 28 January 2022 a further €209,375 were advanced to the company and the Group, with a view of this being converted into preference share capital. The capitalisation was approved by the shareholders of the Company on 28 January 2022, whereby it was resolved to:
(i)Re-designate the authorized share capital of the company from ten million Euro (€10,000,000) divided into ten million (10,000,000) Ordinary Shares of a nominal value of one Euro (€1) each to nine million three hundred and forty-two thousand (9,342,000) Ordinary Shares of a nominal value of one Euro (€1) each and six hundred and fifty-eight thousand (658,000) redeemable Preference Shares of a nominal value of one Euro (€1) each.
(ii)Increase the issued share capital of the Company by the issue and allotment of six hundred and fifty-eight thousand (658,000) redeemable preference shares of a nominal value of one Euro (€1), fully paid up, in favour of Alf Mizzi & Sons Ltd, in consideration for the ex-gratia contribution of €658,000 referred to above.
The above was formalised on 11 April 2022 upon filing with the Registry of Companies of the amendments to the Company’s Memorandum and Articles of Association required in light of the change in the Company’s capital structure and the increase in the authorised preference share capital of the Company.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
56
10.Share capital - continued
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Holding Company. However, the Company is restricted from making any dividend distributions to the ordinary shareholders before the redemption of the preference shares. Only ordinary shareholders are entitled to nominate directors on the board of the Holding Company.
All preference shares shall rank pari passu and are redeemable at the sole discretion of the Company at any time after 1 December 2028 and not later than 1 December 2075. The amount payable on the redemption of the preference shares is the nominal value of such share. The redeemable preference shares have the following terms and conditions:
(a)Preference shareholders shall not be entitled to attend and vote at meetings of the shareholders except for the purpose of:
(i)reducing the capital of the Company; or
(ii)winding up of the Company; or
(iii)where the proposition to be submitted directly affects their rights and obligations; or
(iv) when the dividend on their shares is in arrears by more than six months.
In such case where the holder of preference shares shall have the right to vote, such shareholder shall have one vote in respect of each preference share held.
(b)The holders of preference shares shall not be entitled to any fixed coupon.
(c)Until such time as the preference shares are redeemed in accordance with the provisions of the Company’s Articles of Association, the preference shareholders are entitled to the sum of €30,000 per annum, which amount shall accrue and shall become payable with effect from 1 January 2029. This annual entitlement shall accumulate and shall be payable in full on the date of the redemption of the preference shares. This entitlement shall bear no interest.
(d)Preference shares shall rank before any claim from ordinary shareholders, prior to the repayment of any capital contributions and loans granted by ordinary shareholders and/or granted by ultimate beneficial shareholders.
(e)The holders of preference shares shall not be entitled to any surplus assets of the company on a winding up however, they shall rank prior to the ordinary shareholders in terms of return of capital.
11.Other reserves
Group and Company
2023
2022
€
€
Capital contribution reserve
At 31 December
637,560
637,560
The other reserves comprise of capital contributions from shareholders of the parent company.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
57
11.Other reserves - continued
The capital contributions remaining after the capitalisation explained earlier in note 10, are unsecured, interest-free and are only repayable at the option of the Company. Moreover, the Company has no obligation to bear any servicing cost or transfer any economic benefits of any kind to the contributor or any other person in return. These terms and conditions of the contributions granted render these instruments as equity in nature in accordance with the requirements of IAS 32: Financial Instruments – Presentation.
12.Deferred tax asset
Group
Company
2023
2022
2023
2022
€
€
€
€
Balance as at 31 December
404,328
404,328
-
-
Deferred income taxes are calculated on all temporary differences under the liability method using a principal tax rate of each of the jurisdictions in which the Group’s companies operate.
The balance at 31 December represents:
Group
Company
2023
2022
2023
2022
€
€
€
€
Temporary differences arising on:
- unutilised tax losses
87,865
87,865
-
-
- provisions
316,463
316,463
-
-
404,328
404,328
-
-
At 31 December 2023, the Group had unrecognised deferred tax assets arising on tax losses and credits amounting to €556,097 (2022: €565,297). The crystallisation of this asset remains doubtful given the expected pattern of income in the future years and has therefore not been recognised. The tax losses have no expiry date and can be carried forward indefinitely even beyond the assessment period used in determining the deferred tax assets.
The Group has recognised the deferred tax assets referred to above on the basis that management considers there is convincing evidence that indicates that sufficient taxable profit will be available against which tax losses carried forward can be used. Management’s assessment of the likely availability of future taxable profits against which to recover the deferred tax assets takes into consideration that management has a robust forecasting process and that the projections are consistent with the directors’ assumptions about the Group and the underlying subsidiary’s future.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
58
13.Borrowings
Group
Company
2023
2022
2023
2022
€
€
€
€
Non-current
4.85% Secured Bonds 2028
9,097,994
9,066,530
9,097,994
9,066,530
Bank loan
191,670
284,714
191,670
284,714
Loans from related parties
462,440
462,440
-
-
9,752,104
9,813,684
9,289,664
9,351,244
Current
Bank loan
92,673
89,047
92,673
89,047
Total borrowings
9,844,777
9,902,731
9,382,33 7
9,440,291
The bonds are measured at the amount of the net proceeds adjusted for the amortisation of the difference between the net proceeds and the redemption value of such bonds, using the effective interest method as follows:
Group and Company
2023
2022
€
€
Original face value of bonds issued
9,250,000
9,250,000
Bond issue costs
(314,560)
(314,560)
Accumulated amortisation
162,554
131,090
Closing net book amount of bond issue costs
9,097,994
9,066,530
Amortised cost and closing carrying amount
9,097,994
9,066,530
By virtue of an offering memorandum dated 12 November 2018, the Company issued €9,250,000 bonds with a face value of €100 each. The bonds have a coupon interest of 4.85% which is payable annually in arrears, on 23 November of each year. The bonds are redeemable at par and are due for redemption on 23 November 2028. The bonds were admitted on the Official List of the Malta Stock Exchange on 12 November 2018. The quoted market price as at 31 December 2023 for the bonds was €86 (2022: €85), which in the opinion of the Directors fairly represents the fair value of these financial liabilities.
In accordance with the provisions of the prospectus, part of the proceeds from the bond issue have been advanced by the Company to Melite Properties in order to, amongst other things, re-furbish and embellish retail outlets located in leading locations in Italy over which, from time to time, it enjoys
the rights attached to the lease of such immovable property, and, or for acquiring such rights over additional retail outlets, for sub-leasing.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
59
13.Borrowings - continued
The effective interest rates on the bank borrowings as at 31 December 2023 is 3.75% (2022: 3.25%) per annum. The Company and the Group were granted a 12-month moratorium period during which no principal and interest payments would be made. The loan is repayable in equal quarterly instalments starting from the first quarter of financial year ended 31 December 2022 and is to be repaid in full by not later than 30 November 2026.
The bank borrowings are secured by:
•Pledge over deposit account held in the name of the company’s parent.
•Guarantee by the Malta Development Bank.
•Various undertakings by the shareholders.
•Subsidiary’s joint and several guarantee on Bank’s form.
At the end of the reporting period, the loans from related parties obtained by the Group are unsecured, interest-free and are denominated in EUR. During the year, the Group and one of the related parties entered into an addendum to the original debt agreement covering a debt of €128,739 (2022: €128,739), by virtue of which the original repayment date (i.e. 25 May 2025) was extended by a further 3½ year period and hence this debt is now due by not later than 23 November 2028 in exchange for the deferral of a receivable due by the said related party to the immediate parent. As at 31 December 2023, the remaining related party loan of €333,701 (2022: €333,701) was still repayable by 25 May 2025.
The estimated future cash payments on these loans have not been discounted through the expected life of the loans as the effect of discounting was deemed to be immaterial.
14.Lease liabilities
The lease liabilities associated with the right-of-use assets relate to the following types of assets:
Group
2023
2022
€
€
Non-current
Leasehold properties
9,668,669
9,605,774
Current
Leasehold properties
1,174,684
1,449,776
Total lease liabilities
10,843,353
11,055,550
The total cash outflows for leases during the reporting period was €2,087,244 (2022: €1,814,717). The contractual undiscounted cash flows attributable to lease liabilities as at 31 December are analysed in Note 2.1(c).
As disclosed in note 4, lease liabilities are remeasured when a change to future contractual cash flows is identified and applied from the effective date. Remeasurements amounting to €1,626,661 (2022: €1,401,992) were recognised during the year, by the Group, based upon:
-changes in indexation as certain leases contain a variable lease payment that is tied to the ISTAT, that is, the inflation index issued by the Italian National Institute of Statistics; and
-renegotiation of lease term leading to an extension of the lease term.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
60
14.Lease liabilities - continued
Set out below are the carrying amounts of lease liabilities and the movements during the year:
Group
2023
2022
€
€
As at 1 January
11,055,550
10,749,244
Additions
24,395
-
Lease remeasurement and modifications
1,610,769
1,401,992
De-recognition on termination of lease arrangement
(419,603)
-
Accretion of interest
667,986
719,032
Prepaid lease payments
(8,500)
-
Payments
(2,087,244)
(1,814,718)
As at 31 December
10,843,353
11,055,550
15.Trade and other payables
Group
Company
2023
2022
2023
2022
€
€
€
€
Current
Trade and other payables
102,271
93,758
53,983
125,908
Amounts owed to parent (note i)
22
1,307
-
1,307
Amounts owed to subsidiary (note s i and ii)
-
-
150,024
196,954
Deferred income
-
-
21,083
-
Accrued interest and expenses
233,561
355,370
152,990
140,505
335,854
450,435
378,080
464,674
(i)Amounts owed to parent and subsidiary are unsecured, interest free and repayable on demand.
(ii)The amounts owed to the subsidiary represent advance payments towards future interest payments and management fees made by the subsidiary to support the parent company’s working capital requirements. These advances are expected to be set-off against future related party receivables of the Company.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
61
16.Revenue
Group
2023
2022
€
€
Rental income
2,847,102
2,443,677
The Group’s revenues are derived from operations carried out in Italy. Considering the nature of the Group’s activities, its non-current assets are predominantly located in Italy. During the year ended 31 December 2023, the Group granted concessions and discounts to tenants and consequently conceded an aggregate of €6,215 (2022: €26,039) representing rent charges forgone during the year. These concessions are deemed to be equivalent to partial waiver of lease payments emanating from the currently applicable terms and conditions within the lease agreements, taking into account the substance implied in the content of specific clauses within the agreements in place. These concessions are not considered to have arisen out of a modification of the lease agreements. The term of the respective leases remained unchanged and similarly the scope of the lease was not modified. The amounts of the concessions have been treated as negative variable lease payments. Consequently, the waived lease income arising from the relief given to tenants has been recognised as a deduction in revenue during the financial period in which the condition that triggered the reduced payments occurred.
The Directors assess the operations of the Group as one reporting segment on the basis that the Group has one line of activity based in the Italian jurisdiction. Accordingly, no segment disclosures are being presented.
17.Expenses by nature
Group
Company
2023
2022
2023
2022
€
€
€
€
Depreciation of right of use assets (Note 4) - net of rent discounts
1,549,916
1,482,938
-
-
Depreciation of property, plant and equipment (Note 5)
42,300
59,492
-
-
Directors' fees (Note 21)
16,757
17,004
16,757
17,004
Legal and professional fees
239,929
179,633
167,490
122,878
Management fee
18,000
24,000
18,000
24,000
Employee benefits (Note 22)
97,523
87,108
-
-
Other miscellaneous expenses
102,533
115,634
12,858
4,022
Total cost of sales and administrative expenses
2,066,958
1,965,809
215,105
167,904
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
62
17.Expenses by nature - continued
Auditor’s fees
Fees charged by the auditor for services rendered during the financial years ended 31 December 2023 and 2022 relates to the following:
Group
Company
2023
2022
2023
2022
€
€
€
€
Annual statutory audit
35,000
32,500
35,000
32,500
-
-
35,000
32,500
35,000
32,500
During the current year fees amounting to €905 (2022: €905) have been charged by connected undertakings of the Company’s auditor to the Group and Company for tax compliance and advisory services.
18.Impairment on leasehold premia, net of recovery
Group
Company
2023
2022
2023
2022
€
€
€
€
Impairment on leasehold premia (Note 4)
436,969
439,821
-
-
Reversal of prior year impairment losses on leasehold premia
(Note 4)
-
(112,905)
-
-
Loss on termination of leasehold agreement
115,070
-
-
-
Net impairment on leasehold premia
552,039
326,916
-
-
19.Other operating income
Group
Company
2023
2022
2023
2022
€
€
€
€
Government grants and assistance
2,159
62,550
2,159
19,955
Management fee income
-
-
253,000
170,000
Administrative and accounting support services
23,973
67,1 5 4
-
-
Other ancillary income
7,856
127,306
-
81,351
33,988
257,010
255,159
271,306
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
63
19.Other operating income - continued
In response to the COVID-19 pandemic, the Group and the company have benefitted from varying schemes adopted by the respective Governments in Malta and Italy. The Group and the Company received grants amounting to €2,159 and €2,159 (2022: €62,550 and €19,955) respectively, under the varying schemes adopted by the respective Governments.
20.Finance costs
Group
Company
2023
2022
2023
2022
€
€
€
€
Interest charges on lease liabilities (note 1 4)
667,986
719,032
-
-
Bond interest cost
480,084
480,491
480,084
480,491
Interest charges on bank loans
10,982
13,701
10,982
13,701
-
-
Total finance costs
1,159,052
1,213,224
491,066
494,192
21.Directors’ emoluments
Group
Company
2023
2022
2023
2022
€
€
€
€
Directors' fees (note 17)
16,757
17,004
16,757
17,004
22.Employee benefits
Group
Company
2023
2022
2023
2022
€
€
€
€
Staff costs:
Wages and salaries
75,015
64,616
-
-
Social security contributions
22,508
22,492
-
-
Total employee benefits
97,523
87,108
-
-
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
64
22.Employee benefits - continued
The average number of persons employed by the Group and the Company during the year, including executive directors, was made up as follows:
Group
Company
2023
2022
2023
2022
Number
Number
Number
Number
Administration
1
1
-
-
23.Tax expense
The major components of income tax expense for the years ended 31 December 2023 and 2022 are:
Group
Company
2023
2022
2023
2022
€
€
€
€
Current tax expense
-
-
-
-
Foreign withholding tax
22,772
19,842
22,772
19,842
Income tax expense
reported in the income statements
22,772
19,842
22,772
19,842
The tax on the loss before tax differs from the theoretical amount that would arise using the applicable tax rate as follows:
Group
Company
2023
2022
2023
2022
€
€
€
€
Loss before tax
(896,959)
(805,262)
(358,573)
(431,162)
-
-
Tax credit/expense at the applicable tax rate of 35% (2022 - 35%)
(313,936)
(281,842)
(125,501)
(150,907)
Tax effect of:
Disallowed expenditure
131,455
274,857
-
65,516
I mpairment losses on leasehold
premia
193,214
114,421
-
-
Impairment of investment in subsidiary
-
-
127,034
153,025
Income not subject to tax
(254)
(2,346)
(254)
(2,346)
Movement in unrecognised tax
losses
(9,200)
(98,145)
-
(58,343)
Foreign withholding tax on interest payments
21,493
12,897
21,493
1 2,897
-
-
Income tax expense for the year
22,772
19,842
22,772
19,842
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
65
24.Cash generated from operations
Group
Company
2023
2022
2023
2022
€
€
€
€
Cash flows from operating activities
Operating profit
262,093
407,962
40,054
103,402
Adjustments for:
Depreciation and amortisation (Notes 4 and 5)
1,592,216
1,542,430
-
-
Loss on termination of leasehold agreements (Note 18)
115,070
-
-
-
Government grants and assistance (Note 19)
(2,159)
(62,550)
(2,159)
(19,955)
Impairment of leasehold premia - net of recovery and reversals (Note 18)
436,969
326,916
-
-
-
-
-
-
Operating profit before working capital movements
2,404,189
2,214,758
37,895
83,447
Changes in working capital:
Movement in trade and other receivables
204,713
266,409
105,045
(90,869)
Movement in trade and other payables
(114,581)
(281,980)
(8 6,594)
30,295
-
-
-
-
Cash generated from operations
2,494,321
2,199,187
56,346
22,873
25.Net debt reconciliation
The table below sets out an analysis of net debt as at 31 December 2023 and 2022:
Group
Company
2023
2022
2023
2022
€
€
€
€
Cash and cash equivalents
691,316
882,967
23,870
81,763
Borrowings
(9,844,777)
(9,902,731)
(9,3 8 2,337)
(9,440,291)
Lease liabilities
(10,843,353)
(11,055,550)
-
-
Net debt
(19,996,814)
(20,075,315)
(9,358,467)
(9,358,528)
All the movements in the Company’s net debt (borrowings and finance lease liabilities, net of cash and cash equivalents) related only to cash flow movements and disclosed as part of the financing activities in the statement of cash flows.
MELITE FINANCE P.L.C.
Annual Financial Report and Consolidated Financial Statements - 31 December 2023
66
26.Related parties
The Group forms part of the Melite Retail Group. All companies forming part of the Melite Retail Group, which are all ultimately owned by Melite Retail Limited, are considered to be related parties in view of common ultimate shareholding.
The principal transactions carried out by the Group with related parties during the year ended 31 December 2023 and 2022 are outlined bel ow:
Group
Company
2023
2022
2023
2022
€
€
€
€
Administrative expenses:
Related party transactions with:
Key management personnel
34,757
41,004
34,757
41,004
-
Other operating income:
Related party transactions with:
Subsidiary
-
-
253,000
251,351
Fellow subsidiary
20,043
20,004
-
-
-
20,043
20,004
253,000
251,351
Finance income:
Related party transactions with:
Subsidiary
-
-
455,394
396,843
No expense has been recognised in the period for bad or doubtful debts in respect of amounts due by related parties. The accumulated provisions for doubtful debts in respect of outstanding amounts due by related parties as at the end of the 31 December 202 3 amounted to €1,245,968 (2022: €1,327,968).
Amounts due to or from related parties are disclosed in Notes 7, 8, 13 and 15 to the financial statements. The terms and conditions in respect of the related party balances do not specify the nature of the consideration to be provided in settlement. The terms and conditions of the amounts recognised in other reserves are disclosed in note 11.
`The administrative expense transactions with key management personnel include director fees, management fees and car rental payments settled on behalf of the subsidiary’s management.
Bonds of the Company held by directors at 31 December 2023 amounted to €50,000 (2022: €50,000).
27.Statutory information
Melite Finance p.l.c. is a limited liability company and is incorporated in Malta.
The immediate parent company of Melite Finance p.l.c. is Melite Retail Limited, a company registered in Malta, with its registered address at Level 3, Valletta Buildings, South Street, Valletta, VLT1103.

Independent auditor’s report

To the Shareholders of Melite Finance p.l.c.

Report on the audit of the financial statements

Our opinion

In our opinion:

● The Group financial statements and the Parent Company financial statements (the “financial statements”) of Melite Finance p.l.c. give a true and fair view of the Group and the Parent Company’s financial position as at 31 December 2023, and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the EU; and

● The financial statements have been prepared in accordance with the requirements of the Maltese Companies Act (Cap. 386).

##### Our opinion is consistent with our additional report to the Audit Committee.

##### What we have audited

Melite Finance p.l.c.’s financial statements comprise:

● the Consolidated and Parent Company statements of financial position as at 31 December 2023;

● the Consolidated and Parent Company statements of profit or loss and other comprehensive income for the year then ended;

● the Consolidated and Parent Company statements of changes in equity for the year then ended;

● the Consolidated and Parent Company statements of cash flows for the year then ended; and

● the notes to the financial statements, comprising material accounting policy information and other explanatory information.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

#####

##### Independence

We are independent of the Group and the Parent Company in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code) together with the ethical requirements of the Accountancy Profession (Code of Ethics for Warrant Holders) Directive issued in terms of the Accountancy Profession Act (Cap. 281) that are relevant to our audit of the financial statements in Malta. We have fulfilled our other ethical responsibilities in accordance with these Codes.

To the best of our knowledge and belief, we declare that non-audit services that we have provided to the parent company and its subsidiaries are in accordance with the applicable law and regulations in Malta and that we have not provided non-audit services that are prohibited under Article 18A of the Accountancy Profession Act (Cap. 281).

The non-audit services that we have provided to the parent company and its subsidiaries, in the period from 1 January 2023 to 31 December 2023, are disclosed note 17 to the financial statements.

Material uncertainty related to going concern

We draw attention to note 1.1.1 to the financial statements which discusses the financial position of the Group, and its ability to continue as a going concern. The ability of the Group to continue as a going concern is critically dependent on the success of its offer for an early Buy Back of the Bond from the Bondholders and that it will receive the approval of the Regulatory Authorities. The financial position of the Group, the volatile conditions surrounding the retail and commercial real estate sectors in Italy, and the tenancy risk that remains, compounded with the risk that the early Buy Back of the Bond offer referred to above may be rejected, indicate the existence of a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Our audit approach

#####

##### Overview

| ● Overall group materiality: €191,000, which represents 1% of total assets
● The audit carried out by the group engagement team covered the parent company and its subsidiary
● Fair valuation of right-of-use assets

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

##### Materiality

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

Overall group materiality | €191,000
How we determined it | 1% of total assets
Rationale for the materiality benchmark applied | We chose total assets as the benchmark because, in our view, it is an appropriate measure for this type of entity. We chose 1% which is within the range of quantitative materiality thresholds that we consider acceptable.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above €19,100 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

#### Key audit matters

Key audit matters are those matters that, in our professional judgement, 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.

Key audit matter | How our audit addressed the Key audit matter
Fair valuation of right-of-use assets The Group's right-of-use assets include property rights attached to the leasehold properties (Note 4). There is an active market for the transfer of property rights attached to leases of retail outlets located in Italy, whereby the current holders transfer their residual rights to the retail outlet to other parties for a consideration. The consideration paid typically reflects the differential between the current market rental rate for an outlet and the rental rate stipulated in the lease agreement with the landlord. The directors obtained an assessment of the current market value of the property rights attached to its lease agreements from a specialised real estate valuer based in Italy. These valuations were used as a basis for the initial transfer of the property rights from Melite Italia S.r.l to Melite Properties S.r.l. The valuations were carried out by reference to the current average rental value per sqm (valore locativo mq/anno) for each outlet, which reflects external market factors including the supply and demand for retail outlets in a particular location. In this respect, the valuers made reference to data derived from recent comparable market transactions that would have occurred in the same street where each property is located. For the purposes of the current year financial statements, the directors have requested the valuer to update the valuation for the same properties based on the market conditions as at 31 December 2023. The valuation is based on the same methodology assumed in the previous valuation used for the purposes of the initial transfer. As explained in Note 3 to the financial statements, the most significant judgements and estimates affecting the valuations include the valuer's assumption on the market rental potential in the location of the outlet being valued and the remaining term of each respective lease agreement. The existence of significant estimates referred to previously could result in material misstatement, which is why we have given specific focus and attention to this area. | We agreed the property information in the valuation to the underlying property records held by the Company. We understood the methodology underlying the valuation and confirmed, via discussion with the valuer, that the valuation approach adopted was suitable for the purpose of valuing these type of property rights. We compared the values as at 31 December 2023 to the comparable valuation for each property prepared as at 31 December 2022. We identified and followed up on the principal movements in relation to the previous valuation on a property by property basis. We assessed the appropriateness of the fair values, particularly by understanding the methodology and assumptions being used, testing the accuracy of the workings within the valuation model and challenging the assumptions used by the valuer. Additionally, we compared the average rental value per square metre to available third party data. We held meetings with the directors and the audit committee on the period-end valuation and found that they were able to provide explanations and refer to appropriate supporting evidence. In addition, we evaluated the adequacy of the disclosures made in Notes 3 and 4 to the financial statements, including those regarding the key assumptions.

We have no key audit matters to report with respect to our audit of the parent company financial statements.

How we tailored our group audit scope

The Group is composed of two components: Melite Finance p.l.c. (the parent company) and its wholly owned subsidiary Melite Properties S.r.l. We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.

The group audit team performed all of this work by applying the overall Group materiality, together with additional procedures performed on the consolidation. This gave us sufficient appropriate audit evidence for our opinion on the Group financial statements as a whole.

####

Other information

The directors are responsible for the other information. The other information comprises the Directors’ report and the Corporate Governance - Statement of Compliance (but does not include 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 except as explicitly stated within the Report on other legal and regulatory requirements.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above 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 of financial statements that give a true and fair view in accordance with IFRSs as adopted by the EU and the requirements of the Maltese Companies Act (Cap. 386), 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 Parent 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 or the Parent 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 financial reporting process.

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 judgement and maintain professional scepticism 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 Parent 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 or the Parent 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 or the Parent 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.

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, actions taken to eliminate threats or safeguards applied.

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.

Report on other legal and regulatory requirements

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 Melite Finance p.l.c. for the year ended 31 December 2023, 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, complies 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 December 2023 has been prepared, in all material respects, in accordance with the requirements of the ESEF RTS.

Other reporting requirements

The Annual Financial Report and Consolidated Financial Statements 2023 contains other areas required by legislation or regulation on which we are required to report. The Directors are responsible for these other areas.

The table below sets out these areas presented within the Annual Financial Report, our related responsibilities and reporting, in addition to our responsibilities and reporting reflected in the Other information section of our report. Except as outlined in the table, we have not provided an audit opinion or any form of assurance.

Area of the Annual Financial Report and Consolidated Financial Statements 2023 and the related Directors’ responsibilities | Our responsibilities | Our reporting
Directors’ report The Maltese Companies Act (Cap. 386) requires the directors to prepare a Directors’ report, which includes the contents required by Article 177 of the Act and the Sixth Schedule to the Act. | We are required to consider whether the information given in the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements. We are also required to express an opinion as to whether the Directors’ report has been prepared in accordance with the applicable legal requirements. In addition, we are required to state whether, in the light of the knowledge and understanding of the Company and its environment obtained in the course of our audit, we have identified any material misstatements in the Directors’ report, and if so to give an indication of the nature of any such misstatements. | In our opinion: ● the information given in the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and ● the Directors’ report has been prepared in accordance with the Maltese Companies Act (Cap. 386). We have nothing to report to you in respect of the other responsibilities, as explicitly stated within the Other information section.
Corporate Governance - Statement of Compliance The Capital Markets Rules issued by the Malta Financial Services Authority require the directors to prepare and include in the Annual Financial Report a Statement of Compliance with the Code of Principles of Good Corporate Governance within Appendix 5.1 to Chapter 5 of the Capital Markets Rules. The Statement’s required minimum contents are determined by reference to Capital Markets Rule 5.97. The Statement provides explanations as to how the Company has complied with the provisions of the Code, presenting the extent to which the Company has adopted the Code and the effective measures that the Board has taken to ensure compliance throughout the accounting period with those Principles. | We are required to report on the Statement of Compliance by expressing an opinion as to whether, in light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have identified any material misstatements with respect to the information referred to in Capital Markets Rules 5.97.4 and 5.97.5, giving an indication of the nature of any such misstatements. We are also required to assess whether the Statement of Compliance includes all the other information required to be presented as per Capital Markets Rule 5.97. 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 corporate governance procedures or its risk and control procedures. | In our opinion, the Statement of Compliance has been properly prepared in accordance with the requirements of the Capital Markets Rules issued by the Malta Financial Services Authority. We have nothing to report to you in respect of the other responsibilities, as explicitly stated within the Other information section.
| Other matters on which we are required to report by exception We also have responsibilities under the Maltese Companies Act (Cap. 386) to report to you if, in our opinion: ● adequate accounting records have not been kept, or 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 which, to the best of our knowledge and belief, we require for our audit. | We have nothing to report to you in respect of these responsibilities.
| We also have responsibilities under the Capital Markets Rules to review the statement made by the directors that the business is a going concern together with supporting assumptions or qualifications as necessary. |

Other matter – use of this report

Our report, including the opinions, has been prepared for and only for the Parent Company’s shareholders as a body in accordance with Article 179 of the Maltese Companies Act (Cap. 386) and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior written consent.

####

Appointment

We were first appointed as auditors of the Company on 22 August 2019. Our appointment has been renewed annually by shareholder resolution representing a total period of uninterrupted engagement appointment of 5 years.

David Valenzia

Principal

For and on behalf of

PricewaterhouseCoopers

78, Mill Street

Zone 5, Central Business District

Qormi

Malta

30 April 2024