DOLMEN PROPERTIES p.l.c. Annual Report and Consolidated Financial Statements 31 December Company Registration Number: C31688

Transcription

1 Annual Report and Consolidated Financial Statements 31 December 2009 Registration Number: C31688

2 Pages Directors report 1-3 Corporate governance - Statement of compliance 4-7 Independent auditor s report 8-9 Statements of financial position Statements of comprehensive income 12 Statements of changes in equity Statements of cash flows 15 Notes to the financial statements 16-47

3 Directors report The directors present their report and the audited consolidated financial statements for the year ended 31 December Principal activity The s principal activity is the operation of the Dolmen Resort Hotel in Bugibba, Malta, and the renting out of parts of the said property to a fellow subsidiary within the Tumas and to third parties. Review of the business As already indicated in the half-yearly report, the financial performance of the Dolmen for 2009 was heavily influenced by the difficulties facing the Maltese tourism industry arising from the global economic recession. This contrasts sharply with the result for 2008, which was one of the best ever years for local tourism and the Dolmen Properties which operates the Dolmen Resort Hotel and its amenities. During 2009 the hotel experienced decreases in occupancy levels and average room rates, resulting in a turnover of 9.93million against 11.22million for This represents a decrease of 1.28million or 11.45% over the previous year. Direct costs as a percentage of turnover are 6.88% higher than 2008 due to the impact of declining average room rates, leading to a gross profit of 2.72million (2008: 3.84million) equivalent to 27.37% of revenue (2008: 34.25%). Administrative costs are 90,216 less than last year, mainly due to a cost curtailment exercise taken in hand during the year under review. These measures were however partly offset by higher advertising and sales promotion costs. Operating profit amounted to 1.84million, a decrease of 1.04million over This of course is all relative, as compared to the performance of other hotels within the same category. The Dolmen Resort faired better both on occupancy and room rates. The overall performance is marginally above that which the had itself projected, hence the steady build-up of funds which would eventually go to secure the Bond Redemption Fund. Finance costs increased to 779,297, a hike of 7.80% over the previous year as a result of a new loan taken up in 2008 to undertake the refurbishing program. This led to a profit before tax of 1.22million, a drop of 1.11million over The s equity base reached an all-time high of million and working capital of 7.57million, demonstrating a consistent positive performance. Borrowings as a percentage of total assets stood at 25.32% against 23.89% at the end of Interest cash cover at the end of 2009 improved to against that of 9.56 as at the end

4 Directors report - continued Outlook for the financial year ending 31 December 2009 The expectations for 2010 are cautiously optimistic, in line with the forecast of a gradual economic recovery. On the strength of marginal higher occupancy levels and room rates, the performance for the first quarter of 2010 has been slightly better than that of This is encouraging considering that the hotel had to shoulder the burden of substantially higher electricity rates as from January The Board of Directors is focused on enhancing existing business relationships and reassessing the market to identify new opportunities. Moreover, the Board is confident that the 3.5 million refurbishment project, will place the Dolmen Resort Hotel in a favourable position to take advantage of the eventual economic turnaround to maintain its position as a major player in the Maltese hospitality industry, offering a quality product to a wider market segment. Results and dividends The statements of comprehensive income is set out on page 12. The directors recommend the payment of a final dividend of 82,000 (2008: Nil). Directors The directors of the who held office during the year were: George Fenech - Chairman Lino Spiteri Raymond Fenech Raymond Sladden Michael Grech The s Articles of Association do not require any director to retire. Directors statement of responsibilities in relation to the financial statements The directors are required by the Maltese Companies Act, 1995 to prepare financial statements which give a true and fair view of the state of affairs of the group and the company as at the end of each reporting period and of the profit or loss for that period. In preparing the financial statements, the directors are responsible for: ensuring that the financial statements have been drawn up in accordance with International Financial Reporting Standards as adopted by the EU; selecting and applying appropriate accounting policies; making accounting estimates that are reasonable in the circumstances; ensuring that the financial statements are prepared on the going concern basis unless it is inappropriate to presume that the group and company will continue in business as a going concern. The directors are also responsible for designing, implementing and maintaining internal control relevant to the preparation and the fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error, and that comply with the Maltese Companies Act, They are also responsible for safeguarding the assets of the group and the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 2

5 Directors report - continued Directors statement of responsibilities in relation to the financial statements - continued The financial statements of Dolmen Properties p.l.c. for the year ended 31 December 2009 are included in the Annual Report 2009, which is made available on the group s website. The directors are responsible for the maintenance and integrity of the Annual Report on the website in view of their responsibility for the controls over, and the security of, the website. Access to information published on the group s website is available in other countries and jurisdictions, where legislation governing the preparation and dissemination of financial statements may differ from requirements or practice in Malta. The directors confirm that, to the best of their knowledge: the financial statements give a true and fair view of the financial position of the group and company as at 31 December 2009, and of the financial performance and the cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU; and the Annual Report includes a fair review of the development and performance of the business and the position of the group and the company, together with a description of the principal risks and uncertainties that the group and company face. Going concern basis After making enquiries, the directors, at the time of approving the financial statements, have determined that there is reasonable expectation that the group and the company have adequate resources to continue operating for the foreseeable future. For this reason, the directors have adopted the going concern basis in preparing the financial statements. Auditors PricewaterhouseCoopers have indicated their willingness to continue in office and a resolution for their reappointment will be proposed at the Annual General Meeting. On behalf of the Board George Fenech Chairman Lino Spiteri Director Registered office: Tumas Corporate Office Level 3 Portomaso Business Tower Portomaso St. Julians Malta Telephone (+356) Ray Sladden secretary 21 April

6 Corporate governance - Statement of compliance Introduction This statement is being made by Dolmen Properties p.l.c. (a fully owned subsidiary of Tumas Limited - the group ) pursuant to Listing Rules 8.36 and 8.37 issued by the Malta Financial Services Authority and affirms the extent to which the company has adopted the Code of Principles of Good Corporate Governance (the Principles ) referred to in the said Rules as well as the measures taken to ensure compliance therewith. The company holds title to the land and buildings that constitute the Dolmen Resort Hotel and its amenities and surrounding grounds in Bugibba, Malta. The company is also the principal shareholder of Dolmen Complex Limited ( DCL ), the operator of the hotel. DCL s principal activity is the operation of the Dolmen Resort Hotel, and the renting out of parts of the said property to a fellow subsidiary within the Tumas and third parties. The company therefore exercises full control over and is the beneficial owner of all the profit and net cash flow streams arising from the operation of the hotel, in part by way of rental payments and in part through dividends and other transfers. In deciding on the most appropriate manner in which to implement the Principles, the Board of Dolmen Properties p.l.c. (the Board ) has taken cognisance of its size, which inevitably impacts on the structures required to implement the Principles without diluting the effectiveness thereof. The company does not have any employees. Roles and responsibilities The Board acknowledges its statutory mandate to conduct the administration and management of the company. The Board, in fulfilling this mandate and discharging its duty of stewardship of the company, assumes responsibility for: the company s strategy and decisions with respect to the proper administration of its investments, and the servicing and redemption of its bonds; reviewing and approving of the hotel management operation business plan and targets and implementation of such plans presented to it by DCL; identifying the principal business risks of the company and of DCL and overseeing the implementation and monitoring of appropriate risk management systems; ensuring that the operations of DCL are in conformity with the company s commitments towards bondholders, shareholders and all relevant laws and regulations; ensuring that the DCL installs and operates effective internal control and management information systems; assessing the performance of the DCL s senior officers, including monitoring the establishment of appropriate systems of succession planning and for approving the compensation levels of such officers; ensuring that DCL has a policy in place to enable it to communicate effectively with the market. 4

7 Corporate governance - Statement of compliance - continued Roles and responsibilities - continued The Board delegates authority and vests accountability for DCL s day to day operational business to DCL which has its own management structure and accounting systems and internal controls, and is governed by its own board, whose members are Mr George Fenech, Mr Raymond Fenech and Mr Emanuel Fenech. The hotel management team is led by the hotel general manager, Mr Alex Pace and is supported by group officers designated to the different functional roles within the hotel operations. Matters related to the bond issue and the market are delegated to Mr Raymond Sladden who is supported by a separate team of group officers. Board of Directors The company has five directors who are appointed by its ultimate principal shareholder, Tumas Limited. Each director receives an annual remuneration of 1,396. Three of the directors, Mr George Fenech, Mr Raymond Fenech and Mr Raymond Sladden, occupy senior executive positions within the Tumas of Companies. The two other directors, Mr Lino Spiteri and Dr Michael Grech, serve on the Board of the and of another fellow subsidiary, in a non-executive capacity. The exercise of the role of the Board The activities of the Board are exercised in a manner designed to ensure that it can function independently of management and effectively supervise the operations of DCL and protect the interests of bondholders and shareholders. Meetings of the Board, chaired by Mr George Fenech, are held as frequently as considered necessary. Individual directors, apart from attendance at formal Board meetings, participate in other informal meetings during the year as may be required, either to assure good corporate governance, or to contribute more effectively to the decision making process. The Board members are notified of forthcoming meetings by the Secretary with the issue of an agenda and supporting documents as necessary which were then discussed during the board meetings held during Apart from setting the strategy and direction of the company and DCL, the Board retains direct responsibility for approving and monitoring: direct supervision, supported by expert professional advice as appropriate, on the issue and listing of bonds; that the proceeds of the bonds are applied for the purposes for which they were sanctioned as specified in the offering memorandum dated 28 October 2003; proper utilisation of the resources of the company and DCL, and financing opportunities, through budgets and annual plans for the hotel operations and property rentals; approval of the annual report and financial statements and of relevant public announcements and for the company s compliance with its continuing listing obligations. 5

8 Corporate governance - Statement of compliance - continued The exercise of the role of the Board - continued During the year, regular operational review board meetings have been held whereby management presented the Board with performance reviews on hotel and rental operations. This ensured sufficient delegation of powers to achieve effective management, as well as an organisational structure ensuring that proper control and reporting systems are in place and maintained. The Board does not consider it necessary to institute separate committees in the company such as the remuneration and director nomination committees, as would be appropriate in a larger corporate set-up. Pursuant to the s Listing Agreement with the Listing Authority, prior to being appointed or elected directors, nominees undergo a screening process by the Authority. During 2009, the Audit Committee, held 3 meetings. Audit Committee meetings are held mainly to discuss formal reports remitted by the group internal auditor but also to consider the the six-monthly financial results and the annual financial statements. The Audit Committee is composed of the two non-executive directors and one executive director. In 2007, Mr Lino Spiteri was appointed Chairman, with Dr. Michael Grech and Mr. Raymond Fenech as committee members. Mr. Lino Spiteri, an economist by profession, in his capacity as the Chairman of the audit committee, held meetings to review the accounts and operations with the executive directors. As required by the Maltese Companies Act, 1995 and the Malta Financial Services Authority Listing Rules, the financial statements of Dolmen Properties p.l.c. are subject to annual audit by its external auditors. Moreover, the Board has direct access to the external auditors of DCL, who attend at Board meetings at which the company s and DCL s financial statements are approved. Moreover, in ensuring compliance with other statutory requirements and with continuing listing obligations, the Board is advised directly, as appropriate, by its appointed broker, legal advisor and the external auditors. Directors are entitled to seek independent professional advice at any time on any aspect of their duties and responsibilities, at the company s expense. The company has formal mechanisms to monitor dealings by directors and senior officials in the bonds of the company and has also put in place the appropriate mechanisms for the advance notification of such dealings. 6

9 Corporate governance - Statement of compliance - continued Relations with bondholders and the market Pursuant to the s statutory obligations in terms of the Maltese Companies Act, 1995 and the Malta Financial Services Authority Listing Rules, the Annual Report and Financial Statements, the election of directors and approval of directors fees, the appointment of the auditors and the authorisation of the directors to set the auditors fees, and other special business, are proposed and approved at the s Annual General Meeting. The company communicates with its bondholders by publishing its results on a six monthly basis during the year and by way of the Annual Report. The Board feels that it is providing the market with adequate information about its activities through these channels. The Board considers that the company has been in compliance with the Principles throughout the year as befits a company of this size and nature. Approved by the Board on 21 April 2010 and signed on its behalf by: George Fenech Chairman Lino Spiteri Director 7

10 Independent auditor s report To the shareholders of Dolmen Properties p.l.c. We have audited the financial statements of Dolmen Properties p.l.c. on pages 10 to 47 which comprise the group s and the company s statements of financial position as at 31 December 2009 and the statement of comprehensive income, statements of changes in equity and statements of cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes. Directors Responsibility for the Financial Statements The directors are responsible for the preparation and fair presentation of these financial statements in accordance with the requirements of the Maltese Companies Act, 1995 and International Financial Reporting Standards (IFRSs) as adopted by the EU as applied in accordance with the provisions of the said Act. As described in the statement of directors responsibilities on pages 2 to 3, this responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements 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 entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion the financial statements: give a true and fair view of the financial position of the group and the company as at 31 December 2009, and of the financial performance and the cash flows for the year then ended in accordance with IFRSs as adopted by the EU; and have been properly prepared in accordance with the requirements of the Maltese Companies Act, Report on Other Legal and Regulatory Requirements The Listing Rules issued by the Malta Listing Authority 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. 8

11 Independent auditor s report - continued Report on Other Legal and Regulatory Requirements - continued The Listing Rules also require the auditor to include a report on the Statement of Compliance prepared by the directors. We read the Statement of Compliance and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements included in the Annual Report. Our responsibilities do not extend to considering whether this statement is consistent with any other information included in the Annual Report. We are not required to, and we do not, consider whether the Board s statements on internal control included in the Statement of Compliance cover all risks and controls, or form an opinion on the effectiveness of the company s corporate governance procedures or its risk and control procedures. In our opinion, the Statement of Compliance set out on pages 4 to 7 has been properly prepared in accordance with the requirements of the Listing Rules issued by the Malta Listing Authority. We also read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Directors Report. Our responsibilities do not extend to any other information. We also have responsibilities: Under the Maltese Companies Act, 1995 to report to you if, in our opinion: The information given in the directors report is not consistent with the financial statements. Adequate accounting records have not been kept, or that returns adequate for our audit have not been received from branches not visited by us. The financial statements are not in agreement with the accounting records and returns. We have not received all the information and explanations we require for our audit. Certain disclosures of directors remuneration specified by law are not made in the financial statements, giving the required particulars in our report. Under the Listing Rules to review the statement made by the directors, set out on page 2, 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. 167 Merchants Street Valletta Malta John Zarb Partner 21 April

12 Statements of financial position ASSETS As at 31 December Notes Non-current assets Property, plant and equipment 4 37,460,722 36,526, Investment property ,977,993 33,646,270 Investment in subsidiary ,766,883 5,766,883 Trade and other receivables 7 862, , Total non-current assets 38,323,321 37,414,437 39,744,876 39,413,153 Current assets Inventories 8 211, , Trade and other receivables 7 5,642,137 5,276, , ,524 Current tax assets 12,677-12,677 6,368 Cash and cash equivalents 9 6,487,104 5,290,066 6,400,288 5,229,158 Total current assets 12,353,343 10,796,516 6,644,870 5,462,050 Total assets 50,676,664 48,210,953 46,389,746 44,875,203 10

13 Statements of financial position - continued As at 31 December EQUITY AND LIABILITIES Notes Capital and reserves Share capital 10 16,305,611 16,305,611 16,305,611 16,305,611 Revaluation reserve 11 1,109,823 1,109, Other reserve ,715,516 5,715,516 Incentives and benefits reserve 13 2,394, , Retained earnings 7,016,449 7,954,689 2,825,922 2,195,125 Total equity 26,826,443 25,542,841 24,847,049 24,216,252 Non-current liabilities Provisions for other liabilities and charges , , Deferred taxation 15 6,705,741 6,663,490 6,297,520 6,354,438 Borrowings 16 12,041,371 11,098,206 10,698,611 10,649,962 Total non-current liabilities 19,070,881 18,074,980 16,996,131 17,004,400 Current liabilities Trade and other payables 17 3,838,360 3,498,492 4,523,959 3,654,551 Borrowings , , Current tax liabilities 152, ,541 22,607 - Current liabilities 4,779,340 4,593,132 4,546,566 3,654,551 Total liabilities 23,850,221 22,668,112 21,542,697 20,658,951 Total equity and liabilities 50,676,664 48,210,953 46,389,746 44,875,203 The notes on pages 16 to 47 are an integral part of these consolidated financial statements. The financial statements on pages 10 to 47 were authorised for issue by the board of directors on 21 April 2010 and were signed on its behalf by: George Fenech Chairman Lino Spiteri Director 11

14 Statements of comprehensive income Year ended 31 December Notes Revenue 18 9,932,756 11,216,965 1,746,097 1,733,084 Cost of sales 19 (7,214,624) (7,375,496) (482,559) (462,058) Gross profit 2,718,132 3,841,469 1,263,538 1,271,026 Administrative expenses 19 (904,158) (994,374) (51,166) (52,835) Other income 18 28,532 37, Operating profit 1,842,506 2,885,084 1,212,372 1,218,191 Finance income , , , ,445 Finance costs 22 (779,297) (722,924) (697,616) (703,620) Profit before tax 1,219,722 2,333, , ,016 Tax income/(expense) ,880 (689,172) 18,717 48,277 Profit for the year 1,365,602 1,644, , ,293 Earnings per share (cents) 25 19c5 23c5 The notes on pages 16 to 47 are an integral part of these consolidated financial statements. 12

15 Statements of changes in equity Incentives and Share Revaluation benefits Retained capital reserve reserve earnings Total Balance at 1 January ,305,611 1,109, ,718 6,310,075 23,898,227 Comprehensive income Profit for the year - total comprehensive income ,644,614 1,644,614 Balance at 31 December ,305,611 1,109, ,718 7,954,689 25,542,841 Balance at 1 January ,305,611 1,109, ,718 7,954,689 25,542,841 Comprehensive income Profit for the year - total comprehensive income ,365,602 1,365,602 Other comprehensive income Transfer of profits subject to - income tax at a reduce rate of tax - - 2,221,842 (2,221,842) - Transactions with owners Dividends for (82,000) (82,000) Balance at 31 December ,305,611 1,109,823 2,394,560 7,016,449 26,826,443 The notes on pages 16 to 47 are an integral part of these consolidated financial statements. 13

16 Statements of changes in equity - continued Share Other Retained capital reserve earnings Total Balance at 1 January ,305,611 5,715,516 1,450,832 23,471,959 Comprehensive income Profit for the financial year - total recognised income for , ,293 Balance at 31 December ,305,611 5,715,516 2,195,125 24,216,252 Balance at 1 January ,305,611 5,715,516 2,195,125 24,216,252 Comprehensive income Profit for the financial year - total recognised income for , ,797 Transactions with owners Dividends for (82,000) (82,000) Balance at 31 December ,305,611 5,715,516 2,825,922 24,847,049 The notes on pages 16 to 47 are an integral part of these consolidated financial statements. 14

17 Statements of cash flows Year ended 31 December Notes Cash flows from operating activities Cash generated from operations 26 2,912,131 2,256,497 2,612,268 2,250,294 Interest received 156, , , ,322 Interest paid (768,812) (712,411) (709,624) (714,497) Income tax (paid)/refund (349,533) 87,421 (21,903) 50,786 Net cash generated from operating activities 1,950,299 1,803,133 2,072,073 1,778,905 Cash flows from investing activities Purchase of property, plant and equipment (1,958,322) (728,504) - - Purchase of investment property - - (814,282) (254,243) Proceeds from disposal of property, plant and equipment 25,879 34, Net cash used in investing activities (1,932,443) (694,164) (814,282) (254,243) Cash flows from financing activities Increase in bank borrowings 1,436, , Purchase of own bonds (4,661) (194,889) (4,661) (194,889) Contribution to bond redemption fund (1,113,765) (1,045,185) (1,113,765) (1,045,185) Dividends paid (82,000) - (82,000) - Net cash generated from/(used in) financing activities 236,570 (791,830) (1,200,426) (1,240,074) Movement in cash and cash equivalents 254, ,139 57, ,588 Cash and cash equivalents at beginning of year 1,431,176 1,114,037 1,787,367 1,502,779 Cash and cash equivalents at end of year 10 1,685,602 1,431,176 1,844,732 1,787,367 The notes on pages 16 to 47 are an integral part of these consolidated financial statements. 15

18 Notes to the financial statements 1. Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 1.1 Basis of preparation These consolidated financial statements include the financial statements of Dolmen Properties p.l.c. and its subsidiary. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and with the requirements of the Maltese Companies Act, The financial statements are prepared under the historical cost convention as modified by the revaluation of property, plant and equipment and investment property. The preparation of financial statements in conformity with IFRSs as adopted by the EU requires the use of certain accounting estimates. It also requires the directors to exercise their judgement in the process of applying the group s accounting policies (see Note 3 Critical accounting estimates and judgements). Standards, interpretations and amendments to published standards effective in 2009 In 2009, the group adopted new standards, amendments and interpretations to existing standards that are mandatory for the group s accounting period beginning on 1 January The adoption of these revisions to the requirements of IFRSs as adopted by the EU did not result in substantial changes to the group s accounting policies. IAS 1 (revised), Presentation of financial statements is effective for periods beginning on or after 1 January 2009, but does not have any impact on the classification and measurement of the group s elements of the financial statements. This standard requires non-owner changes in equity to be presented separately from owner changes in equity in a statement of comprehensive income. In accordance with the transition provisions of this standard, comparative information has been re-presented. Standards, interpretations and amendments to published standards that are not yet effective Certain new standards, amendments and interpretations to existing standards have been published by the date of authorisation for issue of these financial statements but are mandatory for the group s accounting periods beginning after 1 January The group has not early adopted these revisions to the requirements of IFRSs as adopted by the EU and the company s directors are of the opinion that there are no requirements that will have a possible significant impact on the group s financial statements in the period of initial application. 1.2 Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of each of the group s entities are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The consolidated financial statements are presented in euro, which is the group s functional and the group s presentation currency. 16

19 1. Summary of significant accounting policies - continued 1.2 Foreign currency translation - continued (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the statement of comprehensive income within finance income or costs. All other foreign exchange gains and losses are presented in the statement of comprehensive income within other income/(expense). 1.3 Consolidation Subsidiaries Subsidiaries are all entities over which the group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are de-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the group s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in profit or loss (note 1.7). Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group. Dolmen Properties p.l.c acquired 99.9% shareholding in Dolmen Complex Limited on 24 September 2003, in exchange for the issue of shares to the previous shareholder of this subsidiary. The substance of this transaction was that of a group restructuring and accordingly the provisions in respect of business combinations set out in IFRS 3 were not applicable. In accordance with generally accepted accounting principles, the predecessor basis of accounting has been adopted and this transaction has been recorded as if it had occurred at the beginning of the earliest period recorded. 17

20 1. Summary of significant accounting policies - continued 1.4 Property, plant and equipment All property, plant and equipment, is stated at historical cost less depreciation. includes expenditure that is directly attributable to the acquisition of items. Historical cost Subsequent costs are included in the asset s carrying amount, or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group, and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. Land and buildings are subsequently shown at market value, based on valuations by external independent valuers, less subsequent depreciation. Valuations are carried out periodically when the directors consider it appropriate to do so such that the carrying amount of land and buildings does not differ materially from that which would be determined using fair values at the end of the reporting period. All other plant and equipment is stated at historical cost less depreciation. Increases in the carrying amount arising on revaluation are credited to the revaluation reserve in shareholders equity. Decreases that offset previous increases of the same asset are charged against the revaluation reserve; all other decreases are charged to profit or loss. Each period the difference between depreciation based on the revalued carrying amount of the asset (the depreciation charged to profit or loss) and depreciation based on the asset s original cost, net of any related deferred income taxes, is transferred from the revaluation reserve to retained earnings. Depreciation is calculated using the straight-line method to allocate the cost of the assets to their residual values over their estimated useful lives as follows: % Freehold and long-term leasehold land Nil Buildings and improvements 1-5 Plant and equipment and fixtures, fittings and furniture Motor vehicles 20 The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount (note 1.7). Gains and losses on disposals of property, plant and equipment are determined by comparing the proceeds with carrying amount, and are recognised within Other income/(expenses) in the statement of comprehensive income. On disposal of a revalued asset, amounts in the revaluation reserve relating to that asset are transferred to retained earnings. 18

21 1. Summary of significant accounting policies - continued 1.5 Investment property The group owns investment property, principally comprising the Dolmen Complex land and buildings and integral plant, which is held for long-term rental yields and is not occupied by the company but rented out to its subsidiary in its entirety. Consequently this property is classified and measured as property, plant and equipment in the group s financial statements in accordance with the requirements of IAS 16. The group s investment property is stated in the statement of financial position at cost less accumulated depreciation and impairment losses. Maintenance expenses and repairs are recognised as an expense. Subsequent expenditure that increases the value of property is capitalised if it extends the useful life. The capitalised costs of buildings are amortised over one hundred years at most, in accordance with their useful lives. An asset s carrying amount is written down immediately to its recoverable amount if its carrying amount is greater than its estimated recoverable amount (see note 1.7). Property that is being constructed or developed for future use as investment property is classified as property, plant and equipment and stated at cost until construction or development is complete, at which time it is reclassified and subsequently accounted for as investment property at the carrying amount. If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment and its carrying amount at the date of reclassification becomes its cost for accounting purposes or subsequent recording. If an item of property, plant and equipment becomes an investment property because its use has changed, the carrying amount at the date of reclassification becomes its cost for accounting purposes or subsequent recording. 1.6 Operating leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. 1.7 Impairment of assets Impairment of non-financial assets Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. 19

22 1. Summary of significant accounting policies - continued 1.8 Investment in subsidiary In the company s financial statements, the investment in subsidiary is accounted for by the cost method of accounting. The dividend income from such investment is included in profit or loss in the accounting year in which the company s rights to receive payment of any dividend is established. The company gathers objective evidence that an investment is impaired using the same process disclosed in note 1.7. On disposal of an investment, the difference between the net disposal proceeds and the carrying amount is charged or credited to profit or loss. 1.9 Financial assets Classification The group classifies its financial assets in the loans and receivables category. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the group provides money, goods or services directly to a debtor with no intention of trading the asset. They are included in current assets, except for maturities greater than twelve months after the reporting period. These are classified as non-current assets. The group s loans and receivables comprise trade and other receivables and cash and cash equivalents in the statement of financial position (notes 1.12 and 1.13) Recognition and measurement The group recognises a financial instrument in its statement of financial position when it becomes a party to the contractual provisions of the instrument. Loans and receivables are initially recognised at fair value plus transaction costs. All regular way transactions in assets classified in the loans and receivables category are accounted for using settlement date accounting, i.e. on the date an asset is delivered to or by the entity. Loans and receivables are subsequently carried at amortised cost using the effective interest method. Amortised cost is the initial measurement amount adjusted for the amortisation of any difference between the initial and maturity amounts using the effective interest method. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership or has not retained control of the financial asset. The group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. If there is objective evidence that an impairment loss on loans and receivables has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective interest rate. Impairment testing of trade receivables is described in note

23 1. Summary of significant accounting policies - continued 1.10 Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously Inventories Inventories are stated at the lower of cost and net realisable value. The cost of inventories comprises the invoiced value of goods, and in general, includes transport and handling costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses Trade and other receivables Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the receivable is impaired. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in profit or loss within administrative expenses. When a receivable is uncollectible, it is written off against the allowance account for trade and other receivables. Subsequent recoveries of amounts previously written off are credited against administrative expenses in profit or loss Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. 21

24 1. Summary of significant accounting policies - continued 1.15 Provisions Provisions for legal claims are recognised when the group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as finance costs Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least twelve months from the end of the reporting period Trade and other payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the group s activities. Revenue is shown net of value-added tax or other sales taxes, returns, rebates and discounts and after eliminating sales within the group. The group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met as described below. 22

25 1. Summary of significant accounting policies - continued 1.18 Revenue recognition - continued Revenue is recognised as follows: (a) Sales of services in the hospitality activity Sales of services are recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. Sales arising on hospitality activities are recognised when the service is performed and goods are supplied. Revenue is usually in cash, credit card or on credit. The recorded revenue, includes credit card fees payable for the transaction. (b) Sales of goods - retail Sales of goods are recognised when a subsidiary sells a product to the customer. Retail sales are usually in cash or by credit card. The recorded revenue, includes credit card fees payable for the transaction. Such fees are included in finance costs. Restaurant and bar sales are recognised upon performance of the service. (c) Property related income Rentals receivable, short-term lets receivable and premia charged to tenants of immovable property are recognised in the period when the property is occupied. Premia are taken to profit or loss over the period of the leases to which they relate. (d) Sales of services Sales of services are recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. (e) Finance income Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the subsidiary reduces the carrying amount to its recoverable amount, being the estimated future cash flows discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate. (f) Dividend income Dividend income is recognised when the right to receive payment is established Finance income and costs Finance income and costs are recognised in profit or loss for all interest-bearing instruments on an accrual basis using the effective yield method. Finance costs includes the effect of amortising any difference between net proceeds and redemption value in respect of the group s borrowings. Other income is recognised as it accrues, unless collectibility is in doubt. Finance costs are charged against income without restriction. No borrowing costs have been capitalised. 23