SP Finance plc - 391200ZCN16YSPNKID89

SP FINANCE P.L.C.

FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31st DECEMBER 2022

Company No. C- 89462

SP FINANCE P.L.C.

CONTENTS

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PAGE

Report of the directors

1 to 5

Statement of compliance with the principles of good corporate governance

6 to 9

Statement of profit or loss and other comprehensive income

10-11

Statement of financial position

Statement of changes in equity

Statement of cashflows

Notes to the financial statements

15 to 53

Independent auditors’ report

54 to 61

SP FINANCE P.L.C.

REPORT OF THE DIRECTORS

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Directors:-

Mr. Joseph Casha

Mrs. Josephine Casha

Dr. Alex Perici Calascione – Non-executive director

Dr. Reuben Debono – Non-executive director

Mr. Mark Anthony Grech – Non-executive director

Secretary:-

Dr. Andrea Micallef

Bankers:-

HSBC Bank Malta p.l.c.

Business Bank Centre

Mill Street,

Qormi

Registered Office:-

89,

The Strand,

Sliema, Malta.

The Directors hereby present their annual report together with the audited financial statements of SP Finance p.l.c. (the “Company”) for the year ended on 31 December 2022.

The Directors also present their annual report together with the audited financial statements of the SP Finance p.l.c. Group (the “Group”) which comprises the Company and its fully owned subsidiaries, namely SP Investments Limited (Reg. No. C-89468), Med Asia Branding Ltd. (formerly Pebbles St Julians Limited) (Reg. No. C-89612), Pebbles Resort Limited (Reg. No. C-89613) and Sea Pebbles Limited (Reg. No. C-6138) for the year ended on 31 December 2022.

Principal Activities

The Company’s principal activity is to act as an investment holding company of the Group.

The Group’s principal activities consist in the ownership and operation of the Pebbles Boutique Aparthotel in Sliema and the operation of the Pebbles Resort hotel in St. Paul’s Bay.

Bond Issue

In terms of the Prospectus dated 8 April 2019 the Company had offered for subscription an amount of €12 million 4% Secured Bonds 2029 of a nominal value of €100 per Bond issued at par. The Bonds were fully subscribed and admitted to the Official List of the Malta Stock Exchange p.l.c. with effect from 3 May 2019. Sea Pebbles Limited acted as guarantor of this bond issue (the “Guarantor”).

In accordance with the Prospectus, the proceeds from the bond issue were utilised by the Group to acquire properties connected with its current hotel operations and planned expansion projects, to refurbish and upgrade the San Pawl Hotel (now Pebbles Resort) and to repay an outstanding bank financing facility.

Review of Business

The Group registered a loss before tax of €2,622,889 (2021: Loss of €1,901,783) after taking into consideration one-time impairments of €1,500,000 (2021: NIL) on the carrying value of the right of use asset and property, plant and equipment. The Company registered a profit before tax of €117,894 (2021: Loss of €87,574). The Group’s revenue in 2022 amounted to €3,625,530 (2021: €2,024,510) while gross profit amounted to €1,156,755 (2021: gross profit of €396,023).

Financial position

The Group’s total asset base stands at €36,791,985 (2021: €39,956,591). As at 31 December 2022 the Group’s current assets amounted to €959,815 (2021: €1,401,376) while current liabilities amounted to €3,705,836 (2021: €3,190,596). The

SP FINANCE P.L.C.

REPORT OF THE DIRECTORS

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Group’s non-current liabilities amounted to €19,660,166 (2021: €20,787,109) which mainly consist of bond borrowings amounting to €12,000,000 and lease liabilities of €4,418,892 (2021: €4,691,041).

Key Risks

The key risks that apply to the Company and the Group are those inherent in the operation of a hospitality business and include both risks arising from competitive pressures from similar establishments located in Malta as well as risks arising from Malta’s general attractiveness as a holiday destination.

The risks associated with the disruptions of travel due to the resurgence of the COVID-19 or similar pandemics seem to have subsided and are no longer considered a realistic risk for the Group.

Business Update

The Group’s revenue is generated solely from the operation of two hotels, namely the Pebbles Boutique Aparthotel in Sliema and the Pebbles Resort in St. Paul’s Bay. The latter hotel is operated as a music hotel in the summer months under the franchise ‘Bora Bora Ibiza Malta’.

The financial results of Sea Pebbles Ltd., which has operated the Pebbles Boutique Aparthotel since the early 1980s, were in line with projections and significantly better than the previous year’s. Its revenue increased from €721,871 in FY 2021 to €1,251,833 in FY 2022 while its net profit before tax for the year amounted to €104,979 compared to a net loss before tax of €320,962 in FY 2021. Its prime location on the Sliema – Gzira seafront and its consistently high customer reviews guarantee a high occupancy rate throughout the year at decent daily rates.

The financial results of Pebbles Resort Ltd., which has operated the Pebbles Resort in St. Paul’s Bay since the summer of 2019 were significantly better than the previous year’s but fell short of projections. Revenue increased from €1,302,639 in FY 2021 to €2,373,697 in FY 2022, which was short of projections by circa €657,000. After taking into account a one-time impairment of €1,500,000 on the carrying value of the right of use asset and property, plant and equipment, its net loss before tax for the year amounted to €2,656,560 compared to a net loss before tax of €1,471,763 registered in the previous year.

As previously reported, during the summer months the Pebbles Resort operates as Malta’s first and only music hotel, under a ten-year partnership agreement it entered with the internationally renowned brand ‘Bora-Bora Ibiza’. Due to the COVID-19 pandemic the operation of the hotel as a music hotel during summer was delayed by one year, that is from the summer of 2021 to the summer of 2022.

The revenue generated from the operation of the hotel as a music hotel in the summer of 2022 did not match projections. This was due to several reasons, the most salient of which are:

(i)Some music-events organisers were hesitant to promote events at the hotel in its first year of operation as a music hotel;

(ii)Post COVID-19 staffing issues caused serious disruptions in UK airports, including Heathrow Airport;

(iii)As a consequence of (ii) above, there was limited availability of seats on the UK – Malta route in summer 2022 resulting in prohibitively expensive flight tickets. Several music events that were selling well had to be cancelled due to unavailability / cost of flights from the UK to Malta;

(iv)Pollen Music Group, a UK-based company which was to hold two week-long events in summer, went into administration in August 2022 resulting in the cancellation of those events. This alone accounted for approximately one-third of the shortfall in revenue compared to projections.

SP FINANCE P.L.C.

REPORT OF THE DIRECTORS

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Events after the Reporting Period

In the early months of 2023, the Group embarked on a restructuring exercise aimed at strengthening its balance sheet and diversifying its business which has henceforth been restricted to the operation of two hotels.

(a)In February 2023, Sea Pebbles Limited acquired 100% of the shares in Med Asia Operations Ltd. (C-103605), a company which had not yet commenced trading, at nominal value. With effect from 1 April 2023 Med Asia Operations Ltd. acquired the catering operations previously carried out by related companies outside the Group, namely the MedAsia Fusion Lounge in Sliema, the MedAsia Playa in Sliema, The MedAsia Golden Sands in Golden Bay, the Noodle Box in Sliema and all the bar and restaurant venues located in the Pebbles Resort in St. Paul’s Bay.

The acquisition price was determined by an independent expert and will be satisfied through the allotment of additional shares to the Company’s current shareholders during 2023.

(b)In March 2023, Med Asia Branding Ltd. (C-89612) (formerly Pebbles St. Julians Limited) acquired certain intellectual property relating to the catering operations which, with effect from 1 April 2023, were acquired by its sister company Med Asia Operations Ltd. (C-103605) following the agreement referred to in paragraph (a) above.

The acquisition price was determined by an independent expert and will be satisfied through the allotment of additional shares to the Company’s current shareholders during 2023.

Statement pursuant to Capital Markets Rule 5.62

Rule 5.62 of the Capital Markets Rules requires the directors to make a statement that the business is a going concern with supporting assumptions or qualifications as necessary.

In this regard, the Directors requested management to prepare realistic but prudent financial projections for FY 2023 and beyond, by taking into account several pertinent factors affecting the Group, the most important of which are the following:

(a)In 2022, Malta, as indeed the whole world, experienced a strong recovery of the tourism sector. Also considering a strong start in tourism numbers in the first few months of 2023, all stakeholders are projecting that 2023 will likely see the tourism sector reverting to pre-COVID 19 levels. The recovery in tourism numbers is crucial for the survival and flourishing of the Group in view that it generates practically all its income from this sector.

(b)In the first three months of 2023, the two hotels operated by the Group managed to increase revenue by €320,000 over the same period in 2022, representing a 140% increase over the previous year. Even when considering that the Pebbles Resort was closed for most of the corresponding period in 2022, this result is very positive and augurs well for the rest of the year. Equally encouraging is the fact that customer reviews of the two hotels continue to be very high, placing them near the top of search results of the main online booking platforms.

(c)The summer of 2023 will be the second year of operation of the ‘Bora Bora Ibiza Malta’ in the St. Paul’s Bay hotel. The excellent customer experiences in the summer of 2022 and the close business relationships established with the main music-events organizers in Europe and beyond, augur well for a successful summer season. In addition, in view of the uniqueness of the music-hotel concept for Malta, it is envisaged the hotel would be able to secure better daily rates than would otherwise be the case if it operated as a normal hotel in competition with several other established and new or recently refurbished hotels in the area.

(d)The acquisition of established catering businesses by the Group in April 2023 will not only serve to diversify the Group’s business activities, making it less dependent on the tourism sector, but will also add a significant source of additional revenue and profits during 2023 and beyond.

The financial projections presented to the Board by management indicate that the Group is likely to generate sufficient financial resources through its operations as to permit it to continue in operational existence for the foreseeable future.

SP FINANCE P.L.C.

REPORT OF THE DIRECTORS

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Following a detailed assessment, the Board adopted these financial projections after concluding that they accurately reflect the financial results the Group is likely to derive from a realistically achievable, yet prudent, business scenario in the coming years.

In adopting these financial projections, the board also considered the excellent relationship the Group continues to enjoy with its bankers, evidenced this year by the extension of the COVID-19 loan repayment period from three to five years. The relationship with the banks spans several decades and suggests that additional finance, if needed, is likely to be forthcoming

Therefore, in terms of Capital Markets Rule 5.62, the Directors hereby state that these financial statements have been prepared on the going concern basis.

Loans between subsidiary companies

The proceeds from the bond issue of the 3 May 2019 were invested as €12,000,000 4.1% Cumulative Preference shares in its subsidiary SP Investments Limited. In turn, these proceeds were invested by SP Investments Limited in its subsidiaries, which are the companies operating the Group’s hotels, partly as Ordinary share capital and partly as loans.

As per section B5 of the Summary Note forming part of the Prospectus of the above-mentioned bond issue, the loans invested by SP Investments Limited in its subsidiaries were interest-free.

As from 1 January 2021, it was deemed beneficial to the Group that SP Investments Limited start charging interest on the loans to its subsidiaries at the rate of 8% per annum. The Group and the Company results are not negatively impacted by this change.

Results, Dividends and Reserves

The results for the year are set in the Statement of Profit and Loss and Other Comprehensive Income on page 10.

The Board does not propose the payment of a dividend.

The Group’s retained earnings as at 31 December 2022 amounted to negative €4,780,225 (2021: negative €2,227,322) while the Company’s retained earnings on the same date amounted to €169,919 (2021: €58,159).

Statement of Directors’ Responsibilities for the Financial Statements

The Companies Act (Chapter 386 of the Laws of Malta) requires the directors of SP Finance p.l.c. to prepare annual financial statements for each financial year which give a true and fair view of the state of affairs of the Group and the Company as at the end of the financial year and of the profit or loss for the year in accordance with the requirements of International Financial Reporting Standards as adopted by the European Union.

In preparing such financial statements, the Directors are required to:

-Adopt the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business;

-Select suitable accounting policies and apply them consistently from one accounting year to another;

-Make judgements and estimates that are reasonable and prudent; and

-Account for income and charges relating to the accounting year on the accruals basis.

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time, the financial position of the Group and the Company and enable them to ensure that the financial statements have been properly prepared in accordance with the provisions of the Companies Act. The directors are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud, errors and other irregularities.

The financial statements of SP Finance p.l.c. and the Group for the year ended on 31 December 2022 are included in the Annual Report 2022, which is available on the Company’s website.

SP FINANCE P.L.C.

REPORT OF THE DIRECTORS

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Statement of Responsibility pursuant to the Capital Markets Rule 5.68

The directors confirm that, to the best of their knowledge:

-The financial statements give a true and fair view of the financial position of the Company and the Group as at 31 December 2022, and of the financial performance and the cash flows for the year then ended, in accordance with International Financial Reporting Standards as adopted by the European Union; and

-The Annual Report includes a fair review of the development and performance of the business and the position of the Company and the Group, together with a description of the principal risks and uncertainties that the Company and the Group face.

Statement pursuant to Capital Markets Rule 5.70.1

Pebbles Resort Limited rented the bars and restaurants located within the Pebbles Resort to Sea Pebbles Leisure Limited (C91291), a company outside the Group whose directors are Mr. Joseph Casha and Mrs. Josephine Casha. As from October 2022 the latter company has been contracted to provide the meals and breakfasts consumed by guests of Pebbles Resort, which service was, between May 2021 and September 2022, being provided by a third party.

Sea Pebbles Limited rented restaurants located in Sliema to Med Asia Limited (C-50148), a company outside the Group in which Mr. Joseph Casha and Mrs. Josephine Casha are directors. The rental agreement was entered into in 2011.

Auditors

VCA Certified Public Accountants have intimated their willingness to continue in office. A resolution for their reappointment will be proposed at the Annual General Meeting.

Signed on behalf of the Board of Directors on 28 April 2023 by Mr. Joseph Casha (Director) and Mrs. Josephine Casha (Director) as per the Directors’ Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report and Financial Statement.

SP FINANCE P.L.C.

STATEMENT OF COMPLIANCE WITH PRINCIPLES OF GOOD CORPORATE GOVERNANCE

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Introduction

Pursuant to the Capital Markets Rules as issued by the Malta Financial Services Authority, S.P. Finance p.l.c. (the ‘company’ or the ‘Issuer’) is hereby reporting on the extent of its adoption of the Code of Principles of Good Corporate Governance (the ‘Principles’) contained in Appendix 5.1 of the Capital Markets Rules as well as the measures adopted to ensure compliance with these same Principles.

Since its inception, the Company’s principal activity was to raise funds from the capital market to finance the operations of other group companies forming part of the Sea Pebbles Group (the ‘Group’).

The Board of Directors acknowledges that the Code does not dictate or prescribe mandatory rules but recommends principles of good practice. Nonetheless, the Board strongly believes that the Principles are in the best interest of the shareholders and other stakeholders since they ensure that the Directors and Management of the Company adhere to internationally recognised high standards of Corporate Governance.

The Company currently has a corporate decision-making and supervisory structure that is tailored to suit the Company’s requirements and designed to ensure the existence of adequate checks and balances within the Company, whilst retaining an element of flexibility, particularly in view of the size of the Company and the nature of its business. The Company adheres to the Principles, except for those instances where there exist particular circumstances that warrant non-adherence thereto, or at least postponement for the time being.

Additionally, the Board recognises that, by virtue of Capital Markets Rule 5.101, the Company is exempt from making available the information required in terms of Capital Markets Rules 5.97.1 to 5.97.3; 5.97.6 and 5.97.8.

Roles and Responsibilities

The Board acknowledges its statutory mandate to conduct the administration and management of the Company. The Board, in fulfilling its mandate and discharging its duties assumes responsibility for:

1.the Company’s strategy and decisions with respect to the issue, servicing and redemption of its Bonds;

2.monitoring that its operations are in conformity with its commitments towards bondholders, shareholders and all relevant laws and regulations; and

3.ensuring that the Company installs and operates effective internal control and management systems and that it communicates effectively with the market.

The Board of Directors

The Board of Directors of the Company is responsible for the overall long-term direction of the Company, in particular in being actively involved in overseeing the systems of control and financial reporting and that the Company communicates effectively with the market. The Company has in place systems whereby the directors obtain timely information not only at meetings of the Board but at regular intervals or when the need arises.

Directors are appointed during the Company’s Annual General Meeting for periods of one year, at the end of which term they may stand again for re-election. The Articles of Association of the Company clearly set out the procedures to be followed in the appointment of directors.

Apart from setting the strategy and direction of the Company, the Board retains direct responsibility for approving and monitoring:

-that the proceeds of the Bonds are applied for the purposes for which they were sanctioned as specified in the prospectus of the Bonds issued;

-the proper utilisation of the resources of the Company; and

-the annual report and financial statements, the relevant public announcements and the Company’s compliance with its continuing obligations under the Capital Markets Rules.

SP FINANCE P.L.C.

STATEMENT OF COMPLIANCE WITH PRINCIPLES OF GOOD CORPORATE GOVERNANCE

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Complement of the Board

The Board of Directors meets regularly, with a minimum of four times annually, and is currently composed of five Members, three of which are completely independent from the Company or any other related companies and therefore free of any significant business relationship, family or other relationships with the Issuer, its controlling shareholders or the management, that creates a conflict of interest such as to impair their judgement.

The activities of the Board are exercised in a manner designed to ensure that it can effectively supervise the operations of the Company and protect the interests of bondholders and the shareholders. During the current financial period, meetings of the Board were held as frequently as considered necessary.

The Board members are notified of forthcoming meetings by the Company secretary (Dr. Andrea Micallef) with the issue of an agenda and necessary supporting documentation which are then discussed during the Board meetings.

During the financial year under review, the Board met formally five times and was always attended by more than 75% of the Officers of the Company.

Dr. Alex Perici Calascione, Mr. Mark Anthony Grech and Dr. Reuben Debono are the independent non-executive directors of the Company.

Executive Directors

Mrs. Josephine Casha

Mr. Joseph Casha

Independent, Non-Executive Directors

Dr. Alex Perici Calascione

Dr. Reuben Debono

Mr. Mark Anthony Grech

The remuneration of the Board is reviewed periodically by the shareholders of the Company. The Company ensures that it provides Directors with relevant information to enable them to effectively contribute to Board decisions.

The Directors are fully aware of their duties and obligations and should a conflict of interest in decision making ever to arise, the current internal policy of the Company is such as to ensure that the particular Director refrains from participating in such decisions. 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 respect of which he has a material interest.

Risk Management and Internal Control

The Company’s system of internal controls is designed to manage all the risks in the most appropriate manner. However, such controls cannot provide an absolute elimination of all business risks or losses. Therefore, the Board, inter alia, reviews the effectiveness of the Company’s system of internal controls in the following manner:

-Reviewing the Company’s strategy on an on-going basis as well as setting the appropriate business objectives in order to enhance value for all stakeholders;

-Implementing an appropriate organisational structure for planning, executing, controlling and monitoring business operations in order to achieve company objectives;

-Identifying and ensuring that significant risks are managed satisfactorily; and

-Company policies are being observed.

SP FINANCE P.L.C.

STATEMENT OF COMPLIANCE WITH PRINCIPLES OF GOOD CORPORATE GOVERNANCE

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Audit Committee

The Board of Directors of the Company has established an Audit Committee in accordance with the requirements of the Capital Markets Rules issued by the Malta Financial Services Authority. The Audit Committee’s primary objective is to assist the Board in fulfilling its responsibilities relating to risk, control, and governance, as well as to review the financial reporting process and the process for monitoring compliance with applicable laws and regulations.

The Audit Committee is a sub-committee of the Board constituted to fulfil an overseeing role in connection with the quality and integrity of the Company’s financial statements. In performing its duties, the Audit Committee maintains effective working relationships with the Board of Directors, management, and the external auditors of the Company. The Committee also has the function of scrutinising and evaluating any proposed transaction to be entered into by the Company and a related party, to ensure that the execution of any such transaction is at arm’s length and on a commercial basis ultimately in the interest of the Company.

The Board has set formal Terms of Reference of the Audit Committee that establish its composition, role, and scope. The Board reserves the right to amend these Terms of Reference from time to time. The Terms of Reference of the Audit Committee are modelled on the principles set out in the Capital Markets Rules 5.117 – 5.134A.

The Audit Committee assists the Board in fulfilling its supervisory and monitoring responsibility by reviewing the company financial statements and disclosures, monitoring the system of internal control established by management as well as the audit processes. The Audit Committee as stated above is a sub-committee of the Board and is directly responsible and accountable to the Board.

In terms of the Maltese Companies Act (Chap. 386) and the Malta Financial Services Authority Capital Markets Rules, the financial statements of SP Finance plc are subject to annual audit by its external auditors. Moreover, the Audit Committee has direct access to the external auditors of the Company, who attend the meeting at which the Company’s financial statements are approved.

The Audit Committee which met four times during the year under review is currently composed of the following individuals:

Mr. Mark Anthony Grech (Chairman)

Dr. Alex Perici Calascione

Dr. Reuben Debono

This current complement addresses the requirement established by the Capital Markets Rules that the Audit Committee is composed of non-executive directors, the majority of which being independent.

The Board considers Mr. Mark Anthony Grech to be competent in accounting and auditing matters in terms of the Capital Markets Rules. Mr Mark Anthony Grech is considered as an independent director since he is free of any significant business, family or other relationship with the Company, its controlling shareholders or the management of either, that could create a conflict of interest such as to impair his judgement. Furthermore, the Board considers that the Audit Committee, as a whole, to have relevant competence in the sector the company is operating.

The Audit Committee was formally set up on the 6 November 2019. Communication with and between the Company Secretary, top level management and the Committee is ongoing and considerations that required the Committee’s attention were acted upon between meetings and decided by the Members (where necessary) through electronic circulation and correspondence.

Relations with the market

The market is kept up to date with all relevant information, and the Company regularly publishes such information on its website to ensure consistent relations with the market.

SP FINANCE P.L.C.

STATEMENT OF COMPLIANCE WITH PRINCIPLES OF GOOD CORPORATE GOVERNANCE

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Committees

The directors believe that, due to the Company’s size and operation, the remuneration, evaluation and nominations committees that are suggested by the Code are not required and that the function of these can effectively be undertaken by the Board itself. However, the Board is tasked to review on an annual basis, the remuneration paid to the directors and to carry out an evaluation of their performance and that of the Audit Committee. The shareholders approve the remuneration paid to the directors at the annual general meeting of the Company.

Remuneration Statement

Pursuant to the Company’s Memorandum and Articles of Association, the maximum annual aggregate emoluments that may be paid to the directors is determined by the Company further to a General Meeting during which the proposed aggregate emoluments or an increase in the maximum limit of such aggregate emoluments shall be proposed. Furthermore, the remuneration of directors is a fixed amount per annum and does not include any variable component relating to profit sharing, share options or pension benefits. During the year under review, the directors received emoluments amounting in total to €24,000.

Conclusion

The Board considers that, to the extent otherwise disclosed herein, the Company was generally in compliance with the Principles throughout the period under review as befits a company of its size and nature.

Signed on behalf of the Board of Directors on 28th April 2023 by Mr. Joseph Casha (Director) and Mrs. Josephine Casha (Director) as per the Directors’ Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report and Financial Statements.

SP FINANCE P.L.C.

STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2022

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Group

Company

2022

2021

2022

2021

Notes

€

Revenue

3,625,530

2,024,510

575,500

408,500

Costs

Cost of sales

(2,468,775)

(1,628,487)

(34,313)

(34,478)

Gross profit

1,156,755

396,023

541,187

374,022

Administrative expenses

(276,304)

(161,704)

(93,293)

(71,596)

Other operating income

143,759

175,549

150,000

90,000

Gain on sale of property, plant & equipment

182,000

Earnings before interest, tax and depreciation

1,206,210

409,868

597,894

392,426

Depreciation

(1,469,990)

(1,465,442)

Operating (loss)/profit

(263,780)

(1,055,574)

597,894

392,426

Finance costs

(859,109)

(857,320)

(480,000)

Impairment of non-financial instruments

(1,500,000)

Modification gain on financial liabilities

11,111

(Loss)/Profit before taxation

(2,622,889)

(1,901,783)

117,894

(87,574)

Tax credit/(expense)

69,986

630,418

(6,134)

5,626

(Loss)/Profit for the year

(2,552,903)

(1,271,365)

111,760

(81,948)

Total comprehensive (loss)/ profit for the year

(2,552,903)

(1,271,365)

111,760

(81,948)

(Loss)/Profit attributable to:

Equity holders of the Company

(2,552,903)

(1,271,365)

111,760

(81,948)

SP FINANCE P.L.C.

STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2022

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Group

Company

2022

2021

2022

2021

Assets

Notes

€

Non-current assets

Property, Plant and equipment

25,976,325

27,371,559

Right-of-use assets

2,685,957

4,091,405

Investment property

6,004,491

Investment in subsidiary

19,097,783

Financial assets at amortised cost

12,000,000

Deferred tax asset

1,165,397

1,087,760

35,832,170

38,555,215

31,097,783

Current assets

Trade and other receivables

871,618

978,895

600,828

82,048

Current income tax asset

89,020

Cash at bank and in hand

88,197

333,461

3,003

278,149

959,815

1,401,376

603,831

449,217

Total Assets

36,791,985

39,956,591

31,701,614

31,547,000

SP FINANCE P.L.C.

STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2022

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Group

Company

2022

2021

2022

2021

Notes

€

Equity

Called up issued share capital

250,000

Share premium

17,750,000

Revaluation reserve

14,799,920

Fair value gain reserve

2,938,013

Other reserve

(17,531,725)

1,098,983

Retained earnings

(4,780,225)

(2,227,322)

169,919

58,159

Total equity

13,425,983

15,978,886

19,268,902

19,157,142

Liabilities

Non-current liabilities

Borrowings

12,979,734

13,834,528

12,000,000

Lease liability

4,418,892

4,691,041

Deferred tax liability

2,261,540

19,660,166

20,787,109

12,000,000

Current liabilities

Trade and other payables

1,772,464

1,201,778

432,712

389,858

Current income tax liability

115,594

159,721

Borrowings

1,545,627

1,572,372

Lease liability

272,151

256,725

3,705,836

3,190,596

432,712

389,858

Total liabilities

23,366,002

23,977,705

12,432,712

12,389,858

Total equity and liabilities

36,791,985

39,956,591

31,701,614

31,547,000

The financial statements were approved and authorised for issue by the Board of Directors on 28 April 2023. The financial statements were signed on behalf of the Board of Directors by Mr. Joseph Casha (Director) and Mrs. Josephine Casha (Director) as per the Directors’ Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report and Financial Statement.

SP FINANCE P.L.C.

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2022

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Group

Share Capital

€

Share premium

€

Revaluation reserve

€

Fair Value gain reserve

€

Other

reserve

€

Retained earnings

€

Total

€

Balance at 1 January 2021

250,000

17,750,000

14,799,920

2,938,013

(17,531,725)

(955,957)

17,250,251

Comprehensive income

Loss for the year

(1,271,365)

Balance at 31 December 2021

250,000

17,750,000

14,799,920

2,938,013

(17,531,725)

(2,227,322)

15,978,886

Comprehensive income

Loss for the year

(2,552,903)

Balance at 31 December 2022

250,000

17,750,000

14,799,920

2,938,013

(17,531,725)

(4,780,225)

13,425,983

Company

Capital

Premium

Other

Reserve

Retained Earnings

Total

€

As at 1 January 2021

250,000

17,750,000

1,098,983

140,107

19,239,090

Comprehensive income

Loss for the year

(81,948)

Balance at 31 December 2021

250,000

17,750,000

1,098,983

58,159

19,157,142

Comprehensive income

Profit for the year

111,760

Balance at 31 December 2022

250,000

17,750,000

1,098,983

169,919

19,268,902

SP FINANCE P.L.C.

STATEMENT OF CASHFLOWS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

Group

Company

2022

2021

2022

2021

Cashflow from operating activities

€

(Loss)/Profit before taxation

(2,622,889)

(1,901,783)

117,894

(87,574)

Adjustments for:

Depreciation

1,469,990

1,465,442

Finance costs

827,527

825,738

480,000

Impairment loss on PPE & ROU asset

1,500,000

Amortisation of bond issue costs

31,582

Dividend income

(575,500)

(408,500)

Provision for doubtful debts

41,309

(11,216)

Rental concession

(55,557)

Modification gain on financial liability

(11,111)

Gain on disposal of PPE

182,000

Operating profit/(loss) before working capital changes

1,429,519

343,095

22,394

(16,074)

Movement in receivables/related company balances

(116,032)

126,530

(524,914)

223,984

Movement in payables

570,685

343,513

42,854

26,996

Cash generated from/(used in) operations

1,884,172

813,138

(459,666)

234,906

Income tax refund

37,243

98,791

89,020

112,000

Interest paid

(827,527)

(825,738)

(480,000)

Net cashflows generated from/(used in) operating activities

1,093,888

86,191

(850,646)

(133,094)

Cashflows from investing activities

Payments to acquire property, plant and equipment

(169,308)

(262,391)

Net dividends received

575,500

408,500

Net cashflows (used in)/generated from investing activities

(169,308)

(262,391)

575,500

408,500

Cashflow from financing activities

Movement in bank loans

(494,336)

583,859

Movement in third party borrowings

(366,665)

(277,777)

Lease liability payments

(256,722)

(186,605)

Net cash (used in)/ generated from financing activities

(1,117,723)

119,477

Net movement in cash and cash equivalents

(193,143)

(56,723)

(275,146)

275,406

Cash and cash equivalents at the beginning of the year

(142,040)

(85,317)

278,149

2,743

Cash and cash equivalents at the end of the year

(335,183)

(142,040)

3,003

278,149

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

1.Basis of preparation

Reporting entity

SP Finance p.l.c. (the ‘Company’) is a public limited liability company which was incorporated in Malta on 19 November 2018. The Company’s registration number is C-89462 and the Company’s registered office is 89, the Strand, Sliema, Malta.

SP Finance p.l.c. and its subsidiaries’ (the ‘Group’) principal activities include the ownership, rental, development and operation of hotels.

The consolidated financial statements include the financial statements of the Company and its subsidiaries.

The financial statements of the Company and the consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and in accordance with the requirements of the Companies Act (Cap. 386).

These financial statements have been prepared under the historical cost convention basis as modified by the fair valuation of the land and buildings class of property, plant and equipment and investment property. The functional currency of the Company is the Euro which is also the presentation currency of the Group.

Assessment of the appropriateness of the going concern assumption

The Group’s financial results for the year ended on 31 December 2022 are impacted by the impairment charges amounting to €1.5m (2021: NIL) attributable to impairments on the right of use asset and property, plant and equipment. In view of the subsidiary impairment losses referred to above the Company considered in its stand-alone statement of financial position the recoverability of the carrying amount of the direct investment of €19,097,783 in SP Investments Limited. The recoverability assessment prepared by the Directors as per IAS 36 – ‘Impairment of assets’, takes into consideration the acquisition of the catering operations by Med Asia Operations Ltd. (C-103605) and related intellectual property by Med Asia Branding Ltd. (C-89612) effective from 1 April 2023 as disclosed in note 32 to these financial statements, and concluded that the recoverable amount of the investment as at 31 December 2022 exceeds its carrying value and therefore no impairment on this investment is required in these financial statements.

The Directors are conscious that the projected revenues include judgements reached which at this stage remain subject to a material degree of underlying uncertainty, however the following matters are considered to constitute a material uncertainty that may cast significant doubt about the Group’s ability to continue as a going concern.

As at 31 December 2022, the Group’s current liabilities exceeded its current assets by €2,746,021 (2021: €1,789,220). The Group has continued to manage this position during the course of the current financial year and the deterioration in this regard is exclusively attributable to the non-attainment of accommodation revenue projections when the hotel in St. Paul’s Bay operated as ‘Bora Bora Ibiza Malta’ in the summer of 2022, as further amplified in the Directors Report.

During 2022 the Group generated its revenue almost exclusively from the operation of two hotels. As previously stated, in April 2023, the Group acquired certain well-established catering businesses previously operated by related companies outside the Group, which will serve not only to diversify the Group’s operations but also provide an additional source of revenue and pre-tax profits in 2023 and beyond.

It is encouraging to note that in 2022 the Group’s revenue reached €3.626 million, representing a 79% increase over the 2021 revenue of €2.025 million. In addition, accommodation revenue for the period January to March 2023 has reached almost €600,000 which represents a sharp increase over the corresponding period in 2022.

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

Basis of preparation (continued)

Within this context, the board requested management to prepare realistic but prudent financial projections for FY 2023 and beyond. Following a detailed assessment of the assumptions taken into account in the preparation of these financial projections, these were adopted by the Board.

On the basis of these financial projections, the financial results for the year 2023 are expected to continue to improve significantly compared to those achieved in 2022 with gross accommodation revenue expected to increase by circa 25% to €4.5 million while revenue from the catering businesses acquired in April 2023 is expected to be circa €4.9 million, resulting in substantial progress in liquidity ratios.

As stated, the projections adopted by the board were those it considered to be based on a realistic yet prudent scenario. In adopting these financial projections, the board also considered the excellent relationship the Group continues to enjoy with its bankers, evidenced this year by the extension of the COVID-19 loan repayment period from three to five years. The relationship with the banks spans several decades and suggests that additional finance, if needed, is likely to be forthcoming

Following this detailed assessment, the directors concluded that the Group is likely to generate sufficient financial resources through its operations as to permit it to continue in operational existence for the foreseeable future.

Accordingly, based on the outcome of the cashflow projections in a prudent scenario as referred to above, the Directors 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 2022 financial statements.

Standards, interpretations and amendments to published standards effective in 2022

In 2022, the Group and the Company adopted new standards, amendments and interpretations to existing standards that are mandatory for the Group’s and Company’s accounting period beginning on 1 January 2022. The adoption of these revisions to the requirements of IFRSs as adopted by the EU did not result in substantial changes to the Group’s and the Company’s accounting policies.

Other accounting amendments effective as from 1 January 2022 did not have a significant impact on the Group’s and Company’s financial results, position, cashflows and accounting policies.

Standards, interpretations and amendments to published standards that are not yet effective

Certain new standards, amendments and interpretations to existing standards have been published by the date of authorisation for issue of these financial statements but are mandatory for the Group and Company’s accounting periods beginning after 1st January 2023. The Group and Company have not early adopted these revisions to the requirements of IFRS’s as adopted by the EU and the directors are of the opinion that there are no requirements that will have a possible significant impact on the Group’s and the Company’s financial statements in the period of initial application.

2.Principal accounting policies

A summary of the more important accounting policies, which have been applied consistently, is set out below:

Basis of consolidation

Subsidiaries

A subsidiary is an entity that is controlled by the Company. The Company controls an investee when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

The Group financial statements include the financial statements of the parent Company and all its subsidiaries. The results of the subsidiaries acquired or disposed of during the period are included in the Group statement of profit or loss and other comprehensive income from the date of their acquisition or up to date of their disposal.

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

2.Principal accounting policies (continued)

Profit or loss and each component of OCI are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses, cash flows and any unrealised gains relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognises the related assets (including any goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

In the Company’s financial statements, investments in subsidiaries are accounted for on the basis of the direct equity interest and are stated at the pre organisation book value less any accumulated impairment losses. Dividends from the investment are recognised in profit or loss.

Property, plant & equipment

Property, plant and equipment are initially measured at cost and subsequently, land and buildings are stated at market value, based on valuations by external independent valuers, less depreciation. Revaluations are carried out at regular intervals, but at least every five years, unless the directors consider it appropriate to have an earlier revaluation, such that the carrying amount of property does not differ materially from that which would be determined using fair values at the end of the reporting period. Any accumulated depreciation at the date of the revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Plant and equipment are stated at historical cost less depreciation. Assets in the course of construction for production, supply or administrative purposes are classified as property, plant and equipment under development and are carried at cost, less any identified impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the company's accounting policy on borrowing costs. Depreciation of these assets, on the same basis as other property assets, commences when the assets are available for use.

Costs include expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount 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. Expenditure on repairs and maintenance of property, plant and equipment is recognised as an expense when incurred.

Any revaluation increase arising on the revaluation is recognised in other comprehensive income and accumulated in equity under the heading of revaluation surplus unless it reverses a revaluation decrease for the same asset previously recognised in profit or loss, in which case the increase is credited to profit or loss to the extent of the decrease previously charged. A decrease in carrying amount arising on the revaluation is recognised in profit or loss to the extent that it

exceeds the balance, if any, held in the revaluation surplus relating to a previous revaluation of that asset. When the asset is derecognised, the attributable revaluation remaining in the revaluation surplus is transferred to retained earnings.

Property, plant and equipment are derecognised on disposal or when no future economic benefits are expected from their use or disposal. Gains or losses arising from derecognition represent the difference between the net disposal proceeds, if any, and the carrying amount, and are included in profit or loss in the period of derecognition. On disposal of a revalued asset, amounts in the revaluation reserve relating to that asset are transferred to retained earnings.

Depreciation commences when the depreciable assets are available for use and is charged to profit or loss so as to write off the cost or revalued amount, less any estimated residual value, over their estimated useful lives, using the straight-line method, on the following bases:

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

2.Principal accounting policies (continued)

Freehold buildings

Electrical installations

10%

Furniture, fixtures and fittings

5%-10%

Equipment

10%

Motor vehicles

20%

Computer equipment

10%

Other fixed assets

10%

Freehold land is not depreciated as it is deemed to have an indefinite life. The depreciation method applied, the residual value and the useful life are reviewed, and adjusted if appropriate, at the end of each reporting period.

Investment property

Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by the Group, is classified as investment property. Investment property comprises freehold and leasehold land and buildings, and land and buildings held under long-term operating leases.

Investment property is initially measured at cost, including transaction costs. Subsequent to initial recognition, investment property is stated at fair value at the end of the reporting period. Gains or losses arising from changes in the fair value of investment property are recognised in profit or loss in the period in which they arise. Fair value is based on active market prices, adjusted, if necessary, for difference in the nature, location or condition of the specific asset. If this information is not available, the Group uses alternative valuation methods such as recent prices on less active markets or discontinued cash flow projections. These valuations are reviewed periodically by the Group directors.

The fair value of investment property reflects, among other factors, rental income from current leases and assumptions about rental income from future leases in the light of current market conditions. The fair value also reflects, on a similar basis, any cash outflows that could be expected in respect of the property.

Subsequent expenditure is charged to the asset’s carrying amount 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. All other repairs and maintenance costs are charged to the profit loss account during the financial period in which they are incurred.

If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment, and its fair value at the date of reclassification becomes its cost for accounting purposes. Property that is being constructed or developed for future use as investment property is classified as property, plant and equipment and is stated at cost until construction or development is complete, at which time it is reclassified and subsequently accounted for as investment property.

An item of property, plant and equipment becomes an investment property because its use has changed, any difference resulting between the carrying amount and the fair value of this item at the date of transfer is recognised in equity as a

revaluation of property, plant and equipment under IAS 16. However, if a fair value gain reverses a previous impairment loss, the gain is recognised in the income statement.

Investment property is derecognised on disposal or when it is permanently withdrawn from use and no future economic benefits are expected from its disposal. Gains or losses on derecognition represent the difference between the net disposal proceeds, if any, and the carrying amount and are recognised in profit or loss in the period of derecognition.

Financial instruments

Financial assets

Recognition and derecognition

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

2.Principal accounting policies (continued)

The Group recognises a financial asset initially at fair value in its statement of financial position when it becomes a party to the contractual provisions of the instrument. 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.

Classification and subsequent measurement

-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’s and the Company’s debt instruments principally comprise loans and advances to other undertakings and investments.

The Group’s debt instruments are subsequently measured at either amortised cost, at fair value through other comprehensive income, or at fair value through profit or loss.

The Group reclassifies debt investments when and only when its business model for managing those assets changes.

-Financial assets measured at amortised cost

Debt instruments that meet the following conditions are subsequently measured at amortised cost when:

- The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

- The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. The gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any loss allowance, measured in accordance with the Group’s accounting policy ‘Impairment of financial assets’ further below.

Changes in the carrying amount of financial assets carried at amortised cost, as a result of foreign exchange gains or losses, impairment gains or losses and interest income are recognised in profit or loss. On derecognition, any difference between the carrying amount and the consideration received is recognised in profit or loss and is presented separately in the line item ‘Gains and losses arising from the derecognition of financial assets measured at amortised cost’.

Impairment of financial assets

In terms of IFRS 9, the Group and the Company applies an expected credit loss (“ECL”) model. The Group and the Company has to assess on a forward-looking basis the expected credit loss associated with its debt instruments carried at amortised cost and fair value through other comprehensive income.

For trade and other receivables, the Group applies the simplified approach and recognises lifetime ECL. The ECLs on these financial assets are estimated using a provision matrix based on the respective Companies’ historical credit loss experience based on the past due status of the debtors, adjusted for factors that are specific to the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of conditions at the reporting date.

For all other financial instruments, the Group and the Company uses the general approach, which requires an assessment as to whether the counterparty has experienced a significant increase in credit risk since initial recognition. This assessment forms the basis as to whether lifetime ECL should be recognised and is based on significant increases in the likelihood or risk of a default occurring since initial recognition instead of on evidence of a financial asset being credit-impaired at the reporting date or an actual default occurring. As at reporting date, the credit risk on the Group’s and the

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

2.Principal accounting policies (continued)

Company’s financial instruments has not increased significantly since initial recognition and consequently the Group and the Company measures the loss allowance at an amount equal to 12-month ECL (‘12m ECL’).

Financial liabilities

The Group recognises a financial liability on its statement of financial position when it becomes a party to the contractual provision of the instrument. The Group’s financial liabilities are classified as financial liabilities which are not at fair value through profit or loss. These financial liabilities are recognised initially at fair value, being the fair value of consideration received, net of transactions 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, cancelled or expired.

Modifications to existing financial liabilities are accounted for as an extinguishment of the original liability and the recognition of a new financial liability if the modification represents a substantial modification. The Group considers that the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid, is at least 10% different from the discounted present value of the remaining cash flow of the original financial liability.

Where modifications to financial liabilities are not substantial, the Group discounts the present value of the revised cash flows using the original effective interest rate. The difference between the revised present value and the carrying amount of the original financial liability is recognised in profit or loss at the date of the modification.

Trade and other receivables

Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within 90 days and therefore are all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. The Group holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. Details about the Group’s impairment policies and the calculation of the loss allowance are provided in policy ‘Impairment of financial assets’.

Trade and other payables

Trade payables are classified within current liabilities unless payment is not due within 12 months from the reporting period. They are initially recognised at fair value and are subsequently measured at amortised cost using the effective interest method.

Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost. Any difference between the proceeds and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method, unless the effect of discounting is immaterial.

Borrowings are classified as current liabilities unless the companies within the Group have an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Subsequent to initial recognition, interest-bearing bank overdrafts are carried at face value in view of their short-term maturities.

Ordinary shares issued by the Company Ordinary shares issued by the Company are classified as equity instruments.

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

2.Principal accounting policies (continued)

Cash and cash equivalents and bank deposits

Cash and cash equivalents comprise cash in hand, demand deposits and short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the company’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows and are presented in current liabilities on the statement of financial position. Bank deposits that the directors do not consider a component of cash equivalents, are presented separately in the statement of financial position.

Provisions

Provisions are recognised when the Group’s companies have a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the present obligation at the balance sheet date. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Provisions are not recognised for future operating losses.

Impairment of non-financial assets

All non-financial assets are tested for impairment except for investment property measured at fair value through profit or loss. At each balance sheet date, the carrying amount of assets is reviewed to determine whether there is any indication or objective evidence of impairment, as appropriate, and if any such indication or objective evidence exists, the recoverable amount of the asset is estimated. An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount.

The recoverable amount is the higher of fair value (which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date) less costs of disposal and value in use (which is the present value of the future cash flows expected to be derived, discounted using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset). Where the recoverable amount is less than the carrying amount, the carrying amount of the asset is reduced to its recoverable amount, as calculated. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units).

Impairment losses are recognised immediately in the income statement, unless the asset is carried at a revalued amount, in which case, the impairment loss is recognised in other comprehensive income to the extent that the impairment loss does not exceed the amount in the revaluation surplus for that asset.

An impairment loss recognised in a prior year is reversed if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised.

Where an impairment loss is subsequently reversed, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years.

Revenue recognition

Hospitality

Revenue from hospitality includes revenue from accommodation and other ancillary services. The substantial majority of services are provided to customers during their stays in the Group’s hotels, and, depending on the type of booking, some services, would generally be amalgamated into one ‘contract’ (for example, bed and breakfast).

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

2.Principal accounting policies (continued)

Each of the services rendered is assessed to be a distinct performance obligation, and if applicable, the Group allocates the transaction price to each of the services rendered to the customer on a relative basis, based on their stand-alone selling price. Revenue from such operations is recognised over time since the customer benefits as the Group is performing; the majority of revenue relates to accommodation (i.e., the amount allocated to such performance obligation is recognised over the customer’s stay at the respective hotel).

Dividends received

Dividends income from investment is recognised when the shareholders’ right to receive payment has been established.

Management services

The Company provides management services to its subsidiaries. Such services have been assessed to fall within scope of the IFRS 15 series guidance such that they are recognised as one performance obligation over time during the contract term.

Borrowing costs

Borrowing costs include the costs incurred in obtaining external financing. Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised from the time that expenditure for these assets and borrowing costs are being incurred and activities that are necessary to prepare these assets for their intended use or sale are in progress. Borrowing costs are capitalised until such time as the assets are substantially ready for their intended use or sale. Borrowing costs are suspended during extended periods in which active development is interrupted. All other borrowing costs are recognised as an expense in profit or loss in the period in which they are incurred.

Leases

Where the Group is a lessee, with the exception of short-term leases and leases of low value assets, the Group recognises a right-of-use asset and a corresponding liability at the date at which a leased asset is available for use by the Group. Further details on the Group’s accounting policy, and a summary of its leasing arrangements as a lessee is described in note 12.

Lease income from operating leases where the Group or the Company is a lessor is recognised in income on a straight-line basis over the lease term. Initial direct costs incurred in obtaining an operating lease are added to the carrying amount of the underlying asset and recognised as expense over the lease term on the same basis as lease income. The respective assets leased out under operating leases are included in investment property in the balance sheet.

Modifications to operating leases where the Group is the lessor are accounted for as a new lease from the effective date of the modification, considering any prepaid or accrued payments relating to the original lease as part of the lease payments for the new lease.

Taxation

Current and deferred tax is recognised in profit or loss, except when it relates to items recognised in other comprehensive income or directly in equity, in which case the current and deferred tax is also dealt with in other comprehensive income or in equity, as appropriate.

Current tax is based on the taxable result for the period. The taxable result for the period differs from the result as reported in profit or loss because it excludes items which are non-assessable or disallowed and it further excludes items that are taxable or deductible in other periods. It is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

2.Principal accounting policies (continued)

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax

bases used in the computation of taxable profit. However, deferred tax is not accounted for if it arises from the 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 substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

The deferred tax liability in relation to investment property that is measured at fair value is determined assuming the property will be recovered entirely through sale.

Deferred tax in relation to the revaluation of land and buildings is charged or credited to other comprehensive income (to the extent that the revaluation is recognised in other comprehensive income). For buildings, deferred tax is recognised on the basis that the tax will be recovered through use (i.e., the corporate rate of tax in Malta), whilst land is expected to be recovered through sale. Deferred income tax on the difference between the actual depreciation on the property and the equivalent depreciation based on the historical cost of the property is realised through the income statement.

Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets, including deferred tax assets for unused tax losses and unused tax credits carried forward, are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences (or the unused tax losses and unused tax credits) can be utilised to the period when the asset is realised or the liability is settled based on the tax rates that have been enacted by the balance sheet date. Deferred tax assets and liabilities are offset when the Group’s companies have a legally enforceable right to settle its current tax assets and liabilities on a net basis.

Foreign currencies

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Euro, which is the Company’s functional and presentation currency. Transactions denominated in currencies other than the functional currency are translated at the exchange rates ruling on the date of transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are re-translated to the functional currency at the exchange rate ruling at year-end. Exchange differences arising on the settlement and on the re-translation of monetary items are recognised in profit or loss. Non-monetary assets and liabilities denominated in currencies other than the functional currency that are measured at fair value are re-translated using the exchange rate ruling on the date the fair value was determined. Non-monetary assets and liabilities denominated in currencies other than the functional currency that are measured in terms of historical cost are not re-translated. Exchange differences arising on the translation of non-monetary items carried at fair value are included in profit or loss for the period.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (“CODM”).

The board of SP Finance PLC, (“the Board”) assess the financial performance and position of the Group and make strategic decisions. The Board has been identified as being the CODM.

Related parties

Related parties are those persons or bodies of persons having relationships with the Company as defined in International Accounting Standard No. 24.

Government grants

Grants from government are recognised at their fair value when there is a reasonable assurance that the grant will be received, and the Group will comply with all attached conditions.

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

2.Principal accounting policies (continued)

Government grants related to income are recognised in profit or loss over the periods necessary to match them with the related costs which they are intended to compensate, on a systematic basis. Such grants are presented as part of profit or loss.

Government grants related to assets are presented in the statement of financial position by deducting the grant in arriving at the carrying amount of the asset. The grant is recognised as income over the life of the depreciable asset by way of a reduced depreciation charge.

Reorganisation between group entities

Reorganisations between group entities under common control are accounted for using the reorganisation method of accounting. Under this method, assets and liabilities are incorporated at the predecessor carrying values, which are the carrying amounts of assets and liabilities of the acquired entity as recognised and measured in that entity’s financial statements before reorganisation. No goodwill arises in reorganisation accounting, and any difference between the consideration given and the aggregate book value of the assets and liabilities of the acquired entity, is included in equity. The financial statements incorporate the acquired entity’s full year results, including comparatives, as if the post-reorganisation structure was already in place at the commencement of the comparative period.

3.Critical accounting estimates and judgements

Estimates and judgements 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.

In the opinion of the Group’s directors, except as follows, the accounting estimates and judgements made in the course of preparing these financial statements are not difficult, subjective or complex to a degree which would warrant their description as critical in terms of the requirements of IAS1 (revised).

Fair value of land and buildings and investment properties

The Group’s property, plant and equipment and investment property are measured at fair value. In estimating the fair value of these assets, the Group uses the market comparison approach which obtains market-observable data to the extent that it is available. The Group engages third party qualified valuers to perform the valuation.

Information about the valuation techniques and inputs used in determining the fair value of these assets are disclosed in note 11 to these financial statements.

Impairment on right of use assets and property, plant and equipment.

During the current financial year, the Group carried out a review on the recoverable amount of the carrying value of the right of use asset and property, plant and equipment. This led to the recognition of an impairment loss of €1.5m. In determining the amount of impairment, the Directors took into consideration the projected discounted cashflows emanating from this cash generating unit which reported the carrying amount higher than its recoverable amount. The discounted cashflow valuation is highly dependant on estimates and assumptions including the capitalisation rate, operating results and respective growth rate.

Expected credit loss allowances on loans and advances.

Credit loss allowance represent management’s best estimate of expected credit losses in the financial assets subject to IFRS 9 impairment requirements at the balance sheet date. In this respect, the directors are required to exercise judgement in defining what is considered to be a significant increase in credit risk and in making assumptions and estimates to incorporate relevant information about past events, current conditions and forecasts of economic conditions. The Group and the Company use the PD (Probability of default), LGD (Loss Given Default) and EAD (Exposure at Default) models in assessing loans and receivables and the provision matrix model for trade receivables to support the measurement of ECL.

The resultant ECL under both methods were deemed to be immaterial, as disclosed in note 29.

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

3.Critical accounting estimates and judgements

Recoverability of deferred tax assets

Deferred tax assets are recognised for all unused tax losses and capital allowances to the extent that it is probable that taxable profits will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon likely timing and level of future taxable profits together with the restructuring plan (note 32 – “post balance sheet events”).

4.Segment information and revenue from contracts with customers

4.1.Segment information

The standard requires a “management approach” under which segment information is presented on the same basis as that used for internal reporting purposes. The Group’s CODM, consisting of the board of directors examine the Group’s performance namely from an industry/product perspective. The Board of Directors considers the Group to be made up of one segment, that is the operating of two hotels. The CODM assesses performance based on the measure of EBITDA (earnings before interest, tax, depreciation and amortisation).

All of the Group’s non-current assets are located in Malta and therefore the geographical information that would have otherwise been required by IFRS 8, is not presented in these consolidated financial statements.

Revenue from contracts with customers

i.Disaggregation of revenue from contracts with customers

Group

Company

2022

2021

2022

2021

€

Hospitality segment

Accommodation service

3,625,530

2,024,510

Dividends received from subsidiaries

575,500

408,500

_________

3,625,530

_________

2,024,510

_________

575,500

_________

408,500

_________

ii.Liabilities related to contracts with customers

The Group has recognised the following liabilities relating to contracts with customers:

Group

Company

2022

2021

2022

2021

€

Contract liabilities

Advance deposits – hospitality (note 18)

58,090

Total contract liabilities

_________

58,090

_________

No revenue recognised in the current year which relates to carried forward contract liabilities.

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

5.Other operating income

Group

Company

2022

2021

2022

2021

€

Service charge

8,700

43,840

150,000

90,000

Rental income

135,059

76,152

Rental concessions

55,557

_________

143,759

_________

175,549

_________

150,000

_________

90,000

_________

6.Finance costs

Group

Company

2022

2021

2022

2021

€

Interest on overdraft

29,496

26,790

Interest on bank borrowings

27,330

12,878

Other interest

5,629

6,619

Bond interest

480,000

Interest on lease liability

285,072

299,451

Bond issue costs

31,582

_________

859,109

_________

857,320

_________

480,000

_________

480,000

_________

7.Expenses by nature

Group

Company

2022

2021

2022

2021

€

Direct costs

1,024,449

673,527

1,113

1,066

Wages and salaries

676,498

393,383

9,200

9,321

Directors’ remuneration

204,000

204,091

24,000

24,091

Utility expenses

281,855

236,221

Repairs and maintenance

270,116

144,039

Other expenses

288,161

138,930

93,293

71,596

_________

2,745,079

_________

1,790,191

_________

127,606

_________

106,074

_________

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

7.Expenses by nature (continued)

Profit before tax for the Group is stated after charging the following fees in relation to services provided by the external auditors of the Group.

Group

Company

2022

2021

2022

2021

€

Total remuneration payable to the auditors for:

Audit services

17,550

13,500

17,550

13,500

Audit services charged by the component auditor

14,437

11,724

_________

31,987

_________

25,224

_________

17,550

_________

13,500

_________

8.Staff costs and employee information

Group

Company

2022

2021

2022

2021

€

Wages and salaries (including directors)

950,584

948,091

33,200

33,412

Social security costs

61,807

56,795

_________

1,012,391

_________

1,004,886

_________

33,200

_________

33,412

_________

Government grant

(131,893)

(407,412)

_________

880,498

_________

597,474

_________

33,412

_________

33,412

_________

Government assistance

The Maltese Government announced a number of measures to financially support businesses where operations were significantly impacted by the COVID-19 pandemic. The Group was eligible to benefit from the COVID Wage supplement

under Annex A, receiving €800 on a monthly basis per full-time employee until the measure was terminated by the Government on 31 May 2022.

The average number of persons employed during the year, including directors, was made up as follows:

Group

Company

2022

2021

2022

2021

Number

Operations and administrations

Directors

_________

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

9.Impairment of non-financial instruments

Group

Company

2022

2021

2022

2021

€

At 1 January 2022

Impairment on ROU asset (note 12)

847,000

Impairment on PPE (note 11)

653,000

At 31 December 2022

_________

1,500,000

_________

10.Tax (credit)/expense

Group

Company

2022

2021

2022

2021

€

Deferred tax (credit)/ charge

(77,636)

(630,418)

6,134

(5,626)

Current tax charge

7,650

_________

(69,986)

_________

(630,418)

_________

6,134

_________

(5,626)

_________

The tax expense and the tax charge using the statutory income tax rate of 35% are reconciled as follows:

Group

Company

2022

2021

2022

2021

€

(Loss)/Profit before taxation

(2,622,889)

__________

(1,901,783)

__________

117,894

__________

(87,574)

__________

Tax (credit)/charge at 35%

(918,011)

(665,624)

41,263

(30,651)

Depreciation charges not deductible by way of capital allowances

10,521

10,523

Expenses disallowed for tax purposes

945,183

26,612

24,697

25,025

Additional allowable deductions

(3,679)

(1,929)

Fiscal consolidation adjustments

(59,826)

Income taxed at reduced rates

(45,900)

Tax effect of non-taxable income

(58,100)

Tax (credit)/expense

_________

(69,986)

_________

(630,418)

_________

6,134

_________

(5,626)

_________

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

________________________________________________________________________________________________________________________________________

__________________________________________________________________________________________________________________________________________________

11.Property, Plant & Equipment

Group

Land &

Motor

Equipment

Electrical

Furniture,

Computer

Other fixed

Total

Buildings

Vehicles

Installations

& Fittings

Equipment

€

Cost/ Valuation

As at 1 January 2021

24,224,018

46,061

1,816,691

1,172,312

3,122,461

65,610

205,000

30,652,153

Additions

156,257

28,209

15,218

57,148

3,336

2,223

262,391

Disposals

As at 1 January 2022

24,380,275

46,061

1,844,900

1,187,530

3,179,609

68,946

207,223

30,914,544

Additions

112,805

28,941

20,804

1,998

4,760

169,308

Disposals

(29,661)

(36,189)

(65,850)

As at 31 December 2022

24,493,080

16,400

1,873,841

1,187,530

3,200,413

34,755

211,983

31,018,002

Depreciation

As at 1 January 2021

810,600

36,961

456,446

266,490

966,353

47,890

51,250

2,635,990

Charge for the year

311,459

2,600

226,629

117,387

208,853

5,529

34,538

906,995

As at 1 January 2022

1,122,059

39,561

683,075

383,877

1,175,206

53,419

85,788

3,542,985

Charge for the year

322,740

2,600

147,498

115,655

279,885

7,833

35,331

911,542

Released on disposal

(29,661)

(36,189)

(65,850)

Impairment loss

483,000

170,000

653,000

As at 31 December 2022

1,927,799

12,500

830,573

669,532

1,455,091

25,063

121,119

5,041,677

Net Book Value

As at 31 December 2022

22,565,281

3,900

1,043,268

517,998

1,745,322

9,692

90,864

25,976,325

As at 31 December 2021

23,258,216

6,500

1,161,825

803,653

2,004,403

15,527

121,435

27,371,559

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

11.Property, Plant & Equipment (continued)

Fair value of property

The Group is required to analyse non-financial assets carried at fair value by level of the fair value hierarchy within which, the recurring fair value measurements are categorised in their entirety (Level 1, 2 or 3). The different levels of the fair value hierarchy have been defined as fair value measurements using:

•Quoted prices (unadjusted) in active markets for identical assets (Level 1).

•Inputs other than quoted prices included within Level 1 that are observable for the asset, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).

•Inputs for the asset that are not based on observable market data (that is, unobservable inputs) (Level 3).

The Group’s land and buildings, within property, plant and equipment consists principally of hotel properties that are owned and managed by the Group’s subsidiaries. The Group’s investment property comprises mainly of two outlets and a guest house property that are held for long term rental yields or for capital appreciation or both and are measured at fair value on annual basis as required by IAS 40 (note 13).

All the recurring property fair value measurements at 31 December 2022 and 2021, as applicable, use significant unobservable inputs and are accordingly categorised within Level 3 of the fair valuation hierarchy.

The Group’s policy is to recognise transfers into and out of fair value hierarchy levels as of the beginning of the reporting period. There were no transfers between different levels of the fair value hierarchy during the current and preceding financial years.

A reconciliation from the opening balance to the closing balance of property for recurring fair value measurement categorised within level 3 of the fair value hierarchy, for the current and preceding financial years, is reflected in the table above and in note 13 for investment property.

Valuation techniques

The Group obtains independent valuations for its freehold land and buildings at least every five years. In addition to the revaluations carried out on hotel properties, the Group’s investment properties, which comprise two restaurant outlets and a guest house are measured by an independent valuer on an annual basis as required by IAS 40.

At the end of each reporting period, the directors update their assessment of the fair value of each property, taking into account the most recent independent valuations. The directors determine a property’s value within a range of reasonable fair value estimates. The best evidence of fair value is current prices in an active market for similar properties. Where such information is not available, the directors consider information from a variety of sources.

During the current financial year the Directors carried out an impairment assessment as per IAS 36 – ‘Impairment of assets’ on the works carried out on the property classified within ‘Land and Buildings’ and ‘electrical installation’ in property, plant and equipment, relating to the assets where the Group has the right of use (note 12). The resultant DCF differed materially from the carrying value of the PPE combined with the ROU asset, and therefore the Directors impaired the assets forming part of PPE by €653,000 as shown in the table above and as disclosed in note 9 to these financial statements. The impairment on ROU asset is further disclosed in note 12 “leases”.

Valuation processes

In 2022, the directors carried an assessment for those properties measured in accordance with the revaluation model under IAS 16 for property, plant and equipment and IAS 40 for Investment property, to determine whether a material shift in fair value has occurred.

Where management, through its assessment, concludes that the fair value of hotel properties differs materially from its carrying amount, and at least every 5 years, an independent valuation report prepared by third party qualified valuers, is performed. The report is based on information provided by the Group, publicly available information and the expert

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

11.Property, Plant & Equipment (continued)

valuer’s knowledge and experience in the field. The information provided to the valuers, together with the assumptions and the valuation models used by the valuer, are reviewed by the directors. This includes a review of the fair value movement over the period. The directors consider whether the valuation report is appropriate in order to revalue the Group’s property.

The Group’s property (land and buildings together with all other integral assets) and investment property were last revalued on 31 December 2018 and reflected in the Group’s financial statements. The valuations were again obtained by

the independent professional qualified valuer on 31 December 2022 and 2021. The land and buildings together with all other integral assets were valued by Perit Colin Zammit (a firm of architects and civil engineers). The external valuations of the property as at 31 December 2018 - 2022 as applicable, have been performed using the comparison market approach and Level 3 inputs of the fair valuation hierarchy.

In view of a limited number of properties with similar characteristics, the valuations have been performed using unobservable inputs. The significant inputs to the approach used is a sales price per square metre related to transactions in comparable properties located in proximity to the respective property, with adjustments for differences in the size and condition of the property. As at 31 December 2022, the resultant fair value did not differ materially from the book values of the property.

Information about fair value measurements using significant unobservable inputs (Level 3)

*These inputs represent the range of inputs used in the external valuation carried out as at 31 December 2022 and 2021.

Historical cost basis of properties

If the cost model had been used, the carrying amounts of the revalued properties classified as property, plant and equipment would be €8,914,865 (2021: €10,310,099). The revalued amounts include a revaluation surplus of €17,061,460 before tax (2021: €17,061,460), which is not available for distribution to the shareholders of SP Finance P.L.C.

Use as collateral

Land and buildings held by the Group, with a carrying amount of €13.8m (2021: €13.8m) are pledged as security for non-current borrowings.

-Group

Fair value at

Valuation

technique

Unobservable inputs

Relationship of unobservable

inputs to fair value

31 Dec

2022

2021

-Description

€

Property, plant, and equipment

Current use as hotel properties

22,000,506

22,146,932

Comparison Approach

Sales price

per square

metre

The higher the sales price per square metre the higher the fair value

* €5,500

Investment properties

Leased buildings

6,004,491

Comparison Approach

Sales price

per square

metre

The higher the sales price per square metre the higher the fair value

* €5,800

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

12.Leases

This note provides information for leases where the Group is a lessee. For leases where the Group is a lessor, see note 13 to these financial statements.

i.Amounts recognised in the balance sheet

The balance sheet shows the following amounts relating to leases:

Group

2022

2021

€

Right-of-use assets

Land and buildings

2,255,816

3,596,455

Equipment

165,050

189,079

Furniture & fittings

265,091

305,871

2,685,957

4,091,405

Lease liabilities

Current

272,151

256,725

Non-current

4,418,892

4,691,041

4,691,043

4,947,766

There were not additions to the ROU asset during the current and prior financial years.

Impairment Assessment on the Carrying Value

The ROU asset held by the Group was assessed for impairment in combination with an amount of €4.6m (2021: €5.2m) classified within property, plant and equipment, since these assets relate to the same hotel operated by the Group and therefore have been assessed as one cash generating unit.

The directors assessed the fair value of the Group’s ROU asset in 2022 by using a discounted cash flow (DCF) analysis applying the expected cash flow approach based on their expectations of the achievable outcome.

The resultant DCF valuation carried out by the directors did not exceed the carrying value of the ROU asset and the carrying value of the plant and equipment held in the balance sheet as at 31st December 2022, therefore, an impairment of €847,000 in ROU asset and €653,000 (note 11) in PPE was accounted for in these financial statements.

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

12.Leases (continued)

ii.Amounts recognised in the statement of profit or loss

The statement of profit or loss shows the following amounts relating to leases:

Group

2022

2021

€

Depreciation charge of right-of-use assets

Land and buildings

493,640

Equipment

24,025

Furniture & fittings

40,782

558,447

Interest expense (included in finance cost – note 6)

285,072

299,451

Modification gain on financial liabilities

(11,111)

Impairment on ROU asset (note 9)

847,000

The total cash outflow for leases in 2022 was €541,796 (2021: €541,613).

iii.The Group’s leasing activities and how these are accounted for

The Group leases land, buildings, equipment and furniture. The Group’s rental contracts are for fixed periods of 5 to 10 years, but may have extension options as described in (v) below.

Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes.

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.

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

12.Leases (continued)

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is the case for leases in the Group except for furniture leases and some equipment leases, the 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 individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received; and

•Makes adjustments specific to the lease, e.g., term and security.

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; and

•Any lease payments made at or before the commencement date less any lease incentives received.

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. While the Group revalue its land and buildings that are presented within property, plant and equipment, it has chosen not to do so for the right-of-use land and buildings held by the Group.

Payments associated with short-term leases 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.

iv.Variable lease payments

The Group’s leases do not contain variable payment terms.

v.Extension and termination options

Extension and termination options are included in the Group’s property leases. These are used to maximise operational flexibility in terms of managing the assets used in the Group’s operations. The extension and termination options held are exercisable only by the Group and not by the respective lessor.

The Group has an option to extend the present leases of land and building for an additional 5 years, however, this has not been reflected in the right-of-use asset or in the lease liability since the Group is currently not reasonably certain that the option for this extension will be exercised. When the Group determines that it is reasonably certain that the option will be exercised, the right-of-use asset and corresponding lease liability will be adjusted for in the Group financial statements.

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

13.Investment property

Group

Company

2022

2021

2022

2021

€

At the beginning of the year

6,004,491

Additions

Revaluation

At the end of the year

_________

6,004,491

_________

6,004,491

_________

Investment property is valued annually on 31 December at fair value comprising open market value approved by the directors on the basis of a professional valuation prepared by an independent architect. Fair value disclosures are included in note 11.

i.Amounts recognised in profit or loss for investment properties.

Group

Company

2022

2021

2022

2021

€

Rental income from lease

52,559

27,552

_________

ii.Lease arrangements

The Group’s investment properties are leased to tenants with rentals payable on a monthly or quarterly basis. Lease payments for some contracts include fixed annual increases, but there are no variable lease payments that depend on an index.

The future minimum operating lease payments under non-cancellable leases are as follows:

Group

Company

2022

2021

2022

2021

€

Within one year

132,058

Between 1 – 2 years

104,500

132,058

Between 2 – 3 years

104,500

Between 3 – 4 years

88,750

104,500

Between 4 – 5 years

73,000

88,750

Later than 5 years

146,000

219,000

_________

648,808

_________

780,866

_________

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

14.Investment in subsidiary

Company

Shares in subsidiary

Total

€

At 1 January 2022

19,097,783

Additions

At 31 December 2022

_________

19,097,783

_________

19,097,783

_________

The investment in subsidiary is accounted for using the reorganisation method of accounting and therefore reflects the Net Asset Value of the pre-existing assets and liabilities acquired. Refer to accounting policies “Reorganisation between group entities” and note 24.

All subsidiary undertakings are included in the consolidation and are accounted for on the basis of direct equity interest and are stated at the pre organisation value less any accumulated impairment losses.

The Directors considered the recoverability of the investment in its subsidiary SP Investments taking into consideration the acquisition of operations and branding post year end as disclosed in note 1 and 29 to these financial statements and concluded that the recoverable amount exceeds the carrying value as at 31 December 2022 and therefore no impairment is required.

Shares in subsidiaries represent the following investments:

Company

Registered address

Principal Activity

2022

2021

% Holding

Holding

SP Investments Limited

89, The Strand, Sliema

Holding Company

100%

Sea Pebbles Limited

89, The Strand, Sliema

Hospitality operations

100%

Pebbles Resort Limited

89, The Strand, Sliema

Hospitality operations

100%

Pebbles St Julians Limited

89, The Strand, Sliema

Non-Operating

100%

15.Financial assets at amortised costs

Group

Company

2022

2021

2022

2021

€

Non-Current

Redeemable preference shares

Note i

12,000,000

_________

12,000,000

_________

12,000,000

_________

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

15.Financial assets at amortised costs (continued)

i.Redeemable preference shares

This investment represents 100% holding of the 4.1% non-voting, cumulative redeemable preference shares. These preference shares are redeemable within a period of up to 30 years of their allotment. The subsidiary has the right to redeem all or part of the said preference shares on any date it chooses within the aforesaid thirty-year period with the mutual consent of the Company. Provided that the directors of each of the issuer and the subsidiary have undertaken that the redemption of any of the preference shares is to occur subject to the proceeds thereof being held by the Company.

16.Trade and other receivables

Group

Company

2022

2021

2022

2021

€

Trade receivables

280,729

163,992

Other receivables

6,390

73,538

VAT refundable

36,050

23,213

Amounts owed by subsidiary

Note i

598,956

80,176

Amounts due by commonly controlled entities

Note ii

520,864

689,893

Prepayments and accrued income

27,585

28,259

1,872

_________

871,618

_________

978,895

_________

600,828

_________

82,048

_________

i.Amounts owed by subsidiary

Amounts owed by subsidiary are unsecured, interest free and repayable on demand.

The Group and the Company assess whether any loss allowance is required on its financial assets as set out in the accounting policies and note 29.

ii.Amounts due by commonly controlled entities

Amounts due by commonly controlled entities are unsecured and interest free. The balance is repayable in accordance with the signed repayment agreement in place.

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

17.Deferred taxation

Deferred taxes are calculated on all temporary differences under the liability method using a principal tax rate of 35% / 10% (2021 – 35% / 10%). The movement in the deferred tax account is as follows:

Group

Company

2022

2021

2022

2021

€

At the beginning of the year

(1,173,780)

(1,804,198)

Recognised in profit or loss:

Movement in unabsorbed tax losses and capital allowances

(629,878)

470,194

Movement in excess of capital allowances over depreciation

279,951

42,397

Movement in effect of provisions

14,458

(3,926)

Movement in effect of bond issue costs amortisation

11,053

Movement in effect of leases accounting under IFRS 16

402,053

110,700

At the end of the year

_________

(1,096,143)

_________

(1,173,780)

_________

Effect recognised in:

Deferred tax movements recognised in profit & loss (note 10)

77,636

630,418

(6,134)

5,626

Transfer of tax losses between group companies

6,134

(5,626)

_________

77,636

_________

630,418

_________

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

17.Deferred taxation (continued)

The following amounts are shown in the balance sheet:

Group

Company

2022

2021

2022

2021

€

Deferred tax assets

Unabsorbed tax losses and capital allowances

529,030

1,158,908

Effect of leases accounting under IFRS 16

701,780

299,726

Effect of provisions

15,393

935

_________

1,246,203

_________

1,459,569

_________

Deferred tax liabilities

Effect of excess of capital allowances over depreciation

(10,797)

(290,747)

Effect due to amortisation of bond issue costs

(70,009)

(81,062)

Effect due to revaluation of Land & Buildings

(1,880,400)

Effect due to revaluation of Investment Property

(381,140)

_________

(2,342,346)

_________

(2,633,349)

_________

(1,096,143)

_________

(1,173,780)

_________

Presented in the balance sheet as follows:

Group

Company

2022

2021

2022

2021

€

Deferred tax asset

1,165,397

1,087,760

Deferred tax liability

(2,261,540)

_________

(1,096,143)

_________

(1,173,780)

_________

At 31 December 2022 the Group had a deferred tax asset of € 862,952 (2021: nil) emanating from unabsorbed capital allowances. The crystallisation of this asset remains doubtful given the expected pattern of income in the future years and has therefore not been recognised.

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

18.Trade and other payables

Group

Company

2022

2021

2022

2021

€

Trade payables

536,110

348,952

70,741

34,232

Other payables

431,232

180,103

1,656

Indirect taxes

35,438

47,154

13,512

8,266

Amounts owed to commonly controlled entities and related entities

Note i

130,841

100,000

Accruals

580,753

525,569

346,803

347,360

Deferred income and advanced deposits

58,090

_________

1,772,464

_________

1,201,778

_________

432,712

_________

389,858

_________

i.Amounts due to commonly controlled entities and related entities

Amounts due to commonly controlled entities and related entities are unsecured, interest free and repayable on demand.

19.Current income tax (liability)/ asset

Group

Company

2022

2021

2022

2021

€

Balance as the beginning of the year

(70,701)

28,090

89,020

201,020

Provision for the year

(7,650)

FWT paid

7,650

Settlement tax paid

44,127

13,209

Tax refund received

(89,020)

(112,000)

(89,020)

(112,000)

Balance at the end of the year

_________

(115,594)

_________

(70,701)

_________

89,020

_________

Balance sheet allocation

Asset

89,020

Liability

(115,594)

(159,721)

_________

(115,594)

_________

(70,701)

_________

89,020

_________

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

20.Borrowings

Group

Company

2022

2021

2022

2021

€

Falling due within a year

Bank overdrafts

Note i

423,380

475,501

Bank borrowings

Note ii

622,247

630,204

Third party borrowings

Note iii

500,000

466,667

_________

1,545,627

_________

1,572,372

_________

Falling due after more than one year

Bank borrowings

Note ii

1,046,417

1,532,796

Bonds

Note iv

11,799,983

11,768,399

12,000,000

Third party borrowings

Note iii

133,334

533,333

_________

12,979,734

_________

13,834,528

_________

12,000,000

_________

12,000,000

Total borrowings

_________

14,525,361

_________

15,406,900

_________

12,000,000

_________

12,000,000

_________

The debts securities are disclosed at the value of the proceeds less the net book amount of the transaction costs as follows:

Group

Company

2022

2021

2022

2021

€

Face value of bonds

Bonds

12,000,000

_________

12,000,000

_________

12,000,000

_________

12,000,000

_________

Issue costs

(315,822)

Accumulated amortisation

115,805

84,221

Net book amount

_________

(200,017)

_________

(231,601)

_________

Amortised cost

_________

11,799,983

_________

11,768,399

_________

12,000,000

_________

12,000,000

_________

(i)The Group’s bank overdraft facilities as at 31st December 2022 amounted to €700,000 (2021: €700,000). The Company does not have a facility. The Group’s overdrafts are secured by general hypothecs and special hypothecs over the Group’s assets, guarantees over related party assets and by pledges over various insurance policies.

(ii)The Group’s bank loan facilities are secured by general hypothecs and special hypothecs over the Group’s assets, guarantees over related party assets and by a guarantee provided by Malta Development Bank (MDB).

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

20.Borrowings (continued)

(iii)The third-party loan relates to capital expenditure which is being repaid in quarterly instalments of €100,000. This loan is unsecured and interest-free.

(iv)By virtue of the Prospectus dated 8 April 2019, SP Finance p.l.c. issued for subscription by the general public 120,000 secured bonds having a nominal value of €100 each for an aggregate principal amount of €12,000,000. These bonds have been issued at par.

The bonds are subject to a fixed interest rate of 4% per annum payable on the 3 May of each year up to redemption date. All bonds, unless previously purchased and cancelled, will be redeemed on 3 May 2029.

The bonds are subject to the terms and conditions in the prospectus and are listed on the Malta Stock Exchange. The quoted market price as at 31st December 2022 for the 4% secured Bonds was €96 (2021: €100). The directors are of the opinion that this price represents the fair value of these liabilities; as at balance sheet date, the fair value of the bonds therefore amounts to €11,520,000 (2021: €12,000,000). The fair value calculation is classified within Level 1 of IFRS 13’s fair value hierarchy.

Group

Company

2022

2021

2022

2021

Interest rate exposure:

€

At floating rates

2,092,046

2,638,501

At fixed rates

11,799,981

11,768,399

12,000,000

Interest free

633,334

1,000,000

Total borrowings

_________

14,525,361

_________

15,406,900

_________

12,000,000

_________

12,000,000

_________

Group

Company

2022

2021

2022

2021

Weighted average effective interest rates

At the balance sheet date:

Bank overdrafts

5.85

Bank loans

3.10

0.53

Bond

4.00

Group

Company

2022

2021

2022

2021

Maturity of long-term borrowings:

€

Between 1 and 5 years

1,179,752

2,066,130

Over 5 years

11,799,983

11,768,398

12,000,000

_________

12,979,735

_________

13,834,528

_________

12,000,000

_________

12,000,000

_________

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

20.Borrowings (continued)

Collateral granted in favour of the security trustee

Security for the fulfilment of the Company’s obligations in term of the bond issue is to grant in favour of the security trustee for the benefit of the bond holders, a first ranking special hypothec over the security property for the sum of €12,000,000 and interest thereon and charges in connection therewith, to be constituted by the Guarantor in favour of the security trustee for the benefit of the beneficiaries by virtue of the Security Trust Deed dated 24 April 2019.

21.Share capital and share premium

Details of share capital for Company as at 31 December 2022

2022

€

Authorised, issued and fully paid up

250,000 Ordinary shares of €1 each 100% paid up

250,000

_________

250,000

_________

Details of share capital for Company as at 31 December 2021

2021

€

Authorised, issued and fully paid up

250,000 Ordinary shares of €1 each 100% paid up

250,000

_________

250,000

_________

22.Revaluation reserve

Group

Company

2022

2021

2022

2021

€

At the beginning of the year

14,799,920

At the end of the year

_________

14,799,920

_________

14,799,920

_________

The revaluation reserve was created on the revaluation of the Group’s property plant and equipment. The revaluation reserve is a non-distributable reserve.

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

23.Fair value gain reserve

This reserve represents changes in fair value, net of deferred tax, on the investment properties held by the Group for long-term rental yields. Movement in fair values are presented in profit or loss as part of ‘fair value gains on investment property’. Information about the valuation process of the investment property is disclosed in note 11 to these financial statements.

Group

Company

2022

2021

2022

2021

€

At the beginning of the year

2,938,013

At the end of the year

_________

2,938,013

_________

2,938,013

_________

This reserve is a non-distributable reserve.

24.Group Reorganisation

On 28 November 2018, the Company acquired 100% of the share capital of SP Investments Limited through an exchange of shares for a consideration of 10,000 100% paid up Ordinary shares of €1 each with a premium of €17,750,000. SP Investment Limited’s shareholders prior to this transaction became shareholders of the Company, and this reorganisation has been recognised in accordance with the accounting policy applicable to such transactions.

The following table summarises the consideration paid by the Company and the amounts of assets acquired, and liabilities assumed, that were recognised in the consolidated statement of financial position as at 28 November 2018, being the date of the legal reorganisation:

Group

2022

2021

Consideration

€

As at the beginning of the year

17,531,725

__________

Other reserves created upon reorganisation

17,531,725

__________

Company

Consideration

€

Non-cash consideration

17,998,800

Recognised amounts of identifiable assets acquired, and liabilities assumed

Net assets acquired

(19,097,783)

Equity adjustments:

Other reserves created upon reorganisation

(1,098,983)

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

25.Cash and cash equivalents

Group

Company

2022

2021

2022

2021

€

Cash at bank and in hand

88,197

333,461

3,003

278,149

Overdraft

(423,380)

(475,501)

At the end of the year

_________

(335,183)

_________

(142,040)

_________

3,003

_________

278,149

_________

The balances of cash and cash equivalents are available for use by the Group and the Company in their entirety.

26.Related party transactions

During the course of the year the Group and the Company entered into transactions with related parties. These transactions have been carried at arm's length. The related party transactions in question were:

Group

Company

2022

2021

2022

2021

€

Revenue

Subsidiaries

Service charge

150,000

90,000

Dividends received

575,500

408,500

Other operating income

Commonly controlled entities

Rental income

107,500

76,152

Service fee

5,500

43,840

_________

113,000

_________

119,992

_________

725,500

_________

498,500

_________

Other operating expenses

Commonly controlled entities

Direct costs

116,023

39,284

_________

116,023

_________

________

39,284

________

_________

Non-current assets

Property, plant and equipment

Sale of property

182,000

________

182,000

________

Key management personnel include the board of directors. Key management compensation, consisting of directors’ remuneration, has been disclosed in note 8 to the financial statements.

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

27.Commitments

Capital expenditure

The Group does not have any authorised commitments and not contracted or contracted not provided for.

28.Contingent liabilities

As at 31 December 2022 the Group provided general and special hypothecs over the Group’s immovable property to the amount of €1,390,000 (2021: €1,390,000) to related undertakings outside the Group.

As at 31 December 2022, the Group is standing as a surety against the debt of a third party for the value of €420,000 (2021: €525,000) which is secured by immovable property of the Group. The debt is repayable by the third-party debtor and is also personally guaranteed by the ultimate shareholders of the Group.

29.Financial risk management

The Group’s activities potentially expose it to a variety of financial risks on its financial assets and financial liabilities. The key components of financial risks to the Group are: market risk (namely, cash flow interest rate risk 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.

Market risk

Market risk is the risk that changes in market prices, such as interest rates, and quoted prices, will affect the Group’s income or financial position. The objective of the Group’s market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.

Cash flow and fair value interest rate risk

The Group’s interest rate risk arises on its interest-bearing borrowings and deposits held with banks. Borrowings issued at variable rates, comprising bank borrowings, expose the Group to cash flow interest rate risk. The Group’s bank borrowings are subject to an interest rate that varies according to revisions made to the Bank’s Base Rate and three-month Euribor. The directors monitor the level of floating rate borrowings as a measure of cash flow risk taken on.

The Group has adopted a cautious risk policy with regards to interest rate fluctuation through the issue of a €12,000,000 ten-year bond incurring interest of 4%. Debt securities issued at fixed rates and bank deposits expose the Group to fair value interest rate risk.

Bank deposits and borrowings are carried at amortised cost. Accordingly, a shift in interest rates would not have an impact on profit or loss.

A shift in interest rates on borrowings at variable rates will however have an impact on profit or loss. The directors consider the potential impact on the Group’s profit or loss of a defined interest rate shift of 1%, that is reasonably possible, at the end of the reporting period keeping all other variables constant, to amount to +/- €21,000 (2021: +/- €17,000).

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

29.Financial risk management (continued)

Credit risk

Credit risk arises from cash and cash equivalents, deposits with banks and credit risk exposures to customers, including outstanding receivables and committed transactions. The carrying amount of the financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

Group

Company

2022

2021

2022

2021

€

Carrying amounts

Financial assets at amortised cost

12,000,000

Amounts due by commonly controlled entity

520,864

689,893

Trade and other receivables

322,169

260,743

600,828

82,048

Cash at bank and in hand

88,197

333,461

3,003

278,149

_________

959,815

_________

1,312,356

_________

12,603,831

_________

12,360,197

_________

Financial assets at amortised cost comprise of investment in preference shares in subsidiary company as described in note 15. These loans are secured and the failure of the related undertaking could have an impact on the Company’s results.

The Group’s Companies bank only with local financial institutions with high quality standing or rating. The Group has no concentration of credit risk that could materially impact on the sustainability of its operations. However, in common with similar business concerns, the failure of specific large customers could have a material impact on the Group’s results.

The Group assesses the credit quality of its customers taking into account financial position, past experience and other factors. Standard credit terms are in place for individual clients, however, wherever possible, new corporate customers are analysed individually for creditworthiness before the Group’s standard payment and service delivery terms and conditions are offered. The Group’s review includes external credit worthiness databases when available.

Impairment of financial assets

The Group and the Company have three types of financial assets that are subject to the expected credit loss model:

•Trade receivables and accrued income relating to the provision of services;

•Financial assets at amortised cost for Company, comprising investment in preference shares in subsidiary undertaking;

•Other financial assets at amortised costs comprising loans receivable from related parties outside the group; and

•Cash and cash equivalents.

Trade receivables and accrued income

The Group applies the IFRS 9 simplified approach to measure expected credit losses which uses a lifetime expected loss allowance for all trade receivables and accrued income.

To measure the expected credit losses, trade receivables and accrued income have been grouped based on shared credit risk characteristics and the days past due. The Group has concluded that the expected loss rates for trade receivables are a reasonable approximation of the loss rates for the accrued income since they have substantially the same characteristics.

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

29.Financial risk management (continued)

The expected loss rates are based on the payment profiles of sales over a period of 12 months before 31 December 2022 and 31 December 2021 respectively and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables.

Based on the assessment carried out in accordance with the above methodology, the identified expected credit loss allowance on trade receivables and accrued income, was deemed immaterial. The movement in loss allowances as at 31 December 2022 and 2021 is also deemed immaterial by management. On this basis, the information pertaining to loss rates and loss allowances in the Group’s provisions matrix, which would have otherwise been required by IFRS 7, is not presented as at 31 December 2022 and 2021.

Trade receivables and accrued income are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group, and a failure to make contractual payments for a period of greater than 1 year past due.

Financial assets at amortised costs

As disclosed above, the Company’s main exposures are a loan to the Company’s subsidiary, representing the advance of the bonds raised by the Company invested as redeemable preference shares. The Company’s management monitor intra-group credit exposures on a regular basis and ensure timely performance of these assets in the context of its overall liquidity management. 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.

The Directors assessed recoverability of these balances by leveraging on cash flow projections prepared by the respective counterparties. The cash flow projections, which stretch over the term of the loan, consider whether the counterparty could meet its obligations under different, forward-looking scenarios.

After taking into account the results of their assessment, together with the fact that the counterparty has met its obligations as and when due, the resultant impairment charge required was deemed immaterial, and accordingly is not recognised in these financial statements.

Other financial assets at amortised cost

The Group’s other financial assets at amortised cost which are subject to IFRS 9’s general impairment model comprise of loan advanced to a related undertaking outside the Group.

The Group monitors intra-group credit exposures at individual entity level on a regular basis and ensure timely performance of these assets in the context of its overall liquidity management. 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.

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

29.Financial risk management (continued)

Where the counterparties’ financial position suggests that it does not have sufficient liquid assets at balance sheet date to repay the loan if this is demanded, the probability of default is deemed to be 100%. Given that the related party relationships of such balances are between entities under common control, the directors assess the loss given default of the balance by analysing recovery strategies that the Group would allow, taking cognisance of such related party relationship. These recovery strategies typically include a projection of the net cash flows emanating from allowing the counterparty to operate, incorporating multiple forward-looking scenarios that take into account all reasonable and supportable information available to the Group. The assessment also considered the possibility of refinancing and the value of properties owned by the Group with specific emphasis on the properties held by virtue of the Security Trust Deed dated 24 April 2019. In making this analysis, the Group also takes into account any support of shareholders in place.

After making this analysis, the directors concluded that the resulting loss-given-default rates are low, such that when applied to the PD x LGD x EAD methodology to calculate the IFRS 9 ECL allowance, the resulting impairment charge required was deemed to be immaterial.

Cash at bank

The Group’s cash is placed with reputable financial institutions, such that management does not expect any institution to fail to meet repayments of amounts held in the name of the companies within the Group. While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was insignificant.

Liquidity risk

The Group is exposed to liquidity risk in relation to meeting future obligations associated with its financial liabilities, which comprise principally trade and other payables and interest-bearing borrowings disclosed in note 20. Prudent liquidity risk management includes maintaining sufficient cash and committed credit lines to ensure the availability of an adequate amount of funding to meeting the Group’s obligations.

The directors monitor liquidity risk by means of cash flow forecasts on the basis of expected cash flows over a twelve-month period, in order to ensure that adequate funding is in place in order for the Group to be in a position to meet its commitments as and when they will fall due. In response to the possible future liquidity constraints, the Directors and the Group’s senior management undertook a number of measures. The impact of these measures on the consolidated financial statements include:

The acquisition of 100% shares in Med Asia Operations Ltd. (C-103605), a company which had not yet commenced trading, at nominal value. With effect from 1 April 2023 Med Asia Operations Ltd. acquired the catering operations previously carried out by related companies outside the Group, namely the MedAsia Fusion Lounge in Sliema, the MedAsia Playa in Sliema, The MedAsia Golden Sands in Golden Bay, the Noodle Box in Sliema and all the bar and restaurant venues located in the Pebbles Resort in St. Paul’s Bay.

The acquisition price was determined by an independent expert and will be satisfied through the allotment of additional shares to the Company’s current shareholders during 2023.

In March 2023, Med Asia Branding Ltd. (C-89612) (formerly Pebbles St. Julians Limited) acquired certain intellectual property relating to the catering operations which, with effect from 1 April 2023, were acquired by its sister company Med Asia Operations Ltd. (C-103605) following the agreement referred to in paragraph (a) above.

The acquisition price was determined by an independent expert and will be satisfied through the allotment of additional shares to the Company’s current shareholders during 2023.

As at 31 December 2022, the Group is in a net current liability position of €2.7m. Following this detailed assessment, the directors concluded that if the Group is unable to generate sufficient financial resources through its operations c, it is very

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

29.Financial risk management (continued)

likely it will be able to access adequate external financial resources, to permit it to continue in operational existence for the foreseeable future.

Accordingly, based on the outcome of the cash flow projections in a prudent scenario as referred to, the Directors 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 2022 financial statements.

The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the end of the reporting period to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

Group

Company

2022

2021

2022

2021

€

Within one year

Trade and other payables

1,772,464

1,201,778

432,712

389,858

Bank borrowings

1,088,564

1,240,299

Third party borrowings

500,000

466,667

Bonds

480,000

Lease liability

541,796

_________

4,382,824

_________

3,930,540

_________

912,712

_________

869,858

_________

Between 2 – 5 years

Bank borrowings

1,074,213

1,564,279

Third party borrowings

133,334

533,333

Bonds

1,920,000

Lease liabilities

3,914,759

3,441,137

_________

7,042,307

_________

7,458,749

_________

1,920,000

________

_________

1,920,000

________

Over 5 years

Bonds

12,960,000

13,440,000

12,960,000

13,440,000

Lease liabilities

1,380,133

2,395,733

________

14,340,133

________

15,835,733

________

_________

12,960,000

_________

13,440,000

_________

Total

25,765,264

_________

27,225,022

_________

15,792,712

_________

16,229,858

_________

The amount of trade and other payables, for both the Group and the Company, classified as repayable within one year in the table above, are contractually repayable on demand.

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

29.Financial risk management (continued)

Financial instruments not measured at fair value

At 31 December 2022 and 31 December 2021, the carrying amounts of payables, receivables and short-term borrowings approximated their fair values due to the short-term maturities of these assets and liabilities. The fair values of long-term borrowings, together with the related fair value disclosures, are presented in note 20.

30.Capital management

The Group’s objectives when managing capital are to safeguard the Company’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. In order to maintain or adjust the capital structure, the Company may issue new shares or adjust the amount of dividends paid to shareholders.

The capital structure of the Group consists of net debt (borrowings as presented in note 20 after deducting cash and bank balances, presented in note 25) and equity of the Group (comprising issued capital, reserves and retained earnings as presented in the Statement of Changes in Equity).

The Group monitors the capital structure on a monthly basis by monitoring the balances of assets and liabilities.

31.Cash flow information

Reconciliation of liabilities arising from financing activities

The table below details changes in the Company’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Statement of Cash Flows as cash flows from financing activities.

Group

As at

Cashflows

Other

As at 31

December

Liability

December

2021

2022

Changes

€

Bank borrowings

2,163,000

(494,336)

1,668,664

Third party loans

1,000,000

(366,666)

633,334

Bonds

11,768,399

31,582

11,799,981

Lease liability

4,947,766

(256,723)

4,691,043

_________

19,879,165

_________

(1,117,725)

_________

31,582

_________

18,793,022

_________

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

31.Cash flow information (continued)

Group

As at

Cashflows

Other

As at 31

December

Liability

December

2020

2021

Changes

€

Bank borrowings

1,579,141

583,859

2,163,000

Third party loans

1,288,888

(277,777)

(11,111)

1,000,000

Bonds

11,736,817

31,582

11,768,399

Lease liability

5,189,928

(186,605)

(55,557)

4,947,766

_________

19,794,774

_________

119,477

_________

(35,086)

_________

19,879,165

_________

Company

As at 31

Cashflows

Other

As at 31

December

Liability

December

2021

2022

changes

€

Bonds

12,000,000

_________

12,000,000

_________

12,000,000

_________

Company

As at 31

Cashflows

Other

As at 31

December

Liability

December

2020

2021

changes

Bonds

12,000,000

_________

12,000,000

_________

12,000,000

_________

SP FINANCE P.L.C.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

_____________________________________________________________________________________________

______________________________________________________________________________________________________

32.Post balance sheet events

As part of a group restructuring exercise intended to diversify its business and strengthen its financial position, the Company’s subsidiaries referred to below have carried out the following acquisitions, both of which are effective as from 1st April 2023, namely:

i.On 20th February 2023 the Group acquired the fully-owned subsidiary Med Asia Operations Ltd. (C103605). Subsequently, Med Asia Operations Ltd. has entered into an agreement to acquire certain catering operations previously carried out by related companies outside the SP Finance p.l.c. group, namely the MedAsia Fusion Lounge in Sliema, the MedAsia Playa in Sliema, The MedAsia Golden Sands in Golden Bay, the Noodle Box in Sliema and all the bar and restaurant venues located in the Pebbles Resort in St. Paul’s Bay.

The acquisition price, which was determined by an independent expert, will be satisfied through the allotment of additional shares to the Company’s current shareholders.

ii.The Company’s fully-owned subsidiary Med Asia Branding Ltd. (C89612) (formerly Pebbles St. Julians Limited) has entered into an agreement to acquire certain intellectual property relating to the catering operations which, as from 1st April 2023, will be operated by its sister company Med Asia Operations Ltd. (C103605) following the agreement referred to in paragraph (a) above.

The acquisition price, which was determined by an independent expert, will be satisfied through the allotment of additional shares to the Company’s current shareholders.

32.Statutory information

SP Finance P.L.C. is a limited liability Company and is incorporated in Malta.

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF

SP FINANCE P.L.C.

______________________________________________________________________________________________________

Report on the Audit of the Financial Statements

Opinion

We have audited the consolidated and stand-alone parent company financial statements of SP Finance p.l.c. set out on pages 10 to 53 which comprise the consolidated and parent company statement of financial position as at 31 December 2022, and the consolidated and parent company statement of profit and loss and comprehensive income, changes in equity and cashflow for the year then ended including a summary of significant accounting policies.

In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Group and the Company as at 31 December 2022, and of their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU and have been prepared in accordance with the requirements of the Companies Act (Cap. 386), enacted in Malta.

Our opinion is consistent with our additional report to the audit committee.

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.

Material uncertainty relating to going concern

We draw attention to Note 1 to these financial statements, which describes the directors’ assessment of the Group’s projected financial results, cash flows and financial position, taking into account of the improved operating results expected in the 2 hotels operated by the Group, the success of the catering establishments operated by the newly acquired company Med Asia Operations Limited. These events or conditions, along with other matters as set forth in Note 1, indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Independence

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

To the best of our knowledge and belief, we declare that non-audit services that we have provided to the Group and the Company 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 Group and the Company are disclosed in note 7 to the financial statements.

Our Audit Approach

Overview

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the 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

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF

SP FINANCE P.L.C.

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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 financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality 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 procedure and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

Materiality

€85,000

How we determined it

2.5% of turnover

Rationale for the materiality benchmark applied

We selected turnover as the materiality benchmark and saw the effect on the Group’s results. In our view, the turnover of the Group is considered the most appropriate measure of the success of the Group in generating enough profits to service its annual obligations towards the bond holders. We chose 2.5%, which is within the range of acceptable quantitative materiality thresholds in auditing standards.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above €4,250 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. In addition to the matter described in the Material uncertainty relating to going concern section, we have determined the matters described below to be the key audit matters to be communicated in our report.

Fair valuation of property, plant and equipment, investment property and right-of-use asset

Risk Description

The Group’s land and buildings classified as property, plant and equipment, investment property and right-of-use asset which are being further described in Notes 10,11 and 12 to the accompanying financial statements, account for 94% of total assets as at 31 December 2022. Land and buildings and right-of-use asset are measured at fair value at the date of revaluation, less any subsequent accumulated depreciation and impairment losses. Investment properties are stated at fair value, which reflects market conditions at the reporting date.

Due to the significance of the balances and the estimation uncertainty involved in the fair valuation of properties, we have considered the fair valuation of land and buildings classified as property, plant and equipment, investment properties and right-of-use asset as a key audit matter.

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF

SP FINANCE P.L.C.

______________________________________________________________________________________________________

Valuation and impairment of property, plant and equipment, investment property and right-of-use asset

How the scope of our audit responded to the risk

The Group’s property comprises 2 hotels; one owned and one leased and investment property which comprises mainly of two outlets and a guest house property that are held for long term rental yields or for capital appreciation. The valuation of the Group’s property portfolio is inherently subjective due to, among other factors, the individual nature of each property, its location and the expected future returns.

Management have carried out a re-assessment, using a professional valuer, for its owned properties classified as investment property amounting to €6m and classified within property, plant and equipment amounting to €22m, to determine whether a material shift in fair value would have occurred during 2022. The valuation reports by the third-party valuer as at 31 December 2021 and 2022 are computed using the comparison market approach and Level 3 inputs of the fair valuation hierarchy.

The second hotel operated by the Group is held under an operating lease and therefore classified as Right-of-use asset (ROU). The ROU asset amounting to €2.7m and its improvements and movables amounting to an additional €4m classified within property, plant and equipment were assessed for impairment using discounted cashflows (DCF). The valuation of property at fair value is highly dependent on estimates and assumptions including, the capitalisation rate, operating results and respective growth rate under this income capitalisation approach.

-Considered the objectivity, independence, competence and capabilities of the external valuer.

-Reviewed the methodologies used by the external valuer and by the directors to estimate the fair value.

-Considered the appropriateness of the fair values estimated by the external valuers based on our knowledge of the industry.

-Assessed the key inputs in the calculations of the DCF presented such as revenue growth and discount rate, by reference to management’s forecasts, data external to the Group and our own expertise.

-Testing the mathematical accuracy of the calculations derived from each model.

-Reviewed the appropriateness of the disclosures in the financial statements in connection with the impairment assessment.

Significant Financing Transactions

Risk Description

The principal activity of the Company, SP Finance p.l.c. is to raise financial resources from the capital market to finance the capital projects of the companies forming part of SP Group. These debt securities are guaranteed by the subsidiary, Sea Pebbles Limited, and further secured by a grant in favour of the security trustee for the benefit of the bond holders, a first ranking special hypothec over the security property for the sum of €12,000,000. The funds received from the debt securities in issue have been invested in €12m cumulative redeemable preference shares in SP Investments Limited. The recoverability of the financial asset at amortised cost and the debt servicing thereon is dependent on the generation of profits from the operating subsidiaries of SP Investments Limited.

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF

SP FINANCE P.L.C.

______________________________________________________________________________________________________

Recoverability of Parent Company bond proceeds invested in its Subsidiary Company SP Investments Ltd

How the scope of our audit responded to the risk

Financial assets at amortised costs includes proceeds from the bond issue which were invested through cumulative redeemable preference shares in the subsidiary SP investments Limited. Investment in preference shares as at 31 December 2022 amounted to €12 million.

The eventual redemption of this investment of €12m will be used to repay the principal amount of the bond, which is why we have given additional attention to this area. On an annual basis the Company is principally dependent on the receipt of dividend payments from this financial asset to maintain its debt financing.

Both the businesses of Sea Pebbles Ltd “the Guarantor” and Pebbles Resort Ltd “the Group Company” operate in the hospitality sector. The directors have assessed the recoverability of the Company’s investment in its subsidiary companies.

The assessment was based on the estimated operating results of the subsidiaries, including the operations acquired by the group in 2023. The assessment also considered the possibility of refinancing and the value of properties owned by the Group.

The financial asset at amortised cost is subject to impairment testing in accordance with the expected credit loss model in terms of IFRS9.

We have agreed the terms of its financial asset to supporting documentation.

We have assessed the financial situation of Sea Pebbles Ltd “the Guarantor” and Pebbles Resort Ltd “the Group Company” and the post year end acquisition of Med Asia Operations Limited. In doing this, we made reference to the latest audited financial statements, cash flow projections, forecasts and other prospective information made available to us. We performed additional audit work on the assumptions, conditions and relevant risk assessments used by the directors. We reviewed the forecasted financial position of the Group for the possibility of refinancing in the longer term. We assessed the fair value of the properties owned by the Group with specific emphasis on the properties held by virtue of the Security Trust Deed dated 24 April 2019.

Other Information

The directors are responsible for the other information. The other information comprises the directors’ report and the Statement of Compliance with the Principles of Good Corporate Governance. Except for our opinions on the directors’ report in accordance with the Companies Act (Cap.386) and on the Corporate Governance Statement of Compliance in accordance with the Capital Markets Rules issued by the Maltese Financial Services Authority, 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. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

With respect to the Directors’ Report, we also considered whether the Directors’ Report includes the disclosures required by Article 177 of the Maltese Companies Act (Cap. 386). Based on the work we have performed, in our opinion:

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF

SP FINANCE P.L.C.

______________________________________________________________________________________________________

-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).

In addition, in light of the knowledge and understanding of the Group and the Company and its environment obtained in the course of the audit, we are required to report if we have identified material misstatements in the directors’ report. We have nothing to report in this regard.

Responsibilities of the Directors and those charged with governance for the financial statements

The directors are responsible for the preparation of the financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU, 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 Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group and the Company or to cease operations, or has no realistic alternative but to do so.

The directors have delegated the responsibility for overseeing the Group’s and the Company’s financial reporting process to the Audit Committee.

Auditor’s Responsibilities for the Audit Committee

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 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 Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF

SP FINANCE P.L.C.

______________________________________________________________________________________________________

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, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s and the Company’s ability 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.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the Audit Committee, we determine those matters that were of most significance in the audit of the financial statements of the current year 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.

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF

SP FINANCE P.L.C.

______________________________________________________________________________________________________

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 Market 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 SP Finance 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 comply in all material respects with the ESEF RTS based on the evidence we have obtained. We conducted our reasonable assurance engagement in accordance with the requirements of ESEF Directive 6.

Our procedures included:

-Obtaining an understanding of the entity’s financial reporting process, including the preparation of the annual financial report, in accordance with the requirements of the ESEF RTS.

-Obtaining the annual financial report and performing validations to determine whether the annual financial report has been prepared in accordance with the requirements of the technical specifications of the ESEF RTS.

-Examining the information in the annual financial report to determine whether all the required tagging 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.

Report on Corporate Governance Statement of Compliance

The Capital Markets Rules issued by the Malta Financial Services Authority require the directors to prepare and include in their Annual Report a Statement of Compliance providing an explanation of the extent to which they have adopted the Code of Principles of Good Corporate Governance and the effective measures that they have taken to ensure compliance throughout the accounting period with those Principles.

The Capital Markets Rules also require the auditor to include a report on the Statement of Compliance prepared by the directors.

We read the Statement of Compliance and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements included in the Annual Report. Our responsibilities do not extend to considering whether this statement is consistent with any other information included in the Annual Report.

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF

SP FINANCE P.L.C.

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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 set out on pages 6 to 9 has been properly prepared in accordance with the requirements of the Capital Markets Rules issued by the Malta Financial Services Authority.

We also have responsibilities:

•Under the Maltese Companies Act (Cap. 386) we are required to report to you if, in our opinion:

-We have not received all the information and explanations we require for our audit.

-Adequate accounting records have not been kept, or that 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.

•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 Group and the Company for the financial period ended 31 December 2019. Our appointment has been renewed by shareholders resolution representing a total period of uninterrupted appointment of 4 years.

This copy of the audit report has been signed by:

MICHAEL CURMI

for and on behalf of

VCA CERTIFIED PUBLIC ACCOUNTANTS

28 April 2023