Annual Report and Consolidated Financial Statements 30 April 2014 Registration Number: C41962
Pages Directors report 1-3 Corporate governance - Statement of compliance 4-7 Remuneration statement 8 Independent auditor s report 9-10 Statements of financial position 11-12 Income statements 13 Statements of comprehensive income 13 Statements of changes in equity 14-15 Statements of cash flows 16 Notes to the financial statements 17-49
Directors report The directors present the annual report and the audited consolidated financial statements for the year ended 30 April 2014. Principal activities The group s principal activities are the management and operation of the PAVI Shopping Complex situated in Qormi, Malta. This comprises the operation of supermarket activities including the management of shared activities within the retailing operations and the concessions of commercial areas that complement the complex. Within the supermarket operations, certain bakery and confectionary activities are conducted by PAVI Bakery Limited. Review of the business During the year under review the continued to register further revenue growth in line with the increasing popularity of the PAVI Supermarket. This was largely driven by competitive prices and special offers which complemented the various positive attributes of the amenities of the Complex to yield a truly rewarding shopping experience to our customers. The has also registered further improvement in operating margin as a result of effective retail management. Consequently, the operating profit rose by 39% to 3,942,336 (2013: 2,837,311) on turnover of 32,625,224 (2013: 32,423,913)and the profits after tax rose by 59% to 2,155,760 (2013: 1,357,753). Events after the reporting period On 27 June 2014 the Board of Directors agreed to redeem the 9,534,361 outstanding bonds on the first Optional Redemption Date falling on 26 October 2014 in accordance with the terms of the Prospectus dated 28 September 2007. The Bond will be redeemed out of cash funds and unutilized bank facilities. Outlook for financial year ending 30 April 2014 While the market environment in which the group operates within, remains extremely competitive, the directors are cautiously optimistic that the group results will be sustained in the foreseeable future. Dividends and Reserves The statements of comprehensive income are set out on page 13. During the year, the directors declared a net final dividend of 2,000,000 (2013: 1,349,997). Retained earnings amounting to 890,344 for the and 902,619 for the are being carried forward. 1
Directors report - continued Directors The directors of the company who held office during the year were: Paul Gauci - Chairman Victor Grech Claire Gauci appointed on 21 February 2014 Lawrence Zammit William Spiteri Bailey David Grech Alfred Lupi resigned on 1 May 2013 On 16 June 2014, David Grech resigned from director of the company and Caroline Grech was appointed in his stead. 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 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 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, 1995. 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. The financial statements of Pavi Shopping Complex p.l.c. for the year ended 30 April 2014 are included in this annual report, which is published in hard-copy printed form and 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. 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 these financial statements. 2
Directors report - continued 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 Paul Gauci Chairman Director Victor Grech Registered office: PAVI Shopping Complex Manuel Dimech Street Qormi Malta 28 August 2014 3
Corporate governance - Statement of compliance Introduction Pursuant to the requirements of the Listing Rules issued by the Malta Financial Services Authority, PAVI Shopping Complex p.l.c. ( the ) is hereby reporting on the extent to which it has adopted the Code of Principles of Good Corporate Governance (the Principles ) as well as the measures taken to ensure compliance therewith. The holds title to the land and buildings that constitute the PAVI Shopping Complex in Qormi, Malta. PAVI Shopping Complex p.l.c. is also the principal shareholder of PAVI Supermarkets Limited, the operator of the shopping complex which in turn is also the principal shareholder of PAVI Bakery Limited, the operator of the PAVI bakery whose sales are mainly made to its immediate parent company, (collectively referred to as the ). The s principal activity is the operation of the PAVI Shopping Complex, and the renting out of parts of the said property to 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 complex, in part by way of rental payments and in part through dividend and other transfers. In deciding on the most appropriate manner in which to implement the Principles, the board of PAVI Shopping Complex p.l.c. (the Board ) has taken cognisance of the size of the which inevitably impacts on the structures required to implement the Principles without diluting the effectiveness thereof. The does not have any employees. Subject to the foregoing, the Board considers that the has been in compliance with the Principles throughout the year. 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 shopping complex operational business plan and targets and implementation of such plans; identifying the principal business risks of the and overseeing the implementation and monitoring of appropriate risk management systems; monitoring that its operations are in conformity with its commitments towards bondholders, shareholders and all relevant laws and regulations; ensuring that the installs and operates effective internal control and management information systems; assessing the performance of the 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 has a policy in place to enable it to communicate effectively with the market. 4
Corporate governance - Statement of compliance - continued Roles and responsibilities - continued The Board delegates authority and vests accountability for the s day to day operational business with the s subsidiaries organisational structures. PAVI Supermarkets Limited and PAVI Bakery Limited have their own management structure, accounting systems and internal controls, and governed by their own boards, whose members include executive directors of PAVI Shopping Complex p.l.c. The supermarket and bakery management team are led by their respective directors who are involved in the day to day business operations and are supported by officers designated to the different functional roles within the complex operations. Board of Directors During the period under review the had six directors who were appointed by its principal shareholders, Yvonvi Limited and PG Holdings Limited. Alfred Lupi has resigned from his position as Chairman and full-time executive director of the as from 1 May 2013, instead Paul Gauci was appointed as Chairman in his stead while Claire Alexia Gauci was appointed as a non-executive Director on 21 February 2014. David Grech became a non-executive director as from 11 October 2013 and following his resignation with effect from 16 June 2014, Caroline Grech was appointed as a non-executive director in his stead. Lawrence Zammit and William Spiteri Bailey, served on the Board of the as independent non-executive directors whereas Paul Gauci and Victor Grech served as executive directors and are not considered to be independent as they are the ultimate beneficial owners of the. The Chairman was appointed in terms of the articles of association of the to assume responsibility in an executive capacity for the strategic leadership of the. During the period under review, the did not designate a Chief Executive Officer and instead day-to-day management was delegated to the General Manager who, together with the Chief Financial Officer reported to the board of directors of the. The position of the Chairman of the and that of the General Manager of the, were occupied by different individuals and therefore both roles were kept separate and distinct from each other. The Directors are of the opinion that during the period under review the composition of the Board had the right mix of executive and non-executive directors, including two independent board members, thereby ensuring good corporate governance through the proper exercise of responsibility of each individual director who fulfilled a full and constructive role in the affairs of the. The exercise of the role of the board The activities of the Board were exercised in a manner designed to ensure that it can function independently of management and effectively supervise the operations of the and protect the interests of bondholders and shareholders. Apart from setting the strategy and direction of the, the Board retained direct responsibility for approving and monitoring: the direct supervision, supported by expert professional advice as appropriate, on the issue and listing of bonds; that the proceeds of the bonds were applied for the purposes for which they were issued as specified in the prospectus dated 28 September 2007; the proper utilisation of the s resources, and financing opportunities, through budgets and annual plans for the supermarket operations and property rentals; the approval of the annual report and financial statements and of relevant public announcements and for the company s compliance with its continuing listing obligations. 5
Corporate governance - Statement of compliance - continued The exercise of the role of the board - continued Meetings of the Board, chaired by its Chairman Paul Gauci, were held regularly. Individual directors, apart from attending formal board meetings, participated in other informal meetings during the year as required. The Board members were notified of forthcoming meetings by the company secretary and with an agenda and board papers as necessary. During the year under review the Board held four formal meetings, which were attended by all the directors. The has been effectively constituted since the commencement of the retailing operation in 2006 and proper reporting structures are now well-defined. During the period under review, regular executive meetings were held whereby management presented the Board with performance reviews on supermarket and complex operations. The has instituted a remuneration committee and an audit committee. The Board does not consider it necessary to institute further separate committees, such as a nomination committee, as may be appropriate in the case of a larger corporate organisation. As required by the Companies Act, 1995 and the Malta Financial Services Authority Listing Rules, the financial statements of PAVI Shopping Complex p.l.c. are subject to annual audit by its external auditors. Moreover, the Board has direct access to the external auditors of the, who attend board meetings at which the s and s financial statements are approved. 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. Audit Committee The audit committee assists the directors in conducting their role effectively so that the s decision making capability and the accuracy of its reporting and financial results are maintained at a high level at all times. The audit committee is responsible, amongst others, for reviewing the s internal procedures, assessing the effectiveness of the s internal control and risk management systems and monitoring the integrity and effectiveness of the s financial reporting. Meetings may be convened at the request of any of its members or at the request of the external auditors. The s external auditors may be invited to attend meetings of the audit committee on a regular basis. During the year under review the audit committee met every quarter. The members of the audit committee during this period were William Spiteri Bailey as chairman and Lawrence Zammit and Victor Grech as members. William Spiteri Bailey was appointed by the board in terms of Listing Rule 5.115 in view of the fact that he is a Certified Public Accountant and holder of a practising certificate in auditing. Mr. Spiteri Bailey is deemed to be independent, due to his not having had any executive role within the, nor any family ties with its shareholders or senior executives, or any business relationship with the. Remuneration Committee The remuneration committee has as its primary purpose the functions of devising the appropriate packages needed to attract, retain and motivate executive directors and senior employees with the right qualities and skills for the proper management of the. The remuneration committee makes proposals to the directors on the remuneration policy of executive directors and senior management and reviews the ongoing appropriateness and relevance of the s remuneration policy. It is also responsible for reviewing the wider remuneration policy across the and to make recommendations to the directors on any changes it considers appropriate in employee remuneration and benefit structures throughout the. 6
Corporate governance - Statement of compliance - continued The exercise of the role of the board - continued Remuneration Committee - continued Committee meetings are held on an ad hoc basis. During the period under review the members of the remuneration committee were Lawrence Zammit (Chairman),William Spiteri Bailey and David Grech. During the year under review the committee proposed a revision to four of the directors and one of the senior management remuneration packages. This proposal was approved by the board. Internal control and risk management systems in relation to financial reporting The maintains a system of internal controls which is designed to ensure proper checks over the operations of the and the complete and accurate reporting of transactions. The system is monitored on a regular basis by management and reviewed periodically by the Board through the audit committee. The system provides for the proper organisation and processes aimed at promoting the necessary control environment throughout its operations. Management is responsible for the ongoing identification and management of the principal risks affecting the business and these are considered by the Board during the review of the financial results of the. 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 way of the Annual Report and Financial Statements. The Board publishes its results every six months through its interim and annual reports. 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 28 August 2014 and signed on its behalf by: Paul Gauci Chairman Director Victor Grech 7
Remuneration Statement The Board has set up a Remuneration Committee, with the primary role of making recommendations to the Board on the remuneration policy of executive directors and senior management and reviews the ongoing appropriateness and relevance of the s remuneration policy. Remuneration Policy - Directors The Board determines the remuneration of both executive and non-executive directors of the. During the period under review Victor Grech, David Grech and Paul Gauci each held an indefinite full-time contract of service with PAVI Supermarkets Limited. Notice period on termination is as provided for by law and no termination benefits are payable under the said contracts of service. William Spiteri Bailey and Lawrence Zammit receive an annual remuneration for the service rendered which is payable by the. The remuneration policy for directors has been consistent since inception, in that the does not afford any profit-sharing or share option arrangements, pension benefits or early retirement schemes. The remuneration is fixed and without any variable component or any non-cash benefits. In accordance with the s articles of association, the total emoluments payable to all directors, whether as fees and/or salaries by virtue of holding employment with the is subject to shareholder approval at the annual general meeting. For the financial year under review the aggregate remuneration of the directors of the was as follows: Fixed remuneration from 7,804 Fixed remuneration from Subsidiary 341,691 Remuneration Policy - Senior Management The General Manager and Chief Financial Officer constitute the senior management of the reporting to the board of directors of the and regularly attending board meetings. The remuneration policy for senior management is similar to that for directors. For the financial year under review the aggregate remuneration of senior management of the was as follows: Fixed remuneration from Subsidiary 160,720 Fixed remuneration from related party 41,227 8
Independent auditor s report To the Shareholders of PAVI Shopping Complex p.l.c. Report on the Financial Statements for the year ended 30 April 2014 We have audited the consolidated and stand-alone parent company financial statements of PAVI Shopping Complex p.l.c. on pages 11 to 49 which comprise the consolidated and parent company statements of financial position as at 30 April 2014, and the consolidated and parent company statements of income, 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 page 2, 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 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 and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the financial position of the group and the company as at 30 April 2014, and of their financial performance and their 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, 1995. 9
Independent auditor s report - continued To the Shareholders of PAVI Shopping Complex p.l.c. Report on Other Legal and Regulatory Requirements for the year ended 30 April 2014 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. 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 considered 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 considered 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. PricewaterhouseCoopers 78 Mill Street Qormi Malta Simon Flynn Partner 28 August 2014 10
Statements of financial position As at 30 April ASSETS Notes Non-current assets Property, plant and equipment 4 19,328,138 19,628,673 - - Investment property 5 - - 19,492,583 19,472,307 Investments in subsidiaries 6 - - 1,863,499 1,863,499 Available-for-sale financial assets 7-328,380-328,380 Other investments 8-650,000 - - Deferred tax asset 14 1,411 - - - Total non-current assets 19,329,549 20,607,053 21,356,082 21,664,186 Current assets Inventories 9 2,002,078 2,038,867 - - Trade and other receivables 10 2,869,302 3,726,140 1,416,615 72,359 Other investments 8-1,337,000 - - Cash and cash equivalents 11 5,491,685 110,327 359,279 44,382 Total current assets 10,363,065 7,212,334 1,775,894 116,741 Total assets 29,692,614 27,819,387 23,131,976 21,780,927 11
Statements of financial position - continued EQUITY AND LIABILITIES As at 30 April Notes Capital and reserves Share capital 12 8,386,908 8,386,908 8,386,908 8,386,908 Fair value reserve 13-17,130-17,130 Retained earnings 902,619 746,859 890,344 626,377 Total equity 9,289,527 9,150,897 9,277,252 9,030,415 Non-current liabilities Borrowings 16-9,810,499-9,810,499 Deferred tax liabilities 14 1,269,730 1,279,309 1,257,862 1,257,862 Total non-current liabilities 1,269,730 11,089,808 1,257,862 11,068,361 Current liabilities Trade and other payables 15 5,771,265 5,066,595 2,905,197 1,651,974 Borrowings 16 12,291,180 1,875,906 9,484,410 - Current tax liabilities 1,070,912 636,181 207,255 30,177 Total current liabilities 19,133,357 7,578,682 12,596,862 1,682,151 Total liabilities 20,403,087 18,668,490 13,854,724 12,750,512 Total equity and liabilities 29,692,614 27,819,387 23,131,976 21,780,927 The notes on pages 17 to 49 are an integral part of these financial statements. The financial statements on pages 11 to 49 were authorised for issue by the board on 28 August 2014 and were signed on its behalf by: Paul Gauci Chairman Victor Grech Director 12
Income statements Year ended 30 April Notes Revenue 17 32,625,224 32,423,913 1,785,000 1,060,000 Cost of sales 18 (28,024,196) (28,541,920) - - Gross profit 4,601,028 3,881,993 1,785,000 1,060,000 Selling and distribution expenses 18 (485,786) (475,274) - - Administrative expenses 18 (983,214) (1,289,092) (36,711) (38,796) Other income 20 810,308 719,684 21,486 - Operating profit 3,942,336 2,837,311 1,769,775 1,021,204 Investment income 21 - - 2,307,687 1,807,688 Finance income 22 94,950 47,636 7,604 14,802 Finance costs 23 (851,715) (774,159) (804,425) (752,175) Profit before tax 3,185,571 2,110,788 3,280,641 2,091,519 Tax expense 24 (1,029,811) (753,035) (1,016,674) (664,819) Profit for the year 2,155,760 1,357,753 2,263,967 1,426,700 Earnings per share (cents) 26 59.9 37.7 62.9 39.6 Statements of comprehensive income Year ended 30 April Note Profit for the year 2,155,760 1,357,753 2,263,967 1,426,700 Other comprehensive income: Items that may be subsequently reclassified to profit or loss: Available-for-sale financial assets: Change in fair value 4,356 15,450 4,356 15,450 Reclassification adjustment upon disposal 7 (21,486) - (21,486) - Total comprehensive income for the year 2,138,630 1,373,203 2,246,837 1,442,150 The notes on pages 17 to 49 are an integral part of these financial statements. 13
Statements of changes in equity Share Fair value Retained capital reserve earnings Total Notes Balance at 1 May 2012 8,386,908 1,680 739,103 9,127,691 Comprehensive income Profit for the year - - 1,357,753 1,357,753 Other comprehensive income: Change in fair value of available-for-sale financial assets 7-15,450-15,450 Total comprehensive income - 15,450 1,357,753 1,373,203 Transactions with owners Dividends for 2013 27 - - (1,349,997) (1,349,997) Balance at 30 April 2013 8,386,908 17,130 746,859 9,150,897 Balance at 1 May 2013 8,386,908 17,130 746,859 9,150,897 Comprehensive income Profit for the year - - 2,155,760 2,155,760 Other comprehensive income: Available-for-sale financial asset: Change in fair value 7-4,356-4,356 Reclassification adjustment upon disposal 7 - (21,486) - (21,486) Total comprehensive income - (17,130) 2,155,760 2,138,630 Transactions with owners Dividends for 2014 27 - - (2,000,000) (2,000,000) Balance at 30 April 2014 8,386,908-902,619 9,289,527 The notes on pages 17 to 49 are an integral part of these financial statements. 14
Statements of changes in equity - continued Share Fair value Retained capital reserve earnings Total Notes Balance at 1 May 2012 8,386,908 1,680 549,674 8,938,262 Comprehensive income Profit for the year - - 1,426,700 1,426,700 Other comprehensive income: Change in fair value of available-for-sale financial assets 7-15,450-15,450 Total comprehensive income - 15,450 1,426,700 1,442,150 Transactions with owners Dividends for 2013 27 - - (1,349,997) (1,349,997) Balance at 30 April 2013 8,386,908 17,130 626,377 9,030,415 Balance at 1 May 2013 8,386,908 17,130 626,377 9,030,415 Comprehensive income Profit for the year - - 2,263,967 2,263,967 Other comprehensive income: Available-for-sale financial asset: Change in fair value 7-4,356-4,356 Reclassification adjustment upon disposal 7 - (21,486) - (21,486) Total comprehensive income - (17,130) 2,263,967 2,246,837 Transactions with owners Dividends for 2014 27 - - (2,000,000) (2,000,000) Balance at 30 April 2014 8,386,908-890,344 9,277,252 The notes on pages 17 to 49 are an integral part of these financial statements. 15
Statements of cash flows Year ended 30 April Notes Cash flows from operating activities Cash generated from operations 28 6,042,028 4,105,174 1,678,742 1,286,447 Interest received 94,950 47,636 7,604 14,802 Interest paid (752,577) (749,474) (705,287) (727,490) Tax paid (606,070) (697,685) (839,596) (22,250) Net cash generated from operating activities 4,778,331 2,705,651 141,463 551,509 Cash flows from investing activities Payments for property, plant and equipment (201,860) (229,446) (20,276) - Allocation of available-for-sale assets - 311,250-311,250 Dividends received - - 2,307,687 1,174,997 Transfer of funds to cash and cash equivalents upon maturity of other investments 1,987,000 - - - Transfer to other investments - (1,487,000) - - Contribution to bond redemption fund (21,485) (311,305) (21,485) (311,305) Proceeds from sale of tangible assets 1,000 - - - Net cash generated from/(used in) investing activities 1,764,655 (1,716,501) 2,265,926 1,174,942 Cash flows from financing activities Redemption of bonds (425,282) (359,853) (425,282) (359,853) Dividends paid (2,000,000) (1,349,997) (2,000,000) (1,349,997) Net cash used in financing activities (2,425,282) (1,709,850) (2,425,282) (1,709,850) Net movement in cash and cash equivalents 4,117,704 (720,700) (17,893) 16,601 Cash and cash equivalents at beginning of the year (1,790,950) (1,070,250) 19,011 2,410 Cash and cash equivalents at end of the year 11 2,326,754 (1,790,950) 1,118 19,011 The notes on pages 17 to 49 are an integral part of these financial statements. 16
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 The consolidated financial statements include the financial statements of PAVI Shopping Complex p.l.c. and its subsidiaries. These consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and with the requirements of the Maltese Companies Act, 1995. The financial statements are prepared under the historical cost convention as modified by the fair valuation of property, plant and equipment, investment property and available-for-sale investment, except as disclosed in the accounting policies below. 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 and company s accounting policies (see Note 3 - Critical accounting estimates and judgements). Standards, interpretations and amendments to published standards effective in 2014 In 2014, the group adopted new standards, amendments and interpretations to existing standards that are mandatory for the group s accounting period beginning on 1 May 2013. 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 13, Fair value measurement, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs. Amendment to IAS 1, Financial statements presentation relates to other comprehensive income. The main change resulting from these amendments is a requirement for entities to group items presented in other comprehensive income on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The amendments do not address which items are presented in other comprehensive income. 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 May 2013. 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. 17
1. Summary of significant accounting policies - continued 1.2 Consolidation 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 applies 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 to the former owners of the acquiree 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 (identifiable net assets) in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest s proportionate share of the recognised amounts of the acquiree s identifiable net assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree 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. 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. A listing of the group s principal subsidiaries is set out in Note 6 to these financial statements. 1.3 Foreign currency translation (a) Functional and presentation currency Items included in these consolidated financial statements 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. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. 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. All foreign exchange gains and losses are presented in the statement of comprehensive income within administrative expenses. 18
1. Summary of significant accounting policies - continued 1.4 Property, plant and equipment All property, plant and equipment is initially recorded at historical cost. Land and buildings, are shown at fair value based on valuations by directors and external independent valuers, less subsequent depreciation for buildings. Valuations are carried out periodically unless the directors consider it appropriate to have an earlier revaluation on a regular basis such that the carrying amount of property does not differ materially from that which would be determined using fair values at the end of the reporting period. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset, and the net amount is restated to the revalued amount of the asset. All other 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 the items. Borrowing costs are being accounted for in accordance with Note 1.20. 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. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. 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 is transferred from the revaluation reserve to retained earnings. Land is not depreciated as it is deemed to have an indefinite life. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful lives, as follows: Buildings 2 Plant, machinery and catering equipment 6.67-25 Furniture, fixtures and fittings 10-25 The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount (Note 1.7). Gains and losses on disposals are determined by comparing the proceeds with carrying amount and are recognised in profit or loss. When revalued assets are sold, the amounts included in the revaluation reserve relating to the assets are transferred to retained earnings. % 19
1. Summary of significant accounting policies - continued 1.5 Investment property The company owns investment property, principally comprising the PAVI Shopping Complex, which is held for long-term rental yields and is not occupied by the company but rented out to its subsidiary. 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 accounted for in accordance with Note 1.20 After initial recognition, investment property is carried at fair value, representing open market value determined annually. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If the information is not available, the company uses alternative valuation methods such as recent prices on less active markets or discounted cash flow projections. Subsequent expenditure is capitalised to the asset s carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to profit or loss during the financial period in which they are incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognised. The fair value of investment property does not reflect future capital expenditure that will improve or enhance the property and does not reflect the related future benefits from this future expenditure other than those a rational market participant would take into account when determining the value of the property. Changes in fair values are recognised in profit or loss. Investment properties are derecognised either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. 1.6 Investments in subsidiaries In the company s financial statements, investments in subsidiaries, which represent shares in subsidiaries, are accounted for by the cost method of accounting. The dividend income from such investments is included in profit or loss in the accounting year in which the company s rights to receive payment of any dividend is established. The company gathers objective evidence that an investment is impaired using the same process disclosed in Note 1.8.3. On disposal of an investment, the difference between the net disposal proceeds and the carrying amount is charged or credited to profit or loss. 20
1. Summary of significant accounting policies - continued 1.7 Impairment of non-financial assets Assets that have an indefinite useful life are not subject to depreciation and are tested annually for impairment. Assets that are subject to amortisation or depreciation 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). Nonfinancial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of the reporting period. 1.8 Financial assets 1.8.1 Classification The group classifies its financial assets (other than investments in subsidiaries in the company s case) in the following categories: loans and receivables and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. (a) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the group provides money, goods or services directly to a debtor with no intention of trading the asset. They are included in current assets, except for maturities greater than twelve months after the end of the reporting period. These are classified as non-current assets. The group s loans and receivables comprise trade and other receivables and cash and cash equivalents in the statement of financial position (Notes 1.10 and 1.11). (b) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices are classified as available-for-sale assets. They are included in non-current assets unless the asset matures or management intends to dispose of it within twelve months from the end of the reporting period. 1.8.2 Recognition and measurement The group recognises a financial asset in its statement of financial position when it becomes a party to the contractual provisions of the instrument. Regular way purchases and sales of financial assets are recognised on settlement date, which is the date on which an asset is delivered to or by the company. Any change in fair value for the asset to be received is recognised between the trade date and settlement date in respect of assets which are carried at fair value in accordance with the measurement rules applicable to the respective financial assets. Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables are subsequently carried at amortised cost using the effective interest method. Amortised cost is the initial measurement amount adjusted for the amortisation of any difference between the initial and maturity amounts using the effective interest method. 21
1. Summary of significant accounting policies - continued 1.8 Financial assets - continued 1.8.2 Recognition and measurement - continued Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership or has not retained control of the asset. Changes in the fair value of monetary securities denominated in a foreign currency and classified as available-for-sale are analysed between translation differences resulting from changes in amortised cost of the security and other changes in the carrying amount of the security. The translation differences on monetary securities are recognised in profit or loss; translation differences on non-monetary securities are recognised in other comprehensive income. The other changes in the fair value of monetary and non-monetary securities classified as available-for-sale are recognised in other comprehensive income. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in profit or loss within investment income. Interest on available-for-sale securities calculated using the effective interest method is recognised in profit or loss within investment income. Dividends on available-for-sale equity instruments are recognised in profit or loss when the group s right to receive payments is established. The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the company establishes fair value by using valuation techniques. These include the use of recent arm s length transactions, reference to other instruments that are substantially the same, discounted cash flow analyses, and option pricing models making maximum use of market inputs and relying as little as possible on entity-specific inputs. 1.8.3 Impairment The group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The group first assesses whether objective evidence of impairment exists. The criteria that the group uses to determine that there is objective evidence of an impairment loss include: Significant financial difficulty of the issuer or obligor; A breach of contract, such as a default or delinquency in interest or principal payments; It becomes probable that the borrower will enter bankruptcy or other financial reorganisation. 22