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Annual Report

and

Financial Statements

 

For the year ended 31 December 2023

 

 

 

 

 

 

 

 

                                                                                                                                                                                      

 

General Information                                                                                                                                                     

 

Directors’ Report                                                                                                                                                          

 

Directors’ Responsibilities                                                                                                                                           

 

Corporate Governance Statement - Statement of Compliance                                                                                

 

Statement of Comprehensive Income                                                                                                                        

 

Statement of Financial Position                                                                                                                                  

 

Statement of Changes in Equity                                                                                                                                  

 

Statement of Cash Flows                                                                                                                                             

 

Notes to the Financial Statements                                                                                                                              

 

Independent Auditors’ Report

 

 

General Information

 

Registration

 

Bonnici Bros. Properties p.l.c. is registered in Malta as a public limited liability company under the Companies Act, 1995 (Chapter 386, Laws of Malta) with registration number C 74286.

 

Directors

 

Gilbert Bonnici

David Bonnici

Alexis Bonnici

Jozef Wallace Galea

Richard Abdilla Castillo

Alfred Attard

 

Company Secretary

 

Laragh Cassar LL.D

 

Registered office

 

‘Bonnici House’

Triq is-Sardin, Burmarrad

San Pawl il-Bahar SPB 6073

Malta

 

Auditors

 

Grant Thornton

Fort Business Centre, Level 2

Triq L-Intornjatur, Zone 1

Central Business District

Birkirkara, CBD 1050

Malta

 

Directors’ Report

 

The directors present their report, together with the audited financial statements of Bonnici Bros. Properties p.l.c. (the ‘Company’) for the year ended 31 December 2023 (the ‘reporting period’).

 

Board of directors

 

The directors who held office during the reporting period up to the date of this report were:

 

Gilbert Bonnici

David Bonnici

Alexis Bonnici

Jozef Wallace Galea

Richard Abdilla Castillo

Alfred Attard

 

In accordance with the Company’s Articles of Incorporation, the present directors remain in office.

 

Principal activities

 

The Company principally invests in immovable property to earn rental and other income therefrom in the short and the long term.

 

Review of business development and financial position

 

On 30 January 2023, the Malta Financial Services Authority approved a €16,000,000 5.25% unsecured bond issuance programme of the Company with a period to maturity of 10 years.  On 10 February 2023, the Company issued Tranche 1 of this programme which consisted of €12,000,000 5.25% unsecured bonds maturing in 2033 to finance its property expansion programme.  These bonds were taken up by the public by 10 March 2023. 

 

On 3 April 2023, the Company was listed on the Malta Stock Exchange.

 

On 26 April 2023, the Company acquired a property in Floriana with a Class 2C licence to be used as an educational building.

 

During the year, the Company achieved a profit before taxation amounting to €590,233 (2022: €556,615).  After deducting taxation thereon, the profit for the year amounted to €1,364 (2022: €225,585).

 

The Company’s profit before taxation for the year ended 31 December 2023 is slightly higher than the results achieved in the comparative year despite the new cost component relating to the bond interest which for the year amounted to €490,897.

 

The factors that led to the increase in operations that covered the bond interest include:

 

Positive fair value movement in the market value of the Company’s investment property;

New lease income streams generated from new contracts entered into during the year on property which was not leased out in the previous year;

Slightly higher security fee income as a result of the increase in the overall market value of investment properties;

Net income earned from the sale of material which was excavated from the Company’s quarries.

 

The profit after taxation was significantly impacted by a tax charge arising from the market value of investment properties, in particular the properties that were acquired during the year.

 

The Company’s financial position as at the reporting date remains satisfactory healthy with total equity position at €17,061,186 (2022: €17,059,822).

 

Principal risks and uncertainties

 

The successful management of risk is essential for the Company to achieve its objectives.  The ultimate responsibility for risk management rests with the Company’s directors, who evaluate and formulate policies for identifying and managing such risks.

 

The Company principally faces the same risks and uncertainties that effect the local property market, given that the Company invests solely in this market.  Over time, the Company recognised a cumulative net fair value gain of €7,591,752 (2022: €7,371,541).  Further increases in the value of existing properties are envisaged based on the projects undertaken by the Company.

 

Future developments and events subsequent to the reporting date

 

After the reporting date, the Company continued to acquire additional properties within its portfolio of immovable property with the aim of generating additional revenue streams when such properties become available for use.

 

On 27 March 2024, the Company acquired the GreenGrove Guesthouse (the ‘Guesthouse’) in Swieqi with a guest house comfort licence issued by the Malta Tourism Industry.  This investment was partially financed through own funds generated from operations and a new bank loan facility issued by a commercial bank under normal business terms. 

 

The Guesthouse is expected to be leased out to a third party with effect from 15 April 2024. 

 

No other significant non-adjusting events have occurred between the reporting date and the date of authorisation of these financial statements.

 

Going concern

 

Based on the recent financial and non-financial information presented to the board, and the long-term financial projections that support the bond issue, the directors are satisfied that, at the time of approval of these financial statements, it is appropriate to adopt the going concern as an underlying assumption in the preparation of these financial statements.

 

Reserves and dividends

 

No dividends are recommended.  The directors propose that the balance of retained earnings amounting to €5,441,311 (2022: €5,439,947) to be carried forward to the next financial year.

 

Signed on behalf of the Board of Directors on 22 April 2024 by Gilbert Bonnici (Director) and Jozef Wallace Galea (Director) as per the Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report and Financial Statements 2023. 

 

 

Directors’ Responsibilities

 

The directors are required by the Companies Act, 1995 (Chapter 386, Laws of Malta) (the “Act”) to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that year.  In preparing these financial statements, the directors are required to:

 

adopt the going concern basis unless it is inappropriate to presume that the Company will continue in the business;

select suitable accounting policies and apply them consistently;

make judgements and estimates that are reasonable and prudent;

account for income and changes related to the accounting year on the accruals basis;

value separately the components of asset and liability items; and

report comparative figure corresponding to those of the preceding accounting period.

 

The directors are also responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Act.  This responsibility includes designing, implementing and maintaining 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.  The directors are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

Statement of responsibility pursuant to the Capital Markets Rules issued by the Malta Financial Services Authority (MFSA)

 

We confirm that to the best of our knowledge:

 

a.

In accordance with the Capital Markets Rules, the financial statements give a true and fair view of the financial position of the Company as at 31 December 2023 and of the financial performance and cash flows for the year then ended, in accordance with International Financial Reporting Standards as adopted by the EU; and

b.

In accordance with the Capital Markets Rules, the Directors’ report includes a fair review of the performance of the business and the position of the Issuer together with a description of the principal risks and uncertainties that they face.  

 

Signed on behalf of the Board of Directors on 22 April 2024 by Gilbert Bonnici (Director) and Jozef Wallace Galea (Director) as per the Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report and Financial Statements 2023. 

 

 

Corporate Governance – Statement of Compliance

 

1.             Introduction

 

Companies listed on a regulated market in Malta are subject to The Code of Principles of Good Corporate Governance (the “ Code ”). Whilst the adoption of the Code is not mandatory, the Capital Market Rules issued by the MFSA (the Rules or the CMRs ) require listed companies to include a Statement of Compliance with the Code in their Annual Report, accompanied by a report of the independent auditor. Bonnici Bros Properties p.l.c. (the “ Company ”) was listed on the official list of the Malta Stock Exchange in 2023 and therefore, 2023 was the first financial year where the annual report of the Company is required to set out the Company’s compliance or otherwise with the Code.

 

The Board of Directors of the Company are of the view that the adoption of the principles set out in the Code is in the Company’s best interests. The board considers that during the reporting period, the Company has generally been in compliance with the Code to the extent that was considered adequate with the size and operations of the Company. Instances of divergence from the Code are disclosed and explained below.

 

2.             Compliance with the Code

 

Principle 1 and Principle 4: The Board of Directors (the “Board”)

 

The board of directors of the company sets the overall long-term strategy and direction of the Company and exercises the necessary oversight of the Company’s executive management, ensuring that internal control systems are adequate and that the integrity of financial reporting is maintained at all times. The Board is responsible for understanding and managing the business risks faced by the Company. The Board also is responsible for the Company’s communication with the market and its general body of shareholders. Delegation of powers by the Board to management is approved and set out in writing by the Board.

 

The Company has also incorporated an audit committee tasked to monitor the Company’s present and future operations, threats and risks in the external environment and current and future strengths and weaknesses. The Audit Committee has a particular focus on the auditor selection and annual audit of the Company’s financial statements, with a view to inter alia, ensure that the annual financial statements are published within the prescribed time period. The Chair of the Audit committee is present at Board Meetings and relays its workings to the Board.

 

During 2023, the Board was provided with a training session on its obligations arising under the Market Abuse Regulations and Capital Markets Rules.

 

Principle 2: The Company’s chairman and chief executive

 

Due to its lean operating structure and the nature of its current business, the Company does not employ a Chief Executive Officer (CEO). This function is undertaken by the three executive directors of the Company, who are responsible for the day-to-day administration of the business. The Chairman of the Company is presently occupied by Mr Jozef W. Galea, an independent non-executive director.

 

The Chairman is responsible for:

 

1.

Leading the Board and setting its agenda;

2.

Ensuring that the directors of the board receive precise, timely and objective information so that they can take sound decisions and effectively monitor the performance of the Company;

3.

Ensuring effective communication with the market; and

4.

Encouraging active engagement by all members of the board for discussion of complex or contentious issues.

 

Principle 3: Composition of the board

 

The Board structure’s size is considered to be suitable for the business of the Company, ensuring that it is efficient and effective and compliant with regulatory requirements. The board is composed of a mix of executive and non-executive directors, thus ensuring that the appropriate mix is maintained. There are three executive directors (Mr David Bonnici, Mr Alexis Bonnici and Mr Gilbert Bonnici) and two independent non-executive directors (Mr Richard Abdilla Castillo and Mr Alfred Attard) and one independent non-executive director (Mr Josef Wallace Galea).

 

Each of the non-executive directors declares that:

 

A)

he will maintain in all circumstances, independence of analysis, decision and action;

B)

he will not to seek or accept any unreasonable advantages that could be considered as compromising his independence; and

C)

he will clearly express his opposition in the event that he finds that a decision of the Board may harm the Company.

 

Dr Laragh Cassar is the secretary to the Board.

 

The audit committee of the Company was set up in 2022, ahead of the Company’s listing on the official list of the Malta Stock Exchange.

 

The Board also considers its financial information in relation to the entities of which it acts as guarantor, as disclosed in the Company’s Base Prospectus dated 30 January 2023 and, on a continuous basis, assesses and ensures compliance with the financial and other covenants set out in the said Base Prospectus.

 

Principle 5: Board Meetings

 

During 2023, the Board met four (4) times, and passed another five (5) written resolutions. For each of the meetings, all Board members were present. During the said board meetings, the Board discussed matters of ordinary business as well as matters of strategy affecting the business of the Company.

 

Principle 6: Information and professional development

 

On joining the board, the non-executive directors were briefed by the executive directors on the activities of the Company. The directors were also provided training on their obligations emanating from the Market Abuse Regulation and the Capital Markets Rules as well as the internal policies of the Company relating to the treatment of inside information and dealing in the Company’s listed securities.

 

Directors may, where they judge it necessary to discharge their duties as directors, consult professional advisors at the expense of the Company.

 

Principle 7: Evaluation of the board’s performance

 

The Board has carried out an internal board performance evaluation in respect of the 2023. The findings were tabled at the subsequent board meeting. The findings were not such that merited any material changes in the Company’s structures and organisation.

 

Principle 8: Committees

 

The only committee set up by the Board is the audit committee.

 

The audit committee’s primary objective is to assist the Board in fulfilling its oversight responsibilities over the financial reporting processes, financial policies and internal control structure.

 

The audit committee oversees the conduct of the internal and external audit and acts to facilitate communication between the Board, management and the internal and external auditors. The audit committee reports directly to the Board. The audit committee is composed of Richard Abdilla Castillo (independent non-executive Director), Alfred Attard (independent non-executive Director) and Jozef Wallace Galea (independent non-executive Director).

 

The Chairman of the audit committee, appointed by the Board, is entrusted with reporting to the Board on the workings and findings of the audit committee.  The appointed Chairman to the audit committee is Richard Abdilla Castillo who is considered by the Board to be competent in accounting and auditing in terms of the Capital Markets Rules.

 

During 2023, the Audit Committee met four (4) times and all members were present at the said meetings.

 

Remuneration Statement

The remuneration for directors has been consistent since inception; no director (including the Chairman) is entitled to profit sharing, share options or pension benefits. There is no linkage between the remuneration and the performance of Directors. A fixed honorarium is payable at each financial year to the non-executive Directors. For the financial year under review the aggregate remuneration of the Directors of the Company was a fixed remuneration amounting to €27,000. The executive directors do not presently receive any remuneration for their position as executive directors.

 

The shareholders of the Company in General Meeting determine the maximum annual aggregate remuneration of the directors. None of the directors are employed with the Company and have a service contract with the Company.

 

Internal control

 

While the Board is ultimately responsible for the Company’s system of internal controls and for reviewing its effectiveness, the authority to determine day-to-day, non-material operational aspects that fall within the ordinary course are delegated to the executive directors. Controls are designed to manage risk to achieve business objectives and to provide reasonable assurance against normal business risks. Through the audit committee, the board reviews the effectiveness of the Company’s system of internal controls.

 

The key features of the Company’s system of internal control are as follows:

 

Organisation - The Company operates through the executive directors with clear reporting lines and delegation of powers.

Control environment - The Company is committed to strong standards of business conduct and seeks to maintain these across all of its operations.

Risk identification - The board of directors are responsible for the identification and evaluation of key risks applicable to the business of the Company– this is sufficient, given the nature and scale of the Company’s operations. The Company has an appropriate organisational structure for planning, executing, controlling and monitoring business operations in order to achieve its objectives, given its size and nature of its activities to date.

 

Principle 9: Relations with shareholders and with the market

 

The Board of Directors considers the communication with the market to be an important feature of its listed status and accordingly, all required communication is made through the portal of the Malta Stock Exchange in a regular, timely, accurate, comprehensive manner ensuring that comparable information in sufficient detail is provided to enable investors to make informed investment decisions.

 

Principle 10: Institutional shareholders

 

This principle does not apply to the Company due to its shareholding structure not comprising any institutional shareholders.

 

Principle 11: Conflicts of interest

 

The directors are aware of their responsibilities to act in the best interests of the Company and its shareholders generally. In terms of the Memorandum and Articles of Association of the Company, a director is required to disclose any conflict or interest in any contract or arrangement and is not permitted to vote on any such conflicted contract or arrangement.

 

Principle 12: Corporate social responsibility

 

The directors are committed to high standards of ethical conduct and to contribute to the development of the well-being of employees and their families as well as the local community and society at large.

 

3.           Non-compliance with the code

 

Principle 4 – The Responsibilities of the Board

 

Due to the very recent appointment of the directors on the Board and listing of the Company, the Board has not yet undergone any succession planning for its executive and non-executive directors.

 

Principle 8: Committees

 

Due to the size and type of operation of the Company, the Board does not believe that the Company requires a remuneration committee, and the Board itself carries out the functions of the remuneration committee specified in, and in accordance with, Principle 8A of the Code, given that the remuneration of the Directors is not performance related.

 

Furthermore, in view of the private shareholding in the Company. the Board has not considered it necessary for it to set up a nomination committee for the appointment of directors to the Board. The directors are appointed by the shareholders in general meeting in accordance with the Memorandum and Articles of association of the Company.

 

Principle 12: Corporate social responsibility

 

Due to the recent listing of the Company on the official list of the Malta Stock Exchange, the Company did not carry out any specific initiatives relating to the theme of corporate social responsibility.  However, during the financial year ending 31 December 2024, this matter is on the agenda of the Board of Directors for implementation and will be reported on in 2025.

 

Signed on behalf of the Board of Directors on 22 April 2024 by Gilbert Bonnici (Director) and Jozef Wallace Galea (Director) as per the Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report and Financial Statements 2023. 

 

 

Statement of Comprehensive Income

 

For the year ended 31 December 2023

 

2023

2022

Notes

Revenue

5

1,142,154

959,919

Direct operating expenses

(60,786)

(30,354)

Gross contribution

1,081,368

929,565

Fair value movement of investment property

11

220,211

-

Administrative expenses

(217,781)

(207,369)

Other expenses

11

-

(10,408)

Operating profit

1,083,798

711,788

Net finance costs

6

(493,565)

(155,173)

Profit before taxation

7

590,233

556,615

Income tax expense

9

(588,869)

(331,030)

Profit for the year - total comprehensive income

1,364

225,585

 

 

Statement of Financial Position

 

As at 31 December 2023

 

2023

2022

Notes

ASSETS

Property and equipment

10

2,193,840

2,194,199

Investment property

11

32,054,973

29,297,635

Total non-current assets

34,248,813

31,491,834

Trade and other receivables

12

2,549,481

318,315

Contract assets

13

67,751

42,938

Cash at bank

762,140

18,436

Total current assets

3,379,372

379,689

TOTAL ASSETS

37,628,185

31,871,523

EQUITY AND LIABILITIES

Share capital

5,000,000

5,000,000

Capital contribution reserve

6,619,875

6,619,875

Retained earnings

5,441,311

5,439,947

Total equity

14

17,061,186

17,059,822

Borrowings

15

12,760,091

2,558,145

Trade and other payables

16

40,450

36,250

Deferred tax liabilities

9

3,070,839

2,662,720

Total non-current liabilities

15,871,380

5,257,115

Borrowings

15

-

1,418,730

Trade and other payables

16

4,623,335

7,980,634

Contract liabilities

17

1,142

2,833

Current tax liabilities

71,142

152,389

Total current liabilities

4,695,619

9,554,586

Total liabilities

20,566,999

14,811,701

TOTAL EQUITY AND LIABILITIES

37,628,185

31,871,523

 

Signed on behalf of the Board of Directors on 22 April 2024 by Gilbert Bonnici (Director) and Jozef Wallace Galea (Director) as per the Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report and Financial Statements 2023. 

 

 

Statement of Changes in Equity

 

For the year ended 31 December 2023

 

Share capital

Capital contribution reserve

Retained earnings

Total

Notes

As at 1 January 2023

5,000,000

6,619,875

5,439,947

17,059,822

Profit for the year

-

-

1,364

1,364

Total comprehensive income for the year

-

-

1,364

1,364

As at 31 December 2023

5,000,000

6,619,875

5,441,311

17,061,186

As at 1 January 2022

1,200

10,835,535

5,214,362

16,051,097

Issue of share capital

14.1

4,998,800

(4,998,800)

-

-

Equity portion of financial liability

14.2

-

783,140

-

783,140

Transactions with owners

4,998,800

(4,215,660)

-

783,140

Profit for the year

-

-

225,585

225,585

Total comprehensive income for the year

-

-

225,585

225,585

As at 31 December 2022

5,000,000

6,619,875

5,439,947

17,059,822

 

 

Statement of Cash Flows

 

For the year ended 31 December 2023

 

2023

2022

Cash flows from operating activities

Profit for the year

1,364

225,585

Adjustments for:

Income tax expense

588,869

331,030

Net finance costs

493,565

155,173

Depreciation

359

358

Other expenses

-

10,408

Fair value movement of investment property

(220,211)

-

863,946

722,554

Net changes in working capital:

Decrease in trade and other receivables

(187,882)

34,193

Increase in contract assets

(24,813)

(42,938)

(Decrease)/increase in trade and other payables

(36,820)

187,769

Decrease in contract liabilities

(1,691)

(112,055)

Cash generated from operating activities

612,740

789,523

Tax paid

(261,998)

(184,002)

Net cash from operating activities

350,742

605,521

Cash flows from investing activities

Purchase of property and equipment

(151,758)

-

Purchase of investment property

(8,273,518)

(2,885,756)

Cash used in investing activities

(8,425,276)

(2,885,756)

 

 

 

 

Cash flows from financing activities

Proceeds from bond issuance

12,000,000

-

Proceeds from bank borrowings

-

2,652,084

Repayment of bank borrowings (inclusive of interest)

(2,986,225)

(291,145)

Payment of bond related expenses

(195,537)

(72,510)

Net cash from financing activities

8,818,238

2,288,429

Net change in cash and cash equivalents

743,704

8,194

Cash at bank at beginning of year

18,436

10,242

Cash at bank at end of year

762,140

18,436

 

 

 

Notes to the Financial Statements

 

For the year ended 31 December 2023

 

1             Reporting entity

 

Bonnici Bros. Properties p.l.c. (the “Company”) is a public limited liability company domiciled and incorporated in Malta under the Companies Act, 1995 (Chapter 386, Laws of Malta) (the “Act”), whose registered address is situated at ‘Bonnici House’, Sardine Street, Burmarrad, St. Paul’s Bay, SPB 6073, Malta. 

 

On 30 January 2023, the Malta Financial Services Authority approved a €16,000,000 5.25% unsecured bond issuance programme of the Company with a period to maturity of 10 years.  On 10 February 2023, the Company issued Tranche 1 of this programme which consisted of €12,000,000 5.25% unsecured bonds maturing in 2033 to finance its property expansion programme.  These bonds were taken up by the public by 10 March 2023. 

 

On 3 April 2023, the Company was listed on the Malta Stock Exchange.

 

The Company principally invests in immovable property to earn rental and other income therefrom in the short and the long term.

 

2             Basis of preparation

 

2.1         Basis of measurement and statement of compliance

 

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards as adopted by the EU and the provisions of the Act.  The Company’s financial statements have been prepared on an accruals basis and under the historical cost convention except for the revaluation of investment properties.  Monetary amounts are expressed in Euros (€).

 

2.2         Going concern

 

The financial statements have been prepared under the assumption that the Company operates on a going concern basis, which assumes that the Company will be able to discharge its liabilities, when and as these fall due.

 

As at the reporting date, the Company had a positive net equity position of €17,061,186 and a net working capital liability position of €1,316,247.  In conforming the validity of the going concern basis of preparation, management concluded that the ultimate shareholders have the ability to assign and novate to themselves part or in full the amounts owed to related parties which as at the reporting date amounted to €3,911,536.

 

2.3         Functional and presentation currency

 

The financial statements are presented in euro, which is also the functional currency of the Company.

 

3             New or revised Standards or Interpretations

 

3.1         New Standards adopted as at 1 January 2023

 

Some accounting pronouncements which have become effective from 1 January 2023 and have therefore been adopted do not have a significant impact on the Company’s financial results or position.

 

Standards and amendments that are effective for the first time in 2023 and could be applicable to the Company are:

 

Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12)

Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)

Definition of Accounting Estimates (Amendments to IAS 8)

International Tax Reform - Pillar Two Model Rules (Amendments to IAS 12).

 

These amendments do not have a significant impact on these financial statements and therefore no disclosures have been made.

 

3.2         Standards, amendments and Interpretations to existing Standards that are not yet effective and have not been adopted early by management

 

At the date of authorisation of these financial statements, several new, but not yet effective, Standards and amendments to existing Standards, and Interpretations have been published by the IASB or IFRIC.  None of these Standards or amendments to existing Standards have been adopted early by the Company and no Interpretations have been issued that are applicable and need to be taken into consideration by the Company.

 

Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the pronouncement.  New Standards, amendments and Interpretations not adopted in the current year have not been disclosed as they are not expected to have a material impact on the Company’s financial statements.

 

4             Material accounting policies

 

An entity should disclose its material accounting policies.  Accounting policies are material and must be disclosed if they can be reasonably expected to influence the decision of users of the financial statements.

 

Management has concluded that the disclosure of the entity’s material accounting policies below are appropriate.

 

4.1         Revenue

 

Revenue from contracts with customers is recognised at an amount that reflects the consideration at which the Company is expected to be entitled when performance obligation is satisfied in a manner that depicts the transfer of control over the goods or services promised to the customer.  A performance obligation may be satisfied either at a point in time or over time.

 

The consideration relates to the transaction price allocated to each performance obligation as defined in the contract with the customer.  The transaction price reflects discounts, rebates, refunds granted to customers and excludes sales taxes, if any.

 

The Company recognises contract liabilities for consideration received in respect of unsatisfied performance obligations and reports these amounts as other liabilities in the statement of financial position (Note 17).  Similarly, if the Company satisfies a performance obligation before it receives the consideration, the Company recognises either a contract asset (Note 13) or a receivable in its statement of financial position, depending on whether something other than the passage of time is required before the consideration is due.

 

4.1.1      Rental income

 

Rental income is accounted for on a straight-line basis over the lease term.

 

4.1.2      Security fee income

 

Revenue arises from the fee charged to related parties for the granting of the Company’s investment property as security against facilities issued by bankers to the related parties.  The fee is established for each calendar year based on contractual terms and charged over time.

 

4.2         Property and equipment

 

Items of property and equipment are initially recognised at acquisition cost, including any costs directly attributable to bringing the assets to the location and condition necessary for them to be capable of operating in the manner intended by the Company’s management.  After initial recognition, items of property and equipment are subsequently measured at cost less accumulated depreciation and impairment losses. 

 

Depreciation is recognised on a straight-line basis for each class of assets to write down their cost less estimated residual values, over their estimated useful lives as follows:

 

Quarries

over the landfilling activity period

Equipment

10 years

 

The landfilling activity period is determined by the time-period necessary to fill in the total volume available after the completion of the quarries’ excavation period.  Once the quarries are landfilled, they fetch a residual market value based on the overall land area.

 

The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date.  The effects of any revisions are recognised in profit or loss when the change arise.

 

Gains or losses arising on the disposal of property and equipment are determined as the difference between the disposal proceeds and the carrying amount of the assets and are recognised in profit or loss either within other income or other expenses.

 

4.3         Impairment of property and equipment

 

For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units).  As a result, some assets are tested individually for impairment and some are tested at cash-generating unit levels.

 

Property and equipment are tested for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable.

 

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount, which is the higher of fair value less costs of disposal and value in use.  To determine the value-in-use, management estimates expected future cash flows from each cash-generating unit and determines a suitable discount rate in order to calculate the present value of those cash flows.  If the recoverable amount of the asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount.  The difference between the carrying amount and recoverable amount is recognised as an impairment loss in profit or loss.

 

Property and equipment are subsequently reassessed for indications an impairment loss previously recognised may no longer exist.  An impairment loss is reversed if the asset’s recoverable amount exceeds its carrying amount.  Reversal of impairment loss for an asset is recognised in profit or loss to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, if no impairment loss had been recognised.

 

4.4         Investment property

 

Investment properties are properties held to earn rentals or for capital appreciation, or both, and accounted for using the fair value model.  Investment properties are revalued annually with resulting gains and losses recognised in profit or loss.  These are included in the statement of financial position at their fair values.

 

4.5         Financial instruments

 

4.5.1      Recognition and derecognition

 

Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the financial instrument.

 

Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred.  A financial liability is derecognised when it is extinguished, discharged, cancelled or expired.

 

4.5.2      Classification and initial measurement of financial assets

 

Except for those trade receivables that do not contain a significant financial component and are measured at the transaction price in accordance with IFRS 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable).

 

Financial assets, other than those designated and effective as hedging instruments, are classified into one of the following categories:

 

amortised cost,

fair value through profit or loss (FVTPL), or

fair value through other comprehensive income (FVOCI).

 

In the periods presented the Company does not have any financial assets categorised as FVTPL and FVOCI.

 

The classification is determined by both:

 

the entity’s business model for managing the financial assets, and

the contractual cash flow characteristics of the financial asset.

 

All revenues and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses.

 

4.5.3      Subsequent measurement of financial assets at amortised cost

 

Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVTPL):

 

they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows, and

the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding.

 

After initial recognition, these are measured at amortised cost using the effective interest method.  Discounting is omitted where the effect of discounting is immaterial.

 

4.5.4      Impairment of financial assets at amortised cost

 

IFRS 9’s impairment requirements use forward-looking information to recognise expected credit losses – the ‘expected credit loss (ECL) model’.  Instruments within the scope of the requirements included loans and other debt-type financial assets measured at amortised cost, trade receivables, contract assets recognised and measured under IFRS 15 and loan commitments and some financial guarantee contracts (for the issuer) that are not measured at fair value through profit or loss.

 

The Company considers a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument.

 

In applying this forward-looking approach, a distinction is made between:

 

financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit risk (‘Stage 1’) and

financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low (‘Stage 2’).

 

‘Stage 3’ would cover financial assets that have objective evidence of impairment at the reporting date.

 

’12-month expected credit losses’ are recognised for first category (i.e. Stage 1) while ‘lifetime expected credit losses’ are recognised for the second category (i.e. Stage 2).

 

Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument.

 

Trade and other receivables and contract assets

 

The Company makes use of a simplified approach in accounting for trade and other receivables as well as contract assets and records the loss allowance as lifetime expected credit losses.  These are the expected shortfalls in contractual cash flows, considering the potential for default at any point during the life of the financial instrument. 

 

In calculating, the Company uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses using a provision matrix.

 

The Company assesses impairment of trade receivables on a collective basis as they possess shared credit risk characteristics they have been grouped based on the days past due.  Refer to Note 20.2 for a detailed analysis of how the impairment requirements of IFRS 9 are applied.

 

4.5.5      Classification and measurement of financial liabilities

 

The Company’s financial liabilities include borrowings and trade and other payables.

 

Financial liabilities are initially measured at fair value, and where applicable, adjusted for transaction costs unless the Company designated a financial liability at FVTPL.

 

Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for derivatives and financial liabilities designated at FVTPL, which are carried subsequently at fair value with gains or losses recognised in profit or loss (other than derivative financial instruments that are designated and effective as hedging instruments).

 

All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within net finance costs.

 

4.6         Income taxes

 

Tax expense recognised in profit or loss comprises the sum of deferred tax and current tax not recognised in other comprehensive income or directly in equity.

 

The calculation of current and deferred tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.  Deferred income taxes are calculated using the liability method.  The carrying amounts of deferred tax are reviewed at the end of each reporting period on the basis of its most likely amount and adjusted if needed. 

 

Assessing the most likely amount of current and deferred tax in case of uncertainties (e.g. as a result of the need to interpreting the requirements of the applicable tax law), requires the Company to apply judgements in considering whether it is probable that the taxation authority will accept the tax treatment retained.

 

Deferred tax assets are recognised to the extent it is probable that the underlying tax loss or deductible temporary difference will be utilised against future taxable income.  This is assessed based on the Company’s forecast of future operating results, adjusted for significant non-taxable income and expenses and specific limits on the use of any unused tax loss or credit.

 

Deferred tax liabilities are generally recognised in full, although IAS 12 specifies limited exemptions.  As a result of these exemptions the Company does not recognise deferred tax on temporary differences relating to goodwill, or to its investments in subsidiary (only to the extent that the Company controls the timing of the reversal of the taxable temporary difference and that reversal is not likely to occur in the foreseeable future).  The Company does not offset deferred tax asset and liabilities unless it has a legally enforceable right to do so and intends to settle on a net basis.               

 

4.7         Share capital, reserves and dividend payments

 

Share capital represents the nominal (par) value of shares that have been issued.

 

Other components of equity include capital contribution reserve, which represent the equity portion of long-dated contractually interest-free loans advanced by the corporate shareholders.

 

Retained earnings includes all current and prior period retained profits.  All transactions with owners are recorded separately within equity.

 

Dividend distributions payable to equity shareholders are included in other liabilities when the dividends have been approved in a general meeting prior to the reporting date.

 

4.8         Provisions and contingent liabilities

 

Provisions for onerous contracts or other claims are recognised when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be required from the Company and amounts can be estimated reliably.  The timing of the outflow may still be uncertain.

 

Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation.  Provisions are discounted to their present values, when the time value of money is material.

 

No liability is recognised if an outflow of economic resources as a result of present obligations is not probable.  Such situations are disclosed as contingent liabilities unless the outflow of resources is remote.

 

4.9         Significant management judgement and estimation uncertainty

 

When preparing the Company’s financial statements, management makes a number of judgements, estimates and assumptions about the recognition and measurement of assets, liabilities, revenue and expenses.

 

The directors have considered the development, selection and disclosures of the Company’s critical accounting policies and estimates and the application of these policies and estimates.  Estimates and judgements are continually evaluated and are based on historical and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

 

In the opinion of the directors, except for the matter disclosed below, the accounting estimates and judgements made in the course of preparing these financial statements are not difficult to reach, subjective or complex to a degree which would warrant their disclosure in terms of the requirements of IAS 1.

 

4.9.1      Fair value measurement

 

Management uses various valuation techniques to determine the fair value of financial instruments (where active market quotes are not available) and non-financial assets.  This involves developing estimates and assumptions consistent with how market participants would price the asset. 

 

Management bases its assumptions on observable data as far as possible but this is not always available.  In that case, management uses the best information available.  Estimated fair values may vary from the actual prices that would be achieved in an arm’s length transaction at the reporting date (Note 21).

 

5             Revenue

 

2023

2022

Property lease income

572,919

476,275

Property security income

494,751

472,040

Income earned from excavation of quarries

65,000

-

Recharge of consumption related costs

9,484

11,604

1,142,154

959,919

 

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers.

 

2023

2022

Notes

Trade and other receivables

12

593,496

163,923

Contract assets

13

67,751

42,938

Contract liabilities

17

1,142

2,833

 

6             Net finance costs

 

2023

2022

Interest income

65,726

-

Interest on unsecured bond issue (note 15.1)

490,897

-

Interest on bank borrowings

32,581

70,211

Interest on loans due to corporate shareholders

35,813

31,073

Interest on amounts owed to other related parties

-

53,889

Finance costs

559,291

155,173

Net finance costs

(493,565)

(155,173)

 

7             Profit before taxation

 

The profit before taxation is stated after charging:

 

2023

2022

Auditors’ remuneration

10,750

8,750

Depreciation (Note 10)

359

358

Staff costs (Note 8)

161,861

156,825

 

8             Staff costs

 

2023

2022

Directors’ fees

27,000

9,000

Salaries and wages

130,237

142,472

Social security and maternity fund contributions

4,624

5,353

161,861

156,825

 

The average number of persons employed by the Company during the year was 2 (2022: 2).

 

9             Taxation

 

9.1         Tax expense

 

2023

2022

Current tax expense

(180,750)

(216,510)

Deferred tax expense (Note 9.3)

(408,119)

(114,520)

(588,869)

(331,030)

 

9.2         Tax reconciliation

 

2023

2022

Profit before taxation

590,233

556,615

Tax at 35%

(206,582)

(194,815)

Tax effect of:

Expenses disallowed for tax purposes

(122,172)

(69,309)

Property related tax consequences

(331,139)

(114,520)

Income taxed at different rates

47,503

21,963

Additional deductions

23,427

25,651

Temporary differences previously not recognised

94

-

(588,869)

(331,030)

 

 

9.3         Deferred taxation

 

Deferred tax liability represents the tax effect of temporary differences relating to the fair value of the Company’s investment property and property and equipment.  The movement during the year is analysed as follows:

 

2023

2022

Balance as at 1 January

2,662,720

2,548,200

Movement during the year, recognised in profit or loss

408,119

114,520

3,070,839

2,662,720

 

2023

2022

Represented by temporary difference attributable to:

Property and equipment

(94)

-

Investment property

3,070,933

2,662,720

3,070,839

2,662,720

 

The movement in deferred taxation during the year which was recognised in profit or loss is attributable to temporary differences relating to:

 

2023

2022

Property and equipment

(94)

-

Investment property

408,213

114,520

408,119

114,520

 

10           Property and equipment

 

Quarries

Equipment

Total

Cost

Additions

2,193,391

1,435

2,194,826

Balance as at 31 December 2022 and 31 December 2023

2,193,391

1,435

2,194,826

Depreciation and impairment

Balance as at 1 January 2022

-

269

269

Depreciation charge

-

358

358

Balance as at 31 December 2022

-

627

627

Depreciation and impairment

Balance as at 1 January 2023

-

627

627

Depreciation charge

-

359

359

Balance as at 31 December 2023

-

986

986

Carrying amount

Balance as at 31 December 2022

2,193,391

808

2,194,199

Balance as at 31 December 2023

2,193,391

449

2,193,840

 

No depreciation was recognised in profit or loss on the Company’s quarries from date of acquisition given that the landfilling activity did not commence as at the reporting date. 

 

One of the Company’s quarries at a carrying amount of €1,405,721 (2022: €1,405,721) is pledged as security in relation to bank facilities granted to related parties (Note 18).

 

11           Investment property

 

2023

2022

Carrying amount as at 1 January

29,297,635

25,856,908

Additions

2,537,127

3,451,135

Disposals

-

(10,408)

Fair value movement during the year, recognised in profit or loss

220,211

-

Carrying amount as at 31 December

32,054,973

29,297,635

 

 Investment property consists of undeveloped land, property under construction, and other immovable properties in a finished state.

 

Properties in a finished state are leased to related and third parties on operating leases or are vacant.  Rental income of €572,919 (2022: €476,275) is included within revenue. 

 

Direct operating expenses arising from investment property that generated rental income during the year amounted to €20,315 (2022: €22,883).

 

Direct operating expenses arising from investment property that did not generate rental income during the year amounted to €4,777 (2022: €4,526).

 

The existing lease contracts cover a contractual period ranging between 10 to 15 years from the commencement of the lease.  Maturity analysis of future operating lease rentals are as follows:

 

Undiscounted lease payments due

Within 1 year

1 - 2 years

2 - 3 years

3 - 4 years

4 - 5 years

After 5 years

Total

31 December 2023

452,197

476,005

493,904

496,383

501,341

2,400,689

4,820,519

31 December 2022

425,118

452,197

476,005

493,904

496,383

2,902,029

5,245,636

 

Investment properties valued at €25,390,000 (2022: €24,737,571) are pledged as security in relation to bank facilities granted to related parties (Note 18).

 

12           Trade and other receivables

 

2023

2022

Trade receivables:

 - third parties

72,571

251

 - related parties

484,126

7,203

Financial assets

 

556,697

7,454

Indirect taxation

-

34,853

Amounts paid in advance

1,796,396

-

Deposits on promise of sale property agreements

151,033

105,500

Prepayments

8,556

14,039

Other receivables

36,799

156,469

2,549,481

318,315

 

The balance of trade receivables from related parties is unsecured, interest-free and payable on demand.

 

13           Contract assets

 

2023

2022

Balance as at the beginning of the year

42,938

-

Additions

67,751

42,938

Transfer to trade receivables

(42,938)

-

67,751

42,938

 

14           Equity

 

14.1       Share capital

 

2023

2022

Authorised and issued share capital

Balance as at the beginning of the year

5,000,000

1,200

Issued during the year

-

4,998,800

5,000,000

5,000,000

 

By an extraordinary resolution of the shareholders dated 5 April 2022, the Company’s authorised and issued share capital increased by €48,800 through the issuance of 12,200 ordinary ‘A’ shares, 12,200 ordinary ‘B’ shares, 12,200 ordinary ‘C’ shares and 12,200 ordinary ‘D’ shares, all at a nominal value of €1 each.  The increase in issued share capital was effected through the capitalisation of part of the Company’s capital contribution reserve (Note 14.2).

 

Similarly, by another extraordinary resolution of the shareholders dated 23 November 2022, the Company’s authorised and issued share capital increased further by €4,950,000 through the issue of 1,237,500 ordinary ‘A’ shares, 1,237,500 ordinary ‘B’ shares, 1,237,500 ordinary ‘C’ shares and 1,237,500 ordinary ‘D’ shares, all at a nominal value of €1 each.  The increase in issued share capital was also effected through the capitalisation of part of the Company’s capital contribution reserve (Note 14.2).

 

As at the reporting date, the Company’s authorised and issued share capital consist of:

 

1,250,000 (2022: 1,250,000) ordinary ‘A’ shares at a nominal value of €1 each,

1,250,000 (2022: 1,250,000) ordinary ‘B’ shares at a nominal value of €1 each,

1,250,000 (2022: 1,250,000) ordinary ‘C’ shares at a nominal value of €1 each, and

1,250,000 (2022: 1,250,000) ordinary ‘D’ shares at a nominal value of €1 each.

 

All shares in issue are fully paid up.  The holders of the ordinary ‘B’, ‘C’ and ‘D’ shares each have the right to appoint two directors to the board.  The holders of the ordinary ‘A’ shares do not have any right to appoint directors to the board.  The ordinary ‘A’, ‘B’, ‘C’ and ‘D’ shares carry identical equal voting rights at general meetings of the Company, are entitled to any distribution of dividends, and rank pari passu for any residual assets of the Company after the settlement of all liabilities in the event of the Company’s winding up.

 

14.2       Capital contribution reserve

 

The capital contribution reserve comprises the equity portion of long-dated interest-free loans advanced by the Company’s corporate shareholders on 31 December 2020 and 29 November 2022 amounting to €5,836,735 and €783,140, respectively.

 

14.3       Retained earnings

 

The balance of retained earnings includes €4,520,819 (2022: €4,708,821) non-distributable earnings arising from the fair value measurements of investment properties.

 

15           Borrowings

 

2023

2022

Notes

Non-current liabilities

Unsecured bond issue

15.1

11,701,046

-

Loans due to corporate shareholders

15.2

1,059,045

1,023,232

Bank loans

15.3

-

1,534,913

12,760,091

2,558,145

Current liabilities

Bank loans

-

1,418,730

 

15.1       Unsecured bond issue

 

On 30 January 2023, the Company published its Final Terms in relation to the issue of Tranche 1 €12,000,000 5.25% 2033 unsecured bonds issued pursuant to a Base Prospectus approved by the Malta Financial Services Authority.  These unsecured bonds were listed on the Malta Stock Exchange on 3 April 2023.

 

The terms and conditions of the bond issue are summarised as follows:

 

Bonds issued at par on 3 April 2023;

Bonds have a 10-year term maturity period repayable on 3 April 2033;

Coupon interest at 5.25% per annum, payable every 3 rd April of each anniversary;

Bonds issued unsecured and rank pari passu without any priority or preference amongst themselves and with other unsecured debt, subject to a specific financial covenant as described in section 12.3 of the Base Prospectus.

 

Based on this section, the Company binds itself not to incur any financial indebtedness and/or provide any security interest (other than permitted security interest) unless the net asset value of the Issuer at that point in time is more than €1,000,000 or unless the said financial indebtedness and/or security interest is otherwise approved by the bondholders in a bondholders’ meeting.

 

The unsecured bonds are stated net of attributable issue costs.  The bond attributable cost is amortised over the term of the bond issue through the effective interest rate.  The effective interest rate of the bond is 5.6% per annum.  Total interest expense on the bond issue for the year ended 31 December 2023 amounted to €490,897 (note 6).

 

15.2       Loans due to corporate shareholders

 

The loans due to corporate shareholders are unsecured, interest-free and payable in full by 29 November 2082.  The contractual amount of these loans as at the reporting date was €7,582,333 (2022: €7,582,333).  Interest expense using the effective interest method recognised in profit or loss during the year amounted to €35,813 (2022: €31,073).  The loans are subordinated and junior to any and all other unsubordinated debts and liabilities of the Company towards its creditors.

 

15.3       Bank loans

 

The Company’s bank loans existing prior to the issue of the bond were settled through the bond proceeds as explained in the Company’s Final Terms document dated 30 January 2023.

 

16           Trade and other payables

 

2023

2022

Non-current liabilities

Deposits from tenants

40,450

36,250

Current liabilities

Trade payables

108,005

278,483

Other payables

7,195

8,633

Amounts owed to related parties

3,965,897

6,455,734

Accruals

488,589

1,237,784

Financial liabilities

 

4,569,686

7,980,634

Indirect taxation

 

53,649

-

4,623,335

7,980,634

 

The amounts owed to related parties as at the reporting date are unsecured interest-free and payable on demand.

 

17           Contract liabilities

 

2023

2022

Balance as at the beginning of the year

2,833

114,888

Invoices issued in advance

471,062

282,524

Transfer to trade payables

(472,753)

(394,579)

1,142

2,833

 

18           Related parties

 

The Company’s related parties include the corporate shareholders and entities owned by the common corporate shareholders.

 

Details on the terms and conditions of the outstanding balances with related parties are disclosed in Notes 12, 14, 15 and 16 to these financial statements.

 

Transactions with related parties include the following:

 

Transaction value for the year ended 31 December

Balance outstanding as at 31 December

2023

2022

2023

2022

Revenue

Rental income

334,956

366,458

140,515

-

Security fee income

494,751

472,040

266,910

7,203

Income earned from excavation of quarries

65,000

-

76,700

-

Direct operating expenses

Recharge of expenses

40,215

11,374

41,019

9,158

Administrative expenses

Recharge of expenses

2,203

8,880

613

14,011

Finance costs

Interest expense

- corporate shareholders

35,813

31,073

96,587

60,774

- other related party

-

53,889

-

-

 

The carrying amount of the Company’s properties amounting to €26,795,721 (2022: €26,143,292) (Notes 10 and 11) are provided as security against bank facilities granted to related parties.

 

19           Contingent liabilities

 

As disclosed in Notes 10 and 11, the Company’s properties are provided as security against bank borrowings granted to related parties.  The maximum amount that can be settled by the Company if the special hypothecary guarantee is called upon by the bankers as at the reporting date amounted to €24,140,000 (2022: €25,260,427).

 

20           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 further cash flows will be, classified in the statement of cash flows as cash from financing activities.

 

Balance at 31 December 2022

Cash flows

Other non-cash

Balance at 31 December
 2023

2023

Unsecured bond issue (note 15)

-

12,000,000

(298,954)

11,701,046

Loans due to corporate shareholders (note 15)

1,023,232

-

35,813

1,059,045

Bank borrowings (note 15)

2,953,643

(2,953,643)

-

-

3,976,875

9,046,357

263,141

12,760,091

Balance at 31 December 2021

Cash flows

Other non-cash changes

Balance at 31 December 2022

2022

Loans due to corporate shareholders (note 15)

878,299

-

144,933

1,023,232

Bank borrowings (note15)

468,633

2,485,010

-

2,953,643

1,364,932

2,485,010

144,933

3,976,875

 

21           Financial instruments risk

 

The Company is exposed to various risks in relation to financial instruments.  The main types of risks are market risk, credit risk and liquidity risk.

 

The Company’s risk is managed by the board of directors and focuses on actively securing the Company’s short to medium-term cash flows by minimising the exposure to volatile financial markets.  The Company does not engage in the trading of financial assets for speculative purposes, nor does it write options.  The most significant financial risks to which the Company is exposed are described below.

 

  21.1     Market risk analysis

 

The Company is exposed to market risk through its use of financial instruments and specifically to interest rate risk, which results from its financing.  The Company is not exposed to currency risk since its financial instruments are denominated in the Company’s functional currency.

 

The interest rate profile of the Company’s interest-bearing financial instruments is as follows:

 

Nominal amount

2023

2022

Fixed-rate instruments

Unsecured bond issue

12,000,000

-

Variable-rate instruments

Bank loans

-

2,953,643

 

The Company does not account for any fixed-rate financial instruments at FVTPL.  Therefore, a change in interest rates at the reporting date would not affect profit or loss.

 

The following table illustrates the sensitivity of profit and equity to a reasonable possible change in interest rates of a parallel increase or decrease of 1% as at 31 December 2022.  These changes are reasonably possible based on observation of current market conditions.  The calculation is based on a change in the average market interest rate for each period, and the financial instruments held at each reporting date that are sensitive to changes in interest rates.  All other variables are held constant.

 

Profit for the year

Equity

1%

-1%

1%

-1%

31 December 2023

-

-

-

-

31 December 2022

-29,536

29,536

-29,536

29,536

 

21.2       Credit risk analysis

 

Credit risk is the risk that a counterparty fails to discharge an obligation to the Company.  The Company is exposed to credit risk from financial assets including cash and cash equivalents held at banks, trade and other receivables.

 

Cash and cash equivalents

 

The credit risk associated with cash and cash equivalents is low in view of the existence of the depositors’ compensation scheme that covers bank deposits up to a limit of €100,000 and that placements are only made with major reputable financial institutions.

 

Trade receivables and contract assets

 

The carrying amount of trade receivables and contract assets is stated net of expected credit losses.  In measuring the expected credit losses, the customers have been assessed on a collective basis as they possess common shared risk characteristics, and the model is based on past due dates.

 

The contractual terms of the lease agreements entered with customers stipulate that receipts are received in advance of the period of use of the Company’s investment property by the tenants.   Similarly, the credit terms allowed to related parties to settle the fee in relation to the granting of the Company’s immovable property as security against bank facilities, extends to a period between 15 to 30 days.

 

21.3       Liquidity risk analysis

 

Liquidity risk is the risk that the Company might be unable to meet its obligations, when these fall due.  The Company raises funds mainly from its operations, related party borrowings and bank borrowings.   Net cash requirements are compared to available borrowing facilities to determine headroom or any shortfalls. 

 

As at 31 December 2023 and 31 December 2022, the Company’s non-derivative financial liabilities have contractual maturities (including interest payments where applicable) as summarised below:

 

Current

Non-current

Within 1 year

1 to 5 years

More than 5 years

31 December 2023

Unsecured bond issue

630,000

2,520,000

14,677,500

Loans due to corporate shareholders

 

-

7,582,333

Trade and other payables

657,438

-

40,450

Amounts owed to related companies

3,965,897

-

-

5,253,335

2,520,000

22,300,283

 

 

Current

Non-current

Within 1 year

1 to 5 years

More than 5 years

31 December 2022

Loans due to corporate shareholders

-

-

7,582,333

Bank loans

1,492,890

1,074,112

707,909

Trade and other payables

1,524,900

-

36,250

Amounts owed to related companies

6,455,734

-

-

9,473,524

1,074,112

8,326,492

 

 

22           Fair value measurement

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

Measurement of fair value are grouped into three levels of a fair value hierarchy.  The three levels are defined based on the observability of significant inputs to the measurement, as follows:

 

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly;

Level 3: unobservable inputs for the asset or liability.

 

22.1       Fair value measurement of financial instruments

 

The Company’s financial instruments are classified into the amortised cost category and measured at amortised cost, determined at the net present value using the effective interest rate method (where discounting is material) at the date of issuance.  The fair value of these financial instruments is determined at the net present value using the effective interest rate method (where discounting is material) at the reporting date.  The valuation is based on level 2 inputs.

 

The fair value of the loans advanced to the Company by the corporate shareholders which as at the reporting date amounted to €1,059,045 (2022: €1,023,232) is determined at €467,261 (2022: €447,531) in view of the increase in market interest rates from the date of issuance of the loan. 

 

The fair value of the unsecured bond issue as at the reporting date is €12,180,000 (2022: nil) based on the market value of the bond quoted on the Malta Stock Exchange.  The valuation is based on Level 1 inputs. 

 

In view that the Company’s other interest-bearing financial instruments are subject to a variable interest rate, the carrying amount of these instruments is a close approximation of their fair value. 

 

22.2       Fair value measurement of non-financial assets

 

The fair value of the Company’s investment property (Note 11) has been determined by the directors based on a recent valuation performed by an accredited external independent architect and updated to reflect current market conditions.  The valuation is based on Level 3 inputs.  The valuation approaches adopted are based on the economic principles of price equilibrium and consisted of the market approach or the cost approach, whichever method was considered more appropriate.

 

In general, when adopting the market approach, the fair value is determined by comparing the asset with identical or comparable assets for which price information was readily available.  A capitalisation rate of 6.2% was applied when the fair value was determined on the expected rental income flow.

 

The cost approach is based on the economic principle that a buyer will pay no more for an asset than the amount to create an asset of equal utility.  This requires consideration of the cost that a prospective buyer would incur in acquiring a similar asset with the potential to earn similar profit from its development.

 

23           Capital management policies and procedures

 

The Company’s capital management objectives are:

 

to ensure the Company’s ability to continue as a going concern, and

to provide an adequate return to shareholders by pricing services in a way that reflects the level of risk involved in providing those services.

 

The Company monitors capital on the basis of the carrying amount of equity plus its subordinated loan (Note 15), less cash and cash equivalents as presented in the financial statements.

 

No changes were made in the Company’s objectives, policies and processes for managing capital during the years ended 31 December 2023 and 31 December 2022.

 

24           Events after the reporting date

 

After the reporting date, the Company continued to acquire additional properties within its portfolio of immovable property with the aim of generating additional revenue streams when such properties become available for use.

 

On 27 March 2024, the Company acquired the GreenGrove Guesthouse (the ‘Guesthouse’) in Swieqi with a guest house comfort licence issued by the Malta Tourism Industry.  This investment was partially financed through own funds generated from operations and a new bank loan facility issued by a commercial bank under normal business terms. 

 

The Guesthouse is expected to be leased out to a third party with effect from 15 April 2024. 

 

No other significant non-adjusting events have occurred between the reporting date and the date of authorisation of these financial statements.

 

25           Comparative amounts

 

Certain amounts have been reclassified to conform with the current year’s presentation.

 

 

 

 

GTlogo-RGB-135

 

 

 

Independent auditor’s report

 

 

 

 

To the shareholders of Bonnici Bros. Properties p.l.c.

 

Report on the audit of the financial statements

 

Opinion

We have audited the financial statements of Bonnici Bros. Properties p .l.c. (the “company”) which comprise the statement of financial position as at 31 December 2023, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of material accounting policies and other explanatory information.

 

In our opinion, the accompanying financial statements give a true and fair view of the financial position of the company as at 31 December 2023, and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) , and have been properly prepared in accordance with the requirements of the Companies Act, Cap. 386 (the “Act”).

 

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

 

In conducting our audit we have remained independent of the Company and have not provided any of the non-audit services prohibited by article 18A of the Accountancy Profession Act, Cap. 281. The non-audit services that we have provided to the company during the year ended 31 December 2023 consisted of tax compliance services and filing of the financial statements in ESEF format amounting to €975 and €1,700, respectively.

 

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 and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. 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.

 

We summarise below the key audit matters, together with our response by way of the audit procedures we performed to address those matters in our audit.

 

Fair value of investment properties

Key audit matter

The company measures its investment properties at fair value as described in note 11.  As at reporting date, the investment properties represent 85% of total assets.  Due to the significance of the value of the investment properties to the company, and the estimation uncertainty involved in its measurement, we have considered the valuation of investment properties as a key audit matter .

How the key audit matter was addressed in our audit      

The directors engaged an independent external valuer on 29 December 2022. These valuations were then revisited by management for the year ended 31 December 2023 and increased to reflect capital appreciation and additions carried out during the year.

 

Management used a mix of approaches to determine the value of the investment properties. For property in use, the income approach or market approach was used. In the income approach management estimated the expected free cash flows to be derived from the operation of the properties using market rental rates of comparable properties and/or the contractual rental rates and an expected exit value based on a certain capitalisation rate. In the market approach the value of the asset was determined by comparing to similar assets in the market. In the case of land, the residual value method was used, whereby management first established the land’s intended use and then estimated the expected free cash flows to be derived from the properties using expected selling rates of comparable properties less development costs. This process is highly judgmental as it uses certain assumptions such as construction rates, future increases in fair market rental/selling rates, discount rates and capitalisation rates.

 

Our procedures focused on the valuation process and included the following:

-

We assessed the competency and independence of the professional valuer engaged by the company.

-

We reviewed the underlying basis of valuation applied by the directors to assess whether the valuation approach was consistent with IFRS and industry norms;

-

We involved the internal valuation specialists to assess the appropriateness of the underlying key assumptions and factors used and applied alternative valuation techniques in order to assess whether the valuation falls within an acceptable range as at 31 December 2023.

-

We also assessed the adequacy of the disclosures made in notes 11 and 22 to the financial statements relating to these properties.

 

We have no key observations to report, specific to this matter.

 

Debt securities in issue

Key audit matter

The Company issued tranche 1 of a €16,000,000 5.25% unsecured bond issuance programme.  The bond issue of €12,000,000 was issued on 10 February 2023 and taken up by the public by 10 March 2023.

 

How the key audit matter was addressed in our audit 

We ensured that the debt securities issued during the year were used according to the terms of the Prospectus. We also ensured that that capitalisation of bond issue costs and amortisation of debt securities in issue was in accordance with the Company’s accounting policies. We also considered the Company’s liquidity risk, to ensure that the Company can meet these obligations as they fall due.

 

We have no key observations to report, specific to this matter.

 

Other information

The directors are responsible for the other information. The other information comprises (if) the Directors’ report, (ii) the Statement of directors’ responsibilities including statement of responsibility pursuant to the Capital Market Rules issued by the Malta Financial Services Authority, and (iii) the Corporate Governance report which we obtained prior to the date of this auditor’s report, but does not include the financial statements and our auditor’s report thereon.

 

Our opinion on the financial statements does not cover the other information.

 

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.  If based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.  We have nothing to report in this regard.

 

With respect to the directors’ report, we also considered whether the directors’ report includes the disclosures required by Article 177 of the Act.

 

Based on the work we have performed, in our opinion:

 

the information given in the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements, and

the Directors’ report has been prepared in accordance with the Act.

 

In addition, in light of the knowledge and understanding of 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 and other information that we obtained prior to the date of this auditor’s report. We have nothing to report in this regard.

 

Responsibilities of the directors for the financial statements

The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with IFRS as adopted by the EU and are properly prepared in accordance with the provisions of the Act, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the financial statements, the directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. The directors are responsible for overseeing the Company’s financial reporting process.

 

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

 

In terms of article 179A (4) of the Act, the scope of our audit does not include assurance on the future viability if the audited entity or on the efficiency or effectiveness with which the directors have conducted or will conduct the affairs of the entity.

 

As part of an audit in accordance with the 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 management.

-

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

 

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

 

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefit of such communication.

 

Reports on other legal and regulatory requirements

Report on compliance with the requirements of the European Single Electronic Format Regulatory Technical Standard (the “ESEF RTS”), by reference to Capital Markets Rule 5.55.6

 

We have undertaken a reasonable assurance engagement in accordance with the requirements of Directive 6 issued by the Accountancy Board in terms of the Accountancy Profession Act (Cap. 281) - the Accountancy Profession (European Single Electronic Format) Assurance Directive (the “ESEF Directive 6”) on the Report and Financial Statements of Bonnici Bros. Properties p.l.c. for the year ended 31 December 2023, entirely prepared in a single electronic reporting format.

 

Responsibilities of the directors

The directors are responsible for the preparation of the Report and 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 Report and Financial Statements, complies in all material respects with the ESEF RTS based on the evidence we have obtained. We conducted our reasonable assurance engagement in accordance with the requirements of ESEF Directive 6.

 

Our procedures included:

 

-

Obtaining an understanding of the entity's financial reporting process, including the preparation of the Annual Report and Financial Statements , in accordance with the requirements of the ESEF RTS.

-

Obtaining the Annual Report and Financial Statements and performing validations to determine whether the Annual Report and Financial Statements have been prepared in accordance with the requirements of the technical specifications 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 Report and Financial Statements for the year ended 31 December 2023 has been prepared, in all material respects, in accordance with the requirements of the ESEF RTS.

 

Report on the Statement of Compliance with the Principles of Good Corporate Governance

 

The Capital Market Rules 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 Market Rules also require us, as the auditor of the Company, to include a report on the Statement of Compliance prepared by the directors.

 

We read the Statement of Compliance with the Code of Principles of Good Corporate Governance 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.

 

We are not required to, and we do not, consider whether the Board’s statements on internal control included in the Statement of Compliance with the Code of Principles of Good Corporate Governance 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 Corporate governance statement has been properly prepared in accordance with the requirements of the Capital Market Rules.

 

Other matters on which we are required to report by exception

We also have responsibilities

under the Companies Act, Cap 386 to report to you if, in our opinion:

-

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

-

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

-

certain disclosures of directors’ remuneration specified by law are not made in the financial statements, giving the required particulars in our report.

 

in terms of Capital Market 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.

 

Auditor tenure

We were first appointed as auditors of the company on 19 November 2022. Our appointment has been renewed annually by a shareholders’ resolution representing a total period of uninterrupted engagement appointment of two years.

The engagement partner on the audit resulting in this independent auditor’s report is Sharon Causon.

 

 

 

 

Grant Thornton

Fort Business Centre

Triq L-Intornjatur, Zone 1

Central Business District

Birkirkara CBD 1050

Malta

 

 

22 April 2024