Independent auditor’s report
To the Shareholders of MIDI 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 MIDI p.l.c. give a true and fair view of the Group and the Parent Company’s financial position as at 31 December 2022, 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
MIDI p.l.c.’s financial statements comprise:
· the Consolidated and Parent Company statements of financial position as at 31 December 2022;
· the Consolidated and Parent Company income statements and statements of 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, which include significant accounting policies 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 2022 to 31 December 2022, are disclosed in note 23 to the financial statements.
Our audit approach
Overview
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· Overall group materiality: €1 million, which represents approximately 1% of consolidated net assets. |
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· The audit carried out by the group engagement team covered all companies within the group as at and for the year ended 31 December 2022, comprising MIDI p.l.c. (the Parent Company) and its subsidiaries: Tigné Contracting Limited, T14 Investments Limited and Solutions & Infrastructure Services Limited, as well as the investment in a joint venture, Mid Knight Holdings Limited. |
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· Fair valuation of investment property, relating to the Group and the Parent Company · Inventory valuation, relating to the Group and the Parent Company |
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.
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Overall group materiality |
€1 million |
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How we determined it |
Approximately 1 % of consolidated net assets |
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Rationale for the materiality benchmark applied |
We chose net assets as the benchmark because, in our view, it is the benchmark against which the underlying value of the Group is most commonly measured by users and is a generally accepted benchmark. 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 €100,000 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.
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Key audit matter |
How our audit addressed the Key audit matter |
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Fair valuation of investment property, relating to the Group and the Parent Company
The Group's and Parent Company's assets comprise properties held for long-term rental yields or for capital appreciation, which are classified as investment property and are measured at fair value.
The main asset of Mid Knight Holdings Limited, the Group's jointly controlled entity, comprises an office block known as 'The Centre' which is rented out to third parties. The asset is accounted for as investment property in the joint venture's financial statements and is measured at fair value. During 2021 the Board of Mid Knight Holdings Limited commissioned an independent property valuation based on an assessment of open market value performed by a professional valuer, which confirmed that the carrying amount of the property is not significantly different from estimated fair value. This process considered current and projected economic scenarios and also developments at property tenant level.
With respect to the components of the Group’s investment property, at the end of every reporting period, when an external valuation is not carried out, the Directors assess whether any significant changes in actual circumstances and developments have been experienced since the last external valuation. On an annual basis, management updates internally developed valuation models which are based on the discounted cash flow and comparable sales value approaches, for the purpose of ascertaining whether the carrying amount of the key components within the Group’s property portfolio are significantly different from estimated fair values. An adjustment to the carrying amount of the property is only reflected if it has been determined that there has been significant change. This assessment is also carried out by the Directors of the Group’s jointly controlled entity in respect of the entity’s investment property.
In the process of updating the valuation models as at 31 December 2022 in respect of specific elements within the Group's investment property, management considered developments at tenant and specific property level and also the estimated impacts of the prevailing economic climate. Following the assessments carried out as at 31 December 2022, a downward adjustment of €1m to the overall carrying amount of the Group's investment property portfolio has been reflected . No such adjustments to the carrying amount of the jointly controlled entity's investment property were deemed necessary as at end of the reporting period.
We focused on this area because of the significance of the carrying value of the Group's and joint venture's property in the respective Statements of Financial Position, together with the judgemental nature of the assumptions used in the valuation models, such as the sales price per car space or per square metre, projected rental income streams and the discount rates applied. International macroeconomic uncertainties and geopolitical developments have contributed to significant inflationary pressures and interest rate hikes which have also impacted the local economy. These factors have given rise to increased estimation uncertainty with respect to key assumptions underlying the valuation of investment property.
Further disclosure is included in Note 7 (Investment Property) and Note 9 (Investments in joint venture). |
We reviewed management’s internally developed valuation models refreshed as at the end of the current reporting period, which were utilised by management to assess the carrying amount by determining fair values of the different components of the Group’s investment property. We reviewed the independent valuation report in respect of investment property owned by Mid Knight Holdings Limited, the joint venture, which was commissioned during 2021, and the entity’s internal valuation model updated as at 31 December 2022. We confirmed that the valuation approach for each property and the valuation models utilised in determining the fair value of property were in accordance with professional valuation standards. We engaged our in-house valuation experts to critique and challenge the principal assumptions used in the valuation report for the office block of Mid Knight Holdings Limited and management’s internal valuation models referred to above which have been updated by management as at the end of the current financial year for each component of the Group's and the jointly controlled entity’s property to support the carrying amounts. Our valuation experts have reviewed the valuation report and the valuation models updated by management in detail within the ambit of their assessments. The principal assumptions include the projected cashflows, estimated sale market rates or prices, and the discount rate applied for certain properties. Third party evidence and other data was obtained to corroborate the assumptions. We tested the mathematical accuracy of the calculations.
We have also assessed the developments at tenant level and in the plans specific to each investment property component, and the impact which all these have on the carrying amount of the assets as at the end of the reporting period. Our valuation experts have considered the prevailing macroeconomic and market conditions giving rise to a certain degree of economic uncertainty.
Management's assessment considers the estimated impact on the fair valuation of specific elements of investment property taking cognisance of discounted projected cash flows for the entire term of the emphyteutical grant and also, developments in the strategy of the Group and the jointly controlled entity in respect of the management of the investment property portfolio. Moreover, the estimated sales values of other elements of investment property have been assessed in the light of the developments described above. The latter assessment gave rise to a downward adjustment to the fair value of the Group’s investment property of €1m as at 31 December 2022.
We discussed the outcome of management's assessments with the Audit Committee.
Management's valuation models and the independent valuation report confirmed that, subsequent to the adjustment referred to above, there are no significant differences between carrying amounts and estimated fair values as at 31 December 2022 as we concluded, based on our audit work, that the outcome of the management and external assessments in respect of the overall carrying amounts of the investment property portfolio as at 31 December 2022 was within a reasonable range of values. |
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Inventory Valuation, relating to the Group and the Parent Company
The carrying amount of inventory at Group and Parent Company level represents the value of land, development and borrowing costs attributable to the various phases of the Manoel Island and Tigné Point project which are either held for sale or under development as at 31 December 2022, analysed by project phase.
For each project phase, management assesses whether inventory is carried at the lower of cost and net realisable value, on the basis of projected financial information pertaining to the respective phases.
We focused on this area because of the significance of the carrying value of inventories, which includes costs attributable to the Manoel Island project, in the Group’s Statement of Financial Position and the judgemental nature of the assumptions used by management in the assessments referred to above.
Taking cognisance of the impacts of macroeconomic and geopolitical developments on projected market conditions, management’s assessments indicate that no impairment indicators have been registered as at 31 December 2022 in respect of the key inventory elements, also as these are principally expected to generate sales revenues in a few years’ time.
Further disclosure is included in Note 11 (Inventories - Development project). |
We understood and evaluated the assessment performed by management to ascertain whether inventory is carried at the lower of cost and net realisable value, for all inventory elements including the Manoel Island project.
Our audit procedures included a review, also with the assistance of our valuation experts, of the projected financial information for the different project phases prepared by management with the objective of estimating recoverable amounts. We have also considered the recent local and international economic developments on the carrying amount of the assets. In particular, our valuation experts have reviewed the manner in which the estimated impacts of these developments have been reflected within the principal assumptions underlying management’s assessments. Our valuation experts have considered the prevailing macroeconomic and market conditions giving rise to a certain degree of economic uncertainty.
In relation to the Manoel Island project, we are aware that during the current financial year, the Group has submitted the full development application.
We have taken cognisance of the fact that during the preceding financial year the Group announced that it had entered into a non-binding memorandum of understanding with AC Enterprises Limited to explore the possibility of establishing a joint venture with respect to the development of Manoel Island, and that during the current financial year, the Group has submitted the full development application in respect of this project phase.
We have discussed with management and the Audit Committee the principal assumptions underlying the inventory assessments performed for the different inventory elements and also considered the key elements emanating from the memorandum of understanding entered into with the third party referred to above.
Based on the evidence we have sighted during our procedures and the consideration of management’s assessments, nothing leads us to believe that any impairment indicators exist in respect of the Group’s inventory elements. We concluded, based on our audit work, that the outcome of the assessments in respect of carrying amounts of inventories as at 31 December 2022 is not unreasonable.
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How we tailored our group audit scope
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 is composed of MIDI p.l.c. (the Parent Company) and its subsidiaries: Tigné Contracting Limited, T14 Investments Limited and Solutions & Infrastructure Services Limited. It also holds an investment in a joint venture, Mid Knight Holdings Limited.
Full scope audit procedures were performed by PwC Malta on all the components. This, together with the additional procedures performed on the consolidation at the Group level, were sufficient to allow us to conclude on 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, the Statement of compliance with the Principles of Good Corporate Governance and the Remuneration Report and Statement (but does not include the financial statements and our auditor’s report thereon), which we obtained prior to the date of this auditor’s report, and the Chairman’s Message, the Chief Executive Officer’s Review of Operations, and the Five Year Record, which is expected to be made available to us after that date.
Our opinion on the financial statements does not cover the other information and we do not and will 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 on the other information that we obtained prior to the date of this auditor’s report, 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.
When we read the Chairman’s Message, the Chief Executive Officer’s Review of Operations, and the Five Year Record, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance in accordance with International Standards on Auditing.
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 MIDI p.l.c. for the year ended 31 December 2022, entirely prepared in a single electronic reporting format.
Responsibilities of the directors
The directors are responsible for the preparation of the Annual Financial Report, including the consolidated financial statements and the relevant mark-up requirements therein, by reference to Capital Markets Rule 5.56A, in accordance with the requirements of the ESEF RTS.
Our responsibilities
Our responsibility is to obtain reasonable assurance about whether the Annual Financial Report, including the consolidated financial statements and the relevant electronic tagging therein, 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 2022 has been prepared, in all material respects, in accordance with the requirements of the ESEF RTS.
Other reporting requirements
The Annual Report and Consolidated Financial Statements 2022 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.
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Area of the Annual Report and Consolidated Financial Statements 2022 and the related Directors’ responsibilities |
Our responsibilities |
Our reporting |
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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. |
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Statement of compliance with the Code of Principles of Good Corporate Governance 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. |
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Remuneration Report and Statement The Capital Markets Rules issued by the Malta Financial Services Authority require the directors to prepare a Remuneration report, including the contents listed in Appendix 12.1 to Chapter 12 of the Capital Markets Rules.
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We are required to consider whether the information that should be provided within the Remuneration report, as required in terms of Appendix 12.1 to Chapter 12 of the Capital Markets Rules, has been included. |
In our opinion, the Remuneration report has been properly prepared in accordance with the requirements of the Capital Markets Rules issued by the Malta Financial Services Authority. |
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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 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. |
We have nothing to report to you in respect of these responsibilities. |
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 for the financial year ended 31 December 1998. Our appointment has been renewed annually by shareholder resolution representing a total period of uninterrupted engagement appointment of 25 years. The Company became listed on a regulated market on 23 January 2009.
PricewaterhouseCoopers
78, Mill Street
Zone 5, Central Business District
Qormi
Malta
Fabio Axisa
Partner
25 April 2023