Malita Investments Plc

Interim / Quarterly Report • Aug 8, 2019

COMPANY ANNOUNCEMENT

MALITA INVESTMENTS P.L.C (THE "COMPANY")

Board Meeting held for the approval of the Interim Financial Statements

Date of Announcement	8 August 2019
Reference	75/2019
In Terms of Chapter 5 of the Listing Rules

The following is a Company Announcement issued by the Company pursuant to the Listing Rules of the Malta Financial Services Authority

QUOTE

During the meeting of the Board of Directors of Malita Investments p.l.c. held on Wednesday 7 August 2019, the Company's condensed interim financial statements for the six months ended 30 June 2019 were approved.

The interim financial statements are attached herewith and are also available for viewing at the Company's registered office or electronically on http://www.malitainvestments.com/financialstatements/financial-statements-2019

The Directors of the Company have also approved the payment of a gross interim dividend €1,955,026 or €0.0132 per share equating to an interim net dividend of €1,270,767 or €0.00858 per share. The interim dividend will be paid on 6 September 2019 to the Shareholders on the Company's share register at close of business at the Malta Stock Exchange on 21 August 2019.

UNQUOTE

By Order of the Board

Signed

Donald Vella Company Secretary

MALITA INVESTMENTS P.L.C.

Condensed Interim Financial Statements (unaudited) 30 June 2019

	Pages
Interim Directors' report	1 - 3
Report on review of interim financial information	র্ব
Condensed statement of financial position	5 - 6
Condensed statement of comprehensive income	7
Condensed statement of changes in equity	8
Condensed statement of cash flows	9
Notes to the condensed interim financial statements	10 - 28

Interim Directors' report

The Directors present their report together with the condensed interim financial statements for the period ended 30 June 2019.

Principal activities

The Company's principal activities include the financing, acquisition, development, management and operation of immovable property, in particular, projects of national and/or strategic importance, and the investment in local stocks and shares.

Review of the business

The Company continued to receive ground rents from the MIA and VCP in respect of properties on which Malita owns the dominium directum. In addition, the Company receives lease income in respect of the Open Air Theatre in Valletta. Following the issue of the Parliament Building's certificate of completion in January 2019, the Company started receiving lease income in respect of the Parliament Building in City Gate, Valletta. Moreover, the Company is receiving additional rent in relation to a number of improvements to the Parliament Building.

As explained in Note 4, the results for the Company registered a positive movement in fair value of the MIA and VCP properties as well as the Parliament Building and Open Air Theatre of €19,598,000 and €7,851,000 respectively which came about due to the downward movement of interest rates. This has been fransferred to a non-distributable reserve (net of deferred tax).

In 2017 the Company entered into two credit facility agreements for a 25-year term amounting to €53,700,000 with the European Investment Bank and the Council of Europe Development Bank for the purpose of financing the construction of a number of affordable housing units in Malta. Furthermore, the Company had also entered into an emphyteutical deed with the Housing Authority to acquire sixteen property sites in a number of locations across Malta for the purpose of developing affordable housing units in Malta. Lastly in 2018 the Company entered into sixteen (16) availability agreements with Government whereby the Company will make available sixteen (16) property sites consisting of 680 units in a number of locations across Malta for a period of 25 years once complete.

In 2018 and during 2019 the Company issued a number of invitations to tender for the construction of these units. Tenders for the construction of twelve property sites have been awarded and construction works are ongoing. Invitations to tender will continue to be issued in respect of the remaining sites and also for mechanical and engineering works and finishes. The capitalised cost to date on this development amounts to €7,513,697 and is reflected in these financial statements.

The Company has ongoing negotiations on a number of projects, one of which is currently being classified under Other assets. The Board of Directors are constantly considering and evaluating other potential projects.

Result and dividends

The condensed statement of comprehensive income is set out on page 7. On 7 August 2019, the Directors declared the payment of an interim gross dividend of €1,955,026 or €0.0132 per share (June 2018: €1,955,026 or €0.0132 per share) equating to an interim net dividend of €1,270,767 or €0.00858 per share (June 2018: €1,270,767 or €0.00858 per share) payable on 6 September 2019.

Interim Directors' report - continued

Directors

The Directors of the Company who held office during the period were: Kenneth Farrugia Ray Sladden Paul Mercieca Robert Suban Eric Schembri

The Company's Articles of Association require Directors to retire after three years in office, but they are eligible for re-appointment.

Statement of Directors' responsibilities for the financial statements

The Directors are required by the Maltese Companies Act (Cap. 386) to prepare financial statements which give a true and fair view of the state of affairs of the Company as at the end of each reporting period and of the profit or loss for that period.

In preparing the financial statements, the Directors are responsible for the following matters:

• · ensuring that the financial statements have been drawn up in accordance with International Financial Reporting Standards as adopted by the EU;
• · selecting and applying appropriate accounting policies;
• making accounting estimates that are reasonable in the circumstances;
• ensuring that the financial statements are prepared on the going concern basis unless it is . inappropriate to presume that the Company will continue in business as a going concern.

The Directors are also responsible for designing, implementing internal controls as the Directors determine is necessary to enable the preparation of financial statements that are from material misstatements, whether due to fraud or error, and that comply with the Maltese Companies Act (Cap. 386). They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The financial statements of Malita Investments p.l.c. for the period ended 30 June 2019 are included in the Condensed Interim Financial Statements - 30 June 2019, which is published in printed form and will be made available on the Company's website. The Directors are responsible for the maintenance and integrity of the Company's 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.

On behalf of the board

Kenneth Farrugia Chairman

Paul Mercieca Director

Interim Directors' report - continued

Registered office: Clock Tower Level 1 Tigne` Point Sliema Malta

7 August 2019

Report on review of interim financial information

To the Directors of Malita Investments p.l.c.

Introduction

We have reviewed the accompanying condensed interim statement of financial position of Malita Investments p.l.c. as of 30 June 2019 and the related condensed statements of comprehensive income, changes in equity and cash flows for the six-month period then ended and notes, comprising a summary of significant accounting policies and other explanatory notes. The Directors are responsible for the preparation and presentation of this condensed interim financial information in accordance with International Accounting Standard 34 'Interim Financial Reporting'. Our responsibility is to express a conclusion on this condensed interim financial information based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of interim financial information performed by the independent auditor of the entity'. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed interim financial information is not prepared, in all material respects, in accordance with International Accounting Standard 34 'Interim Financial Reporting'.

PricewaterhouseCoopers

78 Mill Street Qormi Malta

Steve Mamo Partner

7 August 2019

Condensed statement of financial position

		As at 30 June	As at 31 December
	Notes	2019 ਵ	2018 ਦ
ASSETS		(unaudited)	(audited)
Non-current assets
Property, plant and equipment		17,944	17,346
Investment property	4 5	211,349,196	183,898,507
Right-of-use asset Contract asset	ರಿ	5,497,495 7,513,697	5,566,308
		224,378,332	189,482,161
Current assets
Trade and other receivables		96,035	597,038
Other assets		184,413	183,609
		280,448	780,647
Total assets		224,658,780	190,262,808
EQUITY AND LIABILITIES
Capital and reserves	7	73,295,143	73,295,143
Share capital Retained earnings	8	7,062,556	6,817,895
Non-distributable reserve - fair value gains	9	68,553,479	45,784,355
Non-distributable reserve - other	10	2,741,004	2,510,545
Total equity		151,652,182	128,407,938
Non-current liabilities
Borrowings	11	39,164,884	40,181,938
Lease liability	5	3,235,720
Provision on restoration Deferred tax liabilities	5 16	4,790,352 16,907,936	14,711,611
		64,098,892	54,893,549
Current liabilities
Borrowings	11	2,997,918	2,954,642
Lease liability	5	110,250
Capital creditor for acquisition of property	12	1,558,300	1,665,451
Trade and other payables		976,265	1,006,291
Current tax liabilities		670,932	450.739
Overdrawn bank balance		2,594,041	884,198
		8,907,706	6,961,321
Total liabilities		73,006,598	61,854,870
Total equity and liabilities		224,658,780	190,262,808

Condensed statement of financial position - continued

The notes on pages 10 to 28 are an integral part of these condensed interim financial statements.

The condensed interim financial statements on pages 5 to 28 were authorised for issue by the board on 7 August 2019 and were signed on its behalf by:

unu

Kenneth Farrugla Chairmán

275 . Paul Mercieca Director

Condensed statement of comprehensive income

		Period from 1 January to 30 June 2019	Period from 1 January to 30 June 2018
	Notes	を	€
		(unaudited)	(unaudited)
Revenue	13	3,947,959	3,914,626
Revenue from service concession arrangements	6	7,059,803
Costs related to service concession arrangements	6	(6,854,178)
Administrative expenses		(244,284)	(294,559)
Change in fair value of investment property	4	27,449,000	3,549,000
Operating profit		31,358,300	7,169,067
Finance income		233,547	154
Finance costs		(838,746)	(649,300)
Profit before tax		30,753,101	6,519,921
Tax expense	15	(2,926,615)	(1,016,442)
Profit for the period - total comprehensive
income		27,826,486	5,503,479
Earnings per share (cents)	17	18.79	3.72

The notes on pages 10 to 28 are an integral part of these condensed interim financial statements.

Condensed statement of changes in equity

Balance at 30 June 2019 (unaudited)		73,295,143	7,062,556	68,553,479	2,741,004	151,652,182
Dividends to equity shareholders	18		(2,098,691)			(2,098,691)
Transfer within owners' equity Transfer within owners' equity	10		(230,459)		230,459
Transactions with owners	9		(22,769,124)	22,769,124
Comprehensive income Profit for the period			27,826,486			27,826,486
Change in accounting policy due to the application of IFRS 16			(2,483,551)			(2,483,551)
Balance at 1 January 2019		73,295,143	6,817,895	45,784,355	2,510,545	128,407,938
Balance as at 31 December 2018 (audited)		73,295,143	6,817,895	45,784,355	2.510.545	128,407,938
Transfer within owners' equity Transfer within owners' equity Dividends to equity shareholders	9 10		(3,782,770) (238,841) (1,270,767)	3,782,770	238,841	(1,270,767)
Transactions with owners
Comprehensive income Profit for the period			6,171,172			6,171,172
Balance at 1 July 2018		73,295,143	5,939,101	42,001,585	2,271,704	123,507,533
Balance at 30 June 2018 (unaudited)		73,295,143	5,939,101	42,001,585	2,271,704	123,507,533
Transactions with owners Transfer within owners' equity Transfer within owners' equity Dividends to equity shareholders	9 10 18		(3,265,080) (223,839) (2,744,442)	3,265,080	223,839	(2,744,442)
Comprehensive income Profit for the period			5,503,479			5,503,479
Balance at 1 January 2018		73,295,143	6,668,983	38,736,505	2,047,865	120,748,496
	Notes	Share capital €	Retained earnings €	Fair value gains €	Non-distributable reserves Other €	Total €

The notes on pages 10 to 28 are an integral part of these condensed interim financial statements.

Condensed statement of cash flows

		Period from 1 January to 30 June 2019	Period from 1 January to 30 June 2018
	Notes	€ (unaudited)	e (unaudited)
Cash flows from operating activities Cash generated from operations Interest received Interest paid and similar charges Tax paid	19	4,166,496 (910) (510,097)	3,947,522 216 (900) (205,186)
Net cash generated from operating activities		3,655,489	3,741,652
Cash flows from investing activities Purchase of property, plant and equipment Payments to acquire investment property Improvements to investment property Net cash used in investing activities		(3,311) (1,595,160) (1,598,471)	(5,810) (110,513) (3,884,554) (4,000,877)
Cash flows from financing activities Repayment of borrowings Interest paid on borrowings Dividends paid to equity holders Loan to finance additional investment in Parliament Building	18	(975,466) (692,704) (2,098,691)	(975,946) (666,015) (2,744,442) 3,884,554
Net cash used in financing activities		(3,766,861)	(501,849)
Net movement in cash and cash equivalents		(1,709,843)	(761,074)
Cash and cash equivalents at beginning of period		(884,198)	1,049,421
Cash and cash equivalents at end of period		(2,594,041)	288,347

The notes on pages 10 to 28 are an integral part of these condensed interim financial statements.

Notes to the condensed interim financial statements

1. Summary of significant accounting policies

The Board has adopted the following principal accounting policies which it believes cover most of the type of activities it will undertake in the foreseeable future. Accordingly, not all the accounting policies set out below would necessarily apply as at the date of this report.

1.1 Basis of preparation

These condensed interim financial statements for the six months ended 30 June 2019 have been prepared in accordance with IAS 34, 'Interim financial reporting'. They have been prepared under the historical cost convention as modified by fair valuation of investment property.

The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2018, which have been prepared in accordance with IFRS

The condensed interim financial statements have been reviewed, not audited.

The preparation of financial statements in conformity with IFRSs as adopted by the EU requires the use of certain accounting estimates. It also requires Directors to exercise their judgement in the process of applying the Company's accounting policies (see note 2 - Critical accounting estimates and judgements).

The statement of financial position reflects a net current liability position of €8,627,258. Current liabilities as at 30 June 2019 include payables of €1,558,300 in relation to the Affordable Housing project for which the Company is in the final stages of obtaining the required drawdowns. Moreover, the Company paid €1,595,160 in project capital expenditure from own funds during the period under review. The overdrawn bank balance reflects a premium amounting to €1,177,200 incurred to bring the Affordable Housing project to fruition. As explained in the Review of the business the Company has entered into two credit facility agreements amounting to €53,700,000 in order to finance this project, however no disbursements have been made to date. Consequently, this balance will eventually be drawn down from this bank loan and the Company's position will improve significantly.

Standards, interpretations and amendments to published standards effective in 2019

The Company adopted new standards, amendments and interpretations to existing standards that are mandatory for the Company's accounting period beginning on 1 January 2019.

IFRS 16, 'Leases', is the IASB's replacement of IAS 17, 'Leases' which eliminates the classification by a lessee of leases of either operating or finance. Instead, all leases are treated in a similar way to finance leases in accordance with IAS 17. The standard's approach to lessor accounting is substantially unchanged from IAS 17 and as such is not expected to have a significant impact on the Company. The standard is effective for annual periods beginning on or after 1 January 2019.

IFRS 16 requires a lessee to initially recognise and measure right-of-use assets and lease liabilities at the commencement date (i.e. the date on which the lessor makes the underlying asset available for use by the lessee). Recognising assets and liabilities arising from a lease at the commencement date is consistent with the lessee accounting model, in which a lessee recognises an asset representing its right to use an underlying asset for the lease and a liability representing its obligation to make lease payments

1.1 Basis of preparation - continued

On adoption of IFRS 16, the Company recognised lease liabilities in relation to leases which had previously been classified as "operating leases" under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the interest rate implicit in the lease as of 1 January 2019. The associated right-of-use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.

Standards, interpretations and amendments to published standards that are not yet effective

Certain new standards, amendments and interpretations to existing standards have been published by the date of authorisation for issue of these financial statements but are mandatory for the Company's accounting periods beginning after 1 January 2019. The Company has not early adopted these revisions to the requirements of IFRSs as adopted by the EU.

1.2 Investment property

Investment property is held for long-term rental yields or for capital appreciation or both, and is not occupied by the Company. Investment property also includes property that is being constructed or developed for future use as investment property, when such identification is made.

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, in accordance with Note 1.12. After initial recognition, investment property is carried at fair value. Given that there is no active market for the investment property held by the Company establishes fair value by using valuation techniques, particularly discounted cash flow analysis.

Investment property that is being redeveloped for continuing use as investment property continues to be measured at 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 Company and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to profit or loss during the financial period in which they are incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognised.

Changes in fair values are recognised in the income statement properties are derecognised either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal.

1.3 Contract asset

The Company is recognising a contract asset in its statement of financial position to account for the Affordable housing project during its construction period. The carrying amount of the contract asset is equal to the total costs incurred on this project, profit on the completed construction and financing revenue.

1.4 Financial assets

1.4.1 Classification

The classification of financial assets depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. The Company's financial assets consist of receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Company provides money, goods or services directly to a debtor with no intention of trading the asset. They are included in current assets, except for maturities greater than twelve months after the end of the reporting period. The latter are classified as non-current assets. The Company's receivables comprise trade and other receivables and cash equivalents in the statement of financial position (Notes 1.6 and 1.7). Cash and cash equivalents includes cash in hand, deposits held with banks with original maturities of six months or less.

1.4.2 Recognition and measurement

The Company recognises a financial asset in its statement of financial position when it becomes a party to the contractual provisions of the instrument. Financial assets are initially recognised at fair value plus transaction costs. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership or has not retained control of the asset.

IFRS 9 Financial Instruments relates to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. The adoption of IFRS 9 did not result in changes in accounting policies or adjustments to the amounts recognised in the financial statements.

1.5 Service Concession Arrangements

Under the terms of IFRIC 12 "Service Concession Arrangements", a concession operator has a twofold activity:

• a construction activity in respect of its obligations to design, build and finance a new asset that it delivers to the grantor: revenue is recognized over time in accordance with IFRS 15;
• an operating and maintenance activity in respect of concession assets: revenue is recognised in accordance with IFRS 15.

1.5 Service Concession Arrangements - continued

In return for its activities as operator, the Company will receive remuneration from the grantor and therefore IFRIC 12's financial asset model applies. Under this model, the operator has an unconditional contractual right to receive payments from the concession grantor, irrespective of the amount of use made of the infrastructure.

The operator recognises a financial asset, attracting interest, in its statement of financial position, in consideration for the services it provides (design, construction, etc.). Such financial assets are recognised in the Statement of Financial Position as a Contract asset, in an amount corresponding to the fair value of the infrastructure on first recognition and subsequently at amortised cost. The receivable will in substance, be settled by the operator's right to retain all rental payments to be effected by users upon completion of construction; such payments will be received partly from users and partly from the grantor. Finance income calculated on the effective interest method is recognised under Finance income in the Statement of Comprehensive income.

The part of the investment that is covered by an unconditional contractual right to receive payments from the grantor (in the form of rental) is recognised as a Contract asset up to the amount guaranteed.

1.6 Trade and other receivables

Trade receivables comprise amounts due from customers for ground rent, lease of property and penalties receivable. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. In the opinion of the Directors, the recorded book value in the company's books of trade and other receivables and their value measured at amortised cost using the effective interest method, less provision for impairment are not materially different. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement. When a receivable is uncollectible, it is written off against the allowance account for trade and other receivables. Subsequent recoveries of amounts previously written off are credited against profit or loss.

1.7 Cash and cash equivalents

Cash and cash equivalents are carried in the statement of financial position at face value. In the statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with banks and when applicable bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position.

1.8 Share capital

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

1.9 Trade and other payables

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

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

1.10 Current and deferred tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity.

Deferred tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

1.11 Revenue recognition

Revenue comprises the fair value for ground rents receivable as per contracts entered into, leases of the Parliament Building on the initial and additional investment and the lease of the Open Air Theatre. Moreover, the Company is recognising revenue in relation to the Service concession arrangement (Note 6) as performance obligations are satisfied.

The Company recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Company's activities as described below.

1.11 Revenue recognition - continued

(a) Interest income

Interest income is recognised for all interest-bearing instruments using the effective interest method. The effective interest method of calculating the amortised cost of a financial asset and of allocating the interest income over the relevant period.

(b) Rental income from investment property

Rental income from investment property is recognised in profit or loss on a straight-line basis over the term of the lease.

1.12 Borrowing costs

General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are expensed. Borrowing costs are recognised for all interest-bearing instruments on an accrual basis using the effective interest method. Borrowing costs include the effect of amortising any difference between initial net proceeds and redemption value in respect of interest-bearing borrowings.

1.13 Dividend distributions

Dividend distributions to the Company's shareholders are recognised as a liability in the Company's financial statements in the period in which the dividends are approved by the Company's Directors.

2. Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances.

The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

The Company's investment property comprises the MIA and VCP properties as well as the Parliament Building and Open Air Theatre. The fair value of the Company's investment property has been determined based on projected future cash flows, appropriately discounted by a risk adjusted discount rate. As explained in Note 4 - Investment property, the valuation was determined using discounted cash flow projections considering, inter alia, the projected future cash flows to be generated from the transfer of the dominium directum of the MIA and VCP properties, the Parliament Building and Open Air Theatre, ongoing maintenance needs, and other relevant market factors.

3. Critical accounting estimates and judgements - continued

A key variable used in the determination of the fair value of the Investment Property is the discount rate. The discount rate used for fair valuing the Investment Property is primarily based on the yield to maturity on the longest term available Malta Government Stock (MGS), which as at 30 June 2019 was 1.84%, plus a risk premium. Due to the continuous low interest rate environment, the fair value of the investment properties is increasing at each period, and fair value gains are being recognised as a result. Should interest rates start increasing, the fair value of the investment properties will decrease, and fair value losses may result.

If the discount rate used in the discounted future cash flows for the investment property had been 0.5% higher/lower, all other things being equal, the fair value of the Company's investment property would decrease/increase by €22.6 million (2018: €17.7 million (2018: €21.0 million (2018: €21.0 million) respectively.

The analysis on whether the IFRIC 12 applies to certain contracts and activities involves various complex factors and it is significantly affected by legal interpretation of certain contractual agreements or other terms and conditions with public sector entities.

The application of IFRIC 12 requires extensive judgment in relation with, amongst other factors, (i) the identification of certain infrastructures (and not contractual agreements) in the scope of IFRIC 12, (ii) the understanding of the nature of the payments in order to determine the classification of the infrastructure as a financial asset or as an intangible asset and (ii) the recognition of the revenue from construction and concessionary activity.

Changes in one or more of the factors described above may significantly affect the conclusions as to the appropriateness of the application of IFRIC 12 and, therefore, the results of our financial position (Note 6).

3. Segment reporting

The Directors have reviewed the disclosure requirements of IFRS 8, 'Operating Segments' and determined that the Company effectively has one operating segment, taking cognisance of the information utilised within the Company for the purpose of assessing performance.

খ Investment property

	を	30 June 2019 31 December 2018 €
MIA and VCP properties Parliament Building and Open Air Theatre	100.045.000 111,304,196	80,447,000 103,451,507
Carrying amount	211.349.196	183,898,507

4. Investment property - continued

i. MIA and VCP

	는	30 June 2019 31 December 2018 ਵ
At 1 January Fair value gain	80,447.000 19,598,000	75,587,000 4,860,000
Carrying amount	100,045,000	80,447,000

ii. Parliament Building and Open Air Theatre

	ਵ	30 June 2019 31 December 2018 ਵ
At 1 January Amortisation of borrowing costs Fair value gain	103.451.507 1.689 7,851,000	100,647,133 3.374 2,801,000
Carrying amount	111,304,196	103,451,507

Fair values of investment property

The movement in the fair value of investment property comprises the movement in the fair value of the dominium directum of the MIA and VCP properties, as well as the Parliament Building and Open Air Theatre. This fair value of investment property is calculated with reference to the cash flows receivable by the Company in terms of its contractual agreements, discounted to present value as at 30 June 2019. Accordingly, the fair value of the investment property is subject to variation owing to, amongst other things, movements in market interest rates, expected inflation rates and changes in the contractual cash flows owing to the passage of time.

The Company is required to disclose fair value measurements by level of the following fair value measurement hierarchy for non-financial assets carried at fair value by level:

• Quoted prices (unadjusted) in active markets for identical assets (level 1).
• Inputs other than quoted prices included within level 1 that are observable for the asset either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
• Inputs for the asset that are not based on observable market data for similar properties (that is, unobservable inputs) (level 3).

The Company's recurring fair value measurements are categorised as level 3 as they are based on significant unobservable inputs.

Valuation process

a) MIA and VCP

The valuation of the MIA and VCP properties is based on the present value of ground rents up to the expiry of the temporary emphyteutical grants and the estimated freehold value thereafter discounted to present value. The fair value of investment property is calculated with reference to the cash flows receivable by the Company in terms of its contractual agreements, discounted to present value as at 30 June 2019.

4. Investment property - continued

Valuation process - continued

MIA and VCP a)

The discount rate is based on the yield to maturity on the longest term available Malta Government Stock (MGS) in issue plus a premium reflecting the risk inherent in the underlying cash flows.

In view of the variation in the MGS benchmark referred to above during the period ended 30 June 2019, a fair value gain of €19,598,000 (2018: €2,390,000) has been recognised in these financial statements.

In accordance with the fair value measurement hierarchy explained above the significant unobservable inputs applied in the valuation of the Company's assets are the following:

• Ground rent, as contractually agreed which for the coming year is estimated at €2.0 million (2018: €1.9 million):
• Growth rate, as contractually agreed at an average of 2.5% p.a., represents the estimated average growth of the Company's rentals;
• Discount rate of 4.16% based on the long-term risk-free rate of return and a specific risk premium for the individual property being valued taking into account factors such as, property illiquidity, management limitations, type, size and location of property, competition, future uncertainty, counter-party risks and resource risks.

The impact of a lower/higher discount rate has been disclosed in Note 2 - Critical accounting estimates and judgements resulting from the said revaluation process are treated as non-distributable (see Note 9).

b) Parliament Building and Open Air Theatre

The valuation of the Parliament Building and Open Air Theatre is based on the present value of ground rents up to the expiry of the temporary emphyteutical grant discounted to present value. The fair value of investment property is calculated with reference to the cash flows receivable by the Company in terms of its contractual agreements, discounted to present value as at 30 June 2019. The discount rate is based on the yield to maturity on the longest term available Malta Government Stock (MGS) in issue plus an additional premium reflecting the risk inherent in the underlying cash flows and the type of property.

A fair value gain of €7,851,000 (2018: €1,159,000) has been recognised in these financial statements.

In accordance with the fair value measurement hierarchy explained above the significant unobservable inputs applied in the valuation of the Company's assets are the following:

• Rents, as contractually agreed which for the coming year is estimated at €6 million;
• Growth rate, at an average of 2.8% every 3 years, represents the estimated average growth of the Company's rentals;
• Discount rate of 5.66% based on the long-term risk-free rate of return and a specific risk premium for the individual property being valued taking into account factors such as, property illiquidity, management limitations, type, size and location of property, competition, future uncertainty, counter-party risks and resource risks.
• The impact of a lower/higher discount rate has been disclosed in Note 2 Critical accounting estimates and judgements. Movements resulting from the said revaluation process are treated as non-distributable (see Note 9).
• As explained in the Interim Directors' Report, the certificate of completion of the Parliament . Building was issued end of January 2019. The Parliament Building and Open Air Theatre are both carried at fair value.

5. Right-of-use asset, Lease liability and Provision on restoration

The Company adopted IFRS 16 Leases from 1 January 2019 using a modified retrospective approach, under which the Company has not restated comparatives for the 2018 reporting period, as permitted under the specific transition provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening Statement of financial position on 1 January 2019 within the statement of changes in equity. On adoption of IFRS 16, the Company recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. The transitional adjustment impacting lease liabilities is measured at the present value of the remaining lease payments, discounted using the Company's incremental borrowing rate as of 1 January 2019.

The Company recognised the right of use asset and the lease liability at the date of initial application; the measurement principles of IFRS 16 are therefore applied after that date. This resulted in measurement adjustments to lease liabilities and provision on restoration costs amounting to €8,021,185 which are now separately recognised in the statement of financial position. The outflows related to these liabilities were previously netted off from the value of the Company's investment property; the difference to the amount recognised as at 1 January 2019 has been reflected as an adjustment to opening retained earnings in the statement of changes in equity. The associated rightof-use asset was measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.

Disclosures included in the financial statements for the year ended 31 December 2018 indicate an estimated right-of-use asset of €107,907,980 and a lease liability of €4,456,473. During 2019 the Company has recomputed the model required for adoption of IFRS 16, using a more appropriate Incremental borrowing rate as opposed to the Internal rate of return. This has resulted in a right-ofuse asset as at 1 January 2019 amounting to €11,472,692, a lease liability amounting to €8,021,185 and a net investment in the lease amounting to €103,451,507.

i) Measurement of lease liabilities

	Period from 1 January to 30 June 2019 €
Undiscounted operating lease liability commitments as at 31 December 2018 Impact of discounting using the lessee's incremental borrowing rate at the date of	10,687,016
initial application	7,355,358)
Lease liability recognised as at 1 January 2019	3,331,658
Interest on lease liability for the period ended 30 June 2019	69.126
Ground rents payable for the period	(54.814)
Lease liability recognised as at 30 June 2019	3,345,970
Of which are:
Current lease liabilities	110.250
Non-current lease liabilities	3,235,720
	3,345,970

5. Right-of-use asset, Lease liability and Provision on restoration - continued

i) Measurement of lease liabilities - continued

	Period from 1 January to 30 June 2019 €
Maturity analysis - contractual undiscounted cash flows
Less than one year One to five years More than five years	112,250 461.188 10,058,453
Total undiscounted lease liabilities at 30 June 2019	10,631,891
	30 June 2019 を
Amounts recognised in profit or loss
Interest on lease liabilities Interest on provision on restoration costs	69,126 100,825
	169,951

ii) Measurement of right-of-use assets

The associated right-of-use assets for property leases were measured at 1 January 2019 at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position as at 31 December 2018. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application. The recognised right-of-use assets relate to Investment Properties.

		30 June 2019 31 December 2018
	ਵ	こ
Right-of-use asset
At historical cost	5.497.495

6. Contract asset and Service concession arrangements

On 29 December 2017, Malita entered into a contractual arrangement with the Housing Authority "Housing" to make available sixteen residential blocks, totalling around six hundred and eighty-four units, a number of car spaces and lock-up garages that will be used for affordable housing purposes. Excavation of a number of sites was commenced in the last few weeks of 2018 and to date construction works are still underway. The construction and finishing phase is expected to be completed during 2022 and thereafter the operating phase will follow with a duration of twenty-five years once the construction and finishing phase is complete.

In line with the agreed terms, the Company has entitlement to cash flows from rental of the respective units, car spaces and lock-up garages. Rates are contractually agreed and will be paid by the tenant which including a portion which includes a subsidy from Housing. The Company's total cashflows will equate to the contractually agreed rates.

Upon termination of the emphyteutical grant, the Company is required to hand-over responsibility and ownership of all assets relating to the sixteen construction sites to Housing. During the term of the agreement, Malita is entitled to cash-flows relating to residential units, car spaces and lock-up garages even if these are vacant - the only condition that entitles Malita plc to cash-flows is making such units and spaces available for use. The Company may not however dispose, or change the use of, the properties during the period of the concession.

Pursuant to IFRIC 12, when the operator has an unconditional right to receive cash or other financial assets from the grantor in remuneration for concession services, the financial asplies. In this context, the infrastructure managed under these contracts cannot be recorded in assets of the operator as property, plant and equipment, but are recorded as financial assets. During the construction phase, the financial asset is recorded as a contract asset.

During the construction phase, a financial receivable is recognised in the Statement of Financial Position and revenue in the Income Statement. The stage of completion of works was determined as the percentage of cost incurred up until the end of the reporting period relative to the total estimated cost (cost-to-cost method). Income amounting to €7,059,803 from the construction activity was recognized during the period ended 30 June 2019 and €7,513,697 is cumulatively recognized in the Statement of Financial Position as a contract asset. Since the operation phase did not yet commence, no cash flows were received to date. Costs in relation to construction amounting to €6,854,178 have been recognised in the income statement. The difference between revenue and cost from the construction project during the period represents, in substance, project management fees.

Financial receivables are initially measured at the lower of fair value and the sum of discounted future cash flows and subsequently recognized at amortized cost using the effective interest method. The implied interest rate on the financial receivable is based on the derived rate implicit in the discounted cash flow model encompassing related terms and conditions within the Housing contract.

The following table sets out the movement in the contract asset:

	是	30 June 2019 31 December 2018 는
Balance as at 1 January Additions, including finance income	5,566,308 1.947.389	1,505,554 4.060.754
Carrying amount at end of reporting period	7,513,697	5,566,308

7. Share capital

	€	30 June 2019 31 December 2018 e
Authorised 150,000,000 Ordinary A shares of €0.50 each 50,000,000 Ordinary B shares of €0.50 each	75,000,000 25,000,000	75,000,000 25,000,000
	100,000,000	100,000,000
Issued and fully paid 118,108,064 Ordinary A shares of €0.50 each 30,000,000 Ordinary B shares of €0.50 each	59,054,032 15,000,000	59,054,032 15,000,000
Issue costs	74.054.032 (758,889)	74,054,032 (758,889)
	73,295,143	73,295,143

8. Retained earnings

The retained earnings include non-distributable earnings as a result of the Revenue from service concession arrangements recognised on the Affordable Housing project as per IFRS 15. These earnings will become distributable once the Company starts earning lease income.

	€	30 June 2019 31 December 2018 ਵ
Distributable Non- distributable	6,623,384 439.172	6,817,895
	7,062,556	6,817,895

9.

The reserve represents the cumulative fair value gains, net of applicable deferred tax liabilities on the Company's investment properties. These gains are initially recognised in the statement of comprehensive income and because of their nature, were subsequently transferred to a nondistributable reserve.

10. Non-distributable reserve - other

As per article 82 of the Company's Articles of Association, the Directors have set aside €230,459 (June 2018: €223,839) which equals 10% of the net profit for the period excluding fair value movements net of deferred tax (see Note 9) of the Company and allocated them to a non-distributable reserve. The Directors may employ the reserve in the furtherance of the Company as the Directors may from time to time think fit.

Borrowings 11.

On 1 October 2012, the Company withdrew a €40,000,000 loan facility with the European Investment Bank in part satisfaction of the acquisition of the Parliament Building and the Open Air Theatre. This facility is split up into €25,000,000 for 20 years and €15,000,000 for 25 years at a fixed rate of interest. The borrowing cost of the long-term loan is inclusive of a three-year capital moratorium period. The first capital repayment of the long-term loan was paid in January 2016.

On 28 September 2016, the Company secured a €7,000,000 revolving loan facility with Bank of Valletta in satisfaction of the improvements to the Parliament Building. The facility is to be fully repaid within 15 years from first drawdown at a fixed rate of interest. The first capital and interest repayments on this loan were paid in May 2018. The facility is pledged against the additional rent receivable by the Company for the use of the Parliament Building.

On 28 November 2018, the Company obtained a €1,000,000 short term funding facility from Bank of Valletta in order to meet capital expenditure requirements in respect of the Affordable Housing project. This short-term funding facility will be repaid in full within the coming year when the drawdowns from two credit facility agreements with the European Investment Bank and the Council of Europe Development Bank take place.

	30 June 2019 31 December 2018
	ਵ	€
Borrowings
Non-current	39,164,884	40.181.938
Current	2,997,918	2,954,642
	42,162,801	43,136,580

12. Capital creditor for the acquisition of property

The outstanding balance of €1,558,300 is related to the Affordable Housing project and is due within the coming year. Hence, it is classified as a current liability.

		30 June 2019 31 December 2018
Capital creditor for acquisition of property	1,558,300	1,665,451

13. Revenue

Revenue comprises the consideration payable by MIA and VCP by way of an annual ground rent in respect of the temporary emphyteusis granted. Lease for the Open Air Theatre also commenced for this property pursuant to a lease agreement entered into with the Company. Also included in the revenue figure is lease income for the Parliament Building which commenced on February 2019 as the Parliament Building's certificate of completion was issued in January 2019. Prior to the certificate of completion being issued the Company received a penalty payable by Government pursuant to a public deed entered into with the Company which stipulated that, in the event of a delay in completion, the Government was liable to pay the Company a daily penalty in line with the rental income due, had the project been completed on time.

13. Revenue - continued

Revenue comprises the consideration payable by MIA and VCP by way of an annual ground rent in respect of the temporary emphyteusis granted. Lease for the Open Air Theatre also commenced for this property pursuant to a lease agreement entered into with the Company. Also included in the revenue figure is lease income for the Parliament Building which commenced on February 2019 as the Parliament Building's certificate of completion was issued in January 2019. Prior to the certificate of completion being issued the Company received a penalty payable by Government pursuant to a public deed entered into with the Company which stipulated that, in the event of a delay in completion, the Government was liable to pay the Company a daily penalty broadly in line with the rental income due, had the project been completed on time.

Revenue also reflects additional rent payable semi-annually by the Government of Malta pursuant to a lease agreement entered in April 2017 for additional investment in the Parliament Building.

For the period under review and in line with IFRS 15 Revenue from Contracts with Customers and IFRIC 12 Service Concession Arrangements, the Company is recognising €7,059,803 as revenue from the Contract asset (Note 6) in relation to the Affordable housing project.

14. Directors' emoluments

	Period from 1 January to 30 June 2019	Period from 1 January to 30 June 2018
	€	€
Kenneth Farrugia (Chairman)	12,500	12,500
Paul Mercieca (Director)	7.500	7.500
Ray Sladden (Director)	5.000	5.000
Robert Suban (Director)	7.500	7.500
Eric Schembri (Director)	5.000	5.000
	37,500	37.500

15. Tax expense

The tax expense for the period is made up as follows:

	Period from 1 January to 30 June 2019 ミ	Period from 1 January to 30 June 2018 ਵ
Current tax expense Deferred tax expense (note 16)	730,290 2,196,325	732,522 283,920
Tax expense	2,926,615	1.016.442

15. Tax expense - continued

The tax on the Company's profit before tax differs from the theoretical amount that would arise using the basic tax rate as follows:

	Period from 1 January to 30 June 2019 는	Period from 1 January to 30 June 2018 =
Profit before tax	30,753,101	6,519,921
Tax on profit at 35%	10,763,585	2,281,972
Tax effect of: Income subject to 15% final withholding tax Income deductible for tax purposes Expenses not deductible for tax purposes I ax rules applicable to investment property Maintenance allowance	(187,726) (153,710) 121,105 (7,410,825) (205,814)	(187,758) 85,118 (958,230) (204,660)
Tax charge in the accounts	2,926,615	1,016,442

16. Deferred tax

Deferred tax is provided for using the liability method for temporary differences arising on movements in the fair value of immovable investment property of MIA and VCP and the Parliament Building and Open Air Theatre. The calculation of the deferred tax provision for the period ended 30 June 2019 is calculated on the taxation rules on capital gains upon a transfer of immovable property implemented through Act XIII of 2015, with effect from 1 January 2015, the rate of capital gains tax applicable is a final withholding tax of 8% on the value of the property.

The deferred tax balance as at 30 June 2019 represents:

		30 June 2019 31 December 2018
	ਵ	u
Temporary differences on:
Fair value gains	16,907,936	14,711,611

The movement for the period comprising the recognition of the above deferred tax liability has been credited to the statement of comprehensive income.

17. Earnings per share

Earnings per share is calculated by dividing the profit attributable to owners of the Company by the total number of ordinary shares in issue during the period.

	Period from 1 January to 30 June 2019	Period from 1 January to 30 June 2018
Profit for the period (€) Total average number of ordinary shares in issue	27,826,486 148.108.064	5.503.479 148,108,064
Earnings per share (cents)	18.79	3.72

Dividends 18.

	2018 Final dividend €	2017 Final dividend ਵ
Dividends paid on ordinary shares Gross Tax at source	3,228,756 1,130,065	3,228,756 484.314
	2,098,691	2,744,442
Dividends per share (cents)	1.42	1.85

An interim gross dividend in respect of the period ended 30 June 2019 of €1,955,026 or €0.0132 per share equating to an interim net dividend of €1,270,767 or €0.00858 per share, was declared by the Board of Directors on 7 August 2019. The financial statements do not reflect this dividend.

19. Cash generated from operations

Reconciliation of operating profit to cash generated from operations:

	Period from 1 January to 30 June 2019 m	Period from 1 January to 30 June 2018 ਵ
Operating profit	31,358,300	7,169,067
Adjustments for: Depreciation of property, plant and equipment Amortisation on restoration provision Change in fair value of investment property Revenue on contact asset	2,713 40,139 (27,449,000) (205,625)	889 (3,549,000)
Changes in working capital: Trade and other receivables Trade and other payables	445,385 (25,416)	280,612 45,954
Cash generated from operations	4.166.496	3,947,522

20. Related party transactions

The only major shareholder of the Gompany is the Government of Malta through its 79.75% (2018: 79.75%) shareholding. The remaining 20.25% (2018: 20.25%) of the shares are held by the public.

Other related entities are the following, since they are all Government owned and managed:

• Malta Investment Management Company Limited
• Projects Plus Limited ।
• Housing Authority
• Social Projects Management Limited ।

20. Related party transactions - continued

The following transactions have been carried out with the above related parties during the period.

	Period from 1 January to 30 June 2019 m	Period from 1 January to 30 June 2018 ਵ
Government of Malta Payment of City Gate ground rent to Government Receipt of City Gate penalties from Government Receipt of Open Air Theatre lease income from Government Receipt of Parliament Building additional rent from Government	(55,125) 1,843,333 790,993 375,000	(52,500) 1,810,000 797,528 61,332
Malta Investment Management Company Limited Office Lease payable to Malta Investment Management Company Limited	(4,425)	(4,425)
Projects Plus Limited Payments to Projects Plus Limited for professional services	(186,778)	(177,125)
Housing Authority Payments to Housing Authority for ground rent and premium on transfer of properties	(69,802)
Social Projects Management Limited Payments to SPM Limited for project management services	(957,878)	(2.494.423)

21. Statutory information

Malita Investments p.l.c. is a public limited liability Company and is incorporated in Malta.