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 2008 Registration Number: C31688

2 Pages Directors report 1-3 Corporate governance - Statement of compliance 4-7 Independent auditors report 8-9 Statements of financial position Income statements 12 Statements of changes in equity Statements of cash flows 15 Notes to the financial statements 16-45

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 subsidiary and to third parties. Review of the business Turnover for the Dolmen Properties reached million during 2008 an increase of 5.6% or 599,609 over that of This is by far the best performance recorded by this which operates the Dolmen Resort hotel and its amenities. Gross profit reached 3.84 million an increase of 671,679 or 21.19% over the same period last year. This result followed from a higher average room revenue base when compared to Direct costs as a percentage of turnover were marginally lower in line with a slight decrease in occupancy levels during the year under review, leading to a gross profit equivalent to 34.25% of revenue. Administrative costs declined during the year under review totally due to lower management charges which were levied by the upon the hotel during 2007 and were not due again during Had this been the case the total indirect costs would have exceeded those of 2007 mainly due to precautionary impairment provisions which were raised this year. Operating profit amounted to 2.90 million an advance of 940,137 over the previous year. Over seventy percent of this improvement flowed directly from a superior gross profit. The upbeat performance in 2008 owes its origin to a better room rate which was in evidence during practically the whole year. The same cannot be said for the occupancy level, which although it is still robust overall, it did not match that of the previous year, totally due to lower accommodation levels during the last quarter of the year. 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 rate measures. Once again, the overall performance is also marginally above that the had itself projected, hence the steady build-up of funds which would eventually go to secure the Bond Redemption Fund as set out in the 2003 Bond Issue projections. In line with shareholders strategy and in order to retain the hotel s standing a further refurbishment programme of approximately 3.5 million was taken in hand later during 2008 and is projected to be completed before summer 2009 sets in. The directors decided that the timing of the hotel s upgrading programme was appropriate in spite of a recessionary environment. The s equity base reached an all-time high of million and working capital of 6.20 million demonstrating a consistent positive performance. Borrowings as a percentage of total assets improved to 23.88%, versus 24.66% is at the end of Interest cash cover over stood at 7.14 as opposed to 4.53 in

4 Directors report - continued Outlook for the financial year ending 31 December 2009 The expectations for 2009 are somewhat subdued and sober when compared to previous year s budget and actual performance. This reflects the last quarter of 2008 and the expectations which may follow as a result of the current general economic turmoil. Tourism forecasts both locally and abroad are lower on previous years as economies at large brace themselves for tough times. It is particularly now that the hotel industry needs to re-assess its standing and re-position itself to become leaner and more competitive ensuring that it upgrades its product to meet higher expectations once the economic cycle regains momentum. This is what the Dolmen Resort Hotel is set to do, as the departs from a position of strength following years of successful operations. Results and dividends The income statements are set out on page 12. dividend. The directors do not recommend the payment of a 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 2008 are included in the Annual Report 2008, 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 2008, 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 30 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 ) pursuant to Listing Rules 8.37 and 8.38 issued by the Malta Financial Services Authority and affirms the extent to which the 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 holds title to the land and buildings that constitute the Dolmen Resort Hotel and its amenities and surrounding grounds in Bugibba, Malta. The 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 and third parties. The 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 does not have any employees. Roles and responsibilities The Board acknowledges its statutory mandate to conduct the administration and management of the. The Board, in fulfilling this mandate and discharging its duty of stewardship of the, assumes responsibility for: the 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 and of DCL and overseeing the implementation and monitoring of appropriate risk management systems; 4

7 Corporate governance Statement of compliance - continued Roles and responsibilities - continued ensuring that the operations of DCL are in conformity with the 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. 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 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 officers. Board of Directors The 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. 5

8 Corporate governance Statement of compliance - continued The exercise of the role of the Board - continued 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 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 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 s compliance with its continuing listing obligations. 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 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 2008, the Audit Committee, which was established in the latter part of 2007, 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. During 2008, the board established the terms of reference of the audit committee modelled on the recommendations of the Listing Rules. 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 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 s expense. 6

9 Corporate governance Statement of compliance - continued The exercise of the role of the Board - continued The has formal mechanisms to monitor dealings by directors and senior officials in the bonds of the and has also put in place the appropriate mechanisms for the advance notification of such dealings. 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 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 has been in compliance with the Principles throughout the year as befits a of this size and nature. Approved by the Board on 30 April 2009 and signed on its behalf by: George Fenech Chairman Lino Spiteri Director 7

10 Independent auditors 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 45 which comprise the group s and the company s statements of financial position as at 31 December 2008 and the income statements, 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 page 2, 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 judgment, 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 company as at 31 January 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 auditors 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 30 April

12 Statements of financial position ASSETS As at 31 December Notes Non-current assets Property, plant and equipment 3 36,526,748 36,703, Investment property ,646,270 33,854,085 Investments in subsidiary ,766,883 5,766,883 Trade and other receivables 6 887, , Total non-current assets 37,414,437 37,591,351 39,413,153 39,620,968 Current assets Inventories 7 230, , Trade and other receivables 6 5,276,233 3,823, , ,484 Current tax assets - 102,565 6,368 65,795 Cash and cash equivalents 8 5,290,066 3,985,775 5,229,158 3,899,385 Total current assets 10,796,516 8,101,573 5,462,050 4,092,664 Total assets 48,210,953 45,692,924 44,875,203 43,713,632 10

13 Statements of financial position - continued As at 31 December EQUITY AND LIABILITIES Notes Capital and reserves Share capital 9 16,305,611 16,305,611 16,305,611 16,305,611 Revaluation reserve 10 1,109,823 1,109, Other reserve ,715,516 5,715,516 Incentives and benefits reserve , , Retained earnings 7,954,689 6,310,075 2,195,125 1,450,832 Total equity 25,542,841 23,898,227 24,216,252 23,471,959 Non-current liabilities Deferred taxation 13 6,663,490 6,666,995 6,354,438 6,411,356 Provisions for other liabilities and charges , , Borrowings 15 11,098,206 10,794,817 10,649,962 10,794,817 Total non-current liabilities 18,074,980 17,764,586 17,004,400 17,206,173 Current liabilities Trade and other payables 16 3,498,492 3,554,979 3,654,551 3,035,500 Borrowings , , Current tax liabilities 677, Current liabilities 4,593,132 4,030,111 3,654,551 3,035,500 Total liabilities 22,668,112 21,794,697 20,658,951 20,241,673 Total equity and liabilities 48,210,953 45,692,924 44,875,203 43,713,632 The notes on pages 16 to 45 are an integral part of these financial statements. The financial statements on pages 10 to 45 were authorised for issue by the board of directors on 30 April 2009 and were signed on its behalf by: George Fenech Chairman Lino Spiteri Director 11

14 Income statements Year ended 31 December Notes Revenue 17 11,216,965 10,617,356 1,733,084 1,734,491 Cost of sales 18 (7,375,496) (7,447,566) (462,058) (468,169) Gross profit 3,841,469 3,169,790 1,271,026 1,266,322 Administrative expenses 18 (994,374) (1,242,048) (52,835) (56,526) Other income 17 37,989 17, Operating profit 2,885,084 1,944,947 1,218,191 1,209,796 Finance income ,503 93, , ,987 Finance costs 21 (733,801) (734,277) (714,497) (705,468) Profit before tax 2,333,786 1,303, , ,315 Tax (expense)/income 22 (689,172) (364,253) 48,277 42,355 Profit for the year 1,644, , , ,670 Earnings per share (cents) 24 23c5 13c4 The notes on pages 16 to 45 are an integral part of these 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 5,370,388 22,958,540 Profit for the financial year - total recognised income for , ,687 Balance at 31 December ,305,611 1,109, ,718 6,310,075 23,898,227 Balance at 1 January ,305,611 1,109, ,718 6,310,075 23,898,227 Profit for the financial year - total recognised income for ,644,614 1,644,614 Balance at 31 December ,305,611 1,109, ,718 7,954,689 25,542,841 The notes on pages 16 to 45 are an integral part of these 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, ,162 22,813,289 Profit for the financial year - total recognised income for , ,670 Balance at 31 December ,305,611 5,715,516 1,450,832 23,471,959 Balance at 1 January ,305,611 5,715,516 1,450,832 23,471,959 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 The notes on pages 16 to 45 are an integral part of these financial statements. 14

17 Statements of cash flows Year ended 31 December Notes Cash flows from operating activities Cash generated from operations 25 2,256,497 2,461,682 2,250,298 2,001,721 Interest received ,503 93, , ,987 Interest paid 21 (723,288) (723,774) (714,497) (705,468) Income tax (paid)/recovered 87,421 (33,394) 50,782 (11,551) Net cash generated from operating activities 1,803,133 1,797,784 1,778,905 1,396,689 Cash flows from investing activities Purchase of property, plant and equipment 3 (728,504) (231,561) - - Purchase of investment property (254,243) (36,438) Proceeds from disposal of property, plant and equipment 3 34, Net cash used in investing activities (694,164) (231,561) (254,243) (36,438) Cash flows from financing activities Repayments of bank borrowings 15 - (2,265) - - Increase in bank borrowings , Purchase of own bonds 15 (194,889) - (194,889) - Contribution to bond redemption fund 8 (1,045,185) (1,032,213) (1,045,185) (1,032,213) Net cash used in financing activities (791,830) (1,034,478) (1,240,074) (1,032,213) Movement in cash and cash equivalents 317, , , ,038 Cash and cash equivalents at beginning of year 1,114, ,292 1,502,779 1,174,741 Cash and cash equivalents at end of year 8 1,431,176 1,114,037 1,787,367 1,502,779 The notes on pages 16 to 45 are an integral part of these 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 Basis of preparation These consolidated financial statements include the financial statements of Dolmen Properties p.l.c. and its subsidiary undertaking. 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. 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 2 - Critical accounting estimates and judgements). Standards, interpretations and amendments to published standards effective in 2008 In 2008, 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. 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 Consolidation (a) 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. 16

19 1. Summary of significant accounting policies - continued 1.2 Consolidation - continued (a) Subsidiaries - continued 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 the income statement (note 1.6). 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 a 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 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 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 company s functional and the group s presentation currency. Following Malta s adoption of the euro as its national currency on 1 January 2008, the entity s functional currency was changed from Maltese lira to euro. The effects of the change in functional currency have been accounted for prospectively and all items have been translated into the new functional currency using the exchange rate at the date of the change. In view of the redenomination of the group s share capital from Maltese lira to euro, the group s presentation currency also changed to euro. Accordingly, the results and financial position relating to the comparative financial period were translated and presented in these financial statements at the Irrevocably Fixed Conversion Rate of 1:Lm as at 1 January (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 the income statement. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within finance income or cost. All other foreign exchange gains and losses are presented in the income statement within other income/(expense). 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, and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement 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 the income statement. Each year the difference between depreciation based on the revalued carrying amount of the asset (the depreciation charged to the income statement) 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 1.6). 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 income statement. 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 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 but rented out to its subsidiary undertaking in its entirety. Consequently this property is classified and measured as property, plant and equipment in the s financial statements in accordance with the requirements of IAS 16. The 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 1.6). 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 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. Impairment of financial assets The assesses at each end of the reporting period whether there is objective evidence that a financial asset is impaired. A financial asset is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset and that has an impact on the estimated future cash flows of the financial asset that can be reliably estimated. Objective evidence that a financial asset is impaired includes observable data about certain events which can include (but are not restricted to) indications that there is a measurable decrease in the estimated future cash flow from the financial asset since the initial recognition. 19

22 1. Summary of significant accounting policies continued 1.6. Impairment of assets - continued If there is objective evidence that an impairment loss has been incurred on loans and receivables carried at amortised cost, the amount of the loss is recognised in the income statement and 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. The assesses at each end of the reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement Investment in subsidiary In the s financial statements, investments in group and associates are accounted for by the cost method of accounting. The dividend income from such investments is included in the income statement in the accounting year in which the s rights to receive payment of any dividend is established. The gathers objective evidence that an investment is impaired using the same process disclosed in note 1.6. On disposal of an investment, the difference between the net disposal proceeds and the carrying amount is charged or credited to the income statement Inventories Inventories are stated at the lower of cost and net realisable value, and include transport and handling costs, determined on a weighted average basis Trade and other receivables 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 receivable, probability that the receivable 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 the income statement within selling and distribution costs. 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 selling and distribution costs in the income statement Other financial instruments The s other financial assets, which have not been referred to in the accounting policies disclosed above, are classified as loans and receivables in accordance with the requirements of IAS 39 and are measured at cost, that is, the face value of these assets. All regular way transactions in assets classified in this category are accounted for using settlement date accounting. A credit risk provision for financial asset impairment is established if there is objective evidence that the will not be able to collect all amounts due. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of the expected cash flows, including amounts recoverable from collateral, discounted based on the interest rate at inception. 20

23 1. Summary of significant accounting policies continued Other financial instruments - continued The s financial liabilities, other than those referred to in the accounting policies above, are classified as liabilities which are not held for trading ( other liabilities ) under IAS 39, and are measured at cost, that is, the face value of such instruments 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 Trade and other payables Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method 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 the income statement 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 12 months from the end of the reporting period 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 Current and deferred tax The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised directly in equity. In this case, the tax is also recognised in equity. Deferred tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. 21

24 1. Summary of significant accounting policies continued Current and deferred tax- continued Under this method the is required to make provision for deferred income taxes on the revaluation of certain fixed assets. Such deferred tax is charged or credited directly to the revaluation reserve. Deferred income tax on the difference between the actual depreciation on the property and the equivalent depreciation based on the historical cost of the property is realised through the profit and loss account. Deferred tax assets are recognised only to the extent that future taxable profit will be available such that realisation of the related tax benefit is probable 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 interest expense 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 s activities. Revenue is shown net of value-added tax or other sales taxes, returns, rebates and discounts and after eliminating sales within the. 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. 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 the income statement over the period of the leases to which they relate. 22