Company Registration Number: C87384
EXALCO FINANCE p.l.c.
Annual Financial Report and Financial Statements
31 December 2021
EXALCO FINANCE p.l.c.
Annual Financial Report and Financial Statements - 31 December 2021
Pages
Directors’ report 1 - 4
Corporate governance - Statement of compliance 5 - 16
Statement of financial position 17 - 18
Statement of comprehensive income 19
Statement of changes in equity 20
Statement of cash flows 21
Notes to the financial statements 22 - 35
Independent auditor’s report
EXALCO FINANCE p.l.c.
Annual Financial Report and Financial Statements - 31 December 2021
1
Directors’ report
The directors present their Annual Financial Report and the audited financial statements for the period
ended on 31st December 2021.
Principal activities
The company’s principal activity is to carry on the business of a finance company, by raising funds to
finance the operations and capital projects of Exalco Properties Limited, a main company forming part of
Exalco Group.
Review of business
During the period under review, the company registered a profit before taxation amounting to €55,241
(2020: €52,446). After allowing for taxation, the profit for the period amounted to €35,907 (2020: €34,090).
Financial performance
Finance income amounting to €744,587 (2020: €741,120) is generated from a facility fee and interest
charged on the loan advanced to the company’s fellow subsidiary, Exalco Properties Limited. Financial
costs comprise interest payable on the outstanding bond issue and amortisation of the issue costs thereof
amounting to €630,000 (2020: €630,000). Administrative expenses mainly representing compliance costs,
together with directors’ and professional fees amounted to €59,346 (2020: €58,794).
Financial position
The company’s balance sheet is primarily made up of the 4% secured bonds in issue of €15 million and a
corresponding loan advanced to Exalco Properties Limited, the guarantor of this bond. The loan
receivable and the bond issued during 2018 are classified in the company’s balance sheet under non-
current assets and non-current liabilities respectively as at 31 December 2021 and 2020. The company’s
equity as at the end of the financial year amounted to €345,004 (2020: €309,097).
Guarantor’s performance for 2021
The financial statements of Exalco Properties Limited, the guarantor of the bonds issued by the company
show a net asset position of €41.9 million as at 31 December, 2021 (2020: €39.9 million).
The Guarantor’s financial results for the year ended 31 December 2021 show a profit after tax of €2.1
million compared to a profit after tax of €1.9 million registered during the 2020 financial year.
The 2021 financial results are positively impacted by revenue generated of €5.0 million compared to €4.8
million generated in 2020. The increase in revenue is mainly attributable to a number of revised rental
contracts in line with market rates.
Outlook for 2022
Despite the continuation of the COVID-19 pandemic during 2022 and the developing crisis in Ukraine, the
directors do not expect any significant changes in the company’s activities in the short-term period and
expect that the company will be able to honour its obligations with particular reference to the interest
payable on its listed bonds and is expected to register a surplus based on its projections for the
foreseeable future. This assessment takes into account a detailed cash flow assessment made by its
guarantor when assessing its ability to operate as a going concern in the coming year.
EXALCO FINANCE p.l.c.
Annual Financial Report and Financial Statements - 31 December 2021
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Directors’ report - continued
Outlook for 2022 - continued
Management shall continue to attentively monitor ongoing developments, conscious of the fact that in
unprecedented times such as these the situation may deteriorate rapidly and for prolonged periods of
time. Management remains committed to take all appropriate steps to mitigate the potential negative
impact that may be felt by the company and its operations as a consequence of the pandemic and the
conflict in Ukraine.
Financial risk management
The company’s activities expose it to a variety of financial risks, including credit risk and liquidity risk.
Refer to Note 2 to these financial statements.
Results and dividends
The statement of comprehensive income is set out on page 19. The directors do not recommend the
payment of a dividend. Profits carried forward at the reporting date amounted to €95,004.
Directors
The directors of the company who held office during the year were:
Alexander Montanaro
Jean Marc Montanaro
Michael Montanaro
Mario P. Galea
Kevin Valenzia
Lawrence Zammit
The company’s Articles of Association did not require the directors to retire in the year under review.
EXALCO FINANCE p.l.c.
Annual Financial Report and Financial Statements - 31 December 2021
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Directors’ report - continued
Statement of directors’ responsibilities for the financial statements
The directors are required by the Companies Act (Cap. 386 of the laws of Malta), to prepare financial
statements which give a true and fair view of the state of affairs of the company as at the end of each
reporting period and of the profit or loss for that period.
In preparing the financial statements, the directors are responsible for:
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; and
ensuring that the financial statements are prepared on the going concern basis unless it is
inappropriate to presume that the company will continue in business as a going concern.
The directors are also responsible for designing, implementing and maintaining internal control as the
directors determine is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error, and that comply with the Companies Act. They are
also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The financial statements of Exalco Finance p.l.c. for the period ended 31 December 2021 are included in
the Annual Financial Report 2021, which may be accessed on the Exalco Group’s website. The directors
are responsible for the maintenance and integrity of the Annual Financial Report on the website in view of
their responsibility for the controls over, and the security of, the website. Access to information published
on the group’s website is available in other countries and jurisdictions, where legislation governing the
preparation and dissemination of financial statements may differ from requirements or practice in Malta.
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 company as at 31
December 2021, 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 Financial Report includes a fair review of the development and performance of the
business and the position of the company, together with a description of the principal risks and
uncertainties that the company and the guarantor face.
Going concern statement pursuant to Capital Markets Rule 5.62
After making the enquiries considered necessary and appropriate, the directors, at the time of approving
the financial statements, have determined that it is reasonable to assume that the company has 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.
EXALCO FINANCE p.l.c.
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Directors’ report - continued
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.
Signed on behalf of the Board of Directors on 12 April 2022 by Alexander Montanaro (Chairman) and
Jean Marc Montanaro (Director) as per the Directors’ Declaration on ESEF Annual Financial Report
submitted in conjunction with the Annual Financial Report.
Registered office:
Exalco Finance p.l.c.
Cornerstone Business Centre
Level 4
16 September Square
Mosta MST 1180
Malta
Telephone (+356) 2142 4430
EXALCO FINANCE p.l.c.
Annual Financial Report and Financial Statements - 31 December 2021
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Corporate governance - Statement of compliance
1. Introduction
Pursuant to the Capital Markets Rules issued by the Malta Financial Services Authority (“MFSA”),
Exalco Finance p.l.c. should endeavour to adopt the Code of Principles of Good Corporate
Governance contained in Appendix 5.1 to Chapter 5 of the Capital Markets Rules (the “Code”). In
terms of Capital Markets Rule 5.94, the company hereby reports on the extent of its adoption of the
principles of the Code for the financial period being reported upon.
The company acknowledges that the Code does not dictate or prescribe mandatory rules, but
recommends principles of good practice. However, the directors strongly believe that such practices
are generally in the best interests of the company and its shareholders and that compliance with the
principles of good corporate governance is not only expected by investors but also evidences the
directors’ and the company’s commitment to a high standard of good governance.
Good corporate governance is the responsibility of the board of directors of the company (the
“Board of Directors” or the “Board”), and in this regard the Board has carried out a review of the
company’s compliance with the Code for the financial period being reported upon.
2. General
The company’s governance lies principally with its Board, which is responsible for the overall
determination of the company’s policies and business strategies. The company’s principal activity is
the carrying on the business of a finance company; the company does not itself carry on any
trading activities apart from the raising of capital and advancing thereof to Exalco Properties
Limited, a private limited liability company registered in Malta with company number C11273 having
its registered office at Cornerstone Business Centre, Level 4, 16th September Square, Mosta, MST
1180, Malta, in its capacity as the guarantor (the “Guarantor”) of the €15,000,000 4% secured
bonds of a nominal value of €100 (the “Bonds”), as and when the demands of its business so
requires. The Guarantor’s principal activity, in turn, revolves around the acquisition of real estate for
long-term investment purposes, the development and re-development of those properties and their
conversion into commercial properties, and thereafter, the provision of property management
services.
The company has adopted a corporate decision-making and supervisory structure that is tailored to
suit its requirements and designed to ensure the existence of adequate controls and procedures
within the company, whilst retaining an element of flexibility essential to allow the company to react
promptly and efficiently to circumstances arising in respect of its business, taking into account its
size and the economic conditions in which it operates. The directors are of the view that it has
employed structures which are most suitable and complementary for the size, nature and
operations of the company. Accordingly, in general the directors believe that the company has
adopted appropriate structures to achieve an adequate level of good corporate governance,
together with an adequate system of control in line with the company’s requirements.
This corporate governance statement (the “Statement”) will now set out the structures and
processes in place within the company and explains how these effectively achieve the goals set out
in the Code. For this purpose, this Statement will make reference to the pertinent principles of the
Code and then set out the manners in which the directors believe that these have been adhered to.
Where the company has not complied with any of the principles of the Code, this Statement will
provide an explanation for the non-compliance.
It is to be noted that reference in this Statement to compliance with the principles of the Code
means compliance with the Code’s main principles and provisions.
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Corporate governance - Statement of compliance - continued
3. Compliance with the Code
Principles One to Five
Principles One to Five of the Code deal fundamentally with the role of the Board and of the
Directors.
The directors believe that for the period under review the company has generally complied with the
requirements for each of these principles.
Principle One: The Board
The Board is composed of members who are fit and proper to direct the business of the company
with honesty, competence and integrity. All the members of the Board are fully aware of, and
conversant with, the statutory and regulatory requirements connected to the business of the
company. The Board is accountable to relevant stakeholders for its performance and that of its
delegates.
The Board is responsible for determining the company’s strategic aims and organisational structure,
whilst ensuring that the company has the appropriate mix of financial and human resources to meet
its objectives and improve its performance.
The Board consists of a mix of executive and non-executive directors that enables the Board, and
particularly the non-executive directors, to have direct information about the company's
performance and business activities.
Principle Two: Chairman and Chief Executive
Alexander Montanaro was appointed as the Chairman of the Board for the period under review. The
Chairman’s main function is to lead the Board and set its agenda, a function which the Board
believes has been conducted in compliance with the dictates of Code Provision 2.2. The Chairman
is also responsible to ensure that the Board receives precise, timely and objective information in
order for the directors to take sound decisions and effectively monitor the performance of the
company. The Chairman ensures that there is effective communication with stakeholders and,
during board meetings, that there is active engagement by all directors for the discussion of
complex and/or contentious issues. The Board considers that notwithstanding that the Chairman is
not an independent director as recommended by the Code, the means for addressing potential
conflicts of interest are suitably addressed in the statute of the company and terms of reference of
the Audit Committee of the Company. Furthermore, the Board considers the present Chairman to
be fit and proper to occupy the role.
In terms of Article 74.1 of the Articles of Association of the company, the Board of Directors may
from time to time appoint one or more executive directors to the office of Chief Executive Officer of
the company, and on such terms as they think fit. As at the end of the period under review, the
Board has not appointed a Chief Executive Officer.
Principle Three: Composition of the Board
The composition of the Board, in line with the requirements of Principle Three of the Code, is
composed of executive and non-executive directors, including independent non-executives, as
follows:
Alexander Montanaro Executive Director & Chairman
Jean Marc Montanaro Executive Director
Michael Montanaro Executive Director
Lawrence Zammit Independent Non-Executive Director
Mario P. Galea Independent Non-Executive Director
Kevin Valenzia Independent Non-Executive Director
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Corporate governance - Statement of compliance - continued
Appointment and Removal of Directors
Pursuant to generally accepted practices, as well as the company’s Articles of Association, the
appointment of directors to the Board is reserved exclusively to the company’s shareholders,
except in so far as an appointment is made to fill a vacancy on the Board, which may be filled by
co-option, made by the Board on the recommendation of the Nominations Committee.
The Articles of Association regulate the appointment of directors. Any one or more shareholders
who in aggregate hold not less than 100,000 shares having voting rights in the company are
entitled to nominate fit and proper persons having the appropriate level and mix of skills, knowledge
and experience required for appointment to the Board, for appointment as directors of the company,
such nominations being subject to the approval of the Nominations Committee. In addition,
nominations may be made by the Board or the Nominations Committee itself for consideration by
the shareholders at the annual general meeting of the company.
As referred to in Principle Eight B of this Statement hereunder, notwithstanding the aforesaid, the
Board believes that the setting up of a Nominations Committee is not required at this point in time in
view of the fact that the Board itself has the authority to recommend and nominate directors. The
Board however intends to keep under review the possibility of having a Nominations Committee in
due course.
A director may be removed at any time by the ordinary resolution of the shareholders of the
company, or in any of the specific instances set out in the Articles of Association of the company.
Independence of Non-Executive Directors
In line with supporting principle 3 (iii) of main Principle Three, at least one third of the Board
consists of non-executive directors. The non-executive directors play an important role in
overseeing executive directors and management, ensuring a system of checks and balances and
contributing to the strategic direction of the company in an objective manner.
For the purposes of Code Provision 3.2, the Board considers each of the non-executive directors as
independent within the meaning of the Code.
None of the non-executive directors:
(a) are or have been employed in any capacity by the company;
(b) receive significant additional remuneration from the company;
(c) have close family ties with any of the executive members of the Board;
(d) have been within the last three years an engagement partner or a member of the audit team of
the present or past external auditor of the company; and
(e) have a significant business relationship with the company.
In terms of Code Provision 3.4, each non-executive director has declared in writing to the Board
that he undertakes:
to maintain in all circumstances his independence of analysis, decision and action;
not to seek or accept any unreasonable advantages that could be considered as
compromising his independence; and
to clearly express his opposition in the event that he finds that a decision of the Board may
harm the company.
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Corporate governance - Statement of compliance - continued
Principle Four: The Responsibilities of the Board
In terms of Principle Four, it is the Board’s responsibility to ensure a system of accountability,
monitoring, strategy formulation and policy development.
The Board of the company is entrusted with the overall direction, administration and management
of the company and meets on a regular basis to discuss and take decisions on matters concerning
the strategy, operational performance and financial performance of the company. The Board may
also delegate specific responsibilities to ad-hoc Committees as may be required from time to time,
and in the period under review, the Board has maintained an Audit Committee.
Role and Responsibilities of the Board
The role of the Board is exercised in a manner designed to ensure that it can function
independently of management and effectively supervises the operations of the company. At each of
its meetings, the Board is presented with monthly or quarterly (as applicable) management
accounts covering the period since the preceding board meeting.
In fulfilling its mandate, the Board assumes responsibility to:
a) establish appropriate corporate governance standards;
b) review, evaluate and approve, on a regular basis, long-term plans for the company;
c) review, evaluate and approve the company’s budgets and forecasts;
d) review, evaluate and approve major resource allocations and capital investments;
e) review the financial and operating results of the company;
f) ensure appropriate policies and procedures are in place to manage risks and internal control;
g) review, evaluate and approve the overall corporate organisation structure, the assignment of
management responsibilities and plans for senior management development including
succession;
h) review, evaluate and approve compensation to senior management; and
i) review periodically the company’s objectives and policies relating to social, health and safety
and environmental responsibilities.
In fulfilling its responsibilities, the Board continuously assesses and monitors the company’s
present and future operations, opportunities, threats and risks in the external environment, and its
current and future strengths and weaknesses. The Board evaluates and reviews the
implementation of the business and financial strategy of the company.
Since the onset of the COVID-19 pandemic, the Board monitored the situation on an ongoing basis,
with a view primarily to mitigating, as far as possible, any negative impact this prolonged event may
have on the company’s operations.
In ensuring compliance with other statutory requirements and with continuing listing obligations, the
Board is advised directly, as appropriate, by its appointed legal and other advisors. Directors are
entitled to seek independent professional advice at any time on any aspect of their duties and
responsibilities, at the company’s expense.
The Board does not consider it necessary to constitute separate committees to deal, inter alia, with
item (h) above, as might be appropriate in a larger company. The Board believes that the size of
the company and the Board itself does not warrant the setting up of an ad hoc committee to
establish the remuneration packages of individual directors and relies on the constant scrutiny of
the Board itself, the company’s shareholders, the market and the rules by which the company is
regulated as a listed company. The Board shall retain this matter under review over the coming
year.
During the financial year under review, the Board held five (5) meetings.
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Corporate governance - Statement of compliance - continued
The Audit Committee
In line with the requirements of the Capital Markets Rules, the company has established an Audit
Committee.
Composition of the committee
The members of the Audit Committee for the period under review were Mario P. Galea, Kevin
Valenzia and Lawrence Zammit, all occupying a non-executive director role within the Company.
During the year under review, Kevin Valenzia occupied the post of Chairman of the Audit
Committee until the meeting of the 22 April, 2021 during which Lawrence Zammit was appointed as
Chairman of the Audit Committee in his stead. Such role, which is subject to rotation between the
members on an annual basis is vested in Lawrence Zammit until the date of publication of the
audited financial statements for the year ending 31 December 2021, of which the present directors’
report forms part. Mario P. Galea and Kevin Valenzia are the Audit Committee members who are
considered to be competent in accounting and/or auditing in terms of Capital Markets Rule 5.117.
The Directors believe that all three Audit Committee members satisfy the independence criteria as
they are independent within the meaning of the Code as explained above in this Statement.
Duties and responsibilities
The Audit Committee’s primary objective is to assist the Board in fulfilling its oversight
responsibilities over the financial reporting processes, financial policies and internal control
structure. The Audit Committee reports directly to the Board. Briefly, the Audit Committee is
expected to deal with and advise the Board on:
a. its monitoring responsibility over the financial reporting processes, financial policies and
internal control structures;
b. maintaining communications on such matters between the Board, management and the
external auditors; and
c. preserving the company’s assets by assessing the company’s risk environment and
determining how to deal with those risks.
Related party transactions
In addition, the Audit Committee has the role and function of evaluating any proposed transaction to
be entered into by the company and a related party (which term shall have the same meaning as in
the International accounting standards adopted in accordance with Regulation (EC) No. 1606/2002
of the European Parliament and of the Council) to ensure that the execution of any such transaction
is at arm’s length, on a commercial basis and ultimately in the best interests of the company.
Any proposed transaction which the company wishes to enter into and which satisfies either of the
following conditions shall be referred to the Audit Committee for its consideration and approval:
(i) transactions which clearly fall within the ambit of the Capital Markets Rules as related party
transactions and which are not the subject of an exemption therefrom;
(ii) transactions in respect of which management is not certain as to whether they fall within the
ambits of the Capital Markets Rules as related party transactions or in respect of which
there is uncertainty as to whether any one or more exemptions should apply to the
proposed transactions.
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Corporate governance - Statement of compliance - continued
The Audit Committee - continued
Related party transactions - continued
At the meeting convened for this purpose, the Audit Committee shall consider the proposed
transaction and first determine whether it is a transaction that falls within the ambit of the applicable
Capital Markets Rules and, if it so determines, shall then consider the merits of the proposed
transaction.
In its evaluation of the proposed transaction, the Audit Committee is at all times guided by the best
interests of the company and its general body of shareholders taken as a whole. The Audit
Committee reports to the Board on its findings and makes its recommendations to the Board as to
whether the transaction should be entered into in the first place and to make such further
recommendations as to any matters that, in the opinion of the Audit Committee, need to be
reviewed or improved in the proposed transaction or any of its terms so as to ensure that the best
interests of the Company are properly safeguarded.
Oversight role
The Audit Committee of the company has a crucial role in monitoring the activities and conduct of
business of the Guarantor, insofar as these may affect the ability of the company to fulfil its
obligations in terms of the Bonds. Such role is specified in the Audit Committee’s Terms of
Reference and also forms the subject of a contractual undertaking by the company in favour of the
Guarantor in terms of the loan agreement relative to the bond proceeds, pursuant to which the
Guarantor has vested the Audit Committee of the company with certain monitoring functions in light
of the company’s economic dependence on the Guarantor.
The Audit Committee also oversees the conduct of the external audit and facilitates communication
between the Company’s Board, management and external auditors. When the Audit Committee’s
monitoring and review activities reveal cause for concern or scope for improvement, it shall make
recommendations to the Board on the action needed to address the issue or make improvements.
Conflicts of interest
Furthermore, the Audit Committee is vested with the task of ensuring that any potential conflicts of
interest between the duties of the directors and their respective private interests or duties unrelated
to the company are resolved in the best interests of the company.
Terms of reference
The terms of reference of the Audit Committee, approved by the Board, are modelled on the
recommendations of the Capital Market Rules.
Committee meetings
The Audit Committee shall meet at least four (4) times a year, with additional meetings to be called
upon at the discretion of the Chairman of the Audit Committee. In the period under review, the Audit
Committee met four (4) times.
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Corporate governance - Statement of compliance - continued
Principle Five: Board Meetings
The Board believes that it complies fully with the requirements of this principle and the relative
Code Provisions, in that it has systems in place to ensure the reasonable notice of meetings of the
Board and the circulation of discussion papers in advance of meetings so as to provide adequate
time to Directors to prepare themselves for such meetings. Minutes of Board meetings record
attendance, discussions and resolutions. These minutes are circulated to all Directors as soon as
practicable after the meeting, for approval.
The Board meets as often and as frequently required in line with the nature and demands of the
business of the company. Directors attend meetings on a frequent and regular basis and dedicate
the necessary time and attention to their duties as directors of the company. The following reports
the attendance at board meetings of each of the Directors during the period under review:
Alexander Montanaro Executive Director & Chairman [4]
Jean Marc Montanaro Executive Director [5]
Michael Montanaro Executive Director [4]
Lawrence Zammit Non-Executive Director [5]
Mario P. Galea Non-Executive Director [5]
Kevin Valenzia Non-Executive Director [5]
The Chairman ensures that all issues relevant to long-term strategic and short-term performance of
the company are placed on the agenda of Board meetings and, for the purpose of discussion
thereon, are supported by all available information, whilst encouraging the presentation of views
pertinent to the subject matter and giving all directors every opportunity to contribute to the
discussion.
Principle Six: Information and Professional Development
The Board believes that this principle has been duly complied with for the period under review. The
Board actively engages with the Guarantor’s management team, which is effectively composed of
the three executive directors of the Company, in the review of their and the Guarantor’s
performance. The Board ensures that all directors are supplied with precise, timely and clear
information so as to enable them to effectively contribute to board decisions in line with the high
standards expected of them.
Directors have access to the advice and services of the Company Secretary who is also the legal
counsel to the Board and the company, in order to ensure that each director is aware of his legal
and fiduciary obligations. The company is also prepared to bear the expense incurred by the
directors requiring independent professional advice should they judge it necessary to discharge
their responsibilities as directors. The Company pledges to make available to the directors all
training and advice as required.
Principle Seven: Evaluation of the Board’s performance
The Board is of the view that over the period under review, all members of the Board, individually
and collectively, have contributed to proceedings in line with the required levels of diligence and
skill. In addition, the Board believes that its current composition endows the Board with a cross-
section of skills and experience and achieves the appropriate balance required for it to function
effectively. The Board considers its own performance, and that of the Audit Committee having
oversight of the underlying business conducted by the Guarantor, as satisfactory and not meriting a
revision to the company’s corporate governance structures.
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Corporate governance - Statement of compliance - continued
Principle Eight: Committees
Principle Eight A of the Code deals with the establishment of a Remuneration Committee for
the company aimed at developing policies on remuneration for Directors and senior
executives and devising appropriate remuneration packages.
The size and structure of the company and its management are such that, in the opinion of the
directors, the establishment of an ad hoc Remuneration Committee is not warranted. Remuneration
policies have therefore been retained within the remit of the Board itself.
Remuneration Statement
In terms of Article 63 of the Articles of Association of the company, the aggregate emoluments of all
directors in any one financial year, and any increases thereto, shall be such amount as may from
time to time be determined by the company in general meeting.
The aggregate amount of remuneration paid to all directors of the company for the period under
review was €30,000. Each director received an annual remuneration of €5,000.
All of the directors are party to a service contract with the company, setting out their respective
roles and responsibilities, and applicable remuneration.
Principle Eight B of the Code deals with the requirement of a formal and transparent
procedure for the appointment of Directors.
Nominations Committee
The Board believes that the main principle has been duly complied with to the extent that the
Articles of Association establish a formal and transparent procedure for the appointment and
nomination of Directors, and provide for the establishment of the Nominations Committee. The
company has however so far not established a Nominations Committee as suggested by the Code.
The Board takes on the role of periodically assessing the skills, knowledge and experience of
individual directors necessary for the board to have the appropriate level of skill, competence and
experience that would endow the board with the requisite collective knowledge and skill necessary
for the proper functioning of the company and its oversight by the Board of Directors.
Principles Nine and Ten: Relations with Shareholders and with the Market, and Institutional
Shareholders
The Company is highly committed to having an open and communicative relationship with its
investors. The publication of interim and annual financial statements and ongoing company
announcements keep bondholders informed on developments relevant to their investment.
Specifically with respect to the latter, the Board serves the legitimate interests of the company, and
ensures that the company communicates with the market effectively and in a timely manner through
a number of company announcements that it publishes, informing the market of significant events
relevant to the company and its business. The company recognises the importance of maintaining a
dialogue with the market to ensure that its strategies and performance are well understood and
disclosed to the market in a timely manner.
As a source of further information to the market, the company’s website
(http://www.exalcogroup.com/investor-relations/) also contains information about the company and
its business and developments.
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Corporate governance - Statement of compliance - continued
Principle Eleven: Conflicts of Interest
It is the practice of the Board that when a potential conflict of interest arises in connection with any
transaction or other matter, the potential conflict of interest is declared so that steps may be taken
to ensure that such items are appropriately addressed. The steps taken will depend on the
circumstances of the particular case, and may include the setting up of ad-hoc committees of
independent Directors that would assist and monitor management as appropriate in the execution
of specific transactions. By virtue of the Memorandum and Articles of Association, the Directors are
obliged to keep the Board advised, on an ongoing basis, of any interest that could potentially
conflict with that of the company. The Board member concerned shall not take part in the
assessment by the Board as to whether a conflict of interest exists. A director shall not vote in
respect of any contract, arrangement, transaction or proposal in which he has material interest in
accordance with the Memorandum and Articles of Association. The Board believes that this is a
procedure that achieves compliance with both the letter and rationale of principle eleven.
In situations giving rise to potential conflicts of interest, the conflicted Directors are to act in
accordance with the majority decision of those Directors who are not conflicted in the proposed
contract, transaction or arrangement, and in line with the advice of outside legal counsel where
such is solicited.
Related Party Transactions
Other than what is disclosed on page 34 Note 16, the Directors are not aware of any related party
transactions having been entered into by the company up until the period under review.
Principle Twelve: Corporate Social Responsibility
The Directors are committed to high standards of ethical conduct and to contribute to the
development of the local community and society at large. The company recognises the importance
of its role in the corporate social responsibility arena and seeks to ensure that in its operations the
environment is respected. The Directors are also aware of the importance of having good relations
with stakeholders and strive to work together with them in order to invest in human capital and
safety issues and to adopt environmentally friendly responsible practices.
EXALCO FINANCE p.l.c.
Annual Financial Report and Financial Statements - 31 December 2021
14
Corporate governance - Statement of compliance - continued
4. Non-Compliance with the Code
The directors set out below the Code Provisions with which the company does not comply and an
explanation as to the reasons for such non-compliance:
Code Provision
Explanation
2.1, 6.4, 6.5
Although the Articles of Association of the company allow for the
appointment of a Chief Executive Officer, in light of the nature of the
company’s business no such appointment has been considered
necessary to date. In addition, the division of responsibilities between
the Chairman and Chief Executive Officer has not been set out in
writing as required in terms of Code Provision 2.1, given that no such
need arises in light of the fact that no Chief Executive Officer of the
company has been appointed as aforesaid. Consequently, Code
Provisions 6.4 and 6.5, which set out the responsibilities of the Chief
Executive Officer, are not considered applicable at this point in time.
2.3
With respect to Code Provision 2.3, the Board notes that the
Chairman is also an executive member of the Board. However, the
Board is of the view that this function of the Chairman does not
impinge on his ability to bring to bear independent judgement to the
Board.
4.2
The Board has not formally developed a succession policy for the
future composition of the Board of Directors as recommended by
Code Provision 4.2.7.
7.1
The Board has not appointed a committee for the purpose of
undertaking an evaluation of the Board’s performance in accordance
with the requirements of Code Provision 7.1. The Board believes that
the size of the company and the Board itself does not warrant the
establishment of a committee specifically for the purpose of carrying
out a performance evaluation of its role. Whilst the requirement under
Code Provision 7.1 might be useful in the context of larger
companies having a more complex set-up and a larger Board, the
size of the company’s Board is such that it should enable it to
evaluate its own performance without the requirement of setting up
an ad-hoc committee for this purpose. The Board shall retain this
matter under review over the coming year.
8A
The Board has not appointed a Remuneration Committee in line with
Code Provision 8A. The Board believes that the size of the company
and the Board itself does not warrant the setting up of an ad hoc
committee to establish the remuneration packages of individual
directors, and relies on the constant scrutiny of the Board itself, the
company’s shareholders, the market and the rules by which the
company is regulated as a listed company. In addition, the Board
took into consideration the fact that the remuneration of the Board is
not performance related. The Board intends to keep under review the
utility and possible benefits of having a Remuneration Committee in
due course.
EXALCO FINANCE p.l.c.
Annual Financial Report and Financial Statements - 31 December 2021
15
Corporate governance - Statement of compliance - continued
4. Non-Compliance with the Code - continued
Code Provision
Explanation
8B
The Board has not appointed a Nominations Committee in line with
Code Provision 8B. Pursuant to the Company’s Articles of
Association, the appointment of directors to the Board may be made
by nominations made by any one or more shareholders who in
aggregate hold not less than 100,000 shares having voting rights in
the Company or the Board (or Nominations Committee) itself may
make recommendations and nominations of fit and proper persons to
the shareholders for the appointment of directors at the annual
general meeting. Within this context, the Board believes that the
setting up of a Nominations Committee is not required since the
Board itself has the authority to recommend and nominate directors.
Notwithstanding this, the Board intends to keep under review the
matter relating to the setting up of a Nominations Committee.
9.3
9.4
There are no formal procedures in place within the company for the
resolution of conflicts between minority and controlling shareholders,
nor does the Memorandum and Articles of Association of the
company contemplate any mechanism for arbitration in these
instances. However in light of the fact that, at present, the minority
shareholder of the company is also a member of the board of
directors of the minority shareholder of the company, and
considering the position indicated below with respect to Code
Provision 9.4, the Board does not consider there to be an imminent
need for the establishment of such formal procedures.
The company does not have a policy in place to allow minority
shareholders to present an issue to the Board. In practice, however,
the open channel of communication between the company and
minority shareholders via the Office of the Company Secretary is
such that any issue that may merit bringing to the attention of the
Board may be transmitted via the Company Secretary, who is in
attendance at all meetings of the Board of Directors. Furthermore,
the company considers that in light of both its present shareholding
structure and the fact that the minority shareholder is represented on
the Board of Directors of the company, the concerns sought to be
addressed by this particular policy are, in practice, duly addressed.
EXALCO FINANCE p.l.c.
Annual Financial Report and Financial Statements - 31 December 2021
16
Corporate governance - Statement of compliance – continued
5. Internal Control
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 normal
business risks or loss.
Through the Audit Committee, the Board reviews the effectiveness of the companyʼs system of
internal controls. The key features of the company’s system of internal control are as follows:
Organisation
The company operates through the Board with clear reporting lines and delegation of powers.
Control Environment
The company is committed to the highest standards of business conduct and seeks to maintain
these standards across all its operations. Company policies and procedures are in place for the
reporting and resolution of improper activities.
The company has an appropriate organisational structure for planning, executing, controlling and
monitoring business operations in order to achieve its objectives.
Risk Identification
Management is responsible for the identification and evaluation of key risks applicable to their
respective areas of business.
6. General meetings
The general meeting is the highest decision making body of the company and is regulated by its
Articles of Association. All shareholders registered on the register of members of the company on a
particular record date are entitled to attend and vote at general meetings. A general meeting is
called by twenty-one (21) days’ notice, which notice must specify the place, day and hour of the
meeting, and in case of special business, the general nature of that business, and shall be
accompanied by a statement regarding the effect and scope of such special business. The notice
period may be reduced to 14 days if certain conditions are satisfied.
The quorum of shareholders required is not less than fifty-one (51%) of the nominal value of the
issued share capital in respect of which holders thereof are entitled to attend and vote at the
meeting. Voting at any general meeting takes place by a show of hands or a poll where this is
demanded. Subject to any rights or restrictions for the time being attached to any class or classes
of shares, on a show of hands each shareholder is entitled to one vote and on a poll each
shareholder is entitled to one vote for each share carrying voting rights of which he is a holder.
Shareholders who cannot participate in the general meeting may appoint a proxy by written or
electronic notification to the company. Appointed proxy holders enjoy the same rights to participate
in the general meeting as those to which the shareholder they represent is entitled. Every
shareholder represented in person or by proxy is entitled to ask questions which are pertinent and
related to the 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 such person.
The directors’ statement of responsibilities for preparing the financial statements is set out on page
3.
Approved by the Board of Directors on 12 April 2022.

PwC_fl_4cp.eps

Independent auditor’s report

To the Shareholders of Exalco Finance p.l.c.

 

Report on the audit of the financial statements

Our opinion

 

In our opinion:

 

·      The financial statements give a true and fair view of the financial position of Exalco Finance p.l.c. (the Company) as at 31 December 2021, and of the 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

 

Exalco Finance p.l.c.’s financial statements comprise:

 

·         the statement of financial position as at 31 December 2021;

·         the statement of comprehensive income for the year then ended;

·         the statement of changes in equity for the year then ended;

·         the statement of cash flows for the year then ended; and

·         the notes to the financial statements, which include significant accounting policies and other explanatory information.

 

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 company in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for 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 company are in accordance with the applicable law and regulations in Malta and that we have not provided non-audit services that are prohibited under Article 18A of the Accountancy Profession Act (Cap. 281).

 

The non-audit services that we have provided to the company, in the period from 1 January 2021 to 31 December 2021, are disclosed in note 12 to the financial statements.

 

 

Our audit approach

 
Overview

 

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·         Overall materiality: €154,000 which represents 1% of total assets

 

·         Recoverability of loans issued to the guarantor of the bonds
 
 
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the 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.

 

We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking into account the structure of the company, the accounting processes and controls, and the industry in which the company operates.

 

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 financial statements.

 

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall materiality for the 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.

 

Overall materiality

€154,000

How we determined it

1% of total assets

Rationale for the materiality benchmark applied

We chose total assets as the benchmark, because in our view it is an appropriate measure for this type of entity. We considered that this provides us with a consistent year-on-year basis for determining materiality.

We chose 1% which is within the range of quantitative materiality thresholds that we consider acceptable.

 

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above €15,000 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

Recoverability of loans issued to the Guarantor of the bonds

 

Loans and receivables include funds advanced to a fellow subsidiary, Exalco Properties Limited, who is the guarantor of the bonds issued by the Company. The loan balance with this related party as at 31 December 2021 amounted to €15 million (refer to Note 4).

 

As explained in accounting policy note 1.3, the recoverability of the loan is assessed at the end of each financial period.

 

The loan is the principal asset of the company, which is why we have given additional attention to this area.

 

 

We have agreed the terms of this loan to the supporting loan agreement.

 

We have assessed the financial soundness of the fellow subsidiary, Exalco Properties Limited, which is also the guarantor of the company’s bonds. In doing this, we made reference to the latest audited financial statements, management accounts, cash flow projections and other prospective financial information made available to us.

 

Based on evidence and explanations obtained, we concur with management’s view with respect to the recoverability of this loan.

 

 

Other information

 

The directors are responsible for the other information. The other information comprises the Directors’ report and the Corporate governance – Statement of compliance (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 and we do not express any form of assurance conclusion thereon except as explicitly stated within the Report on other legal and regulatory requirements. 

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.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

 

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 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 company or to cease operations, or have no realistic alternative but to do so.

 

Those charged with governance are responsible for overseeing the company’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 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 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 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 company’s business and the overall economy.

·      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.

 

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, actions taken to eliminate threats or safeguards applied.

 

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

 

We have undertaken a reasonable assurance engagement in accordance with the requirements of Directive 6 issued by the Accountancy Board in terms of the Accountancy Profession Act (Cap. 281) - the Accountancy Profession (European Single Electronic Format) Assurance Directive (“the ESEF Directive 6”) on the Annual Financial Report of Exalco Finance p.l.c. for the year ended 31 December 2021, entirely prepared in a single electronic reporting format.

 

Responsibilities of the directors

The directors are responsible for the preparation of the Annual Financial Report, including the financial statements, by reference to Capital Markets Rule 5.56A, in accordance with the requirements of the ESEF RTS.

Our responsibilities

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

Our procedures included:

·    Obtaining an understanding of the entity's financial reporting process, including the preparation of the Annual Financial Report in XHTML format.

·       Examining whether the Annual Financial Report has been prepared in XHTML format.

 

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

Opinion

In our opinion, the Annual Financial Report for the year ended 31 December 2021 has been prepared in XHTML format in all material respects.

 

Other reporting requirements

 

The Annual Financial Report and Financial Statements 2021 contains other areas required by legislation or regulation on which we are required to report.  The Directors are responsible for these other areas.

 

The table below sets out these areas presented within the Annual Financial Report, our related responsibilities and reporting, in addition to our responsibilities and reporting reflected in the Other information section of our report. Except as outlined in the table, we have not provided an audit opinion or any form of assurance.

 

Area of the Annual Financial Report and Financial Statements 2021 and the related Directors’ responsibilities

Our responsibilities

Our reporting

Directors’ report

The Maltese Companies Act (Cap. 386) requires the directors to prepare a Directors’ report, which includes the contents required by Article 177 of the Act and the Sixth Schedule to the Act.

We are required to consider whether the information given in the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements.     

 

We are also required to express an opinion as to whether the Directors’ report has been prepared in accordance with the applicable legal requirements.

 

In addition, we are required to state whether, in the light of the knowledge and understanding of the Company and its environment obtained in the course of our audit, we have identified any material misstatements in the Directors’ report, and if so to give an indication of the nature of any such misstatements.

 

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).

 

We have nothing to report to you in respect of the other responsibilities, as explicitly stated within the Other information section.

 

Corporate governance – Statement of compliance

The Capital Markets Rules issued by the Malta Financial Services Authority require the directors to prepare and include in the Annual Financial Report a Statement of Compliance with the Code of Principles of Good Corporate Governance within Appendix 5.1 to Chapter 5 of the Capital Markets Rules.  The Statement’s required minimum contents are determined by reference to Capital Markets Rule 5.97.  The Statement provides explanations as to how the Company has complied with the provisions of the Code, presenting the extent to which the Company has adopted the Code and the effective measures that the Board has taken to ensure compliance throughout the accounting period with those Principles.

 

We are required to report on the Statement of Compliance by expressing an opinion as to whether,  in light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have identified any material misstatements with respect to the information referred to in Capital Markets Rules 5.97.4 and 5.97.5, giving an indication of the nature of any such misstatements.

 

We are also required to assess whether the Statement of Compliance includes all the other information required to be presented as per Capital Markets Rule 5.97.

 

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 has been properly prepared in accordance with the requirements of the Capital Markets Rules issued by the Malta Financial Services Authority.

 

We have nothing to report to you in respect of the other responsibilities, as explicitly stated within the Other information section.

 

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 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 which, to the best of our knowledge and belief, we require for our audit.

 

We also have responsibilities under the Capital Markets 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.

 

Other matter – use of this report

 

Our report, including the opinions, has been prepared for and only for the Company’s shareholders as a body in accordance with Article 179 of the Maltese Companies Act (Cap. 386) and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior written consent.

 

Appointment

 

We were first appointed as auditors of the Company on 17 July 2018.  Our appointment has been renewed annually by shareholder resolution representing a total period of uninterrupted engagement appointment of 4 years.

 

 

 

PricewaterhouseCoopers

78, Mill Street

Zone 5, Central Business District

Qormi

Malta

 

 

Stefan Bonello

Partner

 

12 April 2022