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 2011 Registration Number: C31688

2 Pages Directors report 1-3 Corporate governance - Statement of compliance 4-8 Independent auditor s report 9-10 Statements of financial position Statements of comprehensive income 13 Statements of changes in equity Statements of cash flows 16 Notes to the financial statements 17-50

3 Directors report The directors present their report and the audited consolidated financial statements for the year ended 31 December Principal activity The group s principal activity, which is substantially unchanged since last year, 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 During 2011, Dolmen Properties plc continued to register an upward movement in its total revenue; very much in line with the performance of the local tourist industry and in general out-performing other hotels in its category, based on statistics published by MHRA. In fact, the hotel s average room rate was superior to that reported by MHRA and so was occupancy, leading to a gross operating profit percentage which proves the hotel s leading edge in the market. Total revenue reached 11.8 million, an increase of 8.3% over last year, despite a somewhat higher direct cost base, leading to a gross profit of 3.28 million, a slight improvement over the previous year. Administrative expenses stood at 1.45 million that were substantially higher than last year mainly due to management fees as the hotel gears up towards a new refurbishing programme, this in addition to an impairment charge regarding accounts receivable. Compared to total revenue this is not material. Operating profit stood at 1.84 million and was therefore 454,000 below that of last year. Net finance costs were substantially reduced from last year down to 254,796 from 650,022 as the group enjoyed a lower financing exposure following the 50% pre-payment on its outstanding bond namely the one maturing between the years It is worthwhile noting that in November 2010 no less the 5.47 million was prepaid. The negative gap between the 2010 profit before tax and that of the year under review was just under 59,000 to 1.58 million. The profit after tax for the year was however superior to that of 2010 at 1.43 million or 22.7% over the previous year s figure. This followed from a lower tax base figure after the reversal of prior year s fiscal over provisions. Reviewing the statement of financial position, net equity at million was 516,000 below that of 2010 considering on the one hand a positive result for the year of 1.43 million and a dividend of 2.12 million declared during the course of Earnings per share for the year under review reached 20c4 against 16c6 in 2010, once again underlining the positive performance in Our cash resources continued to increase reaching 3.15 million; enabling a positive working capital ratio which is more favourable than that of the previous year. Total borrowings as a percentage of total assets remained the same at 17% whilst cash cover as at the end of 2011 stood at a healthy 7.8 against 5.2 in Outlook for the financial year ending 31 December 2012 The 2011 performance augurs well for the future particularly for 2012 which although is forecasted to be more challenging than last year should once again return a positive result. Our upcoming refurbishment programme will continue to sustain the hotel s image and allow it to retain its high standards of performance, standing out as one of the top most resort hotels on the Island. 1

4 Directors report - continued Results and dividends The statements of comprehensive income is set out on page 13. The directors have proposed a final net dividend of 2,118,000 (2010: 2,082,000). Retained profits carried forward at the reporting date amounted to 4,150,734 (2010: 6,098,011) for the group and 1,748,842 (2010: 1,925,318) for the company. Directors The directors of the company who held office during the year were: George Fenech - Chairman Lino Spiteri Raymond Fenech Raymond Sladden Michael Grech The company s Articles of Association do not require any directors to retire. Statement of directors responsibilities for 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 parent 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 the parent company will continue in business as a going concern. The directors are also responsible for designing, implementing and maintaining internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and that comply with the Maltese Companies Act, They are also responsible for safeguarding the assets of the group and the parent company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The financial statements of Dolmen Properties p.l.c for the year ended 31 December 2011 are included in the Annual Report 2011, which is published in hard-copy printed form and is made available on the Tumas 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 parent company 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. 2

5 Directors report - continued Statement of directors responsibilities for the financial statements - continued The directors confirm that, to the best of their knowledge: Auditors the financial statements give a true and fair view of the financial position of the group and the parent company as at 31 December 2011, 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 parent company, together with a description of the principal risks and uncertainties that the group and the parent company face. PricewaterhouseCoopers have indicated their willingness to continue in office and a resolution for their reappointment will be proposed at the Annual General Meeting. Going concern statement pursuant to Listing Rule 5.62 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 parent 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. On behalf of the Board Raymond Fenech Director 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 Pursuant to the requirements of the Listing Rules issued by the Listing Authority of the Malta Financial Services Authority, Dolmen Properties p.l.c. (a fully owned subsidiary of Tumas Limited - the group ) hereby reports on the extent to which the company has adopted the Code of Principles of Good Corporate Governance (the Code ) appended to Chapter 5 of the Listing Rules as well as the measures adopted to ensure compliance with these same principles. 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 the hotel 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 DCL installs and operates effective internal control and management information systems; assessing the performance of 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 the company 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 s general manager Mr. Alex Pace and is supported by senior officers designated to the different functional roles within the hotel operations. Matters relating to the bond issue and the market are delegated to Mr. Raymond Sladden who is supported by a separate team of group officers. 4

7 Corporate governance - Statement of compliance - continued Board of Directors The company has five directors who are appointed by its ultimate principal shareholder, Tumas Limited. 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 company and of another fellow subsidiary, in a nonexecutive capacity. Mr. Lino Spiteri is considered as an independent director since he is free of any business, family or other relationship with the Issuer, its controlling shareholder or the management of either, that creates a conflict of interest such as to impair his judgement. In assessing Mr. Spiteri s independence, due notice has been taken of Section of the Listing Rules. 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 23 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. During the year, regular operational review board meetings have been held, whereby management presented the Board with performance reviews on the hotel and the rental operations. This ensured effective monitoring of the powers delegated to management. The organisational structure of the hotel ensures that proper control and reporting systems are in place. The Board does not consider necessary to institute separate committees such as the remuneration and the nomination committees, as would be appropriate in an operating company. Risk Management and Internal Control The Board recognises that the company must manage a range of risks in the course of its activities and the failure to adequately manage these risks could adversely impact the business. Whilst no system can provide absolute guarantees and protection against material loss, the risk management systems are designed to give the directors reasonable assurance that problems can be identified promptly and remedial action can be taken as appropriate. 5

8 Corporate governance - Statement of compliance - continued Risk Management The Board maintains sound risk management and internal control systems. It is responsible for determining the nature and extent of the risks it is willing to take in achieving its strategic objectives. The Board establishes formal and transparent arrangements to apply risk management and internal control principles, as well as maintaining an appropriate relationship with the company s auditors. An essential element of good internal control is the continual process of risk assessment and implementation of appropriate controls designed to eliminate or mitigate the effects of the crystallisation of identified major risks. The approach adopted by the Board, involves a process which requires divisional operational staff to critically examine their responsibilities and identify those risks which are of such a nature that their occurrence would have a material impact on the business. In order for this process to succeed, it is essential that ownership of risk awareness, risk identification and risk control is fully embraced by the line management as an essential ingredient of its normal responsibilities. In formulating this approach to risk management, the Board has taken into cognisance of the following key areas: Clear leadership from the Board; The need for risk management to be seen as part of everyday activity and to be embedded in the line management culture; Clear communication of the principles involved; Active support and involvement of the Internal Audit function; Regular review of the process and continual assessment of the changing nature of the risks facing the business; Updating policies and procedures following the identification of new significant risks. Organisation structure The structure focuses on the core businesses of the company and its subsidiary. Stringent reporting procedures are applied to ensure that performance is closely monitored so that effective and prompt action can be taken when necessary. Certain company functions including company secretarial, legal, taxation, internal audit, treasury and insurance are undertaken by senior executives at the head office of Tumas. Financial reporting The company operates a comprehensive financial control system within its direct subsidiary, being the cash generating unit through which the company is able to pay the interest and to redeem the bonds. Financial performance is closely monitored against budget and against prior year performance. Monthly management accounts are prepared for review by the senior executives at group level and are issued in a timely manner to ensure proper consideration can be given to the information. Internal control The internal control systems are reviewed by the Internal Audit function. Internal Audit conducts independent appraisals and presents reports to the Audit Committee, detailing findings and suggested remedial actions. Internal Audit undertakes annual financial reviews of the statement of financial position of the company and engages in a cycle of operational and financial risk reviews both on a scheduled and random ad hoc basis. 6

9 Corporate governance - Statement of compliance - continued Internal control - continued Internal Audit is responsible for advising all levels of management and the Board of Directors, through the Audit Committee, on the quality of the financial and operational control systems in place. This review and appraisal function does not relieve line management of its responsibility for effective control. During the year 2011, the Audit Committee held 4 meetings. Audit Committee meetings are held mainly to discuss formal reports remitted by the Internal Auditor and also to consider the six monthly financial results and the annual financial statements. The Audit Committee is composed of two non-executive directors and one executive director. This committee is chaired by Mr. Lino Spiteri, with Dr. Michael Grech and Mr. Raymond Fenech as committee members. Mr. Lino Spiteri, an economist by profession, is deemed to the independent director competent in accounting and auditing matters. In his capacity as the Chairman of the Audit Committee, Mr. Spiteri has 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 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. Remuneration Statement There have been no changes in the company s remuneration policy, as compared to the previous financial year and the company does not intend to effect any changes in its remuneration policy for the following financial year. Directors Pursuant to the company s Memorandum and Articles of Association, the maximum annual aggregate emoluments that may be paid to the directors is approved by the shareholders in General Meeting. None of the directors has service contracts with the company. Furthermore, the remuneration of directors is a fixed amount per annum and does not include any variable component relating to profit sharing, share options or pension benefits. During the period under review, each director received an annual remuneration of 1,165 (2010: 1,165), as approved at the last Annual General Meeting of the company. 7

10 Corporate governance - Statement of compliance - continued Remuneration Statement - continued Senior Executive Reference to senior executive shall mean the General Manager of DCL. The terms and conditions of employment of the General Manager are set out in his indefinite contract of employment with DCL. The General Manager is not entitled to share options, profit sharing, termination payments or other payments linked to early termination. The Board considers the disclosure of the total emoluments received by the General Manager, in terms of Code Provision 8.A.4.9, as being commercially sensitive and is therefore availing itself of the opt-out pursuant to Code Provision 8.A.6. Relations with bondholders and the market Pursuant to the company 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 30 April 2012 and signed on its behalf by: Raymond Fenech Director Lino Spiteri Director 8

11 Independent auditor s report To the shareholders of Dolmen Properties p.l.c. Report on the Financial Statements for the year ended 31 December 2011 We have audited the consolidated and stand-alone parent company financial statements of Dolmen Properties p.l.c. (together the financial statements ) on pages 11 to 50, which comprise the consolidated and parent company statements of financial position as at 31 December 2011, and the consolidated and parent company statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Directors Responsibility for the Financial Statements As explained more comprehensively in the Statement of directors responsibilities for the financial statements on pages 2 and 3, the directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and the requirements of the Maltese Companies Act, 1995, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. 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 about whether the financial statements are free from 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 of financial statements that give a true and fair view 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 parent company as at 31 December 2011, and of their financial performance and its 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. 9

12 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 8 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 pages 2 and 3, that the business is a going concern together with supporting assumptions or qualifications as necessary. We have nothing to report to you in respect of these responsibilities. PricewaterhouseCoopers 167 Merchants Street Valletta Malta Stefan Bonello Partner 30 April

13 Statements of financial position As at 31 December Notes ASSETS Non-current assets Property, plant and equipment 4 36,727,733 37,205, Investment property ,421,061 33,713,437 Investment in subsidiary ,766,883 5,766,883 Trade and other receivables 7 863, , Total non-current assets 37,591,207 38,068,458 39,187,944 39,480,320 Current assets Inventories 8 220, , Trade and other receivables 7 6,713,300 6,401, , ,749 Current tax assets - 17,945-17,945 Cash and cash equivalents 9 3,147,084 1,999,089 2,904,064 1,838,869 Total current assets 10,081,249 8,636,206 3,401,365 2,034,563 Total assets 47,672,456 46,704,664 42,589,309 41,514,883 11

14 Statements of financial position - continued As at 31 December Notes EQUITY AND LIABILITIES Capital and reserves attributable to owners of the parent Share capital 10 16,305,611 16,305,611 16,305,611 16,305,611 Revaluation reserve 11 1,284,525 1,109, Other reserve ,890,218 5,715,516 Incentives and benefits reserve 13 3,651,632 2,394, Retained earnings 4,150,734 6,098,011 1,748,842 1,925,318 Total equity 25,392,502 25,908,005 23,944,671 23,946,445 Non-current liabilities Provisions for other liabilities and charges , Deferred tax liabilities 15 6,605,030 6,653,201 6,183,684 6,240,602 Borrowings 16 6,797,518 6,872,678 5,374,617 5,374,617 Trade and other payables ,828,610 2,828,610 Total non-current liabilities 13,402,548 13,860,130 14,386,911 14,443,829 Current liabilities Trade and other payables 17 7,272,047 5,601,100 4,174,152 3,096,028 Borrowings 16 1,313,453 1,072, Current tax liabilities 291, ,557 83,575 28,581 Total current liabilities 8,877,406 6,936,529 4,257,727 3,124,609 Total liabilities 22,279,954 20,796,659 18,644,638 17,568,438 Total equity and liabilities 47,672,456 46,704,664 42,589,309 41,514,883 The notes on pages 17 to 50 are an integral part of these consolidated financial statements. The financial statements on pages 11 to 50 were authorised for issue by the board on 30 April 2012 and were signed on its behalf by: Raymond Fenech Director Lino Spiteri Director 12

15 Statements of comprehensive income Year ended 31 December Notes Revenue 18 11,838,784 10,929,481 2,848,761 2,228,146 Cost of sales 19 (8,558,100) (7,672,461) (486,727) (483,874) Gross profit 3,280,684 3,257,020 2,362,034 1,744,272 Administrative expenses 19 (1,450,139) (970,104) (60,042) (61,492) Other income 7,918 5, Operating profit 1,838,463 2,292,453 2,301,992 1,682,780 Net finance costs 21 (254,796) (650,022) (309,093) (529,721) Profit before tax 1,583,667 1,642,431 1,992,899 1,153,059 Tax (expense)/income 22 (155,872) (478,869) (51,375) 28,337 Profit for the year 1,427,795 1,163,562 1,941,524 1,181,396 Earnings per share for profit during the year 25 20c4 16c6 The notes on pages 17 to 50 are an integral part of these consolidated financial statements. 13

16 Statements of changes in equity Incentives and Share Revaluation benefits Retained Notes capital reserve reserve earnings Total Balance at 1 January ,305,611 1,109,823 2,394,560 7,016,449 26,826,443 Comprehensive income Profit for the year - total comprehensive income ,163,562 1,163,562 Transactions with owners Dividends for (2,082,000) (2,082,000) Balance at 31 December ,305,611 1,109,823 2,394,560 6,098,011 25,908,005 Balance at 1 January ,305,611 1,109,823 2,394,560 6,098,011 25,908,005 Comprehensive income Profit for the year ,427,795 1,427,795 Other comprehensive income: Release of provision for liabilities and charges , ,702 Transfer of reserves subject to income at a reduced rate of tax - - 1,257,072 (1,257,072) - Total comprehensive income - 174,702 1,257, ,723 1,602,497 Transactions with owners Dividends for (2,118,000) (2,118,000) Balance at 31 December ,305,611 1,284,525 3,651,632 4,150,734 25,392,502 The notes on pages 17 to 50 are an integral part of these consolidated financial statements. 14

17 Statements of changes in equity - continued Share Other Retained Notes capital reserve earnings Total Balance at 1 January ,305,611 5,715,516 2,825,922 24,847,049 Comprehensive income Profit for the year - total comprehensive income - - 1,181,396 1,181,396 Transactions with owners Dividends for (2,082,000) (2,082,000) Balance at 31 December ,305,611 5,715,516 1,925,318 23,946,445 Balance at 1 January ,305,611 5,715,516 1,925,318 23,946,445 Comprehensive income Profit for the year - - 1,941,524 1,941,524 Other comprehensive income: Transfer of intragroup release for provision for liabilities and charges , ,702 Total comprehensive income - 174,702 1,941,524 2,116,226 Transactions with owners Dividends for (2,118,000) (2,118,000) Balance at 31 December ,305,611 5,890,218 1,748,842 23,944,671 The notes on pages 17 to 50 are an integral part of these consolidated financial statements. 15

18 Statements of cash flows Year ended 31 December Notes Cash flows from operating activities Cash generated from operations 26 2,260,477 2,386,258 1,721,993 1,671,380 Interest received 13, ,433 13, ,433 Interest paid (428,131) (778,455) (322,879) (658,154) Income tax paid (156,749) (426,674) (35,354) (27,875) Net cash generated from operating activities 1,689,383 1,309,562 1,377,546 1,113,784 Cash flows from investing activities Purchase of property, plant and equipment (588,809) (781,439) - - Purchase of investment property - - (194,351) (219,318) Net cash used in investing activities (588,809) (781,439) (194,351) (219,318) Cash flows from financing activities Increase in bank borrowings 14, , Repayment of bank borrowings (91,871) (544,864) - - Contribution to bond redemption fund (675,462) (818,329) (675,462) (818,329) Release of bond redemption fund - 5,374,620-5,374,620 Redemption of bonds - (5,374,620) - (5,374,620) Dividends paid (118,000) (82,000) (118,000) (82,000) Net cash used in financing activities (870,608) (693,920) (793,462) (900,329) Movement in cash and cash equivalents 229,966 (165,797) 389,733 (5,863) Cash and cash equivalents at beginning of year 1,519,805 1,685,602 1,838,869 1,844,732 Cash and cash equivalents at end of year 9 1,749,771 1,519,805 2,228,602 1,838,869 The notes on pages 17 to 50 are an integral part of these consolidated financial statements. 16

19 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 the requirements of the Maltese Companies Act, They have been prepared under the historical cost convention as modified by the fair valuation of the land and buildings class 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 3 - Critical accounting estimates and judgements). Standards, interpretations and amendments to published standards effective in 2011 In 2011, the group adopted new standards, amendments and interpretations to existing standards that are mandatory for the group s accounting period beginning on 1 January With the exception of IFRS 3 (Revised), Business combinations, and consequential amendments to IAS 27, Consolidated and separate financial statements, 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. IFRS 3 (Revised), Business combinations, and consequential amendments to IAS 27, Consolidated and separate financial statements, are effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July As a consequence, no adjustments were necessary to any of the amounts previously recognised in the financial statements. The revised standard continues to apply the acquisition method to business combinations but with some significant changes compared with IFRS 3. For example, there is a choice on an acquisitionby-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest s proportionate share of the acquiree s net assets. All acquisition-related costs are expensed, while goodwill is now determined only at the acquisition date, rather than also at subsequent increases in ownership interest. IAS 27 (Revised) requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in profit or loss. IAS 27 (Revised) has had no impact on the current period and there have been no transactions whereby an interest in an entity is retained after the loss of control of that entity, and there have been no transactions with non-controlling interests. 17

20 Notes to the financial statements 1. Summary of significant accounting policies - continued 1.1 Basis of preparation - continued 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, with the exception of IFRS 9, Financial instruments, there are no requirements that will have a possible significant impact on the group s financial statements in the period of initial application. IFRS 9, Financial instruments, addresses the classification and measurement of financial assets, and replaces the multiple classification and measurement models in IAS 39 with a single model that has only two classification categories: amortised cost and fair value. Classification under IFRS 9 is driven by the reporting entity s business model for managing the financial assets and the contractual characteristics of the financial assets. IFRS 9, Financial instruments, also addresses the classification and measurement of financial liabilities, and retains the majority of the requirements in IAS 39 in relation to financial liabilities. Subject to adoption by the EU, IFRS 9 is effective for financial periods beginning on, or after, 1 January The group is considering the implications of the standard and its impact on the group s financial results and position, together with the timing of its adoption taking cognisance of the endorsement process by the European Commission. 1.2 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 group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. 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 consideration transferred and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the group s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, 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. 18

21 Notes to the financial statements 1. Summary of significant accounting policies - continued 1.2 Consolidation - continued Subsidiaries - continued As disclosed in note 1.1, the group has changed its accounting policy for transactions with noncontrolling interests and the accounting for loss of control from 1 January 2010 when IAS 27 (Revised), Consolidated and separate financial statements, became effective. 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. In the company s separate financial statements, investments in subsidiaries are accounted for by the cost method of accounting, that is at cost less impairment. Provisions are recorded where, in the opinion of the directors, there is an impairment in value. Where there has been an impairment in the value of an investment, it is recognised as an expense in the period in which the diminution is identified. The results of subsidiaries are reflected in the company s separate financial statements only to the extent of dividends receivable. On disposal of an investment, the difference between the net disposal proceeds and the carrying amount is charged or credited to profit or loss. Loans for which settlement is neither planned nor likely to occur in the foreseeable future are, in substance, an extension of the company's investment in that subsidiary. Loans to subsidiaries for which settlement is planned are classified as loans and receivables in accordance with the requirements of IAS 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 and the parent company s functional and presentation currency. (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 remeasured. 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 net finance costs. All other foreign exchange gains and losses are presented in the statement of comprehensive income within other income/(expenses). 19

22 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 and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of items. Cost includes expenditure that is directly attributable to the acquisition of the items. Borrowing costs which are incurred for the purpose of acquiring or constructing a qualifying asset are capitalised as part of its cost. Borrowing costs are capitalised while acquisition or construction is actively underway. Capitalisation of borrowing costs is ceased once the asset is substantially complete, and is suspended if the development of the asset is suspended. 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 of land and buildings are credited to other comprehensive income and shown as a revaluation reserve in shareholders equity. Decreases that offset previous increases of the same asset are charged in other comprehensive income and debited against the revaluation reserve directly in equity; all other decreases are charged to profit or loss. Each year the difference between depreciation based on the revalued carrying amount of the asset 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 1.6). 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 statement of comprehensive income. On disposal of a revalued asset, amounts in the revaluation reserve relating to that asset are transferred to retained earnings. 20

23 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 parent 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. Investment property is measured initially at its historical cost, including related transaction costs and borrowing costs. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Borrowing costs are incurred for the purpose of acquiring or constructing a qualifying investment property are capitalised as part of its cost. Borrowing costs are capitalised while acquisition or construction is actively underway. Capitalisation of borrowing costs is ceased once the asset is substantially complete and is suspended if the development of the asset is suspended. 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). 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 Impairment of non-financial assets Assets that have an indefinite useful life 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. 21