Registration Number C 27586
AX INVESTMENTS P.L.C.
Annual Report and Financial Statements
For the year ended 31 October 2023
Contents
Page
Directors, Officers and Other Information
1
Directors' Report
2 – 4
Statement of Directors' Responsibilities
5
Corporate Governance - Statement of Compliance
6 – 9
Statement of Profit or Loss and Other Comprehensive Income
10
Statement of Financial Position
11
Statement of Changes in Equity
12
Statement of Cash Flows
13
Notes to the Financial Statements
14 – 44
Independent Auditor’s Report
45 – 54
AX Investments p.l.c.
1
Directors, Officers and Other Information
Directors:Mr Angelo Xuereb - Chairman
Dr Patrick J. Galea
Chev Philip A. Ransley
Mr Michael Warrington
Mr Josef Formosa Gauci
Secretary:Dr Ian Vella Galea
Registered office:AX Group
AX Business Centre
Triq id-Difiza Civili
Mosta MST 1741
Malta
Country of incorporation:Malta
Company registration
number:C 27586
Auditors:Ernst & Young Malta Limited
Certified Public Accountants
Regional Business Centre
Achille Ferris Street
Msida MSD 1751
Malta
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 Investments p.l.c.
2
Directors’ Report
Year ended 31 October 2023
Principal activities
The Company was formed principally to act as a finance and investment company, in particular the financing or re-financing of the funding requirements of related companies within the AX Group p.l.c. Group of Companies (“AX Group”).
Performance review
The Company’s rental income is derived from the lease of Palazzo Capua in Sliema. Revenue remained stable in line with previous year results. Administrative expenses were slightly lower than the previous year by EUR10,874.
The fair value of the investment property as at 31 October 2023 is based on a valuation carried out on 19 December 2022 by an independent architect. The operating profit during the year under review amounted to EUR135,356 (2022: EUR399,325).
Interest income from related parties increased by EUR116,372 from EUR2,971,424 in 2022 to EUR3,087,796 in 2023. On the other hand, finance costs remained constant at EUR2,462,329 in line with previous year.
During the year under review, the Company registered a net profit before taxation of EUR760,823 (2022: EUR908,420).
The Company incurred a tax expense of EUR256,079 (2022: EUR236,405). Profit for the year amounted to EUR504,744 (2022: EUR672,015).
The resulting earnings per share for the year under review amounted to EUR0.10 per share (2022: EUR0.13 per share). This ratio reflects the profit attributable to ordinary shareholders divided by the average number of shares in issue during the year.
In October 2023, the Company declared and paid an interim net dividend of EUR5 million payable to the shareholders.
Total equity decreased by EUR4,495,256 from EUR12,999,810 in 2022 to EUR8,504,554 in 2023, reflecting the dividend issued net of the profit for the year.
AX Investments p.l.c.
3
Directors’ Report – continued
Year ended 31 October 2023
Financial Key Performance Indicators
2023
2022
2021
EUR
EUR
EUR
Revenue
238,360
238,360
238,360
Operating profit
135,356
399,325
127,774
Net finance income
625,467
509,095
315,286
Net profit after tax
504,744
672,015
3,795,283
Earnings per share
0.10
0.13
0.76
Total equity and liabilities
51,439,184
56,000,923
55,129,076
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 has adequate resources to continue operating for the foreseeable future. For this reason, these financial statements have been prepared on a going concern basis which assumes that the Company will continue in operational existence for the foreseeable future and will meet its financial obligations as and when they fall due.
Principal risks and uncertainties
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 Company’s revenue is mainly derived from interest charges and rental income charged to related parties and hence the Company is heavily dependent on the performance of the AX Group. The Company 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.
AX Investments p.l.c.
4
Directors’ Report – continued
Year ended 31 October 2023
Financial risk management and exposures
Note 24 to the financial statements provides a detailed analysis of the financial risks to which the Company is exposed.
Dividend and reserves
The Directors do not recommend the payment of a final dividend and propose to transfer the profit for the year to reserves.
Directors
The Directors, who served throughout the year, were:
Dr Patrick J. Galea
Chev Philip A. Ransley
Mr Michael Warrington
Mr Angelo Xuereb
Mr Josef Formosa Gauci
In accordance with the Company’s articles of association, the present Directors remain in office.
Subsequent events
In November 2023, AX Group issued a EUR 40 million “5.85% AX Group p.l.c. 2023 Unsecured Bond” maturing in 2033, aimed to redeem the EUR 40 million “6% AX Investments p.l.c. 2014 Bond” scheduled to mature on 6 March 2024. The newly issued bond attracted significant interest from investors, resulting in high demand that led to an early closure of the offer period. Existing AX Investments p.l.c. bondholders were given priority to subscribe to the new bond issue by exchanging their current holdings. The total value of exchanged AX Investments p.l.c. bonds reached EUR 28,386,300, representing a 70.97% of the total AX Investments p.l.c. bond. The rest of the bond issue was subscribed by other preferred applicants, which included employees and directors of the AX Group and holders of other securities previously issued by AX Group and AX Real Estate p.l.c., a related company. The newly issued bond was admitted to the Official List of the Malta Stock Exchange on 7 November 2023. As at this date, the Company paid interest amounting to EUR1,043,512 to bondholders who elected to subscribe to the “5.85% AX Group p.l.c. 2023 Unsecured Bond” issued by AX Group and also exchanged their holdings accordingly.
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.
Signed on behalf of the Board of Directors on 21 February 2024 by Mr Angelo Xuereb and Mr Michael Warrington as per the Directors’ Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Financial Report 2023.
AX Investments p.l.c.
5
Statement of Directors’ Responsibilities
Year ended 31 October 2023
The Directors are required by the Companies Act (Chap. 386 of the Laws of Malta) 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 of the Laws of Malta). 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 Investments p.l.c.
6
Corporate Governance – Statement of Compliance
Year ended 31 October 2023
Pursuant to Capital Markets Rule 5.97 issued by the Malta Financial Services Authority, AX Investments 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 a finance company to the AX Group p.l.c. Group of Companies and as such has minimal operations emanating from this task. Its primary function is the lending and monitoring of the proceeds of the bonds issued to the public in 2014 by the Company and guaranteed by the parent company; AX Group p.l.c.
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 period, with the following exception:
The Board does not consider it necessary to institute separate committees such as the remuneration and the nomination committees.
Board of Directors
The Board of Directors of AX Investments p.l.c. (the Board) is currently made up of five 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, Dr Patrick J. Galea LL.D., Chev Philip A. Ransley, Mr Josef Formosa Gauci and Mr Michael Warrington. Messrs Galea, Ransley and Formosa Gauci are independent non-executive directors.
In the opinion of the Board, the independent non-executive directors are free from significant business, family or other relationship with the Company or AX Group of companies, 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.
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 Market Rule 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 five 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.
AX Investments p.l.c.
7
Corporate Governance – Statement of Compliance – continued
Year ended 31 October 2023
Audit committee
The Audit Committee held four meetings during the year under review, besides having ongoing consultations with the Board of Directors, in the fulfilment of its task of monitoring and reviewing procedures and internal control systems.
The Committee is chaired by Chev. Philip A. Ransley, and its other members are Dr Patrick J. Galea LL.D. and Mr Josef Formosa Gauci. Mr Josef Formosa Gauci is considered by the Board to be competent in accounting and auditing in terms of the Capital Market Rules. As described above, all three Directors forming the audit committee are non-executive Directors and are independent from the Company or the AX Group of Companies.
The Company Secretary acts as secretary to the committee which also receives the assistance of the Group Chief Executive Officer; Mr Michael Warrington, and the Group Chief Financial Officer; Mr Albert Bonello.
Dealings by Directors and Senior Officers
Conscious of its responsibility for monitoring dealings by Directors and senior officers in the Company’s securities, the Board approved a Code of Conduct for Securities Transactions by Directors, Executives and Employees in compliance with Capital Market Rules 5.102 to 5.116. The code provides guidance to the Company’s officers and serves as a minimum standard of good practice when dealing in the Company’s securities.
During the year under review, there were no transactions in the Company’s securities involving Directors or any of the Company’s employees in possession of unpublished price-sensitive information.
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.
The Audit Committee continued to review the Company’s system of internal controls which are monitored by the Group’s Finance Department. The main internal controls comprise of the following:
-Regularly monitoring group business operations to ensure that the set objectives and targets are achieved
-Identify, evaluate and effectively manage significant risks satisfactorily
-Ensure compliance with company policy
-Comply with all statutory obligations
AX Investments p.l.c.
8
Corporate Governance – Statement of Compliance – continued
Year ended 31 October 2023
Internal control – continued
The Board and the Audit Committee are satisfied with the effectiveness of the Company’s system of internal controls.
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.
General meetings
A general meeting is conducted in conformity with the Memorandum and Articles of Association and is called by giving at least fourteen days’ notice in writing to all members. The ordinary business conducted at the general meeting consists of the declaration of dividend, the consideration of the annual financial statements, the election of Directors, the appointment of external auditors and the determination of the remuneration of Directors and the external auditors. All shareholders, auditors and Directors have the right to attend and participate at general meetings. Voting rights are exclusively reserved to the ordinary shareholders. Preference shareholders are entitled to vote if a dividend in their favour is outstanding for more than 6 months. At the time of writing the share capital consisted only of ordinary shares. Every member is entitled to appoint a person to act as proxy. The proxy holder shall enjoy the same rights to speak, vote and ask questions at the general meeting as those the member represented would be entitled to.
Institutional shareholders
The Company is privately held and has no institutional shareholders.
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 reviews its risk management policies and strategies and oversees their implementation to ensure that identified operational risks are properly assessed and managed.
Directors’ remuneration
The Board determines the remuneration of the Directors. The Directors’ annual remuneration for the financial year under review, as previously approved by the Board, was as follows:
EUR
Mr Angelo Xuereb
25,000
Dr Patrick J. Galea
*5,000
Chev. Philip A. Ransley
*5,000
Mr Michael Warrington
3,000
Mr Josef Formosa Gauci
*5,000
*includes the audit committee fee
AX Investments p.l.c.
9
Corporate Governance – Statement of Compliance – continued
Year ended 31 October 2023
Directors’ remuneration – continued
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 corporate shareholder; AX Group p.l.c.
Commitment to maintain an informed market
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 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 Bondholders rewards to be used within the 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.
Corporate social responsibility
The Company is conscious of its responsibility towards the society in which it operates. It promotes environmentally friendly measures such as the reduction in the Company’s carbon footprint as well as encourages its employees to lead a healthy and active lifestyle.
Furthermore, the AX Foundation, which is the charitable arm of the Group, is devoted to supporting people living with invisible disabilities, with its primary focus being on the autism spectrum. AX Foundation was originally founded in 2006 to provide support to people who are going through social, mental, or physical difficulties. Along the years AX Foundation has supported numerous other NGOs.
The information as provided above is a fair summary of the AX Investments p.l.c. adoption of the Code of Good Corporate Governance. Overall, the Company has broadly implemented the Code where the Board believes that it would add value to the stakeholders. In certain areas, it was felt that the Code was more suited to companies who held equity on the Malta Stock Exchange and therefore its implementation would not be useful for a limited operating company like AX Investments p.l.c.
The Board will continue to monitor the Code in future years and will decide on an annual basis if the position stated above will apply.
Signed on behalf of the Board of Directors on 21 February 2024 by Mr Angelo Xuereb and Mr Michael Warrington as per the Directors’ Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Financial Report 2023.
AX Investments p.l.c.
10
Statement of Profit or Loss and Other Comprehensive Income
As at 31 October 2023
2023
2022
Note
EUR
EUR
Revenue
5
238,360
238,360
Administrative expenses
8
(103,004)
(113,878)
Gain on revaluation of investment property
12
-
274,843
Operating profit
135,356
399,325
Finance income
6
3,087,796
2,971,424
Finance costs
7
(2,462,329)
(2,462,329)
Profit before taxation
760,823
908,420
Income tax
9
(256,079)
(236,405)
Profit for the year
504,744
672,015
Other comprehensive income for the year
-
-
Total comprehensive income for the year
504,744
672,015
Earnings per share
10
0.10
0.13
The notes on pages 14 to 44 form an integral part of these financial statements.
AX Investments p.l.c.
11
Statement of Financial Position
As at 31 October 2023
2023
2022
Note
EUR
EUR
ASSETS
Non-current assets
Property, plant and equipment
11
21,494
1,702
Investment property
12
9,300,000
9,300,000
Loans and receivables
13
15,492,903
44,906,416
Total non-current assets
24,814,397
54,208,118
Current assets
Loans and receivables
13
26,612,032
578,229
Trade and other receivables
14
12,700
1,207,551
Cash and cash equivalents
15
55
7,025
Total current assets
26,624,787
1,792,805
Total assets
51,439,184
56,000,923
EQUITY AND LIABILITIES
Capital and reserves
Called up issued share capital
16
5,000,000
5,000,000
Retained earnings
17
2,409,115
6,904,371
Fair value reserve
17
1,095,439
1,095,439
Total equity
8,504,554
12,999,810
Non-current liabilities
Debt securities in issue
18
-
39,913,935
Deferred taxation
19
907,886
904,416
Total non-current liabilities
907,886
40,818,351
Current liabilities
Trade and other payables
20
449,008
401,036
Debt securities in issue
18
41,546,537
1,570,273
Current tax liability
21
31,199
211,453
Total current liabilities
42,026,744
2,182,762
Total liabilities
42,934,630
43,001,113
Total equity and liabilities
51,439,184
56,000,923
The notes on pages 14 to 44 form an integral part of these financial statements.
The financial statements on pages 10 to 44 have been authorized for issue by the Board of Directors on 21 February 2024 and were signed on its behalf by Mr Angelo Xuereb and Mr Michael Warrington as per Directors’ Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report 2023.
AX Investments p.l.c.
12
Statement of Changes in Equity
As at 31 October 2023
Called up
issued share
Retained
Fair value
capital
earnings
reserve
Total
EUR
EUR
EUR
EUR
At 1 November 2021
5,000,000
6,479,715
848,080
12,327,795
Profit for the year
-
672,015
-
672,015
Total comprehensive income
-
672,015
-
672,015
Fair value movement of
investment property, net of tax
-
(247,359)
247,359
-
At 31 October 2022
5,000,000
6,904,371
1,095,439
12,999,810
At 1 November 2022
5,000,000
6,904,371
1,095,439
12,999,810
Profit for the year
-
504,744
-
504,744
Total comprehensive income
-
504,744
-
504,744
Dividend paid (Note 17)
-
(5,000,000)
-
(5,000,000)
At 31 October 2023
5,000,000
2,409,115
1,095,439
8,504,554
The notes on pages 14 to 44 form an integral part of these financial statements.
AX Investments p.l.c.
13
Statement of Cash Flows
For the year ended 31 October 2023
2023
2022
Note
EUR
EUR
Cash flows from operating activities
Profit before taxation
760,823
908,420
Adjustments for:
Movement in allowance of credit losses
8
(7,324)
942
Depreciation
8
3,144
849
Gain on revaluation of investment property
12
-
(274,843)
Bond issue costs amortisation for the year
7
62,329
62,329
Interest expense
7
2,400,000
2,400,000
Interest income
6
(3,087,796)
(2,971,424)
Operating profit before working
capital movements
131,176
126,273
Movement in trade and other payables
(174,292)
(98,902)
Movement in trade and other receivables
(418,115)
(688,072)
Cash flows used in operations
(461,231)
(660,701)
Interest paid
(2,400,000)
(2,400,000)
Interest received
3,087,796
2,971,424
Taxation paid
(210,599)
-
Net cash used in operating activities
15,966
(89,277)
Cash flows (used in)/from investing activities
Acquisition of property, plant and equipment
11
(22,936)
-
Proceeds from loans to related parties
-
95,815
Net cash (used in)/from investing activities
(22,936)
95,815
Net movement in cash and cash equivalents
(6,970)
6,538
Cash and cash equivalents
at 1 November 2022
7,025
487
Cash and cash equivalents
at 31 October 2023
15
55
7,025
The Company engaged in the following significant non-cash financing activities during the year:
2023
2022
Note
EUR
EUR
Non-cash financing activities
Dividend paid to parent
17
5,000,000
-
The notes on pages 14 to 44 form an integral part of these financial statements.
AX Investments p.l.c.
14
Notes to the Financial Statements
31 October 2023
1.GENERAL INFORMATION
AX Investments p.l.c. (“the Company”) is a limited liability company incorporated in Malta. Its registered office is provided on page 1. The Company’s principal activity, which is unchanged since last year, is that of financing or re-financing of the funding requirements of related companies.
2.BASIS OF PREPARATION
The financial statements have been prepared 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.
The financial statements have been prepared on a historical cost basis, except for investment property which is stated at fair value.
The preparation of financial statements in conformity with IFRSs as adopted by the EU requires the use of certain accounting estimates. It also requires the Directors to exercise their judgement in the process of applying the Company’s accounting policies. Significant accounting policies are disclosed in Note 3 and accounting estimates are disclosed in Note 4.
These financial statements are presented in Euro (EUR) which is the Company’s functional currency. The accounting policies set out below have been applied consistently to all periods presented in these financial statements.
2.1Going concern
During the year ended 31 October 2023, the Company recorded a profit before tax of EUR760,823 (2022: EUR908,420) and as at reporting date, its current liabilities exceeded its current assets by EUR15,401,957 (2022: EUR389,957).
AX Investments p.l.c. is a finance entity within AX Group p.l.c. (“AX Group” or “the Group”). The Company has raised finance through a bond issued on the Malta Stock Exchange. The proceeds received therefrom were advanced to subsidiaries of the AX Group in order to finance projects and developments. As such the Company is reliant on AX Group and its subsidiaries for the payment of interest due on the bond, as well as the repayment of the bond at maturity. In this regard, as disclosed in note 18 to these financial statements, AX Group p.l.c. has in terms of the offering memorandum of the 6% AX Investments p.l.c. 2024 Bondprovided a parent company guarantee to support this commitment.
In November 2023, AX Group p.l.c. issued a EUR 40 million “5.85% AX Group p.l.c. 2023 Unsecured Bond” maturing in 2033, aimed to redeem the EUR 40 million “6% AX Investments p.l.c. 2014 Bond” scheduled to mature on 6 March 2024. The newly issued bond attracted significant interest from investors, resulting in high demand that led to an early closure of the offer period. Existing AX Investments p.l.c. bondholders were given priority to subscribe to the new bond issue by exchanging their current holdings. The total value of exchanged AX Investments p.l.c. bonds reached EUR 28,386,300, representing a 70.97% of the total AX Investments p.l.c. bond. The rest of the bond issue was subscribed by other preferred applicants, which included employees and directors of the AX Group and holders of other securities previously issued by AX Group p.l.c. and AX Real Estate p.l.c., a related company. The newly issued bond was admitted to the Official List of the Malta Stock Exchange on 7 November 2023. As at this date, the Company paid interest amounting to EUR1,043,512 to bondholders who elected to subscribe to the “5.85% AX Group p.l.c. 2023 Unsecured Bond” issued by AX Group p.l.c. and also exchanged their holdings accordingly.
AX Investments p.l.c.
15
Notes to the Financial Statements – continued
31 October 2023
2.BASIS OF PREPARATION – continued
2.1Going concern- continued
Management of AX Group has prepared an eighteen-month cashflow forecast for the Group and the Company, considering significant events and transactions that have occurred or are expected to occur subsequent to year end. Management has concluded that as a result of the strength of the Group’s financial position, the Group will be able to sustain its operations over the foreseeable future in a manner that is cash flow positive. AX Group also confirmed that it will not require the Company to pay any amounts due to it before the cashflow of the Company permits.
Accordingly, based on information available at the time of approving these financial statements, the Directors have reasonable expectation that the Company will meet all its obligations as and when they fall due over the foreseeable future and therefore, that the going concern basis adopted for the preparation of these financial statements is appropriate.
AX Group’s business update
The AX Group is primarily engaged in four main business sectors namely, Care, Construction, Hospitality, Real Estate and Development and is also involved in renewable energy.
The Hospitality division has seen a significant rebound in business compared to last year. Tourism has regained its momentum and in recent months, the industry has surpassed pre-covid levels of activity. The AX Group's hotels have performed exceptionally well, with Sliema and Valletta surpassing their projected performance. The AX Odycy hotel in Qawra had a soft opening in late May. During the summer, the hotel operated at a reduced capacity as work on certain areas of the hotel and lido were still in progress. Despite these challenges, the hotel managed to exceed the budgeted rooms revenue in late summer.
The Healthcare division registered an increase in revenue of 10.9% compared to last year. The independent apartments at Hilltop Gardens were fully occupied throughout the year, reflecting the sustained demand for our healthcare offerings.
The Construction division was largely occupied with the two main internal developments, the extension and refurbishment of the Odycy Hotel in Qawra and the redevelopment of the Verdala site in Rabat.
Works on the Verdala project in Rabat are progressing steadily. As at the end of October 2023, finishing works on the residential blocks was underway whilst construction of the hotel is progressing steadily. By June 2023, a show apartment and a sales office were set up to visibly showcase prospective customers the luxury and level of detail of this exclusive development. The project was officially launched on the market at the end of June.
As at 31 October 2023, the AX Group maintains a healthy financial stance with a gearing ratio of 46.3%.
AX Investments p.l.c.
16
Notes to the Financial Statements – continued
31 October 2023
3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied in the financial statements presented, unless otherwise stated.
3.1Standards, interpretations and amendments to published standards endorsed by the European Union effective in the current year
The accounting policies adopted are consistent with those of the previous financial year, except for the following amendments to IFRS effective during the year:
-Amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets; and Annual Improvements 2018-2020 (All issued 14 May 2020) (effective for financial year beginning on or after 1 January 2022)
These amendments and interpretations do not have an impact on the financial statements of the Company. The Company has not early adopted any standard, interpretations or amendments that have been issued but are not yet effective.
3.2Standards, interpretations and amendments to published standards as adopted by the EU which are not yet effective
Up to date of approval of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but which are not yet effective for the current reporting year and which the Company has not early adopted but plans to adopt upon their effective date. The new and amended standards follow:
-Amendments to IFRS 17 Insurance Contracts: Initial Application of IFRS 17 and IFRS 9 Comparative Information (issued on 9 December 2021) (effective for financial year beginning on or after 1 January 2023)
-Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction (issued on 7 May 2021) (effective for financial year beginning on or after 1 January 2023)
-Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies (issued on 12 February 2021) (effective for financial year beginning on or after 1 January 2023)
-Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates (issued on 12 February 2021) (effective for financial year beginning on or after 1 January 2023)
-IFRS 17 Insurance Contracts (issued on 18 May 2017); including Amendments to IFRS 17 (issued on 25 June 2020) (effective for financial year beginning on or after 1 January 2023)
-Amendments to IAS 12 Income Taxes: International Tax Reform Pillar Two Model Rules (issued on 23 May 2023) (effective for financial year beginning on or after 1 January 2023)
-Amendments to IFRS 16 Leases: Lease Liability in a Sale and Leaseback (issued on 22 September 2022) (effective for financial year beginning on or after 1 January 2024)
-Amendments to IAS 1 Presentation of Financial Statements:
oClassification of Liabilities as Current or Non-current (issued on 23 January 2020)
oClassification of Liabilities as Current or Non-current - Deferral of Effective Date (issued on 15 July 2020); and
oNon-current Liabilities with Covenants (issued on 31 October 2022)
(effective for financial year beginning on or after 1 January 2024)
Apart from the below, the changes resulting from the above standards, interpretations and amendments are not expected to have a material effect on the financial statements of the Group.
AX Investments p.l.c.
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3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
3.2Standards, interpretations and amendments to published standards as adopted by the EU which are not yet effective – continued
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting Policies
The amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements provide guidance and examples to help entities apply materiality judgements to accounting policy disclosures. The amendments aim to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their ‘significant’ accounting policies with a requirement to disclose their ‘material’ accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting disclosures. The amendments are expected to have an impact on the Group’s disclosures of accounting policies, but not on the measurement, recognition or presentation of any items in the Group’s financial statements.
3.3Standards, interpretations and amendments that are not yet endorsed by the European Union
These are as follows:
-Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures: Supplier Finance Arrangements (issued on 25 May 2023)
-Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates: Lack of Exchangeability (issued on 15 August 2023)
The Company is still assessing the impact that these new standards will have on the financial statements.
3.4Leases
The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Company as lessor
Leases in which the Company does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss and other comprehensive income due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income.
3.5Taxation
i.Current income tax
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted at the reporting date in the country where the Company operates and generates taxable income.
Current income tax is charged or credited to profit or loss. Current income tax relating to items realized directly in equity is realized in equity and not in the statement of profit or loss. Management
AX Investments p.l.c.
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3.5Taxation – continued
i.Current income tax - continued
periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
The charge for current tax is based on the taxable result for the period. The taxable result for the period differs from the result as reported in profit or loss because it excludes items which are non-assessable or disallowed and it further excludes items that are taxable or deductible in other periods.
ii.Deferred income tax
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit.
Deferred tax is measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates that have been enacted or substantively enacted by the reporting date.
Deferred tax liabilities are realized for all taxable temporary differences and deferred tax assets are realized to the extent that it is probable that taxable profits will be available against which the deductible temporary differences can be realized.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred tax assets and liabilities are offset when the Company has a legally enforceable right to settle its current tax assets and liabilities on a net basis.
3.6Fair value measurement
The Company measures non-financial assets such as investment properties, at fair value at each balance sheet date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
-In the principal market for the asset or liability, or
-In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
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3.6Fair value measurement – continued
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
-Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities
-Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
-Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
3.7Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
i.Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Company’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient, the Company initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs.
In order for a financial asset to be classified and measured at amortised cost or fair value t