Company Registration No.: C 5067

Hal Mann Vella Group p.l.c.

Annual Report and Consolidated Financial Statements

for the year ended

31 December 2022

Contents                                                                                                                                                             

Chairman’s Statement

for the year ended 31 December 2022

I am pleased to present the Chairman's Statement for our company's Annual Report covering the financial year 2022. The past year has been a challenging one for the global economy, with geopolitical tensions, rising inflation rates, and an energy crisis impacting businesses across the world. In addition, the lingering effects of the COVID-19 pandemic have continued to reverberate throughout the global economy, adding to the volatility and uncertainty.

Despite these challenges, I am proud to report that our Group has delivered a consistent performance during the year, achieving several key milestones and making significant progress on our strategic initiatives. Our commitment to innovation, sustainability, and social responsibility has remained unwavering, and we have continued to pursue these goals with determination and focus.

It is worth noting that Malta's economy experienced a healthy recovery of 6.9% in 2022, despite not being immune to the global economic developments with annual inflation hitting 7.3%. However, the labour market remained tight, putting increasing pressure on the economy through higher business costs. It is highly unlikely that we will see a change soon, and this will continue causing economic stress amongst market players.

Our performance

In 2022, the business faced a number of challenges, but through resilience and agility, we have strengthened our relationships with customers and consolidated our business. Across both pillars of our Group - property development and letting, and manufacturing and general contracting services - we recorded improved year-on-year performances, a testament to the strength of our diversified and balanced business model.

Throughout the year, Halmann Vella successfully completed several major projects, including Trident Park, demonstrating our commitment to delivering exceptional quality and service to our clients. We have maintained a stable pipeline of work and remain confident in our ability to continue to thrive.

Our property development projects made good progress during the year, with projected sales targets achieved and contracts signed. Additionally, we have a number of projects in progress. Our property letting segment delivered a more stable performance compared to the previous year.

Corporate Social Sustainability

Hal Mann Vella Group is a business that upholds social and environmental responsibilities, operating in an ethical and accountable manner while ensuring profitability and competitiveness. As our operations have an impact on the environment, people, customers, and communities we serve, we are committed to minimizing our impact. Currently, the use of our property roofs, generate approximately 2 million kilowatt hours of renewable energy annually through solar panels, and we plan to increase our investment in this technology. Water is another vital element in our production process, and our factories' installed systems filter and reuse over 200,000 litres of water each day. In addition, we recycle material waste to create sustainable flooring products. Innovation drives our development, and we continue to invest in product innovation to deliver sustainable solutions in the built environment.

Striving to improve industry standards for our employees, subcontractors, and stakeholders, our business places a high priority on health and safety, providing regular training programs to achieve this goal.

We believe in a diverse and inclusive workplace, treating all employees equally regardless of gender, ethnicity, sexual orientation, disability, or age. As part of our commitment to supporting our employees, we also provide a range of employee well-being benefits to ensure that everyone has access to the resources and support they need to thrive.

Looking Forward

We remain cautious on the outlook of the domestic economy as inflationary pressures are becoming more pronounced across all sectors and industries. The order book for 2023 is relatively good with a number of projects in progress and we continue to work diligently on securing a number of other projects that we believe we are well-positioned to take on. We remain vigilant but nonetheless confident that our balanced business model has positioned us well to navigate these challenges and capitalize on emerging opportunities to drive sustained growth and create value.

I want to express my sincere gratitude to our dedicated employees, Board of Directors, and other supportive stakeholders. Your hard work, commitment, and contributions have been instrumental in helping us achieve many milestones and we look forward to achieving many more together. Once again, thank you for your continued commitment and support.

Directors' Report

for the year ended 31 December 2022

The Board of Directors are hereby presenting their annual report together with the audited financial statements of the Group and the Company for the year ended 31 December 2022.

Principal activities

The principal activity of the Company is to hold assets for the Group and also acts as the financing arm of the Group.

The principal activities of the Group relate to the manufacture and business of stone, marble and granite as well as the manufacture of terrazzo and pre-cast elements. The Group owns and leases a number of commercial properties and is also involved in property development and resale.

Review of business

The Group generated a turnover of €23,845,540, as compared to the previous year's €25,259,819, and achieved an operating profit of €4,452,151 down from €4,795,577 in 2021. Additionally, the Group registered a consolidated profit before tax of €3,590,288, compared to €2,012,815 in the previous year.

The Company registered a profit before tax of €598,183 during the year ended 31 December 2022
(2021: €587,522).

Given the Group’s and Company’s financing structure and positive net assets position, we are pleased to report that the Directors consider the state of affairs for both entities at the close of the financial year to be satisfactory.

Performance

In 2022, Group total revenue slightly dropped from €25.26m to €23.85m, which can be attributed to the delay in the commencement of customer projects on which the Group had no control. However, it is noteworthy that both segments reported an improved year-on-year performance, indicating that the company has made progress in various aspects of its business.

The gross profit margin also improved from 32.61% to 34.76%. This improvement can be attributed to the revenues generated from property development and increased rental income, which have contributed positively to the company's overall financial performance.

Despite the elevated inflationary pressures, the company has managed to contain its administrative expenses, which is an indication of the company's commitment to cost management and efficiency. This has helped the company to maintain a healthy bottom line and ensure sustainable growth.

Overall, the company's performance in 2022 has been positive, and the company has made significant strides in improving its financial performance. The company's focus on cost management, revenue diversification, and efficiency has yielded positive results, and the company is well-positioned to navigate challenges and headwinds. We remain committed to achieving our goals and delivering value to our stakeholders.

The Group commissioned Messrs TBA Periti to carry out a thorough valuation exercise of investment properties owned by the Group. The fair value of the investment properties were determined on the basis of open market values taking cognizance of the specific location, its size and development potential. Another method of fair value measurement was the discounted cash flow technique, whereby significant inputs were used, namely: long-term pre-tax rate, inflation rate, risk premium, gross profit rate, estimated rental value and extrapolated residual land value. The valuation report issued by TBA Periti is effective on 31 October 2022 and 30 December 2022. This has resulted in the reporting of a change in fair value of investment property of €1,520,476 (2021: nil) in the statement of profit or loss and other comprehensive income.

The Bond Issue

In November 2014, the Company issued a Bond for €30,000,000. Out of the funds received, €12,000,000 were intended for two specific projects namely: the development of a 19,000 sqm property intended to be leased and the extension, deployment and commissioning of new equipment for its stone core business.

Principal risks and uncertainties

The Directors are aware of the various risks faced by the Group as a result of its well diversified business lines primarily on manufacturing and property development. A number of measures are in place to ensure that such risks and uncertainties are maintained at acceptable levels and are in line with the Group’s risk strategy of sustainable, long-term growth and profitability. Our principal risks have not changed this year.

The key risks faced by the Group include credit risk, strategic risk, operational risk, liquidity risk, and reputational risk. Together with other risks and uncertainties inherent in the business, these require strong capital management as safeguard against competent authority requirements and unfavourable events. Given such, the Group regularly reviews operational and capital targets against actual and forecast business levels to minimise such risks if necessary, to the most considerable level possible in the interest of institutional stakeholders.

The main types of risk types are outlined hereunder:

Credit risk

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss.  The Group is exposed to credit risk from its operating activities and from its financing activities including deposits with banks.

Customer credit risk is managed by the Group's management subject to the Group's established policy, procedures and control relating to customer credit risk management.  Credit quality of a customer is assessed based on each customer's credit limits.  Outstanding customer receivables are regularly monitored.  An impairment analysis is performed on each reporting date in accordance with the guidelines set in IFRS 9 Financial Instruments Standard. The Group exercises a prudent credit control policy, and accordingly, it is not subject to any significant exposure or concentration of credit risk. The Group banks only with local financial institutions with high quality standard or rating. The Group's operations are principally carried out in Malta and most of the Group's revenue originates from clients based in Malta.

Strategic risk

This risk relates to the value of Group's assets and local property market in general.

The Group has strict guidelines and engages competent professionals on quality and valuation of its investment properties. The Group's properties are rented out to various tenants, except for those sites where development is in progress. The Group currently has long term lease agreements with in-substance fixed rental receivables in place, which will protect the Group from unforeseen circumstances and inflation. The Group ensures to implement sound capital management policies and flexible cash flow as disclosed below under liquidity risk, to mitigate its risks.

Operational risk

Operational risk maybe defined as the risk of losses arising from defects or failures in its internal processes, people, systems or external events including risks related to fraud, technological and conduct risk.

Operational risk is inherent in all processes, systems and activities of the Group. As such, all employees are responsible for managing and controlling operational risks associated with their own activities and business processes where they are involved. Project management is carried out by competent professionals and surveyors in the field for each site with ongoing projects. The Group, in terms of operational risk management and control, continues to identify, evaluate and mitigate such risks, regardless if these actually occurred or not. The Group also assesses at each reporting date (unless immediate evaluation is necessary) areas of concern for improvement to minimise such operational risks, arising due to the volatile results of each year's operations.

Liquidity risk

The Group is exposed to liquidity risk in relation to meeting future obligations associated with its financial liabilities.  Prudent liquidity risk management includes maintaining sufficient cash and committed credit lines to ensure the availability of an adequate amount of funding to meet the Group's obligations.

Geopolitical and macroeconomic risks

Following the escalation of the geopolitical tensions in Russia and Ukraine from February 2022, the Group has gone through a process of assessing any potential exposures, with no material exposure identified. Whilst, the Group has no direct exposure to these jurisdictions, management will continue to monitor the situation, particularly in terms of the wider macroeconomic implications.

Financial risk management and exposures

Note 34 Financial Risk Management to these financial statements provide details in connection with the Company’s use of financial instruments, its financial risk management objectives and policies and the financial risks to which it is exposed.

Events after the financial reporting date

All events occuring after the balance sheet date until the date of authorisation for issue of these financial statements and that are relevant for valuation and measurement as at 31 December 2022 for the Group and the Company are included in these consolidated financial statements.

On 6 February 2023, the Company increased its share capital to €5,000,100 divided into 5,000,000 ordinary shares of €1 each and 999,964 preference shares of €0.0001 each. All shares were fully paid and subscribed by the current shareholders.

Following the increase in share capital, Halmann Velsud Holdings Limited, a company registered in Malta with registration number C 103794, acquired all the ordinary shares of the Company on 28 February 2023. As at date of this financial statements, the ultimate parent of the Company is Halmann Velsud Holdings Limited.

Future Developments

Despite the economic uncertainties caused by high inflation and higher interest rates, the Board retains a cautiously optimistic outlook about the future. We have a stable order book for our manufacturing segment, a low-risk letting portfolio, and relatively limited exposure to property development, which provides us with a balanced and diversified business.

Additionally, we continue to invest in our manufacturing business to innovate with new sustainable products. Overall, with a strong balance sheet, we are well-positioned to adapt to changing market conditions and to pursue growth opportunities.

Dividends and Reserves

The results for the year are set in the Consolidated Statement of Comprehensive Income.

The Board of Directors does not propose the payment of a dividend in order to further strengthen the financial position of the Group. Retained profits carried forward at the reporting date amounted to €12,381,967 (2021: €11,770,328) for the Group and €3,505,690 (2021: €3,486,812) for the Company.

Directors

The Directors of the Company since the beginning of the year up to the date of this report were:

Mr. Martin Vella - Chairman

Mr. Mark Vella - Director

Mr. Joseph Vella - Director

Mr. Mario Galea - Independent Non-Executive Director

Dr. Arthur Galea Salomone - Independent Non-Executive Director

Ms. Miriam Schembri - Non-Executive Director

Company Secretary

Dr. Louis de Gabriele

Remuneration committee and corporate governance

During the period under review, the functions of the Remuneration Committee were carried out by the Board of Directors in view of the fact that the remuneration of Directors is not performance related.

Statement of Directors’ Responsibilities for the financial statements

The Directors are required by the Maltese Companies Act, 1995 (Cap.386) to prepare financial statements in accordance with International Financial Reporting Standards as adopted by the EU which give a true and fair view of the state of affairs of the Group and the Company as at the end of each reporting period and of the profit or loss for that period.

In preparing such financial statements, the Directors are responsible for:

The Directors are also responsible for designing, implementing and maintaining internal control as 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, 1995 (Cap. 386). 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 Hal Mann Vella Group p.l.c. for the year ended 31 December 2022 are included in the Annual Report 2022, which is published in hard-copy printed form and is available on the Company’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 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.

Statement of responsibility pursuant to the Capital Markets Rules of the Malta Financial Services Authority

The Directors confirm that, to the best of their knowledge:

Going Concern

The Directors, as required by the Capital Markets Rule 5.62, have considered the Company’s operating performance, the balance sheet at year-end, as well as the business plan for the coming year, and they have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, in preparing the financial statements, they continue to adopt the going concern basis in preparing the financial statements.

Shareholder register information pursuant with Capital Markets Rule 5.64

-    Structure of Capital

The Company has an authorised share capital of €5,000,000 Ordinary Shares of €1 each and issued and fully paid up share capital of €4,999,820 with a nominal value of €1 each.  Each Ordinary Share is entitled to one vote.  The Ordinary Shares in the Company shall rank pari passu for all intents and purposes at law.  There are currently no different classes of Ordinary Shares in the Company and accordingly all Ordinary Shares have the same rights, voting rights and entitlements in connection with any distribution whether of dividends or capital.

-    Appointment and removal of Directors

Article 55.1 of the Company’s Memorandum and Articles of Association states that the Directors of the Company shall be appointed by the Members in the annual general meeting (AGM) of the Company.  An election of the Directors shall take place every year.  All Directors, except a managing director (if any), shall retire from office every 3 years, but shall be eligible for re-election.  The Directors shall be elected as provided in Article 55.1.1 & 55.1.2 of the Memorandum and Articles of Association, that any Member or number of Members who in the aggregate hold not less than 200,000 shares having voting rights in the Company shall be entitled to nominate a fit and proper person for appointment as director of the Company.  In addition to the nominations that may be made by Members pursuant to the provisions of Article 55.1.1, the Directors themselves or a committee appointed for the purpose by the Directors, may make recommendation and nominations to the Members for the appointment of Directors at the next following AGM.

-    Powers of Directors

The powers and duties of Directors are outlined in the Company’s Articles of Association.

-    General Meetings

The Company shall in each year hold a General Meeting as its AGM in addition to any other meetings in that year.  All general meetings other than annual general meetings shall be called extraordinary general meetings.  The Directors may convene an extraordinary general meeting whenever they think fit.  If at any time there are not sufficient Directors capable of acting to form a quorum for a meeting of the Directors, any Director, or any two Members of the Company holding at least 10% of the Equity Securities conferring a right to attend and vote at general meetings of the Company, may convene an extraordinary general meeting in the same manner, as nearly as possible, as that in which meetings may be convened by the Directors and shall give notice thereof.

A General Meeting of the Company shall be called by not less than 14 days notice in writing. The notice shall be exclusive of the day on which it is served or deemed to be served and of the day for which it was given and shall specify the place, the day and the hour of the meeting, and in case of special business, the general nature of that business, and shall be accompanied by a statement regarding the effect and scope of any proposed resolution in respect of such special business.

-    Auditors

Pursuant to the Company’s statutory obligations in terms of Companies Act and Capital Markets Rules, the appointment of the auditors and the authorisation of the Directors to set their remuneration will be proposed and approved at the Company’s AGM. HLB CA Falzon have expressed their willingness to continue in office.

These financial statements were approved for issue by the Board of Directors on 27 April 2023 and signed on its behalf by Mr. Martin Vella (Chairman) and Mr. Mark Vella (Director) as per the Directors’ Declaration on ESEF Annual Financial Reports submitted in conjunction with the Annual Financial Report 2022.

Corporate Governance Statement

for the year ended 31 December 2022

Introduction

Pursuant to the Capital Markets Rules issued by the Malta Financial Services Authority (the “Rules“), Hal Mann Vella Group p.l.c. (“the Company”) should endeavour to adopt the Code of Principles of Good Corporate Governance contained in Appendix 5.1 to Chapter 5 of the Rules (“the Code”) and accordingly, in terms of Rule 5.94, the Company is hereby reporting on the extent of its adoption of the Code, with respect to the financial year under review.

The Company became subject to the Rules when its bonds were admitted to listing and subsequent trading on the Malta Stock Exchange.

The Company acknowledges that although the Code does not dictate or prescribe mandatory rules, compliance with the principles of good corporate governance recommended in the Code is in the best interests of the Company, its shareholders, bondholders and other stakeholders, and that compliance with the Code, is not only expected by investors but also evidences the directors' and the Company's commitment to maintaining a high standard of good governance.

The Company has only issued debt securities which have been admitted to trading on the Malta Stock Exchange, and accordingly, in terms of Rule 5.101, is exempt from reporting on the matters prescribed in Rules 5.97.1 to 5.97.3, 5.97.6 and 5.97.7 in this corporate governance statement (the "Statement”).  It is in the light of this exemption afforded to the Company by virtue of Rule 5.101, that the directors of the Company are herein reporting on the corporate governance of the Company.

General

Good corporate governance is the responsibility of the Board of Directors of the Company (“the Board”) as a whole, and has been and remains a priority for the Company. In deciding on the most appropriate manner in which to implement the Code, the Board took cognisance of the Company’s size, nature and operations, and formulated the view that the adoption of certain mechanisms and structures which may be suitable for companies with extensive operations may not be appropriate for the Company.  The limitations of size and scope of operations inevitably impact on the structures required to implement the Code, without however diluting the effectiveness thereof.

The Board considers that, to the extent otherwise disclosed herein, the Company has generally been in compliance with the principles set out in the Code throughout the year under review.

This Statement shall now set out the structures and processes in place within the Company and how these effectively achieve the principles set out in the Code for the year under review.  For this purpose, this Statement will make reference to the pertinent principles of the Code and then set out the manner in which the Board considers that these have been adhered to.

For the avoidance of doubt, reference in this Statement to compliance with the principles of the Code means compliance with the Code’s main principles and the Code provisions.

Compliance with the Code

The Directors believe that for the financial year under review the Company has generally complied with the requirements for each of the following principles. Further information in this respect is provided hereunder.

    Principle One - The Board

The Directors report that for the financial year under review, the directors of the Company have provided the necessary leadership in the overall direction of the Company and have performed their responsibilities for the efficient and smooth running of the Company with honesty, competence and integrity. The Board has adopted prudent and effective systems which ensure an open dialogue between the Board and Senior Management. The Board is composed of fit and proper members who are competent and proper to direct the business of the Company with honesty, competence and integrity. All the members of the Board are fully aware of, and conversant with, the statutory and regulatory requirements connected to the business of the Company. The Board is accountable for its performance and that of its delegates to shareholders and other relevant stakeholders.

The Board has a structure that ensures a mix of Executive and Non-Executive Directors and that enables the Board to have direct information about the Company’s performance and business activities.

    Principle Two - Chairman and Chief Executive Officer (CEO)

The position of the Chairman and that of the CEO are occupied by different individuals. There is a clear division of responsibilities between the running of the Board and the CEO's responsibility in managing the Company's business. This separation of roles of the Chairman and CEO avoids concentration of authority and power in one individual, and differentiates leadership of the Board, from the running of the business.

The Chairman exercises independent judgement and is responsible to lead the Board and set its agenda, whilst also ensuring that the Directors receive precise, timely and objective information so that they can take sound decisions and effectively monitor the performance of the Company. The Chairman is also responsible for ensuring effective communication with shareholders and encouraging active engagement by all members of the Board for discussion of complex or contentious issues. The Board believes that these functions have been conducted in compliance with the dictates of Code provision 2.2. The CEO is then accountable to the Board for all business operations of the Company.

    Principle Three - Composition of the Board

The Board is composed, in line with the requirements of Code provision 3, of a mix of executive and non-executive directors, including independent non-executives. During 2022, the Board was composed of 6 members, with 3 executive and 3 non-executive directors,  2 of whom are independent from the Company.  It is responsible for the overall long-term strategy and general policies of the Company, of monitoring the Company’s systems of internal control, managing the Company's exposure to financial risk, financial reporting, and ensuring effective communication with the market, as and when necessary.

The CEO provides the rest of the directors with access to the information on the Company’s financial position and systems.  He acts as the main point of communication between the Board and overall corporate operations as he is responsible for proper implementation of sustainable business solutions, effective framework of internal controls over risk in relation to the business and strategic  goals devised by the Board.

The Board of Directors consists of the following:

Mr. Martin Vella - Director and Chairman

Mr. Mark Vella - Executive Director

Mr. Joseph Vella - Executive Director

Mr. Mario Galea - Non-Executive Director

Dr. Arthur Galea Salomone - Non-Executive Director

Ms. Miriam Schembri - Non-Executive Director

In accordance with the provisions of the Company’s Articles of Association, the appointment of directors to the Board is exclusively reserved to the Company’s shareholders, except in so far as appointment is made by the Board to fill a casual vacancy, which appointment would be valid until the conclusion of the next annual general meeting ("AGM") of the Company, following such an appointment.  In terms of the Company's Articles of Association a director shall hold office for a period of three years from the date of his appointment.  Dr. Arthur Galea Salomone and Mr. Mario Galea are considered by the Board to be independent non-executive members of the Board. Ms. Miriam Schembri on the other hand, is also a non-executive member of the Board, however, is not independent.

None of the independent non-executive directors:

In terms of Code provision 3.4, each non-executive director of the Board has declared in writing to the Board that he/she undertakes:

     Principle Four - The Responsibilities of the Board

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, meets on a regular basis, with such meetings usually focusing on business strategy, operational and financial performance, and assumes responsibility for the Company’s strategy and decisions with respect to the issue, servicing and redemption of its bonds in issue, and for monitoring that its operations are in conformity with its commitments towards bondholders, shareholders, and all relevant laws and regulations.  The Board is also responsible for ensuring that the Company establishes and operates effective internal control and management information systems and that it communicates effectively with the market.

The Executive Officers of the Company may be asked to attend board meetings or general meetings of the Company, although they do not have the right to vote thereat until such time as they are also appointed to the Board.  The rest of the Directors may entrust to and confer upon the CEO any of the powers exercisable by them upon such terms and conditions and with such restrictions as they may think fit, and either collaterally with or to the exclusion of their own powers, and may from time to time revoke, withdraw, alter or vary all or any of such powers.

In fulfilling its mandate, the Board:

As part of succession planning, the Board ensures that the Company implements appropriate schemes to recruit, retain and motivate employees and senior management. 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 Audit Committee

The Company has established an Audit Committee in line with the requirements of the Rules. The Audit Committee’s primary objective is to assist the Board in fulfilling its responsibilities: in dealing with issues of risk, control and governance; and to monitor and review the financial reporting processes, financial policies and internal control structure of the Company. During the financial year under review, the Audit Committee met seven (7) times.

Although the Audit Committee is set up at the level of the Company its main tasks are also related to the activities of the subsidiaries and operational companies.

The Board has set formal terms of establishment and reference of the Audit Committee that establish its composition, role and function, the parameters of its remit as well as the basis for the processes that it is required to comply with. The Audit Committee is a sub-committee of the Board and is directly responsible and accountable to the Board. The Board reserves the right to change these terms of reference from time to time.

Furthermore, the Audit Committee has the role and function of scrutinising and evaluating any proposed transaction to be entered into by the Company and a related party, to ensure that the execution of any such transaction was at arm’s length and on a commercial basis and ultimately in the best interests of the Company. 

The Audit Committee is composed of 3 Non-Executive Directors, 2 of whom are also independent:

•    Dr. Arthur Galea Salomone – Member

•    Mr. Mario Galea – Member

•    Ms. Miriam Schembri – Member

Mr. Mario Galea is a Non-Executive Director and a qualified accountant, who the Board considers as independent and competent in accounting as required in terms of the Capital Markets Rules.

     Principle Five - Board meetings

The Directors meet regularly to dispatch the business of the Company.  The Directors are notified in advance of forthcoming meetings so as to provide adequate time to Directors to prepare themselves for such meetings. Notification thereof, together with the issue of an agenda and supporting board papers, which are circulated in advance of the meeting, is carried out by the company secretary of the Company. Minutes are prepared during Board meetings recording faithfully attendance, and resolutions taken at the meeting. These minutes are subsequently circulated to all Directors as soon as practicable after the meeting.  The Chairman ensures that all relevant issues are on the agenda supported by all available information, whilst encouraging the presentation of views pertinent to the subject matter and giving all Directors every opportunity to contribute to relevant issues on the agenda. The agenda on the Board seeks to achieve a balance between long-term strategic and short-term performance issues.

The Board meets as often and as frequently required in line with the nature and demands of the business of the Company. Directors attend meetings on a frequent and regular basis and dedicate the necessary time and attention to their duties as directors of the Company.  The Board met 7 times during the financial year under review. The following Directors attended meetings as follows:

Mr. Martin Vella – Chairman - 7 meetings
Mr. Mark Vella – Director - 7 meetings
Mr. Joseph Vella – Director - 7 meetings
Mr. Mario Galea - Non-Executive Director - 7 meetings
Dr. Arthur Galea Salomone - Non-Executive Director - 7 meetings
Ms. Miriam Schembri - Non-Executive Director - 7 meetings

Shareholders’ influence is exercised at the AGM of the Company, which is the highest decision-making body. All shareholders have the right to participate and to vote in the meeting. Shareholders who cannot participate in the meeting can be represented by a proxy.

Business at the Company’s AGM will cover the Annual Report and Financial Statements, the declaration of dividends if any, election of directors and the approval of their remuneration, appointment of the auditors and the authorisation of the directors to set the auditors’ fees. Shareholders’ meetings are called with enough notice to enable the use of proxies to attend, vote and abstain. The Company recognises the importance of maintaining dialogue with its shareholders to ensure its strategies and performance.

    Principle Six - Information and Professional Development

The directors believe that for the financial year under review they conducted sufficient professional development for its directors and officers, and the Company will continue with this commendable practice. In this respect, during the course of the year under review, the Board has held one extended training session on the legal responsibilities of directors as part of on-going training and professional development with respect to the proper discharge of their duties as directors.

Directors are entitled to seek independent professional advice at any time on any aspect of their duties and responsibilities, at the Company’s expense, and have access to the advice and services of the company secretary of the Company.

As part of succession planning and employee retention, the Board ensure that the Company implements appropriate schemes to recruit, retain and motivate employees and Senior Management and keep a high morale amongst employees.  

    Principle Seven - Evaluation of the Board's performance

The current composition of the Board allows for a cross-section of skills and experience and achieves the appropriate balance required for it to function effectively. During the year, the Directors carried out a self-evaluation performance analysis, including the Chairman and the CEO. The results of this analysis did not require any material changes in the Company’s corporate governance structure.

    Principle Eight - Committees

Principle Eight A of the Code deals with the establishment of a remuneration committee for the Company aimed at developing policies on remuneration for directors and Senior Executives and devising appropriate remuneration packages.

In view of the size and type of operation of the Company, the Board does not consider the Company to require the setting up of a remuneration committee, and, in accordance with Code principle 8.A.2, the Board itself carries out the functions of the remuneration committee specified in, and in accordance with, Principle Eight A of the Code, given that the remuneration of Directors is not performance-related.

The Board has established a remuneration policy for directors and senior executives of the Company, underpinned by formal and transparent procedures for the development of such a policy and the establishment of the remuneration packages of individual Directors.

The Board confirms that there have been no changes in the Company’s remuneration policy during the year under review and the Company does not intend to effect any changes in its remuneration policy for the following financial year.

The maximum annual aggregate emoluments that may be paid to the directors of the Company is, pursuant to the Company’s Memorandum and Articles of Association, approved by the shareholders in general meeting. The Board is composed exclusively of executive and non-executive Directors. The determination of remuneration arrangements for board members is a reserved matter for the Board as a whole.

During the financial year under review, Mr. Martin Vella, Mr. Mark Vella and Mr. Joseph Vella each held an indefinite full-time contract of service with Sudvel Limited and Hal Mann Vella Limited.

The remuneration policy for Directors has been consistent since inception; no Director (including the Chairman) is entitled to profit sharing, share options or pension benefits.  There is no linkage between the remuneration and the performance of Directors.  A fixed honorarium is payable at each financial year to the non-executive directors of the Company.

For the financial year under review the aggregate remuneration of the Directors of the Company was as follows:

Fixed remuneration from Company                         €27,000

Fixed remuneration from Subsidiaries                     €242,290

    Principle Eight B of the Code deals with the formal and transparent procedure for the appointment of Directors.

In view of the size and type of operation of the Company, the Board does not consider the Company to require the setting up of a nomination committee. Reference is also made to the information provided under the subheading ‘Principle Three’ above, which provides for a formal and transparent procedure for the appointment of new directors to the Board.

    Principle Nine - Relations with shareholders and with the market

Pursuant to the Company’s statutory obligations in terms of the Companies Act (Cap. 386 of the Laws of Malta) and the Capital Markets Rules issued by the Malta Financial Services Authority, 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 Company’s AGM. 

With respect to the Company’s bondholders and the market in general, during the financial year under review, there was no need to issue any Company announcements to the market.

The Company’s Articles of Association allow minority shareholders to call special meetings on matters of importance to the Company, provided that the minimum threshold of ownership established in the Articles of Association is met.

    Principle Ten - Relations with Institutional shareholders

The Directors are of the view that this Principle is not applicable to the Company.

    Principle Eleven - Conflicts of Interest

Principle Eleven of the Code deals with conflicts of interest and the principle that Directors should always act in the best interests of the Company

All of the Directors of the Company, except for Ms. Miriam Schembri, Dr. Arthur Galea Salomone and Mr. Mario Galea are Executive Officers of the Company. The executive directors have a direct beneficial interest in the share capital of the Company, and as such are susceptible to conflicts arising between the potentially diverging interests of the shareholders and the Company.  During the financial year under review, no private interests or duties unrelated to the Company were disclosed by the Directors which were or could have been likely to place any of them in conflict with any interests in, or duties towards, the Company.

The Audit Committee has the task to ensure that any potential conflicts of interest are resolved in the best interests of the Company. Furthermore, in accordance with the provisions of article 145 of the Companies Act (Cap. 386 of the Laws of Malta), every Director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the Company is under the duty to fully declare his interest in the relevant transaction to the Board at the first possible opportunity and he will not be entitled to vote on matters relating to the proposed transaction and only parties who do not have any conflict in considering the matter will participate in the consideration of the proposed transaction .

    Principle Twelve - Corporate Social Responsibility

Principle Twelve of the Code encourages Directors of listed companies to adhere to accepted principles of corporate social responsibility

The Company seeks to adhere to sound principles of Corporate Social Responsibility in its management practices, and is committed to high standards of ethical conduct and to contribute to the development of the well-being of employees and their families as well as the local community and society at large.

The Board is mindful of the environment and its responsibility within the community in which it operates. To this end the Company, and other companies within its group structure (the “ Group ”), have taken initiatives such as; investment in renewable energy; implementation of water management systems within its operations and manufacturing companies to curtail waste and better manage the use of water.

Furthermore, the Group also seeks to minimise waste by seeking to deploy what are by products of its manufacturing, in its terrazzo line ensuring a cheaper product complimentary to its social policy of reducing waste.

In carrying on its business the Group is fully aware and at the forefront to preserving the environment and continuously review its policies aimed at respecting the environment and encouraging social responsibility and accountability.

Internal Control

The Board is ultimately responsible for the Company’s system of internal controls and for reviewing its effectiveness. The directors of the Company are aware that internal control systems are designed to manage, rather than eliminate, the risk of failure to achieve business objectives of the Company, and can only provide reasonable, and not absolute, assurance against normal business risks.

During the financial year under review, the Company operated a system of internal controls which provided reasonable assurance of effective and efficient operations covering all controls, including financial and operational controls and compliance with laws and regulations. Processes are in place for identifying, evaluating and managing the significant risks facing the Company.

Other key features of the system of internal control adopted by the Company in respect of its own internal control as well as the control of its subsidiaries and affiliates are as follows:

Risk identification

The Board, with the assistance of the management team of the Company, is responsible for the identification and evaluation of key risks applicable to the areas of business in which the Company and its subsidiaries are involved.  These risks are assessed on a continual basis and any potential exposure is discussed regularly at Board and management level, with a view to mitigation thereof, where possible.

Information and communication

Periodic strategic reviews which include consideration of long-term financial projections and the evaluation of business alternatives are regularly convened by the Board. Regular budgets are prepared and performance against these plans is actively monitored and reported to the Board.

In conclusion, the Board considers that the Company has generally been in compliance with the principles of the Code throughout the period under review as befits a company of its size and nature. 

Non-compliance with the principles of the Code and the reasons therefor have been identified below.

Approved by the Board on 27 April 2023.

Independent Auditors' Report

to the shareholders of Hal Mann Vella Group p.l.c.

Report on the Financial Statements for the year ended 31 December 2022

Opinion

We have audited the individual financial statements of Hal Mann Vella Group p.l.c. (“the Company”) and the consolidated financial statements of the Company and its subsidiaries (together, “the Group”), which comprise the statement of financial position as at 31 December 2022, statement of comprehensive income, statement of changes in equity and the statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Group and the Company as at 31 December 2022, and of the Group’s and the Company’s financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and have been properly prepared in accordance with the requirements of the Companies Act, Cap. 386 of the Laws of Malta.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code), together with the ethical requirements that are relevant to our audit of the financial statements in accordance with the Accountancy Profession (Code of Ethics for Warrant Holders) Directive issued in terms of the Accountancy Profession Act (Cap.281) in Malta, and we have fulfilled our other ethical responsibilities in accordance with the IESBA code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

To the best of our knowledge and belief, we declare that non-audit services that we have provided to the company are in accordance with the applicable law and regulations in Malta and that we have not provided non-audit services that are prohibited under Article 18A of the Accountancy Profession Act (Cap. 281).

The non-audit services that we have provided to the company, in the period from 1 January 2021 to 31 December 2022, are disclosed in Note 7 to the financial statements.

Key Audit Matters

Key audit matters are those matters that in our professional judgement were of most significance in our audit of the financial statements of the current period. These matters where addressed in the context of our audit of the financial statements as a whole and in forming our opinion thereon.

We do not provide a separate opinion on these matters.

1.       Investment property valuations

Risk description

The Group carries its investment property at fair value, with changes in fair value being recognised in the profit or loss. Fair value is based on market valuation performed by independent professional architects. The last market valuation was performed on 30 December 2022. Investment property amounted to €53,536,618 as at 31 December 2022 (2021: €50,174,457) and is deemed material to the financial statements.

Estimating the fair value is a complex process involving a number of judgements and estimates regarding various inputs. Consequently, we have determined the valuation of the investment property to be a key audit matter.

Relevant references in the annual report and financial statements:

- Accounting policy: notes 2.6 and 2.20

- Note on Investment Property: note 17

- Judgements in applying accounting policies and key sources of estimation uncertainty: Note 3

How the scope of our audit responded to the risk

We obtained an understanding of the Group’s process for determining fair value measurements and disclosures and the relevant control procedures. We assessed inherent and control risk related to the fair value measurements and disclosures and evaluated whether the fair value measurements and disclosures are in accordance with the Group’s financial reporting framework and are consistently applied.

We evaluated the professional competence and independence of the architects employed by the Group. We assessed whether the scope of the architects’ work was adequate for the purpose of our audit. We evaluated the assumptions and the basis of valuation and the completeness of information used by the architects. We assessed whether the architects’ report is complete and reasonable and whether all pertinent information therein is properly reflected in the financial statements.

Findings

The result of our testing was satisfactory and we concur that the valuation of the investment property is appropriate.

2.       Recoverability of deferred tax asset

Risk description

As at 31 December 2022, the Group has recognised a deferred tax asset amounting to €1,199,547 (2021: €1,619,261) arising primarily from deductible temporary differences in respect of unabsorbed capital allowances and unutilized tax losses and investment tax credit that it believes are recoverable.  The recoverability of recognised deferred tax asset is in part dependent on the Group’s ability to generate future taxable profits sufficient to utilise deductible temporary differences and tax losses. We have determined this to be a key audit matter, due to the inherent uncertainty in forecasting the amount and timing of future taxable profits and the reversal of temporary difference.

Relevant references in the annual report and financial statements:

- Accounting policy: notes 2.18

- Note on Deferred Tax: note 25

- Judgments in applying accounting policies and key sources of estimation uncertainty: Note 3

How the scope of our audit responded to the risk

We ensured that IAS 12 Income Taxes has been correctly applied in respect of deferred tax, paying particular attention to the following situations: (a) the revaluation of an asset; (b) the disposal of an asset and (c) unabsorbed capital allowances and unutilized tax losses (d) investment tax credits and (e) leases.

We assessed the accuracy of forecast future taxable profits by evaluating historical forecasting accuracy and comparing assumptions with our expectations of those assumptions derived from our knowledge of the industry and our understanding obtained during the audit.

Findings

We are satisfied that the deferred tax asset has been properly recognised and measured in view of the fact that taxable profits will be available against which the deductible temporary differences can be utilized.

Other Information

The Directors are responsible for the other information. The other information comprises of the Chairman’s Statement, Directors' Report and Corporate Governance Statement of Compliance. Our opinion on the financial statements does not cover this information. Except for our opinion on the Directors’ Report in accordance with the Companies Act, Cap. 386 of the Laws of Malta and on the Corporate Governance Statement of Compliance in accordance with the Capital Markets Rules issued by the Malta Financial Services Authority, our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

With respect to the Directors' Report, we also considered whether the Directors' Report includes the disclosures required by Article 177 of the Companies Act, Cap. 386 of the Laws of Malta. Based on the work we have performed, in our opinion:

- the information given in the Directors' Report for the year ended 31 December 2022 is consistent with the financial statements; and
- the Directors' Report has been prepared in accordance with the Companies Act, Cap. 386 of the Laws of Malta.

In addition, in light of the knowledge and understanding of the Group and its environment, obtained in the course of the audit, we are required to report if we have identified material misstatements in the Directors' Report.

Based on the work we have performed, we have nothing to report in this regard.

Responsibilities of the Directors and the Audit Committee for the financial statements

The Directors are responsible for the preparation of the financial statements that give a true and fair view in accordance with the International Financial Reporting Standards as adopted by the European Union, and for such internal controls as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative to do so. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

The Directors have delegated the responsibility for overseeing the Company's financial reporting process to the Audit Committee.

Auditors' Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion.

Reasonable Assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

In terms of article 179A(4) of the Companies Act (Cap.386), the scope of our audit does not include assurance on the future viability of the audited entity or on the efficiency or effectiveness with which the Directors have conducted or will conduct the affairs of the entity.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear our independence, and where applicable related safeguards.

From the matters communicated with the Audit Committee, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors' report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. There were no such undisclosed matters.

Report on other legal and regulatory requirements

The Annual Report and Financial Statements of Hal Mann Vella Group p.l.c. for the year ended 31 December 2022 contains other areas required by legislation on which we are required to report. The Directors are responsible fir these other areas.

Report on the Statement of Compliance with the Principles of Good Corporate Governance

The Capital Markets Rules issued by the Malta Financial Services Authority require the Directors to prepare and include in their annual report a Corporate Governance Statement providing an explanation of the extent to which they have adopted the Code of Principles of Good Corporate Governance and the effective measures that have taken to ensure compliance with those Principles.

The Capital Markets Rules also require the auditor to include a report on the Corporate Governance Statement prepared by the Directors. We read the Corporate Governance Statement 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 Corporate Governance Statement 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 Corporate Governance Statement has been properly prepared in accordance with the requirements of the Capital Markets Rules 5.94 and 5.97.

Report on compliance with the requirements of the European Single Electronic Format Regulatory Technical Standard (the "ESEF RTS"), by reference to Capital Markets Rule 5.55.6

We have undertaken a reasonable assurance engagement in accordance with the requirements of Directive 6 issued by the Accountancy Board in terms of the Accountancy Profession Act (Cap. 281) - the Accountancy Profession (European Single Electronic Format) Assurance Directive (the 'ESEF Directive 6') on the Annual Report and Financial Statements of Hal Mann Vella Group p.l.c. for the year ended 31 December 2022, entirely prepared in a single electronic reporting format.

Responsibilities of the directors

The directors are responsible for the preparation of the Annual Report, including the consolidated Financial Statements, and the relevant mark-up requirements therein, by reference to Capital Markets Rule 5.56A, in accordance with the requirements of the ESEF RTS.

Our responsibilities

Our responsibility is to obtain reasonable assurance about whether the Annual Report, including the consolidated Financial Statements and the relevant electronic tagging therein, complies in all material respects with the ESEF RTS based on the evidence we have obtained. We conducted our reasonable assurance engagement in accordance with the requirements of ESEF Directive 6.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion, the Annual Report for the year ended 31 December 2022 has been prepared, in all material respects, in accordance with the requirements of the ESEF RTS.

Other matters on which we are required to report by exception under the Companies Act

We also have responsibilities:

We have nothing to report to you in respect of these responsibilities.

Audit Tenure

We were first appointed as auditors of the Group on 18 April 2017. Our appointment has been renewed annually by shareholder resolution representing a total period of uninterrupted engagement appointment of 6 years. The Company became listed on a regulated market on 11 November 2014.

Consistency of the audit report with the additional report to the Audit Committee

Our audit opinion is consistent with the additional report to the Audit Committee in accordance with the provisions of article 11 of the EU Audit Regulation No. 537/2014.

The partner in charge of the audit resulting in this independent auditors' report is Jozef Wallace Galea for and on behalf of

HLB CA Falzon

Registered Auditors

27 April 2023

The notes form part of these financial statements.

These financial statements were approved and authorized for issue by the Board of Directors and signed on its behalf on 27 April 2023 by Mr. Martin Vella (Chairman) and Mr. Mark Vella (Director) as per the Directors’ Declaration on ESEF Annual Financial Reports submitted in conjunction with the Annual Financial Report 2022.

Notes to the Consolidated Financial Statements

for the year ended 31 December 2022

1.     Corporate information

The consolidated financial statements of Hal Mann Vella Group p.l.c. and its subsidiaries (“the Group”) for the year ended 31 December 2022 were authorized for issue in accordance with a resolution of the Directors on 27 April 2023.

Hal Mann Vella Group p.l.c. (“the Company”) is a public limited liability company incorporated in Malta, under the Companies Act, Cap. 386 of the Laws of Malta. The Company is principally a finance and investment company in connection with the ownership, development, operation and financing of the business activities of Hal Mann Vella Group of companies. Its registered office is at The Factory, Mosta Road, Lija, Malta.

2.     Significant accounting policies

2.1 Basis of preparation and consolidation

Basis of preparation

These financial statements are prepared under the historical cost convention, as modified by the measurement of investment property, land and buildings classified as property, plant and equipment and financial assets at fair value and are in accordance with the requirements of the International Financial Reporting Standards (IFRS) as adopted by the European Union and comply with the Companies Act, Cap. 386 of the Laws of Malta.  The consolidated financial statements are presented in Euro (€), which is the functional currency of the Group.

Geopolitical and macroeconomic risks

Following the escalation of the geopolitical tensions in Russia and Ukraine from February 2022, the Group has gone through a process of assessing any potential exposures, with no material exposure identified. Whilst, the Group has no direct exposure to these jurisdictions, management will continue to monitor the situation, particularly in terms of the wider macroeconomic implications.

Consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2022.  Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:

- Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee)
- Exposure, or rights, to variable returns from its involvement with the investee
- The ability to use its power over the investee to affect its returns

Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

- The contractual arrangement(s) with the other vote holders of the investee
- Rights arising from other contractual arrangements
- The Group’s voting rights and potential voting rights

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

Goodwill is initially measured as the excess of the aggregate of the consideration transferred, the amount of any non-controlling interests in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired. If this aggregate is less than the fair value of the identifiable net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units (CGUs) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill has been allocated to a CGU and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the CGU retained.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

2.2 Current versus non-current classification

The Group presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset is current when it is:

 - Expected to be realised or intended to be sold or consumed in the normal operating cycle;
 - Held primarily for the purpose of trading;
 - Expected to be realised within twelve months after the reporting date; or
 - Cash and cash equivalents unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date.

All other assets are classified as non-current.

A liability is current when:
 - It is expected to be settled in the normal operating cycle;
 - It is held primarily for the purpose of trading;
 - It is due to be settled within twelve months after the reporting date; or
- There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting date.

The Group classifies all other liabilities as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

2.3 Investment in joint venture

The Group has an interest in joint ventures.  A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture.  Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The Group recognises its interest in the joint-venture using the equity method. Investments in joint ventures are included in the Group’s statement of financial position at cost and adjusted thereafter for the post-acquisition change in the share of net assets. The statement of profit or loss and other comprehensive income includes the share of profit or loss in joint venture.

2.4 Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Financial assets

Initial recognition and measurement

Financial assets are classified, at initial recognition, as financial assets measured at amortized cost, fair value through profit or loss (FVTPL) and fair value through other comprehensive income (FVTOCI). All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at FVTPL, transaction costs that are attributable to the acquisition of the financial asset.

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at FVTPL, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15. Refer to the accounting policies in section 2.15 (Revenue from contracts with customers).

In order for a financial asset to be classified and measured at amortised cost or FVTOCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. Financial assets with cash flows that are not SPPI are classified and measured at FVTPL, irrespective of the business model.

The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

Subsequent measurement

For purposes of subsequent measurement, financial assets in these financial statements are classified  in four categories:

- financial assets at amortised cost (debt instruments)

- financial assets at FVTOCI with recycling of cumulative gains and losses (debt instruments)

- financial assets designated at FVTOCI with no recycling of cumulative gains and losses upon
      derecognition (equity instruments)

- financial assets at FVTPL

Financial assets at amortised cost (debt instruments)

Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

The Group’s financial assets at amortised cost include bank term deposits, trade receivables, and receivables from joint  ventures and other related undertakings which are included both under current and non-current financial assets.

Financial assets at FVTOCI (debt instruments)

For debt instruments at FVTOCI, interest income, foreign exchange revaluation and impairment losses or reversals are recognised in the statement of profit or loss and computed in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss.

As at 31 December 2022 and 2021, the Group has no debt instruments at FVTOCI.

Financial assets designated at FVTOCI (equity instruments)

Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments designated at FVTOCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.

Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the statement of profit or loss when the right of payment has been established, except when the Company benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at FVTOCI are not subject to impairment assessment.

The Group elected to classify irrevocably its equity investments under this category.

Financial assets at FVTPL

Financial assets at FVTPL are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss.

This category includes derivative instruments and listed equity investments which the Group had not irrevocably elected to classify at FVTOCI. Dividends on listed equity investments are recognised as other income in the statement of profit or loss when the right of payment has been established.

A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is separated from the host and accounted for as a separate derivative if: the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value through profit or loss. Embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category.

As at 31 December 2022 and 2021, the Group has no financial assets at FVTPL.

Derecognition

A financial asset (or, where applicable, a part of a financial asset or part of a Group of similar financial assets) is primarily derecognised (i.e., removed from the Group’s statement of financial position) when:

- the rights to receive cash flows from the asset have expired; or

- the Group has transferred its rights to receive cash flows from the asset or has assumed an
   obligation to pay the received cash flows in full without material delay to a third party under a
   ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks
   and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all
   the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Impairment

Further disclosures relating to impairment of financial assets are also provided in notes 3 and 34 to the consolidated financial statements.

The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at FVTPL. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate.

ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

For lease receivables and majority of trade receivables, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

For cash in bank, contract assets and amounts due from joint ventures and other related undertakings, the Group applies a general approach in calculating ECLs. Therefore, the Group tracks changes in credit risk, and recognises a loss allowance based on either 12-month ECLs or lifetime ECLs, depending on whether there has been a significant increase in credit risk on the financial instrument since initial recognition. This is being done by considering the change in the risk of default occurring over the remaining life of the financial instrument.

The following are the key elements in the calculation of ECLs:

The mechanics of the ECL method are summarised below:

The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at FVTPL, loans and borrowings or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

The Group’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts.

Subsequent measurement

For purposes of subsequent measurement, financial liabilities are classified in two categories:

- financial liabilities at FVTPL

- financial liabilities at amortised cost (loans and borrowings)

Financial liabilities at FVTPL

Financial liabilities at FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as at FVTPL.

Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Gains or losses on liabilities held for trading are recognised in the statement of profit or loss.

Financial liabilities designated upon initial recognition at FVTPL are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied. The Group has not designated any financial liability at FVTPL as at 31 December 2022 and 2021.

Financial liabilities at amortised cost (loans and borrowings)

This is the category most relevant to the Group. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss.

This category generally applies to interest-bearing loans and borrowings. For more information, refer to notes 16 and 34 to the consolidated financial statements.

Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.

2.5 Property, plant and equipment

Land and buildings are stated in the statement of financial position at its revalued amount, being the fair value at the date of revaluation.  Revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from those that would be determined using fair values at each reporting date.

An increase in the carrying amount arising on the revaluation of such land and buildings is recognised in the consolidated statement of profit or loss and other comprehensive income and afterwards held in the revaluation reserve on property, plant and equipment relating to a previous revaluation of that asset.

Freehold land is not depreciated as it deemed to have an indefinite life.

Property, plant and equipment, except for revalued land and buildings, are stated at cost less accumulated depreciation.  Depreciation charge is provided from the month of acquisition until the month in which the asset is disposed of or scrapped.

Depreciation is calculated using the reducing balance method to allocate the cost of the assets to their residual values over their estimated useful lives, as follows:

Depreciation methods, useful life and residual values are reassessed at each reporting date.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal.  Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss and other comprehensive income when the asset is derecognised.

2.6 Investment property

Property that is held for long-term rental yields or for capital appreciation or both, and is not occupied by the Group, is classified as investment property.  Investment property comprises freehold and leasehold land and buildings held under long-term operating leases.

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 which 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.  After initial recognition, investment property is carried at fair value representing open market value determined periodically.  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 Group uses alternative valuation methods such as recent prices on less active markets or discounted cash flow projections.

These valuations are reviewed on a regular basis (usually every two years).  Investment property that is being redeveloped for continuing use as investment property or for which the market has become less active continues to be measured at fair value.  Fair value measurement on property under construction is only applied if the fair value is considered to be reliably measurable.  The fair value of investment property reflects, among other things, rental income from current leases and assumptions about rental income from future leases in the light of current market conditions.  The fair value also reflects, on a similar basis, any cash outflows that could be expected in respect of the property.

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 Group 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 its future expenditure other than those a rational market participant would take into account when determining the value of the property.

Changes in fair value are recognised in profit or loss and transferred to "Revaluation reserve on investment property" under equity.  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. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in profit or loss in the period of derecognition.

If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment.  Its fair value at the date of the reclassification becomes its cost for subsequent accounting purposes.  When the Group decides to dispose of an investment property without development, the Group continues to treat the property as an investment property.  Similarly, if the Group begins to redevelop an existing investment property for continued future use as investment property, it remains an investment property during the redevelopment.

If an item of property, plant and equipment and property held-for-sale becomes an investment property because its use has changed, any difference resulting between the carrying amount and the fair value of this item at the date of transfer is treated in the same way as revaluation under IAS 16.  Any resulting increase in the carrying amount of the property is recognised in statement of comprehensive income to the extent that it reverses a previous impairment loss; with any remaining increase recognised in other comprehensive income, directly to revaluation surplus with equity.  Any resulting decrease in the carrying amount of the property is initially charged to other comprehensive income against any previously recognised revaluation surplus, with any remaining decrease charged to the profit or loss.  Upon the disposal of such investment property, any surplus previously recorded in equity is transferred to retained earnings; the transfer is not made through statement of comprehensive income.

2.7  Inventories

Inventories are valued at the lower of cost and net realisable value.

Cost is determined on the weighted average cost method.  The cost of finished goods comprises design costs, raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity).  It excludes borrowing costs.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

2.8  Property held-for-sale

Property held-for-sale is included in the financial statements at the lower of cost and net realisable value.  Cost comprises the purchase price of acquiring the property and other costs incurred to develop the property.  Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

2.9  Cash and cash equivalents

Cash and cash equivalents in the statement of financial position comprise cash at bank and in hand, which are subject to an insignificant risk of changes in value.

For the purpose of the statement of cashflows, cash and cash equivalents consist of cash in hand and at bank as defined above, net of outstanding bank overdrafts as they are considered an integral part of the Group's cash management.

2.10  Share capital

Ordinary shares are classified as equity.  Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

2.11  Dividend distribution

Dividend distribution to the Group's shareholders is recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Group's shareholders.

2.12  Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

2.13  Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as interest expense.

2.14  Foreign currencies

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in euro, which is the Company's functional and presentation currency.

Foreign currency translations are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. All foreign exchange gains and losses are presented in the income statement within 'Other income' or 'Other expenses'.

2.15  Revenue recognition

Revenue from contracts with customers (under IFRS 15)

The Group's principal activities relate to the manufacture and business of stones, marbles, granites, patterned tiles, terrazzo and precast related products, as well as supply, installation, operation and maintenance of photovoltaic (PV) systems. The Group is also involved in property development and resale. Revenue from contracts is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects in exchange for those goods or services. The Group has generally concluded that it is the principal in its revenue arrangements, because it typically controls the goods or services before transferring them to the customer. Revenue is recognized to the extent that it is probable that future economic benefits will flow to the Group and these can be measured reliably.

The Group's revenue recognition is straight-forward, hence no significant accounting judgement, estimates and assumptions (i.e., in terms of estimating variable considerations and stand-alone selling price) are involved.

Sale of stones, marbles, granites, patterned tiles, terrazzo and precast related products

Revenue from sale of manufactured construction materials is recognised at the point in time when control of asset is transferred to the customer, generally on delivery of products at the customer's location. The normal credit term is 30 to 90 days upon delivery.

Sale of electricity generated from PV panels

Revenue from sale of electricity is recognised at the point in time when control of the asset is transferred to the sole customer (i.e., Enemalta p.l.c.), generally upon exportation of the generated electricity to the solar grid. Enemalta p.l.c. pays the Group feed-in tariff (i.e., a tariff which is paid to a producer of electricity for the amount of electricity generated and exported to the electricity grid) based on the actual meter readings.  In the case where the amount due to the Group from the electricity exported by the PV system exceeds the invoiced amount  for the consumption of electricity for a particular billing period that is due to Enemalta p.l.c.,  such amount will be carried forward in the form of a credit note.  When two consecutive scheduled bills based on actual meter readings are shown to be in credit, Enemalta p.l.c. is obliged to pay the Group the credit within 60 days of the date of the second scheduled bill.

Sale of properties

Revenue from sale of real properties is recognised at the point in time when control of asset is transferred to the customer, generally upon signing of deed of sale where the customer obtains legal title to the property. Total fund is paid in full on date of deed.

Rendering of general construction and other services

The Group recognises revenue from construction and other services over time because the Group's  performance creates or enhances an asset that the customer controls as the asset is enhanced or created. In some cases, the customer simultaneously receives and consumes the benefits provided to them as the Group performs. The Group uses an input method in measuring progress of the services since there is a direct relationship between the Group’s effort (i.e., based on the costs incurred to date) and the transfer of service to the customer. The input method is implemented by first estimating the inputs required such as labor and other overheads, etc. to complete the service. The Group recognises revenue on the basis of the efforts expended to date relative to the total expected inputs to complete the service. The normal credit term is 30 to 90 days upon issuance of invoice.

Further, the Group provides services that are either sold separately or bundled together with the sale of tiles, marble stones and granites to a customer. Contracts for bundled sales of tiles, marble stones, granites and services are comprised of two performance obligations because the promise to transfer tiles, marbles, granites and provide services are capable of being distinct and separately identifiable. Accordingly, the Group allocates the transcation price based on the relative stand-alone selling prices of tiles, marbles, granites and services.

In determining the transaction price, the Group considers  the effects of variable consideration, existence of significant financing component, non-cash consideration, and consideration payable to the customer.

i) Variable consideration

'If the consideration in a contract includes a variable amount, the Group estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved. In general, contracts for the sale of tiles, marble stones and granites do not provide customers with a right to return the goods; hence, no refund liability is recognised. In cases of discounts and/or price concessions for good and services, such are already established with the customer at the inception of the contract, thus, are not considered contingents as the amounts agreed are fixed and unavoidable. As at and for the years ended 31 December 2022 and 2021, there are no known factors or events which could make the consideration to be variable. The validity of this assessment is reassessed at each reporting date.

ii) Significant financing component

In most cases, the Group has contract assets wherein payment for goods and services rendered is not due from the customer until the full services agreed upon are completed. A contract asset is recognised over the period in which the services are performed to represent the Company's right to consideration for the services performed to date. Generally, it is the customer's preference to withhold payments to ensure that all performance obligations are performed as specified in the contract. This falls under one of the exemptions of 'significant financing component' - i.e., the difference between the promised consideration and the cash selling price of the goods or services is due to something other than financing.

Further, the Group applies the practical expedient for short-term advances received from customers - i.e., the promised amount of consideration is not adjusted for the effects of a significant financing component if the period between the transfer of the promised goods or service and the payment is one year or less. As at and for the years ended 31 December 2022 and 2021, the contract liabilities are subsequently recognised as revenue within one year.

iii) Non-cash consideration

The Group does not receive non-cash considerations from customers for the sale of goods and services.

iv) Consideration payable to customer

The Group exports solar energy generated from PV panels to a customer who also supplies electricity to the Group for consumption. The consideration payable to a customer is accounted for as a reduction of the transaction price unless the payment to the customer is in exchange for a distint good or service that the customer transfers to the Group.

Contract balances

Contract assets

A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the company performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional.

Trade receivables

A receivable represents the company’s right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due).

Contract liabilities

A contract liability is the obligation to transfer goods or services to a customer for which the company has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the company transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the company performs under the contract ( i.e. , transfers control of the related goods or services to the customer).

Cost to obtain a contract

The Group applies the optional practical expedient to immediately expense costs to obtain a contract if the amortisation period of the asset that would have been recognised is one year or less. As such, payments for designers which constitute a relatively small amounts are immediately recognised as an expense in the consolidated statement of profit or loss and other comprehensive income.

Other revenue sources (not within the scope of IFRS 15)

The following recognition criteria must also be met before revenue is recognised:

Rental income

This relates to the rental income from the rental of immovable property in the ordinary couse of the Group's activities. For operating leases, it is recognised at profit or loss on a straight-line basis over the term of the lease and is stated net of value added tax. For finance leases, it is recognised at balance sheet as a lease receivable and amortised using effective interest method over the lease term.

Dividend income

Revenue from dividend income is recognised on the date the Group's right to receive payment is established.

Interest income

Interest income is accounted for when it is probable that the economic benefits associated with the transaction will flow to the Group and these can be measured reliably. Interest income is recognised on an accrual or time proportion basis.

Other operating income

Other operating income are accounted for when it is probable that the economic benefits associated with the transaction will flow to the Group and these can be measured reliably.

2.16  Leases

The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Group as a lessee

The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

i) Right-of-use assets

The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows:

If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.

The right-of-use assets are also subject to impairment. Refer to the accounting policies in section 2.21 (Impairment of non-financial assets).

ii) Lease Liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.

The Group’s lease liabilities are included in Interest-bearing loans and borrowings (see note 16).

iii) Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of assets that are considered to be low value. Lease payments on short-term leases and leases of lowvalue assets are recognised as expense on a straight-line basis over the lease term.

The Group as a lessor

Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss and other comprehensive income due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

2.17  Government grants

Government grants are recognised where there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.

Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate.  Specifically, government grants whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets are recognised as deferred revenue in the statement of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.

Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in their period in which they become receivable.

2.18  Taxation

The tax expense for the year comprises current and deferred tax.  Tax is recognized in profit or loss, except when it relates to items recognized in other comprehensive income or directly in equity, in which case it is also dealt with in other comprehensive income or in equity, as appropriate.

Current income tax

Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted, at the reporting date. Current income tax relating to items recognised directly in equity is recognised in equity and not in profit or loss.

Deferred income tax

Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recongised for all temporary differences, except when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.