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        Registration number C 92104
                                                                                                                                                                   
AX REAL ESTATE P.L.C.
Annual Report and Consolidated and Separate
Financial Statements
For the year-ended 31 October 2023
 
AX REAL ESTATE P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2023
Contents
Page
Directors, Officers and Other Information
1
Directors’ Report
2 – 6
Statement of Directors’ Responsibilities
7
Corporate Governance – Statement of Compliance
8 – 11
Remuneration Report
12 – 13
Statements of Profit or Loss and Other Comprehensive Income
14
Statements of Financial Position
15
Statements of Changes in Equity
16 – 17
Statements of Cash Flows
18
Notes to the Financial Statements
19 – 56
Independent Auditor’s Report
57 – 65
AX REAL ESTATE P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2023
1
Directors, Officers and Other Information
Registration:
AX Real Estate p.l.c. was registered in Malta as a Limited Liability Company under the Companies Act, Cap. 386 of the Laws of Malta on 6 June 2019, with the registration number C 92104.
Directors:
Mr Angelo Xuereb
Ms Denise Xuereb
Mr Michael Warrington
Dr Christian Farrugia
Mr Joseph Lupi
Mr Christopher Paris
Mr Stephen Paris
Secretary:
Dr David Wain
Registered office:
AX Group
AX Business Centre
Triq id-Difiza Civili
Mosta, MST 1741
Malta
Country of incorporation:
Malta
Company registration number:
C 92104
Auditors:
Ernst & Young Malta Limited
Regional Business Centre
Achille Ferris Centre
Msida, MSD 1751
Malta
Principal bankers:
Bank of Valletta p.l.c.
Labour Avenue
Naxxar
Malta
Legal adviser:
Dr David Wain
AX Group
AX Business Centre
Triq id-Difiza Civili
Mosta, MST 1741
Malta
AX REAL ESTATE P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2023
2
AX REAL ESTATE P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2023
3
Directors’ Report – continued
Performance review – continued
Upon the opening of the AX ODYCY hotel and lido, the Group commenced receiving rental income from the AX Group in accordance with the lease agreement. This explains the significant increase in rental income over the prior year.
During 2023, the Group was focused on finishing the AX ODYCY hotel extension and its lido redevelopment as well as the development of the Verdala project in Rabat. Construction of the Verdala hotel is progressing steadily and it is expected that the hotel will open by end of 2024.
In January 2023, Suncrest Hotels p.l.c., a subsidiary of the Company, obtained a sanction letter from a local financial institution for a loan facility amounting to EUR30,500,000 which has been provided to enable the Group to further support its costs related to the extension of the AX ODYCY hotel. This loan facility is repayable over 15 years from the date of the first drawdown, inclusive of a 12-month moratorium period.
Other operating costs for the year amounted to EUR994,070 (2022: EUR1,191,066). The prior year balance included a sum of EUR472,659 representing the cost of property sold. Staff costs, inclusive of directors’ remuneration, stood at EUR286,131 (2022: EUR286,239).
The Group recognised a decrease in the fair value of its investment properties of EUR1,817,549 (2022: increase in the fair value of EUR2,787,449).
During 2023, the Group registered an operating profit of EUR8,779,199 (2022: EUR10,335,715).
Finance costs totalled EUR5,219,009 (2022: EUR3,288,902), encompassing interest on debt securities in issue, bank borrowings, and interest payable on loans from related parties. The escalation in finance costs is attributed to the inclusion of the first full year of interest on the issued bond and interest on the new bank loan mentioned above.
Profit before tax in 2023 amounted to EUR4,578,298 (2022: EUR7,061,725).
As at year-end, the Group’s net assets stood at EUR135,585,611 (2022: EUR142,032,510). The Group’s balance sheet remains sound with a gearing ratio of 50.6% (2022: 43.6%).
As at date of reporting, all properties owned by the Group are fully taken up and leased for periods between 6 months to 20 years. In addition, the positive recovery experienced in the tourism industry augurs well for the Group in achieving the budgeted rental income from its hotels in the forthcoming year. Despite the positive trajectory projected, Directors and management are cautiously monitoring the situation to ensure a sustainable growth as well as a healthy performance.
Financial key performance Indicators
GroupCompany
*The Group measures Adjusted Earnings before Interest, Tax, Depreciation and Amortisation (“Adjusted EBITDA”) and reconciles to the operating profit after adjusting for gain/(loss) on revaluation of investment properties. This key performance indicator is not defined by International Financial Reporting Standards but can be directly calculated with reference to the Statement of Profit or Loss.
Year ended
Year ended
Year ended
Year ended
2023
2022
2023
2022
EUR
EUR
EUR
EUR
Revenue
11,754,326
8,909,902
9,193,771
11,386,724
Adjusted EBITDA*
10,596,748
7,548,266
8,545,687
10,694,148
Operating profit
8,779,199
10,335,715
8,593,442
11,728,109
Profit after tax
411,514
3,597,510
5,057,151
7,083,365
Basic earnings per share
0.00
0.01
Total equity and liabilities
308,142,064
286,863,726
181,130,574
178,364,864
AX REAL ESTATE P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2023
4
Directors’ Report – continued
Going concern
Having made an appropriate assessment of going concern as discussed in Note 2.1 to these financial statements, the Directors, at the time of approving these financial statements, have determined that there is reasonable expectation that the Company and the Group have adequate resources to continue operating for the foreseeable future and will meet their financial obligations as and when they fall due. For this reason, these financial statements have been prepared on a going concern basis.
Principal risks and uncertainties
The Group, including the Company, is exposed to risks inherent to its operation and can be summarized as follows:
1.Strategy risk
Risk management falls under the responsibility of the Board of Directors. The Board is continuously analysing its risk management strategy to ensure that risk is adequately identified and managed. The Audit Committee regularly reviews the risk profile adopted by the Board of Directors.
2.Operational risks
The Group’s revenue is mainly derived from rental income charged to related parties, and hence the Estates Group is heavily dependent on the performance of the AX Group. The Board regularly reviews the financial performance of the AX Group of companies to ensure that there is sufficient liquidity to sustain its operations.
3. Legislative risks
The Company is governed by a number of laws and regulations. Failure to comply could have financial and reputational implications and could materially affect the Company’s ability to operate. The Company has embedded operating policies and procedures to ensure compliance with existing legislation.
Financial risk management and exposures
Note 31 to the financial statements provides a detailed analysis of the financial risk to which the Company is exposed.
Dividends and reserves
Net interim dividends of EUR0.025 per ordinary share equivalent to a total of EUR6,858,413 were declared during the year. The Directors do not recommend payment of a final dividend.
As per the Registration Document dated 6 December 2021, it is the Group’s intention to pay out the majority of the Group’s distributable profits earned during the year, provided that a minimum balance of EUR1 million in cash is retained within the Group at any given time. The interim dividends referred to above were paid in January and July 2023 in line with the indication given in the above-mentioned registration document. The extent of any dividend distribution will depend upon, amongst other factors, the profit for the year, the Directors’ view on the prevailing market outlook, financial projections and forecasts, any debt servicing and repayment requirements, financial covenants and other restrictions contained in its facilities and other credit arrangements, the cash flows for the Company, working capital requirements, capital investment commitments and other investment opportunities and the requirements of the Companies Act, Cap. 386 of the Laws of Malta.
Events after the reporting period
In January 2024, the Company declared a gross interim dividend amounting to EUR4,060,183, in line with the indication given in the above-mentioned registration document.
AX REAL ESTATE P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2023
5
Directors’ Report – continued
AX REAL ESTATE P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2023
6
Directors’ Report – continued
Information pursuant to Capital Markets Rule 5.64 – continued
It is hereby declared that, as at 31 October 2023, the Company is not party to any significant agreement pursuant to Capital Markets Rule 5.64.10 and 5.64.11.
Furthermore, the Board declares that the information required under Capital Markets Rules 5.64.5 and 5.64.7 are not applicable to the Company.
Statement of responsibility pursuant to the Capital Markets Rules of the Malta Financial Services Authority
The Directors confirm that, to the best of their knowledge:
The financial statements give a true and fair view of the financial position of the Group and the Company as at 31 October 2023, and of the financial performance and the cash flows for the year then ended in accordance with the requirements of the International Financial Reporting Standards (IFRSs) as adopted by the EU and the requirements of the Companies Act, Cap. 386 of the Laws of Malta; and
In accordance with the Capital Markets Rules, the Directors' Report includes a fair review of the development and performance of the business and the position of the Group and the Company, together with a description of the principal risks and uncertainties that the Group and the Company face.
Auditors
Ernst & Young Malta Limited have expressed their willingness to continue in office and a resolution for their re-appointment will be proposed at the Annual General Meeting.
AX REAL ESTATE P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2023
7
Statement of Directors’ Responsibilities
The Directors are required by the Companies Act (Chap. 386) to prepare financial statements in accordance with International Financial Reporting Standards as adopted by the EU which give a true and fair view of the state of affairs of the Company at the end of each financial year and of the profit or loss of the Company for the year then ended. In preparing the financial statements, the Directors should:
-adopt the going concern basis unless it is inappropriate to presume that the Company will continue in business;
-select suitable accounting policies and apply them consistently;
-make judgements and estimates that are reasonable and prudent;
-account for income and charges relating to the accounting period on the accruals basis;
-value separately the components of asset and liability items; and
-report comparative figures corresponding to those of the preceding accounting period.
The Directors are responsible for ensuring that proper accounting records are kept which disclose with reasonable accuracy at any time the financial position of the Company and which enable the Directors to ensure that the financial statements comply with the Companies Act (Chap. 386). This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. The Directors are also responsible for safeguarding the assets of the Company, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
AX REAL ESTATE P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2023
8
Corporate Governance – Statement of Compliance
Pursuant to Capital Markets Rule 5.97 issued by the Malta Financial Services Authority, AX Real Estate p.l.c. (“the Company”) is hereby reporting on the extent of its adoption of “the Code of Principles of Good Corporate Governance” (“the Code”) previously established by the Malta Stock Exchange. The Board has reviewed its Corporate Governance practices and an explanation of how the Principles of Good Governance have been applied is contained in this report.
The Company acts as the holding company of the Estates Group within the AX Group of Companies. The Company holds a number of warehouses and office buildings which it rents out. Its primary function is the funding of the Group as and when the demands of its business so require, and accordingly is economically dependent on the subsidiaries.
Compliance
Although the adoption of the Code is not mandatory, the Board has considered the principles embodied in the Code and has noted the Code’s recommended practices aimed towards the fulfilment of these same principles. The Board has also taken into account the nature of the Company’s structure, business activities and operations and in the light of such considerations it has formulated the view that the Company was generally in compliance with the Code throughout the year.
The Board
The Board of Directors of AX Real Estate p.l.c. (“the Board”) is currently made up of seven Directors, three of whom are independent from the Company or any related Group Company. Pursuant to generally accepted practices, as well as the Company’s Articles of Association, the appointment of Directors to the Board is reserved exclusively to the Company’s shareholders.
The present Directors are Mr Angelo Xuereb, Ms Denise Xuereb, Mr Michael Warrington, Dr Christian Farrugia, Mr Joseph Lupi, Mr Christopher Paris and Mr Stephen Paris. Messrs Farrugia, Lupi and S. Paris are independent non-executive directors. In the opinion of the Board, the independent non-executive directors are free from any significant business, family or other relationship with the Group, its shareholders or its management that would create a conflict of interest such as to impair their judgement.
Mr Angelo Xuereb has been appointed as Chairman of the Board and Ms Denise Xuereb as the Chief Executive Officer of the Company.
The Board acknowledges its statutory mandate to conduct the administration and management of the Company. The Board’s functions are governed by Chapter 5 of the Capital Markets Rules and the Code of Corporate Governance for Listed entities.
The Board is also responsible for ensuring that the Company installs and operates effective internal control and management information systems and that it communicates effectively with the market.
The Board met eight times during the year under review. The Board has a formal schedule of matters reserved to it for decision. Directors receive board and committee papers 10 days in advance of meetings and have access to the advice and services of the Company Secretary. Directors may, in the furtherance of their duties, take independent professional advice on any matter at the Company’s expense.
The Company, due to its continuous oversight and communication with its shareholders, has not established a performance evaluation committee chaired by a non-executive Director in order to carry out a performance evaluation of its role.
Mr Angelo Xuereb indirectly, through AX Group p.l.c., holds a controlling interest in the Company. Mr Michael Warrington holds the position of Group Chief Executive Officer with the majority shareholder AX Group p.l.c., whereas Ms Denise Xuereb holds directorship positions within other entities in the AX Group. Mr Christopher Paris holds a non-executive directorship position with AX Group p.l.c.
The Company’s management ensures that it provides Directors with relevant information to enable them to effectively contribute to Board decisions. All Directors have access to independent financial advice at the expense of the Company should they require.
AX REAL ESTATE P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2023
9
Corporate Governance – Statement of Compliance – continued
Audit Committee
The Committee is chaired by Mr Stephen Paris, and its other members are Dr Christian Farrugia and Mr Christopher Paris. As described above, all three Directors forming the audit committee are non-executive Directors and the majority of its members are independent from the Company or the AX Group of Companies. Mr Stephen Paris is considered by the Board to be competent in accounting and, or auditing in terms of the Capital Markets Rules.
The Company Secretary acts as secretary to the committee which also receives the assistance of the Group Chief Executive Officer; Ms Denise Xuereb, and the Chief Financial Officer; Mr Joseph Borg. The Audit Committee met six times during the year under review.
Remuneration and Nomination Committee
The Remuneration and Nomination Committee (the “RemNom Committee”) is composed of Dr Christian Farrugia (Chairperson), Mr Michael Warrington and Mr Joseph Lupi. Dr Farrugia and Mr Lupi are independent non-executive Directors.
In its function as remuneration committee, the RemNom Committee is charged with the oversight of the remuneration policies implemented by the Group with respect to its senior management. Its objectives are those of determining a remuneration policy aimed to attract, retain and motivate directors, whether executive or non-executive, as well as senior management with the right qualities and skills for the benefit of the Company. It is responsible for making proposals to the Board on the individual remuneration packages of directors and senior management and is entrusted with monitoring the level and structure of remuneration of the non-executive directors. In addition, the RemNom Committee is responsible for reviewing the performance-based remuneration incentives that may be adopted by the Company from time to time, and is authorised to determine whether a performance-based bonus or other incentive should be paid out or otherwise.
AX REAL ESTATE P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2023
10
Corporate Governance – Statement of Compliance – continued
Internal Control
The Board is ultimately responsible for the Company’s system of internal control and for reviewing its effectiveness. However, such a system is designed to manage rather than eliminate the risk of failure to achieve objectives, and can provide only reasonable, and not absolute, assurance against material misstatement or loss.
A policy is in place, laying down the minimum required reports that should be made available to the Board in order to keep it informed in a structured and systematic manner on the operational and financial performance of the Company.
Risk Identification
Management is responsible for the identification and evaluation of key risks applicable to their areas of business. Risks may be associated with a variety of internal or external sources including control breakdowns, disruption in information systems, competition, natural catastrophe and regulatory requirements. The Board is responsible to review its risk management policies and strategies and oversee their implementation to ensure that identified operational risks are properly assessed and managed.
Relations with Shareholders and with the Market, including Institutional Shareholders
The Company recognises the importance of maintaining a dialogue with its stakeholders to ensure that its strategies and performance are understood. The Company communicates with bondholders and shareholders by way of the Annual Report and Financial Statements and by publishing its results on a six-monthly basis during the year, and through company announcements to the market in general.
The Board has also implemented an Investor Relations Program, which aims at giving Bond and Equity holders rewards to be used within the AX Group to foster loyalty. This program, which is managed by AX Group p.l.c. executives, includes the issue of the AX Investors Loyalty Card and the periodic dissemination of the AX Group Newsletter.
The Board endeavours to protect and enhance the interests of both the Company and its shareholders, present and future. The Chairman ensures that the views of shareholders are communicated to the Board as a whole. The Board ensures fair and equal treatment towards holders of each class of capital and ensures that any decisions take into account the interests of future shareholders as well.
The Company also communicates with its shareholders through the Company’s Annual General Meeting (“the AGM”).