Simonds Farsons Cisk Plc

Annual Report • May 27, 2020

Simonds Farsons Cisk p.l.c. The Brewery, Mdina Road, Zone 2, Central Business District, Birkirkara CBD 2010, Malta. Phone: (+356) 238 14 114 Website: http://www.farsons.com Email: sfc@farsons.com Registration Number: C 113

COMPANY ANNOUNCEMENT

The following is a Company Announcement by Simonds Farsons Cisk p.l.c. (the "Company") pursuant to the Malta Financial Services Authority Listing Rules Chapter 5.

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The Board of Directors of Simonds Farsons Cisk plc (the "Company has on Wednesday, 27th May 2020 met and approved the Annual Report and Consolidated Financial Statements of the Company and the Group for the year ended 31st January 2020 (FY 2020), and resolved to propose the same for the approval of the shareholders at the forthcoming Annual General Meeting of the Company to be held on a date yet to be confirmed.

The Board of Directors has also authorised for publication the said Annual Report and Consolidated Financial Statements for FY 2020, which is attached herewith and is available to the public on http://www.farsons.com/en/financial-statements.

In terms of Listing Rule 5.16.24, the Directors report that during the year under review, the Group's profit before taxation fell short of the projections for FY 2020 as contained in the Financial Analysis Summary dated 15th July 2019 (the "FAS") by 12.1%. As explained in the review of trading performance set out in the Directors' Report, this variance was principally caused by (a) gross margin compression and (b) an increase of €668,000 in the required impairment provision relating to trade debtor receivable balances. The Group's profit after taxation fell short of the FAS projections by 19.6%. The principal reason for the increase in the shortfall beyond the 12.1% referred to above was that in FY 2020 it was not thought appropriate to add to the deferred tax asset in view of the reduced profits reported in FY 2020 and the significantly lower profit expectations for FY 2021. In FY 2019 deferred tax assets were increased by €2.3 million.

An interim net dividend of €1,000,000, that is €0.0333 per ordinary share was approved at the Board Meeting held on 25th September 2019 and distributed to shareholders on 16th October 2019. In view of the impact on the business of the COVID-19 Pandemic and the uncertainty caused by the lack of forward visibility concerning the timing of any amelioration of the current crisis and any recovery therefrom, the Board of Directors does not consider it appropriate at this time to recommend the payment of a final dividend to the forthcoming Annual General Meeting.

Therefore, the total net dividend settled in cash to the ordinary shareholders relating to the financial year ended 31st January 2020 amounted to €1,000,000, (2019: €4,000,000) that is €0.0333 (2019: €0.1333) per ordinary share.

As stated in the Company Announcement issued on 24th April 2020, the Annual General Meeting of the Company had provisionally been scheduled to be held on 25th June 2020. However, in view of the current COVID-19 restrictions it may not be possible to hold the meeting on that date. A further Company Announcement will be issued concerning the fixing of a date for the Annual General Meeting as soon as it is practicable to do so.

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Antoinette Caruana Company Secretary

27th May 2020

SIMONDS FARSONS CISK plc

Annual Report and Consolidated Financial Statements

31 January 2020

	Pages
Directors' report	1 - 8
Statement by the directors on non-financial information	9 - 17
Corporate governance statement	18 - 29
Remuneration report	30 - 32
Independent auditor's report	33 - 39
Statements of financial position	40 - 41
Income statements	42
Statements of comprehensive income	43
Statements of changes in equity	44 - 45
Statements of cash flows	46
Notes to the consolidated financial statements	47 - 107

Directors' report

The Directors present their report and the audited consolidated financial statements for the year ended 31 January 2020.

Principal activities

The Group is engaged in the brewing, production and sale of branded beers and beverages, the importation, wholesale and retail of food and beverages, including wines and spirits and the operation of franchised food retailing establishments.

Review of the business

Trading performance

The Board of Directors hereby announce the Farsons Group's financial results for the year ended 31 January 2020 (FY 2020).

Turnover for FY 2020 increased by 3.7% to €103.5 million. Whilst the Group registered turnover growth across all segments, reported pre-tax profits at €12.3 million (FY 2019: €14.1 million) were €1.8 million (or 12.6%) lower than that reported last year. Throughout the year, competition remained acute across all businesses and this resulted in margin compression. A tight labour market made for higher payroll costs – particularly in the distribution area. Furthermore, the positive economic performance experienced by the country over the past years started showing signs of levelling off in the latter part of the financial year under review. From the autumn of 2019 the business environment generally turned cautious and the Group started to witness a gradual slowing-down in the payment patterns of its customers - and this pattern has deteriorated further since the financial year end. These factors represent the major contributing reasons for the lower profits being reported by the Group in FY 2020. The application of the requirements of International Financial Reporting Standard (IFRS 9) introduced in FY19 to debtor receivable balances has resulted in an increase in the required impairment provision amounting to €668,000. This compares with a reduction in the same provision of €762,000 in FY 2019, representing a negative swing factor amounting €1.4 million on a year to year basis.

The Group's profit after tax for the year amounted to €11.9 million, a decrease of €3.3 million (or 22%) over that reported for FY 2019. The higher tax charge recorded in FY 2020 is a result of the fact that no increase in the deferred tax asset was recorded this year in relation to investment tax credits (FY 2019: an increase of €2.2 million). The Group's policy regarding the recognition of deferred tax as an asset is to record the amount of investment tax and other credits that it is believed can be recouped on estimated profits over the foreseeable future. As a result of the lower profits being reported this year and significantly lower profit expectations for FY 2021, it was not thought appropriate to add to the deferred tax asset valued in FY 2020. As at 31 January 2020 unrecognised investment tax and other credits with no expiry dated amounted to €26.5 million.

Earnings before interest, tax, depreciation and amortisation (EBITDA) amounted to €22.7 million as compared to €23.2 million in FY2019, a decrease of 2% reflecting the lower reported profit net of the impact of the introduction of IFRS16 for the 'Right-of-use assets'. The Group's net borrowings (excluding impact of IFRS 16) increased by €1 million, whilst following the inclusion of the liabilities in accordance with IFRS 16, the gearing ratio increased to 25.9% as compared to 23.4% for 2019. Total equity of the Group increased from €108 million to €116 million, reflecting the profit generated net of the dividends distributed during the year.

Review of the business - continued

Investments

During FY 2020 the Group invested a further €10.7 million to complement the major plant investments carried out in previous years together with the developing project at the iconic Old Brewhouse. Capital investment to upgrade existing production and logistics facilities continued to be undertaken in order to ensure that the Group remains a leader in our chosen business sectors. The capital investment programmes implemented by the Group over the years has enabled it to consistently provide high quality products to its customers, facilitate innovation and ensure that its operational practices contribute towards a better environment. During the year, the Company invested in a more environmentally friendly car and truck fleet, together with further investments in energy-efficient plant.

The major investment currently being undertaken by Farsons is the restoration and rehabilitation of the Farsons Old Brewhouse. This landmark regeneration project is well underway and on time for the projected completion date during 2021. The project will provide a Brewery Visitor Experience, a Microbrewery, a Brewpub, a Cisk bar, a food court and multiple indoor and outdoor event areas for both business and leisure activities.

Outlook for financial year ending 31 January 2021 and events subsequent to the financial reporting date

On 11 March 2020, the World Health Organisation (WHO) declared the Coronavirus/COVID-19 outbreak to be a global pandemic. Around the world, many governments introduced unprecedented measures in efforts to contain and control the spread of the outbreak. In Malta, the authorities moved quickly and introduced measures that included the imposition of quarantine, self-isolation and travel restrictions, the closure of schools, universities and other academic/learning and care institutions, as well as ordering the shuttering of all bars, restaurants, clubs and gyms. Non-essential shops were also instructed to close and as of 21 March 2020 Malta International Airport was closed for all but a limited number of flights. Social distancing and stayat home regulations were enacted. These measures have thus far successfully contained the number of infections and fatalities experienced on the Island.

In the face of the precipitous economic downturn and the threat of massive unemployment, governments have responded with co-ordinated stimulus measures, business support initiatives and employment protection programmes on a scale never witnessed before. Governments have also announced business loan and guarantee schemes and, given the exceptional nature of the crisis, are encouraging banks to grant temporary moratoria on interest and capital repayments on personal mortgages and business loans.

With over 5 million confirmed cases worldwide, at the date of this report, and, tragically, over 350,000 deaths, the COVID-19 outbreak is, above all, a human tragedy of immense proportions impacting untold numbers of people around the world. However, it soon became apparent that what started as a public health emergency was very quickly becoming a serious economic crisis. The unprecedented (but necessary) restrictive (travel, quarantine, lock-down and social distancing) measures imposed by governments caused a sudden and very sharp contraction in economic activity and with it a precipitative global recession.

Notwithstanding the unprecedented measures taken by governments as they struggled to combat the outbreak and to support businesses, jobs and the economy in general, the nature of COVID-19 and the consequent economic impact are causing great uncertainty. In particular, there is great anxiety about just how long it will be necessary to retain the current "lock-down" of large swathes of business and economic activity, and governments are struggling to balance the saving of lives with the saving of livelihoods. Various jurisdictions are starting to tentatively lift some of the imposed restrictions and are watching with some anxiety to see whether this gradual liberalization will result in any reemergence or "second wave" of infections.

Review of the business - continued

Outlook for financial year ending 31 January 2021 and events subsequent to the financial reporting date - continued

There is also much uncertainty and anxiety as to the extent and duration of the more lasting economic and social impact once restrictive measures are lifted. It is expected that the fields of aviation, travel and tourism and the related hotel, leisure, entertainment, bar and restaurant sectors – all of which are so important to Malta's economy - are going to be heavily impacted – and may take several years to recover.

For financial reporting purposes, events relating to the COVID-19 pandemic are deemed to be non-adjusting subsequent events, and accordingly the financial results and financial position of the Company and Group reported within these financial statements for the year ended 31 January 2020 have not been impacted by these events.

The Farsons Group has entered this crisis from a position of strength. Following many years of significant capital investment, Farsons has state of the art production and distribution facilities and a portfolio of highly acclaimed products and world class brands. FY 2019 (which marked the Group's 90th anniversary) saw the culmination of a multi-year run of record turnover and profits being reported. The adoption over the years of a prudent profits reinvestment policy has also resulted in a strong balance sheet, with shareholders' equity exceeding €108 million at the start of FY 2020. For the various reasons that are outlined in this report, FY 2020 saw a levelling off in Group profits, but at €12.3 million before taxation, these profits are still impressive and as at the end of FY 2020, shareholder equity now exceeds €116 million.

As noted above, shortly after the declaration by the WHO of the pandemic on 11 March, the Government of Malta announced a series of measures that included the closure of all bars and restaurants, cancellation of all mass events and, with effect from 21 March, the closure of Malta International Airport. In effect, Malta's tourist market, one of the mainstays of the local economy, was shut for business until further notice. As stated in the Company Announcement issued by Farsons on 8 April 2020, there could be no doubt that the cumulative effect of these measures would have a significant impact on demand for the Group's product lines in the food and beverage sector.

This has indeed proved to be the case, and (after a strong start to the financial year) Group-wide sales for the month of April 2020 (the first full post-Covid-19 month) fell by close to 55% when compared with the same month last year.

Immediately the Government measures were announced the Board and Management moved rapidly to implement certain operational and cost efficiency initiatives aimed at mitigating the impact of the sudden and unexpected crisis on the businesses of the Group.

These actions included strict cost containment, the curbing of certain discretionary and marketing spend, and lower production runs. A number of steps were also implemented in the human resource area, including elevated health and safety protocols, remote working where possible, rescheduled work and shift patterns, anticipated leave, and, in agreement with the Unions, the introduction of a number of shut down days. An immediate freeze was imposed on overtime working and on all new recruitment as well as on the engagement of subcontracted and casual labour. Training programmes were moved online and more frequent communication with all employees implemented.

Moreover, in situations of this nature cash conservation measures are imperative. Therefore, early steps were taken for the deferral of certain capital expenditure projects and more robust working capital controls were introduced. Application was made for temporary capital moratoria on a number of bank loans and additional focus brought to bear on inventory levels and the collection of trade receivables.

Review of the business - continued

Outlook for financial year ending 31 January 2021 and events subsequent to the financial reporting date - continued

At the same time, management and the Board have been examining various contingency planning scenarios (including stressed models) under which the impact of the current crisis on the businesses of the Group is being assessed. The scenarios have adopted varying assumptions depending on the duration of the effective shut down on parts of the business and the anticipated rate and shape of the recovery as restrictions are gradually lifted.

As is to be expected, the most direct and significant impact on the Group's food and beverage businesses arises from the directives to close all restaurants, bars and clubs, the cancellation of mass events – and the closing of the Malta International Airport. These measures have effectively shut down the tourist industry (a major contributor to the Maltese economy) and with it virtually all hotels. Over the year to 31 December 2019 inbound tourist arrivals in Malta totaled 2.8 million passengers.

The Farsons Group beverage manufacturing operations (beer, carbonated soft drinks and waters) is a major supplier to the hotel, bar and restaurant trade, as is its wines and spirits importation arm. Through its Food Chain subsidiary, the Farsons Group also operates 14 franchised food restaurants and drive through outlets. All these businesses have been radically hit by lost sales arising from the sudden shut-down of the entire tourist, hospitality and leisure sectors. Furthermore, (at the time of writing) there exists little clarity or forward visibility concerning the amelioration of the current crisis – or on the timing of the further lifting of restrictions and the re-opening of the airport.

Management's working assumptions in its forward planning scenarios include a slow and incremental lifting of restrictions, and an expectation that even when the airport is re-opened, tourist arrival pick up will be slow and very gradual. Our expectation is that it may be several years before tourist arrivals witnessed in recent years are restored. It is also the Board's view that the economic slowdown that will be experienced in Malta as a result of the implosion of the tourist market will inevitably have a consequent impact on local consumer spending and therefore on local market demand for the Group's product range. All of the above has been factored into the working scenario models, as have allowances for the impact of much reduced demand on certain stock line items and the expectation that difficulties may be experienced in collecting receivables from certain customers whose businesses will experience particular difficulties over the current downturn.

The Board of Directors has carried out a careful review and applied its best judgement to the various scenarios prepared by management entailing what it believes to be prudent assumptions for assessing both profitability and liquidity. The Board has concluded that as a result of (a) the existing strength of the Group's financial position and its core product range and (b) the measures being taken by management to address and mitigate the impact of the current COVID-19 crisis, the Farsons Group will be able to sustain its operations over the next twelve months in a manner that is cash flow positive. Accordingly, based on currently available information the Board is confident that the Group will meet all its obligations as and when they fall due over the next twelve months and beyond and therefore, that the going concern basis adopted for the preparation of these accounts is entirely appropriate.

As can be seen from the above, the Group's Board and Management reacted swiftly to the immediate impact and threats posed by the crisis and took all the necessary short-term measures to respond to the situation. However, notwithstanding the lack of clarity at this time as to when the crisis might ease and what the rate of economic recovery might look like, it is becoming increasingly clear that any recovery will likely be slow and gradual – and that there may be further bumps in the road.

Review of the business - continued

Outlook for financial year ending 31 January 2021 and events subsequent to the financial reporting date - continued

The Board's belief is that following the response to the initial implications of the COVID-19 crisis, businesses everywhere are going to have to face up to the reality of a global economic recession – and that the "return to work" phase that will follow will potentially witness a radically different post-COVID reality – one that is being described as a "new normal" to which all businesses will have to adjust. Therefore, having responded to the immediate onslaught of the COVID-19 crisis, the next task of the Group Board and Management team is to develop a business plan that is appropriately tailored to the "new normal" that is expected to emerge. Potentially, this "new normal" may well require the adoption of a materially different business model that will need further measures to be implemented.

In the meantime, it is worth repeating that Farsons has entered into this crisis from a position of significant strength. In facing up to the current crisis, the Board is determined to give utmost priority to all our many stakeholders. For our many customers we pledge to maintain the highest possible standards in terms of the quality of our products and service levels. The Board is also resolved to do all that is needed and possible to ensure the safety and well-being of all our employees and to protect their continuing employment with the Group and for our many suppliers, creditors and shareholders, the measures being taken by the Board are directed at protecting and preserving the commercial well-being of our businesses as well as the financial strength and integrity of the Farsons Group. The Board will continue to keep the situation under close review and will respond appropriately to any material change in circumstances.

Financial risk management

The Group and Company are exposed to a variety of financial risks, including market risk (including currency risk, fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. Refer to note 2 in these financial statements for further details.

Dividends and reserves

The income statements are set out on page 42.

Shareholders are one of the vitally important stakeholders in any business. They provide millions of euros of capital to corporations, without which it would not be possible for any business to operate. Shareholders are compensated for the capital that they invest in a business through the periodic distribution of dividends. Any decision to defer or suspend the declaration of regular dividends is therefore only taken after the most careful consideration and with great reluctance. As can be seen from the commentary above on the impact of the COVID-19 pandemic and the outlook for FY 2021, this is a time of great uncertainty for the business and there is a lack of forward visibility concerning the timing of any amelioration of the current crisis and the rate of recovery therefrom. At such times, the Board of Directors believes that the prudent course of action is to conserve cash and capital, reduce costs and to be alert and agile in responding to any change in circumstances.

The Board declared an interim dividend of €1,000,000 which was paid to shareholders on 16 October 2019. In the normal course of events, the Board would propose the payment of a final dividend for consideration at the forthcoming Annual General Meeting.

However, in the environment described above, the Board has reluctantly concluded that in the long-term interest of the business it would not be prudent at this time to propose a final dividend for the financial year ended 31 January 2020 at the forthcoming Annual General Meeting. The situation will be kept under careful review and shareholders can rest assured that dividend distributions will be resumed immediately it is judged prudent to do so.

Dividends and reserves - continued

Retained profits carried forward at the reporting date amounted to €58 million (2019: €50 million) for the Group.

Directors

The directors who held office during the year were:

Mr Louis A. Farrugia F.C.A. - Chairman Mr Marcantonio Stagno d'Alcontres - Vice-Chairman Baroness Christiane Ramsay Pergola Marquis Marcus John Scicluna Marshall Dr Max Ganado LL.D. Mr Roderick Chalmers M.A. Div. (Edin.) F.C.A., A.T.I.I., F.C.P.A., M.I.A. Ms Marina Hogg Mr Michael Farrugia M.A. (Edin.)

Mr Louis A. Farrugia, Mr Marcantonio Stagno d'Alcontres, Marquis Marcus John Scicluna Marshall, Dr Max Ganado, Mr Roderick Chalmers, and Mrs Marina Hogg whose terms of appointment expire, retire from the board and are eligible for re-election.

Statement of directors' responsibilities for the financial statements

The directors are required by the Maltese Companies Act, 1995 to prepare financial statements which give a true and fair view of the state of affairs of the Group and the parent Company as at the end of each reporting period and of the profit or loss for that period.

In preparing the financial statements, the directors are responsible for:

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

The directors are also responsible for designing, implementing and maintaining internal control as 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. 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 Simonds Farsons Cisk plc for the year ended 31 January 2020 are included in the Annual Report 2020, which is published in hard-copy printed form and is available on the parent 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 parent Company's website is available in other countries and jurisdictions, where legislation governing the preparation and dissemination of financial statements may differ from requirements or practice in Malta.

Statement of directors' responsibilities for the financial statements - continued

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

• the financial statements give a true and fair view of the financial position of the Group and the parent Company as at 31 January 2020, and of the financial performance and the cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU; and
• the annual report includes a fair review of the development and performance of the business and the position of the Group and the parent Company, together with a description of the principal risks and uncertainties that the Group and the parent Company face.

Going concern basis

After making enquiries, the Directors, at the time of approving the financial statements, have determined that there is reasonable expectation that the Group and the parent Company have adequate resources to continue operating for the foreseeable future. For this reason, the Directors have adopted the going concern basis in preparing the financial statements. Reference is made to the commentary above relating to the outlook for financial year ending 31 January 2021 and events occurring after the balance sheet date.

Shareholder register information pursuant to Listing Rule 5.64

Share capital information of the Company is disclosed in note 12 of the financial statements on page 88.

The issued share capital consists of one class of ordinary shares with equal voting rights attached and freely transferable.

The list of shareholders holding 5% or more of the equity share capital is disclosed in this annual report.

Every shareholder owning twelve and a half per cent (12.5%) of the ordinary issued share capital of the Company or more shall be entitled to appoint one director for each and every twelve and a half per cent (12.5%) of the ordinary share capital owned by such shareholder and such shareholder may remove, withdraw or replace such director at any time. Any appointment, removal, withdrawal or replacement of a director to or from the board of directors shall take effect upon receipt by the board of directors or the Company secretary of a notice in writing to that effect from the shareholder owning twelve and a half per cent (12.5%) of the ordinary issued share capital of the Company or more. Any remaining fractions will be disregarded in the appointment of the said directors but may be used in the election of further directors at an Annual General Meeting. The chairman is appointed by the directors from amongst the directors appointed or elected to the board.

The rules governing the appointment, election or removal of directors are contained in the Company's Articles of Association, Articles 93 to 101. An extraordinary resolution approved by the shareholders in the general meeting is required to amend the Articles of Association.

The powers and duties of directors are outlined in Articles 84 to 91 of the Company's Articles of Association. In terms of Article 12 of the said Articles of Association, the Company may, subject to the provisions of the Maltese Companies Act, 1995 acquire or hold any of its shares.

The Collective Agreement regulates redundancies, early retirement, resignation or termination of employment of employees. No employment contracts are in place between the Company and its directors, except as disclosed in the Remuneration report.

Shareholder register information pursuant to Listing Rule 5.64 - continued

It is hereby declared that, as at 31 January 2020, the Company is not party to any significant agreement pursuant to Listing Rules 5.64.10.

Furthermore, the board declares that the information required under Listing Rules 5.64.5 and 5.64.7 is not applicable to the Company.

Auditors

The auditors, PricewaterhouseCoopers, have indicated their willingness to continue in office, and a resolution for their re-appointment will be proposed at the Annual General Meeting.

By Order of the Board

Chairman Vice-Chairman

Registered address:

The Brewery Mdina Road Zone 2, Central Business District Birkirkara CBD2010 Malta

Telephone (+356) 2381 4172

Antoinette Caruana Company Secretary

27 May 2020

Louis A. Farrugia Marcantonio Stagno d'Alcontres

This statement is being made by Simonds Farsons Cisk plc (SFC, Farsons or the Group) pursuant to Article 177 of the Companies Act (Cap. 386). In terms of the Sixth Schedule to the Act, SFC is obliged to prepare a report containing information to the extent necessary for an understanding of the Group's development, performance, position and the impact of its activities. For the purposes of the Act, SFC is hereby reporting on the impact of its activities on environmental, social and employee matters, respect for human rights, anticorruption and bribery matters.

Our Business Model

The Farsons Group is located in Malta and traces its origins to 1928.

The Group comprises SFC as the holding Company and which is also engaged in the manufacture of branded beers and beverages including the award-winning Cisk range of beers, Blue Label Ale, the Kinnie range of soft drinks and San Michel table water among others. All the Group's subsidiaries are wholly owned. Both SFC and its subsidiaries represent a number of international market leaders in the food and beverage industry through long-standing relationships. Farsons Beverage Imports Company Limited is active in the importation, distribution and retail of wines and spirits, Quintano Foods Limited operates a food importation and distribution business whilst EcoPure Limited distributes dispensed bottled water. Food Chain Limited operates a number of franchised food outlets across the island. The Group's culture is one of total commitment to securing the highest standards of products and services and to sustain its reputation for quality and excellence.

SFC is a public Company with its registered address at The Brewery, Mdina Road, Zone 2, Central Business District, CBD 2010, Birkirkara, Malta. The Company's issued share capital made up of 30,000,000 ordinary shares of €0.30 each in nominal value. All shares carry equal voting rights and are listed on the Malta Stock Exchange. As at the year-end 79.32% of the issued shares were owned by the three major shareholders, with the balance being held by general public shareholders.

A description of the corporate governance structure deployed across the Group, including matters relating to the role and responsibilities of the Board are set out in the Corporate Governance Statement which forms part of this Annual Report.

Inter-alia, the Board assumes responsibility for identifying the principal business risks for the Group and overseeing the implementation and monitoring of appropriate risk management systems. The principal risks would include those that could cause a materially adverse impact to the Farsons Group operations, products, reputation and business performance, its business relationships and/or the safety and well-being of its customers and employees. A comprehensive risk management review was conducted over the financial year under review with the assistance of external consultants and enhanced risk management protocols are being put in place. The outbreak of the COVID-19 Pandemic was an acute reminder of the reality of unexpected external risk – and the Group responded with speed and agility in seeking to address the immediate consequences of the public health and business crisis stemming therefrom. This response is ongoing.

Turnover for the Group reached €103.5 million during the year ended 31 January 2020 and employed an average of 860 (full time equivalent) employees during the year under review.

Our Business Model - continued

At Farsons, we have always recognised our corporate responsibility towards all stakeholders and the wider community. We seek to engage in teamwork, we foster respect and exercise integrity whilst promoting dynamism and striving for excellence. We are committed to upholding the highest standards of corporate ethics and behaviour, and as a public listed company we remain transparent in our dealings and are guided by a strong sense of values where trust is central to all that we do.

Our Commitment to the Environment

Management maintains a strong focus on the performance of the business from an environmental perspective. Water usage, energy efficiency, emissions and packaging waste management all represent important key performance indicators for the Group and they are expected to become increasingly so in the foreseeable future. Fully embracing environmental responsibilities has long formed an intrinsic part of the Farsons culture.

Policies and risks

The risk to which our environment is exposed cannot be underestimated and represents an increasing area of focus on a global basis. Extreme weather events, natural disasters and water shortages are all in part a consequence of global warming and the failure of climate-change mitigation measures. Increasing attention is also being given to the indiscriminate use and disposal of plastic. As with beverage companies generally, Farsons is exposed to environmental risks by way of its agricultural supply chains and its significant water consumption. Responsible disposal of packaging waste is also an obligation that has been an area of increasing policy focus and commitment at the Farsons Group for a number of years, as have water conservation and energy efficiency.

In its bid to counter the impact of environmental risks, continuing efforts are made to increase coordination with supply chain partners on an ongoing basis. The Group also continues to deploy significant resources and new investment towards the better management of water, energy emissions and packaging waste. The Group is consistently seeking new and innovative ways to secure sustainable use of limited natural resources.

Water

Water is not only a prime raw material in our beverages but more so it is a scarce resource, particularly in Malta. Therefore, the Group consistently gives priority to water resource management, looking for continuous improvement in efficient water usage and recovery.

Our Commitment to the Environment - continued

Water - continued

Fully 93% of the water used in our products and production cycles is sourced from the Water Services Corporation. Much of the balance of 7% is sourced from recycled water or from our own water capture and storage capabilities, with minimum use being made of water extraction from bore-holes (which supply is both fully licenced and metered). Irrespective of the source, water used in our products goes through extensive filtering, purification and treatment processes so as to meet our own premium quality standards.

Energy use and greenhouse gas emissions

Farsons recognises the impact of emissions on our environment and is committed to reduce its carbon footprint. Existing operations are monitored for both their impact on energy use and that on greenhouse gas emissions and improvements are being implemented on an ongoing basis. Investment decisions on new projects unfailingly take into account the environmental implications as well as other commercial considerations. The policy is focused on reducing our carbon footprint and on countering air pollution by favouring on-site energy generation from renewable sources to the extent possible.

Our Commitment to the Environment - continued

Improvements have been recorded in the greenhouse gas emissions and energy intensity over a number of years, and continuing efforts are underway in these areas.

The process of moving away from Euro 4 certified vehicles to the more environmentally friendly Euro 6 standard accelerated during the year, and it is envisaged that the remaining Euro 4 certified vehicles would be phased out of the commercial fleet by 31 January 2021. During the year, a further 51 vehicles were replaced with either electric powered models or with vehicles certified to the Euro 6 standard. Route planning software is also making for more efficient delivery trips. We are proud of this contribution to reduce emissions on our roads.

Packaging waste

The policy adopted by Farsons over the years is directed at continuing to increase the incidence of reuse, recycle and recovery of packaging waste placed on the market. The Group is committed towards a responsible and sustainable approach in this regard. Farsons is at the forefront of both participation in waste management schemes and in the preparations under way for the introduction of the Beverage Container Refund Scheme, and we are fully supportive of the drive towards a circular economy. Building on our longstanding pro-environment initiatives, we participate in the Environment and Resource Management Forum which advocates improvements and acts as a catalyst to revise our standard operating procedures. Notwithstanding consumer preferences for one-way cans and plastic (PET) bottles, Farsons continues to promote the use of returnable (and reusable) glass bottles and kegs.

Efforts to recycle packaging waste are ongoing. We continue to fulfil our obligations for the recovery and separation of packaging waste, and through our participation in the licensed waste recovery scheme have materially exceeded the targeted 60% recycling obligation. The glass recycling process has also been enhanced as a result of our investment in on-site crushing equipment, and the collection of Waste Electrical & Electronic Equipment (WEEE) has been extended with battery collection facilities being made available to employees and their households. We are also collecting all waste oils for recuperation and regeneration through authorised service providers.

Our Commitment to our People

Policies and risks

The improvement of the quality of life of our employees and their families and of the community and society at large are important to the Farsons Group. We believe that in working together, we can achieve more, and this is encouraged by fostering a sense of belonging. The Group therefore adopts an approach that "every employee matters and every employee makes a difference".

Our Commitment to our People - continued

Training and education

The Farsons Group invests in the training of its employees, with programmes ranging from technical to management and leadership areas. During this financial year, a total of 13,380 hours of training were delivered across all employee categories, equivalent to 21.9 average hours per employee. This includes all Group employees but excludes Food Chain crew, who carry out training requirements as per international franchise guidelines. The training carried out across the Group includes vocational training, implementing the multiskilling programme enabling the development of technical skills and competences directly related to operations. Various courses are organised internally by the organisation as well as externally through local training providers, as well as overseas training and trainers that are invited over to implement learning programmes for employees. Further to this, a number of employees are subsidised by the Group to engage in accredited learning programmes that lead to recognised qualifications. Paid educational leave is also provided for employees by the organisation as part of its learning and development strategy.

The Farsons Group is actively engaged in implementing programmes to upgrade employee skills including technical, soft skills as well as management and leadership programmes. The programmes are targeted at enabling employees to continuously develop their knowledge, skills and competences, both at the workplace and beyond, since most of the learning programmes equip employees with skills and competences that can be utilised and adapted to different environments. In this manner, the learning programmes implemented by the Group impact the work and life of employees, sustaining a lifelong learning approach and strategy.

These learning programmes ensure that employee skills are kept updated to the changing work environment while ensuring employee engagement and satisfaction. Employee engagement surveys consistently confirm that the learning and development programmes implemented within the Group are positively received by employees. 92% of the employee cohort at Simonds Farsons Cisk plc stated that they are satisfied overall with the learning opportunities that they have been given while 89% state that these programmes enable them to carry out their job more effectively.

Evaluation and appraisal

The total cohort of employees at the Farsons Group is included in the Performance Management Programme, which is a periodic appraisal initiative. Each employee, regardless of gender or employee category, is included and a regular review is held with assigned reviewers to discuss set objectives, the employee's competences and skills, learning and development needs within a career development framework. Employees and reviewers are involved in ongoing discussions and evaluation of the above aspects of the programme. Training sessions are also held for reviewers to enable them to develop the right skills and competences to drive the performance review of their team members. Surveys indicate that 80% of staff are satisfied with the way the performance reviews are carried out.

Diversity, inclusion and equality

Diversity is positively looked upon as a source of various viewpoints irrespective of whether this diversity arises in terms of gender, sexual orientation, age, disability, race, religion or other criteria. Inclusivity is more than a byword at Farsons. Simonds Farsons Cisk plc is certified with the Equality Mark issued by the National Commission for the Promotion of Equality. This is based on the Company's commitment to implement the relevant policies and practices related to gender equality and family friendly measures at the workplace and on access to goods and services. The policy of pay equity implemented across our employee groups guarantees equal pay for equal work.

Our Commitment to our People - continued

Our Commitment to our People - continued

Workplace safety

At the Farsons Group, the welfare and protection of our own employees and those of our contractors are looked upon seriously. Workplace safety allows our customers, employees and contractors to visit our premises in the knowledge that the health and safety of all is of paramount importance. With this in mind, detailed plans are in place to prevent, eliminate, minimise, mitigate and manage risks and these plans are re-visited on a regular basis to ensure that they remain relevant and that we meet our legal obligations and duties to support our Occupational Health & Safety policy. At Farsons we act to prevent injuries and health impairment through:

• Continuous education in order to prevent injuries and impairment of health and improve the effectiveness of the Occupational Health & Safety (OH&S) Management System;
• Continuous education for safe work on all workplaces;
• Exploration of new materials and equipment in order to decrease workplace risk levels;
• Proactive management of changes in the OH&S Management System; and
• Enabling feeling of safety of employees, subcontractors and visitors considering the nature of work and potential hazards that exist at every workplace.

The Group's efforts to train all staff and to improve its training methodology in continuous education to prevent injuries and health impairment, as well as education for the safe operation of equipment are continuous and ongoing. During the financial year, the Company conducted 1,152 training hours towards this aim. The training was attended by 220 participants, equivalent to an average exceeding 5 hours of health and safety training per employee.

Our commitment to the Wider Society

Reducing sugar consumption

Our pledge to participate in the European objective to reduce the added sugar in our soft drinks portfolio by 10% by 2020 is on track to being accomplished within the established timeframe. Various initiatives have been and continue to be implemented to reduce the intake of sugar through our soft drinks. This is our commitment to contribute to the combatting of obesity in the Maltese islands. Apart from the reduction of sugar content, the Group continues to promote a range of smaller pack sizes and no sugar products.

Responsible drinking

The Farsons Group has a tradition of high-quality standards in its world-class range of beers and alcoholic beverages. We are committed to maintaining this tradition, but we are equally aware of the importance that these products are enjoyed responsibly. It is our view that moderate consumption and the prevention of drink driving benefits consumers and society, and we pledge to market our products in a responsible manner. Other like-minded organisations came together with Farsons in setting up The Sense Group in 1997 with a view to promote responsible drinking and to foster drink awareness on an ongoing basis and particularly during the festive season.

Product safety

Our product safety performance and standards are non-negotiable. All our products are scientifically tested by qualified personnel in a fully equipped laboratory. Our attitude to standards is uncompromising and in keeping with upholding our promise of producing and delivering quality products to our consumers.

Our commitment to the Wider Society - continued

Community engagement

Farsons is an active partner in the community present through various initiatives many of which go unreported, but which make a difference in the community all the same. Once again, we responded to the L-Istrina appeal by the Malta Community Chest Fund and supported other NGO's operating at a national level including Hospice Malta, BirdLife, Fondazzzjoni Patrimonju Malti and a number of cultural and civic events. Staff from our Group volunteered a day's work to celebrate Corporate Social Responsibility Day on 19 March in aid of various charities. KFC continues to donate food on a daily basis to the YMCA homeless shelter at Dar Niki Cassar.

The Farsons Foundation

Farsons takes pride in its long record with respect to corporate social responsibility initiatives and The Farsons Foundation is a prized expression of our contribution to the society we live in. The annual subventions received from the SFC budget allow the Foundation to lend its support for the benefit of Malta's culture, heritage and industrial traditions, apart from assisting deserving causes of a philanthropic nature.

Respect for Human Rights, Anti-Corruption and Bribery Matters

Policies and risks

The Board reaffirms its belief in human rights and its commitment to uphold and advance the respect of human rights. It is recognised that human rights allow people to grow and realise their potential.

Beyond the reputational risk associated with any inattention towards human rights, anti-corruption and bribery matters, we recognise that we have a responsibility towards society on each count. We therefore strive to uphold such principles and to set a positive example respecting and promoting human rights and adopting an anti-corruption and bribery stance throughout our business conduct.

Respect for human rights

The Group's commitment towards human rights is ongoing. The Board is vigilant to ensure that the Group's operations reflect this commitment and every effort is made to benchmark our performance against the highest standards and expectations. A professional report drawn by external advisors is due to be finalised later on this year to assess the Group's policies relating to human right and their implementation on a dayto-day basis - and to identify any enhancements thereto which are consonant with a Group which seeks to be at the forefront of respect for human rights.

Anti-corruption and bribery

The Group has a zero-tolerance approach to bribery and corruption. Our Code of Conduct is our road map to acting ethically and in compliance with all applicable laws. It applies equally to all Farsons Group employees and members of the respective boards of directors. Under the Code everyone has an obligation to report suspected violations of the Code, our policies or applicable laws through the grievance procedure and/or through the established Speak Up Policy. New recruits are made aware of the Code at the onboarding stage, and the Group intranet which is accessible to all employees provides a constant reminder of the Code of Conduct and the obligations arising therefrom.

Respect for Human Rights, Anti-Corruption and Bribery Matters - continued

The Farsons Group takes pride in the fact that against the backdrop of a heightened public awareness, the Group has at no time been involved or implicated in corruption or bribery allegations as reported or confirmed. In terms of the Code of Conduct, business decisions of the Farsons Group will never be influenced by corruption and any unethical business practices, including money laundering, are not tolerated. In dealing with public officials, other corporations and private citizens, we subscribe to ethical business practices. We will not seek to influence others, either directly or indirectly, by paying bribes or kickbacks in any form, or by any other measure that is unethical or that will tarnish our reputation for honesty and integrity.

We mitigate corruption risks and monitor compliance with our Code through systems, procedures and controls including:

• Training on the Code of Conduct with specific focus on anti-corruption and bribery;
• The possibility to report suspected corruption and bribery through our Speak Up Reporting Officers; and
• Investigation of all suspected corruption and bribery allegations in connection with an incident management process and escalation procedure;

Conclusion

The Board's commitment to all our stakeholders (employees, customers, suppliers and shareholders alike), as well as towards the protection of the environment, the welfare of society and respect for human rights, inspires the direction provided to management and is reflected in the manner through which Farsons conducts its business. Management is motivated to benchmark its performance and to strengthen its record on this score. In its oversight role, the Board of Directors is resolved to ensure that the Farsons Group continues to uphold the highest standards in the conduct of its business and in the protection of the environment, the welfare of society and respect for human rights to the benefit of the community at large.

Approved by the Board of Directors on 27 May 2020 and signed on its behalf by:

Chairman Vice-Chairman

Louis A. Farrugia Marcantonio Stagno d'Alcontres

Corporate governance statement

A. Introduction

This statement is being made by Simonds Farsons Cisk plc (SFC) pursuant to Listing Rules 5.94 and 5.97 issued by the Listing Authority of the Malta Financial Services Authority and sets out the measures taken to ensure compliance with the Code of Principles of Good Corporate Governance (the Code) contained in Appendix 5.1 to Chapter 5 of the said rules. In terms of Listing Rule 5.94, SFC is obliged to prepare a report explaining how it has complied with the Code. For the purposes of the Listing Rules, SFC is hereby reporting on the extent of its adoption of the Code.

SFC acknowledges that the Code does not prescribe mandatory rules but recommends principles so as to provide proper incentives for the Board of Directors (the Board) and SFC's management to pursue objectives that are in the interests of the Company and its shareholders. Since its establishment, SFC has always adhered to generally accepted standards of good corporate governance encompassing the requirements for transparency, proper accountability and the fair treatment of shareholders. The Board of Directors has therefore endorsed the Code of principles and adopted it.

As demonstrated by the information set out in this statement, together with the information contained in the Remuneration report, SFC believes that it has, save as indicated in the section entitled Non-compliance with the Code, throughout the accounting period under review, applied the principles and complied with the provisions of the Code. In the Non-compliance section, the Board indicates and explains the instances where it has departed from or where it has not applied the Code, as allowed by the Code.

B. Compliance with the Code

Principle 1: The Board

The Board's role and responsibility is to provide the necessary leadership, to set strategy and to exercise good oversight and stewardship. In terms of the Memorandum of Association of SFC, the affairs of the Company are managed and administered by a Board composed of eight directors.

The Board is in regular contact with the Group Chief Executive through the Chairman in order to ensure that the Board is in receipt of timely and appropriate information in relation to the business of SFC and management performance. This enables the Board to contribute effectively to the decision making process, whilst at the same time exercising prudent and effective controls.

Directors are provided prior to each meeting with the necessary information and explanatory data as may be required by the particular item on the agenda. Comprehensive financial statements are also provided every month. The Company has its own legal advisors, both internal and external. The Directors are entitled to seek independent professional advice at any time at the Company's expense where necessary for the proper performance of their duties and responsibilities.

The Board delegates specific responsibilities to a number of committees, notably the Corporate Governance Committee, the Related Party Transactions Committee, the Audit and Risk Committee, the Board Performance Evaluation Committee, the Nomination Committee, the New Ventures/Acquisitions/Mergers Committee and the Remuneration Committee, each of which operates under formal terms of reference approved by the Board. Further detail in relation to the committees and the responsibilities of the Board is found in Principles 4 and 5 of this statement.

B. Compliance with the Code - continued

Principle 2: Chairman and Chief Executive

The statute of SFC provides for the Board to appoint from amongst its Directors a Chairman and a Vice-Chairman.

The Chairman is responsible to lead the Board and set its agenda, ensure that the Directors of the Board receive precise, timely and objective information so that they can take sound decisions and effectively monitor the performance of the Company, ensure effective communication with shareholders and encourage active engagement by all members of the Board for discussion of complex or contentious issues.

The role of the Senior Management Board (SMB) is to ensure effective overall management and control of Group business and proper co-ordination of the diverse activities undertaken by the various business units and subsidiaries which make up the Group. The SMB is responsible:

• 1. for the formulation and implementation of policies as approved by the Board;
• 1. to achieve the objectives of the Group as determined by the Board and accordingly;
• 1. to devise and put into effect such plans and to organise, manage, direct and utilise the human resources available and all physical and other assets of the Group so as to achieve the most economically efficient use of all resources and highest possible profitability in the interest of the shareholders and all other stakeholders.

All members of the SMB itself are senior SFC executives with experience of the Group's business and proven professional ability, and each has a particular sphere of interest within his competence.

The Company's current organisational structure provides for the Group Chief Executive to chair the SMB.

The Group Chief Executive reports regularly to the Board on the business and affairs of the Group and the commercial, economic and other challenges facing it. He is also responsible to ensure that all submissions made to the Board are timely, give a true and correct picture of the issue or issues under consideration, and are of high professional standards as may be required by the subject matter concerned.

The Company has an Operations Board which discusses operational issues on a monthly basis, a Group Receivables Review Board which monitors the collection of receivables, and a Quality Board which monitors quality levels and controls. These boards are composed of executive managers of the Group. Each subsidiary has its own management structure and accounting systems and internal controls, and is governed by its own Board, whose members, are appointed by the Company and predominately, comprise SFC Directors and/or representatives of the SMB, and/or senior management of SFC.

The above arrangements provide sufficient delegation of powers to achieve effective management. The organisational structure ensures that decision making powers are spread wide enough to allow proper control and reporting systems to be in place and maintained in such a way that no one individual or small group of individuals actually has unfettered powers of decision.

B. Compliance with the Code - continued

Principle 3: Composition of the Board

Each member of the Board offers core skills and experience that are relevant to the successful operation of the Company. Although relevance of skills is key, a balance between skills represented is sought through the work of the Nominations Committee to ensure that there is an appropriate mix of members with diverse backgrounds. The shareholders are aware of the importance at board level of diversity with regard to age, gender, educational and professional backgrounds among others, and although there is no formal diversity policy, every effort is made as and whenever possible to promote enhanced diversity whilst ensuring that the Board continues to meet its role and responsibility in the best possible way.

The Board is composed of a Chairman, one Executive Director, a Non-Executive Vice-Chairman and five other Non-Executive Directors.

Executive Directors Mr Louis A. Farrugia F.C.A. – Chairman Mr Michael Farrugia M.A. (Edin.), MBA (Warwick) – Executive Director (Operations & Business Development)

Non-Executive Directors Mr Marcantonio Stagno d'Alcontres – Vice-Chairman Marquis Marcus John Scicluna Marshall Dr Max Ganado LL.D, LLM (Dal) Mr Roderick Chalmers M.A. Div. (Edin.) F.C.A., A.T.I.I., F.C.P.A., M.I.A. Ms Marina Hogg Baroness Christiane Ramsay Pergola

The Group Chief Executive attends all Board meetings, albeit without a vote, in order to ensure his full understanding and appreciation of the Board's policy and strategy, and so that he can provide direct input to the Board's deliberations. The Board considers that the size of the Board, whilst not being large as to be unwieldy, is appropriate, taking into account the size of the Company and its operations. The combined and varied knowledge, experience and skills of the Board members provide a balance of competences that are required, and add value to the functioning of the Board and its direction to the Company.

It is in the interest of each of the three major shareholders (who are the original promoters of the Company) to nominate as Directors knowledgeable, experienced and diligent persons. Apart from this, informal arrangements, which do not infringe on their rights as shareholders, exist for consultation prior to any changes in the membership of the Board, as well as to assist in the identification of suitable persons who can be nominated for election by the other shareholders at general meetings, and who can bring in an independent viewpoint and particular knowledge to the deliberations of the Board.

Family relationships among Directors, the Directors' interest in the share capital of the Company as disclosed in the Shareholder Information and the commonality of Directors with Trident Estates plc with which the Company maintains contractual relationships, represent potential conflicts of interest. This notwithstanding, all Directors except for the Chairman and for Mr. Michael Farrugia, are considered to be independent in that they do not hold any relationship with the Company, a controlling shareholder or their management which creates a conflict of interest such as to impair their judgement. This has been ensured through the implementation of the following measures:

i) Disclosure and Exclusion: a Director is obliged to disclose any matter that may give rise to a potential or actual conflict. Following this, the respective Director is excluded from any deliberations and voting in respect of such matter.

B. Compliance with the Code - continued

Principle 3: Composition of the Board - continued

• ii) Related Party Transaction Committee: with regards to any transactions which may be determined to be related party transactions, such transactions are referred to and dealt by the Related Party Transaction Committee (the "Committee"). Similar to the situation at Board level, any Director who is a related party with respect to a particular transaction is not permitted to participate in the Committee's deliberation and decision on the transaction concerned. Furthermore, due to the fact that the most common of matters in which a related party transaction may arise would be in relation to a transaction with Trident Estates plc, the Committee in session is made up of Directors who are not common directors on the boards of both Trident Estates plc and the Company.
• iii) Continuing Conflict: a Director having a continuing material interest that conflicts with the interests of the Company is obliged to take effective steps to eliminate the grounds for conflict and should this not be possible, said Director is encouraged to consider resigning.
• iv) Separation of Family Interests: there are no ties or relationships between management and the Directors.

The Board has taken the view that the length of service on the Board does not undermine any of the Directors' ability to consider appropriately the issues which are brought before the Board. Apart from possessing valuable experience and wide knowledge of the Company and its operations, the Board feels that the Directors in question are able to exercise independent judgement and are free from any relationship which can hinder their objectivity. Although, the Board believes that by definition, employment with the Company renders a Director non-independent from the institution, this should not however, in any manner, detract from the non-independent Directors' ability to maintain independence of analysis, decision and action.

Principles 4 and 5: The Responsibilities of the Board and Board Meetings

The Board meets regularly every month apart from other occasions as may be needed. Individual directors, apart from attendance at formal board meetings, participate in other ad hoc meetings during the year as may be required, and are also active in board sub-committees as mentioned further below, either to assure good corporate governance, or to contribute more effectively to the decision making process.

Meetings held:	13
Members attended:
Mr Louis A. Farrugia	13
Mr Marcantonio Stagno d'Alcontres	13
Marquis Marcus John Scicluna Marshall	11
Dr Max Ganado	10
Mr Roderick Chalmers	13
Ms Marina Hogg	12
Mr Michael Farrugia	13
Baroness Christiane Ramsay Pergola	7

B. Compliance with the Code - continued

Principles 4 and 5: The Responsibilities of the Board and Board Meetings - continued

The Board, in fulfilling this mandate within the terms of the Company's Memorandum and Articles of Association, and discharging its duty of stewardship of the Company and the Group, assumes responsibility for the following:

• reviewing and approving the business plan and targets that are submitted by management, and working with management in the implementation of the business plan;
• identifying the principal business risks for the Group and overseeing the implementation and monitoring of appropriate risk management systems;
• ensuring that effective internal control and management information systems for the Group are in place;
• assessing the performance of the Group's executive officers, including monitoring the establishment of appropriate systems for succession planning and for approving the compensation levels of such executive officers; and

ensuring that the Group has in place a policy to enable it to communicate effectively with shareholders, other stakeholders and the public generally.

The Board is ultimately responsible for the Company's system of internal controls and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate risk to achieve business objectives, and can provide only reasonable, and not absolute, assurance against material error, losses or fraud. Through the Audit and Risk Committee, the Board reviews the effectiveness of the Company's system of internal controls, which are monitored by the Internal Audit Department.

In fulfilling its responsibilities, the Board regularly reviews and approves various management reports as well as annual financial plans, including capital budgets. The strategy, processes and policies adopted for implementation are regularly reviewed by the Board using key performance indicators. To assist it in fulfilling its obligations, the Board has delegated responsibility to the Chairman of the Senior Management Board.

Board Committees

The Board has set up the following sub-committees to assist it in the decision-making process and for the purposes of good corporate governance. The actual composition of these committees is given in the Annual Report, but as stated earlier, each of the three major shareholders and the public shareholders are represented as far as possible.

Corporate Governance Committee is presided over by the Non-Executive Vice-Chairman. Its terms of reference are to monitor, review and ensure the best corporate practices and report thereon to the Board. Directors and senior officers who want to deal in the Company's listed securities, are obliged to give advance notice to the Board through the Chairman (or in his absence to the secretary of the Board) and records are kept accordingly.

Related Party Transactions Committee is presided over by a Non-Executive Director and deals with and reports to the Board on all transactions with related parties. In the case of any director who is a related party with respect to a particular transaction, such director does not participate in the committee's deliberation and decision on the transaction concerned.

Control mechanisms relevant to the reporting of related party transactions are in place to ensure that information is vetted and collated on a timely basis, before reporting to the Related Party Transactions Committee for independent and final review of the transactions concerned.

B. Compliance with the Code - continued

Principles 4 and 5: The Responsibilities of the Board and Board Meetings – continued

Board Committees - continued

The Audit and Risk Committee's primary objective is to protect the interests of the Company's shareholders and assist the Directors in conducting their role effectively so that the Company's decision-making capability and the accuracy of its reporting and financial results are maintained at a high level at all times.

The Audit and Risk Committee is composed of the following Non-Executive Directors:

• Mr Roderick Chalmers Chairman
• Ms Marina Hogg
• Marquis Marcus John Scicluna Marshall

The majority of the Directors on the Audit and Risk Committee are independent, Non-Executive Directors and, in the opinion of the Board, are free from any significant business, family or other relationship with the Company, its shareholders or its management that would create a conflict of interest such as to impair their judgement.

Roderick Chalmers is a professional qualified accountant with competence in matters relating to accounting and auditing. The Audit and Risk Committee as a whole has extensive experience in matters relating to the Company's area of operations, and therefore has the relevant competence required under Listing Rule 5.118.

The Audit and Risk Committee also approves and reviews the internal audit plan prior to the commencement of every financial year. The Audit and Risk Committee oversees the conduct of the internal and external audits and acts to facilitate communication between the Board, management, the external auditors and the Group internal auditor.

During the year ended 31 January 2020, the Audit and Risk Committee held six meetings. Audit and Risk Committee meetings are held mainly to discuss formal reports remitted by the Group internal auditor but also to consider the external auditors' audit plan, the six-monthly financial results and the annual financial statements.

The Group internal auditor, who also acts as secretary to the Audit and Risk Committee, is present at Audit Committee meetings. The external auditors are invited to attend specific meetings of the Audit and Risk Committee and are also entitled to convene a meeting of the committee if they consider that it is necessary. The Chairman of the Senior Management Board and the Chief Finance Officer are also invited to attend Audit and Risk Committee meetings. Members of management may be asked to attend specific meetings at the discretion of the Audit and Risk Committee.

Apart from these formal meetings, the Audit and Risk Committee Chairman and the Group internal auditor meet informally on a regular basis to discuss ongoing issues.

The Group internal audit department has an independent status within the Group. In fact, the Group internal auditor reports directly to the Audit and Risk Committee and has right of direct access to the Chairman of the committee at all times.

The Group internal auditor works on the basis of an audit plan which focuses on areas of greatest risk as determined by a risk management approach. The audit plan is approved by the Audit and Risk Committee at the beginning of the financial year, and subsequent revisions to this plan in view of any ad hoc assignments arising throughout the year, would have to be approved by the Audit and Risk Committee Chairman.

B. Compliance with the Code - continued

Principles 4 and 5: The Responsibilities of the Board and Board Meetings – continued

Board Committees - continued

New Ventures/Acquisitions/Mergers Committee, presided over by a Non-Executive Director, examines and reports on any proposal made by the SMB for the setting up of any new ventures, the acquisition of other businesses and entering into mergers with other parties, as well as to recommend policy guidelines thereon.

The Board Performance Evaluation Committee and the Nomination Committee are dealt with under Principle 7 and Principle 8 respectively whilst the Remuneration Committee is dealt with under the Remuneration report, which also includes the Remuneration statement in terms of Code Provisions 8.A.3 and 8.A.4.

Principle 6: Information and Professional Development

The Group Chief Executive is appointed by the Board and enjoys the full confidence of the Board. The Group Chief Executive, although responsible for the recruitment and selection of senior management, consults with the Board on the appointment of, and on a succession plan for, senior management.

Training (both internal and external) of management and employees is a priority, coordinated through the Company's Human Resources Department.

On joining the Board, a Director is provided with briefings by the Chairman and the Group Chief Executive on the activities of the Company's business areas. Furthermore, all new Directors are offered a tailored induction programme.

Directors may, where they judge it necessary to discharge their duties as Directors, take independent professional advice on any matter at the Company's expense.

Under the direction of the Chairman, the Company Secretary's responsibilities include ensuring good information flows within the Board and its Committees and between senior management and Non-Executive Directors, as well as facilitating induction and assisting with professional development as required.

Directors have access to the advice and services of the Company Secretary, who is responsible for ensuring adherence to Board procedures, as well as good information flows within the Board and its Committees.

The Chairman ensures that Board members continually update their skills and the knowledge and familiarity with the Company required to fulfil their role both on the Board and on Board Committees. The Company provides the necessary resources for developing and updating its Directors' knowledge and capabilities.

The Company Secretary is responsible for advising the Board through the Chairman on all governance matters.

Principle 7: Evaluation of the Board's Performance

The role of the Board Performance Evaluation Committee chaired by a Non-Executive Director, is to deal with the Board's performance evaluation and identify ways how to improve the Board's effectiveness.

B. Compliance with the Code - continued

Principle 7: Evaluation of the Board's Performance - continued

The evaluation exercise is conducted annually through a Board Effectiveness Questionnaire prepared by the Company Secretary in liaison with the Chairman of the Committee. The Company Secretary discusses the results with the Chairman of the Committee who then presents the same to the Board together with initiatives undertaken to improve the Board's performance. The latest review has not resulted in any material changes in the Company's internal organisation or in its governance structures. The Non-Executive Directors are responsible for the evaluation of the Chairman of the Board.

Principle 8: Committees

The Remuneration Committee is dealt with under the Remuneration report, which also includes the Remuneration statement in terms of Code Provisions 8.A.3 and 8.A.4.

The Nomination Committee, chaired by the Chairman is entrusted with leading the process for board appointments and to make recommendations to it. Any proposal for the appointment of a Director whether by the three major shareholders or by the general meeting of shareholders should be accompanied by a recommendation from the Board, based on the advice of the Nomination Committee.

Every shareholder owning twelve and a half percent (12.5%) of the ordinary issued share capital or more, is entitled to appoint and replace a Director for each and every twelve and a half percent (12.5%) of such shares, and the remaining ordinary shares not so utilised are entitled to fill the remaining unfilled posts of Directors. Thus, each of the three major shareholders who are named and whose holdings are listed in the notes to the financial statements (page 108), normally each appoint two Directors for a total of six, the remaining two Directors then being elected by the general public shareholders. Accordingly, no individual or small group of individuals will be in a position to dominate the Board. The interests of the Directors in the shares of the Company are disclosed in this Annual Report.

Principles 9 and 10: Relations with Shareholders and with the Market, and Institutional Shareholders

The Company recognises the importance of maintaining a dialogue with its shareholders and of keeping the market informed to ensure that its strategies and performance are well understood. The Board is of the view that during the period under review the Company has communicated effectively with the market through a number of company announcements and press releases.

The Board endeavours to protect and enhance the interests of both the Company and its shareholders, present and future. The Chairman ensures that the views of shareholders are communicated to the Board as a whole.

The Board always ensures that all holders of each class of capital are treated fairly and equally. The Board also acts in the context that its shareholders are constantly changing and, consequently, decisions take into account the interests of future shareholders as well.

Shareholders appreciate the significance of participation in the general meetings of the Company and particularly in the election of Directors. They hold Directors to account for their actions, their stewardship of the Company's assets and the performance of the Company.

The agenda for general meetings of shareholders and the conduct of such meetings is arranged in such a manner to encourage valid discussion and decision-taking.

The Chairman and the Group Chief Executive also ensure that sufficient contact is maintained with major shareholders to understand issues and concerns.

B. Compliance with the Code - continued

Principles 9 and 10: Relations with Shareholders and with the Market, and Institutional Shareholders - continued

The Company also communicates with its shareholders through the Company's Annual General Meeting (AGM) (further detail is provided under the section entitled General Meetings).

The Chairman makes arrangements for the Chairmen of the Audit and Remuneration Committees to be available to answer questions, if necessary.

Apart from the AGM, SFC communicates with its shareholders by way of the Annual Report and Financial Statements, by publishing and sending to the shareholders its results on an annual basis.

The Company's website (www.farsons.com) also contains information about the Company and its business, including an Investor Relations section.

In addition, the Company holds a meeting for stockbrokers and financial intermediaries once a year to coincide with the publication of its financial statements.

The Company Secretary maintains two-way communication between the Company and its investors. Individual shareholders can raise matters relating to their shareholdings and the business of the Group at any time throughout the year and are given the opportunity to ask questions at the AGM or submit written questions in advance.

In terms of article 51 of the Articles of Association of the Company and article 129 of the Maltese Companies Act, 1995, the Board may call an extraordinary general meeting on the requisition of shareholders holding not less than one tenth (1/10) of the paid up share capital of the Company. Minority shareholders are allowed to formally present an issue to the Board of Directors.

In the event of conflicts arising between minority shareholders and the three major shareholders, who are also the original promoters of the Company, every effort shall be made to seek mediation.

Principle 11: Conflicts of Interest

The Directors are strongly aware of their responsibility to act at all times in the interest of the Company and its shareholders as a whole and of their obligation to avoid conflicts of interest. The latter may, and do arise on specific matters. In such instances:

• a Director is obliged to make full and frank disclosure with respect to any matter where there is a potential or actual conflict, whether such conflict arises from personal interests or the interests of the companies in which such person is a Director or officer;
• the said Director is excused from the meeting and accordingly is not involved in the Company's Board discussion on the matter; and
• the said Director does not vote on any such matter.

A Director having a continuing material interest that conflicts with the interests of the Company, is obliged to take effective steps to eliminate the grounds for conflict. In the event that such steps do not eliminate the grounds for conflict then the Director should consider resigning.

On joining the Board and regularly thereafter, the Directors are informed of their obligations on dealing in securities of the Company within the parameters of law, including the Listing Rules.

The Directors' interests in the share capital of the Company as at 31 January 2020 and as at 27 May 2020 are disclosed in the Shareholder Information.

B. Compliance with the Code - continued

Principle 12: Corporate Social Responsibility

The principle objective of the Company's commitment to Corporate Social Responsibility (CSR) is to provide support where possible in aspects that include social, occupational, financial, cultural and historical values. Tracing its origins since 1928, the Company is very much rooted in local culture and as a Company it endeavours to meet the expectations of the community by engaging among a host of other initiatives in the following:

• Encouraging moderate drinking and responsible alcohol consumption;
• Commitment to reduce added sugars in its products by 10% by 2020;
• Corporate Social Responsibility (CSR) Day initiative Together with other sponsoring companies, employees volunteer to carry out turnkey projects involving one day's work during a public holiday;
• Sponsorships of major charitable events on a national level;
• Promoting the industrial heritage of the Maltese Islands;
• Co-operating with the University of Malta particularly in the areas of engineering, the built environment and history;
• Participation in recognised national student-exchange programmes for the benefit of local and foreign students;
• Assisting with environmental projects;
• Waste and energy conservation initiatives and policies;
• Liaising with NGOs and the provision of employment opportunity for groups of people with a disability on a yearly basis;
• Assisting employees encountering medical problems with obtaining overseas medical treatment;
• Supporting employees with a home loan interest subsidy scheme;
• Employee Assistance Programmes for employees needing support, rehabilitation, counselling and advice;
• The Farsons Foundation promotes and supports local initiatives and considers requests from a social, cultural and historical perspective at no commercial gain for the Company. The Foundation is entirely funded by subventions authorised by the SFC Board. The aims of the Foundation are to:
  • promote and assist the development and public manifestation of Maltese culture especially in the fields of art, music, literature and drama;
  • contribute research projects and assist in the publication of studies undertaken by any duly qualified person or persons, regarding Maltese disciplines relating to art, music and drama;
  • provide assistance to talented Maltese to enable them to obtain higher professional standard than those that can be obtained locally in disciplines relating to art, music and drama;
  • contribute by means of financial assistance towards the work of any private, voluntary and non-profit organisation or religious body engaged principally in fostering social solidarity.

C. Non-compliance with the Code

Principle 4 (Code Provision 4.2.7):

This Code Provision recommends "the development of a succession policy for the future composition of the Board of Directors and particularly the executive component thereof, for which the Chairman should hold key responsibility".

C. Non-compliance with the Code - continued

Principle 4 (Code Provision 4.2.7) - continued:

In the context of the appointment of directors being a matter reserved exclusively to SFC's shareholders (except where the need arises to fill a casual vacancy) as explained under Principle 3 in Section B, and on the basis of the Directors non-executive role, the Company does not consider it feasible to have in place such a succession policy. However, the recommendation to have in place such a policy will be kept under review. An active succession policy is however in place for senior executive positions in the Company including that of the Group Chief Executive.

D. Internal control and risk management Internal Control

The key features of the Group's system of internal control are as follows:

Organisation:

The Group operates through Boards of Directors of subsidiaries and associates with clear reporting lines and delegation of powers.

Control Environment:

The Group is committed to the highest standards of business conduct and seeks to maintain these standards across all of its operations. Group policies and employee procedures are in place for the reporting and resolution of fraudulent activities. The Group has an appropriate organisational structure for planning, executing, controlling and monitoring business operations in order to achieve Group objectives.

Risk Identification:

Group management is responsible together with each Company's management, for the identification, evaluation, control and reporting of major risks applicable to their areas of business.

Reporting:

The Group has implemented control procedures designed to ensure complete and accurate accounting for financial transactions and to limit the potential exposure to loss of assets or fraud. Measures taken include physical controls, segregation of duties, reviews by management and internal audit.

On a monthly basis the Board receives a comprehensive analysis of financial and business performance, including reports comparing actual performance with budgets as well as analysis of any variances.

E. General meetings

The manner in which the general meeting is conducted is outlined in Articles 49 to 52 of the Company's Articles of Association, subject to the provisions of the Maltese Companies Act, 1995.

Within six months of the end of the financial year, an Annual General Meeting of shareholders is convened to consider the annual consolidated financial statements, the Directors' and Auditor's report for the year, to decide on dividends recommended by the Board, to elect the Directors and appoint the Auditors. Prior to the commencement of the Annual General Meeting, a presentation is made to shareholders on the progress made and strategies adopted during the year in the light of prevailing market and economic conditions and the objectives set by the Board, and an assessment on future prospects is given. The Group's presence on the worldwide web (www.farsons.com) contains a corporate information section.

Apart from the above, the Group publishes its financial results every six months and from time to time issues public notices regarding matters which may be of general interest or of material importance to shareholders and the market in general, or which may concern price sensitive issues.

E. General meetings - continued

At the time of the Annual General Meeting, the publication of the six-monthly report or significant events affecting the Group, public meetings are held to which institutional investors, financial intermediaries and inventory brokers are invited to attend. Press releases are also issued regularly on the business activities of the Group.

All shareholders registered in the Shareholders' Register on the Record Date as defined in the Listing Rules, have the right to attend, participate and vote in the general meeting. A shareholder or shareholders holding not less than 5% of the voting issued share capital may request the Company to include items on the agenda of a general meeting and/or table draft resolutions for items included in the agenda of a general meeting. Such requests are to be received by the Company at least forty-six (46) days before the date set for the relative general meeting.

A shareholder who cannot participate in the general meeting can appoint a proxy by written or electronic notification to the Company. Every shareholder represented in person or by proxy is entitled to ask questions which are pertinent and related to items on the agenda of the general meeting and to have such questions answered by the Directors or such persons as the Directors may delegate for that purpose.

Approved by the Board of Directors on 27 May 2020 and signed on its behalf by:

Chairman Vice-Chairman

Louis A. Farrugia Marcantonio Stagno d'Alcontres

Remuneration report

1. Terms of Reference and Membership

The Remuneration Committee is presided over by the Vice-Chairman of the Company. Its terms of reference are to review from time to time and to report and make recommendations on the Non-Executive Directors' remuneration generally as well as the conditions of service of the Chairman, Group Chief Executive and senior management. In the case of any remuneration to an individual director for extra services, the interested Director concerned, apart from not voting in terms of the SFC statute, does not attend the meeting during the discussion at committee or Board level and decisions are therefore taken in his/her absence.

2. Meetings

The Remuneration Committee met once during the financial year ended 31 January 2020.

3. Remuneration Statement

3.1 Senior Management

For the purposes of this Remuneration Statement, references to 'Senior Executives' shall mean the Group Chief Executive, the Chief Financial Officer, the Chief Operating Officer, the Group Human Resources Manager and Company Secretary and the Head of Food Business.

The Group's human resources department is responsible (apart from normal staff administration and training and upgrading of proficiency of technical and managerial personnel and workforce in general), to carry out regular reviews of the compensation structure pertaining to senior management in the light of the Group's performance, economic situation and market trends. One of the main objectives is to recruit and retain executives of high professional standards and competence who can enhance the Group's performance and assure the best operational and administrative practices.

The Group's human resources manager reports and makes recommendations periodically to the Board and the Remuneration Committee on the remuneration package, including bonus arrangements for achieving pre-determined targets.

The Remuneration Committee is required to evaluate, recommend and report on any proposals made by the Group human resources manager relating to management remuneration and conditions of service. The Committee considers that the current executive management remuneration packages are based upon the appropriate local market equivalents, and are fair and reasonable for the responsibilities involved. The Committee also believes that the remuneration packages are such as to enable the Company to attract, retain and motivate executives having the appropriate skills and qualities to ensure the proper management of the organisation.

The Committee is also charged with considering and determining any recommendations from management on requests for early retirement.

The terms and conditions of employment of senior executives are set out in their respective contracts of employment with the Company. As a general rule, such contracts, with the exception of that pertaining to the Group Chief Executive, do not contain provisions for termination payments and other payments linked to early termination.

Senior management is eligible for an annual performance bonus which is linked to agreed performance targets and their achievement.

Remuneration report - continued

3. Remuneration Statement - continued

3.1 Senior Management - continued

The Group Chief Executive is eligible for an annual bonus entitlement by reference to the attainment of preestablished objectives and targets as approved by the Remuneration Committee. The Remuneration Committee is of the view that the relationship between fixed and variable remuneration and performance bonus are reasonable and appropriate.

There are no executive profit sharing, share options or pension benefit arrangements in place.

Non-cash benefits to which Senior Management are entitled are principally the use of a Company car and health insurance.

3.2 Directors

The Board is composed of Executive and Non-Executive Directors. The determination of remuneration arrangements for board members is a reserved matter for the board as a whole, following the submission of recommendations by the committee.

The Executive Chairman has an indefinite service contract which is periodically reviewed by the rest of the Board. A fixed salary is payable, and from time to time, the Board (in consultation with the Remuneration Committee) establishes a number of objectives against the achievement of which a performance bonus may be awarded. In recognition of his 40 + years of service to the Group, with effect from the current financial year, the Board has (on the recommendation of the Remuneration Committee) approved arrangements whereby the Chairman's wife would receive a deferred life-time annuity is the sum of approximately €60,000 per annum in the event that the Chairman pre-deceases her. An actuarially computed provision amounting to €326,943 has been made in the FY2020 accounts in connection with this deferred potential liability.

Except for the Chairman and for Michael Farrugia (Executive Director – Operations and Business Development), no other Director is employed or has a service contract with the Company or any of its subsidiaries.

The remuneration of the other Directors is determined on the basis of their responsibilities, time committed to the Group's affairs, including attendance at regular Board Meetings, serving on boards of subsidiaries and jointly-controlled entities and work done in connection with the various sub-committees of which they are members.

No Director is entitled to profit sharing or, share options and there are no outstanding loans or guarantees provided by the Company or any of its subsidiaries to or in respect of any Director. Other than in respect of the Chairman (see above), no director is entitled to any contractual pension, termination or retirement benefits.

In terms of non-cash benefits, Directors are entitled to certain non-cash benefits normally available to senior executive positions comprising principally the provision of a suitable (taxed and insured) Company car, standard health and life assurance cove and a mobile phone allowance. Executive Directors are reimbursed for certain expenses incurred in the execution of their duties.

Remuneration report - continued

3. Remuneration Statement - continued

3.3 Total Emoluments

The maximum annual aggregate emoluments that may be paid to the Directors is approved by the shareholders in the Annual General Meeting in terms of Article 81(i) of the company's Articles of Association. This amount was fixed at an aggregate sum of €750,000 per annum at the 69th Annual General Meeting held on 28 June 2016. At the forthcoming Annual General Meeting Shareholders will be invited to approve the deferred annuity provision relating to the Chairman's wife referred to above.

The following is an outline of the directors' remuneration for the financial year under review:

Directors' fees	€238,000
Directors' other emoluments	€347,000
Directors' salary	€108,000

Variable and Non-Variable Emoluments of Directors and Senior Management

	Fixed Remuneration	Variable Remuneration	Share Options	Others
Senior Management	€503,000	€188,000	None	Non-cash benefits referred to above under 3.1
Directors	€538,000	€156,000	None	Non-cash benefits referred to above under 3.2

Directors' Remuneration Policy

Pursuant to the requirements of Listing Rule 12.26A, a Remuneration Policy for Directors will be submitted to the forthcoming Annual General Meeting for consideration and (if thought fit) approval by a vote of the Shareholders. For the purposes of this Remuneration Policy and pursuant to Listing Rule 12.2A, the Chief Executive Officer is considered to be an Executive Director of the Company. In subsequent years (with effect from Financial Year 2021), pursuant to the requirements of Listing Rule 12.26K to 12.26N, a Remuneration Report providing full details of all remuneration paid to all Directors will be included as part of the Annual Report and will be subjected to a vote by the Shareholders at each Annual General Meeting. The contents of the Remuneration Report will be in full conformity with the requirements set out in Listing Rule Appendix 12.1.

Independent auditor's report

To the Shareholders of Simonds Farsons Cisk plc

Report on the audit of the financial statements

Our opinion

In our opinion:

• Simonds Farsons Cisk plc's Group financial statements and Parent Company financial statements (the "financial statements") give a true and fair view of the Group's and the Parent Company's financial position as at 31 January 2020, and of the Group's and the Parent Company's financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the EU; and
• The financial statements have been prepared in accordance with the requirements of the Maltese Companies Act (Cap. 386).

Our opinion is consistent with our additional report to the Audit Committee.

What we have audited

Simonds Farsons Cisk plc's financial statements, set out on pages 40 to 107, comprise:

• the Consolidated and Parent Company statements of financial position as at 31 January 2020;
• the Consolidated and Parent Company income statements and statements of comprehensive income for the year then ended;
• the Consolidated and Parent Company statements of changes in equity for the year then ended;
• the Consolidated and Parent Company statements of cash flows for the year then ended; and
• the notes to the financial statements, which include a summary of significant accounting policies.

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 Auditor's Responsibilities for the Audit of the Financial Statements section of our report.

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

Independence

We are independent of the Group and the Parent Company in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements of the Accountancy Profession (Code of Ethics for Warrant Holders) Directive issued in terms of the Accountancy Profession Act (Cap. 281) that are relevant to our audit of the financial statements in Malta. We have fulfilled our other ethical responsibilities in accordance with these Codes.

To the best of our knowledge and belief, we declare that non-audit services that we have provided to the Parent Company and its subsidiaries 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 Group and its subsidiaries, in the period from 1 February 2019 to 31 January 2020 are disclosed in Note 23 to the financial statements.

To the Shareholders of Simonds Farsons Cisk plc

Our audit approach

Overview

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where the Directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

Materiality

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

To the Shareholders of Simonds Farsons Cisk plc

Overall group materiality	€616,000
How we determined it	5% of profit before tax
Rationale for the materiality benchmark applied	We applied this benchmark because, in our view, profit before tax is the metric against which the performance of the Group is most commonly measured. We chose 5% which is within the range of acceptable quantitative materiality thresholds.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above €31,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

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 were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter How our audit addressed the Key audit matter

Recognition of deferred tax asset arising from tax credits relating to the Group and Company

Refer to note 20

The Group has recorded a deferred tax asset attributable to unutilised tax credits amounting to €15.2million to the extent that it is probable that future taxable profits arising from the operations of the manufacturing arm of the Group will be available to allow the deferred tax asset to be recovered.

We focused on this area because of the level of judgement that is applied in quantifying the appropriate tax credits to be utilised and therefore determining assumptions about future profit streams and investment decisions.

We obtained the detailed tax computation and tested the balance of unutilised tax credits carried forward.

We evaluated and challenged the Group's budgets, business plans, future investment strategy and assumptions used to determine an estimate of that portion of unutilised tax credits to be used in the foreseeable future and therefore recognised as a deferred tax asset.

We were provided with explanations that suggest that there are no indications that the amounts recognised are not recoverable.

To the Shareholders of Simonds Farsons Cisk plc

How we tailored our group audit scope

The Group is composed of 7 reporting units all located in Malta. We tailored the scope of our audit in order to perform sufficient work on all components to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.

The Group audit team performed all of this work by applying the overall group materiality, together with additional procedures performed on the consolidation. This gave us sufficient appropriate audit evidence for our opinion on the Group financial statements as a whole.

Other information

The Directors are responsible for the other information. The other information comprises the Chairman's Statement, the Group Chief Executive's review, the Directors' Report, the Statement by the Directors on Non-Financial information, the Remuneration report and the Five Year Record (but does not include the financial statements and our auditor's report thereon).

Our opinion on the financial statements does not cover the other information, including the directors' report.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above 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 Maltese Companies Act (Cap. 386).

Based on the work we have performed, in our opinion:

• the information given in the Directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
• the Directors' report has been prepared in accordance with the Maltese Companies Act (Cap. 386).

In addition, in light of the knowledge and understanding of the Company 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 and other information that we obtained prior to the date of this auditor's report. We have nothing to report in this regard.

To the Shareholders of Simonds Farsons Cisk plc

Responsibilities of the Directors and those charged with governance for the financial statements

The Directors are responsible for the preparation of financial statements that give a true and fair view in accordance with IFRSs as adopted by the EU and the requirements of the Maltese Companies Act (Cap. 386), and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Group's and the Parent Company'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 the Parent Company or to cease operations, or have no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group's financial reporting process.

Auditor's 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 auditor's 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.

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

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's and the Parent Company's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors.
• Conclude on the appropriateness of the Directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's or the Parent Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group and the Parent Company's ability to continue as a going concern. In particular, it is difficult to evaluate all of the potential implications that COVID-19 will have on the Group and the Parent Company's trade, customers and suppliers and the disruption to its business and the overall economy.

To the Shareholders of Simonds Farsons Cisk plc

Auditor's responsibilities for the audit of the financial statements - continued

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance 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 those charged with governance 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 on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, 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 auditor's 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.

Report on other legal and regulatory requirements

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

The Listing Rules issued by the Malta Listing Authority require the Directors to prepare and include in their Annual Report a Statement of Compliance providing an explanation of the extent to which they have adopted the Code of Principles of Good Corporate Governance and the effective measures that they have taken to ensure compliance throughout the accounting period with those Principles.

The Listing Rules also require the auditor to include a report on the Statement of Compliance prepared by the Directors.

We read the Statement of Compliance and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements included in the Annual Report. Our responsibilities do not extend to considering whether this statement is consistent with any other information included in the Annual Report.

We are not required to, and we do not, consider whether the Board's statements on internal control included in the Statement of Compliance cover all risks and controls, or form an opinion on the effectiveness of the Company's corporate governance procedures or its risk and control procedures.

In our opinion, the Statement of Compliance set out on pages 18 to 29 has been properly prepared in accordance with the requirements of the Listing Rules issued by the Malta Listing Authority.

To the Shareholders of Simonds Farsons Cisk plc

Other matters on which we are required to report by exception

We also have responsibilities:

• under the Maltese Companies Act (Cap. 386) to report to you if, in our opinion:
  • Adequate accounting records have not been kept, or that returns adequate for our audit have not been received from branches not visited by us.
  • The financial statements are not in agreement with the accounting records and returns.
  • We have not received all the information and explanations we require for our audit.
• under the Listing Rules to review the statement made by the Directors that the business is a going concern together with supporting assumptions or qualifications as necessary.

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

Appointment

We were first appointed as auditors of the Company for the period ended 31 March 1948. Our appointment has been renewed annually by shareholder resolution representing a total period of uninterrupted engagement appointment of 72 years. The Company became listed on a regulated market on 20 December 1995.

PricewaterhouseCoopers 78, Mill Street

Qormi Malta

Stefan Bonello

Partner

27 May 2020

Statements of financial position

		As at 31 January
	Notes	Group		Company
		2020 €'000	2019 €'000	2020 €'000	2019 €'000
ASSETS
Non-current assets
Property, plant and equipment	5	119,626	116,720	111,559	109,190
Right-of-use assets	6	6,159	-	188	-
Intangible assets	7	612	534	-	-
Investments in subsidiaries	8	-	-	9,202	9,535
Deferred tax assets	20	8,195	7,446	9,442	8,779
Trade and other receivables	10	1,695	2,853	1,695	2,853
Total non-current assets		136,287	127,553	132,086	130,357
Current assets
Inventories	9	16,772	15,165	9,425	8,532
Trade and other receivables	10	26,469	20,695	20,714	16,144
Current tax assets		5	5	-	-
Cash and cash equivalents	11	8,409	7,578	1,002	3,453
Total current assets		51,655	43,443	31,141	28,129
Total assets		187,942	170,996	163,227	158,486

Statements of financial position - continued

		As at 31 January
		Group		Company
	Notes	2020 €'000	2019 €'000	2020 €'000	2019 €'000
EQUITY AND LIABILITIES
Capital and reserves attributable to owners of the company
Share capital Revaluation and other reserves Hedging reserve Retained earnings	12 14, 15 16	9,000 49,409 (304) 58,118	9,000 49,409 (385) 50,249	9,000 46,137 (304) 56,613	9,000 46,137 (385) 50,712
Total equity		116,223	108,273	111,446	105,464
Non-current liabilities Trade and other payables Lease liabilities Derivative financial instruments Borrowings Provisions for other liabilities and charges	22 19 17 18 21	456 4,965 273 32,994 36	610 - 383 35,058 35	456 500 273 32,994 36	610 - 383 35,058 35
Total non-current liabilities		38,724	36,086	34,259	36,086
Current liabilities Provisions for other liabilities and charges Trade and other payables Lease liabilities Current tax liabilities Derivative financial instruments Borrowings	21 22 19 17 18	50 20,760 1,426 1,003 195 9,561	61 19,473 - 1,257 209 5,637	50 12,896 134 - 195 4,247	61 12,883 - - 209 3,783
Total current liabilities		32,995	26,637	17,522	16,936
Total liabilities		71,719	62,723	51,781	53,022
Total equity and liabilities		187,942	170,996	163,227	158,486

The notes on pages 47 to 107 are an integral part of these consolidated financial statements.

The financial statements on pages 40 to 107 were authorised for issue by the board on 27 May 2020 and were signed on its behalf by:

Louis A. Farrugia Marcantonio Stagno d'Alcontres Norman Aquilina Chairman Vice-Chairman Group Chief Executive

Income statements

		Year ended 31 January
			Group	Company
	Notes	2020 €'000	2019 €'000	2020 €'000	2019 €'000
Revenue Cost of sales	4 23	103,491 (62,950)	99,798 (60,125)	55,310 (27,204)	53,058 (24,928)
Gross profit Selling and distribution costs Administrative expenses	23 23	40,541 (12,602) (14,249)	39,673 (11,496) (12,843)	28,106 (9,492) (8,330)	28,130 (8,752) (7,605)
Operating profit Finance income Finance costs	26 27	13,690 - (1,370)	15,334 - (1,239)	10,284 7 (1,096)	11,773 85 (1,153)
Profit before tax Tax (expense)/income	28	12,320 (451)	14,095 1,036	9,195 706	10,705 2,260
Profit for the year		11,869	15,131	9,901	12,965
Basic and diluted earnings per share for the year attributable to shareholders	30	€0.396 -	€0.504 -

Statements of comprehensive income

	Year ended 31 January
			Company
2020 €'000	2019 €'000	2020 €'000	2019 €'000
11,869	15,131	9,901	12,965
81	110	81	110
81	110	81	110
			13,075
	Note 16 11,950	Group 15,241	9,982

The notes on pages 47 to 107 are an integral part of these consolidated financial statements.

Statements of changes in equity

	Notes	Share capital €'000	Hedging reserve €'000	Revaluation and other reserves €'000	Retained earnings €'000	Total Equity €'000
Group
Balance at 1 February 2018		9,000	(495)	49,409	38,718	96,632
Comprehensive income Profit for the year		-	-	-	15,131	15,131
Other comprehensive income: Cash flow hedges net of deferred tax	16	-	110	-	-	110
Total comprehensive income		-	110	-	15,131	15,241
Transactions with owners Dividends relating to 2018 and 2019
- paid in cash	13	-	-	-	(3,600)	(3,600)
Total transactions with owners		-	-	-	(3,600)	(3,600)
Balance at 31 January 2019		9,000	(385)	49,409	50,249	108,273
Balance at 1 February 2019		9,000	(385)	49,409	50,249	108,273
Comprehensive income Profit for the year		-	-	-	11,869	11,869
Other comprehensive income: Cash flow hedges net of deferred tax	16	-	81	-	-	81
Total comprehensive income		-	81	-	11,869	11,950
Transactions with owners Dividends relating to 2019 and 2020 - paid in cash	13	-	-	-	(4,000)	(4,000)
Total transactions with owners		-	-	-	(4,000)	(4,000)
Balance at 31 January 2020		9,000	(304)	49,409	58,118	116,223

Statements of changes in equity - continued

	Notes	Share capital €'000	Hedging reserve €'000	Revaluation and other reserves €'000	Retained earnings €'000	Total equity €'000
Company
Balance at 1 February 2018		9,000	(495)	46,137	41,347	95,989
Comprehensive income Profit for the year		-	-	-	12,965	12,965
Other comprehensive income: Cash flow hedges net of deferred tax	16	-	110	-	-	110
Total comprehensive income		-	110	-	12,965	13,075
Transactions with owners Dividends relating to 2018 and 2019 - paid in cash	13	-	-	-	(3,600)	(3,600)
Total transactions with owners		-	-	-	(3,600)	(3,600)
Balance at 31 January 2019		9,000	(385)	46,137	50,712	105,464
Balance at 1 February 2019		9,000	(385)	46,137	50,712	105,464
Comprehensive income Profit for the year		-	-	-	9,901	9,901
Other comprehensive income: Cash flow hedges net of deferred tax	16	-	81	-	-	81
Total comprehensive income		-	81	-	9,901	9,982
Transactions with owners Dividends relating to 2019 and 2020 - paid in cash	13	-	-	-	(4,000)	(4,000)
Total transactions with owners		-	-	-	(4,000)	(4,000)
Balance at 31 January 2020		9,000	(304)	46,137	56,613	111,446

The notes on pages 47 to 107 are an integral part of these consolidated financial statements.

Statements of cash flows

	Year ended 31 January
		Group		Company
		2020	2019	2020	2019
	Notes	€'000	€'000	€'000	€'000
Cash flows from operating activities Cash generated from operations	31	17,047	18,221	12,890	15,508
Interest received		-	-	7	85
Interest paid Income tax paid		(1,370) (1,497)	(1,239) (782)	(1,097) -	(1,153) -
Net cash generated from operating activities		14,180	16,200	11,800	14,440
Cash flows from investing activities
Purchase of property, plant and equipment Proceeds from disposal of property, plant and		(10,702)	(6,602)	(9,103)	(5,481)
equipment		200	15	142	-
Additions to intangibles		(122)	-	-	-
Net cash used in investing activities		(10,624)	(6,587)	(8,961)	(5,481)
Cash flows from financing activities
Proceeds from non-current borrowings		1,300	5,800	1,300	5,800
Payments of current and non-current borrowings		(3,746)	(3,464)	(3,746)	(3,464)
Principal payments of lease liabilities		(1,033)	(138)	(138)	(138)
Dividends paid		(4,000)	(3,600)	(4,000)	(3,600)
Net cash used in financing activities		(7,479)	(1,402)	(6,584)	(1,402)
Net movement in cash and cash equivalents		(3,923)	8,211	(3,745)	7,557
Cash and cash equivalents at beginning of year		5,719	(2,492)	3,448	(4,109)
Cash and cash equivalents at end of year	11	1,796	5,719	(297)	3,448

The notes on pages 47 to 107 are an integral part of these consolidated financial statements.

Notes to the consolidated financial statements

1. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

1.1 Basis of preparation

These consolidated financial statements include the financial statements of Simonds Farsons Cisk plc and its subsidiaries. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and the requirements of the Maltese Companies Act, 1995. They have been prepared under the historical cost convention, as modified by the fair valuation of the non-current asset category of property, plant and equipment and except as disclosed in the accounting policies below. Unless otherwise stated, all financial information presented has been rounded to the nearest thousand.

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 Group's accounting policies (see Note 3 - Critical accounting estimates and judgements).

Standards, interpretations and amendments to published standards effective in 2019

In 2019, the group adopted new standards, amendments and interpretations to existing standards that are mandatory for the Group's and Company's accounting period beginning on 1 January 2019. The adoption of these revisions to the requirements of IFRSs as adopted by the EU resulted in changes to the Group's and Company's accounting policies impacting the financial performance and position. The Group and Company had to change the accounting policies and make retrospective adjustments as a result of adopting IFRS 16, 'Leases', but recognised the cumulative effect of initially applying the new standard on 1 January 2019. The new accounting policies are disclosed in Note 1.22 below. The impact of the adoption of this standard at Group and Company level is disclosed in Note 1.2. The other amendments did not have any impact on the Group's accounting policies and did not require retrospective adjustments.

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

Certain new standards, amendments and interpretations to existing standards have been published by the date of authorisation for issue of these financial statements but are mandatory for the Group's accounting periods beginning after 1 January 2019. The Group has not early adopted these revisions to the requirements of IFRSs as adopted by the EU and the directors are of the opinion that there are no requirements that will have a possible significant impact on the Group's financial statements in the period of initial application.

1.2 Changes in accounting policies

This note explains the impact of the adoption of IFRS 16 Leases on the Group's and Company's financial statements.

As indicated in Note 1.1 above, the Group and Company have adopted IFRS 16 retrospectively from 1 February 2019 but have not restated comparatives for the 2018/2019 reporting period, as permitted under the specific transitional provisions in the standard.

The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 February 2019. The new accounting policies are disclosed in Note 1.22.

(a) Adjustments recognised upon adoption of IFRS 16 in the statement of financial position on 1 February 2019

On adoption of IFRS 16, the Group and 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 lessee's incremental borrowing rate as of 1 February 2019. The lessee's incremental borrowing rate applied to the lease liabilities on 1 February 2019 was 4%.

The associated right-of-use assets for leases were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to those leases recognised in the balance sheet as at 31 January 2019. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application.

For leases previously classified as finance leases the entity recognised the carrying amount of the lease asset and lease liability immediately before transition as the carrying amount of the right of use asset and the lease liability at the date of initial application. The measurement principles of IFRS 16 are only applied after that date. This did not result in any measurement adjustments upon transition. The incremental borrowing rate applied to these leases is 2.3% (2019: 2.3%).

The change in accounting policy affected the following items in the balance sheet on 1 February 2019:

Group

- right-of-use assets	– increase by €7,486,000
- lease liabilities (Land & buildings)	– increase by €7,182,000
Company - right-of-use assets - lease liabilities (Land & buildings)	– increase by €190,000 – increase by €190,000

1.2 Changes in accounting policies - continued

(a) Adjustments recognised upon adoption of IFRS 16 in the statement of financial position on 1 February 2019 - continued

The recognised right-of-use assets relate to the following types of assets:

	Group	Company
	As at	As at
	1 February	1 February
	2019	2019
	€'000	€'000
Properties	7,486	190
Total right-of-use assets	7,486	190

Measurement of lease liabilities

	As at
	1 February
Group	2019
	€'000
Operating lease commitments disclosed as at 31 January 2019	5,572
Add: contracts reassessed as lease contracts	2,084
Discounted using the incremental borrowing rate at the date of initial application	(474)
Lease liabilities recognised as at 1 February 2019	7,182
Of which are:
Current lease liabilities	1,276
Non-current lease liabilities	5,906
	7,182
	As at
	1 February
Company	2019
	€'000
Operating lease commitments disclosed as at 31 January 2019	-
Add: contracts reassessed as lease contracts	190
Lease liabilities recognised as at 1 February 2019	190
Of which are:
Current lease liabilities	-
Non-current lease liabilities	190
	190

1.2 Changes in accounting policies - continued

Practical expedients applied

In applying IFRS 16 for the first time, the Group and Company have used the following practical expedients permitted by the standard:

• the use of a single discount rate to a portfolio of leases with reasonably similar characteristics;
• reliance on previous assessments on whether leases are onerous there were no onerous contracts as at 1 February 2019;
• the accounting for operating leases with a remaining lease term of less than 12 months as at 1 February 2019 as short-term leases; and
• the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

(b) Amounts recognised in profit and loss

The income statement reflects the following amounts relating to leases:

	Group 2020 €'000	Company 2020 €'000
Depreciation charge of right-of-use assets Properties	1,327	2
Interest expense (included in finance costs)	259	7

Operating lease charges to be reflected within profit and loss, utilising the accounting principles of IAS 17 Leases had IFRS 16 not been adopted, during the period from 1 February 2019 to 31 January 2020 would have amounted to €1,459,000 for the Group and €7,000 for the Company. Hence, EBITDA for the year ended 31 January 2020 has been impacted favourably by an amount of €1,459,000 and €7,000 for the Group and Company respectively, in view of the adoption of the requirements of IFRS 16.

1.3 Consolidation

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets.

1.3 Consolidation - continued

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in profit or loss.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

A listing of the subsidiaries is set out in Note 38 to the financial statements.

1.4 Foreign currency translation

(a) Functional and presentation currency

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

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

All foreign exchange gains and losses are presented in the income statements within 'cost of sales' and 'administrative expenses'.

The Group periodically enters into foreign exchange forward contracts in order to manage its exposure to fluctuations in foreign currency rates on specific transactions (see Note 1.26).

1.5 Property, plant and equipment

All property, plant and equipment is initially recorded at historical cost. Land and buildings are subsequently shown at fair value based on periodic valuations by external independent valuers, less subsequent depreciation for buildings. Valuations are carried out on a regular basis, but at least every five years, unless the directors consider it appropriate to have an earlier revaluation, such that the carrying amount of property does not differ materially from that which would be determined using fair values at the end of the reporting period. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset, and the net amount is restated to the revalued amount of the asset. All other property, plant and equipment is stated at historical cost less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Borrowing costs which are incurred for the purpose of acquiring or constructing a qualifying asset are capitalised as part of its cost. Borrowing costs are capitalised while acquisition or construction is actively underway. Capitalisation of borrowing costs is ceased once the asset is substantially complete and is suspended if the development of the asset is suspended.

1.5 Property, plant and equipment - continued

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.

Increases in the carrying amount arising on revaluation of land and buildings are credited to other comprehensive income and shown as a revaluation reserve in shareholders' equity. Decreases that offset previous increases of the same asset are charged in other comprehensive income and debited against the revaluation reserve directly in equity; all other decreases are charged to profit or loss. Each year the difference between depreciation based on the revalued carrying amount of the asset charged to profit or loss and depreciation based on the asset's original cost is transferred from the revaluation reserve to retained earnings.

Freehold land and assets in the course of construction are not depreciated. Leased properties are depreciated over the period of the lease. Depreciation on other assets is calculated using the straightline method to allocate their cost or revalued amounts to their residual values over their estimated useful lives, as follows:

	Buildings	0.67% - 2.00%
	Plant, machinery and equipment	5.00% - 33.33%

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount (see Note 1.7).

Gains and losses on disposals are determined by comparing the proceeds with carrying amount and are recognised in profit or loss. When revalued assets are sold, the amounts included in the revaluation reserve relating to the assets are transferred to retained earnings.

1.6 Intangible assets

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary/jointly-controlled entity or business concern at the date of acquisition. Goodwill on acquisitions of subsidiaries/business concerns is included in intangible assets. Goodwill on acquisitions of jointly-controlled entities is included in investments in jointlycontrolled entities. Goodwill is recognised separately within intangible assets and is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

1.6 Intangible assets - continued

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose, identified according to operating segment. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired by comparing the carrying amount of the unit, including the goodwill, with the recoverable amount of the unit. The recoverable amount is the higher of fair value less costs to sell and value in use.

Franchise and agency rights are initially shown at historical cost. Franchise and agency rights have a definite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of franchise and agency rights over their estimated useful lives (5 to 10 years).

1.7 Impairment of non-financial assets

Assets (including goodwill) that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Nonfinancial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.

1.8 Investments in subsidiaries and jointly-controlled entities

In the Company's separate financial statements, investments in subsidiaries and jointly-controlled entities are accounted for by the cost method of accounting, that is, at cost less impairment. Provisions are recorded where, in the opinion of the directors, there is an impairment in value. Where there has been an impairment in the value of an investment, it is recognised as an expense in the period in which the diminution is identified. The Company gathers objective evidence that an investment is impaired using the same process disclosed in Note 1.9. The results of associates are reflected in the Company's separate financial statements only to the extent of dividends receivable. On disposal of an investment, the difference between the net disposal proceeds and the carrying amount is charged or credited to profit or loss.

Loans for which settlement is neither planned nor likely to occur in the foreseeable future are, in substance, an extension of the Company's investment in that subsidiary. These are accounted for in accordance with the requirements of IAS 27. Loans to subsidiaries for which settlement is planned are classified as loans and/or receivables in accordance with the requirements of IFRS 9.

1.9 Financial assets

Classification

The Group classifies its financial assets as financial assets measured at amortised costs. The classification depends on the entity's business model for managing the financial assets and the contractual terms of the cash flows. The Group classifies its financial assets at amortised cost only if both the following criteria are met:

• • The asset is held within a business model whose objective is to collect the contractual cash flows, and
• The contractual terms give rise to cash flows that are solely payments of principal and interest.

Assessment whether contractual cash flows are solely payments of principal and interest.

For the purposes of this assessment, 'principal' is defined as the fair value of the financial asset on initial recognition. 'Interest' is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition.

Recognition and measurement

Regular way purchases and sales of financial assets are recognised on the trade date, which is the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset.

Interest income on debt instruments measured at amortised cost from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition of these instruments is recognised directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented within operating profit in the consolidated statement of profit or loss.

Impairment

The Group assesses on a forward-looking basis the expected credit losses (ECL) associated with its debt instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. The Group's financial assets are subject to the expected credit loss model.

Expected credit loss model

The Group measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured at 12-month ECLs:

1.9 Financial assets – continued

Impairment - continued

• debt securities that are determined to have low credit risk at the reporting date; and
• other debt securities and bank balances for which credit risk has not increased significantly since initial recognition.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due, and it considers a financial asset to be in default when the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held); or the financial asset is more than 90 days past due.

Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months). The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls. ECLs are discounted at the effective interest rate of the financial asset.

At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit-impaired. A financial asset is 'credit-impaired' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data such as significant financial difficulty of the borrower or issuer, or a breach of contract such as a default or being more than 90 days past due.

Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.

Simplified approach model

For trade receivables, the Group applies the simplified approach required by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables.

The expected loss rates are based on the payment profiles of sales over a period of up to 60 months before the reported period end, and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the liability of the customers to settle the receivable. Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, among others, the probability of insolvency or significant financial difficulties of the debtor. Impaired debts are derecognised when they are assessed as uncollectible.

1.10 Inventories

Inventories are stated at the lower of cost and net realisable value. Inventories of raw materials are determined using the first-in first-out method and those of spare parts on a weighted average basis. The cost of raw materials comprises the cost of direct materials and includes transport and handling charges. The cost of finished goods comprises raw materials, other direct costs and related production overheads. Net realisable value is the estimate of the selling price in the ordinary course of business, less the costs of completion and selling expenses. In the case of bottles, cases and kegs, the net realisable value is arrived at after providing for an annual charge calculated to write down the costs over their estimated useful lives.

1.11 Trade and other receivables

Trade receivables comprise amounts due from clients and customers for goods and services delivered and performed in the ordinary course of business. 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 receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less expected credit loss allowances.

Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. The Group holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method.

1.12 Current and deferred tax

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

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

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 liabilities are not recognised if they arise from the initial recognition of goodwill; deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively 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.

Under this method the Group is required to make a provision for deferred taxes on the revaluation of certain non-current assets and derivative contracts. Such deferred tax is charged or credited directly to the revaluation reserve and hedging reserve. Deferred tax on the difference between the actual depreciation on the property and the equivalent depreciation based on the historical cost of the property is realised through the income statements.

Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the unutilised tax credits, tax losses and unabsorbed capital allowances can be utilised.

1.12 Current and deferred tax - continued

Deferred tax is provided on temporary differences arising on investments in subsidiaries, except for deferred income tax where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

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 tax 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.

1.13 Cash and cash equivalents

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

1.14 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. Incremental costs directly attributable to the issue of new shares or for the acquisition of a business, are included in the cost of acquisition as part of the purchase consideration.

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

1.15 Borrowings

Borrowings are recognised initially at the fair value of proceeds received, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the end of the reporting period.

1.16 Provisions

Provisions (including restructuring costs) 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. Restructuring provisions principally comprise termination benefits.

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

1.17 Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due after more than twelve months after the end of the reporting period are discounted to present value.

1.18 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.

1.19 Financial liabilities

The Group recognises a financial liability in its statement of financial position when it becomes a party to the contractual provisions of the instrument. The Group's financial liabilities, other than derivative contracts, are classified as financial liabilities measured at amortised cost, i.e. not at fair value through profit or loss under IFRS 9. Financial liabilities not at fair value through profit or loss are recognised initially at fair value, being the fair value of consideration received, net of transaction costs that are directly attributable to the acquisition or the issue of the financial liability. These liabilities are subsequently measured at amortised cost. The Group derecognises a financial liability from its statement of financial position when the obligation specified in the contract or arrangement is discharged, is cancelled or expires.

1.20 Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the statements of financial position when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

1.21 Revenue recognition

Revenues include all revenues from the ordinary business activities of the Group. Ordinary activities do not only refer to the core business but also to other recurring sales of goods or rendering of services. Revenues are recorded net of value added tax. The Group's business includes the brewing, production and sale of branded beers and beverages, the importation, wholesale and retail of food and beverages, including wines and spirits and the operation of franchised food retailing establishments.

(a) Sale of goods and services

Revenues are recognised in accordance with the provision of goods or services, provided that collectability of the consideration is probable.

1.21 Revenue recognition - continued

(a) Sale of goods and services - continued

IFRS 15 requires that at contract inception the goods or services promised in a contract with a customer are assessed and each promise to transfer to the customer the good or service is identified as a performance obligation. Promises in a contract can be explicit or implicit if the promises create a valid expectation to provide a good or service based on the customary business practices, published policies, or specific statements.

A contract asset must be recognised if the Group's recorded revenue for fulfilment of a contractual performance obligation before the customer paid consideration or before – irrespective of when payment is due – the requirements for billing and thus the recognition of a receivable exist. The Group classifies a contract asset as accrued income.

A contract liability must be recognised when the customer paid consideration or a receivable from the customer is due before the Group fulfilled a contractual performance obligation and thus recognised revenue. The Group classifies the contract liabilities as advanced deposits or deferred income.

IFRS 15 provides more detailed guidance on how to account for contract modifications. Changes must be accounted for either as a retrospective change (creating either a catch up or deferral of previously recorded revenues), prospectively with a reallocation of revenues amongst identified performance obligations, or prospectively as separate contracts which will not require any reallocation.

Sales of goods - wholesale

The Group brews, produces and imports a wide range of branded beers and food and beverages including wines and spirits to the wholesale market.

Sales are recognised when control of the products has transferred, being when the products are delivered to the wholesaler, the wholesaler has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the wholesaler's acceptance of the products. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the wholesaler, and either the wholesaler has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the Group has objective evidence that all criteria for acceptance have been satisfied.

The Group's products are sometimes sold with retrospective volume discounts based on aggregate sales over a 12 month period. Revenue from these sales is recognised based on the price specified in the contract, net of the estimated volume discounts. Accumulated experience is used to estimate and provide for the discounts, using the expected value method, and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur.

A liability (included in trade and other payables) is recognised for expected volume discounts payable to customers in relation to sales made until the end of the reporting period. No element of financing is deemed present as the sales are made with a credit term of less than one year, which is consistent with market practice.

A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due.

1.21 Revenue recognition - continued

(a) Sale of goods and services - continued

Sales of goods - wholesale - continued

Branded beers, beverages and food products are often sold with a right of return. Right to the returned goods are recognised for the products expected to be returned. Accumulated experience is used to estimate such returns at the time of sale at a portfolio level (expected value method). Because the number of products returned has been steady for years, it is highly probable that a significant reversal in the cumulative revenue recognised will not occur. The validity of this assumption and the estimated amount of returns are reassessed at each reporting date.

Sales of goods - retail

The Group operates a dedicated retail outlet showcasing its wide range of manufactured and imported branded beers and beverages including wines and spirits. It also operates a number of franchised food retailing establishments. Revenue from the sale of goods is recognised when a Group entity sells a product to the customer.

Payment of the transaction price is due immediately when the customer purchases the product and takes delivery in store. It is the Group's policy to sell its products to the end customer with a right of return. Therefore, a refund liability and a right to the returned goods are recognised for the products expected to be returned. Accumulated experience is used to estimate such returns at the time of sale at a portfolio level (expected value method). Because the number of products returned has been steady for years, it is highly probable that a significant reversal in the cumulative revenue recognised will not occur. The validity of this assumption and the estimated amount of returns are reassessed at each reporting date.

Sales of services

Sales of services are recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.

Financing

The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices for the time value of money.

(b) Property related income

Rentals and short-term lets receivable on immovable property are recognised in the period when the property is occupied.

1.21 Revenue recognition - continued

(c) Finance income

Finance income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Company reduces the carrying amount to its recoverable amount, being the estimated future cash flows discounted at the original effective interest rate of the instrument, and continues unwinding the discount as finance income.

(d) Dividend income

Dividend income is recognised when the right to receive payment is established.

1.22 Leases

Accounting policy as from 1 February 2019

The group and company are the lessee

The Group leases various offices, warehouses and catering outlets. The Company leases warehouses. Rental lease and ground rent contracts are typically made for fixed periods of 4 years to 150 years but may have extension options as described below. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants. Leased assets may or may not be used as security for borrowing purposes.

At inception of a contract, an entity shall assess whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

As explained in Note 1.1 above, the Group and Company have changed the accounting policy for leases where the Group and Company are the lessee. The impact of the change is described in Note 1.2.

With effect from 1 February 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group and the Company.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

• a. fixed payments (including in-substance fixed payments), less any lease incentives receivable;
• b. variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date;

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group and the Company, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

1.22 Leases - continued

To determine the incremental borrowing rate, the Group and Company:

• a. where possible, uses recent third-party financing received by the lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received;
• b. uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held by the Group and Company, where there is no third-party financing; and
• c. makes adjustments specific to the lease.

The Group and Company are exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset. Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

Right-of-use assets are measured at cost comprising the following:

• a. the amount of the initial measurement of lease liability;
• b. any lease payments made at or before the commencement date less any lease incentives received; and
• c. any initial direct costs.

Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less.

Variable lease payments

Some Group property leases contain variable payment terms that are linked to sales generated from the outlet. For individual outlets, up to 100% of lease payments are on the basis of variable payment terms with percentages ranging from 6.5% to 8.5% of sales. Variable lease payments that depend on sales are recognised in profit or loss in the period in which the condition that triggers those payments occurs. A 10% increase in sales across all outlets in the Group with such variable lease contracts would increase total lease payments by approximately €74,000.

Extension and termination options

Extension and termination options are included in a number of property leases across the Group. These are used to maximise operational flexibility in terms of managing the assets used in the Group's operations. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

1.22 Leases – continued

Accounting policy as from 1 February 2019 - continued

Extension and termination options - continued

For leases of properties, the following factors are normally the most relevant:

• a. If there are significant penalties to terminate (or not extend), the Group is typically reasonably certain to extend (or not terminate);
• b. If any leasehold improvements are expected to have a significant remaining value, the Group is typically reasonably certain to extend (or not terminate);
• c. Otherwise, the Group considers other factors including historical lease durations and the costs and business disruption required to replace the leased asset.

As at 1 February 2019, potential future cash outflows of €7,432,000 (undiscounted) on Group leases have not been included in the lease liability because it is not reasonably certain that the leases will be extended (or not terminated).

The lease term is reassessed if an option is actually exercised (or not exercised) or the Group becomes obliged to exercise (or not exercise) it. The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment, and that is within the control of the lessee.

Accounting policy as at 31 January 2019

Until 31 January 2019, leases of assets in which a significant portion of the risks and rewards of ownership were effectively retained by the lessor were classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease.

1.23 Borrowing costs

Borrowing costs which are incurred for the purpose of acquiring or constructing qualifying property, plant and equipment or investment property are capitalised as part of its cost. Borrowing costs are capitalised while acquisition or construction is actively underway, during the period of time that is required to complete and prepare the asset for its intended use. Capitalisation of borrowing costs is ceased once the asset is substantially complete and is suspended if the development of the asset is suspended. All other borrowing costs are expensed. Borrowing costs are recognised for all interestbearing instruments on an accrual basis using the effective interest method. Interest costs include the effect of amortising any difference between initial net proceeds and redemption value in respect of the Group's interest-bearing borrowings.

1.24 Earnings per share

The Group presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the consolidated profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding at the end of the period.

1.25 Segment reporting

The Group determines and presents operating segments based on the information that internally is provided to the board of directors, which is the Group's chief operating decision maker in accordance with the requirements of IFRS 8 'Operating Segments'.

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components, and for which discrete financial information is available. An operating segment's operating results are reviewed regularly by the board of directors to make decisions about resources to be allocated to the segment and to assess its performance executing the function of the chief operating decision maker.

1.26 Derivative financial instruments

Derivative financial instruments, including interest rate swap agreements and forward foreign exchange contracts are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value.

The Group has elected to continue applying the IAS 39 hedge accounting rules. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: (1) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or (2) hedges of highly probable forecast transactions (cash flow hedges).

The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the reporting date. The fair value of interest rate swaps is mainly based on the present value of the estimated future cash flows.

All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. The full fair value of hedging derivatives is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than twelve months, and as a current asset or liability when the remaining maturity of the hedged item is less than twelve months. Trading derivatives are classified as a current asset or liability.

On the date a derivative contract is entered into, the Group designates certain derivatives as a hedge of a future cash flow attributable to a recognised asset or liability or a forecast transaction (cash flow hedge). Hedge accounting is used for derivatives designated in this way provided certain criteria are met. In accordance with the requirements of IAS 39, the criteria for a derivative instrument to be accounted for as a cash flow hedge include:

• formal documentation of the hedging instrument, hedged item, hedging objective, strategy and relationship is prepared before hedge accounting is applied;
• the hedge is documented showing that it is expected to be highly effective in offsetting the risk in the hedged item throughout the reporting period; and
• the hedge is effective on an ongoing basis.

1.26 Derivative financial instruments - continued

Accordingly, the Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

(a) Fair value hedge

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the statements of comprehensive income, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

(b) Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statements.

Amounts accumulated in equity are recycled in the income statements in the periods when the hedged item will affect profit or loss. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statements. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statements.

1.27 Institutional grants

Grants that compensate the Group for expenses incurred are recognised in the income statement on a systematic basis in the same reporting periods in which the expenses are incurred. This compensation is disclosed in the same reporting line as the related expense.

Institutional grants are recognised in the statement of financial position initially as deferred income when there is reasonable assurance that they will be received and that the Group will comply with the conditions attaching to them.

Grants that compensate the Group for the cost of an asset are recognised in the income statement on a systematic basis over the useful life of the asset to match the depreciation charge. Capital grants are recorded as deferred income and released to the income statement over the estimated useful life of the related assets.

2. Financial risk management

2.1 Financial risk factors

The Group's activities potentially expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. The Group's overall risk management focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance. From time to time, the group enters into foreign exchange contracts and interest rate swap agreements to hedge certain risk exposures during the current and preceding financial years. Risk management is carried out by a central treasury department (Group treasury) under policies approved by the board of directors.

(a) Market risk

(i) Foreign exchange risk

Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities which are denominated in a currency that is not the respective Group entity's functional currency. The Group is exposed to foreign exchange risk arising primarily from the Group's purchases, a part of which are denominated in the US dollar and the GB pound.

Management does not consider foreign exchange risk attributable to recognised liabilities arising from purchase transactions to be significant since balances are settled within very short periods in accordance with the negotiated credit terms. Periodically, the Group enters into forward contracts on specific transactions to manage its exposure to fluctuations in foreign currency exchange rates. The Group's and Company's loans and receivables, cash and cash equivalents and borrowings are denominated in euro.

Accordingly, a sensitivity analysis for foreign exchange risk disclosing how profit or loss and equity would have been affected by changes in foreign exchange rates that were reasonably possible at the end of reporting year is not deemed necessary.

2.1 Financial risk factors - continued

• (a) Market risk continued
• (ii) Cash flow and fair value interest rate risk

The Group's income and operating cash flows are substantially independent of changes in market interest rates. The Group's interest rate risk arises from borrowings. Borrowings issued at variable rates, comprising bank borrowings (refer to Note 18), expose the Group to cash flow interest rate risk. The Group's borrowings are subject to an interest rate that varies according to revisions made to the Bank's Base Rate. Management monitors the level of floating rate borrowings as a measure of cash flow risk taken on. Interest rates on these financial instruments are linked with the Central Intervention Rate issued by the European Central Bank. Borrowings issued at fixed rates, consist primarily of bank loans and unsecured bonds which are carried at amortised cost (refer to Note 18), and therefore do not expose the Group to cash flow and fair value interest rate risk.

Significant exposure to cash flow interest rate risk arises in respect of interest payments relating to borrowings, in particular to loans amounting to 17.3million (2019: €17.6million) that are subject to interest at floating rates linked to Euribor. The Group entered into interest-rate swap agreements, which provided a cash flow hedging relationship in respect of variability of future floating interest payments. These agreements cover interest payments on the total amount of these borrowings. Accordingly, this hedging instrument has been designated as cash flow hedges on the interest rate risk, that is, volatility in floating interest amounts. Up to the reporting date, the Group did not have any hedging arrangements with respect to the exposure of interest rate risk on other interest-bearing liabilities.

Based on the above, management considers the potential impact on profit or loss of a defined interest rate shift that is reasonably possible at the end of the reporting period to be immaterial.

(b) Credit risk

Credit risk principally arises from cash and cash equivalents comprising deposits with financial institutions, and other receivables, as well as credit exposures to wholesale and retail customers, including outstanding receivables and committed transactions. The Group's and the Company's principal exposures to credit risk as at the end of the reporting period are analysed as follows:

	Group		Company
	2020	2019	2020	2019
	€'000	€'000	€'000	€'000
Financial assets measured at amortised cost
Trade and other receivables (Note 10)	27,376	22,296	21,385	17,892
Cash and cash equivalents (Note 11)	8,409	7,578	1,002	3,453
	35,785	29,874	22,387	21,345

The maximum exposure to credit risk at the end of the reporting period in respect of the financial assets mentioned above is equivalent to their carrying amount as disclosed in the respective notes to the financial statements. The figures disclosed in the table above in respect of trade and other receivables exclude prepayments.

2.1 Financial risk factors - continued

(b) Credit risk - continued

Security

For certain trade and other receivables, the Group may obtain security in the form of guarantees and deeds of undertaking or letters of credit which can be called on if the counterparty is in default under the terms of the agreement.

Trade and other receivables

The Group assesses the credit quality of its trade customers, the majority of which are unrated, taking into account financial position, past experience and other factors. The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer. It has policies in place to ensure that sales of good and services are transacted with customers with an appropriate credit history. Standard credit terms are in place for individual clients, however, wherever possible, new corporate customers are analysed individually for creditworthiness before the Group's standard payment and product delivery terms and conditions are offered. The creditworthiness analysis for new customers includes a review through external creditworthiness databases when available. The Group monitors the performance of its trade and other receivables on a regular basis to identify incurred collection losses, which are inherent in the Group's debtors, taking into account historical experience in collection of accounts receivable.

In view of the nature of the Group's activities and the market in which it operates, a limited number of customers account for a certain percentage of the Group's trade and other receivables. Whilst no individual customer or group of dependent clients is considered by management as a significant concentration of credit risk with respect to contractual debts, these material exposures are monitored and reported more frequently and rigorously. These customers trade frequently with the respective group entities and are deemed by management to have good credit standing, usually taking cognisance of the performance history without defaults.

The Group manages credit limits and exposures actively in a practicable manner such that past due amounts receivable from clients are within controlled parameters. The Group's trade and other receivables, which are not credit impaired financial assets, are principally debts in respect of transactions with customers for whom there is no recent history of default. Management does not expect any significant losses from non-performance by these customers.

2.1 Financial risk factors - continued

(b) Credit risk - continued

Trade and other receivables - continued

Impairment of trade receivables

The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets.

To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the days past due. Contract assets have substantially the same risk characteristics as the trade receivables for the same types of contracts.

The expected loss rates are based on the payment profiles of sales over a period of time before the reporting date and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. The Group adjusts the historical loss rates based on expected changes in these factors.

On that basis, the loss allowance for the Group as at 31 January was determined by applying:

• An expected loss rate ranging from 0.35% to 1.84% (2019: ranging from 0.22% to 0.63%) on all credit sales generated in the preceding twelve months prior to 31 January resulting in a loss allowance of €1,454,000 (2019: €626,000) for the Group and €823,000 (2019: €313,000) for the Company.
• An expected loss rate of 100% on all outstanding dues generated before the preceding twelve months prior to 31 January (i.e. all trade receivables exceeding one year) resulting in a loss allowance of €1,867,000 (2019: €2,049,000) for the Group and €933,000 (2019: €1,046,000) for the Company.

Impairment of other receivables

The Group applies the general model to measuring expected credit losses for all trade loan dues.

To measure the expected credit losses, trade loans have been grouped based on shared credit risk characteristics and the days past due. The Group assesses the credit quality of these loans taking into account financial position, repayment patterns, past experience and other factors including history of default from the credit terms issued. Trade loans are categorised into stages for IFRS 9 purposes based on the factors highlighted above.

On that basis, the loss allowance for the Group and the Company as at 31 January was determined by applying:

• An expected loss rate averaging at 2.4% (2019: 3.275%) on all trade loans granted within contract terms classified under stages 1 and 2 resulting in a loss allowance of €412,000 (2019: €389,000).
• An expected loss rate of 100% on all outstanding dues on trade loans that exceeded the credit terms granted by the Group and hence classified under stage 3 resulting in a loss allowance of €745,000 (2019: €747,000).

2.1 Financial risk factors - continued

(b) Credit risk - continued

Trade and other receivables - continued

Credit loss allowances include specific provisions against credit impaired individual exposures with the amount of the provisions being equivalent to the balances attributable to credit impaired receivables. The closing loss allowances for trade and other receivables as at 31 January reconcile to the opening loss allowances as follows:

	Group		Company
	2020 €000	2019 €000	2020 €000	2019 €000
	Expected	Expected	Expected	Expected
Trade receivables	loss model	loss model	loss model	loss model
Balance at 1 February	2,675	3,525	1,360	1,917
Movement in loss allowance recognised in profit or loss during the year	647	(716)	396	(526)
Receivables written off	-	(134)	-	(31)
Balance at 31 January	3,322	2,675	1,756	1,360
Other receivables
Balance at 1 February Movement in loss allowance recognised	1,136	1,445	1,136	1,445
in profit or loss during the year	21	(46)	21	(46)
Receivables written off	-	(263)	-	(263)
Balance at 31 January	1,157	1,136	1,157	1,136
Total loss allowance as at year end	4,479	3,811	2,913	2,496

The Group established an allowance for impairment that represented its estimate of expected credit losses in respect of trade and other receivables. The individually credit impaired trade receivables mainly relate to a number of independent customers which are in unexpectedly difficult economic situations and which are accordingly not meeting repayment obligations. Hence, provisions for impairment in respect of credit impaired balances with corporate trade customers relate to entities which are in adverse trading and operational circumstances.

In 2019, the reversals of provisions for impairment of credit impaired receivables principally arose in those situations where the Group's ability to recover its dues improved due to an internal reorganisation of its credit control function which resulted in recovering debt from clients which in previous years did not meet the granted repayment obligations. Trade and other receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to honour a repayment plan with the Group, and a failure to make contractual payments for a period of greater than 36 months past due.

2.1 Financial risk factors - continued

(b) Credit risk - continued

Trade and other receivables - continued

Impairment losses on trade receivables and contract assets are presented as net impairment losses within operating profit. Subsequent recoveries of amounts written off are credited against the same line item.

As at 31 January 2020, outstanding Group trade receivables of less than one year amounting to €18,790,000 (2019: €16,882,000) have an allocated loss allowance of €1,454,000 (2019: €626,000). Outstanding Group trade receivables of more than one year amounting to €1,867,000 (2019: €2,049,000) were fully provided.

As at 31 January 2020, outstanding Company trade receivables of less than one year amounting to €11,866,000 (2019: €9,094,000) have an allocated loss allowance of €823,000 (2019: €313,000). Outstanding Company trade receivables of more than one year amounting to €933,000 (2019: €1,046,000) were fully provided.

As at 31 January 2020, outstanding trade loan receivables not overdue amounting to €4,107,000 (2019: €3,728,000) have an allocated loss allowance of €412,000 (2019: €389,000). Outstanding trade loan receivables overdue amounting to €745,000 (2019: €747,000) were fully provided.

Cash and cash equivalents

The Group and the Company principally banks with local and European financial institutions with highquality standing or rating. While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss is insignificant.

Amounts due from subsidiaries

The Company's receivables include receivables from subsidiaries. The Company monitors intra-group credit exposures at individual entity level on a regular basis and ensures timely performance of these assets in the context of overall Group liquidity management. The Company assesses the credit quality of these related parties taking into account financial position, performance and other factors. The Company takes cognisance of the related party relationship with these entities and management does not expect any significant losses from non-performance or default.

Since amounts due from subsidiaries are repayable on demand, expected credit losses are based on the assumption that repayment of the balance is demanded at the reporting date. Accordingly, the expected credit loss allowance attributable to such balances is insignificant.

Derivative financial instruments

Credit risk arising from derivative financial instruments lies in the insolvency of the contracting party and as a consequence, in the amount of the sum, on balance, of positive market values vis-à-vis the respective derivative counterparties. Derivative transactions are concluded with first rate local banking institutions.

2.1 Financial risk factors - continued

(c) Liquidity risk

The Group is exposed to liquidity risk in relation to meeting future obligations associated with its financial liabilities, which comprise principally borrowings and trade and other payables (refer to Notes 18 and 22). 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.

Management monitors liquidity risk by means of cash flow forecasts on the basis of expected cash flows over a twelve-month period and ensures that adequate financing facilities are in place for the coming year. The carrying amounts of the Group's assets and liabilities are analysed into relevant maturity groupings based on the remaining period at the end of the reporting period to the contractual maturity date in the respective notes to the financial statements.

The table below analyses the Group's non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the end of the reporting period to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within twelve months equal their carrying amounts, as the impact of discounting is not significant.

	Carrying	Contractual	Within	One to	Over
	amount €'000	cash flows €'000	one year €'000	five years €'000	five years €'000
Group
31 January 2020 Borrowings Finance lease liabilities Trade and other payables	42,555 6,391 20,606	49,196 8,414 20,606	10,704 1,632 20,606	12,408 3,791 -	26,084 2,991 -
	69,552	78,216	32,942	16,199	29,075
31 January 2019 Borrowings	40,113	47,997	6,774	12,397	28,826
Finance lease liabilities Trade and other payables	582 19,319	616 19,319	154 19,319	462 -	- -
	60,014	67,932	26,247	12,859	28,826
Company
31 January 2020 Borrowings Finance lease liabilities Trade and other payables	37,241 634 12,742	43,883 1,272 12,742	5,391 151 12,742	12,408 351 -	26,084 770 -
	50,617	57,897	18,284	12,759	26,854
31 January 2019 Borrowings Finance lease liabilities Trade and other payables	38,259 582 12,729	46,143 616 12,729	4,920 154 12,729	12,397 462 -	28,826 - -
	51,570	59,488	17,803	12,859	28,826

2.1 Financial risk factors - continued

(c) Liquidity risk - continued

The table below analyses the Group's principal derivative financial liabilities that will be settled on a net basis into relevant maturity groupings based on the remaining period at the end of the reporting period to the contractual maturity date. The amounts disclosed in the table below are the contractual undiscounted cash flows.

	Within one year €'000	One to five years €'000	Total €'000
Group and Company
31 January 2020 Interest rate derivative - Interest-rate swap	195	273	468
31 January 2019 Interest rate derivative - Interest-rate swap	209	383	592

2.2 Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as total net borrowings (including lease liabilities) divided by total capital. The Group and Company consider total capital to be equity and total net borrowings.

Total borrowings include unsecured bonds issued by the Company. The gearing ratios at 31 January 2020 and 2019 were as follows:

	Group		Company
	2020	2019	2020	2019
	€'000	€'000	€'000	€'000
Total borrowings (Notes 18 and 19)	48,946	40,695	37,875	38,841
Less cash at hand and in bank (Note 11)	(8,409)	(7,578)	(1,002)	(3,453)
	40,537	33,117	36,873	35,388
Total equity	116,223	108,273	111,446	105,464
Total equity and net borrowings	156,760	141,390	148,319	140,852
Gearing	25.86%	23.42%	24.86%	25.12%

2.3 Fair values

Fair values of instruments not carried at fair value

At 31 January 2020 and 2019 the carrying amounts of cash at bank, trade and other receivables, trade and other payables and current borrowings reflected in the financial statements are reasonable estimates of fair value in view of the nature of these instruments or the relatively short period of time between the origination of the instruments and their expected realisation. The fair value of amounts owed by subsidiaries which are current or repayable on demand is equivalent to their carrying amount.

The fair value of non-current financial instruments for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. The fair value of the Group's non-current floating interest rate bank borrowings at the end of the reporting period is not significantly different from the carrying amounts.

Fair values estimation in relation to financial instruments carried at fair value

The Group's financial instruments which are carried at fair value include derivative financial instruments designated as hedging instruments (Note 16).

The Group is required to disclose fair value measurements by level of the following fair value measurement hierarchy for financial instruments that are measured in the statement of financial position at fair value:

• 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, that is, unobservable inputs (level 3).

Group and Company	2020 Level 2 €'000	2019 Level 2 €'000
Liabilities Interest rate derivative – Interest-rate swap	468	592

3. 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.

In the opinion of the Company directors, the accounting estimates and judgements made in the course of preparing these financial statements, except as disclosed in Notes 5, 17 and 20 and accounting policy 1.22 are not difficult, subjective or complex to a degree which would warrant their description as critical in terms of the requirements of IAS 1.

4. Segment information

Management has determined the operating segments based on the reports reviewed by the board of directors that are used to make strategic decisions.

The board of directors considers the Group's business mainly from a productive and commercial perspective as geographically operations are carried out, predominantly, on the local market.

The Group does not have any particular major customer, as it largely derives revenue from a significant number of consumers availing of its products and services. Accordingly, the Group has not identified any relevant disclosures in respect of reliance on major customers.

The Group's productive and commercial operations are segregated primarily into brewing, production and sale of branded beers and beverages, the importation, wholesale and retail of food and beverages, including wines and spirits and the operation of franchised food retailing establishments.

The board of directors assesses the performance of the operating segments based on operating results adjusted for centralised costs. Interest income and expenditure are not allocated to segments, as this type of activity is driven by the central treasury function, which manages the cash position of the Group. Since the board of directors reviews adjusted operating results, the results of discontinued operations are not included in the measure of adjusted operating results.

Sales between segments are carried out at arm's length. The revenue from external parties reported to the board of directors is measured in a manner consistent with that in the income statements.

The amounts provided to the board of directors with respect to total assets are measured in a manner consistent with that of the financial statements. These assets are allocated based on the operations of the segment and the physical location of the asset. Segment assets consist primarily of land and buildings, plant, machinery and equipment, intangible assets, inventories, loans, trade and other receivables and cash and cash equivalents. Taxation and leases are not considered to be segment assets but rather is managed by the treasury function.

The amounts provided to the board of directors with respect to total liabilities are measured in a manner consistent with that of the financial statements. These liabilities are allocated based on the operations of the segment. Segment liabilities comprise trade and other payables and exclude tax, leases and borrowings. The Group's interest-bearing liabilities and taxation are not considered to be segment liabilities but rather are managed by the treasury function.

4. Segment information - continued

	Brewing, production & sale of branded beers & beverages €'000	Importation, wholesale & retail of food & beverages, including wines & €'000	Operation of franchised food retailing spirits establishments €'000	Group €'000
2020
Revenue Less: inter-segmental sales	57,404 (2,335)	35,789 (5,310)	17,929 14	111,122 (7,631)
	55,069	30,479	17,943	103,491
Segment results Net finance costs	10,464	1,601	1,625	13,690 (1,370)
Profit before tax Tax expense				12,320 (451)
Profit for the year				11,869
Segment assets Unallocated assets	142,027	21,428	10,132	173,587 14,355
Total assets				187,942
Segment liabilities Unallocated liabilities	14,977	3,861	2,932	21,770 49,949
Total liabilities				71,719
Additions to non-current assets Depreciation Amortisation Impairment provision for trade	9,168 6,841 32	1,165 231 -	369 724 44	10,702 7,796 76
receivables	417	251	-	668

4. Segment information - continued

	Brewing, production & sale of branded beers & beverages €'000	Importation, wholesale & retail of food & beverages, including wines & €'000	Operation of franchised food retailing spirits establishments €'000	Group €'000
2019
Revenue Less: inter-segmental sales	54,942 (2,162)	35,275 (4,626)	16,369 -	106,586 (6,788)
	52,780	30,649	16,369	99,798
Segment results Net finance costs	11,935	2,396	1,003	15,334 (1,239)
Profit before tax Tax income				14,095 1,036
Profit for the year				15,131
Segment assets Unallocated assets	135,683	18,877	8,984	163,544 7,452
Total assets				170,996
Segment liabilities Unallocated liabilities	14,835	3,311	2,625	20,771 41,952
Total liabilities				62,723
Additions to non-current assets Depreciation Amortisation	5,745 6,457 16	219 200 -	638 691 40	6,602 7,348 56
Release of provision on bad debts written off Impairment provision for trade	(297)	(100)	-	(397)
receivables	(649)	(113)	-	(762)

5. Property, plant and equipment

		Assets in	Plant,
	Land & buildings	construction	course of machinery & equipment	Total
Group	€'000	€'000	€'000	€'000
At 1 February 2018
Cost or valuation	79,634	8,221	138,248	226,103
Accumulated depreciation and impairment	(1,327)	-	(107,301)	(108,628)
Net book amount	78,307	8,221	30,947	117,475
Year ended 31 January 2019
Opening net book amount	78,307	8,221	30,947	117,475
Additions and commissioned assets	5,734	(7,199)	8,067	6,602
Disposals	(680)	-	(4,891)	(5,571)
Depreciation	(2,646)	-	(4,702)	(7,348)
Depreciation released on disposals	680	-	4,882	5,562
Closing net book amount	81,395	1,022	34,303	116,720
At 1 February 2019
Cost or valuation	84,688	1,022	141,424	227,134
Accumulated depreciation and impairment	(3,293)	-	(107,121)	(110,414)
Net book amount	81,395	1,022	34,303	116,720
Year ended 31 January 2020
Opening net book amount	81,395	1,022	34,303	116,720
Additions and commissioned assets	729	2,839	7,134	10,702
Disposals	-	-	(1,357)	(1,357)
Depreciation Depreciation released on disposals	(1,503) -	- - -	(6,293) 1,357	(7,796) 1,357
Closing net book amount	80,621	3,861	35,144	119,626
At 31 January 2020
Cost or valuation	85,417	3,861	147,201	236,479
Accumulated depreciation and impairment	(4,796)	-	(112,057)	(116,853)
Net book amount	80,621	3,861	35,144	119,626

Company	Land & €'000	Assets in course of buildings construction €'000	Plant, machinery & equipment €'000	Total €'000
At 1 February 2018 Cost or valuation Accumulated depreciation and impairment	74,587 (1,198)	8,221 -	114,382 (85,916)	197,190 (87,114)
Net book amount	73,389	8,221	28,466	110,076
Year ended 31 January 2019 Opening net book amount Additions and commissioned assets Disposals Depreciation Depreciation released on disposals	73,389 5,734 - (2,454) -	8,221 (7,205) - - -	28,466 6,952 (1,002) (3,913) 1,002	110,076 5,481 (1,002) (6,367) 1,002
Closing net book amount	76,669	1,016	31,505	109,190
At 1 February 2019 Cost or valuation Accumulated depreciation and impairment Net book amount	80,321 (3,652) 76,669	1,016 - 1,016	120,332 (88,827) 31,505	201,669 (92,479) 109,190
Year ended 31 January 2020 Opening net book amount Additions and commissioned assets Disposals Depreciation Depreciation released on disposals Closing net book amount	76,669 274 - (1,297) - 75,646	1,016 2,839 - - - 3,855	31,505 5,990 (631) (5,437) 631 32,058	109,190 9,103 (631) (6,734) 631 111,559
At 31 January 2020 Cost or valuation Accumulated depreciation and impairment	80,595 (4,949)	3,855 -	125,691 (93,633)	210,141 (98,582)
Net book amount	75,646	3,855	32,058	111,559

As at 2020, assets in course of construction mainly relate to works carried out during the financial year 2020 on the old brewhouse project and other minor manufacturing related projects.

Bank borrowings are secured by the Group's and Company's property, plant and equipment (Note 18).

Fair value of property

The Group is required to analyse non-financial assets carried at fair value by level of the fair value hierarchy within which the recurring fair value measurements are categorised in their entirety (level 1, 2 or 3). The different levels of the fair value hierarchy have been defined in Note 2 to the financial statements.

As at 31 January 2020, the Group's land and buildings within property, plant and equipment, comprise properties including the Company's brewery and related operational and warehousing facilities, commercial property and property earmarked to compliment the Group's operational activity.

The property valuations as at 31 January 2020 are based on the directors' value assessment performed using a variety of methods, including the adjusted sales comparison approach, the discounted projected cash flows approach, and capitalised rentals approach. Each property was valued by taking into consideration the external valuations prepared by independent chartered architectural firms as at 31 January 2017 and using the method considered by the external valuers to be the most appropriate valuation method for that type of property. The directors are of the opinion that the carrying amount of property, plant and equipment as at 31 January 2020, does not differ materially from that which would be determined using fair values that take account of the above considerations.

All the recurring property fair value measurements at 31 January 2018 use significant unobservable inputs and are accordingly categorised within level 3 of the fair valuation hierarchy. The Group's policy is to recognise transfers into and out of fair value hierarchy levels as of the beginning of the reporting period. There were no transfers between different levels of the fair value hierarchy during the year ended 31 January 2020.

A reconciliation from the opening balance to the closing balance of land and buildings for recurring fair value measurements categorised within level 3 of the value hierarchy, is reflected in the table above. The only movements in land and buildings classified as property, plant and equipment reflect additions, disposals and depreciation charge for the year.

Valuation processes

The valuations of the properties are performed regularly on the basis of valuation reports prepared by independent and qualified valuers. These reports are based on both:

• information provided by the Group which is derived from the Group's financial systems and is subject to the Group's overall control environment; and
• assumptions and valuation models used by the valuers the assumptions are typically market related. These are based on professional judgement and market observation.

The information provided to the valuers, together with the assumptions and the valuation models used by the valuers, are reviewed by the Chief Financial Officer (CFO). This includes a review of fair value movements over the period (if any). When the CFO considers that the valuation report is appropriate, the valuation report is recommended to the board of directors. The board of directors considers the valuation report as part of its overall responsibilities.

Valuation techniques

The external valuations of the level 3 property have been performed using a variety of methods, including an adjusted sales comparison approach, capitalised rentals and the discounted cash flow approach. Each property was valued using the method considered by the external valuers to be the most appropriate valuation method for that type of property; the method, together with the fair value measurements, was approved by the board of directors as described above.

In view of the limited number of sales of similar properties in the local market, the valuations have been performed using unobservable inputs. The significant input to the sales comparison approach is generally a sales price per cubic meter related to transactions in comparable properties located in proximity to the Group's property, with significant adjustments for differences in the size, age, exact location and condition of the property.

In the case of the capitalised rentals approach, the significant unobservable inputs include a rental rate per square meter (also in respect of comparable properties as described in the case of the sales comparison approach) and a capitalisation rate (applied at 5-6.6%).

The value of properties used as business, manufacturing and operational premises by the Group including factories and warehouses, currently classified under property, plant and equipment is based on a value-in-use assessment using capitalisation of cash flows. The valuers applied a capitalisation rate to an assessed maintainable level of free cash flows based on the average earnings over the past five years. Following this assessment, no changes to the current value attributable to this Group of properties was deemed necessary.

Valuation techniques - continued

Information about fair value measurements using significant unobservable inputs (level 3)

Description by class	Fair value	Valuation technique	Significant unobservable input	Range of unobservable inputs
	€'000			€
As at 31 January 2020
Current use as manufacturing or related premises	61,605	Discounted cash flow approach	Discount rate	8%
Current use as commercial premises	1,570	Discounted cash flow approach	Rental rate per square meter	150 -400
Developable land for mixed use/commercial use	17,446	Sales comparison approach	Sales price per cubic meter	175 - 250
		Capitalised rentals approach	Rental rate per square meter	120 - 130
As at 31 January 2019
Current use as manufacturing or related premises	62,379	Discounted cash flow approach	Discount rate	8%
Current use as commercial premises	1,570	Discounted cash flow approach	Rental rate per square meter	150 -400

approach

Capitalised rentals approach Sales price per cubic

Rental rate per

meter 175 - 250

square meter 120 - 130

Developable land for mixed use/commercial use 17,446 Sales comparison

Valuation techniques - continued

In the case of the sales comparison approach and the capitalised rentals approach, the higher the sales price per square metre or the rental rate per square metre, the higher the resultant fair valuation. Conversely, the lower the required development cost per square metre or the rental capitalisation rate, the higher the resultant fair valuation.

In respect of the discounted cashflow approach, the higher the annualized net cash inflows, and growth rate, the higher the fair value. Conversely, the lower the discount rate, the estimated development costs, and capitalisation rate used in calculating the annualized net cash inflows, the higher the fair value.

The highest and best use of properties which are developable land for mixed use/commercial use differs from their current use. These assets mainly comprise properties which are currently partly used by the Group or which are currently vacant, and which would require development or refurbishment in order to access the maximum potential cash flows that may be generated from the properties' highest and best use.

As at 31 January 2020, the carrying amount of land and buildings would have been €41,858,000 (2019: €42,630,000) had these assets been included in the financial statements at historical cost less depreciation.

The charge for depreciation and impairment charges as disclosed in Note 23 are included in the income statements as follows:

		Group		Company
	2020	2019	2020	2019
	€'000	€'000	€'000	€'000
Cost of sales	5,004	4,720	4,214	3,971
Selling and distribution costs	1,615	1,511	1,463	1,377
Administration expenses	1,177	1,117	1,057	1,019
	7,796	7,348	6,734	6,367

In 2017, the Company and the Group entered into agreements for the supply and leasing of operational equipment. Due to certain contractual obligations in favour of the lessor which emanate from the lease contract, the directors consider this contract as a financing arrangement. Accordingly, the Company and the Group has recognised the equipment being installed as an asset with the corresponding amounts due as a finance lease.

6. Right-of-use assets

The statement of financial position reflects the following assets relating to leases:

Group	As at 31 January 2020 €000	As at 1 February 2019 €000
Land & Buildings	6,159	7,486
Total right-of-use assets	6,159	7,486

Company	As at 31 January 2020 €000	As at 1 February 2019 €000
Land & Buildings	188	190
Total right-of-use assets	188	190

There were no additions to right-of-use assets during the course of the current financial year. The movement in the carrying amount of right-of-use assets during the year is attributable to depreciation charges.

7. Intangible assets

	Goodwill €'000	Franchise & agency rights €'000	Total €'000
Group
At 1 February 2018 Cost Accumulated amortisation and impairment	1,058 (775)	4,985 (4,694)	6,043 (5,469)
Net book amount	283	291	574
Year ended 31 January 2019 Opening net book amount Amortisation	283 -	291 (40)	574 (40)
Closing net book amount	283	251	534
At 1 February 2019 Cost Accumulated amortisation and impairment Net book amount	1,058 (775) 283	4,985 (4,734) 251	6,043 (5,509) 534

7. Intangible assets - continued

	Goodwill €'000	Franchise & agency rights €'000	Total €'000
Group
Year ended 31 January 2020 Opening net book amount Additions Amortisation	283 - -	251 122 (44)	534 122 (44)
Closing net book amount	283	329	612
At 31 January 2020 Cost Accumulated amortisation and impairment	1,058 (775)	5,107 (4,778)	6,165 (5,553)
Net book amount	283	329	612

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 1.7. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates.

Amortisation of €44,000 (2019: €40,000) is included in cost of sales within the income statements.

Impairment tests for goodwill

Goodwill is allocated to the Group's cash-generating units identified according to business segment. A segment-level summary of the goodwill allocation is presented below:

	2020 €'000	2019 €'000
Brewing, production and sale of branded beers & beverages Importation, wholesale and retail of food & beverages	192 91	192 91
Net book amount	283	283

The recoverable amount of a cash-generating unit is determined based on value in use calculations and is assessed annually. As at 31 January 2020, the directors reviewed the goodwill, and based on the current period's results and plans for the foreseeable future, they are confident that the recoverable amount of goodwill is not materially different from the carrying amount.

8. Investments in subsidiaries

	Company
	2020 €'000	2019 €'000
Year ended 31 January Opening net book amount Write-off of investment	9,535 (333)	9,535 -
Closing net book amount	9,202	9,535
At 31 January Cost Impairment provision for investments	13,283 (4,081)	13,616 (4,081)
Net book amount	9,202	9,535

The principal subsidiaries at 31 January 2020 all of which are unlisted, are disclosed in Note 38 to these financial statements.

9. Inventories

	Group		Company
	2020	2019	2020	2019
	€'000	€'000	€'000	€'000
Raw materials and consumables	3,896	3,143	3,495	2,807
Finished goods and goods for resale	9,303	8,922	2,665	2,974
Containers and other stocks	3,573	3,100	3,265	2,751
	16,772	15,165	9,425	8,532

The amount of inventory write-downs recognised in the income statements categories is as follows:

	Group		Company
	2020	2019	2020	2019
	€'000	€'000	€'000	€'000
Cost of sales	478	720	321	537
Selling, distribution and administrative expenses	108	82	108	82
	586	802	429	619

10. Trade and other receivables

	Group		Company
	2020	2019	2020	2019
	€'000	€'000	€'000	€'000
Non-current
Other receivables	1,695	2,853	1,695	2,853
Current
Trade receivables	18,118	16,256	10,023	8,781
Amounts due from subsidiaries	-	-	4,007	4,800
Indirect taxation	22	58	-	-
Other receivables and advanced deposits	7,541	3,129	5,660	1,458
Prepayments and accrued income	788	1,252	1,024	1,105
	26,469	20,695	20,714	16,144
Total trade and other receivables	28,164	23,548	22,409	18,997

Trade and other receivables are stated net of impairment provision as follows:

	Group		Company
	2020	2019	2020	2019
	€'000	€'000	€'000	€'000
Trade and other receivables	4,479	3,811	2,913	2,496

The impairment provision for trade and other receivables is disclosed in Note 23 and is included under administrative expenses in the income statements.

Included in other receivables are advanced deposits on non-current assets not yet commissioned as at year end amounting to €3,222,000 (2019: 709,000).

Amounts due to the Company by subsidiaries are unsecured and repayable on demand. Included in these balances are year-end amounts of €310,000 (2019: €710,000) which are subject to an average interest rate of 3.5% (2019: 4.75%). Other balances within amounts due from subsidiaries are interest free.

The Group's and Company's exposure to credit and currency risks and impairment losses relating to trade and other receivables are disclosed in Note 2. The other classes within receivables do not contain impaired assets.

11. Cash and cash equivalents

For the purposes of the statements of cash flows, the cash and cash equivalents at the end of the reporting period comprise the following:

		Group		Company
	2020	2019	2020	2019
	€'000	€'000	€'000	€'000
Cash at bank and in hand	8,409	7,578	1,002	3,453
Bank overdrafts (Note 18)	(6,613)	(1,859)	(1,299)	(5)
	1,796	5,719	(297)	3,448

12. Share capital

	Company
	2020	2019
	€'000	€'000
Authorised:
30,000,000 ordinary shares of €0.30 each	9,000	9,000
21,000,000 preference shares of €1.00 each	21,000	21,000
	30,000	30,000
Issued and fully paid:
30,000,000 ordinary shares of €0.30 each	9,000	9,000

13. Dividends paid

	Company
	2020 €'000	2019 €'000
Interim dividend Final dividend	1,000 3,000	1,000 2,600
Dividends paid in cash	4,000	3,600
Total net dividend	4,000	3,600
Euro per share (net)	€0.13	€0.12

The final dividend of €3,000,000 in respect of the year ended 31 January 2019 was announced to the ordinary shareholders on 24 June 2019. These final dividends were paid out of tax-exempt profits. The Board declared an interim dividend of €1,000,000 which was paid to shareholders on 16 October 2019.

13. Dividends paid - continued

In the normal course of events, the Board would propose the payment of a final dividend for consideration at the forth-coming Annual General Meeting. However, as disclosed in the Directors' Report, due to the current environment, the Board has reluctantly concluded that in the long-term interest of the business it would not be prudent to propose a final dividend for the financial year ended 31 January 2020 to the forth-coming Annual General Meeting.

14. Revaluation reserve

	Group		Company
	2020	2019	2020	2019
	€'000	€'000	€'000	€'000
Revaluation on property, plant and equipment
At beginning of year, before deferred tax	38,763	38,763	37,933	37,933
Deferred taxation (Note 20)	(4,917)	(4,917)	(4,062)	(4,062)
At 31 January	33,846	33,846	33,871	33,871

The revaluation reserve was created upon the revaluation of the Group's and Company's properties classified within non-current assets. Related deferred tax was debited to this reserve. The revaluation reserve is a non-distributable reserve.

15. Other reserves

Group	Share premium €'000	Other reserve €'000	Incentives unrealised and benefits reserve €'000	Capital redemption reserve €'000	Total €'000
At 31 January 2019 and 31 January 2020	2,078	3,507	2,515	7,463	15,563
Company
At 31 January 2019 and 31 January 2020	2,078	210	2,515	7,463	12,266

The share premium is principally related to a rights issue approved in 2003 for 1,714,286 shares with a nominal value of €0.30 which were successfully offered to the existing shareholders at a price of €1.40.

The incentives and benefits reserve represents profits set aside for re-investment in terms of Sections 6(1) and 36(2) of the Business Promotion Act. Amounts included in this reserve can only be distributed by way of capitalisation of profits.

The capital redemption reserve represents amounts set aside as a result of the redemption of cumulative redeemable preference shares. In accordance with the Maltese Companies Act, 1995, this reserve is only available for distribution to ordinary shareholders by way of a bonus share issue.

16. Hedging reserve

The changes in fair values of hedging instruments qualifying as cash flow hedges are recorded in a separate category of equity in the hedging reserve as shown below:

Group and Company	Currency derivatives €'000	Interest rate swap €'000	Total €'000
At 31 January 2018 Gross amounts of losses Deferred taxes (Note 20)	46 (16)	715 (250)	761 (266)
	30	465	495
Movement for the year ended 31 January 2019 (Gains)/losses from changes in fair value Deferred taxes (Note 20)	(23) 8	127 (44)	104 (36)
	(15)	83	68
Transferred to statement of comprehensive income (Notes 25 and 27) Deferred taxes (Note 20)	(23) 8	(250) 87	(273) 95
	(15)	(163)	(178)
At 31 January 2019 Gross amounts of losses Deferred taxes (Note 20)	- -	592 (207)	592 (207)
	-	385	385
Movement for the year ended 31 January 2020 Losses from changes in fair value Deferred taxes (Note 20)	- - -	70 (25) 45	70 (25) 45
Transferred to statement of comprehensive income (Notes 25 and 27) Deferred taxes (Note 20)	- -	(194) 68	(194) 68
	-	(126)	(126)
At 31 January 2020 Gross amounts of losses Deferred taxes (Note 20)	- -	468 (164)	468 (164)
	-	304	304

The net fair value losses recognised in equity at 31 January 2020 on the interest-rate swap contracts will be transferred from the hedging reserve to the income statements during the remaining term of the contracts up to 2024. As at the reporting period date, these contracts are designated as hedging anticipated variable interest payments which will also accrue over the term of the derivative contract.

17. Derivative financial instruments

The fair values of derivative financial instruments held for hedging at the end of the reporting period are as follows:

	Group and Company
Fair values liabilities	€'000
At 31 January 2020
Interest rate derivative - interest-rate swap	468
Total recognised derivative liabilities	468
At 31 January 2019
Interest rate derivative - interest-rate swap	592
Total recognised derivative liabilities	592

The above are included in the statements of financial position under the following classifications:

	2020 €'000	2019 €'000
Derivatives financial liabilities
Non-current	273	383
Current	195	209
	468	592

(a) Interest rate derivatives

During the financial year ended 31 January 2015, the Company entered into a receive floating, pay fixed interest rate swap arrangement with a notional amount of €12.4million matching the principal amount of an equal value specific bank loan. As at year end, the remaining unpaid portion of this loan amounted to €7.75 million. Under the interest rate swap arrangement, the Company will at three monthly intervals exchange fixed interest amounts payable determined at the fixed interest rate of 1.82% with variable interest amounts receivable based on the 3-month floating Euribor rate. The derivative expires in 2024, thus matching with the terms of the loan.

During the financial year ended 31 January 2011, the Company entered into a receive floating, pay fixed interest rate swap arrangement with a notional amount of €10million matching the principal amount of an equal value specific loan. As at year end, the remaining unpaid portion of this loan amounted to €500,000. Under the interest rate swap arrangement, the Company will at three monthly intervals exchange fixed interest amounts payable determined at the fixed interest rate of 2.74% with variable interest amounts receivable based on the 3-month floating Euribor rate. The derivative expired in 2020, thus matching with the terms of the loan.

The Company has designated these derivative contracts as hedging instruments in a cash flow hedge with the hedged risk being the Company's exposure to cash flow interest rate risk arising on the variable interest amounts payable with respect to these loans. Fair value changes arising on these instruments are recognised in other comprehensive income directly in the cash flow hedging reserve.

17. Derivative financial instruments - continued

(a) Interest rate derivatives - continued

Gains and losses recognised in the hedging reserve in equity (Note 16) on the interest rate swap contracts as of 31 January 2020 will be released to the income statements over the period until maturity of the contracts.

18. Borrowings

	Group		Company
	2020	2019	2020	2019
	€'000	€'000	€'000	€'000
Non-current
Bonds	19,753	19,721	19,753	19,721
Bank loans	13,241	14,889	13,241	14,889
Finance lease liabilities (Note 19)	-	448	-	448
	32,994	35,058	32,994	35,058
Current
Bank overdrafts	6,613	1,859	1,299	5
Bank loans	2,948	3,644	2,948	3,644
Finance lease liabilities (Note 19)	-	134	-	134
	9,561	5,637	4,247	3,783
Total borrowings	42,555	40,695	37,241	38,841

The bonds are disclosed at the value of the proceeds less the net book amount of the issue costs as follows:

	Group		Company
	2020 €'000	2019 €'000	2020 €'000	2019 €'000
Face value of bonds 3.5% Bonds 2017-2027	20,000	20,000	20,000	20,000
	20,000	20,000	20,000	20,000
Issue costs Accumulated amortisation	305 (58)	305 (26)	305 (58)	305 (26)
Net book amount	247	279	247	279
Amortised cost	19,753	19,721	19,753	19,721

By virtue of an offering memorandum dated 31 July 2017, the Company issued €20million Bonds (2017-2027), having a nominal value of €100 each, bearing interest at the rate of 3.5% per annum. These bonds are unsecured pursuant and subject to the terms and conditions in the prospectus dated 31 July 2017. The quoted market price as at 31 January 2020 for the 3.5% Bonds 2017-2027 was €107.15.

18. Borrowings - continued

The Group's and the Company's banking facilities as at 31 January 2020 and 2019 amounted to €45,727,000 and €54,264,000 for the Group, and €37,396,000 and €45,933,000 for the Company respectively.

The bank overdrafts and loans are secured by special and general hypothecs over the Group's assets and pledges over the Group's merchandise.

Interest rate exposure:

	Group		Company
	2020	2019	2020	2019
	€'000	€'000	€'000	€'000
At floating rates	22,617	19,457	17,303	17,603
At fixed rates	19,938	21,238	19,938	21,238
Total borrowings	42,555	40,695	37,241	38,841

Certain borrowings at floating rates which interest rate is computed using a margin over the 3 month Euribor rate, are hedged through interest rate swap agreements (Note 17).

The weighted average effective interest rates at the end of the reporting period were as follows:

	Group		Company
	2020	2019	2020	2019
	%	%	%	%
Bank overdrafts	3.25	4.15	3.98	4.60
Bank loans	1.94	2.11	1.94	2.11
Bonds	3.50	3.50	3.50	3.50
Finance lease liabilities (Note 19)	-	2.30	-	2.30

This note provides information about the contractual terms of the Group's and the Company's loans and borrowings. For more information about the Group's and the Company's exposure to interest rate and liquidity risk, see Note 2.

With effect from 1 February 2019, the Group and Company have recognised right of use assets and corresponding lease liabilities in accordance with the requirements of IFRS 16, as disclosed in Note 19. The existing finance lease liabilities of the Group and Company relating to the financing of the operational equipment, classified under property, plant and equipment have been grouped with these leases in Note 19.

19. Lease liabilities

Group	As at 31 January 2020 €'000	As at 1 February 2019 €'000
Non-current Land & buildings	4,655	5,906
Plant, machinery & equipment	310	148
	4,965	6,054
Current
Land & buildings Plant, machinery & equipment	1,292 134	1,276 134
	1,426	1,410
Total lease liabilities	6,391	7,764
Company Non-current
Land & buildings	190	190
Plant, machinery & equipment	310	448
	500	638
Current
Plant, machinery & equipment	134	134
	134	134
Total lease liabilities	634	772

Included in the lease liabilities for land & buildings of the Group are amounts of €1,092,000 (1 February 2019: €1,748,000) which are attributable arrangements with a related party, of which €410,000 (1 February 2019: €1,217,000) are non-current amounts.

The total cash outflows for leases during the year was €1,459,000 for the Group and €7,000 for the Company. The contractual undiscounted cash flows attributable to lease liabilities as at 31 January are analysed in Note 2.1(c).

20. Deferred taxation

The movement in the deferred tax account is as follows:

	Group		Company
	2020	2019	2020	2019
	€'000	€'000	€'000	€'000
At beginning of year	(7,446)	(5,341)	(8,779)	(6,578)
Credited to income statements (Note 28)	(792)	(2,164)	(706)	(2,260)
Net tax effect of re-measurement of derivatives	43	59	43	59
At end of year	(8,195)	(7,446)	(9,442)	(8,779)

Deferred taxes are calculated on all temporary differences under the liability method and are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based on tax rates (and tax laws) that have been enacted by the end of the reporting period. The principal tax rate used is 35% (2019: 35%), with the exception of deferred taxation on the fair valuation of non-depreciable property which is computed on the basis applicable to disposals of immovable property, that is, tax effect of 8% or 10% (2019: 8% or 10%) of the transfer value.

The manufacturing arm of the Group has been availing itself of investment aid under the various tax credit schemes that were applicable until 30 June 2014. In view of the fact that the tax credit schemes have become more restrictive in respect of large undertakings, the Group has reassessed the extent to which the related deferred tax may be utilised in the foreseeable future. No further recognition of deferred tax credits on investment aid were made during the current year (2019: €2,176,000).

This assessment has been based on projected taxable profits. If the actual chargeable income differed by 10% from management's estimates, the Group and Company would need to increase/decrease the deferred tax asset by €1,520,000 (2019: €1,519,000).

20. Deferred taxation - continued

The movements in the deferred taxation elements and the balance at 31 January represent:

(Assets)/liabilities	Fixed assets €'000	Investment Fair value tax credits (gain)/loss €'000	€'000	Net tax losses €'000	Revaluation surplus €'000	Provisions on assets €'000	Total €'000
Group
At 1 February 2018 Income statements Equity	4,256 (309) -	(13,009) (2,176) -	241 (29) 59	94 (93) -	4,917 - -	(1,840) 443 -	(5,341) (2,164) 59
At 31 January 2019	3,947	(15,185)	271	1	4,917	(1,397)	(7,446)
At 1 February 2019 Income statements Equity	3,947 (562) -	(15,185) - -	271 - 43	1 - -	4,917 - -	(1,397) (230) -	(7,446) (792) 43
At 31 January 2020	3,385	(15,185)	314	1	4,917	(1,627)	(8,195)
Company
At 1 February 2018 Income statements Equity	4,199 (274) -	(13,009) (2,176) -	(238) (29) 59	93 (93) -	4,062 - -	(1,685) 312 -	(6,578) (2,260) 59
At 31 January 2019	3,925	(15,185)	(208)	-	4,062	(1,373)	(8,779)
At 1 February 2019 Income statements Equity	3,925 (564) -	(15,185) - -	(208) - 43	- - -	4,062 - -	(1,373) (142) -	(8,779) (706) 43
At 31 January 2020	3,361	(15,185)	(165)	-	4,062	(1,515)	(9,442)

Deferred taxation is principally composed of deferred tax assets and liabilities which are to be recovered and settled after more than twelve months.

At 31 January 2020, the Group and the Company had unrecognised deferred tax assets consisting of unutilised tax credits arising from:

	Group		Company
	2020	2019	2020	2019
	€'000	€'000	€'000	€'000
Unutilised tax credits	54,534	57,020	54,534	57,020

Whereas tax losses have no expiry date, unabsorbed capital allowances and other tax credits are forfeited upon cessation of trade. The Group and the Company has unrecognised tax credits in the form of investment tax credits and conversion tax credits of €54,534,000 (2019: €57,020,000). €26,496,000 (2019: €29,158,000) relate to investment tax credits which have no expiry date while €28,038,000 (2019: €27,862,000) relate to conversion tax credits which expired in 2020.

21. Provisions for other liabilities and charges

	Group		Company
	2020	2019	2020	2019
Termination benefit provisions	€'000	€'000	€'000	€'000
At 1 February	96	120	96	120
Charged to profit and loss	92	113	92	113
Utilised during the year	(102)	(137)	(102)	(137)
At 31 January	86	96	86	96

The Company has offered early retirement in exchange for a termination benefit to selected employees. This has been communicated to the selected employees, together with the amounts payable. The staff restructuring and termination costs charged for 2020 total €92,000 while for 2019 total €113,000 (Note 23). It is anticipated that €50,000 (2019: €61,000) of the provision will be paid during the financial year ending 31 January 2021.

22. Trade and other payables

	Group		Company
	2020	2019	2020	2019
	€'000	€'000	€'000	€'000
Non-current
Capital and other payables	456	610	456	610
Current
Trade payables	7,359	6,129	2,766	2,735
Capital and other payables	2,612	3,735	2,589	3,016
Amounts due to subsidiaries	-	-	-	357
Amounts owed to related parties	-	29	25	-
Indirect taxes and social security	2,439	2,388	1,796	1,672
Accruals and deferred income	8,350	7,192	5,720	5,103
	20,760	19,473	12,896	12,883
Total trade and other payables	21,216	20,083	13,352	13,493

The Group's and Company's exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 2.

As at 31 January 2020, capital and other payables include institutional grants amounting to €610,000 (2019: €764,000) relating to funds advanced directly by the Government of Malta or other institutions to the Group, co-financing its capital expenditure on the property, plant and equipment. The noncurrent portion of deferred institutional grants amounted to €456,000 (2019: €610,000). Such funds are treated as deferred income and are credited to profit or loss on a systematic basis over the useful lives of the assets.

23. Expenses by nature

	Group		Company
	2020	2019	2020	2019
	€'000	€'000	€'000	€'000
Depreciation of property, plant and equipment (Note 5)	7,796	7,348	6,734	6,367
Depreciation of right-of-use assets (Note 6)	1,327	-	2	-
Profit on disposal of property, plant and equipment
(Note 5)	(200)	(6)	(142)	-
Employee benefit expense (Note 24)	20,900	19,283	11,499	10,303
Termination benefits (Note 24)	92	113	92	113
Raw materials, imported goods and consumables	45,419	43,746	12,175	11,352
Changes in inventories of finished goods and work in
progress (Note 9)	381	1,082	(309)	530
Movement in loss allowance
(net of receivable write offs) (Note 10)	668	(762)	417	(572)
Amortisation of intangible assets (Note 7)	44	40	-	-
Other expenses	13,374	13,620	14,558	13,192
Total cost of sales, selling and distribution
costs and administrative expenses	89,801	84,464	45,026	41,285

Operating profit is stated after crediting deferred institutional grants amounting to €154,000 (2019: €154,000), which are included in 'Cost of sales'.

Auditor's fees

Fees charged by the auditor for services rendered during the financial periods ended 31 January 2020 and 2019 relate to the following:

		Group
	2020	2019
	€'000	€'000
Annual statutory audit	158	152
Other assurance services	8	8
Tax advisory and compliance services	20	28
Other non-assurance services	9	38
	195	226

24. Employee benefit expense

	Group		Company
	2020 €'000	2019 €'000	2020 €'000	2019 €'000
Wages and salaries Social security costs	19,518 1,330	17,976 1,255	12,327 835	11,096 786
Other employee related costs	52	52	52	52
	20,900	19,283	13,214	11,934
Recharged to subsidiaries	-	-	(1,715)	(1,631)
	20,900	19,283	11,499	10,303
Termination benefits	92	113	92	113
	20,992	19,396	11,591	10,416

The average number of full time equivalents employed during the year:

	Group		Company
	2020	2019	2020	2019
Brewing, production and sale of branded beers and
beverages	492	481	474	463
Importation, wholesale and retail of food and
beverages, including wines and spirits	97	89	-	-
Operation of franchised food retailing establishments	271	283	-	-
	860	853	474	463

25. Net exchange differences

The net exchange differences charged and credited to the income statements include:

	Group		Company
	2020 €'000	2019 €'000	2020 €'000	2019 €'000
Foreign exchange differences Fair value losses on derivative instruments:	47	13	26	(32)
- Foreign exchange forward contracts	-	(23)	-	(23)
	47	(10)	26	(55)

26. Finance income

		Company
2020 €'000	2019 €'000	2020 €'000	2019 €'000
-	-	7	85
		Group

27. Finance costs

	Group			Company
	2020	2019	2020	2019
	€'000	€'000	€'000	€'000
Interest on bank loans and overdrafts	474	597	468	500
Interest rate subsidy	(289)	(347)	(289)	(347)
Finance lease interest	276	17	23	17
Interest on bonds	700	700	700	700
Fair value loss on derivative financial instruments	194	250	194	250
Other finance costs	15	22	-	33
	1,370	1,239	1,096	1,153

During the year ended 31 January 2020, the Company was granted net interest subsidy amounting to €289,000 (2019: €347,000) from Malta Enterprise related to approved investment loans of €9.1 million (2019: €11.4 million). A net effective interest rate of 0.99% (2019: 1.20%) was applied, representing the borrowing cost of the loans utilised to finance capital projects. This rate is net of the interest rate subsidy provided by Malta Enterprise.

28. Tax expense/(income)

	Group		Company
	2020	2019	2020	2019
	€'000	€'000	€'000	€'000
Current tax expense	1,243	1,128	-	-
Deferred tax income (Note 20)	(792)	(2,164)	(706)	(2,260)
Tax expense/(income)	451	(1,036)	(706)	(2,260)

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

	Group		Company
	2020 €'000	2019 €'000	2020 €'000	2019 €'000
Profit before tax	12,320	14,095	9,195	10,705
Tax on profit at 35%	4,312	4,934	3,218	3,747
Tax effect of: Benefits available under the Business Promotion Act, comprising tax credits and allowances Movements in unrecognised deferred tax assets Differences related to termination benefits Under/(over) provision in unrecognised and recognised deferred tax related to prior years Non-taxable income or allowable expenses	(2,731) (2,483) - 1,430 (77)	(3,757) (2,010) 48 (62) (189)	(2,731) (2,483) - 1,432 (142)	(3,757) (2,010) 48 (121) (167)
Tax expense/(income)	451	(1,036)	(706)	(2,260)

29. Directors' emoluments

	Group		Company
	2020 €'000	2019 €'000	2020 €'000	2019 €'000
Amounts paid
Fees	238	240	238	240
Salaries	108	75	108	75
Other emoluments	347	271	347	271
Total directors' remuneration	693	586	693	586

A number of directors availed themselves of an allowance for the use of Company cars during the year. The estimated value of this benefit has been included within the directors' emoluments, which also includes other allowances.

In addition to the above, a provision amounting to €327,000 is included in these accounts in connection with the deferred potential liability of an annuity referred to in the Remuneration Statement.

30. Earnings per share

Earnings per share is based on the profit for the financial year attributable to the shareholders of Simonds Farsons Cisk plc divided by the weighted average number of ordinary shares in issue during the year and ranking for dividend.

	Group
	2020	2019
Profit attributable to shareholders (€'000)	11,869	15,131
Weighted average number of ordinary shares in issue (thousands)	30,000	30,000
Basic and diluted earnings per share for the year attributable to shareholders	€0.396	€0.504

The Company does not have any dilutive contracts on own shares in issue.

31. Cash generated from operations

Reconciliation of operating profit to cash generated from operations:

	Group		Company
	2020 €'000	2019 €'000	2020 €'000	2019 €'000
Operating profit	13,690	15,334	10,284	11,773
Adjustments for: Depreciation of property, plant and equipment (Note 5) Depreciation of right-of-use assets (Note 6) Profit on disposal of property, plant and	7,796 1,327	7,348 -	6,734 2	6,367 -
equipment (Note 23) Amortisation of intangible assets (Note 7)	(200) 44	(6) 40	(142) -	- -
Amortisation of institutional grant (Note 22) Amortisation of bond issue costs (Note 18) Increase/ (decrease) in provision for impairment	(154) 32	(154) 16	(154) 32	(154) 16
of trade and other receivables (Note 10) Provision for termination benefits (Note 21)	668 92	(1,159) 113	417 92	(866) 113
Changes in working capital:	23,295	21,532	17,265	17,249
Inventories Trade and other receivables	(1,607) (5,927)	(1,513) 373	(893) (4,119)	(897) 4,085
Trade and other payables Cash generated from operations	1,286 17,047	(2,171) 18,221	637 12,890	(4,929) 15,508

Net debt reconciliation

All the movements in the Company's net debt (bank and bond borrowings net of cash and cash equivalents) related only to cash flow movements and disclosed as part of the financing activities in the statement of cash flows on page 46.

32. Commitments

Capital commitments

Commitments for capital expenditure with respect to property, plant and equipment not provided for in these financial statements are as follows:

		Group		Company
	2020	2019	2020	2019
	€'000	€'000	€'000	€'000
Authorised but not contracted	10,302	16,670	9,102	14,839
Contracted but not provided for	9,222	7,469	9,222	7,469
	19,524	24,139	18,324	22,308

Operating lease commitments - where a group company is a lessee

These leases principally relate to property rentals. Operating leases expenditure recognised during the year have been included within 'direct operating expenses'. The future minimum lease payments payable under non-cancellable operating leases are as follows:

	Group		Company
	2020 €'000	2019 €'000	2020 €'000	2019 €'000
Not later than 1 year	-	1,329	-	-
Later than 1 year and not later than 5 years	-	3,402	-	-
Later than 5 years	-	842	-	-
	-	5,573	-	-
				-

With effect from 1 February 2019, the Group and the Company have recognised right-of-use assets for leases in accordance with the requirements of IFRS 16 (Notes 6 and 19). Hence the above disclosure is no longer required as from financial year end 2020.

Operating lease commitments - where a group company is a lessor

These leases principally relate to property rentals. The future minimum lease payments receivable under non-cancellable operating leases are as follows:

		Group		Company
	2020 €'000	2019 €'000	2020 €'000	2019 €'000
Not later than 1 year	55	55	-	-
				-

32. Commitments - continued

Finance lease commitments

In 2017, the Group and Company entered into finance lease agreements for the supply and leasing of operational equipment. The future minimum lease payments under the finance lease liabilities are as follows:

	Group		Company
	2020	2019	2020	2019
	€'000	€'000	€'000	€'000
Not later than 1 year	-	154	-	154
Later than 1 year and not later than 5 years	-	462	-	462
	-	616	-	616
Future finance charges on finance leases	-	(34)	-	(34)
Present value of finance lease liabilities	-	582	-	582

With effect from 1 February 2019, the Group and the Company have recognised right-of-use assets for leases in accordance with the requirements of IFRS 16 (Notes 6 and 19). Hence the above disclosure is no longer required as from financial year end 2020.

33. Contingent liabilities

At 31 January 2020, the Group and the Company had contingent liabilities amounting to €791,000 (2019: €785,000) and €95,000 (2019: €88,000) respectively, with regards to guarantees mainly in favour of the Comptroller of Customs issued by the bank on behalf of the Group and Company in the ordinary course of business and capital expenditure.

34. Related party transactions

The following companies (and their respective subsidiaries and jointly-controlled entities) are related parties by virtue of their shareholding in the Company:

	Percentage of shares held
	2020	2019
Farrugia Investments Limited	26.50	26.50
M.S.M. Investments Limited Sciclunas Estates Limited	26.50 26.32	26.50 26.32

The remaining 20.68% (2019: 20.68%) of the shares are widely held. The transactions set out below were carried out with related parties. The directors make particular reference to the fact that Trident Estates plc and its subsidiaries are considered to be related parties due to common directors and the common shareholding.

34. Related party transactions - continued

	Group		Company
	2020 €'000	2019 €'000	2020 €'000	2019 €'000
Income from goods and services
- Sales of goods to subsidiaries	-	-	2,268	2,109
- Sales of goods to related parties	553	684	425	522
- Recharge of costs to subsidiaries	-	-	1,314	1,260
- Recharge of payroll costs to subsidiaries	-	-	2,190	2,327
- Recharge of payroll costs to a related party	236	295	236	295
- Finance income on loans to subsidiaries	-	-	7	85
	789	979	6,440	6,598
Expenditure for goods and services
- Purchases of goods from subsidiaries		-	860	775
- Purchases of goods and services from related parties	802	1,076	738	949
- Rental expenses from related parties	702	659	84	34
- Finance costs on loans from subsidiaries	-	-	84	34
	1,504	7,735	1,682	1,758

Key management personnel compensation, consisting of directors' and senior management remuneration, is disclosed as follows:

		Group
	2020 €'000	2019 €'000
Directors (Note 29) Senior Management	693 690	586 706
	1,383	1,293

The Company has no profit sharing, share options or pension benefits arrangements with key management personnel.

Amounts due from/to subsidiaries, in connection with sales and purchases and treasury transactions, are disclosed in Notes 10 and 22 of these financial statements.

35. Events subsequent to the financial reporting date

On 11 March 2020, the World Health Organisation (WHO) declared the COVID-19 outbreak to be a global pandemic. In Malta, the authorities moved quickly and introduced measures that have thus far successfully contained the number of infections and fatalities experienced on the Island. In the face of the precipitous economic downturn and the threat of mass unemployment, government has also responded with business support initiatives and employment protection programmes.

For financial reporting purposes, events relating to the COVID-19 pandemic are deemed to be nonadjusting subsequent events, and accordingly the financial results and financial position of the Company and Group reported within these financial statements for the year ended 31 January 2020 have not been impacted by these events.

As reported in the Directors' report, the Farsons Group has entered this crisis from a position of financial and product strength. Immediately after the Government measures were announced the Board and Management moved quickly to implement certain operational and cost efficiency initiatives aimed at mitigating the impact of the sudden and unexpected crisis on the businesses of the Group.

These actions included strict cost containment, the curbing of certain discretionary and marketing spend, and lower production runs. A number of steps were also implemented in the human resource area. Moreover, in situations of this nature cash conservation measures are imperative. Therefore, early steps were taken for the deferral of certain capital expenditure projects and more robust working capital controls were introduced. Application was made for temporary capital moratoria on a number of bank loans and additional focus brought to bear on inventory levels and the collection of trade receivables.

Going forward, the unprecedented evolution of the COVID-19 pandemic is likely to impact the financials of the Group in a number of areas including but not limited to significantly reduced turnover, possible write offs of certain stock holdings and the further evaluation of the impairment provision on the trade and other receivables.

Management and the Board have been examining various contingency planning scenarios (including stressed models) under which the impact of the current crisis on the businesses of the Group is being assessed. The scenarios have adopted varying assumptions depending on the duration of the effective shut down on parts of the business and the anticipated rate and shape of the recovery as restrictions are gradually lifted. The Board has concluded that as a result of (a) the existing strength of the Group's financial position and its core product range and (b) the measures being taken by management to address and mitigate the impact of the current COVID-19 crisis, the Farsons Group will be able to sustain its business operations over the next twelve months in a manner that is cash flow positive. Accordingly, based on currently available information the Board is confident that the Group will meet all its obligations as and when they fall due over the next twelve months and beyond and therefore that the going concern basis adopted for the preparation of these accounts is entirely appropriate.

36. Statutory information

Simonds Farsons Cisk plc is a public limited company and is incorporated in Malta.

37. Comparative information

Comparative figures disclosed in the main components of these financial statements have been reclassified to conform with the current year's disclosure format for the purpose of fairer presentation.

38. Subsidiaries

The principal subsidiaries at 31 January 2020 are shown below:

	Registered office	Principal activities	Percentage of shares held 2020	2019
EcoPure Limited	The Brewery, Mdina Road, Zone 2, Central Business District, Birkirkara	Sale and distribution of bottled water	100	100
Farsons Distribution Services Limited	The Brewery, Mdina Road, Zone 2, Central Business District, Birkirkara	Non-operating	100	100
Farsons Beverage Imports Company Limited	The Brewery, Mdina Road, Zone 2, Central Business District, Birkirkara	Importation and wholesale of beverages, wines and spirits	100	100
Food Chain Limited	303, Qormi Road, Marsa	Operation of franchised food retailing establishments	100	100
Portanier Warehouses Limited	The Brewery, Mdina Road, Zone 2, Central Business District, Birkirkara	Property leasing	100	100
Quintano Foods Limited	303, Qormi Road, Marsa	Importation and wholesale of food products	100	100