Chairman’s message

Dear Shareholders,

On behalf of the Board of Directors (the “Board”) of Malta Properties Company (the “Company” or “MPC”), it is my honour to present the Company’s annual report for the year 2021, which covers its operational and financial results.

Strong foundations lead to success

First and foremost, I thank you for the trust and support you show in our Company. Secondly, I would like to take this opportunity to assure you that the Board and I remain fully committed in doing all we can to help our Company grow and prosper.

Success depends on having a clear vision, which at MPC, has always been the case. We aspire to be Malta’s leading provider of commercial real estate. We aim to achieve this objective by meeting the needs of tenants and fostering stronger relationships with them by exceeding their expectations. In line with recent trends in commercial real estate and shift in the working culture, we expect to evolve our offering in the years ahead and offer tenants with a broader range of services and facilities. Our value proposition is evolving towards providing our tenants with a richer work environment, amongst other elements via creating communities around our properties. Success also depends on having a competent, dedicated and dynamic team. The results achieved this year, showcase the hard work and dedication of the team to deliver despite facing the challenges of 2021.

Delivering growth in a challenging year

In 2021, our revenues grew by 6.0% from €3.44 million to €3.64 million. This increase was aided by the growth strategy that MPC is pursuing, both organically via the development of new projects as well as acquisition of new properties. At the same time, we have had to contend both with the impact of Covid-19 and other uncertainties within the Maltese economy. These include those created when Malta was placed on the Financial Action Task Force (FATF) grey list in June 2021. Fortunately, this latter development does not yet appear to have had any significant impact on us at MPC. With a strong client base who have a long-term view and commitments to Malta, we believe that our partnerships will allow us to overcome any medium or long-term effects of these challenges.

Future remains a bright one

MPC has a number of plans for 2022, and our long-term outlook remains positive. At the same time, Malta continues to score well across a number of economic indicators and its economy appears resilient. The Board remains committed to supporting the executive team in identifying and pursuing new opportunities which are aligned with our main priority of keeping our shareholders best interest at heart by delivering sustainable growth.

With a very dynamic economic landscape ahead of us, MPC is in a solid position to grow further and continue to deliver results with its business strengths, competent team, and a high-quality portfolio with a strong tenant base.

Finally, I would like to extend my thanks to the Board members, shareholders, our partners and the MPC team for their continued support and trust in MPC.  I am optimistic that the future of our Company remains a bright one which will continue to drive growth and shareholder value.

Thank you

Mohamed Sharaf

Chairman of the Board of Directors

Malta Properties Company p.l.c.

Chief Executive Officer’s review

Progress despite uncertainty

2021 proved to be another uncertain year as the Covid-19 pandemic has continued. While many hoped that this pandemic would come to an end, the development of new variants has continued to impact all of us. Like many businesses, at MPC, we have learnt to operate within this reality and I am happy to report that we continue to obtain satisfactory results.

As highlighted by our Chairman, the Company’s financial performance in 2021 saw revenues grow from €3.44 million to €3.64 million. Contributing to this increase were the first full year of contribution from our property in Swatar and inflation-linked adjustments in rents we received from our other leased properties. These increases more than offset the loss of income from our Marsa Spencer Hill property which GO vacated in February 2021. We also benefited from gains in the value of our properties, which reflects our ongoing development at Zejtun as well as recycling of our portfolio.

The successful management of our relationships with tenants is the cornerstone of our success. Throughout 2021 this process ran smoothly, and I am happy to report that our existing tenants continue to be satisfied with the service they receive from MPC.

The recycling of our portfolio, both in terms of disposing off non-core properties as well as making new investments to grow the portfolio, is a strategic priority for us. Over 2021, significant progress was made on both fronts. The sale of the St George’s property was concluded, contributing to an increase in our Net Asset Value, while a promise of sale was agreed to dispose of the old exchange at Birkirkara.  During the year, we also made progress on investments in existing and new properties which better fit our vision to become Malta’s premier commercial real estate provider. We continue to progress towards the completion of our Zejtun project. Although its completion has been somewhat delayed due to various factors relating to the installation of particular state-of-the-art technology and the impact of Covid-19, we are confident that we will hand over the property within a few months and begin generating new revenues during 2022. We have also continued to seek new properties to enhance our portfolio. On this front, in September 2021 we signed a promise of sale agreement to acquire the Mediterranean Insurance Building in Ta’ Xbiex. This is a well-positioned, fully-leased property and the successful conclusion of this purchase will have an immediate, positive impact on our revenues. The portfolio recycling activities have contributed towards an increase in our Net Asset value, which grew from €55.3 million in 2020 to €56.7million in 2021. 

More opportunities ahead

As I look forward to the year ahead, it is with a sense of renewed optimism. While challenges remain, shareholders can look forward to MPC continuing to increase revenues in 2022, as our development at Zejtun is completed and as we continue to pursue acquisitions. Together with my team I look forward to further success and to a more prosperous future for us all.

Mohsin Majid

Chief Executive Officer

Malta Properties Company p.l.c.

Directors’ report

The Directors present their annual report and the audited consolidated financial statements for the year ended 31 December 2021.

Principal activities

The main activity of the Group and the Company is property investment and development.  The Company may, inter alia, directly or through subsidiary companies, acquire by any title whatsoever, and take on lease or sub-lease and dispose of, grant and/or lease and hold property of any kind, whether movable or immovable for the purposes of its business, and construct, develop and enter into arrangements with contractors and other service providers in connection with its properties.

As the holding company of the Malta Properties Company p.l.c. (MPC) Group, the Company is ultimately dependent upon the operations and performance of its subsidiaries and their respective operations.

Review of the business

Review of Group operations

Performance

During 2021, the Group’s total income amounted to €3.64 million (2020: €3.44 million), an increase of 6.0% over that of the previous year. The increase mainly related to a full year of rental income from the HSBC Contact Centre in Swatar which was bought in September 2020 netted off by the rental income lost as GO p.l.c. vacated the Spencer Hill Old Exchange in Q1 of 2021, following its migration to MPC’s newly built exchange in Marsa. There was also an increase in other income, namely maintenance income and income generated from the photovoltaic panels installed towards the end of 2020. The Group’s EBITDA remained broadly in line with the previous year and stood at €2.11 million (2020: €2.15 million). Administrative expenses increased by €0.25 million, mainly due to increased professional fees, insurance and repairs and maintenance costs and staff related costs, netted off by a decrease in business development costs. Profit before tax reached €3.61 million (2020: €4.33 million), a decrease of €0.72 million resulting from lower gains in changes in fair value and additional finance costs paid both on refinancing the €16 million loan and a full year of interest on the Swatar property. Rental income is expected to increase in 2022 with rents from new developments being handed over, potential acquisitions and in line with inflation. The Group’s revenue streams are secured for the medium to long-term through the leases in place with MPC’s various blue-chip tenants.

Throughout the year, the Group continued to analyse various investment opportunities for growth. On 13 September 2021, the Company signed a promise of sale agreement for a tenanted office block in Ta’ Xbiex which expires on 28 March 2022.

Financial position

The Group is in a strong financial position. Total non-current assets plus assets classified as held for sale as at the end of 2021 amounted to €79.41 million (2020: €89.22 million). During the year, the St. George’s property was sold for €14 million. Throughout 2021, planning and development works continued on a number of properties, contributing to additional property value mainly due to the progress of the development of the Zejtun site, and, to a lesser extent, fair value increases across the Group’s property portfolio. Current assets (excluding assets classified as held for sale) as at year end amounted to €13.40 million (2020: €4.88 million), mainly as a result of the cash received on the St. George’s sale. ‘Assets classified as held for sale’ relates to the B’Kara Old Exchange. On 28 September 2021, a promise of sale agreement was signed in respect of this property, which expires on 28 September 2022.

The Group’s borrowings decreased as the Group has been repaying the Swatar and Zejtun loans. As at year end, the Group’s gearing ratio, measured as borrowings to equity, stood at 0.47 (2020: 0.50) and its loan-to-value ratio, measured as borrowings net of cash and cash equivalents to property value, stood at 0.18 (2020: 0.27).

Risk analysis

The Group’s risks can be analysed into three categories: strategic risk, operational risk and financial risk. Below is a description of each of these risks and the mitigating factors in place:

The Group’s financial risk management focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group’s risk policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities.

Covid-19 has not resulted in a significant financial impact on the Group and MPC has shown to be resilient in its business operations. As explained in the investment property note (Note 5), MPC’s income is secured for the medium term by lease agreements in place. In view of the situation, Malta is currently experiencing an uncertain and unpredictable real estate market. This has led to valuation uncertainty which is not measurable, because the only inputs and metrics available for the valuation are likely to relate to the market before the event occurred and the impact of the event on prices will not be known until the market has stabilised. However, most of the Group’s properties are leased to tenants whose operation has not been as heavily impacted as other players in the market. Particularly, some of the properties consist of purpose-built buildings to serve the specific tenant. The company will continue to monitor closely how the market evolves and MPC’s strategy will be adapted accordingly.

Results and dividends

The results of the Group and the Company are set out in the respective Income Statement.  The Directors recommend that at the forthcoming Annual General Meeting, the shareholders approve the payment of a net dividend of €0.012 per share after taxation (2020: €0.012 per share) – such dividend to be payable after shareholder approval at the AGM.

Retained earnings, consisting of both distributable and non-distributable reserves, amounting to €24,047,620 (2020: €22,617,531) of the Group and €4,721,877 (2020: €4,636,649) of the Company are being carried forward to the next financial year.

Directors

The Directors of the Company who held office during the year were:

Mr. Mohamed Sharaf (Chairman)

Mr. Deepak S. Padmanabhan

Dr. Brigitte Zammit

Mr. Aziz Moolji (appointed on 15 July 2021)

Dr. Cory Greenland (appointed on 15 July 2021)

The Noble Paul S. Testaferrata Moroni Viani (retired on 15 July 2021)

Mr. Edmond Brincat (retired on 15 July 2021)

On 16 February 2022, Mr. Aziz Moolji resigned from the post of Director and Mr. Saqib Salman Saeed was appointed in his stead.

In terms of Article 96.1 of the Articles of Association, the term of appointment of the Directors still in office expires at the end of the forthcoming Annual General Meeting. 

Mr. Deepak S. Padmanabhan, The Noble Paul S. Testaferrrata Moroni Viani and Dr. Cory Greenland offered themselves for election at the last Annual General Meeting for the two seats on the Board of Directors, and Mr. Deepak S. Padmanabhan and Dr. Cory Greenland were elected to represent the Company’s shareholders.

Of the Directors of the Company, Mr. Deepak S. Padmanabhan and Mr. Edmond Brincat (up to 13 May 2021) were acting as Directors of the following subsidiary companies at 31 December 2021: BKE Property Company Limited, MCB Property Company Limited, MSH Property Company Limited, SGE Property Company Limited, SLM Property Company Limited, SPB Property Company Limited, SWT Property Company Limited and ZTN Property Company Limited.  

Remuneration Committee and corporate governance

The Board of Directors deems that the setting up of a Remuneration Committee is not necessary within the context of the size, nature and operations of the Group and Company. The Board of the Company will be submitting to the Shareholders at the next Annual General Meeting the Remuneration Report for the financial year ending 31 December 2021 (the ‘Reporting Period’). The Report is drawn up in accordance with, and in fulfilment of the provisions of Chapter 12 of the Capital Markets Rules issued by the Malta Financial Services Authority (‘Listing Rules’) relating to the Remuneration Report and Section 8A of the Code of Principles of Good Corporate Governance (Appendix 5.1 of the Capital Market Rules) regarding the Remuneration Statement.  

The Report provides a comprehensive overview of the nature and quantum of remuneration paid to the individual Directors and the Chief Executive Officer during the reporting period and details how this complies with the Company’s Remuneration Policy. The Report is intended to provide increased corporate transparency, increased accountability and a better shareholder oversight over the remuneration paid to Directors and the Chief Executive Officer. The contents of this Remuneration Report have been reviewed by the Company’s Auditors to ensure that the information required in terms of Appendix 12.1 of the Capital Market Rules has been included.

The Group’s arrangements for corporate governance are reported in the ‘Corporate governance - Statement of compliance’ section.

Statement of Directors’ responsibilities for the financial statements

The Directors are required by the Companies Act (Cap. 386) to prepare financial statements which give a true and fair view of the state of affairs of the Group and the parent Company as at the end of each reporting period and of the profit or loss for that period.

In preparing the financial statements, the Directors are responsible for:

The Directors are also responsible for designing, implementing and maintaining internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and that comply with the Companies Act (Cap. 386).  They are also responsible for safeguarding the assets of the Group and the parent Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The financial statements of Malta Properties Company p.l.c. for the year ended 31 December 2021 are included in the Annual Report 2021, which is published in hard-copy printed form and is made available on the Company’s website.  The Directors are responsible for the maintenance and integrity of the Annual Report on the website in view of their responsibility for the controls over, and the security of, the website.  Access to information published on the Company’s website is available in other countries and jurisdictions, where legislation governing the preparation and dissemination of financial statements may differ from requirements or practice in Malta.

Information provided in accordance with Capital Markets Rule 5.70.1

There were no material contracts to which the Company, or any of its subsidiaries was a party, and in which anyone of the Company’s Directors was directly or indirectly interested.

Going concern

The Directors, as required by Capital Markets Rule 5.62, have considered the Group’s operating performance, the statement of financial position at year end, as well as the business plan for the coming year, and they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Auditors

Pursuant to the Company’s statutory obligations in terms of the Companies Act and the MFSA Capital Markets Rules, the appointment of the auditors and the authorisation of the Directors to set their remuneration will be proposed and approved at the Company’s AGM.

Information provided in accordance with Capital Markets Rule 5.64

The authorised share capital of the Company is forty million Euro (€40,000,000) divided into one hundred and twenty five million (125,000,000) shares of thirty two Euro cents (€0.32) each share.

The issued share capital of the Company is thirty two million four hundred and nineteen thousand, three hundred and fifty six Euro (€32,419,356) divided into one hundred and one million three hundred and ten thousand, four hundred and eighty eight (101,310,488) ordinary shares of thirty two Euro cents (€0.32) each share, which have been subscribed for and allotted fully paid-up.

The issued shares of the Company consist of one class of ordinary shares with equal voting rights attached.

The Directors confirm that as at 31 December 2021, only Emirates International Telecommunications (Malta) Limited held a shareholding in excess of 5% of the total issued share capital. 

Any shareholder holding in excess of 40% of the issued share capital of the Company having voting rights may appoint the Chairman.  In the event that there is no one single shareholder having such a shareholding, the Chairman shall be elected by shareholders at the Annual General Meeting of the Company.

The rules governing the appointment of Board members are contained in Clause 96 of the Company’s Articles of Association as follows:

The Directors shall be appointed as set out hereunder:

Any amendment to the Company’s Memorandum and Articles of Association has to be made in accordance with the Companies Act (Cap. 386).

Without prejudice to any special rights previously conferred on the holders of any of the existing shares or class thereof, any share in the Company may be issued with such preferred, deferred, or other special rights or such restrictions, whether in regard to dividend, voting, return of capital or otherwise as the Board of Directors may from time to time determine, as provided for in Clause 3 of the Articles of Association, as long as any such issue of Equity Securities falls within the authorised share capital of the Company.

The Company may, subject to the applicable restrictions, limitations and conditions contained in the Companies Act (Cap. 386), acquire its own shares and/or Equity Securities.

Pursuant to Capital Market Rules 5.64.2, 5.64.4, 5.64.5, 5.64.6, 5.64.7 and 5.64.10 it is hereby declared that, as at 31 December 2021, none of the requirements apply to the Company.

Statement by the Directors pursuant to Capital Markets Rule 5.68

We, the undersigned, declare that to the best of our knowledge, the financial statements prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and its subsidiaries included in the consolidation taken as a whole, and that this report includes a fair review of the performance of the business and the position of the Company and its subsidiaries included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Signed on behalf of the Board of Directors on 17 March 2022 by Mr Deepak Padmanabhan (Director) and Dr Cory Greenland (Director) as per the Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Financial Report.

Registered office:

The Bastions

Emvin Cremona Street

Floriana, Malta

Telephone: (+356) 2123 0032

Dr Francis Galea Salomone

Company Secretary

Corporate governance - Statement of compliance

A.        Introduction

Pursuant to the Malta Financial Services Authority Capital Markets Rules, Malta Properties Company p.l.c. (“the Company”) whose equity securities are listed on a regulated market should endeavour to adopt the Code of Principles of Good Corporate Governance (“the Code”) as contained in Appendix 5.1 to Chapter 5 of the Capital Markets Rules.  In terms of the Capital Markets Rules, the Company is hereby reporting on the extent of its adoption of the Code.

The Company acknowledges that the Code does not prescribe mandatory rules but recommends principles so as to provide proper incentives for the Board of Directors (“the Board”) and the Company’s management to pursue objectives that are in the interests of the Company and its shareholders.  Good corporate governance is the responsibility of the Board, and in this regard the Board has carried out a review of the Company’s compliance with the Code during the period under review, and hereby provides its report thereon.

As demonstrated by the information set out in this statement, the Company believes that it has, save as indicated herein the section entitled Non-Compliance with the Code, throughout the period under review, applied the principles and complied with the provisions of the Code.

B.        Compliance

Principle 1: The Board

The Board, the members of which are appointed by the shareholders, is primarily tasked with the administration of the Company’s resources in such a way as to enhance the prosperity of the business over time, and therefore the value of the shareholders’ investment.  The Board is composed of five non-executive Directors, one of whom is the Chairman.

The Board is in regular contact with the Chief Executive Officer and is continuously informed of any decisions taken in order to ensure an effective contribution to the decision-making process, whilst at the same time exercising prudent and effective controls.  Directors, individually and collectively, are of appropriate calibre, with the necessary skill and experience to assist the Chief Executive Officer in providing leadership, integrity and judgement in directing the Company towards the maximisation of shareholder value.

Further detail in relation to Board Committees and the responsibilities of the Board is found in “Principles 4 and 5” of this statement.

Principle 2: Chairman and Chief Executive Officer 

The roles of the Chairman and the Chief Executive Officer are filled by separate individuals, and the Chief Executive Officer is appointed by the Board for a definite period. During the year under review Mr. Mohsin Majid was re-appointed as Chief Executive Officer of the Company.

The responsibilities and roles of the Chairman and the Chief Executive Officer are clearly established and agreed to by the Board of Directors.

The Chairman is responsible to lead the Board and set its agenda. The Chairman ensures that the Board is in receipt of precise, timely and objective information and also encourages active engagement by all members of the Board for discussion of complex and contentious issues.

Principle 3: Composition of the Board

In accordance with the provisions of the Company’s Articles of Association, the appointment of Directors to the Board is exclusively reserved to the Company’s shareholders, except in so far as appointment is made to fill a casual vacancy on the Board, and which appointment would expire at the Company’s Annual General Meeting following appointment.  Any vacancy among the Directors may be filled by the co-option of another person to fill such vacancy.  Such co-option shall be made by the Board of Directors. 

The Board has the overall responsibility for the activities carried out within the Company and the Group and thus decides on the nature, direction, strategy and framework of the activities and sets the objectives for the activities.

The Board of Directors is currently chaired by Mr. Mohamed Sharaf and comprises five (5) non-executive Directors. The following Directors served on the Board during the period under review:

Non-executive directors

Mr. Mohamed Sharaf (Chairman)

Mr. Deepak S. Padmanabhan

Dr. Brigitte Zammit

Mr. Aziz Moolji (appointed on 15 July 2021)

Dr. Cory Greenland (appointed on 15 July 2021)

The Noble Paul S. Testaferrata Moroni Viani (retired on 15 July 2021)

Mr. Edmond Brincat (retired on 15 July 2021)

For the purposes of the Code, the non-executive Directors are independent. The Company deems that, although Mr. Mohamed Sharaf and Dr. Brigitte Zammit have an employee and director relationship with the controlling shareholder, in terms of Supporting Principle 3 (vii) of the Code of Principles of Good Corporate Governance such relationship is not considered to create a conflict of interest such as to jeopardise exercise of their free judgement.

Principles 4 and 5: The Responsibilities of the Board and Board Meetings

The Board has a formal schedule of matters reserved to it for decisions, but also delegates specific responsibilities to Board committees and sub-committees, the most prominent being the Audit Committee.  Directors receive Board and committee papers in advance of meetings and have access to the advice and services of the Company Secretary.  Directors may, in the course of their duties, take independent professional advice on any matter at the Company’s expense.  The Directors are fully aware of their responsibility always to act in the best interests of the Company and its shareholders as a whole irrespective of whoever appointed or elected them to serve on the Board.  As delegated and monitored by the Board, the Company Secretary keeps detailed records of all dealings by Directors and senior executives of the Company and its subsidiaries in the Company’s shares and all minutes of meetings of the Board and its sub-committees.

During the year under review the Company held nine (9) Board meetings.

The following is the attendance at Board meetings of each of the Directors during 2021:

On joining the Board, a Director is provided with a presentation on the activities of the Company and its subsidiaries. 

The Board has the responsibility to ensure that the activities are organised in such a way that the accounts, management of funds and financial conditions in all other respects are controlled in a satisfactory manner and that the risks inherent in the activities are identified, defined, measured, monitored and controlled in accordance with external and internal rules, including the Articles of Association of the Company.  The Board of Directors, through the work carried out by the executive team, continuously assesses and monitors the Company’s operational and financial performance, assesses and controls risk, and monitors competitive forces in all areas of operation.  It also ensures that both the Company and its employees maintain the highest standards of corporate conduct.

Board Committees

Audit Committee

The Audit Committee supports the work of the Board in terms of quality control of the Group’s financial reports and internal controls.  The Audit Committee is currently chaired by Dr. Cory Greenland, with the other members being Mr. Deepak S. Padmanabhan and Dr. Brigitte Zammit.  The Audit Committee is independent and is constituted in accordance with the requirements of the Capital Markets Rules, with Mr. Deepak S. Padmanabhan being chosen as the member competent in accounting and/or auditing in view of his experience in the field.  The Chief Finance Officer and the external auditors of the Company attend the meetings of the Committee by invitation.  Other executives are requested to attend when required.  The Company Secretary also acts as Secretary to the Audit Committee.

The Committee scrutinises and monitors related party transactions.  It considers the materiality and the nature of the related party transactions carried out by the Company to ensure that the arm’s length principle is adhered to at all times. 

As part of its duties, the Committee receives and considers the audited statutory financials statements of all companies comprising the Group.  The Committee held five (5) meetings during the year.  The external auditors attended four (4) meetings.

Principle 6: Information and Professional Development

The Board is responsible for the appointment of the Chief Executive Officer.  The Chief Executive Officer is responsible for the appointment of senior management.

On joining the Board, Board members are informed in writing by the Company Secretary of the Directors’ duties and obligations, relevant legislation as well as rules and bye-laws.  In addition, Directors have access to the advice and services of the Company Secretary and the Board is also advised directly, as appropriate, by its legal advisors.  Directors are also provided with a presentation on the activities of the Company and subsidiaries.  The Company Secretary ensures effective information flows within the Board, committees and between senior management and Directors, as well as facilitating professional development. The Company Secretary advises the Board through the Chairman on all governance matters.

Directors may, in the course of their duties, take independent professional advice on any matter at the Company’s expense. The Company will provide for additional individual Directors' training on a requirements basis. 

Principle 7: Evaluation of the Board’s Performance

The Chairman of the Board informally evaluates the performance of the Board members, which assessment is followed by discussions within the Board.  Through this process, the activities and working methods of the Board and each committee member are evaluated.  Amongst the things examined by the Chairman through his assessment are the following: how to improve the work of the Board further, whether or not each individual member takes an active part in the discussions of the Board and the committees; whether they contribute independent opinions and whether the meeting atmosphere facilitates open discussions. Under the present circumstances the Board does not consider it necessary to appoint a committee to carry out a performance evaluation of its role as the Board’s performance is furthermore also under the scrutiny of the shareholders. On the other hand, the performance of the Chairman is evaluated by the Board of Directors of the ultimate controlling party, taking into account the manner in which the Chairman is appointed.  The self-evaluation of the Board has not led to any material changes in the Company’s governance structures and organisations.

Principle 8: Committees

The Company has opted not to set up a Remuneration Committee and a Nomination Committee.  Further explanation is provided under the section entitled Non-Compliance with the Code of this Statement.  The Board of Directors deems that the setting up of a Remuneration Committee is not necessary within the context of the size, nature and operations of the Group and Company.  During the year ended 31 December 2021, the Board of Directors performed the functions of a Remuneration Committee and this is further explained within the Remuneration Report.

Principles 9 and 10: Relations with Shareholders and with the Market, and Institutional Shareholders

The Company recognises the importance of maintaining a dialogue with its shareholders and of keeping the market informed to ensure that its strategies and performance are well understood.  During the period under review, the Company has maintained an effective communication with the market through a number of channels including Company announcements, Circulars, etc.

The Company also communicates with its shareholders through the Company’s Annual General Meeting (“AGM”). Both the Chairman of the Board and the Chairman of the Audit Committee are available to answer shareholder questions.

The Chairman/Chief Executive Officer also ensure that sufficient contact is maintained with major shareholders to understand issues and concerns.

Apart from the AGM, the Company communicates with its shareholders by way of the Annual Report and Financial Statements and also through the Company’s website ( www.maltaproperties.com.mt ) which also contains information about the Company and its business, including an Investor Relations section.

The Office of the Company Secretary maintains regular communication between the Company and its investors.  Individual shareholders can raise matters relating to their shareholdings and the business of the Company at any time throughout the year, and are given the opportunity to ask questions at the AGM or to submit written questions in advance.

As provided by the Companies Act (Cap. 386), minority shareholders may convene Extraordinary General Meetings. 

Principle 11: Conflicts of Interest

The Directors are fully aware of their responsibility always to act in the best interests of the Company and its shareholders as a whole irrespective of whoever appointed or elected them to serve on the Board. 

On joining the Board and regularly thereafter, the Directors are informed of their obligations on dealing in securities of the Company within the parameters of law, including the Listing Rules, and Directors follow the required notification procedures.

Directors’ interest in the shareholding of the Company:

On the date of retirement, Mr. Edmond Brincat had 1,620 shares in MPC. On the same date, The Noble Paul S. Testaferrata Moroni Viani had a beneficial interest in the Company of 75,494, 2,900 and 16,050 shares through the shareholding of Testaferrata Moroni Viani (Holdings) Ltd., Testaferrata Moroni Viani Ltd. and other related parties, respectively.

None of the Directors of the Company have any interest in the shares of the Company’s subsidiaries or investees or any disclosable interest in any contracts or arrangements either subsisting at the end of the last financial year or entered into during this financial year.  No other changes in the Directors’ interest in the shareholding of the Company between year-end and 10 March 2022.

Principle 12: Corporate Social Responsibility

The Directors also seek to adhere to accepted principles of corporate social responsibility in their management practices of the company in relation to the Company’s workforce, the country’s cultural and historical heritage, the environment and the local community. During 2021, the Company has continued to support several voluntary organisations through donations with the aim of improving the quality of life of the local community and society at large. As in previous years, the Company is also committed to constructing buildings which are energy efficient.

C.    Non-compliance with the Code

Principle 3: Executive and Non-Executive Directors on the Board

As explained in Principle 3 in Section B, the Board is composed entirely of non-executive Directors.  Notwithstanding this, it is considered that the Board, as composed, provides for sufficiently balanced skills and experience to enable it to discharge its duties and responsibilities effectively.  In addition, no cases of conflict of interest are foreseen. The Directors believe that the executive role should be performed by the Chief Executive Officer who reports directly to the Board. As such, the Board shall maintain a supervisory role and monitor the operations of the Chief Executive Officer.

Principle 4: Succession Policy for the Board

Code Provision 4.2.7 recommends “the development of a succession policy for the future composition of the Board of Directors and particularly the executive component thereof, for which the Chairman should hold key responsibility”. In the context of the appointment of Directors being a matter reserved exclusively to the Company’s shareholders (except where the need arises to fill a casual vacancy) as explained under Principle 3 in Section B, considering that every Director retires from office at the AGM and that all five Directors have a non-executive role, the Company does not consider it feasible to have in place such a succession policy. 

Principle 6: Succession Plan for Senior Management

Although the Chief Executive Officer is responsible for the recruitment and appointment of senior management, the Company has not established a formal succession plan.  This is basically due to the size of the Company’s work force.  

Principle 7: Evaluation of the Board’s Performance

Under the present circumstances, the Board does not consider it necessary to appoint a committee to carry out a performance evaluation of its role, as the Board’s performance is always under scrutiny of the shareholders.

Principle 8A: Remuneration Committee

The Board deems that the setting up of a Remuneration Committee is not necessary within the context of the size, nature and operations of the Company.  However, as aforementioned, its function was carried out by the Board of Directors.

Principle 8B: Nomination Committee

Pursuant to the Company’s Articles of Association, the appointment of Directors to the Board is reserved exclusively to the Company’s shareholders.  Shareholders holding not less than 20% (twenty per centum) of the issued share capital of the Company having voting rights shall be entitled to appoint one Director for every such 20% holding by letter addressed to the Company.  The other shareholders are entitled to appoint the remaining Board members at the AGM in accordance with the provisions of the Articles of Association. Within this context, the Board believes that the setting up of a Nomination Committee is currently not suited to the Company since it will not be able to undertake satisfactorily its full functions and responsibilities as envisaged by the spirit of the Code.   

Principle 9: Conflicts between Shareholders (code provision 9.3)

Currently there is no established mechanism disclosed in the Company’s Memorandum and Articles of Association to trigger arbitration in the case of conflict between the minority shareholders and the controlling shareholders.  In any such cases should a conflict arise, the matter is dealt with in the appropriate fora in the Board meetings, wherein the minority shareholders are represented. There is also an open channel of communication between the Company and the minority shareholders via the Office of the Company Secretary.

D.    Internal control

The key features of the Group’s system of internal controls are as follows:

Organisation

The Group operates through Boards of Directors of subsidiaries with clear reporting lines and delegation of powers.  The Company’s Chairman is also the Chairman of the Board of Directors of the Company’s subsidiaries.

Control environment

The Group is committed to the highest standards of business conduct and seeks to maintain these standards across all of its operations.  Group policies and employee procedures are in place for the reporting and resolution of fraudulent activities. The Group has an appropriate organisational structure for planning, executing, controlling and monitoring business operations in order to achieve Group objectives.  Lines of responsibility and delegation of authority are documented.

The Group and the individual companies comprising it have implemented control procedures designed to ensure complete and accurate accounting for financial transactions and to limit the potential exposure to loss of assets or fraud.  Measures taken include physical controls, segregation of duties and reviews by management and the external auditors.

Risk identification

Group management is responsible together with each of the subsidiary companies’ management, for the identification and evaluation of key risks applicable to their areas of business. These risks are assessed on a continual basis and may be associated with a variety of internal or external sources including control breakdowns, disruption in information systems, competition, natural catastrophe and regulatory requirements.

Information and communication

Group companies participate in periodic strategic reviews which include consideration of long term financial projections and the evaluation of business alternatives.

Monitoring and corrective action

There are clear and consistent procedures in place for monitoring the system of internal financial controls.  The Audit Committee meets regularly during the year and, within its terms of reference as approved by the Malta Financial Services Authority, reviews the effectiveness of the Group’s systems of internal financial controls.  The Committee receives reports from management and the external auditors.

E.    General meetings

Shareholders’ influence is exercised at the Annual General Meeting (AGM), which is the highest decision-making body of the Company.  All shareholders, registered in the Shareholders’ Register, have the right to participate in the Meeting and to vote for the full number of their respective shares.  A shareholder who cannot participate in the Meeting can be represented by proxy.

Business at the Company’s AGM will cover the Annual Report and Financial Statements, the declaration of dividends, election of Directors and the approval of their remuneration, the appointment of the auditors and the authorisation of the Directors to set the auditors’ fees.  Shareholders’ meetings are called with sufficient notice to enable the use of proxies to attend, vote or abstain.  The Company clearly recognises the importance of maintaining a regular dialogue with its shareholders in order to ensure that its strategies and performance are understood.  It communicates with the shareholders through the AGM by way of the Annual Report and Financial Statements and by publishing its results on a regular basis during the year.  This it does through the Investor Relations Section on the Company’s internet site, the Office of the Company Secretary, and Company announcements to the market in general. 

Remuneration report

A.         Remuneration Committee

The functions of the Remuneration Committee were performed by the Board of Directors composed of Mohamed Sharaf, Deepak S. Padmanabhan, Brigitte Zammit, Edmond Brincat (retired on 15 July 2021), Paul S. Testaferrata Moroni Viani (retired on 15 July 2021), Aziz Moolji (appointed on 15 July 2021) and Cory Greenland (appointed on 15 July 2021). The Board discusses and approves remuneration and bonuses of senior executives.

B.         Remuneration policy - Directors and CEO

The Company is required to establish a Remuneration Policy with respect to its Directors. The remuneration policy has been approved by the shareholders at the Annual General Meeting held on 29 July 2020 and is applicable for a maximum period of four years. All remuneration for directors was in conformity with this policy. The policy describes the components of such remuneration and how this contributes to the Company’s business strategy, in the context of its long-term sustainable value creation. This remuneration policy is divided into two parts distinguishing between Directors and Executive Directors.

It is the shareholders, in terms of the Memorandum and Articles of Association of the Company, who elect the Directors and determine their maximum annual aggregate emoluments by resolution at the Annual General Meeting of the Company. Remuneration payable to directors (in their capacity as directors) is reviewed as and when necessary and is not linked to the share price or the company’s performance. These are benchmarked against market practice for major local companies of similar size and complexity.

The aggregate amount fixed for this purpose during the last Annual General Meeting was €200,000 (2020: €200,000). None of the Directors have any service contracts with the Company but two (2) of the Directors (three (3) up to 15 September 2021) are employees of the ultimate parent company of Malta Properties Company p.l.c. However, there are no specific amounts of their remuneration allocated to their role at Malta Properties Company p.l.c.  Moreover, none of the Directors, in their capacity as Directors of the Company, are entitled to profit sharing, share options, pension benefits or any other remuneration. The Directors’ fees as approved by the Board for 2021 were set at €25,000 (2020: €25,000) per annum for each Director. Since their appointment as Directors, Mr. M. Sharaf, Dr. B. Zammit and Mr. A. Moolji opted to waive fees due to them as Directors. No variable remuneration is paid to Directors in their capacity as Directors of the Company. Total emoluments received by Directors during the financial year 2021 in terms of Code Provisions 8.A.5 are as follows: fixed remuneration of €63,575 (2020: €73,992). Directors are provided with electronic equipment to be able to connect to any online Board meetings for assisting in providing advice and to provide their inputs on the market.

In terms of Code Provision 12.1 and 12.2 of the Malta Financial Services Authority Capital Markets Rules, directors’ emoluments paid for the financial years 2021 and 2020 were as follows :

The total emoluments received by the Chief Executive Officers for the financial years 2021 and 2020 were as follows:

C.         Remuneration policy - Senior executives

It is the Board of Directors who determines the overall structure and parameters of the Remuneration Policy and the individual remuneration packages for senior executives (including the CEO). The Board of Directors considers that the Remuneration Policy which is being adopted in respect of the remuneration packages of senior executives is fair and reasonable and in keeping with local equivalents. The Board of Directors is also of the opinion that the packages offered ensure that the Company attracts and retains management staff that is capable of fulfilling their duties and obligations towards the Company. Senior executives are on an indefinite contract of employment except for the CEO who is on a definite contract of employment and their contracts specify their remuneration package. None of the contracts provide for profit sharing or share options, pension benefits, early retirement schemes or payments linked to termination in the contracts.

The variable component comprises an incentive that reflects the business performance or profit of the Company as well as the individual’s performance as measured on the basis of the level of achievement over one financial period of financial and non-financial objectives established by the Board which are consistent with the Company’s strategy and aligned with the shareholders’ interest. These objectives and benchmarks set include targets for operating income and growth as well as measures for diversification and development, financing and governance processes. The Board evaluates the fulfilment of criteria by comparing the targeted levels to realised outcomes. The Company does not have the possibility to reclaim any variable remuneration. The Board considers the linkage between the fixed remuneration and the variable remuneration to be appropriate.

As regards to non-cash benefits, senior executives are entitled to health insurance, telephone expenses and car-cash allowance. Total emoluments received by senior executives (including the CEO) during the financial year 2021 and 2020 in terms of Code Provisions 8.A.5 are as follows: fixed remuneration of €262,000 (2020: €232,000) and variable remuneration of €101,000 (2020: €108,000); and other benefits referred to above.

D.         Remuneration policy - Employees

The CEO, within the overall structure and parameters of the Remuneration Policy determined by the Board, determines the individual remuneration packages for all other employees. The Board of Directors considers that the Remuneration Policy which is being adopted in respect of the remuneration packages of the employees is fair and reasonable and in keeping with local equivalents. The Board of Directors is also of the opinion that the packages offered ensure that the Company attracts and retains staff that is capable of fulfilling their duties and obligations towards the Company. All other employees are on an indefinite contract of employment and their contracts specify their remuneration package. None of the contracts provide for profit sharing or share options, pension benefits, early retirement schemes or payments linked to termination in the contracts.

The variable component comprises an incentive that reflects the business performance or profit of the Company as well as the individual’s performance as measured on the basis of the level of achievement over one financial period of financial and non-financial objectives established by the CEO which are consistent with the Company’s strategy and aligned with the shareholders’ interest. The CEO evaluates the fulfilment of criteria by comparing the targeted levels to realised outcomes.

As regards to non-cash benefits, employees are entitled to health insurance, telephone expenses and car-cash allowance or company car.

E.         Other information on remuneration in terms of Appendix 12.1 of the Capital Markets Rules

In terms of the requirements within Appendix 12.1 of the Capital Market Rules, the following table presents the annual change of remuneration, of the company’s performance, and of average remuneration on a full-time equivalent basis of the company’s employees (other than directors) over the two most recent financial years. The Company’s Directors, which are all non-executive Directors, have been excluded from the table below since they have a fixed fee as described in Section B above.

The Company’s performance is measured using EBITDA since the profit before tax fluctuates year on year due to extraordinary gains on sale of property and changes in fair value, which depend on changes in the local property market conditions.

The contents of the Remuneration Report have been reviewed by the external auditor to ensure that the information required in terms of Appendix 12.1 to Chapter 12 of the Capital Markets rules have been included.

Statements of financial position

As at 31 December

   Group

       Company

2021

2020

2021

2020

Notes

€

€

€

€

ASSETS

Non-current assets

Property, plant and equipment

4

894,632

901,610

894,632

901,610

Investment property

5

71,356,700

75,571,773

15,420,362

15,476,704

Investment in subsidiaries

6

-

-

79,993

79,993

Loans receivable from subsidiaries

7

-

-

38,789,122

38,796,894

Trade and other receivables

8

201,180

175,419

192,570

-

Total non-current assets

72,452,512

76,648,802

55,376,679

55,255,201

Current assets

Trade and other receivables

8

1,250,313

180,690

14,175,197

12,221,154

Current tax asset

8,558

20,991

-

-

Deposits

9

271,000

609,000

262,000

600,000

Cash and cash equivalents

9

11,867,689

4,064,626

189,597

92,034

13,397,560

4,875,307

14,626,794

12,913,188

Assets classified as held for sale

5

6,962,388

12,575,000

-

-

Total current assets

20,359,948

17,450,307

14,626,794

12,913,188

Total assets

92,812,460

94,099,109

70,003,473

68,168,389

EQUITY AND LIABILITIES

Capital and reserves

Share capital

10

32,419,356

32,419,356

32,419,356

32,419,356

Other reserves

11

250,521

249,515

250,521

249,515

Retained earnings

24,047,620

22,617,531

4,721,877

4,636,649

Total equity

56,717,497

55,286,402

37,391,754

37,305,520

LIABILITIES

Non-current liabilities

Borrowings

12

21,277,195

10,214,698

16,000,000

4,452,441

Deferred tax liability

13

7,461,297

8,456,723

1,499,482

1,505,618

Trade and other payables

14

122,930

102,408

122,930

102,408

Total non-current liabilities

28,861,422

18,773,829

17,622,412

6,060,467

Current liabilities

Borrowings

12

5,468,973

17,577,344

4,983,172

17,100,000

Trade and other payables

14

1,639,445

2,282,243

10,004,886

7,594,873

Current tax liability

125,123

179,291

1,249

107,529

Total current liabilities

7,233,541

20,038,878

14,989,307

24,802,402

Total liabilities

36,094,963

38,812,707

32,611,719

30,862,869

Total equity and liabilities

92,812,460

94,099,109

70,003,473

68,168,389

Income statements

Year ended 31 December

   Group

       Company

2021

2020

2021

2020

Notes

€

€

€

€

Rental income

15

3,576,541

3,405,891

932,573

922,740

Other income

15

66,945

32,764

53,765

32,764

Net impairment gains/(loss) on

  financial assets

7,8,9

(19,358)

-

(12,052)

1,127

Administrative expenses

16

(1,545,017)

(1,302,091)

(1,274,841)

(1,094,107)

Operating profit/(loss)

2,079,111

2,136,564

(300,555)

(137,476)

Dividend income

15

-

-

1,500,000

-

Finance income

19

6,273

-

1,219,609

1,457,215

Finance costs

20

(692,229)

(549,894)

(764,056)

(693,792)

Fair value movement arising

  on property

5,5.1

2,219,403

2,743,532

(59,897)

(15,000)

Profit before tax

3,612,558

4,330,202

1,595,101

610,947

Tax expense

21

(966,757)

(1,350,317)

(294,161)

(184,762)

Profit for the year 

2,645,801

2,979,885

1,300,940

426,185

Earnings per share

22

0.03

0.03

Statements of comprehensive income

Year ended 31 December

   Group

       Company

2021

2020

2021

2020

Note

€

€

€

€

Comprehensive income

Profit for the year

2,645,801

2,979,885

1,300,940

426,185

Other comprehensive income

Items that will not be reclassified to

  profit or loss

Surplus arising on revaluation of

   land and buildings

11

1,006

150

1,006

150

Total other comprehensive income

  for the year, net of tax

1,006

150

1,006

150

Total comprehensive income for

  the year

2,646,807

2,980,035

1,301,946

426,335

Statements of changes in equity

Group

Share

Other

Retained

capital

reserves

earnings

Total

Notes

€

€

€

€

Balance at 1 January 2020

32,419,356

249,365

20,650,747

53,319,468

Comprehensive income

Profit for the year

-

-

2,979,885

2,979,885

Other comprehensive income:

Surplus arising on revaluation of land and buildings, net of deferred tax

11

-

150

-

150

Total comprehensive income

-

150

2,979,885

2,980,035

Transactions with owners

Dividends

25

-

-

(1,013,101)

(1,013,101)

Balance at 31 December 2020

32,419,356

249,515

22,617,531

55,286,402

Comprehensive income

Profit for the year

-

-

2,645,801

2,645,801

Other comprehensive income:

Surplus arising on revaluation of land and buildings, net of deferred tax

11

-

1,006

-

1,006

Total comprehensive income

-

1,006

2,645,801

2,646,807

Transactions with owners

Dividends

25

-

-

(1,215,712)

(1,215,712)

Balance at 31 December 2021

32,419,356

250,521

24,047,620

56,717,497

As at 31 December 2021, total retained earnings of the Group amounted to €24,047,620 (2020: €22,617,531). Distributable reserves within retained earnings amounted to €2,468,544 (2020: €4,253,284), while non-distributable reserves amounted to €21,579,076 (2020: €18,364,247). 

Company

Share

Other

Retained

capital

reserves

earnings

Total

Notes

€

€

€

€

Balance 1 January 2020

32,419,356

249,365

5,223,565

37,892,286

Comprehensive income

Profit for the year

-

-

426,185

426,185

Other comprehensive income:

Surplus arising on revaluation of land

  and buildings, net of deferred tax

11

-

150

-

150

 Total comprehensive income

-

150

426,185

426,335

Transactions with owners

Dividends

25

-

-

(1,013,101)

(1,013,101)

Balance at 31 December 2020

32,419,356

249,515

4,636,649

37,305,520

Comprehensive income

Profit for the year

-

-

1,300,940

1,300,940

Other comprehensive income:

Surplus arising on revaluation of land

  and buildings, net of deferred tax

11

-

1,006

-

1,006

 Total comprehensive income

-

1,006

1,300,940

1,301,946

Transactions with owners

Dividends

25

-

-

(1,215,712)

(1,215,712)

Balance at 31 December 2021

32,419,356

250,521

4,721,877

37,391,754

As at 31 December 2021, total retained earnings of the Company amounted to €4,721,877 (2020: €4,636,649). Distributable reserves within retained earnings amounted to €2,051,409 (2020: €1,912,420), while non-distributable reserves amounted to €2,670,468 (2020: €2,724,229). 

The accompanying notes are an integral part of these financial statements.

Statements of cash flows

Year ended 31 December

Group

       Company

2021

2020

2021

2020

Notes

€

€

€

€

Cash flows from operating activities

Cash generated from/(used in) operations

23

2,020,979

2,159,992

2,725,519

(105,339)

Interest paid

(692,229)

(549,894)

(764,056)

(693,792)

Interest received

6,273

-

-

-

Tax paid

(2,003,916)

(516,067)

(406,577)

(303,618)

Net cash (used in)/generated from operating activities

(668,893)

1,094,031

1,554,886

(1,102,749)

Cash flows from investing activities

Additions to investment property

(2,600,846)

(9,831,891)

(6,730)

(6,154)

Purchase of property, plant and equipment

(3,612)

(73,920)

(3,612)

(73,920)

Proceeds from disposal of property

13,000,000

-

-

-

Investment in subsidiary

-

-

-

(10,000)

Restricted deposits

338,000

-

338,000

-

Net cash generated from/(used in)

  investing activities

10,733,542

(9,905,811)

327,658

(90,074)

Cash flows from financing activities

Bank loan drawdown

528,307

7,700,192

530,731

1,200,192

Bank loan repayments

(1,574,181)

(535,399)

(1,100,000)

(275,000)

Dividends paid

(1,215,712)

(1,013,101)

(1,215,712)

(1,013,101)

Net cash (used in)/generated from 

  financing activities

(2,261,586)

6,151,692

(1,784,981)

(87,909)

Net movement in cash and cash

  equivalents

7,803,063

(2,660,088)

97,563

(1,280,732)

Cash and cash equivalents at

  beginning of year

4,064,626

6,724,714

92,034

1,372,766

Cash and cash equivalents at

  end of year

9

11,867,689

4,064,626

189,597

92,034

Notes to the financial statements

1.       Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

1.1 Basis of preparation

The consolidated financial statements include the financial statements of Malta Properties Company p.l.c. and its subsidiaries and have been prepared in accordance with the requirements of International Financial Reporting Standards (IFRSs) as adopted by the EU and with the requirements of the Maltese Companies Act (Cap. 386).  They have been prepared under the historical cost convention as modified by the fair valuation of property, plant and equipment and investment property.

The preparation of financial statements in conformity with IFRSs as adopted by the EU requires the use of certain accounting estimates.  It also requires Directors to exercise their judgement in the process of applying the Group and Company’s accounting policies (see Note 3 - Critical accounting estimates and judgements).

The directors have concluded that at the time of approving these consolidated financial statements the Group’s business is considered to be a going concern.  

Standards, interpretations and amendments to published standards effective in 2021

In 2021, the Group and Company adopted new standards, amendments and interpretations to existing standards that are mandatory for the Group and Company’s accounting period beginning on 1 January 2021. 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 Company’s accounting policies impacting the Group and Company’s financial performance and position. 

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, that are mandatory for the Group’s and Company’s accounting periods beginning after 1 January 2021.  The Group and Company have not early adopted these revisions to the requirements of IFRSs as adopted by the EU and the Company’s Directors are of the opinion that there are no requirements that will have possible significant impact on the Group and Company’s financial statements in the period of initial application.

1.2 Consolidation

Subsidiaries

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights.  The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group.  They are de-consolidated from the date that control ceases.

The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement.  Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interests in the acquiree either at fair value or at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets.

Goodwill is initially measured as the excess of the aggregate of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net assets acquired.  If this is less than the fair value of the identifiable net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in profit or loss.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated.  Unrealised losses are also eliminated.  Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

In the Company’s separate financial statements, investments in subsidiaries are accounted for by the cost method of accounting, i.e. at cost less impairment.  Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments. Cost also includes directly attributable costs of the investment.  Provisions are recorded where, in the opinion of the Directors, there is impairment in value.  Where there has been impairment in the value of an investment, it is recognised as an expense in the period in which the diminution is identified.

The results of subsidiaries are reflected in the Company’s separate financial statements only to the extent of dividends receivable.  On disposal of an investment, the difference between the net disposal proceeds and the carrying amount is charged or credited to profit or loss.

Loans for which settlement is neither planned nor likely to occur in the foreseeable future are, in substance, an extension of the Company's investment in that subsidiary.  Loans to subsidiaries for which settlement is planned are classified as financial assets (Note 1.7).

1.3 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements 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 Group and Company’s functional and presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.  Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

1.4 Property, plant and equipment

All property, plant and equipment is initially recorded at historical cost.  Land and buildings comprise offices and are shown at fair value based on periodic valuations by external independent valuers, less subsequent depreciation for buildings.  Valuations are carried out on a regular basis 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 revaluation is eliminated against the gross carrying amount of the asset, and the net amount is restated to the revalued amount of the asset.

All other property, plant and equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Borrowing costs which are incurred for the purpose of acquiring or constructing a qualifying asset are capitalised as part of its cost.  Borrowing costs are capitalised while acquisition or construction is actively underway.  Capitalisation of borrowing costs is ceased once the asset is substantially complete, and is suspended if the development of the asset is suspended.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.

Increases in the carrying amount arising on revaluation of land and buildings are credited to other comprehensive income and shown as a revaluation reserve in shareholders’ equity.  Decreases that offset previous increases of the same individual asset are charged in other comprehensive income and debited against the revaluation reserve directly in equity; all other decreases are charged to profit or loss.  Any subsequent increases are recognised in profit or loss up to the amount previously charged to profit or loss, and then reflected in other comprehensive income and shown as a revaluation reserve.

An external, independent valuer, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued, values the Group’s property portfolio at periodical intervals. The fair values are based on market values, being the estimated amount or price that would be received to sell an asset in an orderly transaction between market participants at the measurement date.  In the absence of current prices in an active market, the valuations are prepared by considering the aggregate of the estimated cash flows expected to be received from renting out the property.  A yield that reflects the specific risk inherent in the net cash flows is then applied to the net annual cash flows to arrive at the property valuation.

 
Land is not depreciated as it is deemed to have an indefinite life. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful life. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term.

The rates of depreciation used for the current and comparative periods are as follows:

The asset’s residual values and useful lives are reviewed and adjusted if appropriate, at the end of each reporting period.  An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 1.6).

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount and are recognised in profit or loss.

  
When revalued assets are sold, the amounts included in the revaluation reserve relating to the asset are transferred to retained earnings.

1.5 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 or Company is classified as investment property.  Investment property also includes property that is being constructed or developed for future use as investment property, when such identification is made.

Investment property is measured initially at its historical cost, including related transaction costs and borrowing costs. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Borrowing costs which are incurred for the purpose of acquiring or constructing a qualifying investment property are capitalised as part of its cost. Borrowing costs are capitalised while acquisition or construction is actively underway. Capitalisation of borrowing costs is ceased once the asset is substantially complete and is suspended if the development of the asset is suspended.

After initial recognition, investment property is carried at fair value, representing open market value determined annually. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location, or condition of the specific asset. If this information is not available, the Group and Company use alternative valuation methods, such as recent prices on less active markets or discounted cash flow projections. Valuations are performed as of the end of the reporting period by professional valuers who hold recognised and relevant professional qualifications and have recent experience in the location and category of the investment property being valued. These valuations form the basis for the carrying amounts in the financial statements.

Investment property that is being redeveloped for continuing use as investment property or for which the market has become less active continues to be measured at fair value.  Fair value measurement on property under construction is only applied if the fair value is considered to be reliably measurable. The fair value of investment property reflects, among other things, 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 capitalised to the asset’s carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Group or Company and the cost of the item can be measured reliably.  All other repairs and maintenance costs are charged to profit or loss during the financial period in which they are incurred.  When part of an investment property is replaced, the carrying amount of the replaced part is derecognised.

The fair value of investment property does not reflect future capital expenditure that will improve or enhance the property and does not reflect the related future benefits from this future expenditure other than those a rational market participant would take into account when determining the value of the property.

Changes in fair values are recognised in profit or loss. Investment properties are derecognised either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal.

If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment. Its fair value at the date of the reclassification becomes its cost for the following accounting period and is subsequently shown at fair value.   When the Group or Company decides to dispose of an investment property without development, the Group or Company continues to treat the property as an investment property until it is derecognised (eliminated) from the statement of financial position and does not reclassify it as inventory.  Similarly, if the Group or Company begins to redevelop an existing investment property for continued future use as investment property, it remains an investment property during the redevelopment. If an item of owner-occupied property 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 treated in the same way as a revaluation under IAS 16. Any resulting increase in the carrying amount of the property is recognised in profit or loss to the extent that it reverses a previous impairment loss, with any remaining increase recognised in other comprehensive income directly to revaluation surplus within equity. Any resulting decrease in the carrying amount of the property is initially charged to other comprehensive income against any previously recognised revaluation surplus, with any remaining decrease charged to profit or loss.

Upon the disposal of such investment property, any surplus previously recorded in equity is transferred to retained earnings; the transfer is not made through profit or loss.

Where an investment property undergoes a change in use, evidenced by commencement of development with a view to sell, the property is transferred to inventories. A property’s deemed cost for subsequent accounting as inventories is its fair value at the date of change in use.

Investment property classified as held for sale

Investment property (or disposal groups) is classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. Investment property is measured at fair value as per above and continues to be carried as such even when the held for sale criteria are met. Investment property classified as held for sale is presented separately from the other assets on the statement of financial position.

1.6 Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment.  Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.  The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.  Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at the end of each reporting period.

1.7 Financial assets

Classification

The Group classifies its financial assets as financial assets measured at amortised cost.

The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows.  The Group classifies its financial assets as at amortised cost only if both the following criteria are met:

-   The asset is held within a business model whose objective is to collect the contractual cash flows, and

-   The contractual terms give rise to cash flows that are solely payments of principal and interest.

Assessment whether contractual cash flows are solely payments of principal and interest

For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g., liquidity risk and administrative costs), as well as a profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Group and Company consider the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition.

Recognition and measurement

Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset.

Impairment

The Group assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. The Group’s main financial assets that are subject to IFRS 9’s expected credit loss model comprise cash and cash equivalents and in the case of the Company also loans receivable and amounts owed by subsidiaries.

Expected credit loss (ECL) model

The Group measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured at 12-month ECLs:

·          debt securities that are determined to have low credit risk at the reporting date; and

·          other debt securities and bank balances for which credit risk has not increased significantly since initial recognition.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due, and it considers a financial asset to be in default when the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held); or the financial asset is more than 90 days past due.

Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months). The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls. ECLs are discounted at the effective interest rate of the financial asset.

At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data such as significant financial difficulty of the borrower or issuer, or a breach of contract.

Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.

1.8 Inventories – property held for resale

Property held for resale is stated at the lower of cost and net realisable value.  Cost is assigned by specific identification and includes the cost of acquisition and development and borrowing costs during development.  When development is completed borrowing costs and other holding charges are expensed as incurred.

1.9 Trade and other receivables

Trade receivables comprise amounts due from customers for services performed in the ordinary course of business.  If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets.  If not, they are presented as non-current assets.

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less expected credit loss allowance (Note 1.7). Details about the Group’s impairment policies and the calculation of loss allowance are provided in Note 1.7.

1.10 Cash and cash equivalents

Cash and cash equivalents are carried in the statement of financial position at face value. In the statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with banks and bank overdrafts. Bank overdrafts, if any, are shown within borrowings in current liabilities in the statement of financial position.

1.11 Share capital

Ordinary shares are classified as equity.  Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, net of tax, from the proceeds.

1.12 Financial liabilities

The Group and Company recognises a financial liability in its statement of financial position when it becomes a party to the contractual provisions of the instrument.  The Group and Company’s financial liabilities are classified as financial liabilities which are not at fair value through profit or loss (classified as ‘Other liabilities’).  Financial liabilities not at fair value through profit or loss are recognised initially at fair value, being the fair value of consideration received, net of transaction costs that are directly attributable to the acquisition or the issue of the financial liability.  These liabilities, except for derivative financial instruments, are subsequently measured at amortised cost.  The Group and Company derecognises a financial liability from its statement of financial position when the obligation specified in the contract or arrangement is discharged, is cancelled or expires.

1.13 Trade and other payables

Trade and other payables comprise obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers.  Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer).  If not, they are presented as non-current liabilities.

Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

1.14 Borrowings

Borrowings are recognised initially at the fair value of proceeds received, net of transaction costs incurred.  Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method.  Borrowings are classified as current liabilities unless the Group or Company has an unconditional right to defer settlement of the liability for at least twelve months after the end of the reporting period.

1.15 Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

1.16 Current and deferred tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

The current tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date.

Deferred tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

Under this method, the Group and Company are required to make a provision for deferred taxes on the fair valuation of certain non-current assets. Such deferred tax is charged or credited directly to profit or loss.

Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. 

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

1.17 Provisions

Provisions for legal claims are recognised when the Group or Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated.  Provisions are not recognised for future operating losses.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation.  The increase in the provision due to passage of time is recognised as interest expense.

1.18 Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue comprises rental income from the rental of immovable property in the ordinary course of the Group or Company’s activities. Revenue from investment property is recognised in profit or loss on a straight-line basis over the term of the lease and is stated net of sales tax, rebates and discounts.

Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.

The Group and Company recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for the Group and Company’s activities as described above.

1.19 Operating leases

The Group or Company is the lessor

Assets leased out under operating lease are included in investment property in the statement of financial position and are accounted for in accordance with Note 1.5. Rental income from operating lease is recognised in profit or loss in accordance with Note 1.18.

1.20 Dividend distribution

Dividend distribution to the Group or Company’s shareholders is recognised as a liability in the Group or Company’s financial statements in the period in which the dividends are approved by the Group or Company’s shareholders.

1.21 Borrowing costs

Borrowing costs which are incurred for the purpose of acquiring or constructing qualifying investment property are capitalised as part of its cost.  Borrowing costs are capitalised while acquisition or construction is actively underway, during the period of time that is required to complete and prepare the asset for its intended use.  The capitalisation of borrowing costs is ceased once the asset is substantially ready for its intended use or sale and is suspended if the development of the asset is suspended.  All other borrowing costs are expensed.  Borrowing costs are recognised for all interest-bearing instruments on an accrual basis using the effective interest method.  Interest costs include the effect of amortising any difference between initial net proceeds and redemption value in respect of interest-bearing borrowings.

2.       Financial risk management

2.1 Financial risk factors

The Group’s and Company’s activities potentially expose it to a variety of financial risks: market risk (including cash flow and fair value interest rate risk), credit risk and liquidity risk.  Malta Properties Company p.l.c.’s (MPC) overall risk management, covering risk exposures for all group entities, focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the respective company’s financial performance. MPC’s Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. Accordingly, the Board provides principles for overall Group risk management, as well as risk management policies covering risks referred to above and specific areas such as investment of excess liquidity.   The Group and Company did not make use of derivative financial instruments to hedge certain risk exposures during the current period.

The Group’s risk policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities.

(a) Market risk

Cash flow and fair value interest rate risk

The Group’s interest rate risk principally arises from bank borrowings (Note 12) issued at variable rates that are partially offset by balances held with banks (Note 9) and other financial assets subject to floating interest rates, which expose the Group to cash flow interest rate risk. Floating interest rates on these financial instruments are linked to reference rates such as Euribor or the respective banker’s base rate. Management monitors the impact of changes in market interest rates on amounts reported in profit or loss in respect of these instruments taking into consideration refinancing, renewal of existing positions, alternative financing and hedging techniques.

Management monitors the impact of changes in market interest rates on amounts reported in the statement of comprehensive income in respect of these instruments. Based on this analysis, management considers the potential impact on profit or loss of a defined interest rate shift that is reasonably possible at the end of the reporting period to be immaterial. The Group’s operating cash flows are substantially independent of changes in market interest rates.

(b) Credit risk

Credit risk arises from loans receivable, cash and cash equivalents and credit exposures to customers and group companies, including outstanding receivables and committed transactions.  The Group’s and Company’s exposures to credit risk as at the end of the reporting periods are analysed as follows: 

The maximum exposure to credit risk at the end of the reporting period in respect of the financial assets mentioned above is equivalent to their carrying amount as disclosed in the respective notes to the financial statements.  The Group does not hold any collateral as security in this respect.

The Group banks only with local financial institutions with high quality standing or rating. The Company’ s other receivables include significant amounts due from its subsidiaries (Note 7).  The Group’s finance function monitors intra-group credit exposures at individual entity level on a regular basis and ensures timely performance of these assets in the context of overall group liquidity management.

The Group assesses the credit quality of these receivables taking into account the financial position, performance and other factors.  The loss allowances for financial assets are based on assumptions about risk of default and expected loss rates. The Group and Company uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Group and Company’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period.

The tables below show the reconciliation of the Group’s and Company’s opening allowance to the closing loss allowance as at 31 December 2021:

The estimated expected credit loss on other receivables in the case of the Group and on cash and cash equivalents for the Company was immaterial. The Group presently has a small number of clients as tenants, the major tenant being GO p.l.c.. The Group assessed the respective credit risk and concluded that despite the concentration these tenants are able to honour their contractual commitments.

(c) Liquidity risk

The Group is exposed to liquidity risk in relation to meeting future obligations associated with its financial liabilities, which comprise trade and other payables (Note 14).  Prudent liquidity risk management includes maintaining sufficient cash and committed credit lines to ensure the availability of an adequate amount of funding to meet the Group’s obligations. 

Management monitors liquidity risk by reviewing expected cash flows and ensures that no additional financing facilities are expected to be required over the coming year. The Group’s and Company’s liquidity risk is not deemed material in view of the matching of cash inflows and outflows arising from expected maturities of financial instruments coupled with intra-group financing that it can access to meet liquidity needs. In addition, the Company is in the process of renegotiating the facility falling due towards the end of 2022, which should address the liquidity needs for the next twelve months.

The Group’s and Company’s trade and other payables are in the main repayable within one year from the end of the reporting period.

The table below analyses the Group’s and the Company’s borrowings into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows:

2.2 Capital risk management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.  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 Group monitors the level of capital on the basis of the ratio of aggregated debt to total equity. Aggregated debt is calculated as total borrowings (as shown in the statement of financial position).

The Group manages the relationship between equity injections and borrowings, being the constituent elements of capital as reflected above, with a view to managing the cost of capital. The level of capital, as reflected in the consolidated statement of financial position, is maintained by reference to the Group’s respective financial obligations and commitments arising from operational requirements.  In view of the nature of the Group’s activities and the extent of borrowings or debt, the capital level at the end of the reporting period determined by reference to the consolidated financial statements is deemed adequate by the Directors.

2.3 Fair values of financial instruments

Fair values of financial instruments not carried at fair value

At 31 December 2021 and 2020, the carrying amounts of cash at bank, receivables, payables, accrued expenses and short-term borrowings reflected in the financial statements are reasonable estimates of fair value in view of the nature of these instruments or the relatively short period of time between the origination of the instruments and their expected realisation.  The fair value of advances to related parties and other balances with related parties is equivalent to their carrying amount.

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 Directors, the accounting estimates and judgements made in the course of preparing these financial statements except as disclosed in Notes 4 and 5, are not difficult, subjective or complex to a degree which would warrant their description as critical in terms of the requirements of IAS 1.

4.       Property, plant and equipment

Borrowings are secured by the Group’s and Company’s property, plant and equipment (Note 12).

5.       Investment property

Investment property comprises commercial properties mainly leased out to a related party. Minimum lease payments receivable on leases of investment properties are disclosed in Note 26. Borrowings are secured by the Group’s and Company’s investment property (Note 12).

5.1     Investment property classified as held for sale

Assets classified as held for sale include a property known as the B’Kara Old Exchange owned by one of the Company’s subsidiaries. The subsidiary entered into a promise of sale agreement on 28 September 2021 and bound itself to sell and transfer the property to third parties by September 2022.  During the current financial year fair value movements on such property amounted to €1,029,000. In 2020, assets classified as held for sale included a property known as the St. George’s Exchange owned by one of the Company’s subsidiaries. The subsidiary signed the deed of sale of the property on 12 August 2021. During 2021, fair value movements on such property amounted to €1,425,000. On the date of sale of this property, the aforementioned fair value gains of €1,425,000 were realised.

The fair value of the properties together with the valuation technique is disclosed in the note below. Deferred tax considerations of sale are disclosed in Note 14.

5.2     Fair valuation of land and buildings

The Group’s investment property was revalued in December 2021 by an independent firm of property valuers having appropriate recognised professional qualifications and experience in the location and category of the property being valued.  The Directors have reviewed the carrying amounts of the properties as at 31 December 2021, on the basis of an assessment by the independent property valuers, and the carrying amounts were adjusted accordingly during the current financial year.

Valuations were made on the basis of open market value after considering the returns being attained by the property and its intrinsic value.

Most of the Group’s investment properties are covered by medium term leases which secure the Group’s income and returns for the coming years, and no difficulty in collecting rent due is foreseen. The fair value of the properties which will be vacated in the short term is not considered to be significantly different from their book value. The B’Kara Old Exchange property, which is currently on promise of sale, is expected to be sold at the contracted amount, which is higher than the book value of the 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:

The Group’s investment property comprises various exchanges and offices.  All the recurring property fair value measurements at 31 December 2021 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 year ended 31 December 2021.

A reconciliation from the opening balance to the closing balance for recurring fair value measurements categorised within Level 3 of the value hierarchy, is reflected in the table above.  The movement for the year ended 31 December 2021 reflects additions and changes in fair value.

Valuation processes

The valuations of the properties are performed annually on the basis of valuation reports prepared by independent and qualified valuers.  These reports are based on both:

The information provided to the valuers, together with the assumptions and the valuation models used by the valuers, are reviewed by the Chief Financial Officer (CFO).  This includes a review of fair value movements over the period.  When the CFO considers that the valuation report is appropriate, the valuation report is recommended to the Audit Committee of the parent Company.  The Audit Committee considers the valuation report as part of its overall responsibilities.

At the end of every reporting period, the CFO assesses whether any significant changes or developments have been experienced since the last external valuation.  This is supported by an assessment performed by the independent firm of property valuers.  The CFO reports to the Audit Committee on the outcome of this assessment.

Valuation techniques

The external valuations of the Level 3 property have been performed using a variety of methods, including the discounted cash flow method and an adjusted sales comparison method. Each property was valued using the method considered by the external valuers to be the most appropriate valuation method for that type of property.

In view of a limited number of similar or comparable properties and property transactions, comprising sales or rentals in the respective markets in which the properties are located, the valuations have been performed using unobservable inputs.

The significant inputs to the approaches used are generally those described below:

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

Fair value at

31 December

             2021

Valuation

technique

Significant

unobservable

input

Range of

unobservable inputs

             €000

 Land and buildings

Current use as office premises

39,758

Discounted cash flow method

Discount rate

5.25% - 6.5%

 Developable land for industrial/ commercial use

22,829

Discounted cash flow method

Discount rate

6.0% - 6.5%

Marketed as extended-commercial premises

6,400

Adjusted sales comparison method

 Sales price per square metre

€1,244

 Marketed as residential-commercial developments

2,370

Discounted cash flow method

Discount rate

5.25%

Investment property classified as held for sale

Marketed as residential-commercial developments

6,962

Adjusted sales

comparison method

Sales price per square metre