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 Bond” provided 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.
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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
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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 through OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
i.Financial assets at amortised cost (debt instruments)
ii.Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments)
iii.Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments)
iv.Financial assets at fair value through profit or loss
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3.7Financial instruments – continued
Subsequent measurement – continued
i.Financial assets – continued
Financial assets at amortised cost (debt instruments)
Financial assets at amortised cost (debt instruments) are the most relevant to the Company. The Company measures financial assets at amortised cost if both of the following conditions are met:
-The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and
-The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently measured using the effective interest rate (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
The Company’s debt instruments at amortised cost includes loans and receivables, trade and other receivables and cash and cash equivalents which are classified under this category.
Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments)
The Company measures debt instruments at fair value through OCI if both of the following conditions are met:
-The financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets; and
-The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and impairment losses or reversals are recognised in the statement of profit or loss and computed in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss.
The Company holds no financial assets in this category.
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31 October 2023
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3.7Financial instruments – continued
i.Financial assets – continued
Subsequent measurement – continued
Financial assets at fair value through OCI (equity instruments)
Upon initial recognition, the Company can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument by instrument basis.
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the statement of profit or loss when the right of payment has been established, except when the Company benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.
The Company holds no financial assets in this category.
Financial assets at fair value through profit or loss
Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI are measured at fair value through profit or loss (FVTPL). Specifically:
-Investments in equity instruments are classified as at FVTPL. However, a Company may designate an equity investment that is neither held for trading nor a contingent consideration arising from a business combination as at FVTOCI on initial recognition.
-Debt instruments that do not meet the amortised cost criteria or the FVTOCI criteria are classified as at FVTPL.
In addition, debt instruments that meet either the amortised cost criteria or the FVTOCI criteria may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognising the gains and losses on them on different bases.
Financial assets measured at FVTPL are subsequently measured at fair value at the end of each reporting period, with any fair value gains or losses including foreign exchange gains and losses, recognised in profit or loss.
Where applicable, dividend income is recognised with other dividend income, if any, arising on other financial assets within the line item ‘Investment income’. Where applicable, interest income is disclosed within the line item ‘Investment income’. Fair value gains and losses are recognised within the line items ‘Investment income’ and ‘Investment losses’ respectively.
The Company holds no financial assets in this category.
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3.7Financial instruments – continued
i.Financial assets – continued
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised when:
-The rights to receive cash flows from the asset have expired, or
-The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferred asset to the extent of its continuing involvement.
ii.Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Company’s financial liabilities include loans and borrowings and trade and other payables.
Subsequent measurement
For purposes of subsequent measurement, financial liabilities are classified in two categories:
-Financial liabilities at fair value through profit or loss
-Financial liabilities at amortised cost (loans and borrowings)
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3.7Financial instruments – continued
ii.Financial liabilities – continued
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in the statement of profit or loss. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied. The Company has not designated any financial liability as at fair value through profit or loss.
Financial liabilities at amortised cost (loans and borrowings)
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss.
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3.7Financial instruments – continued
iii.Impairment of financial assets
The Company assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, there is objective evidence of impairment as a result of one or more events that has occurred since the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.
Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
General approach
Under the general approach, the Company recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). The assessment of whether lifetime ECL should be recognised is based on significant increases in the likelihood or risk of a default occurring since initial recognition rather than on evidence of a financial asset being credit-impaired at the reporting date or an actual default occurring.
Lifetime ECL represents the ECLs that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.
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3.7Financial instruments – continued
iii.Impairment of financial assets - continued
General approach – continued
The 12-month ECL is calculated by multiplying the 12-month Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD). Lifetime ECL is calculated on a similar basis for the residual life of the exposure.
The Company considers a financial asset to be in default when contractual payments are 90 days past due. However, in certain cases, the Company may also consider a financial asset to be in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Company. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
For financial assets for which the Company has no reasonable expectations of recovering either the entire outstanding amount, or a proportion thereof, the gross carrying amount of the financial asset is impaired.
Simplified approach
For trade receivables and contract assets, the Company applies a simplified approach in calculating ECLs. Therefore, the Company does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Company has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
iv.Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
3.8Impairment of non-financial assets
All other assets are tested for impairment in terms of this accounting policy except for financial assets measured at fair value through profit or loss, equity instruments, inventories, deferred tax assets, and investment property measured at fair value.
At the end of each reporting period, the carrying amount of assets, including cash-generating units, is reviewed to determine whether there is any indication or objective evidence of impairment, as appropriate, and if any such indication or objective evidence exists, the recoverable amount of the asset is estimated.
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3.8Impairment of non-financial assets – continued
An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the higher of fair value (which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date) less costs of disposal and value in use (which is the present value of the future cash flows expected to be derived, discounted using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset). Where the recoverable amount is less than the carrying amount, the carrying amount of the asset is reduced to its recoverable amount, as calculated.
Impairment losses are recognised immediately in profit or loss, unless the asset is carried at a revalued amount, in which case, the impairment loss is recognised in other comprehensive income to the extent that the impairment loss does not exceed the amount in the revaluation surplus for that asset.
Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss has been recognised.
3.9Property, plant and equipment
Property, plant and equipment other than land and buildings are initially recorded at cost. They are subsequently stated at cost less accumulated depreciation and accumulated impairment losses, if any. Cost includes purchase price and any directly attributable cost of preparing the asset for its intended use.
Property, plant and equipment are derecognised on disposal or when no future economic benefits are expected from their use or disposal. Gains or losses arising from derecognition represent the difference between the net disposal proceeds, if any, and the carrying amount, and are included in profit or loss in the period of derecognition.
Depreciation is provided on all items of property, plant and equipment, except freehold land, at rates intended to write down the cost less residual value of the assets over their expected useful lives. The annual rates used, which are consistent with those applied in the previous year, are as follows:
Improvements
10% per annum
Furniture and fittings
10% per annum
Computer equipment
20% per annum
Plant and machinery
20% per annum
Gains and losses on disposal of property, plant and equipment are determined by reference to their carrying amount and are taken into consideration in determining the operating profit. The residual and useful lives of the assets are reviewed and adjusted as appropriate, at each financial reporting date. The carrying amount of an asset is written down immediately to its recoverable amount if the carrying amount of the asset is greater than its estimated recoverable amount.
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3.9Property, plant and equipment - continued
Subsequent costs are included in the carrying amount of the asset or recognized as separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company during the financial period in which they are incurred.
3.10Investment property
Investment property is property held to earn rentals or for capital appreciation or both. Investment property is recognized as an asset when it is probable that the future economic benefits that are associated with the investment property will flow to the entity and the cost can be measured reliably.
Investment properties are initially measured at cost, including transaction costs. Subsequent to initial recognition, investment property is stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in fair values of investment properties are included in profit and loss in the period in which they arise, including the corresponding tax effect. Fair values are determined by a professionally qualified architect on the basis of market values determined in accordance with International Valuations Standards and professional practice.
In the years when a valuation is not obtained, management verifies all major inputs to the independent valuation report, assesses any property valuation movements when compared to the prior year valuation report and holds discussions with the independent valuer, as necessary.
Investment properties are derecognized either when they have been disposed of (i.e. at the date the recipient obtains control) or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit and loss in the period of derecognition. The amount of consideration to be included in the gain or loss arising from the derecognition of investment property is determined in accordance with the requirements for determining the transaction price in IFRS 15.
Transfers are made to (or from) investment property only when there is a change in use. For transfer from investment property to owner-occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner-occupied property becomes an investment property, the Company accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use.
3.11Cash and cash equivalents
Cash in hand and at banks and short-term deposits repayable on demand are carried at cost.
3.12Provisions
Provisions are recognized when the Company has a present obligation as a result of a past event, and a reliable estimate can be made of the amount of the obligation. Provisions are measured at management’s best estimate of the expenditure required to settle the present obligation at the financial reporting date. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Provisions are not recognized for future operating losses.
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3.13Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity, net of any tax effects.
3.14Dividends
Dividends payable on ordinary shares are recognized in the period in which they are approved by the Board of Directors.
3.15Related parties
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. Related party accounts are carried at cost, net of any impairment charge.
4.SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
In preparing these financial statements, the Directors are required to make judgements, estimates and assumptions that affect reported income, expenses, assets, liabilities and disclosure of contingent assets and liabilities. Use of available information and application of judgement are inherent in the formation of estimates. Actual results in the future could differ from such estimates and the differences may be material to the financial statements. These estimates are reviewed on a regular basis and, if a change is needed, it is accounted for in the year the changes become known.
Except for the below, in the opinion of the Directors, the accounting estimates, assumptions and judgements made in the course of preparing these financial statements are not difficult, subjective or complex to a degree which would warrant their description as significant in terms of the requirements of IAS 1 (revised) – ‘Presentation of financial statements’.
Estimates
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are described below. Estimates underlying the Company’s use of the going concern assertion are described in note 2 to these financial statements.
Fair value of investment property
The Company uses the services of professional valuers to determine the fair value of investment property. The professional valuers take into account the 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.
The Company’s investment property is revalued by independent professional qualified valuers on a rotation basis. In the years in which an independent valuation is not obtained, management reperforms fair valuations of the property by verifying and updating all major inputs to the last independent valuation report prepared by an external independent valuer. Internal methods are therefore aligned with those used by external valuers. On a yearly basis, management assesses the property’s change in value, if any, to determine whether the change is reasonable and holds discussions with the independent valuer, as necessary.
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Estimates – continued
Fair value of investment property – continued
The highest and best use of a non-financial asset takes into account the use of the asset that is physically possible, legally permissible and financially feasible, as follows:
-A use that is physically possible, takes into account the physical characteristics of the asset that market participants would take into account when pricing the asset (e.g. the location or size of a property).
- A use that is legally permissible takes into account any legal restrictions on the use of the asset that market participants would take into account when pricing the asset (e.g. the zoning regulations applicable to a property).
-A use that is financially feasible takes into account whether a use of the asset that is physically possible and legally permissible generates adequate income or cash flows (taking into account the costs of converting the asset to that use) to produce an investment return that market participants would require from an investment in that asset put to that use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximizing the use of relevant observable inputs and minimising the use of unobservable inputs.
The significant method and assumptions used by valuers in estimating the fair value of investment property are set out in Note 12.
The Company’s investment property consists of a unique nineteenth century palazzo situated in Sliema, which was restored and converted to its current state and use back in 1997. The property is unique in both form and function in the area. Its structure is of marked importance, and the building is part of a prominent list of architectural gems forming the local wealthy list of built-up heritage.
In determining fair value, the valuer has considered the unique characteristics of the property and its historical value, assuming limited possibility of extensive intervention or additions and excluding total redevelopment. Fair value was determined using the income capitalisation approach, capitalizing commercial rental income at 7%, net of estimated costs to refurbish the property. Further detail on the significant method and assumptions used by the valuer in estimating the fair value of investment property are set out in Note 12.
30
Notes to the Financial Statements – continued
31 October 2023
4.SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS – continued
Estimates – continued
Fair value of investment property – continued
Climate-related considerations
The Company considers the effect of physical and transition climate-related risks related to its investment property measured at fair value and whether these could impact the value of the Company’s properties.
Management has evaluated potential climate-related risks that could impact the value of the Company’s land and buildings and investment properties, and these considerations have been included within the valuation process. These include possible physical risks from climate-change such as potential damage from extreme weather events, or transitional risks such as changes in property attractiveness due to shifting climate conditions and increasing requirement for energy efficiency of buildings.
Management has concluded that, based on the information currently available as factored in the cashflow forecasts, these potential climate-related risks are not expected to have a material impact on the value of the Company’s investment property.
The Company remains vigilant and committed to continuously monitoring these climate-related considerations and will adjust our land and buildings and investment property valuations as necessary to reflect any significant changes in these risks or in their potential impact on our business.
Recoverability of loans receivable
The Directors have assessed the recoverability of loans receivable by reference to the financial position and performance of the parent entity and other related parties for the reporting period, as well as the cashflow projections of AX Group p.l.c. of which the Company is a subsidiary. AX Group is the guarantor of the Company’s bond. As described further in Note 2.1 to these financial statements, management of the Group has prepared an eighteen-month forecast for the Group and the Company in order to assess the impact of the current situation on the businesses. Furthermore, management has also simulated several stress-tested scenarios to assess the AX Group’s resilience and ability to handle unforeseen challenges. With the contingency plans in place, management is confident that the AX Group will continue to have sufficient liquidity to operate in the foreseeable future. As disclosed in Note 24, management does not expect there to be adverse changes in economic and business conditions over the eighteen-month period for which the Group’s cashflow forecasts were prepared which would reduce the ability of these related parties to repay the loan receivable. Consequently, management has determined that the loans are low credit risk, and the loan receivable falls within ‘stage 1’ of IFRS 9’s impairment model and 12-month expected credit losses can be calculated. Moreover, the amount receivable from parent company is expected to be fully settled upon bond maturity in March 2024, following the bond issued by the parent company in November 2023 aimed at redeeming the Company’s existing bond (Note 26).
31
Notes to the Financial Statements – continued
31 October 2023
5.REVENUE
 
2023
2022
 
EUR
EUR
Rental income from investment property
163,360
163,360
Rental income from moveable property
75,000
75,000
 
238,360
238,360
 
Rental income 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. There are no direct operating costs associated with investment property.
6.FINANCE INCOME
2023
2022
EUR
EUR
Interest income from loans and receivables (note 13)
3,087,796
2,971,424
 
7.FINANCE COSTS
2023
2022
EUR
EUR
Interest on debt securities in issue
2,400,000
2,400,000
Amortisation of bond issue costs (note 18)
62,329
62,329
 
2,462,329
2,462,329
32
Notes to the Financial Statements – continued
31 October 2023
8.EXPENSES BY NATURE
2023
2022
EUR
EUR
Auditors’ remuneration:
For audit services
9,500
12,000
For other non-audit services
400
400
Directors’ remuneration
43,000
43,841
Depreciation charge
3,144
849
Movement in expected credit losses
(7,324)
942
Other professional fees (i)
54,284
55,846
 
103,004
113,878
(i)Other professional fees mainly relate to annual register fees and listing fees.
Staff costs
The Company did not have any employees during the year ended 31 October 2023 (2022: same).
9.INCOME TAX
2023
2022
EUR
EUR
Current tax charge
-for the year
(252,609)
(209,175)
Deferred tax expense
(3,470)
(27,230)
 
(256,079)
(236,405)
 
33
Notes to the Financial Statements – continued
31 October 2023
9.INCOME TAX – continued
The accounting profit and the tax credit for the year are reconciled as follows:
 
2023
2022
EUR
EUR
Profit before tax
760,823
908,420
Tax thereon at 35%
(266,288)
(317,947)
Tax effect of:
Rent maintenance allowance
11,435
11,435
Fair valuation of investment property at different tax rates
-
70,107
Permanent differences
(1,226)
-
Income tax expense for the year
(256,079)
(236,405)
10.EARNINGS PER SHARE
The earnings per share has been calculated on the profit for the year of EUR504,744 (2022: EUR672,015) divided by the weighted average number of ordinary shares in issue during the year.
2023
2022
Weighted average number of shares in issue
5,000,000
5,000,000
EUR
EUR
Earnings per share
0.10
0.13
34
Notes to the Financial Statements – continued
31 October 2023
11.PROPERTY, PLANT AND EQUIPMENT
 
Furniture
Computer
Plant and
Improvements
and Fittings
equipment
machinery
Total
EUR
EUR
EUR
EUR
EUR
Cost
At 1 November 2021
29,333
221,403
8,239
46,581
305,556
Additions
-
-
-
-
-
At 31 October 2022
29,333
221,403
8,239
46,581
305,556
At 1 November 2022
29,333
221,403
8,239
46,581
305,556
Additions
-
-
-
22,936
22,936
At 31 October 2023
29,333
221,403
8,239
69,517
328,492
Depreciation
At 1 November 2021
29,333
221,403
5,688
46,581
303,005
Charge for the year
-
-
849
-
849
At 31 October 2022
29,333
221,403
6,537
46,581
303,854
At 1 November 2022
29,333
221,403
6,537
46,581
303,854
Charge for the year
-
-
851
2,293
3,144
At 31 October 2023
29,333
221,403
7,388
48,874
306,998
Net book value
At 31 October 2023
-
-
851
20,643
21,494
At 31 October 2022
-
-
1,702
-
1,702
At 31 October 2023, cost of fully depreciated assets still in use amounted to EUR297,317 (2022: EUR297,317).
35
Notes to the Financial Statements – continued
31 October 2023
12.INVESTMENT PROPERTY
EUR
Fair value
At 1 November 2022
9,025,157
Movement in fair value
274,843
At 31 October 2022
9,300,000
At 1 November 2022
9,300,000
Movement in fair value
-
At 31 October 2023
9,300,000
Valuation process
The fair value of the investment property as at 31 October 2023 is based on a valuation carried out by an independent architect dated 19 December 2022 as discussed in Note 4. The architect is qualified and has experience in the category of investment property being valued. The valuation model applied, being the income capitalisation approach, is in accordance with that recommended by the International Valuation Standards Committee and is consistent with the principles in IFRS13.
In the years in which an independent valuation is not obtained, management reperforms fair valuations of the property by verifying and updating all major inputs to the last independent valuation report prepared by an external independent valuer. Internal methods are therefore aligned with those used by external valuers. On a yearly basis, management assesses the property’s change in value, if any, to determine whether the change is reasonable and holds discussions with the independent valuer, as necessary.
Changes in valuation techniques
There were no changes in the Company’s valuation processes, valuation techniques and types of inputs used in the fair value measurements during the year.
Highest and best use
Except for part of the property which management intends to refurbish and lease as office space, the current use of the investment property is considered the highest and best use.
36
Notes to the Financial Statements – continued
31 October 2023
12.INVESTMENT PROPERTY – continued
Fair value hierarchy
The Company’s property is classified as Level 3 in the fair value hierarchy. The different levels in the fair value hierarchy are defined in Note 3.6.
The Company’s policy is to recognize transfers into and out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer. There were no transfers between levels during the year.
All gains and losses for recurring fair value measurements categorised within Level 3 of the fair value hierarchy, are recorded in the statement of profit or loss and other comprehensive income. These are attributable to changes in unrealized gains or losses relating to investment property held at the end of the reporting period.
Valuation technique used to derive Level 3 fair value
For investment property categorized under Level 3 of the fair value hierarchy, the following approaches and inputs were used as described also in Note 4:
Type of property
Valuation technique
Inputs
Sensitivity
Commercial property
Income capitalisation approach
The valuation relies on estimated commercial rental rates and yearly return of the various components of the existing building capitalized at a rate of 7% (2022: Same) net of estimated costs to refurbish the property. Annual rental rate of EUR425 per sqm (2022: Same) is assumed for the Palazzo and EUR320,000 (2022: Same) for the ancillary property.
The higher the
capitalisation rate, the
lower the fair value. The
higher the rental income
and growth rate the higher
the fair value.
37
Notes to the Financial Statements – continued
31 October 2023
13.FINANCIAL ASSETS
Loans and receivables
Loan to
Loans to other
Interest receivable on
parent
related parties
loan to other related parties
Total
EUR
EUR
EUR
EUR
Cost
At 1 November 2021
30,026,697
15,047,500
-
45,074,197
Repayment of loan
(95,816)
-
-
(95,816)
Movement in interest
-
-
579,156
579,156
At 1 November 2022
29,930,881
15,047,500
579,156
45,557,537
Repayment of loan
(3,276,202)
-
-
(3,276,202)
Movement in interest, net
-
-
(108,925)
(108,925)
At 31 October 2023
26,654,679
15,047,500
470,231
42,172,410
Expected credit loss allowance
At 1 November 2021
48,043
24,076
-
72,119
Charge for the year
(154)
-
927
773
At 1 November 2022
47,889
24,076
927
72,892
Charge for the year
(5,242)
-
(175)
(5,417)
At 31 October 2023
42,647
24,076
752
67,475
Net book value
At 31 October 2023
26,612,032
15,023,424
469,479
42,104,935
At 31 October 2022
29,882,992
15,023,424
578,229
45,484,645
Current
26,612,032
-
-
26,612,032
Non-current
-
15,023,424
469,479
15,492,903
At 31 October 2023
26,612,032
15,023,424
469,479
42,104,935
Current
-
-
578,229
578,229
Non-Current
29,882,992
15,023,424
-
44,906,416
As 31 October 2022
29,882,992
15,023,424
578,229
45,484,644
Loans to parent and other related parties (note 23) are unsecured and have no fixed date of repayment but are expected to be repaid between 2024-2034 and have an annual average interest rate of between 4.85% to 6.6% (2022: 6.6%). The Company determines the expected credit loss allowance on these loans based on a probability of default of 0.16% and a loss given default of 100%. Payment of the interest due on the loan to other related parties is deferred until 2032.
Consideration of the estimation uncertainty around the recoverability of loans and receivables is described in Notes 2.1 and Note 4 to the financial statements.
38
Notes to the Financial Statements – continued
31 October 2023
14.TRADE AND OTHER RECEIVABLES
2023
2022
EUR
EUR
Current
Amounts owed by other related parties (i)
-
1,194,825
Prepayments
12,700
12,726
12,700
1,207,551
(i)Amounts owed by parent company and amounts owed by other related parties are unsecured, interest-free and have no fixed date of repayment (note 23). As at 31 October 2022, the balance is net of expected credit losses EUR2,835.
15.CASH AND CASH EQUIVALENTS
Cash and cash equivalents included in the cash flow statement comprise the following:
2023
2022
EUR
EUR
Cash at bank
55
7,025
The Company did not engaged in any significant non-cash activities during the year.
16.CALLED UP ISSUED SHARE CAPITAL
2023
2022
EUR
EUR
Authorised
5,000,000 ordinary shares of EUR1 each
5,000,000
5,000,000
Called up issued and fully paid up
5,000,000 ordinary shares of EUR1 each
5,000,000
5,000,000
Each ordinary share gives the right to one vote, participates equally in profits distributed by the Company and carries equal rights upon the distribution of assets by the Company in the event of a winding up.
39
Notes to the Financial Statements – continued
31 October 2023
17.RESERVES
Fair value reserve
The Company’s fair value reserve arises on the fair valuation of investment property. When the property is sold, the portion of the fair value reserve that relates to that asset, and is effectively realised, is transferred directly to retained earnings.
Retained earnings
The reserve represents accumulated retained profits that are available for distribution to the Company’s shareholders.
Dividend paid
In October 2023, the Company declared a net dividend of EUR5 million, equivalent to EUR1 per share, payable to the shareholders. No dividend was declared and paid during the year ended 31 October 2022.
18.DEBT SECURITIES IN ISSUE
2023
2022
EUR
EUR
At beginning of year
39,913,935
39,851,606
Bond issue costs amortisation for the year
62,329
62,329
39,976,264
39,913,935
Accrued interest
1,570,273
1,570,273
At end of year
41,546,537
41,484,208
Current
41,546,537
1,570,273
Non-current
-
39,913,935
41,546,537
41,484,208
During 2014, the Company issued an aggregate principal amount of EUR40,000,000 bonds (2014 -2024), having a nominal value of EUR100 each, bearing interest at the rate of 6% per annum. These bonds are unsecured and subject to the terms and conditions in the prospectus dated 3 February 2014. The bonds are listed on the Official Companies List of the Malta Stock Exchange. The quoted market price as at 31 October 2023 for the 6% bonds (2014 – 2024) was EUR101.25 (2022: EUR103.50). The fair value of the bonds as at 31 October 2023 amounted to EUR40,500,000 (2022: EUR41,400,000).
As at year end, the Company had a balance of EUR39,976,264 from this bond issue. The amount is made up of the bond issue of EUR40,000,000 net of the bond issue costs which are being amortised over the lifetime of the bonds. Interest on the bonds is due and payable annually in arrears on 6 March at the above-mentioned rate.
The parent company, AX Group., has provided a corporate guarantee in favor of the bondholders to affect the due and punctual performance of all payment obligations undertaken by the subsidiary under the bonds if it fails to do so.
40
Notes to the Financial Statements – continued
31 October 2023
18.DEBT SECURITIES IN ISSUE – continued
As mentioned in Note 2, 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 nominal 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 funds raised from this subscription have been specifically designated for the redemption of the EUR 40 million “6% AX Investments p.l.c. 2014 Bond” scheduled to mature on 6 March 2024. 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.
19.DEFERRED TAXATION
2023
2022
EUR
EUR
Arising on:
Fair valuation of investment property
930,000
930,000
Other temporary differences
(22,114)
(25,584)
907,886
904,416
20.TRADE AND OTHER PAYABLES
2023
2022
EUR
EUR
Current
Trade payables (i)
3,637
3,240
Indirect taxes
7,151
15,997
Accruals
23,833
26,334
Other payables (ii)
175,053
150,767
Amount due to related parties (iii)
239,334
204,698
449,008
401,036
(i)Trade payables are non-interest bearing and are generally on a 60-day credit term.
(ii)Other payables relate to interest due to bondholders which remains unclaimed.
(iii)Amounts owed to related parties are interest-free and have no fixed date of repayment (note 23).
21.CURRENT INCOME TAX PAYABLE
2023
2022
EUR
EUR
Provision for the year
31,199
211,453
41
Notes to the Financial Statements – continued
31 October 2023
22.LEASES
Company as a lessor
The operating lease relating to the investment property owned by the Company has a 10-year term. The lessee does not have the option to purchase the property at the expiry of the lease period. The income earned under the operating lease amounted to EUR238,360 (2021: EUR238,360).
At the end of the reporting period, the lessee had outstanding commitments under non-cancellable operating leases, which fall due as follows:
2023
2022
EUR
EUR
Within one year
238,360
238,360
Between two and five years
953,440
953,440
Over five years
238,360
476,720
1,430,160
1,668,520
23.RELATED PARTIES
The parent company of AX Investments p.l.c. is AX Group p.l.c., a limited liability company, which is incorporated in Malta. The individual financial statements of the Company are incorporated in the consolidated financial statements of AX Group p.l.c., the registered addresses of which is AX Group, AX Business Centre, Triq id-Difiza Civili, Mosta MST 1741, Malta. The ultimate controlling party is Mr Angelo Xuereb, who holds a controlling interest in the equity of the parent company.
All companies owned by AX Group p.l.c. are deemed to be related parties in these financial statements, and are referred to as other related parties in these financial statements.
Transactions with related parties
During the year, the Company entered into transactions with related parties, as follows:
2023
2022
EUR
EUR
Interest receivable
Parent company
2,147,332
2,030,955
Other related parties
940,464
940,469
3,087,796
2,971,424
Rent receivable
Parent company
238,360
-
Other related parties
-
238,360
Balances with related parties
Outstanding balances with related parties at year-end are disclosed in Note 13, Note 14 and Note 20 to these financial statements.
42
Notes to the Financial Statements – continued
31 October 2023
24.RISK MANAGEMENT OBJECTIVES AND POLICIES
The Company is exposed to credit risk, liquidity risk and market risk through its use of financial instruments which result from its operating and investing activities. The Company’s risk management is coordinated by the Directors and focuses on actively securing the Company’s short term to medium term cash flows by minimising the exposure to financial risks.
The most significant financial risks to which the Company is exposed to are described below.
Credit risk
The Company’s credit risk is limited to the carrying amount of financial assets recognised at the date of the Statement of Financial Position, which are disclosed in Notes 13, Note 14 and Note 15.
The Company’s loans receivable consists of advances to related parties forming part of the AX Group, which advances have been borrowed by AX Group mostly from the debt securities in issue proceeds. The loans are unsecured and have no fixed date of repayment but are expected to be repaid between 2024-2034 and have an annual average interest rate of between 4.85% to 6.6% (2022: 6.6%). 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 Bond” provided a parent company guarantee to support this commitment. On a regular basis, the Company monitors intra-group credit exposures and ensures timely performance of these assets in the context of overall group liquidity management.
On 31 October 2023, management has completed an analysis which considers both historical and forward looking qualitative and quantitative information, to determine if the loan receivables and other related party balances has low credit risk. This was concluded following an analysis prepared by management which considered that historically, the Company received the contracted cashflows from the related parties by the agreed time.
Management of AX Group has also prepared an eighteen-month cashflow forecast for the Group, considering significant events and transactions that have occurred or are expected to occur subsequent to year end and it expects that related parties to whom the Company granted loans will have sufficient cash throughout that period to meet their working capital and other obligations, including repayment of the intercompany loan. Management does not expect there to be adverse changes in economic and business conditions over the same period which would reduce the ability of these related parties to repay the loan receivable. Consequently, management has determined that the loans are low credit risk, and the loan receivable falls within ‘stage 1’ of IFRS 9’s impairment model and 12-month expected credit losses can be calculated.
Since the Group is not credit rated, management has decided to use the PD for lowest rating for an investment grade loan to assess whether a material impairment provision is required for the loan receivables and other related party transactions. Management also considered that the industries in which the related parties operate is stable and therefore the historical rates are broadly reflective of their expectations of default rates. Forward looking information is also taken into consideration by management in their analysis.
Assuming an LGD of 100% (that is, there are no collateral or other credit enhancement supporting the loan), applying this to the loans would result in an immaterial amount.
43
Notes to the Financial Statements – continued
31 October 2023
24.RISK MANAGEMENT OBJECTIVES AND POLICIES – continued
Liquidity risk
The Company’s exposure to liquidity risk arises from its obligations to meet financial liabilities, which comprise debt securities, and trade and other payables. Prudent liquidity risk management includes maintaining sufficient cash and committed credit facilities to ensure the availability of an adequate amount of funding to meet the Company’s obligations when they become due.
At 31 October 2023 and 31 October 2022, the contractual maturities on the financial liabilities of the Company were as summarized below. Contractual maturities reflect gross cash flows, which may differ from the carrying values of financial liabilities at the date of the Statement of Financial Position.
Within
1 year
Between
1-5 years
Total
EUR
EUR
EUR
At 31 October 2023
Debt securities in issue
41,840,000
-
41,840,000
Trade and other payables
209,674
-
209,674
Within
1 year
Between
1-5 years
Total
EUR
EUR
EUR
At 31 October 2022
Debt securities in issue
2,400,000
42,400,000
44,800,000
Trade and other payables
196,338
-
196,338
Foreign currency risk
Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities which are denominated in a currency that is not the entity’s functional currency. Since most of the Company’s transactions are carried out in Euro, the directors consider foreign exchange risk exposure to not be material and accordingly a sensitivity analysis disclosing how profit or loss and other comprehensive income would change as a result of a reasonable possible shift in foreign exchange rates, is not considered necessary.
Interest rate risk
The Company’s exposure to interest rate risk is limited to the variable interest rates on borrowings. Based on observations of current market conditions, the Directors consider an upward or downward movement in interest of 1% to 2% to be reasonably possible. However, the potential impact of such a movement is considered immaterial.
44
Notes to the Financial Statements – continued
31 October 2023
25.CAPITAL MANAGEMENT POLICIES AND PROCEDURES
The Company’s capital management objectives are to ensure its ability to continue as a going concern and to provide an adequate return to shareholders by pricing commensurately with the level of risk and maintaining an optimal capital structure to reduce the cost of capital. The Company monitors the level of debt, which includes debt securities, trade and other payables and other financial liabilities less cash and cash equivalents, against total capital on an ongoing basis.
26.SUBSEQUENT EVENTS
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. 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.
Ernst & Young Malta Limited
Regional Business Centre
Achille Ferris Street
Msida MSD 1751, Malta
Tel: +356 2134 2134
Fax: +356 2133 0280
ey.malta@mt.ey.com
ey.com
45
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Investments p.l.c.
Report on the audit of the financial statements
Opinion
We have audited the financial statements of AX Investments p.I.c. (the “Company”), set on pages 10 to 44, which comprise the statement of financial position as at 31 October 2023, and the statement of profit or loss and other comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and notes to the financial statements, including material accounting policy information.
In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Company as at 31 October 2023, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU (“IFRS”) and the Companies Act, Cap. 386 of the Laws of Malta (the “Companies Act”).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs) and the Companies Act. Our responsibilities under those standards and under the Companies Act are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) as issued by the International Ethics Standards Board of Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in accordance with the Accountancy Profession (Code of Ethics for Warrant Holders) Directive issued in terms of the Accountancy Profession Act, Cap. 281 of the Laws of Malta, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
46
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Investments p.l.c.
Report on the audit of the financial statements
Key audit matters incorporating the most significant risks of material misstatements, including assessed risk of material misstatements due to fraud.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.
Going concern
As required by International Financial Reporting Standards and as disclosed in the Statement of Directors’ Responsibilities, the Directors are required to adopt the going concern basis in the preparation of the financial statements, unless it is inappropriate to presume that the Company will continue in business in the foreseeable future.
As disclosed in Note 2.1 to the financial statements, the Company is reliant on AX Group p.l.c. and its subsidiaries (“AX Group") to fulfil its financial obligations, including the payment of interest due on the bond as well as the repayment of the bond upon maturity on 6 March 2024. In this regard, AX Group p.l.c. has in terms of the offering memorandum of the “6% AX Investments p.l.c. 2024 Bond” (“the bond”), provided a parent company guarantee to support this commitment.
Management of AX Group, has prepared a 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 and has concluded that as a result of the strength of the AX Group’s financial position, the AX Group will be able to sustain its operations over the foreseeable future in a manner that is cash flow positive. AX Group p.l.c. also confirmed that it will not require the Company to pay any amounts due to it before the cashflow of the Company permits.
In preparing the AX Group’s cashflow forecast, management has taken into consideration the November 2023 issue of, 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” issued by the Company, maturing on 6 March 2024. The bond was fully subscribed of which, 70.97% of the total bond value was subscribed by the existing AX Investments p.l.c. bondholders in exchange of their current holdings. The rest of the bond was subscribed by other preferred applicants, included employees and directors of the AX Group, and holders of other securities issued by AX Group. The newly issued bond was admitted to the official list of the Malta Stock Exchange on 7 November 2023.
At the time of approving these financial statements, the Directors have determined that there is a reasonable expectation that the Group and the Company will be able to 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.
47
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Investments p.l.c.
Report on the audit of the financial statements
Key audit matters incorporating the most significant risks of material misstatements, including assessed risk of material misstatements due to fraud – continued
Going concern - continued
The AX Group’s liquidity forecast underlying the going concern assessment is subject to significant estimation and therefore represents a key audit matter.
Our audit procedures included evaluating the Directors’ going concern assessment in order to assess whether there are events and conditions that exist that create material uncertainty that may cast significant doubt of the Group’s and the Company’s ability to continue as a going concern.
In obtaining sufficient, appropriate audit evidence we:
•Obtained the Group’s cash flow forecast for the period subsequent to the reporting date up until April 2025 and discussed these with management. We also tested the arithmetical accuracy of the forecast.
•Evaluated the Directors’ ability to accurately forecast by comparing actual to historical information. As part of our procedures on events after the reporting period, obtained an understanding of the precision of management’s forecast and considered any potential management bias included in such projections.
•Assessed for reasonableness of the main inputs and assumptions used in the projections, such as operational cash flows, inflows from sales of property, capital expenditure, debt financing and other funding availability against our understanding of the business and industry developments, historical data and any other available information.
•Performed an analysis of the capital expenditure forecasted by the Group to be incurred on its ongoing development projects and the availability of funding to finance such expenditure.
•Performed an independent sensitivity analysis, stress-testing key inputs, assumptions and contingency plan to assess whether the liquidity headroom calculations are reasonable.
•Obtained corroborative evidence from management which confirms that the proceeds from the EUR 40 million “5.85% AX Group p.l.c. 2023 Unsecured Bond” aimed to redeem the EUR 40 million “6% AX Investments p.l.c. 2014 Bond” scheduled to mature on 6 March 2024 has been designated accordingly. The evidence obtained comprehensively details the transaction and affirms the amount of capital raised through the new bond issue.
We also assessed the relevance and adequacy of disclosures relating to going concern presented in Note 2.1 and Note 26 to the accompanying financial statements.
48
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Investments p.l.c.
Report on the audit of the financial statements
Key audit matters incorporating the most significant risks of material misstatements, including assessed risk of material misstatements due to fraud – continued
Recoverability of loans and receivables
Loans and receivables from parent and related parties, as disclosed in note 13, represent 82% of the Company’s total assets as of 31 October 2023. Loans and receivables which are classified as financial assets at amortised cost as described in note 3.7, are measured using the effective interest method and are subject to impairment. The Company recognises an allowance for expected credit losses based on the cash flows that the Company expects to receive. The recoverability assessment of loans and receivables considers the financial position and performance of the parent and related party borrowers for the reporting period, as well as the cash flow projections of AX Groupof which the Company is a subsidiary. Apart from being the guarantor of the Company’s bond, 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.
Due to the significance of the balances of loans and receivables from parent and related parties, and the dependency of the Company on the performance and recoverability of such loans and receivables to meet its ongoing obligations, we have considered the recoverability of loans and receivables as a key audit matter.
Our audit procedures over the recoverability of the loans and receivables from parent and related parties included amongst others:
−inspecting the loan and receivable agreements, agreeing terms and conditions with parent and related parties, and analysing whether the performance of the loans and receivables is in line with the relevant agreements;
−confirming the outstanding balances with parent and related parties; and
−evaluating the Company’s assessment of the recoverability of loans and receivables by analysing the cash flow projections for the AX Group and transactions subsequent to reporting date, including proceeds from the EUR 40 million “5.85% AX Group p.l.c. 2023 Unsecured Bond” aimed to redeem the EUR 40 million “6% AX Investments p.l.c. 2014 Bond” scheduled to mature on 6 March 2024 as disclosed in Note 26, as well as the financial position and performance of the parent and respective related party borrowers for the reporting period. The analysis of the financial position and performance of the parent and related party borrowers was also a key procedure to assess any significant increase in credit risk.
We have also assessed the relevance and adequacy of disclosures relating to loans and receivables from parent and related parties presented in notes 3.7, 4 and 13 to the financial statements.
49
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Investments p.l.c.
Report on the audit of the financial statements
Key audit matters incorporating the most significant risks of material misstatements, including assessed risk of material misstatements due to fraud – continued
Valuation of investment property
The Company’s investment property, which is being further described in notes 3.10, 4 and 12 in the financial statements, accounts for 18% of total assets as at 31 October 2023.
The investment property is fair valued by a professionally qualified architect on the basis of an assessment in accordance with international valuations standards (IVS) and best practice. The last valuation obtained, on the basis of which fair value as at 31 October 2023 was recognised, was dated December 2022.
The Company’s investment property is revalued by an independent professional qualified valuer on a rotation basis. In the years in which an independent valuation is not obtained, management reperforms fair valuation of the property by verifying and updating all major inputs to the last independent valuation report prepared by the external independent valuer. Internal methods are therefore aligned with those used by the external valuer. On a yearly basis, management assesses the property’s change in value, if any, to determine whether the change is reasonable and holds discussions with the independent valuer, as necessary.
The valuation of the investment property at fair value is highly dependent on estimates and assumptions such as the estimated rental income and capitalisation rate, under the income capitalisation approach. Therefore, due to the significance of the balance and estimation uncertainty involved in the fair valuation of investment property, we have considered the valuation of investment property as a key audit matter.
Our audit procedures over the valuation of investment property included amongst others:
−evaluating the design and implementation of key controls over the Company’s investment property valuation process by inquiring with the valuation process owners;
−performing enquiries on management’s reviews over the investment property valuation and inspecting minutes of meetings of the board and audit committee where such valuation was discussed;
−obtaining an understanding of the scope of work of the professional valuer by reviewing the available valuation report and considered the independence and expertise thereof;
−obtaining an understanding of the process followed by management in the years where an independent valuation is not obtained and an update is performed internally;
−including a valuation specialist on our team to assist us in assessing the appropriateness of the valuation approach applied, as well as evaluating the reasonability and validity of key assumptions and estimates used in the valuation by comparing to independent sources and real estate market data and conditions; and
−performing procedures over the accuracy and completeness of the inputs used in the valuations in the light of our understanding of the business and industry developments, historical data and other available information.
We also assessed the relevance and adequacy of disclosures relating to the Company’s valuation of investment property presented in notes 3.10, 4 and 12 to the financial statements.
50
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Investments p.l.c.
Report on the audit of the financial statements
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon other than our reporting on other legal and regulatory requirements.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors and those charged with governance for the financial statements
The directors are responsible for the preparation and fair presentation of the financial statements in accordance with IFRS and the requirements of the Companies Act and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
51
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Investments p.l.c.
Report on the audit of the financial statements
Auditor’s responsibilities for the audit of the financial statements - continued
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
•identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
•obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control;
•evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors;
•conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern;
•evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation;
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
52
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Investments p.l.c.
Report on other legal and regulatory requirements
Matters on which we are required to report by the Companies Act
Directors’ report
We are required to express an opinion as to whether the directors’ report has been prepared in accordance with the applicable legal requirements. In our opinion the directors’ report has been prepared in accordance with the Companies Act.
In addition, in the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we are required to report if we have identified material misstatements in the Directors’ report. We have nothing to report in this regard.
Other requirements
We also have responsibilities under the Companies Act to report if in our opinion:
proper accounting records have not been kept;
•the financial statements are not in agreement with the accounting records;
•we have not received all the information and explanations we require for our audit.
We have nothing to report to you in respect of these responsibilities.
Appointment
We were appointed as the statutory auditor by the General Meeting of Shareholders of the Company on 28 October 2020. The total uninterrupted engagement period as statutory auditor, including previous renewals and reappointments amounts to 4 years.
Consistency with the additional report to the audit committee
Our audit opinion on the financial statements expressed herein is consistent with the additional report to the audit committee of the Company, which was issued on the same date as this report.
Non-audit services
No prohibited non-audit services referred to in Article 18A(1) of the Accountancy Profession Act, Cap. 281 of the Laws of Malta were provided by us to the Company and we remain independent of the Company as described in the Basis for opinion section of our report.
No other services besides statutory audit services and services disclosed in the annual report and in the financial statements, were provided by us to the Company and its controlled undertakings.
53
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Investments p.l.c.
Report on other legal and regulatory requirements
Report on compliance with the requirements of the European Single Electronic Format Regulatory Technical Standard (the “ESEF RTS”), by reference to Capital Markets Rule 5.55.6
We have undertaken a reasonable assurance engagement in accordance with the requirements of Directive 6 issued by the Accountancy Board in terms of the Accountancy Profession Act (Cap. 281) - the Accountancy Profession (European Single Electronic Format) Assurance Directive (“the ESEF Directive 6”) on the annual financial report of the Company for the year ended 31 October 2023, entirely prepared in a single electronic reporting format.
Responsibilities of the directors
The directors are responsible for the preparation of the annual financial report, including the financial statements, by reference to Capital Markets Rule 5.56A, in accordance with the requirements of the ESEF RTS.
Our responsibilities
Our responsibility is to obtain reasonable assurance about whether the annual financial report, including the financial statements, comply in all material respects with the ESEF RTS based on the evidence we have obtained. We conducted our reasonable assurance engagement in accordance with the requirements of ESEF Directive 6.
Our procedures included:
• Obtaining an understanding of the entity's financial reporting process, including the preparation of the annual financial report in XHTML format.
• Examining whether the annual financial report has been prepared in XHTML format.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion
In our opinion, the annual financial report for the year ended 31 October 2023 has been prepared in XHTML format in all material respects.
54
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Investments p.l.c.
Report on other legal and regulatory requirements
Matters on which we are required to report by the Capital Markets Rules
Corporate governance statement
The Capital Markets Rules issued by the Malta Financial Services Authority (“MFSA”) require the directors to prepare and include in their annual report a statement of compliance providing an explanation of the extent to which they have adopted the Code of Principles of Good Corporate Governance and the effective measures that they have taken to ensure compliance throughout the accounting period with those Principles.
The Capital Markets Rules also require the auditor to include a report on the statement of compliance prepared by the directors. We are also required to express an opinion as to whether, in the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have identified material misstatements with respect to the information referred to in Capital Markets Rules 5.97.4 and 5.97.5.
We read the statement of compliance and consider the implication for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements included in the annual report. Our responsibilities do not extend to considering whether this statement is consistent with the other information included in the annual report.
We are not required to, and we do not, consider whether the Board’s statements on internal control included in the statement of compliance cover all risks and controls, or form an opinion on the effectiveness of the Company’s governance procedures or its risk and control procedures.
In our opinion:
•the corporate governance statement set out on pages 6 to 9 has been properly prepared in accordance with the requirements of the Capital Markets Rules issued by the MFSA
•in the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit the information referred to in Capital Markets Rules 5.97.4 and 5.97.5 are free from material misstatement.
Other requirements
Under the Capital Markets Rules we also have the responsibility to review the statement made by the Directors, set out on page 3, that the business is a going concern, together with supporting assumptions or qualifications as necessary.
We have nothing to report to you in respect of these responsibilities.
The partner in charge of the audit resulting in this independent auditor’s report is
Christopher Balzan for and on behalf of
Ernst & Young Malta Limited
Certified Public Accountants
21 February 2024