Table of Contents
Table of Contents 4
Highlights 6
Chairman’s and Chief Executive’s Review 7
Introduction 7
Financial Review 7
Dividend & Buyback 8
Annual General Meeting 8
Review of Activities 9
Introduction and Overview 9
Global Investment Environment 9
Livermore’s Strategy 11
Review of Significant Investments 11
Events after the Reporting Date 18
Litigation 19
Report of the Directors 20
The Board’s Objectives 20
The Board of Directors 20
Directors’ responsibilities in relation to the consolidated financial statements 21
Disclosure of information to the Auditor 21
Substantial Shareholdings 22
Corporate Governance Statement 23
Introduction 23
The Board Constitution and Procedures 23
Board Committees 23
Remuneration Committee 23
Audit Committee 23
Communication with Investors 24
Internal Control 24
Going concern 24
4
Annual Report 2012 Independence of Auditor 24
Remuneration Report 26
Directors’ Emoluments 26
Directors’ Interests 26
Interests of Directors in share options 27
Share Option Scheme 27
Remuneration Policy 27
Review of the Business and Risks 29
Risks 29
Share Capital 29
Related Party Transactions 30
Report of the independent auditor to the members of Livermore Investments Group Limited 31
Consolidated Statement of Financial Position as at 31 December 2012 33
Consolidated Income Statement for the year ended 31 December 2012 34
Consolidated Statement of Comprehensive Income for the year ended 31 December 2012 35
Consolidated Statement of Changes in Equity for the year ended 31 December 2012 36
Consolidated Statement of Cash Flows for the year ended 31 December 2012 38
Notes on the Financial Statements 40
Shareholder Information 88
Registrars 88
Website 88
Direct Dividend Payments 88
Lost Share Certificate 88
Duplicate Shareholder Accounts 88
Notice of Annual General Meeting 89
Corporate Directory 92
5
Annual Report 2012 Highlights
• Net Asset Value per share - USD 0 87 (December 2011: USD 0 57, June 2012: USD 0 74) -
representing a net increase of 52 6%
• Successful value generation from investing in the US loan market
• Wyler Park property in Bern, Switzerland fully let
• No material developments in the private equity portfolio
• During 2012, the Company purchased 56,052,180 shares to be held in treasury
6
Annual Report 2012 Chairman’s and Chief Executive’s Review
Introduction
We are pleased to announce the consolidated financial results for Livermore Investments Group
Limited (“Livermore” or “the Company”) and its subsidiaries (together “the Group”) for the year
ended 31 December 2012
The year-end NAV was USD 0 87 per share (2011 NAV: USD 0 57 per share) Net profit for the year
was USD 25 7m (2011 Net Profit: USD 5 4m) The portfolio remained well diversified across sectors
and geographies with increased exposure to fixed income securities and senior secured loans as
compared to 2011
During the year, the Group performed well generating an increase of 52 6% on a NAV per share
basis The positive performance is attributed largely to the income from the US credit portfolio
partly offset by certain write-downs on legacy private equity investments Interest and dividend
income from the financial portfolio totalled USD 22 1m (2011: USD 18 9m)
Wyler Park, our investment property in Bern, Switzerland performed well, generating over CHF 5 4m
in net rent during the year All of the 39 apartments and commercial spaces are fully rented
There were no significant developments in the private equity portfolio during the year
Financial Review
The NAV of the Group at 31 December 2012 was USD 173 0m On a per share basis, NAV increased by
52 6% Net profit during the year was USD 25 7m, which represents earnings per share of USD 0 12
Administrative expenses excluding provisions were USD 5 0m (2011: USD 5 3m)
7
Annual Report 2012
The overall change in the NAV is primarily attributed to the following:
31 December
2012
US $m
31 December
2011
US $m
Shareholders’ funds at beginning of year
Income from investments
Other income
Realised gains on investments
Loss on impairment on investments
Unrealised gains on investments
Unrealised exchange (losses) / gains
Administration costs including provisions for legal cases
Finance costs
Tax charge
Increase in net assets from operations
Purchase of own shares
Adjustments for share option charge
Shareholders’ funds at end of year
145 4
27 5
0 7
6 8
(18 1)
36 9
(0 0)
(5 0)
(3 6)
(1 2)
44 0
(16 4)
-
173 0
142 3
24 6
3 0
0 1
(9 9)
4 5
(0 2)
(5 0)
(5 2)
(1 7)
10 2
(7 1)
-
145 4
Net Asset Value per share
US $0 87
US $0 57
Dividend & Buyback
Given the discount between the market price and the NAV, the Board recommends continuing the
share buyback as the most efficient means to generate value for shareholders No dividend was
declared for the year ended 31 December 2012
During 2012, the Company purchased 56,052,180 shares to be held in treasury for a total cost of
USD 16 408m The total number of shares held in treasury at 31 December 2012 was 105,385,063
Annual General Meeting
The Group’s Annual General Meeting will be held on 27 August 2013 The Notice for the meeting is
on page 62 of this report
The Chairman and CEO would like to thank the investment team for their remarkable performance
Richard B Rosenberg
Chairman
Noam Lanir
Chief Executive Officer
20 May 2013
8
Annual Report 2012
Review of Activities
Introduction and Overview
2012 was an eventful year with the European debt crisis, the US debt debate and US presidential
elections at the forefront Financial markets remained in risk-on risk-off mode through most of the
year but gained steam towards the latter part of the year after the US Federal Reserve announced
open ended quantitative easing and the European Central Bank committed to do the needful to
support the Euro
Despite the significant challenges, Livermore generated a NAV/share increase of 52 6% primarily
through strong returns on the financial portfolio and value accretion from stock buy-back
Management took advantage of the continued dislocation in credit markets and availability of cheap
leverage and increased exposure to the US senior secured loan market which continued to generate
strong returns The corporate bond portfolio performed well and management subsequently reduced
exposure at lower yield levels The Group’s investment in Babylon generated significant returns as
the company increased revenues and profits to record levels and the share price increased over
200%
The year-end NAV was USD 0 87 per share (2011 NAV: USD 0 57 per share) The portfolio remained
diversified across sectors and geographies with increased exposure to US senior secured loans
In 2012, the Group generated interest and dividend income of USD 22 1m and investment property
income of USD 5 4m The Group’s results (net income of USD 25 7m) relate mainly to gains and
interest and dividend income from the financial portfolio At the same time the results were
negatively affected by impairments related to certain legacy investments Administrative expenses
amounted to USD 5 0m Finance costs were USD 4 2m, of which USD 3 5m relates to the loan against
the Wyler Park property
The Group does not have an external management company structure and thus does not bear
the burden of external management and performance fees Further, the interests of Livermore’s
management are aligned with those of its shareholders as management members have a large
ownership interest in Livermore shares
Considering the strong liquidity position of Livermore, together with the robustness of its investment
portfolio and the alignment of management’s interest with those of its shareholders, management
believes that the Group is well positioned to benefit from current market conditions
Global Investment Environment
The pace of US economic recovery slowed during the first half of this year with GDP rising a modest
1 5% The rate of job gains diminished while consumer price inflation over the first half was lower
than in 2011 The European fiscal and banking crisis was a major source of strain on global financial
markets Early in the year, financial stresses within the Euro area moderated somewhat in light of
a number of policy actions: ample liquidity to the banks from the ECB, increase in lending capacity
of Euro area rescue facilities, and a new assistance package for Greece However, tensions within
the Euro area increased again in the spring as political uncertainties rekindled fears of a disorderly
Greek exit from the Euro area and mounting losses at Spanish banks renewed questions about the
sustainability of Spain’s sovereign debt and of the Euro-area banking system
9
Annual Report 2012 Financial markets were volatile over the first half of 2012 mostly due to fluctuating views regarding
the crisis in the Euro area and the likely pace of global economic growth As investors’ concerns
about the situation in Europe eased early in the year, broad equity price indexes rose and risk
spreads in several markets narrowed Subsequently, however, market participants pulled back from
riskier assets amid renewed concerns about the Euro area and evidence of slowing global economic
growth
In the second half of 2012, US GDP rose 1 5% as various headwinds continued to restrain growth
Financial conditions eased over the second half in response to significant additional quantitative
easing provided by the US Federal Reserve and a strong commitment by the ECB to combat Euro
concerns helped reduce the tail risks priced in financial asset prices Credit availability, however,
remained tight for many households and businesses In addition, declines in real government
purchases continued to weigh on economic activity, as did household and business concerns about
the economic outlook, while weak demand restrained exports Notwithstanding a lessening of signs
of financial stress, the Euro area financial stability environment continues to be fragile, and several
vulnerabilities remain
In equity markets, the US S&P 500 Index ended higher by 11 7% from the beginning of the year and
the EuroStoxx 50 Index increased 11 2% largely on account of significant monetary policy support
in the US and Euro zone
Despite some volatility during the summer, US corporate credit market performed well in 2012 as
the S&P/LSTA Index returned 9 7% for the year Default rates remained below historical levels with
the trailing 12 month default rate of 1 27% for the S&P/LSTA Index Corporate credit fundamentals
remained strong and US loan issuance increased to a five year high of USD 295b in 2012 A sharp
increase in new Collateralized Loan Obligation (CLO) issuance supported significant refinancing
activity and tightening of new issue spreads, original issue discounts, and LIBOR floors The size
of the so-called “maturity wall” in 2013 and 2014 continued to reduce through repayments and
extensions At the end of 2012, the amount of S&P/LSTA Index loans maturing in 2013 declined
to USD 4 7b (about 1% of all outstanding performing loans) With few upcoming maturities, the
default rate is expected to stay low in the near term as refinancing risk for borrowers reduces
Looking ahead, approximately 70% of US loans have maturities between 2016 and 2018
Sources: Board of Governors of the Federal Reserve System, European Central Bank (ECB), Bloomberg
10
Annual Report 2012 Livermore’s Strategy
The financial portfolio is focused on fixed income instruments which generate periodic cash flows
and include mainly exposure to senior secured and usually broadly syndicated US loans This part
of the portfolio is geographically focused on the US with some exposure to Europe and emerging
markets In addition, the financial portfolio would include investments in select deep value public
equities where management could exert influence
The remaining portfolio is focused on Switzerland and Asia with investments primarily in real estate
and select private equity opportunities Investments are focused on sectors that Management
believes will provide superior growth over the mid to long term with relatively low downside risk
Strong emphasis is given to maintaining sufficient liquidity and low leverage at the overall portfolio
level and to re-invest in existing and new investments along the economic cycle
Review of Significant Investments
Name
Wyler Park*
SRS Charminar
Montana Tech Components
Other Real Estate Assets
Total
* Net of related loan
Book Value
US $m
40 3
10 1
6 2
1 8
58 4
Wyler Park – Switzerland
Wyler Park is a top quality mixed-use property located in Bern, Switzerland It has over 16,800 square
meters of commercial space, 4,100 square meters of residential space, and another 7,800 square
meters available for additional commercial development The commercial part is leased entirely to
SBB (AAA rated), the Swiss national transport authority wholly owned by the Swiss Confederation,
and serves as the headquarters of their Passenger Traffic division The commercial lease is Swiss
inflation rate – adjusted and ends in 2019 with two 5 year extension periods thereafter The annual
rental income from the commercial area of the project is CHF 4 83m (USD 4 77m)
Following the successful development of 39 residential apartments, management rented out all of
the apartments The entire property is fully rented The annual rental income from the residential
area is about CHF 0 59m (USD 0 63m)
Livermore is the sole owner of Wyler Park through its wholly owned Swiss subsidiary, Livermore
Investments AG The loan outstanding on the project is CHF 78 9m (USD 86 3), which is a non-
recourse loan to Livermore Investments AG backed only by this property The loan matures in July
2014 The valuation of the property on current-use basis as of year-end 2012 is CHF 115 9m (USD
126 5m) and of year end 2011 was CHF 114 9m (USD 122 5m)
11
Annual Report 2012
Management continues to evaluate the potential development of the additional commercial
development rights of 7,800 square meters attached to the property
SRS Charminar – India
In 2008 Livermore invested USD 20m in SRS Charminar acquiring a 15% ownership stake SRS
Charminar through its wholly owned subsidiaries invested INR 5 2b (USD 132 1m at date of
investment) in a real estate company in India
The investment in the investee company was in the form of compulsorily convertible debt and
included a put option, which can be exercised if the investee company does not have an IPO within
3 years or if certain terms in the agreement are not met The put option is secured by land which
was valued at around USD 1 3 billion at the time of investment and guarantees a minimum return
of approximately 30% IRR if exercised
As reported previously, the Manager (Infinite India Limited) for this investment served a put option
exercise notice to the promoters in 2009 Following a dispute on the grounds of the put option
notice between the promoters and the fund, the parties agreed to invoke arbitration to be held in
Mumbai
On 14 August 2009, the arbitration process was completed and the arbitrator ruled in favour of
investors The award entitles the investors to investment plus interest amounting to 30% IRR until
14 August 2009 and 18% IRR thereafter
Meanwhile, the investors filed and won an interim order for injunction against the promoters and
the company to prohibit sales, transfer or encumbering of the assets of the company Thereafter, the
promoters filed against the arbitral award and the injunction order As at 31 December 2012 there
was no change in the status of this case
On January 13, 2011 the Company Law Board (“CLB”) passed an order and allowed Infrastructure
Leasing & Financial Services Limited (“IL&FS”) to become an 80% shareholder and control the
management of the company
After the reporting period, SRS has agreed to a settlement with IL&FS and the investee company As
per the terms of the settlement, INR 8 5Bn will be paid to the investors in four tranches over a five
year period The settlement is subject to certain court and regulatory approvals
Due to the legal complexity and the receipt of the regulatory and court approvals required for the
implementation of the proposed settlement as well as the various counterparties involved, the
outcome remains uncertain
The carrying amount of the investment is based on discounted expected cash flows and was reduced
to USD 10 1m (2011: USD 14 7m)
Montana Tech Components (“MTC”) - Europe
Montana Tech Components AG is a leading components manufacturer in the fields of Aerospace &
Industrial Components, Metal Tech and Micro Batteries
The Aerospace Components business segment manufactures specialized components for Airbus and
Boeing and is the market leader The Aerospace Components business segment developed positively
12
Annual Report 2012
during the year as growth of aviation in emerging regions as well as the modernization of aircraft
fleets in the US and Europe continued The revenues in Aerospace Components business segment
increased by 7% to EUR 235m in 2012
The Energy Storage (VARTA Group) business segment is a market leader in hearing aid batteries and
rechargeable batteries with a strong brand (VARTA Micro Power) VARTA has formed a significant
joint venture with the Volkswagen group to develop batteries for hybrid cars Demand in micro
batteries continued to be high in the growth market of medical technology The business segment
commissioned the world’s largest and most sophisticated production plant for mercury-free
hearing aid batteries strengthening its competitive position VARTA Group also introduced a new
energy storage system for households Substantial progress was achieved in the joint venture with
Volkswagen as the first energy cells prototypes fulfilled the requirements The business segment
achieved a turnover growth of 8% to EUR 155 million during the year
Metal Tech business segment operates in a niche area and is a market leader in an otherwise highly
fragmented industry This business segment produces tools for identification and marking of steel
products The Metal Tech division delivered several large orders in 2012 and the turnover increased
by 43% to EUR 45 million
Overall MTC was able to achieve record revenues and earnings growth despite economically
challenging conditions due to a good market position in all three operative core businesses Total
revenues increased by 12% to EUR 440m, EBITDA (without one-time adjustments) increased by 19%
to EUR 64m, and EBIT (without one-time adjustments) increased 22% to EUR 45m in 2012
In June 2012 Montana issued a 5 year corporate bond with a notional value of T€ 55,000 paying 5%
annually Proceeds from the corporate bond will be partially used to refinance existing bank loans
and finance the growth project of the group MTC’s equity capital rose to EUR 294 million (2011:
EUR 225 million)
Livermore and certain other minority shareholders in MTC have raised concerns about related
party transactions between MTC and its majority shareholder as well as the unequal treatment of
minority shareholders by the Board of MTC Livermore is pursuing an activist role in order to increase
transparency, ensure equal treatment of minority shareholders, and potentially gain representation
on the Board of MTC At the Annual General Meeting of Montana, the Board of Directors of Montana
was denied discharge for the last two years
Private Equity Funds
The other private equity investments held by the Group are incorporated in the form of Managed
Funds (mostly closed end funds) mainly in the emerging economies of India and China The
investments of these funds into their portfolio companies were mostly done in 2008 and 2009
Overall, during 2012 the investment environment relating to most funds was challenging and the
Group expects that material exits of portfolio companies should materialize between 2013 and
2015 Except for distribution of USD 0 249m from Da Vinci fund no material exits occurred during
the reported period
13
Annual Report 2012 The following summarizes the book value of the private equity funds as of year-end 2012
Name
SRS Private (India)
Evolution Venture (Israel)
India Blue Mountains (India)
Elephant Capital (India)
Da Vinci (Russia)
Blue Ridge Capital (China)
Panda Capital (China)
Other investments
Total
Book Value
US $m
4 0
2 6
2 3
1 5
1 2
0 8
0 6
0 4
13 4
SRS Private Fund: SRS Private is a private equity fund focused on real estate in India The fund has invested
in residential and commercial projects as well as directly in certain real estate companies The assets are
primarily located in and around major cities of India such as Mumbai and Hyderabad Approximately 44 2%
of the net asset value of the fund is invested in mixed-use assets (commercial and residential combined)
of it 16 2% at SRS Charminar, 25 4% in residential assets, 12 1% invested at the entity level of real estate
developers, 2 3% in hospitality related assets, and 24% in cash and receivables As of year-end 2012, the
investment was valued at USD 4m
Evolution Venture: Evolution is an Israel focused Venture Capital fund It invests in early stage
technology companies Its investments include a carrier-class Mobile Broadband Wireless (MBW)
Wi-Fi solutions company, a language enhancement products company, a software company operating
in the digital radio market, a software test tool developer, and a virtualization technology company
India Blue Mountains: India Blue Mountains is a leading hotel and hospitality development fund that
is developing 4 star and 5 star hotels in India The fund has acquired land and is in the process of
developing three hotels in prime areas of Mumbai, Pune and Goa All hotels will be managed by the
Accor Group (Novotel brands) Accor has also invested equity and holds a 26% stake in all of the
hotels
The Pune hotel is being built on a land area of 70,200 sq ft with a total built-up area of approximately
343,297 sq ft The hotel is expected to be a Novotel brand hotel with 223 rooms and two floors have
been earmarked for commercial office space
The Mumbai hotel is on a 82,609 sq ft land site with a built-up area of approximately 550,216 sq ft
The hotel will be a Novotel brand hotel with 543 rooms As reported earlier, the contract with the
general contractor was terminated due to delays caused by the contractor
14
Annual Report 2012
For the Goa hotel, land measuring 20 acres was purchased at Majorda beach in Goa having 200
meters of sea front with a white sandy beach from nearly 40 parcels of land Notification of the land
for settlement is a government process and it has not been concluded so far despite expectations
and is currently pending with the Town Planning department
In 2012, the major shareholders took over control of the investment vehicle from the manager
and agreed to exit the existing investments in an orderly fashion The previous manager of the
investment vehicle will still be involved in an advisory role but it will no longer control the board
of the vehicle
Livermore management believes that there are significant uncertainties with respect to delivery
timelines and financing possibilities for the Mumbai project in the current environment In addition,
the Goa project rezoning has not been concluded As a result, Livermore has decided to impair the
investment by USD 2 7m
Elephant Capital: India-focused private equity fund, which is AIM quoted (formerly called Promethean
India plc) (Ticker: ECAP) Its portfolio investments to date include a leading tiles manufacturer
in India, an established automotive components manufacturer, a hospitality company with luxury
hotels in top Indian cities, a media business with an exclusive content library, a clinical research
organization, an m-commerce player, and an online venture to distribute cricket related content
During the period, an investment of GBP 3m was made into a leading independent provider of
aviation maintenance, repair and overhaul service in India
As of August 2012, the NAV of the fund was 44 pence On 27 February 2013, Elephant Capital
launched a tender offer at a price of 39 pence per share Livermore tendered its shares and the
fund purchased back 49 19% of Livermore’s shareholding Additional information about the fund is
available at www elephantcapital com
Da Vinci: The fund is primarily focused on Russia and CIS countries In 2011, RTS, a leading Russian
stock exchange, merged with MiCex stock exchange to form the largest financial exchange in Russia
and distributed a dividend from the partial exit The board of the merged company announced
a further dividend of USD 0 31 per share on 30 June 2012 which was also distributed to fund
investors On February 15, 2013 Moscow Exchange announced the successful pricing of its initial
public offering (IPO) at a price of RUB 55 per share and the total market capitalization of Moscow
Exchange at IPO amounted to approximately US$ 4 2b EPAM, a leading Russian software company,
conducted a successful initial public offering on NASDAQ in February 2012 During the year, the
fund exited the investment and distributed proceeds to fund investors The investment was valued
at USD 1 2m as of year-end 2012
Blue Ridge: Blue Ridge is a China focused private equity fund The fund has made investments in six
portfolio companies including a distressed real estate turnaround company, a plastic and chemicals
manufacturer, a higher education company, an innovative bio-pesticide company, a software
company specializing in Oil & Gas applications and a refinery
Panda Capital: Panda Capital is a China-based private equity fund focused on early-stage industrial
operations in China and Taiwan, which represent strong growth opportunities The fund’s main
investment is in a bamboo flooring company in China, which provides an innovative low cost
alternative to hardwood flooring in shipping containers The manager is in the process of building
up operational capacity for product manufacturing This investment could generate attractive
returns once the shipping industry recovers from the current downturn
15
Annual Report 2012 Financial portfolio and trading activity
The Group manages a financial portfolio valued at USD 103m (net of leverage) as at 31 December
2012, which is invested mainly in fixed income securities and special situation equity opportunities
Fixed Income:
During 2012 the Group increased its activity in the US syndicated loan market mainly through
investment into US Collateralized Loan Obligations (CLO) of 2006 and 2007 issues as well as
investments into newly issued transactions These are managed portfolios invested into diversified
pools of floating rate senior secured loans and financed with long term floating rate financing On
absolute and relative value bases the loan market performed well through the financial crisis and
continued to offer remarkable value as an undervalued, inflation linked and defensive asset class
with a senior secured claim on the borrower and with overall low volatility and low correlation to
other asset classes The CLO structure proved itself through the financial crisis and thereafter as a
robust means of investing into the loan asset class
The fundamentals of the US corporate credit market continued to show resilience Trailing 12 month
default rate during Q4 2012 for the S&P/LTSA index was 1 27% and the S&P/LTSA index of issuers
returned 9 7% in 2012 New issue loan volume surged and opportunistic loan re-pricing activity also
increased and is expected to continue in 2013 absent any macroeconomic or geopolitical shocks
During 2012, the CLO portfolio performed extremely well on account of low default rates and
improving credit fundamentals of their underlying loans evidenced by lower weighted average rating
factor (WARF) levels in our deals At the end of the reporting period all of our US investments
were passing their coverage tests (thereby making dividend distributions) In 2012, the portfolio
generated USD 26 8m in cash distributions CLO payments remained strong thanks to low credit
losses and prevalence of Libor floors and healthy credit spreads
The excess spread of these CLOs, namely the difference between the interest income generated by
a CLO’s assets and the cost of financing through its liabilities as well as certain fees (which are
locked-in at closing), increased substantially from original levels Volatility in loan prices provided
a good entry point for CLOs within their reinvestment period to build additional par and increase
coverage ratios This combination of improving coverage ratios and excess spread availability
continued in 2012 The cushions built up within the portfolios are expected to insulate the portfolio
from moderate potential future credit losses, implying that performance should remain strong even
in the absence of a significant improvement in macroeconomic conditions, so long as another
dramatic fundamental downturn or financial market crisis is avoided Distributions from the CLO
portfolio increased in 2012 but management expects these payments to decline in 2013 as pre-crisis
CLOs end their reinvestment and begin amortization of the cheapest liability tranches, incentive
fees trigger in some pre-crisis CLOs, and increased pre-payment and loan re-pricing activity reduces
excess spread
During H1 2012, secondary market prices for CLOs rose, legacy CLOs reinvestment periods continued
to shorten and the IRRs and cash returns offered by primary CLO issuances became attractive on
relative basis Livermore examined carefully the new issue market with the intention to extend the
reinvestment period of its current portfolio and successfully launched as an anchor investor a new
issue cash flow CLO (Venture X) managed by MJX Asset Management LLC (“MJX”) in June 2012 In
October 2012, Livermore launched another new issue cash flow CLO (Venture XI) managed by MJX
In addition Livermore participated as a significant investor in various US and emerging markets new
issue CLOs of leading managers During the year, Livermore conducted some relative value trades
that helped improve the credit profile and extend the reinvestment period profile of the Group’s
CLO portfolio
16
Annual Report 2012 As US interest rates are expected to remain low until 2015, corporate defaults are expected to
remain low in the medium term and loan spreads are forecast to remain wide by historical standard,
we believe that the environment should remain attractive for investments in CLO income notes The
investment team is evaluating investing in additional primary issue CLOs with the aim of acquiring
a controlling or significant equity stake
While management maintains a positive view, mid-long term performance may be negatively
impacted by a pull back into a substantial double dip recession in US and/or Europe involving a spike
in defaults CLO distributions and secondary CLO prices may also decline as re-pricing activity in
the loan market reduces excess spread of the underlying portfolios Despite positive developments in
the overall health of the US economy we acknowledge the potential headwinds posed by continued
weakness in developed economies, high unemployment and the continued EU sovereign debt crisis
as well the headwinds the economy may face in 2013 relating to the possible austerity measures
following the US debt ceiling discussions and geopolitical risks
Public Equities:
Babylon Ltd (“Babylon”): Babylon is an International Internet Company based in Israel and listed on
the Tel-Aviv Stock Exchange (TASE: BBYL) It is a leading translation and language tools provider
and its language translation software product is a recognized name in the industry The company
generates revenues through Search and Advertising, Online Sales, Corporate Sales, and Telesales
Babylon has achieved exceptional growth in its Search and Advertising business since 2009 2012
Revenues increased 184% to USD 177 6m as compared to USD 62 5m in 2011 and EBITDA increased
193% to USD 33 4m from USD 11 4m in the corresponding quarter Babylon declared a dividend of
USD 12 5m which was paid in August 2012 During the year, Babylon’s share price increased 126%
from ILS 9 4 to ILS 21 3
In 2012, Livermore acquired an additional 1 129m shares of Babylon As of 31 December 2012,
Livermore’s investment in Babylon was valued at USD 22 3m which represents 8 15% of its effective
voting rights
In September 2012, Babylon announced that it had filed a draft prospectus with the Securities and
Exchange Commission for a listing on one of the main US stock exchanges
Noam Lanir, the majority shareholder of the Group, is also a major shareholder in Babylon (note 31)
17
Annual Report 2012 The following is a table summarizing the financial portfolio as of year-end 2012
Name
2012
Book Value US $m
2011
Book Value US $m
Investment in the loan market through CLOs
Babylon
Corporate bonds
Hedge Funds
Other Public Equities
Total
Total net of leverage
73 2
22 3
10 5
3 0
2 8
111 8
103 0
53 8
6 6
28 9
5 0
2 1
96 4
75 0
The following table reconciles the review of activities to the Group’s financial assets and investment
property as of year-end 2012
Name
Significant Investments
Private Equity Funds
Financial Portfolio
Total
Available- for-sale financial assets (note 4)
Financial assets at fair value through profit or
loss (note 5)
Net Investment property (note 8/15)
Total
2012
Book Value US $m
58 4
13 4
111 8
183 6
103 9
39 4
40 3
183 6
18
Annual Report 2012
Events after the reporting date
After the reporting period, the Manager of SRS Charminar has reported a settlement with IL&FS and
the investee company which is subject to certain court and regulatory approvals Please refer to
note 4 for further details
Litigation
At the time of this Report, there is one matter in litigation against the Group Further information
is provided in note 33 to the consolidated financial statements
19
Annual Report 2012 Report of the Directors
The Board’s objectives
The Board’s primary objectives are to supervise and control the management activities, business
development, and the establishment of a strong franchise in the Group’s business lines Measures
aimed at increasing shareholders’ value over the medium to long-term, such as an increase in NAV
are used to monitor performance
The Board of Directors
Richard Barry Rosenberg (age 57), Non-Executive Director, Chairman of the Board
Richard joined the Group in December 2004 He became Non-Executive Chairman on 31 October
2006 He qualified as a chartered accountant in 1980 and in 1988 co-founded the accountancy
practice SRLV He has considerable experience in giving professional advice to clients in the leisure
and entertainment sector Richard is a director of a large number of companies operating in a
variety of business segments
Noam Lanir (age 46), Founder and Chief Executive Officer
Noam founded the Group in July 1998, to develop a specialist online marketing operation Noam
has led the growth and development of the Group’s operations over the last fifteen years which
culminated in its IPO in June 2005 on AIM Prior to 1998, Noam was involved in a variety of
businesses mainly within the online marketing sector He is also the major shareholder of Babylon
Ltd, an International Internet Company listed on the Tel Aviv Stock Exchange He is also a major
benefactor of a number of charitable organisations
Ron Baron (age 45), Executive Director and Chief Investment Officer
Ron was appointed as Executive Director and Chief Investment Officer on 10 August 2007 Ron
has wide investment and M&A experience From 2001 to 2006 Ron served as a member of the
management at Bank Leumi, Switzerland and was responsible for portfolio management activity
Prior to this he spent five years as a commercial lawyer at Kantor, Elhanani, Tal & Co Law Offices in
Tel Aviv, Israel, advising banks and large corporations on corporate transactions, including buy-outs
and privatisations Ron has over 11 years of experience as an investment manager with particular
focus on the US credit market He holds an MBA from INSEAD Fontainebleau and a LLB (LAW) and
BA in Economics from Tel Aviv University
Menachem Marder (age 60), Non-Executive Director
Menachem joined the Group in September 2009 and resigned on 3 April 2012
The Directors shall retire from office at the third Annual General Meeting after that at which they
were last elected, and if they so wish, offer themselves up for re-election to the Board Subject to
the BVI Companies Act and the Articles, the Directors to retire by rotation at the Annual General
Meeting in every year shall be in addition to any Director who wishes to retire and not to offer
himself for reappointment, any Director required to retire under the Company’s Articles The
interests of the Directors and their related companies in the shares and options over shares in the
Company are as shown on page 19 Details of the Directors’ remuneration and service contracts also
appear on page 19
On 3 April 2012, Mr Menachem Marder, a non-executive director resigned from his position as a
non-executive director of the Company No replacement has been appointed as a non-executive
director at the date of this report
20
Annual Report 2012 The Directors submit their annual report and audited consolidated financial statements of the Group
for the year ended 31 December 2012
Directors’ responsibilities in relation to the consolidated financial statements
The Directors are responsible for preparing the Annual Report and the consolidated financial
statements in accordance with applicable law and International Financial Reporting Standards as
adopted by the European Union
The Directors are required to prepare consolidated financial statements for each financial year
which give a true and fair view of the financial position of the Group, and its financial performance
and cash flows for that period In preparing these consolidated financial statements, the Directors
are required to:
•
Select suitable accounting policies and then apply them consistently;
•
Make judgments and estimates that are reasonable and prudent;
• State whether applicable accounting standards have been followed, subject to any material
departures disclosed and explained in the financial statements;
• Prepare the consolidated financial statements on the going concern basis unless it is
inappropriate to presume that the Group will continue in business
The Directors are responsible for keeping proper accounting records that are sufficient to show and
explain the Group’s transactions, and at any time enable the financial position of the Group to be
determined with reasonable accuracy and enable them to ensure that the consolidated financial
statements comply with the applicable law and International Financial Reporting Standards as
adopted by the European Union They are also responsible for safeguarding the assets of the
Group and hence for taking reasonable steps for the prevention and detection of fraud and other
irregularities
The Directors are responsible for the maintenance and integrity of the corporate and financial
information included on the Group’s website Legislation in the British Virgin Islands governing
the preparation and dissemination of financial statements may differ from legislation in other
jurisdictions
Disclosure of information to the Auditor
In so far as the Directors are aware:
•
there is no relevant audit information of which the Company’s auditor is unaware; and
•
the Directors have taken all steps that they ought to have taken to make themselves aware of
any relevant audit information and to establish that the auditor is aware of that information
21
Annual Report 2012 Substantial Shareholdings
As at 10 April 2013 the Directors are aware of the following interests in 3 per cent or more of the
Company’s issued ordinary share capital:
Number of Ordinary
Shares
% of issued ordinary
share capital
% of voting
rights*
Groverton Management Ltd
154,412,173
50 77
RB Investments GmbH
13,915,419
Merrill Lynch Pierce, Fenner & Smith, Inc
9,329,051
4 58
3 07
77 70
7 00
4 69
* after consideration of treasury shares (note 13)
Save as disclosed in this report and in the remuneration report, the Company is not aware of any
person who is interested directly or indirectly in 3 per cent or more of the issued share capital of
the Company or could, directly or indirectly, jointly or severally, exercise control over the Company
Details of transactions with Directors are disclosed in note 31 to the consolidated financial
statements
22
Annual Report 2012
Corporate Governance Statement
Introduction
The Company recognises the importance of the principles of good Corporate Governance and the
Board is pleased to accept its commitment to such high standards throughout the year As an AIM
quoted company, Livermore is not required to follow the provisions of the UK Corporate Governance
Code – June 2010 (“the Code”) However, the Company is keen to adopt and promote the provisions
of that Code Up to 31 December 2012 the Board has adopted several provisions of the Code, some
of which have not yet been fully implemented
The Board Constitution and Procedures
The Company is controlled through the Board of Directors, which currently comprises one Non-
Executive Director and two Executive Directors The Chief Executive’s responsibility is to focus on
co-ordinating the company’s business and implementing group strategy
A formal schedule of matters is reserved for consideration by the Board, which meets approximately
four times each year The Board is responsible for implementation of the investing strategy as
described in the circular to shareholders dated 6 February 2007 and adopted pursuant to shareholder
approval at the Company’s EGM on 28 February 2007 It reviews the strategic direction of the Group,
its codes of conduct, its annual budgets, its progress towards achievement of these budgets and any
capital expenditure programmes In addition, the Directors have access to advice and services of
the Company Secretary and all Directors are able to take independent professional advice if relevant
to their duties The Directors receive training and advice on their responsibilities as necessary All
Directors, in accordance with the Code, submit themselves to re-election at least once every three
years
Board Committees
The Board delegates clearly defined powers to its Audit and Remuneration Committees The minutes
of each Committee are circulated by the Board
Remuneration Committee
The Remuneration Committee comprises of the Non-Executive Chairman of the Board and a Non-
Executive Director Following the resignation of one of the Non-Executive Directors, this committee
has one member until a new Non-Executive Director is appointed The Remuneration Committee
considers the terms of employment and overall remuneration of the Executive Directors and key
members of Executive management regarding share options, salaries, incentive payments and
performance related pay The remuneration of Non-Executive Directors is determined by the Board
Audit Committee
The Audit Committee comprises of the Non-Executive Chairman of the Board and a Non-Executive
Director and is chaired by the Chairman of the Board Following the resignation of one of the
Non-Executive Directors, this committee has one member until a new Non-Executive Director is
appointed The duties of the Committee include monitoring the auditor’s performance and reviewing
accounting policies and financial reporting procedures
23
Annual Report 2012 Communication with Investors
The Directors are available to meet with shareholders throughout the year In particular the Executive
Directors prepare a general presentation for analysts and institutional shareholders following the
interim and preliminary results announcements of the Company The chairman, Richard Rosenberg,
is available for meetings with shareholders throughout the year The Board endeavours to answer
all queries raised by shareholders promptly
Shareholders are encouraged to participate in the Annual General Meeting at which the Chairman
will present the key highlights of the Group’s performance The Board will be available at the
Annual General Meeting to answer questions from shareholders
Internal Control
The Board is responsible for ensuring that the Group has in place a system of internal controls and
for reviewing its effectiveness In this context, control is defined in the policies and processes
established to ensure that business objectives are achieved cost effectively, assets and shareholder
value safeguarded and that laws and regulations are complied with Controls can provide reasonable
but not absolute assurance that risks are identified and adequately managed to achieve business
objectives and to minimise material errors, frauds and losses or breaches of laws and regulations
The Group operates a sound system of internal control, which is designed to ensure that the risk of
mis-statement or loss is kept to a minimum
Given the Group’s size and the nature of its business, the Board does not consider that it is necessary
to have an internal audit function An internal audit function will be established as and when the
Group is of an appropriate size
The Board undertakes a review of its internal controls on an ongoing basis
Going concern
The Directors have reviewed the current and projected financial position of the Group, making
reasonable assumptions about interest and dividend income, future trading performance, valuation
projections and debt requirements On the basis of this review, the Directors have a reasonable
expectation that the Company and the Group have adequate resources to continue in operational
existence for the foreseeable future Accordingly, they continue to adopt the going concern basis in
preparing the Annual Report and accounts
Independence of Auditor
The Board undertakes a formal assessment of the auditor’s independence each year, which includes:
•
a review of non-audit related services provided to the Company and related fees;
•
•
discussion with the auditor of a written report detailing all relationships with the Company and
any other parties which could affect independence or the perception of independence;
a review of the auditor’s own procedures for ensuring independence of the audit firm and
partners and staff involved in the audit, including the rotation of the audit partner;
24
Annual Report 2012 •
obtaining written confirmation from the auditors that they are independent;
•
a review of fees paid to the auditor in respect of audit and non-audit services
25
Annual Report 2012 Remuneration Report
The Directors’ emoluments, benefits and shareholdings during the year ended 31 December 2012
were as follows:
Directors’ Emoluments
Each of the Directors has a service contract with the Company
Date of
agreement
Fees
US $000
Benefits
US $000
Reward
payments
US $000
Share options
expense
US $000
Total
emoluments
2012
US $000
Total
emoluments
2011
US $000
Richard Barry
Rosenberg
10/06/05
72
Noam Lanir
10/06/05
Ron Baron
01/09/07
Menachem
Marder*
23/09/09
400
350
-
-
45
-
-
16
700
1,000
10
-
-
-
-
88
1,145
1,350
10
76
445
850
-
The dates are presented in day / month / year format
* Menachem Marder resigned on 3 April 2012
Directors’ Interests
Interests of Directors in ordinary shares
Notes
As at 31 December 2012
As at 31 December 2011
Number of
Ordinary
Shares
Percentage
of ordinary
share capital
Percentage
of voting
rights
Number of
Ordinary
Shares
Percentage
of ordinary
share capital
Percentage
of voting
rights
154,412,173
50 773%
77 697% 154,412,173
50 773%
60 604%
13,915,419
4 576%
7 002%
13,915,419
4 576%
5 462%
15,000
0 005%
0 008%
15,000
0 005%
0 006%
Noam Lanir
Ron Baron
a)
b)
Richard
Barry Rosenberg
Notes:
a) Noam Lanir is interested in his ordinary shares by virtue of the fact that he owns directly or
indirectly all of the issued share capital of Groverton Management Limited
b) On 16 April 2007, a loan of USD 5m was provided to RB Investments GMBH, a company owned
by Ron Baron to purchase Livermore shares The loan was renewed during the year ended 31
December 2010, and bears an annual interest rate of 6 month USD LIBOR plus 0 25%
26
Annual Report 2012
Interests of Directors in share options
No of options at
31 December 2012
Date of grant
Exercise
price, GBP
Exercise
Price**,
US $
Vesting period
of options
Noam Lanir
10,000,000
19/07/06
0 78
1 27
One to three years*
Richard Barry Rosenberg
500,000
150,000
75,000
13/05/08
19/07/06
07/12/05
0 30
0 78
0 71
0 49
1 27
1 15
One to three years*
One to three years*
One to three years*
* The options normally vest in three equal tranches, on the first, second and third anniversary of
the grant
The options are exercisable up to 10 years after the date of grant No options were exercised during
the year ended 31 December 2012
** The exercise prices as per the share option scheme are quoted in British Pounds The indicative
equivalent USD amounts shown in the table above are based on the exchange rates as at 31 December 2012
Share Option Scheme
The Company’s remuneration committee (the “Committee”) is responsible for administering the
Share Option Scheme Options to acquire Shares in the Company may be granted under the Share
Option Scheme to any employee or director of the Company or member of the Group
The option exercise price per Ordinary Share is determined by the Committee but will be no less than
market value of the Ordinary Shares on the dealing day immediately preceding the date of grant The
options are subject to continuous service conditions but are not subject to any performance criteria
The Share Option Scheme will terminate ten years after it was adopted by the Company, or earlier
in certain circumstances
Remuneration Policy
The Group’s policy has been designed to ensure that the Group has the ability to attract, retain
and motivate executive directors and key management personnel to ensure the success of the
organization
The following key principles guide its policy:
• policy for the remuneration of executive directors will be determined and regularly reviewed
independently of executive management and will set the tone for the remuneration of other
senior executives
the remuneration structure will support and reflect the Group’s stated purpose to maximize
long-term shareholder value
the remuneration structure will reflect a just system of rewards for the participants
•
•
27
Annual Report 2012
•
•
•
•
•
•
the overall quantum of all potential remuneration components will be determined by the exercise
of informed judgement of the independent remuneration committee, taking into account the
success of the Group and the competitive global market
a significant personal shareholding will be developed in order to align executive and shareholder
interests
the assessment of performance will be quantitative and qualitative and will include exercise of
informed judgement by the remuneration committee within a framework that takes account of
sector characteristics and is approved by shareholders
the committee will be proactive in obtaining an understanding of shareholder preferences
remuneration policy and practices will be as transparent as possible, both for participants and
shareholders
the wider scene, including pay and employment conditions elsewhere in the Group, will be
taken into account, especially when determining annual salary increases
28
Annual Report 2012 Review of the Business and Risks
Risks
The Board considers that the risks the Shareholders face can be divided into external and internal
risks
External risks to shareholders and their returns are those that can severely influence the investment
environment within which the Group operates, and include economic recession, declining corporate
profitability, rising inflation and interest rates and excessive stock-market speculation
The Group’s portfolio is exposed to interest rate changes, credit risk, liquidity risk and volatility
particularly in the US, EU, Switzerland and India In addition, the portfolio is exposed to currency
risks as some of the underlying portfolio is invested in assets denominated in non-US currencies
while the Company’s functional currency is USD Investments in certain countries such as India
and China are exposed to governmental and regulatory risks The SRS Charminar investment is
specifically subject to regulatory and legal risks as well as currency risk
The mitigation of these risks is achieved by investment diversification, both by sector and by
geography The Group also engages from time to time in certain hedging activities to mitigate these
risks
Internal risks to shareholders and their returns are related to Portfolio risks (investment and geography
selection and concentration), balance sheet risk (gearing) and/or investment mismanagement risks
The Group’s portfolio has a significant exposure to senior secured loans of mainly US companies and
therefore has a concentration risk to this asset class
A periodic internal review is performed to ensure transparency of Group activities and investments
All service providers to the Group are regularly reviewed The mitigation of the risks related to
investments is effected by investment restrictions and guidelines and through reviews at Board
Meetings
As the portfolio of the Company is invested in non USD currencies (mainly EUR, CHF and INR), it is
exposed to movements in these currencies
On the asset side, the Group’s exposure to interest rate risk is limited to the interest bearing
deposits and portfolio of bonds and loans in which the Group invests
Management monitors liquidity to ensure that sufficient liquid resources are available to the Group
The Group’s credit risk is primarily attributable to its fixed income portfolio, which is exposed to
corporate bonds with a particular exposure to the financial sector and to US senior secured loans
Share Capital
There was no change in the authorised share capital during the year to 31 December 2012 The
authorised share capital is 1,000,000,000 ordinary shares with no par value
29
Annual Report 2012 Related party transactions
Details of any transactions of the Group with related parties during the year to 31 December 2012
are disclosed in note 31 to the consolidated financial statements
By order of the Board of Directors
Chief Executive Officer
20 May 2013
30
Annual Report 2012 Report of the independent auditor to the
members of Livermore Investments Group
Limited
Report on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of Livermore Investments
Group Limited (the ‘’Company’’) and its subsidiaries (together with the Company, ‘’the Group’’),
which comprise the consolidated statement of financial position as at 31 December 2012 and the
consolidated income statement, and consolidated statements of comprehensive income, changes in
equity, and cash flows for the year then ended, and a summary of significant accounting policies
and other explanatory information
Board of Directors’ Responsibility for the Consolidated Financial Statements
The Board of Directors is responsible for the preparation of consolidated financial statements that
give a true and fair view in accordance with International Financial Reporting Standards as adopted
by the European Union (EU) and for such internal control as the Board of Directors determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on
our audit We conducted our audit in accordance with International Standards on Auditing Those
Standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance as to whether the consolidated financial statements are free from
material misstatement An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the consolidated financial statements The procedures selected depend
on the auditor’s judgment, including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error In making those risk assessments,
the auditor considers internal control relevant to the entity’s preparation of the consolidated financial
statements that give a true and fair view in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the entity’s internal control An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by the Board of Directors as well
as evaluating the overall presentation of the consolidated financial statements
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the financial
position of the Group as at 31 December 2012 and of its financial performance and its cash flows
for the year then ended in accordance with International Financial Reporting Standards as adopted
by the EU
31
Annual Report 2012 Emphasis of Matter
We draw attention to Note 4 to the consolidated financial statements which describe the
uncertainty related to the outcome of the legal case in India relating to the investment of the
Group through SRS Charminar Investments Ltd, in an Indian Real Estate company Our opinion is
not qualified in respect of this matter
Other Matter
This report, including the opinion, has been prepared for and only for the Company’s members as a
body and for no other purpose We do not, in giving this opinion, accept or assume responsibility
for any other purpose or to any other person to whose knowledge this report may come to
Augoustinos Papathomas
Certified Public Accountant and Registered Auditor
for and on behalf of
Grant Thornton (Cyprus) Ltd
Certified Public Accountants and Registered Auditors
Nicosia
Date: 20 May 2013
32
Annual Report 2012 Livermore Investments Group Limited
Consolidated Statement of Financial Position as at 31 December 2012
Note
2012
US $000
2011
US $000
Assets
Non-current assets
Property, plant and equipment
Available- for-sale financial assets
Financial assets at fair value through profit or loss
Investment property
Deferred tax
Other assets
Current assets
Trade and other receivables
Available- for-sale financial assets
Financial assets at fair value through profit or loss
Cash at bank
Total assets
Equity
Share capital
Share premium and treasury shares
Other reserves
Retained earnings
Total equity
Liabilities
Non current liabilities
Bank loans
Derivative financial instruments
Deferred tax
Current liabilities
Bank overdrafts
Short term bank loans
Trade and other payables
Provisions
Current tax payable
Derivative financial instruments
Total liabilities
Total equity and liabilities
Net asset valuation per share
3
4
5
8
10
11
11
4
5
12
13
13
15
16
10
17
18
19
32
20
16
30
99,492
3,716
126,543
-
4,512
234,293
2,779
4,429
35,795
14,505
57,508
81
88,752
3,029
122,518
488
-
214,868
8,655
12,833
31,318
2,060
54,866
291,801
269,734
-
180,319
18,896
(26,239)
-
196,727
606
(51,896)
172,976
145,437
86,258
2,068
519
88,845
19,759
-
6,361
300
102
3,458
29,980
84,316
5,143
-
89,459
19,306
8,935
1,961
1,142
122
3,372
34,838
118,825
291,801
124,297
269,734
Basic and diluted net asset valuation per share (US $)
21
0 87
0 57
33
Annual Report 2012
These consolidated Financial Statements were approved by the Board of Directors on 20 May 2013
The notes on pages 40 to 90 form part of these consolidated financial statements
Livermore Investments Group Limited
Consolidated Income Statement for the year ended 31 December 2012
Investment income
Interest and dividend income
Investment property income
Gain / (loss) on investments
Gross profit
Other income
Administrative expenses
Operating profit
Finance costs
Finance income
Profit before taxation
Taxation charge
Profit for the year
Earnings per share
Note
2012
US $000
2011
US $000
23
24
25
26
27
28
28
29
22,140
5,382
7,306
34,828
694
(5,029)
30,493
(4,236)
610
26,867
(1,210)
18,891
5,684
(10,387)
14,188
3,000
(5,051)
12,137
(5,154)
-
6,983
(1,627)
25,657
5,356
Basic and diluted earnings per share ( US $)
30
0 12
0 02
The notes on pages 40 to 90 form part of these consolidated financial statements
34
Annual Report 2012
Livermore Investment Group Limited
Consolidated Statement of Comprehensive Income for the year ended 31 December 2012
Note
2012
US $000
25,657
2011
US $000
5,356
Profit for the year
Other comprehensive income:
Available for sale financial assets
•
Fair value gains / (losses)
• Reclassification to profit or loss due to disposals
• Reclassification to profit or loss due to impairment
25
25
3,329
(3,178)
18,133
(4,367)
(438)
9,873
Foreign exchange gains / (losses) from translation of
subsidiaries
6
(158)
Total comprehensive income for the year
43,947
10,266
The total comprehensive income for the year ended 31 December 2012 and 2011 is wholly attributable
to the owners of the parent company
The notes on pages 40 to 90 form part of these consolidated financial statements
35
Annual Report 2012 Livermore Investments Group Limited
Consolidated Statement of Changes in Equity for the year ended 31 December 2012
Note
Share
capital
US
$000
Share
premium
US
$000
Treasury
Shares
US
$000
Share
option
reserve
US
$000
Translation
reserve
US
$000
Investments
revaluation
reserve
US
$000
Retained
earnings
US
$000
Total
US
$000
Balance at 1 January 2011
Purchase of own shares
Share option charge
13
14/27
Transactions with owners
Profit for the year
Other comprehensive
income:
Available-for-sale financial
assets
• Fair value losses
• Reclassification to
profit or loss due to
disposals
• Reclassification to
profit or loss due to
impairment
Foreign exchange gains
/ (losses) arising from
translation of
Total comprehensive
income for the year
Balance at 31 December
2011
25
25
Purchase of own shares
13
Transactions with owners
Profit for the year
-
-
-
-
-
-
-
-
-
-
-
-
-
-
215,499
(11,647)
5,773
(728)
(9,353)
(57,252)
142,292
-
-
-
-
-
-
-
-
-
(7,125)
-
(7,125)
-
-
-
-
-
-
-
4
4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(7,125)
4
(7,121)
5,356
5,356
(4,367)
-
(4,367)
(438)
9,873
-
-
(438)
9,873
(158)
-
-
(158)
(158)
5,068
5,356
10,266
215,499 (18,772)
5,777
(886)
(4,285)
(51,896)
145,437
-
-
-
(16,408)
(16,408)
-
-
-
-
-
-
-
-
-
-
-
-
(16,408)
(16,408)
25,657
25,657
36
Annual Report 2012 Note
Share
capital
US
$000
Share
premium
US
$000
Treasury
Shares
US
$000
Share
option
reserve
US
$000
Translation
reserve
US
$000
Investments
revaluation
reserve
US
$000
Retained
earnings
US
$000
Total
US
$000
Other comprehensive
income:
Available-for-sale financial
assets
• Fair value losses
• Reclassification to
profit or loss due to
disposals
• Reclassification to
profit or loss due to
impairment
Foreign exchange losses
arising from translation of:
•
subsidiaries
Total comprehensive
income for the year
Balance at 31 December
2012
25
25
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6
6
3,329
(3,178)
18,133
-
-
-
-
-
3,329
(3,178)
18,133
6
18,284
25,657
43,947
215,499 (35,180)
5,777
(880)
13,999
(26,239) 172,976
The notes on pages 40 to 90 form part of these consolidated financial statements.
37
Annual Report 2012 Livermore Investments Group Limited
Consolidated Statement of Cash Flows for the year ended 31 December 2012
Cash flows from operating activities
Profit before tax
Adjustments for
Depreciation
Provisions for legal and other cases
Interest expense
Interest and dividend income
(Gain) / loss on investments
Equity settled share options
Exchange differences
Changes in working capital
Decrease / (Increase) in trade and other receivables
Increase in trade and other payables
Cash flows from operations
Interest and dividends-received
Tax paid
Net cash from operating activities
Cash flows from investing activities
Acquisition of investments
Proceeds from sale of investments
Net cash from investing activities
Cash flows from financing activities
Purchase of own shares
Proceeds from bank loans
Repayments of bank loans
Note
2012
US $000
2011
US $000
26,867
6,983
3
32
28
23
25
27
28
81
-
4,236
(22,140)
(7,306)
-
(610)
1,128
104
4,535
5,767
28,732
(228)
34,271
(44,456)
53,151
8,695
100
(224)
4,335
(18,891)
10,387
4
819
3,513
(1,030)
993
3,476
19,942
(357)
23,061
(36,895)
26,917
(9,978)
13
(16,408)
103,975
(7,125)
167,767
(113,077)
(175,960)
38
Annual Report 2012 Interest paid
Settlement of litigation
Note
32
2012
US $000
(4,236)
(833)
2011
US $000
(4,335)
(197)
Net cash from financing activities
(30,579)
(19,850)
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Exchange differences on cash and cash equivalents
Translation differences on foreign operations’ cash and
cash equivalents
12,387
(17,246)
(417)
22
(6,767)
(9,995)
(483)
(1)
Cash and cash equivalents at the end of the year
12
(5,254)
(17,246)
The notes on pages 40 to 90 form part of these consolidated financial statements
39
Annual Report 2012 Notes on the Financial Statements
1 General Information
Incorporation, principal activity and status of the Company
1 1 The Company was incorporated as an international business company and registered in the
British Virgin Islands (BVI) on 2 January 2002 under IBC Number 475668 with the name
Clevedon Services Limited The liability of the members of the Company is limited
1 2 The Company changed its name to Empire Online Limited on 5 May 2005 and then to
Livermore Investments Group Limited on 28 February 2007
1 3 The principal activity of the Group changed to investment services on 1 January 2007
Before that the principal activity of the Group was the provision of marketing services to
the online gaming industry and, since 1 January 2006, the operation of online gaming
1 4 The principal legislation under which the Company operates is the BVI Business Companies
Act, 2004
1 5 The registered office of the Company is located at Trident Chambers, PO Box 146, Road
Town, Tortola, British Virgin Islands
2
Accounting Policies
The significant accounting policies applied in the preparation of the consolidated financial
statements are as follows:
2 1 Basis of preparation
The consolidated financial statements of Livermore Investments Group Limited have been
prepared in accordance with International Financial Reporting Standards (“IFRS”) as
adopted by the European Union and on a going concern basis The consolidated financial
statements have been prepared on the historical cost basis except for the following:
•
Financial instruments at fair value through profit or loss (including derivatives) are
measured at fair value
Available- for- sale financial assets are measured at fair value
Investment property is measured at fair value
•
•
The financial information is presented in US dollars because this is the currency in which
the Group primarily operates
The Directors have reviewed the accounting policies used by the Group and consider them
to be the most appropriate
2 2 Adoption of new and revised IFRS
As from 1 January 2012, the Company adopted all the new or revised IFRS and relevant
amendments which became effective and also were endorsed by the European Union, and
are relevant to its operations
The adoption of the above did not have a material effect on the financial statements
All IFRS issued by the International Standards Board (IASB) which are effective for the year
ended 31 December 2012, have been adopted by the EU through the endorsement procedure
established by the European Commission, with the exception of certain provisions of IAS 39:
“Financial Instruments: Recognition and Measurement” relating to portfolio hedge accounting
40
Annual Report 2012
The following Standards, Amendments to Standards and Interpretations had been issued by
the date of authorisation of these financial statements but are not yet effective for the year
ended 31 December 2012:
Endorsed by
the EU
Effective for annual
periods beginning
on or after
IFRS 9: “Financial Instruments: Classification and
Measurement”
IFRS 10: “Consolidated Financial Statements”
IFRS 11: “Joint Arrangements”
IFRS 12: “Disclosure of Interests in Other Entities”
IFRS 13: “Fair Value Measurement”
IAS 19 (Revised): “Employee Benefits”
IAS 27 (Revised): “Separate Financial Statements”
IAS 28 (Revised): “Investments in Associates and
Joint Ventures”
IFRIC 20: “Stripping Costs in the Production
Phase of a Surface Mine”
Annual Improvements 2009–2011 Cycle
Amendment to IFRS 1: “Government Loans”
Amendment to IFRS 7: “Disclosures Offsetting
Financial Assets and Financial Liabilities”
Amendment to IFRS 10, IFRS 11, and IFRS 12:
“Transition Guidance”
Amendment to IFRS 10, IFRS 12, and IAS 27:
“Investment Entities”
Amendment to IAS 1: “Presentation of Items of
Other Comprehensive Income”
Amendment to IAS 32: “Offsetting Financial
Assets and Financial Liabilities”
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
1 January 2015
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2014
1 July 2012
1 January 2014
The Board of Directors expects that when the above Standards or Interpretations become
effective in future periods they will not have a material effect on the consolidated financial
statements of the Group, other than the following:
•
The Amendment to IAS 1: “Presentation of Items of Other Comprehensive Income” requires
entities to group items presented in other comprehensive income (OCI) into those that,
41
Annual Report 2012
in accordance with other IFRSs, will not be reclassified subsequently to profit or loss and
those that will be reclassified subsequently to profit or loss when specific conditions are
met The existing option to present items of OCI either before tax or net of tax remains
unchanged; however, if the items are presented before tax, then the Amendments to
IAS 1 require the tax related to each of the two groups of OCI to be shown separately
• The Amendments to IFRS 10, IFRS 12, and IAS 27: “Investment Entities” introduce an
exception to the principle that all subsidiaries shall be consolidated The amendments
define an investment entity and require a parent that is an investment entity to measure
its investments in particular subsidiaries at fair value through profit or loss in accordance
with IAS 39 (or IFRS 9) instead of consolidating those subsidiaries In addition, the
amendments introduce new disclosure requirements related to investment entities
In relation to IFRS 9, the Management has not yet assessed the likely impact of the
application of this Standard, since the Management has not yet determined its accounting
policy to be followed under the new Standard
2 3 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the
Company and entities (including special purpose entities) controlled by the Company (the
“subsidiaries”) Control is achieved where the Company has the power to govern the
financial and operating policies of an entity so as to obtain benefits from its activities
The financial statements of all the Group companies are prepared using uniform accounting
policies Where necessary, adjustments are made to the financial statements of subsidiaries
to bring their accounting policies into line with those used by the Group
All intra-group transactions, balances, income and expenses are eliminated on consolidation
The results and cash flows of any subsidiaries acquired or disposed of during the year are
included in the consolidated financial statements from the effective date of acquisition or
up to the effective date of disposal
2 4 Current assets are those which, in accordance with IAS 1 Presentation Of Financial
Statements are:
• expected to be realised within normal operating cycle, via sale or consumption, or
• held primarily for trading, or
• expected to be realised within 12 months from the reporting date, or
• cash and cash equivalent not restricted in their use
All other assets are non-current
2 5
Investment Property Revenue
Rental income is recognised on a straight line basis over the lease term Service charges
and management fees are recognised as the related costs are incurred and charged
Changes to rental income that arise from reviews to open market rental values or increases
that are indexed linked on a periodic basis are recognised from the date on which the
adjustment became due Lease incentives granted are recognised as an integral part of the
net consideration for the use of the property Lease incentives are allocated evenly over
42
Annual Report 2012
the life of the lease Rental income and services charged are stated net of VAT and other
related taxes
2 6
Interest and dividend income
•
•
Interest income is recognised based on the effective interest method
Dividend income is recognised on the date that the Group’s right to receive payment is
established, which in the case of quoted securities is the ex-dividend date
2 7 Foreign currency
The individual financial statements of each Group company are presented in the currency
of the primary economic environment in which it operates (its functional currency) For
the purpose of the consolidated financial statements, the results and financial position
of each Group company are expressed in USD, which is the functional currency of the
Company and the presentation currency for the consolidated financial statements
Transactions in foreign currencies other than each group entity’s functional currency are
recorded at the rates of exchange prevailing on the dates of the transaction Monetary assets
and liabilities denominated in non-functional currencies are translated into functional
currency equivalents using year-end spot foreign exchange rates Non-monetary assets
and liabilities are translated upon initial recognition using exchange rates prevailing at the
dates of the transactions Non-monetary assets that are measured in terms of historical
cost in foreign currency are not re-translated
Gains and losses arising on the settlement of monetary items and on the re-translation
of monetary items are included in the profit or loss for the year Those that arise on
the re-translation of non-monetary items carried at fair value are included in the profit
or loss of the year except for differences arising on the re-translation of non-monetary
available-for-sale financial assets in respect of which gains and losses are recognised in
other comprehensive income For such non-monetary items any exchange component of
that gain or loss is also recognised in other comprehensive income
The results and financial position of all Group entities that have a functional currency
different from US dollars are translated into the presentation currency as follows:
i
ii
assets and liabilities are translated at the closing rate at the reporting date; and
income and expenses and also cash flows are translated at an average exchange
rate (unless this average is not a reasonable approximation of the cumulative
effect of the rates prevailing on the transaction dates, in which case the items are
translated at the rates prevailing at the dates of the transactions); and
iii exchange differences arising are recognised in other comprehensive income within
the translation reserve Such translation exchange differences are reclassified to
profit or loss in the period in which the foreign operation is disposed of
2 8 Taxation
Current tax is the tax currently payable based on taxable profit for the year in accordance
with the tax laws applicable in jurisdictions where the Group operates
Deferred income taxes are calculated using the liability method on temporary differences
Deferred tax is generally provided on the difference between the carrying amounts of
43
Annual Report 2012
assets and liabilities and their tax bases However, deferred tax is not provided on the
initial recognition of goodwill, nor on the initial recognition of an asset or liability unless
the related transaction is a business combination or affects tax or accounting profit
Deferred tax on temporary differences associated with shares in subsidiaries and joint
ventures is not provided if reversal of these temporary differences can be controlled by the
group and it is probable that reversal will not occur in the foreseeable future In addition,
tax losses available to be carried forward as well as other income tax credits to the group
are assessed for recognition as deferred tax assets
Deferred tax liabilities are provided in full, with no discounting Deferred tax assets are
recognised to the extent that it is probable that the underlying deductible temporary
differences will be able to be offset against future taxable income Current and deferred
tax assets and liabilities are calculated at tax rates that are expected to apply to their
respective period of realisation, provided they are enacted or substantively enacted as at
the reporting date
Changes in deferred tax assets or liabilities are recognised as a component of tax expense
within profit or loss, except where they relate to items that are charged or credited directly
to equity in which case the related deferred tax is also charged or credited directly to
equity
2 9 Property, plant and equipment
Property, plant and equipment is stated at historical cost less accumulated depreciation
Carrying amounts are reviewed at each reporting date for impairment indications
Depreciation is calculated using the straight-line method, at annual rates estimated to
write off the cost of the assets less any estimated residual values over their expected
useful lives The annual depreciation rates used are as follows:
Computer Hardware
Fixtures and Fittings
Office Renovation
Motor Vehicles
-
-
-
-
33 3%
10%
25%
25%
2 10 Investment property
Certain of the Group’s properties are classified as investment property, being held for long
term investment gains and to earn rental income
Investment properties are measured initially at cost, and thereafter are stated at fair
value, which reflects market conditions at the reporting date Gains or losses arising from
changes in the fair values of investment properties are included in the profit or loss in the
year in which they arise
Investment property is valued at fair value based on valuations provided by a certified
external valuer
2 11 Equity instruments
Equity instruments issued by the Company are recorded at proceeds received, net of direct issue
costs
Own equity instruments purchased by the Company or its subsidiaries are recorded at
44
Annual Report 2012
the consideration paid, including directly associated assets, and they are deducted from
total equity as treasury shares until they are sold or cancelled Where such shares are
subsequently sold, any consideration received is included in total equity
The share premium account includes any premiums received on the initial issuing of the
share capital Any transaction costs associated with the issuing of shares are deducted
from the premium paid
2 12 Share Options
IFRS 2 “Share-based Payment” requires the recognition of equity settled share based
payments at fair value at the date of grant
The Group issues equity-settled share based payments to certain employees The fair value
of share-based payments to employees at grant date is measured using the Binomial pricing
model
The fair value determined at the grant date is expensed on a straight-line basis over the
vesting period, based on the Group’s estimate of the shares that will eventually vest and
adjusted for the effect of non market-based vesting conditions The corresponding credit is
taken to the share option reserve
On exercise of the options any related amounts recognised in the share option reserve are
transferred to share premium
On lapse of the options any related amounts recognised in the share option reserve are
transferred to retained earnings
2 13 Leases
Leases where a significant portion of the risk and rewards of ownership are retained by the
lessor are classified as operating leases and rentals are recognised to profit or loss on a
straight-line basis over the term of the lease
2 14 Borrowing costs
Borrowing costs primarily comprise interest on the Group’s borrowings Any borrowing
costs directly attributable to the acquisition, construction or production of qualifying
assets are added to the cost of the corresponding assets until such time as the assets are
substantially ready for their intended use or sale All other borrowing costs are expensed
in the period in which they are incurred and reported within “finance costs”
No borrowing costs have been capitalised for either 2012 or 2011
2 15 Financial assets
Financial assets are recognised when the Group becomes a party to the contractual
provisions of the financial instrument
A financial asset is derecognised only where the contractual rights to the cash flows
from the asset expire or the financial asset is transferred and that transfer qualifies for
derecognition A financial asset is transferred if the contractual rights to receive the
cash flows of the asset have been transferred or the Group retains the contractual rights
to receive the cash flows of the asset but assumes a contractual obligation to pay the
45
Annual Report 2012
cash flows to one or more recipients A financial asset that is transferred qualifies for
derecognition if the Group transfers substantially all the risks and rewards of ownership
of the asset, or if the Group neither retains nor transfers substantially all the risks and
rewards of ownership but does transfer control of that asset
Financial assets are measured initially at fair value plus transaction costs, except for
financial assets and financial liabilities carried at fair value through profit or loss, which
are measured initially at fair value
Financial assets are measured subsequently as described below
All financial assets except for those at fair value through profit or loss are subject to
review for impairment at least at each reporting date Financial assets are impaired when
there is any objective evidence that a financial asset or a group of financial assets is
impaired Different criteria to determine impairment are applied for each category of
financial assets, which are also described below
Loans and receivables
• Trade and other receivables
Trade and other receivables are initially recognised and carried at their fair value which
normally is their original transaction value, and are subsequently measured at their
amortised cost An estimate for doubtful debts is made when collection of the full amount
is no longer probable Bad debts are written off when identified Where the time value of
money is significant receivables are discounted to present value
• Cash and cash equivalents
Cash comprises cash in hand and balances with banks Cash equivalents are short term,
highly liquid investments that are readily convertible to known amounts of cash They
include unrestricted short-term bank deposits originally purchased with maturities of three
months or less
Bank overdrafts are considered to be component of cash and cash equivalents, since they
form an integral part of the Group’s cash management
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets that are either
classified as held for trading or are designated by the Group to be carried at fair value
through profit or loss upon initial recognition All assets within this category are measured
at their fair value, with changes in value recognised in the profit or loss when incurred
Upon initial recognition, attributable transactions costs are recognised in profit or loss
when incurred
Available-for-sale financial assets
Available-for-sale financial assets include non-derivative financial assets that are either
designated as such or do not qualify for inclusion in any of the other categories of financial
assets Financial assets within this category are measured at fair value, with changes in
fair value recognised in other comprehensive income, within the investments revaluation
reserve Unquoted equity investments for which the fair value cannot be reliably measured
are stated at cost less impairments Gains and losses arising from investments classified
as available-for-sale are recognised in the profit or loss when they are sold or when the
investment is impaired
46
Annual Report 2012
In the case of impairment of available-for-sale assets, the cumulative loss previously
recognised in other comprehensive income is reclassified to profit or loss Impairment
losses recognised in the profit or loss on equity instruments are not subsequently reversed
through the profit or loss Impairment losses recognised previously on debt securities
are reversed through the profit or loss when the increase in fair value can be related
objectively to an event occurring after the impairment loss was recognised in the profit or
loss
An assessment for impairment is undertaken at least at each reporting date, following the
IAS 39 guidance
2 16 Financial liabilities
Financial liabilities are recognised when the Group becomes a party to the contractual
provisions of the financial instrument
A financial liability is derecognised when it is extinguished, discharged, cancelled or expires
Financial liabilities are measured initially at fair value plus transactions costs, except for
financial liabilities carried at fair value through profit or loss, which are measured initially
at fair value
Financial liabilities at amortised cost
After initial recognition financial liabilities are measured at amortised cost using the
effective interest rate method
Derivative financial liabilities
The Group’s financial liabilities also include financial derivative instruments The Group’s
derivative instruments consist of interest rate swaps and forward currency contracts
All derivative financial instruments which are not designated as hedging instruments are
accounted for at fair value through profit or loss
Financial guarantee contracts
A financial guarantee contract is a contract that requires the issuer to make specified
payments to reimburse the holder for a loss it incurs because a specified debtor fails to
make payment when due in accordance with the original or modified terms of a debt
instrument
After initial recognition, financial guarantee contracts are measured at the higher of:
the amount determined in accordance with IAS 37; and
the amount initially recognised less, when appropriate, cumulative
amortisation recognised in accordance with IAS 18
(i)
(ii)
2 17 Provisions
Provisions are recognised when the Group has a present legal or constructive obligation
as a result of past events, it is probable that an outflow of resources will be required
to settle the obligation, and a reliable estimate of the amount can be made Where the
Company expects a provision to be reimbursed, for example under an insurance contract,
the reimbursement is recognised as a separate asset but only when the reimbursement is
virtually certain
47
Annual Report 2012
No provision is made for possible claims or where an obligation exists but it is not possible
to make a reliable estimate
Costs associated with claims made by the Group are charged to the profit or loss as they
are incurred
2 18 Segment reporting
In identifying its operating segments, management generally follows the Group’s investment
activity lines Each of these operating segments is managed separately as each of these
investment activity lines requires different monitoring and strategic decision making
process as well as allocation of resources
The measurement policies the Group uses for segment reporting under IFRS 8 are the same
as those used in its consolidated financial statements Any inter-segment transfers are
carried out at arm’s length prices
2 19 Critical accounting judgments and key sources of estimation uncertainty
The preparation of financial statements in conformity with IFRS requires the use of certain
critical accounting estimates and requires management to exercise its judgement in the
process of applying the Group’s accounting policies It also requires the use of assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period Although these estimates
are based on management’s best knowledge of current events and actions, actual results
may ultimately differ from those estimates
Estimates and judgements are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to be reasonable
under the circumstances
Impairment of available-for-sale financial assets
Critical accounting judgments
(i)
The Group follows the guidance in IAS 39 on determining when an investment is impaired
This determination requires significant judgments In making this judgment, the Group
evaluates, among other factors, the duration and extent to which the fair value of an
investment is less than its cost and the financial health and near-term business outlook
for the investee, including factors such as industry and sector performance, changes in
technology and financing cash flow
The Group assesses at each reporting date whether financial assets are impaired
If impairment has occurred, this loss is recognised to profit or loss
If there is objective evidence that an impairment loss has been incurred on an unquoted
equity instrument that is not carried at fair value because its fair value cannot be reliably
measured, or on a derivative asset that is linked to and must be settled by delivery of
such an unquoted equity instrument, the amount of the loss is measured as the difference
between the asset’s carrying amount and the present value of estimated future cash flows
discounted at the current market rate of return of similar financial assets
48
Annual Report 2012
Classification of financial assets
(ii)
in determining the appropriate
The management exercises significant
classification of the financial assets of the Group, especially for its investments and the
identification of any embedded derivatives The factors considered include the contractual
terms and characteristics which are very carefully examined, and also the Group’s intentions
and expected needs for the realisation of the financial assets
judgement
All new investments (other than additions to existing financial assets and investments in
loan market through CLOs) are classified as at fair value through profit or loss upon initial
recognition, because this reflects more fairly the way these assets are managed by the
Group The Group’s business is investing in financial assets with a view to profiting from
their total return in the form of income and capital growth This portfolio of financial
assets is managed and its performance evaluated on a fair value basis, in accordance with a
documented investment strategy, and information about the portfolio is provided internally
on that basis to the Group’s Board of Directors and other key management personnel
Deferred tax assets
(iii)
The tax rules applicable for the relevant Company’s operations are carefully taken into
consideration for the recognition of a deferred tax asset If a positive forecast of taxable
income indicates the probable use of a deferred tax asset, especially when it can be utilised
without a time limit, that deferred tax asset is usually recognised in full The recognition
of deferred tax assets that are subject to certain legal or economic limits or uncertainties
is assessed individually by management based on the specific facts and circumstances
Estimation uncertainty
The following are the significant estimates that have the most significant effect on
recognition and measurement of relevant items
Fair value of financial instruments
(i)
Management uses valuation techniques in measuring the fair value of financial instruments,
where active market quotes are not available Details of the bases used for financial assets
and liabilities are disclosed in note 7 In applying the valuation techniques management
makes maximum use of market inputs, and uses estimates and assumptions that are, as
far as possible, consistent with observable data that market participants would use in
pricing the instrument Where applicable data is not observable, management uses its best
estimate about the assumptions that market participants would make These estimates may vary
from the actual prices that would be achieved in an arm’s length transaction at the reporting date
(ii)
Investment property is stated at fair value The fair valuation is based on discounted
cash-flow (DCF) method Under this method, the current market value of the property
is determined as the total of all projected future net earnings (before interest, taxes,
depreciation and amortization) discounted to present-day equivalents These net earnings
are discounted individually for property with due allowance for specific opportunities and
threats, and with adjustment in line with market conditions and risks A one-period DCF
Fair value of investment property
49
Annual Report 2012
model was adopted under which the valuation period extends for 100 years from the
valuation date, with an implicit residual value in the 11th period Discounting is based on a
risk-adjusted interest rate of 4,20% determined individually for each property on the basis
of appropriate benchmarks derived from arm’s-length transactions The valuations assume
1% annual inflation for income and all expenditure
Provisions
(iii)
Determining whether provisions shall be recognised, requires the Group to assess the
likelihood of an economic outflow occurring as a result of past events Where an economic
outflow is considered probable, a provision has been made for the estimated outflow
Where the information required by IAS 37 “Provisions, Contingent Liabilities and Contingent
Assets” is expected to prejudice the outcome of legal and other disputes, it has not been
disclosed on these grounds
3 Property, plant and equipment
Office
Renovation
US $000
Computer
Hardware
US $000
Fixtures and
Fittings
US $000
Motor
Vehicles
US $000
Total
US $000
Cost
As at 1 January 2011
and 2012
Additions
As at 31 December 2012
360
7
367
Accumulated
depreciation
As at 1 January 2011
Charge for the year
As at 1 January 2012
Charge for the year
(236)
(73)
(309)
(58)
As at 31 December 2012
(367)
Net book value
As at 31 December 2012
-
As at 31 December 2011
51
145
18
163
(145)
-
(145)
(9)
(154)
9
-
106
5
111
(68)
(20)
(88)
(7)
(95)
16
18
26
-
26
(7)
(7)
(14)
(7)
(21)
5
12
637
30
667
(456)
(100)
(556)
(81)
(637)
30
81
50
Annual Report 2012
4 Available-for-sale financial assets
Non-current assets
Fixed income investments
Private equities
Financial and minority holdings
Other investments
Current assets
Fixed income investments
Public equity investments
Hedge funds
Other investments
2012
US $000
2011
US $000
73,181
15,842
10,469
-
99,492
-
3,516
908
5
4,429
53,815
14,162
15,226
5,549
88,752
7,007
2,900
2,926
-
12,833
For description of each of the above categories, refer to note 6
Available-for-sale financial assets are fair valued at least at each reporting date For
investments traded in active markets, fair value is determined by reference to Stock Exchange
quoted bid prices For other Investments, fair value is estimated by reference to the current
market value of similar instruments or by reference to the discounted cash flows of the
underlying assets
During 2012, the Group increased exposure to US broadly syndicated loans by investing USD
19 3m in CLO Income Notes
During 2012, due to market conditions, management considered the impairment of certain
available-for-sale financial assets Impairment testing indicated that for those financial assets
their carrying amount may not be recoverable
The related impairment charges in 2012, of USD 18 133m (2011 USD 9 873m), are included
within loss on investments (note 25), and represent impairment losses arising due to:
Significant fall in value
Prolonged fall in value
Investment in SRS Charminar
2012
US $000
16,816
1,317
18,133
2011
US $000
5,408
4,465
9,873
Included in the Financial and minority holdings is the investment in SRS Charminar
Investments Ltd (“SRS Charminar”), a private company incorporated in the Republic of
51
Annual Report 2012
Mauritius Livermore invested USD 20m in SRS Charminar acquiring a 15% ownership stake
SRS Charminar through its wholly owned subsidiaries invested INR 5 2b (USD 132 1m at date
of investment) which is equivalent to USD 98 9m as at 31 December 2012 (2011: 95 8m) in a
real estate company in India (“investee company”) The investment in the investee company
was in the form of Compulsorily Convertible Debentures (“CCDs”), that included a put option
which was exercisable either if the investee company did not have an IPO within 3 years or
if certain terms in the Investment Agreement were not met The put option is secured by
land which was valued at around USD 1 3 billion at the time of investment and guarantees a
minimum return of approximately 30% IRR if exercised
SRS believes that there had been material breaches of the terms of the Investment Agreement
and that the funds invested in the investee company had been utilized in a manner contrary
to the terms agreed The material breaches were incurable in nature and therefore constituted
Events of Default Accordingly, SRS exercised their rights under the Put Option Agreement
and issued a put option notice in January 2009 requiring the investee company and other
counterparties to payback the CCDs
Following a dispute on the grounds of the put option notice between the promoters and
the investors, the parties agreed to invoke arbitration to be held in Mumbai On 14 August
2009, the arbitration process was completed and the arbitrator ruled in favour of investors
The award entitles the investors to investment plus interest amounting to 30% IRR until 14
August 2009 and 18% IRR thereafter Meanwhile, the investors filed and won an interim order
for injunction against the promoters and the investee company to prohibit sale, transfer or
encumbering of the assets secured under the put option Thereafter, the promoters have filed
against the arbitral award and the injunction order As of 31 December 2012, there was no
change in status of these lands
On 13 January 2011 the Company Law Board (“CLB”) passed an order and allowed
Infrastructure Leasing & Financial Services Limited (“IL&FS”) to become 80% shareholder and
control the management of the investee company Since 2011 the investors and IL&FS have
been in negotiations
On 15 January 2013, the investee company together with IL&FS agreed to purchase back the
CCDs from the investors for the amount of US$162m (INR 8 500 thousand) in four tranches
over a period of five years According to the settlement terms SRS shall receive US$140m (INR
7 366 thousand) The agreement will, however, be subject to regulatory approvals including
clearances from the Reserve Bank of India and the Foreign Investment Promotion Board since
it involves a foreign fund
Due to the legal complexity and the receipt of the regulatory and court approvals required for
the implementation of the proposed settlement as well as the various counterparties involved,
the outcome remains uncertain
The carrying amount of the investment in SRS Charminar at 31 December 2012 is USD 10 1m
(2011: USD 14 7m), which represents its estimated fair value SRS Charminar’s only holding
is its investment in the investee company (through its wholly owned subsidiaries) and thus
its fair value is wholly attributable to the above mentioned investment The fair value is
based on discounted cash flow expectations and approximates the 15% share of the original
investment in the real estate company as translated to USD
Also included in the Private equities is the investment in SRS Private Investments, L P (“SRS
52
Annual Report 2012
Private”) with a carrying amount at reporting date of USD 4 0m (2011: USD 2 6m) which is
based on a net asset valuation (NAV) SRS Private through a fund has invested in various real
estate projects in India as well as in SRS Charminar, and its investment in SRS Charminar as at
31 December 2012 amounts approximately to 16 2% (2011: 21 2%) of its net assets
5 Financial at fair value through profit or loss
Non-current assets
Private equities
Real estate entities
Current assets
Fixed income investments
Public equity investments
Hedge funds
Other investments
2012
US $000
2011
US $000
1,965
1,751
3,716
10,248
23,182
2,078
287
35,795
1,575
1,454
3,029
21,609
7,372
2,066
271
31,318
For description of each of the above categories, refer to note 6
The Financial assets at fair value through profit or loss are fair valued at least at each
reporting date
6 Categories of financial assets at fair value
The Group categorise its financial assets at fair value as follows:
• Fixed income investments relate to fixed and floating rate bonds and investments in the
loan market through CLOs
• Private equities relate to investments in both high growth opportunities in emerging
markets and deep value opportunities in mature markets The company generally invests
directly in prospects where it can exert significant influence
• Financial and minority holdings relate to significant investments (of over USD 5m) which
are strategic for the Company and are done in the form of equity purchases or convertible
loans Main investments under this category are in the fields of real estate and media
• Hedge funds relate to investments in funds managed by sophisticated investment managers
that pursue investment strategies with the goal of generating absolute returns
• Public equity investments relate to investments in shares of companies listed on public
stock exchanges
• Real estate entities relate to investments in real estate projects
7 Fair value measurements of financial assets and liabilities
The following table presents financial assets measured at fair value in the consolidated
statement of financial position in accordance with the fair value hierarchy This hierarchy
53
Annual Report 2012
groups financial assets and liabilities into three levels based on the significance of inputs
used in measuring the fair value of the financial assets and liabilities The fair value hierarchy
has the following levels:
•
•
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included within Level 1 that are observable for
the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices);
and
• Level 3: inputs for the asset or liability that are not based on observable market data
(unobservable inputs)
The level within which the financial asset is classified is determined based on the lowest level
of significant input to the fair value measurement
Valuation of financial assets and liabilities
Public Equities, and Fixed
Investments are valued per their closing
bid market prices on quoted exchanges, or as quoted by market maker
Income
•
CLOs are typically valued on a discounted cash flow model The key assumptions for cash
flow projections include default and recovery rates, prepayment rates and reinvestment
assumptions on the underlying portfolios (typically senior secured loans) of the CLOs
Default and recovery rates: The amount and timing of defaults in the underlying
collateral and the amount and timing of recovery upon a default affect are key to
the future cash flows a CLO will distribute to the CLO equity tranche All else equal,
higher default rates and lower recovery rates typically lead to lower cash flows
Conversely, lower default rates and higher recoveries lead to higher cash flows
Prepayment rates: Senior loans can be pre-paid by borrowers CLOs that are
within their reinvestment period may, subject to certain conditions, reinvest such
prepayments into other loans which may have different spreads and maturities CLOs
that are beyond their reinvestment period typically pay down their senior liabilities
from proceeds of such pre-payments Therefore the rate at which the underlying
collateral prepays impacts the future cash flows that the CLO may generate
Reinvestment assumptions: A CLO within its reinvestment period may reinvest proceeds
from loan maturities, prepayments, and recoveries into purchasing additional loans
The reinvestment assumptions define the characteristics of the loans that a CLO may
reinvest in These assumptions include the spreads, maturities, and prices of such loans
Reinvestment into loans with higher spreads and lower prices will lead to higher cash
flows Reinvestment into loans with lower spreads will typically lead to lower cash flows
Discount rate: The discount rate indicates the yield that market participants expect to
receive and is used to discount the projected future cash flows Higher yield expectations or
discount rates lead to lower prices and lower discount rates lead to higher prices for CLOs
54
Annual Report 2012
• Hedge Funds and Private Equity Funds are valued per reports provided by the funds on
a periodic basis, and if traded, per their closing bid market prices on quoted exchanges,
or as quoted by market maker
• Private Equities and unlisted investments are valued using market valuation techniques
as determined by the Directors, mainly on the basis of discounted cash flow techniques
or valuations reported by third-party managers of such investments
Derivative instruments are valued at fair value as provided by counter parties of the
derivative agreement Derivative instruments consist of interest rate swaps and forward
currency contracts
•
Financial assets and financial liabilities measured at fair value in the consolidated statement
of financial position are grouped into the fair value hierarchy as follows:
Assets
Fixed income
investments
Private equities
Financial and minority
holdings
Public equity
investments
Hedge funds
Real estate entities
Other investments
Liabilities
Interest rate swaps
2012
US
$000
Level 1
2012
US
$000
Level 2
2012
US
$000
Level 3
2012
US
$000
Total
2011
US
$000
Level 1
2011
US
$000
Level 2
2011
US
$000
Level 3
2011
US
$000
Total
10,248
73,181
-
83,429
28,616
53,815
-
82,431
-
-
-
2,986
5,489
-
26,698
-
-
287
12,317
17,806
3,084
10,469
10,469
-
12,653
15,737
15,226
15,226
-
-
26,698
10,272
2,986
1,752
292
-
-
271
-
-
1,752
5
-
-
10,272
4,992
1,454
5,820
-
-
1,454
5,549
-
-
-
4,992
42,722
76,167
24,543
143,432
42,243
58,807
34,882
135,932
-
-
5,526
5,526
-
-
5,526
5,526
-
-
8,515
8,515
-
-
8,515
8,515
The methods and valuation techniques used for the purpose of measuring fair value are
unchanged compared to the previous reporting period
No financial assets or liabilities have been transferred between levels
55
Annual Report 2012
Financial assets within this level can be reconciled from beginning to ending balances as
follows:
Available-
for-sale
At fair value through
profit or loss
Financial
and
minority
holdings
US $000
Private
equities
US $000
Other
investments
US $000
Real estate
US $000
Private
equities
US $000
Total
US $000
18,919
15,220
5,549
1,763
2,844
44,295
As at 1 January
2011
Sales
Purchases
Gains / (losses)
recognised in:
-
-
-
141
• Profit or loss
(525)
(1,626)
• Other
comprehensive
income
(3,168)
(2,657)
Exchange difference
-
-
-
-
-
-
-
-
(1,651)
(1,651)
516
657
(425)
(134)
(2,710)
-
116
-
-
(5,825)
116
As at 1 January
2012
Purchases
Gains losses
recognised in:
15,226
11,078
5,549
1,454
1,575
34,882
-
1,535
-
-
-
1,535
• Profit or loss
(7,925)
(3,570)
(21)
239
390
(10,887)
• Other
comprehensive
income
3,168
1,309
Exchange difference
-
-
Transfer to other
assets (note 31)
As at 31 December
2012
-
-
(5,523)
-
59
-
-
4,477
59
(5,523)
10,469
10,352
5
1,752
1,965
24,543
56
Annual Report 2012
The above gains and losses recognised can be allocated as follows:
Available-
for-sale
At fair value through
profit or loss
Financial
and
minority
holdings
US $000
Private
equities
US $000
Other
investments
US $000
Real estate
US $000
Private
equities
US $000
Total
US $000
2011
Profit or loss
•
•
Financial assets
held at year-
end
Financial assets
no longer held
Other
comprehensive
income
•
•
Financial assets
held at year-
end
Financial assets
no longer held
(525)
(1,626)
-
-
(525)
(1,626)
(3,168)
(2,657)
-
-
(3,168)
(2,657)
Total gains / (losses)
for 2011
(3,693)
(4,283)
-
-
-
-
-
-
-
(425)
(134)
(2,710)
-
-
-
(425)
(134)
(2,710)
-
-
-
-
-
-
(5,825)
-
(5,825)
(425)
(134)
(8,535)
2012
Profit or loss
•
•
Financial assets
held at year-
end
Financial assets
no longer held
(7,925)
(3,570)
(21)
239
390
(10,887)
-
-
(7,925)
(3,570)
-
(21)
-
239
-
-
390
(10,887)
57
Annual Report 2012
Other
comprehensive
income
•
•
Financial assets
held at year-
end
Financial assets
no longer held
Total gains / (losses)
for 2012
3,168
1,309
-
-
3,168
1,309
-
-
-
-
-
-
-
-
-
4,477
-
4,477
(4,757)
(2,261)
(21)
239
390
(6,410)
A reasonable change in any individual significant input used in the level 3 valuations is not
anticipated to have a significant change in fair values as above
8
Investment property
Valuation as at 1 January
Change in fair value
Exchange difference
As at 31 December
2012
US $000
122,518
961
3,064
126,543
2011
US $000
119,018
4,103
(603)
122,518
The investment property relates to Wyler Park property in Bern, Switzerland, which is used for
earning rental income
The investment property was valued by the independent valuers Wuest & Partners as at 31
December 2012 and 2011 on the basis of open market value in accordance with the appraisal
and valuation guidelines of the Royal Institute of Certified Surveyors, and the European Group
of Valuers’ Associations
Wyler Park property investment loan is secured on the property itself
58
Annual Report 2012
The future minimum rental income under non-cancellable rental agreements, is receivable as
follows:
Less than 1 year
Between 1 and 5 years
Over 5 years
2012
US $000
5,794
25,820
5,164
36,778
2011
US $000
6,133
26,986
10,794
43,913
Rental agreements are quoted in Swiss Francs The equivalent USD amounts shown in the
table above are based on the exchange rates as at 31 December 2012 and 31 December 2011
respectively
9 Details of Group undertakings
Details of the investments in which the Group has a controlling interest are as follows:
Name of Subsidiary
Livermore Properties
Limited
Place of
incorporation
British Virgin
Islands
Proportion of
voting rights
and shares
held
Holding
Ordinary shares
100%
Livermore Management
Limited
British Virgin
Islands
Ordinary shares
100%
Livermore Israel
Investments Limited
Israel
Ordinary shares
100%
Livermore Capital AG
Switzerland
Ordinary shares
100%
Livermore Investments AG
Switzerland
Ordinary shares
100%*
Livermore Real Estate I AG
Switzerland
Ordinary shares
100%
Enaxor S a r l
Luxembourg
Ordinary shares
100%
Livermore Investments
Cyprus Limited
Cyprus
Ordinary shares
100%
Sandhirst Ltd
Cyprus
Ordinary shares
100%
* Held by Enaxor S a r l
Principal activity
Holding of
investments
Holding of
investments,
(Dormant)
Holding of
investments
(Dormant)
Administration
services
Real Estate owner
and management
Real Estate
management,
(Dormant)
Holding of
investment
Administration
services
Holding of
investments
59
Annual Report 2012
10 Deferred tax
The Company is an international business company based in the British Virgin Islands (BVI)
and, under its laws, is not subject to taxation Deferred taxes relate to the temporary
differences between carrying amounts and corresponding tax base of its subsidiaries, in
Switzerland
The deferred tax shown in the consolidated statement of financial position relates to the
following items:
Investment property
– revaluation surplus
Derivative financial instruments
– recognised carrying amount
Tax losses
Net deferred tax (liability)
/ asset
2012
US $000
(4,503)
916
3,068
(519)
2011
US $000
(3,538)
1,423
2,603
488
The movement on the deferred taxation account is as follows:
Investment
property
US $000
Derivative
financial
instruments
US $000
Tax losses
US $000
Total
US $000
As at 1 January 2011
(2,271)
1,746
2,324
1,799
(Charged) / credited to
profit or loss (note 29)
•
•
timing differences
(1,485)
change in tax rates
Exchange difference
197
21
(165)
(152)
(6)
494
(202)
(13)
(1,156)
(157)
2
As at 1 January 2012
(3,538)
1,423
2,603
488
(Charged) / credited to
profit or loss (note 29)
•
timing differences
Exchange difference
(863)
(103)
(532)
26
393
72
(1,002)
(5)
60
Annual Report 2012
As at 31 December 2012
(4,504)
917
3,068
(519)
The Group expects that future taxable profits will be available in the jurisdiction where the
deferred tax assets occurred (Switzerland) so as to utilise the carrying amount of the deferred
tax assets recognised as at the end of the year
As at 31 December 2012 and 2011 there is no unrecognised deferred tax asset
11 Trade and other receivables
2012
US $000
2011
US $000
Financial items
Accrued interest and dividend
income
Amounts due by related parties
(note 31)
Other receivables
Non-Financial items
Other assets (note 31)
Prepayments
Allocated as:
Current assets
Non-current assets
313
533
646
1,492
5,640
159
7,291
2,779
4,512
7,291
7,242
-
1,296
8,538
-
117
8,655
8,655
-
8,655
The carrying amount of trade and other receivables approximates to their fair value
Included within accrued interest and dividend income, is an amount of USD 0 430m (2011:
USD 7 2m) which is neither past due nor impaired and has been received in the first four
months following each reporting date
Other receivables include an amount of USD 0 578m (2011: USD 0 616m) paid on behalf of
61
Annual Report 2012
Wyler Park tenants, in relation to property common expenses, under management service
agreement
The other assets relate to loans made to a key management employee, the outstanding
amount of which is to be reduced annually on a straight line over five years, as long as the
key management employee remains with the Company The amount of non-current assets
shown above relates wholly to this item
12 Cash and cash equivalents
Cash and cash equivalents included in the consolidated statement of cash flows comprise the
following at the reporting date:
Cash at bank
2012
US $000
2011
US $000
14,505
2,060
Bank overdrafts used for cash management purposes
(19,759)
(19,306)
Cash and cash equivalents for the purposes of the
consolidated statement of cash flows
(5,254)
(17,246)
13 Share capital
Authorised share capital
The Company has authorised share capital of 1,000,000,000 ordinary shares with no par value,
and no restrictions
Issued share capital
Ordinary shares with no par value
Number of
shares
Share premium
arising
US $000
As at 31 December 2011 and at 31 December 2012
304,120,401
215,499
Treasury shares
As at 1 January 2011
Number of
shares
21,835,764
US $000
11,647
62
Annual Report 2012
Additions
27,497,119
7,125
As at 1 January 2012
Additions
49,332,883
56,052,180
18,772
16,408
As at 31 December 2012
105,385,063
35,180
In the consolidated statement of financial position the amount included comprises of:
Share premium
Treasury shares
2012
US $000
215,499
(35,180)
180,319
2011
US $000
215,499
(18,772)
196,727
14 Share options
The Company has a share option scheme for acquiring ordinary shares of the Company
Outstanding options
As at 31 December 2011 and 31
December 2012
Number of
options
Average
exercise price
GBP
Average exercise
price* USD
11,340,000
0 75
1 23
Exercisable options
As at 1 January 2011
Number of
options
11,173,333
Exercisable during the year
166,667
As at 31 December 2011 and 31
December 2012
11,340,000
Average
exercise price
GBP
Average exercise
price* USD
0 76
0 30
0 75
1 24
0 49
1 23
63
Annual Report 2012
Details of share options outstanding at 31 December 2012
Number of
options
Grant date
Vesting
date
Earliest
exercise
date
Expire
date of
exercise
period
Exercise
price
GBP
Exercise
Price*
USD
Fair value at
grant date
USD
230,000
07/12/05
07/12/06
07/12/06
07/12/15
0 71
230,000
07/12/05
07/12/07
07/12/07
07/12/15
0 71
230,000
07/12/05
07/12/08
07/12/08
07/12/15
0 71
3,383,333
19/07/06
19/07/07
19/07/07
19/07/16
0 78
3,383,333
19/07/06
19/07/08
19/07/08
19/07/16
0 78
3,383,333
19/07/06
19/07/09
19/07/09
19/07/16
0 78
166,667
13/05/08
13/05/09 13/05/09
13/05/18
0 30
166,667
13/05/08
13/05/10 13/05/10
13/05/18
0 30
166,667
13/05/08
13/05/11
13/05/11
13/05/18
0 30
1 15
1 15
1 15
1 27
1 27
1 27
0 49
0 49
0 49
11,340,000
82,739
94,333
103,948
1,608,710
1,824,133
2,001,774
21,703
24,115
25,820
5,787,275
The fair value of options granted to employees was determined using the Binomial valuation
model The model takes into account a volatility rate of 41-45% calculated using the
historical volatility of a peer group of similar companies and a risk free interest rate of 4 0-
4 4% and it has been assumed the options have an expected life of two years post date of
vesting
The options lapse at the earliest of the expiry date of exercise period or the termination of the
corresponding employee’s service
* The exercise prices as per the share option scheme are quoted in British Pounds The
indicative equivalent USD amounts shown in the table of details above as well as the average
exercise prices are based on the exchange rates as at 31 December 2012
15 Bank Loans
As at 1 January
Repayment
Exchange difference
As at 31 December
2012
US $000
84,316
(167)
2,109
86,258
2011
US $000
84,722
-
(406)
84,316
64
Annual Report 2012
The long term bank loan is related to Wyler Park property investment purchase and is secured
on this property The increase in the loan amount from 2011 to 2012 represents the effect of
currency translation from CHF to USD
Interest is payable at 3M CHF Libor + 0 85% The Group has fixed the variable element of
interest to 3 3% using an interest rate swap (note 16) Consequently, the loan’s effective
interest rate is 4 15%
The loan balance is repayable on 12 July 2014
16 Derivative financial instruments
Non-current liabilities
Interest rate swaps
Current liabilities
Interest rate swaps
2012
US $000
2011
US $000
2,068
5,143
3,458
3,372
During 2012 and 2011 the Group used forward currency contracts, however, no such
derivatives were open at 31 December 2012 or 2011
The Group uses interest rate swaps to manage its exposure to interest rate movements on its
bank borrowings by swapping a proportion from floating rates to fixed rates as follows
Notional contract
amount
Underlying
floating rate
Contract
fixed rate
Contract
termination date
CHF 78,981,921
(2011: CHF
79,135,000)
3M CHF Libor
3 30%
30 July 2014
CHF 10,000,000
6M CHF Libor
CHF 10,000,000
6M CHF Libor
3 255%
3 1675%
17 June 2014
17 November 2014
The calculation of the fair value of swaps is based on discounted cash flows of future
anticipated interest payments on the swap agreements in place compared with the discounted
cash flows of anticipated interest payments at market swap interest rates at the reporting
date
The interest rate swap with CHF 78,981,921 notional amount relates to fixing the interest rate
on the loan against Wyler Park at 3 3%
For the year ended 31 December 2012 a fair value gain of USD 3,112,852 (2011: gain USD 176,122)
has been recognised in the profit or loss in relation to all derivative financial instruments
65
Annual Report 2012
17 Bank Overdrafts
Short term bank overdrafts
2012
US $000
19,759
2011
US $000
19,306
Short term bank overdrafts bear Libor + lender’s margin and have an average interest rate of
2 46% (2011 2 03%)
The Group’s bank overdraft facilities are secured by the Group’s financial assets portfolio up to
an amount, as at 31 December 2012, of USD 53m
18 Short term bank loans
Short term bank loans
2012
US $000
-
2011
US $000
8,935
Short term bank loans bear Libor + lender’s margin and had an average interest rate of 1 64%
The Group’s short term bank loan facilities were secured by the Group’s financial assets
portfolio
19 Trade and other payables
2012
US $000
2011
US $000
Financial items
Trade payables
Amounts due to related parties
(note 31)
Other payables
Accrued expenses
Non-Financial items
VAT payable
1,233
4,012
-
946
6,191
170
6,361
612
60
324
857
1,853
108
1,961
66
Annual Report 2012
The Directors consider that the carrying amount of trade and other payables approximates to
their fair value All amounts fall due within one year
20 Current tax payable
Corporation Tax
21 Net asset value per share
2012
US $000
102
2011
US $000
122
Net asset value per share has been calculated by dividing the net assets attributable to
ordinary shareholders by the closing number of ordinary shares (net of treasury shares) in
issue during the relevant financial periods
Diluted net asset value per share is calculated after taking into consideration the potentially
dilutive shares in existence as at 31 December 2012 and 31 December 2011
Net assets attributable to ordinary shareholders
(USD 000)
2012
2011
172,976
145,437
Closing number of ordinary shares in issue
198,735,338
254,787,518
Basic net asset value per share (USD)
0 87
0 57
Closing number of ordinary shares including the
effect of potentially diluted shares
198,735,338
254,787,518
Diluted net assets value per share (US $)
0 87
0 57
Number of Shares
Ordinary shares
Treasury shares
304,120,401
304,120,401
(105,385,063)
(49,332,883)
Closing number of ordinary shares in issue
198,735,338
254,787,518
67
Annual Report 2012
The Share options do not impact the diluted net asset value per share for 2012 and 2011 as
their exercise price was higher than the average market price of the Company’s shares on the
London Stock Exchange (AIM division) during the year ended 31 December 2012 and 2011
22 Segment reporting
The Group’s monitoring and strategic decision making process in relation to its investments is
separated into two activity lines which are also identified as the Group’s operating segments
These operating segments are monitored and strategic decisions are made on the basis of
segment operating results
Segment information can be analysed as follows
Equity and debt
instruments
investment activities
Investment
property
activities
Total per financial
statements
2012
US $000
2011
US $000
2012
US $000
2011
US $000
2012
US $000
2011
US $000
22,140
18,891
-
-
22,140
18,891
-
-
5,382
5,684
5,382
5,684
6,345
(14,490)
961
4,103
7,306
(10,387)
28,485
694
4,401
3,000
6,343
9,787
34,828
14,188
-
-
694
3,000
(4,211)
(4,235)
(818)
(816)
(5,029)
(5,051)
Segment results
Investment income
Interest and dividend
income
Investment property
revenue
Gain / (loss) on
investments
Gross profit
Other income
Administrative
expenses
Operating profit
24,968
3,166
5,525
8,971
30,493
12,137
Finance costs
(682)
(1,391)
(3,554)
(3,763)
(4,236)
(5,154)
Finance income
610
-
-
-
610
-
Profit before
taxation
24,896
1,775
1,971
5,208
26,867
6,983
Taxation charge
(44)
(167)
(1,166)
(1,460)
(1,210)
(1,627)
68
Annual Report 2012
Equity and debt
instruments
investment activities
Investment
property
activities
Total per financial
statements
2012
US $000
2011
US $000
2012
US $000
2011
US $000
2012
US $000
2011
US $000
Profit for year
24,852
1,608
805
3,748
25,657
5,356
Segment assets
163,648
145,599
128,153
124,135
291,801
269,734
Segment liabilities
26,351
31,628
92,474
92,669
118,825
124,297
The Group’s investment income and its investments are divided into the following geographical
areas:
Equity and debt
instruments investment
activities
Investment
property
activities
Total per financial
statements
2012
US $000
2011
US $000
2012
US $000
2011
US $000
2012
US $000
2011
US $000
-
72
8,858
9,787
8,858
9,859
(2,391)
(3,540)
34,075
(8,279)
2,565
25,970
11,190
(1,569)
(1,752)
4,401
-
-
-
-
-
-
(2,391)
(3,540)
34,075
11,190
(8,279)
(1,569)
2,565
(1,752)
8,858
9,787
34,828
14,188
-
-
126,543
122,518
126,543
122,518
23,055
37,171
75,575
18,405
70,681
24,670
-
-
-
-
-
-
23,055
37,171
75,575
18,405
70,681
24,670
Investment Income
Switzerland
Other European
countries
United States
India
Asia
Investments
Switzerland
Other European
countries
United States
India
69
Annual Report 2012
Asia
26,397
3,410
-
-
26,397
3,410
143,432
135,932
126,543
122,518
269,975
258,450
Investment income, comprising interest and dividend income, gains or losses on investments,
and investment property income, is allocated on the basis of the customer’s geographical
location in the case of the investment property activities segment and the issuer’s location in
the case of the equity and debt instruments investment activities segment Investments are
allocated based on the issuer’s location
During 2012, 89% of the Group’s rent relates to rental income from a single customer (SBB –
Swiss national transport authority) in the investment property activities segment (2011: 88%)
23 Interest and dividend income
Interest from investments
Dividend income
Interest receivable written off
2012
US $000
1,576
20,564
-
22,140
2011
US $000
2,886
22,157
(6,152)
18,891
The Interest receivable has been written off as during the first half of the year since it has
been regarded as irrecoverable
24 Investment property income
Gross rental income
Direct expenses
2012
US $000
5,793
(411)
5,382
2011
US $000
6,159
(475)
5,684
All direct expenses relate to the generation of rental income
70
Annual Report 2012
25 Gain / (loss) on investments
Gain on sale of investments
Investment property revaluation
Foreign exchange gain / (loss)
Loss due to impairment of available-for-sale
financial assets
Fair value gains / (losses) on financial assets
through profit or loss
Fair value gains / (losses) on derivative instruments
Bank custody fees
2012
US $000
3,178
961
130
2011
US $000
438
4,103
(456)
(18,133)
(9,873)
18,234
(4,080)
3,124
(188)
7,306
(379)
(140)
(10,387)
The investments disposed of during the year resulted in the following realised gains/(losses)
(i e in relation to their original acquisition cost):
Available-for-sale
At fair value through profit or loss
26 Other income
Settlement of litigation
Disposal gain
Warehouse Carry income
Insurance claim received
2012
US $000
497
22
519
2012
US $000
-
250
244
200
694
2011
US $000
(430)
535
105
2011
US $000
3,000
-
-
-
3,000
71
Annual Report 2012
Disposal gain relates to the sale of a fully amortized domain name
Warehouse Carry income relates to the accrued income net of related costs received on
portfolios of US senior secured loans for certain CLO transactions where the Group took the
first-loss risk prior to closing of such CLO transactions
Insurance claim received relates to compensation against legal expenses
27 Administrative expenses
Legal expenses
Directors’ fees and expenses
Share option expense
Professional and consulting fees
Other salaries and expenses
Office cost
Depreciation
Other operating expenses
Provision for legal and other cases – reversal
Audit fees
2012
US $000
93
2,593
-
828
503
306
81
426
-
199
5,029
2011
US $000
1,989
1,367
4
415
463
298
100
493
(224)
146
5,051
Throughout 2012 the Group employed 6 members of staff (2011: 6)
Other salaries and expenses include USD 31,858 of social insurance and similar contributions
(2011: USD 31,406), as well as USD 18,750 of defined contributions plan costs (2011: USD
12,247)
28 Finance costs and income
Finance costs
Bank interest on investment property loan
Other bank interest
Foreign exchange loss
2012
US $000
2011
US $000
3,547
689
-
3,763
572
819
72
Annual Report 2012
Finance income
Foreign exchange gain
4,236
5,154
610
-
Net finance costs
3,626
5,154
32 Taxation
Current tax charge
Prior year tax charge
Deferred tax charge
2012
US $000
2011
US $000
200
8
1,002
1,210
324
(10)
1,313
1,627
The tax charge for the year can be reconciled to
the accounting profit as follows:
Profit before tax
26,867
6,983
Effect of applicable corporation tax rates
Effect of income not subject to tax
Effect of expenses not deductible for tax purposes
Effect of current year losses
Prior year tax charge
Interest withholding tax
Property tax
Deferred tax charge
928
(855)
63
(109)
8
44
129
1,002
1,213
(899)
90
(355)
(10)
166
109
1,313
Tax for the year
1,210
1,627
The Company is an international business company based in the British Virgin Islands (BVI)
and, under the BVI laws, is not subject to corporation tax Corporation tax is calculated with
reference to the results of the Company’s subsidiaries
30 Earnings per share
Basic earnings per share has been calculated by dividing the profit for the year attributable
to ordinary shareholders of the parent Company by the weighted average number of ordinary
73
Annual Report 2012
shares in issue of the parent during the relevant financial periods
Diluted earnings per share is calculated after taking into consideration other potentially
dilutive shares in existence during the year ended 31 December 2012 and the year ended 31
December 2011
Profit for the year attributable to ordinary shareholders
of the parent (USD 000)
2012
2011
25,657
5,356
Weighted average number of ordinary shares outstanding
220,907,964
267,345,907
Basic earnings per share (USD)
0 12
0 02
Weighted average number of ordinary shares including
the effect of potentially dilutive shares
220,907,964
267,345,907
Diluted earnings per share (USD)
0 12
0 02
The decrease in the weighted average number of ordinary shares outstanding is due to the
acquisition of treasury shares during the year (note 13)
The Share options do not impact the diluted earnings per share for 2012 and 2011 as their
exercise price was higher than the average market price of the Company’s shares on the
London Stock Exchange (AIM division) during the year ended 31 December 2012 and 2011
31 Related party transactions
The Group is controlled by Groverton Management Ltd, an entity owned by Noam Lanir, which
at 31 December 2012 held 77 70% (2011: 60 60%) of the Company’s effective voting rights
Amounts owed by /(to) key management
Loans
Other assets
Directors’ current accounts
Amounts owed to other related party
Loans
Trade payable
2012
US $000
2011
US $000
-
5,640
533
6,173
(4,012)
(810)
(4,822)
5,589
-
(60)
5,529
-
-
-
74
Annual Report 2012
Key management compensation
Short term benefits
Executive directors fees*
Executive directors reward payments
Non-executive directors fees
Share option expense
795
1,700
98
2,593
-
2,593
795
500
72
1,367
4
1,371
* These payments were made directly to companies to which they are related
Loans of USD 5 523m were made to a key management employee for the acquisition of shares in
the Company Interest was payable on these loans at 6 month US LIBOR plus 0 25% per annum
and the loans were secured on the shares acquired The loans were repayable on the earlier of the
employee leaving the Company or April 2013 In December 2012 the Board decided to renew the
outstanding amount of these loans for a period of another five years Based on the Board’s decision,
the outstanding amount will be reduced annually on a straight line over five years, as long as the
key management employee remains with the Company These loans in 2011 were included within
other investments under available-for-sale financial assets (note 4) Accrued interest as at 31
December 2011 on the above loans amounts to USD 0 066m and was included under trade and other
receivables (note 11) As from December 2012 the loans together with their related accrued interest
of USD 0 117m have been reclassified as “other assets” and are included under trade and other
receivables (note 11)
A loan with a balance at 31 December 2012 of USD 4 0m (31 December 2011: USD 0m) has been
received from a related company Chanpak Ltd The loan is free of interest, it is unsecured and is
repayable on demand This loan is included within trade and other payables (note 19)
Noam Lanir, through an Israeli partnership, is the major shareholder of Babylon Limited, an Israel
based Internet Services Company The Group has purchased 1 129m additional shares of Babylon Ltd
at a cost of USD 4 6m and as of 31 December 2012 it held a total of 3 915m shares at a value of
USD 22 3m which represents 8 15% of its effective voting rights The investment in Babylon Ltd is
included within public equity investments under financial assets at fair value through profit or loss
(note 5)
75
Annual Report 2012
32 Provisions
The movement in the provisions for the year is as follows:
As at 1 January
Amounts reversed
Settlements
Exchange differences
At 31 December
2012
US $000
2011
US $000
1,142
-
(833)
(9)
300
1,585
(224)
(197)
(22)
1,142
The Company provided a corporate guarantee to a bank in the amount up to €2 1m as part
of a shareholders’ guarantee required by a financing bank as a condition to a loan facility
provided to DTH-Boom
A settlement agreement concerning the guarantee was reached during the first quarter of
2012 and the settlement concluded in the second quarter of 2012 under which the Group paid
USD 0 833m
33 Litigation
Ex employee vs Empire Online Ltd
In 2007 an ex employee of Empire Online Limited (the Company’s former name) filed a law
suit against one of its Directors and the Company in the Labor Court in Tel Aviv According to
the lawsuit the plaintiff claims compensation relating to the sale of all commercial activities
of Empire Online Limited until the end of 2006, and the dissolution of the company and the
terms of termination of his employment with Empire Online Limited The litigation procedure
is in progress in Israel
Prior to the filing of the lawsuit in Israel, the Company filed a claim against the plaintiff in
the Court in Cyprus based upon claims concerning breach of faith of the plaintiff towards his
employers Litigation was completed in Israel and a final decision is pending
No further information is provided on the above case as the Directors consider it could
prejudice the outcome of any claim
34 Commitments and contingencies
The Group has no capital or other commitments as at 31 December 2012
35 Events after the reporting date
After the reporting period, the Manager of SRS Charminar has reported a settlement with
IL&FS and the investee company which is subject to certain court and regulatory approvals
(note 4)
76
Annual Report 2012
36 Financial risk management objectives and policies
Background
The Group’s financial instruments comprise available for sale financial assets, financial assets
at fair value through profit or loss, derivatives, cash balances and receivables and payables
that arise directly from its operations For an analysis of financial assets and liabilities by
category, refer to note 37
Risk objectives and policies
The objective of the Group is to achieve growth of shareholder value, in line with reasonable
risk, taking into consideration that the protection of long-term shareholder value is
paramount The policy of the Board is to provide a framework within which the investment
manager can operate and deliver the objectives of the Group
Risks associated with financial instruments
Foreign currency risk
Foreign currency risks arise in two distinct areas which affect the valuation of the investment
portfolio, 1) where an investment is denominated and paid for in a foreign currency; and
2) where an investment has substantial exposure to non-US Dollar underlying assets or cash
flows denominated in a foreign currency The Group in general does not hedge its currency
exposure The Group discretionally and partially hedges against foreign currency movements
affecting the value of the investment portfolio based on its view on the relative strength of
certain currencies Any hedging transactions represent economic hedges; the Group does not
apply hedge accounting in any case Management monitors the effect of foreign currency
fluctuations through the pricing of the investments The level of investments denominated in
foreign currencies held by the Group at 31 December 2012 is the following:
2012
US $000
2012
US $000
2012
US $000
2011
US $000
2011
US $000
2011
US $000
Financial
assets
Liabilities
Net value
Financial
assets
Liabilities Net value
8,650
7,856
42,660
10,106
22,940
-
(13,478)
(154)
(1,228)
-
(7,851)
(2,816)
(4,828)
7,702
41,432
10,106
15,089
(2,816)
8,022
14,460
43,033
16,459
6,615
27
(3,914)
(8,649)
(9,662)
-
(3,780)
(3,066)
4,108
5,811
33,371
16,459
2,835
(3,039)
92,212
(25,527)
66,685
88,616
(29,071)
59,545
British Pounds (GPB)
Euro
Swiss Francs (CHF)
Indian Rupee (INR)
Israel Shekels (ILS)
Others
Total
Also, some of the USD denominated investments are backed by underlying assets which
are invested in non-USD assets For instance, investments in certain emerging market
private equity funds are denominated in USD but the funds in turn have invested in assets
77
Annual Report 2012
denominated in non-USD currencies
A 10% increase of the following currency rates against the rate of United States Dollar (USD)
at 31 December 2012 would have the following impact A 10% decrease of the following
currencies against USD would have an approximately equal but opposite impact
2012
US $000
2012
US $000
2011
US $000
2011
US $000
Profit or loss
Other
comprehensive
income
Profit or loss
Other
comprehensive
income
British Pounds (GPB)
Euro
Swiss Francs (CHF)
Indian Rupee (INR)
Israel Shekels (ILS)
Total
(483)
770
4,143
1,011
1,509
6,950
-
-
-
-
-
-
411
581
3,337
1,645
283
6,257
-
-
-
-
-
-
The above analysis assumes that all other variables in particular, interest rates, remain
constant The analysis does not include the impact arising from the translation of foreign
operations from their functional to the presentation currency
Interest rate risk
The Group is exposed to interest rate risk on its interest-bearing instruments which are
affected by changes in market interest rates The Group has borrowings of USD 86 3m (2011:
USD 84 3m) related to a real estate asset (Wylerpark, Bern), which have been fixed through
the use of an interest rate swap
The Group has banking credit lines which are available on short notice for the Group to use
in its investment activities, the costs of which are based on variable rates plus a margin
When an investment is made utilising the facility, consideration is given to the financing costs
which would impact the returns The level of banking facilities used is monitored by both the
Board and the management on a regular basis The level of banking facilities utilised at 31
December 2012 was USD 19 7m (2011: USD 28 2m)
As at 31 December 2012 the Group had no financial liabilities that bore an interest rate risk,
other than the previously disclosed bank facilities
Interest rate changes will also impact equity prices The level and direction of changes in
equity prices are subject to prevailing local and world economics as well as market sentiment
all of which are very difficult to predict with any certainty
The Group has fixed and floating rate financial assets including bank balances that bear
interest at rates based on the banks floating interest rates In particular, the fair value of
78
Annual Report 2012
the Group’s fixed rate financial assets is likely to be negatively impacted by an increase in
interest rates The interest income of the Group’s floating rate financial assets is likely to be
positively impacted by an increase in interest rates
The Group has exposure to US bank loans and to a lesser degree emerging market loans
through CLO equity tranches An investment in the CLO equity tranche represents a leveraged
investment into such loans As these loans (assets of a CLO) and the liabilities of a CLO are
floating rate in nature (typically 3 month LIBOR as the base rate), the residual income to CLO
equity tranches is normally linked to the floating rate benchmark and thus normally do not
carry substantial interest rate risk In the current low rate environment, however, most loans
feature a LIBOR floor The presence of LIBOR floors creates an interest rate risk to CLO equity
distributions as long as the benchmark rate is below the weighted average LIBOR floor level
on the CLO loan portfolio Thus, an increase in the benchmark floating rate up to the weighted
average LIBOR floor level is expected to cause distributions to CLO equity to reduce whereas a
decrease in the benchmark floating rate is expected to increase such distributions
The Group’s interest bearing assets and liabilities are as follows:
Financial assets – subject to:
•
•
fair value changes
interest changes
Total
Financial liabilities – subject to:
•
interest changes
• both fair value and interest changes
Total
2012
US $000
2011
US $000
9,954
87,980
97,934
106,017
5,526
115,543
22,413
62,078
84,491
112,558
8,515
121,073
Changes in market interest rates will affect the valuation of fixed rate interest bearing
instruments A 1% (100 basis points) change in market interest rates would result in an
estimated 1 22% change in the net asset value as at 31 December 2012 (2011: 1 65%)
An increase of 1% (100 basis points) in interest rates would have the following impact An
equivalent decrease would have an approximately equal but opposite impact
79
Annual Report 2012
2012
US $000
2012
US $000
2011
US $000
2011
US $000
Profit or loss
Other
comprehensive
income
Profit or loss
Other
comprehensive
income
(535)
880
1,739
21
2,105
-
-
-
-
-
(855)
621
2,769
(69)
(61)
-
-
-
2,466
(61)
Financial assets
•
•
fair value changes
interest changes
Financial liabilities
•
•
fair value changes
interest changes
The above analysis assumes that all other variables, in particular currency rates, remain constant
Market price risk
By the nature of its activities, most of the Group’s investments are exposed to market price
fluctuations The Board monitors the portfolio valuation on a regular basis and consideration
is given to hedging or adjusting the portfolio against large market movements
The Group had no single major financial instrument that in absolute terms and as a proportion
of the portfolio could result in a significant reduction in the NAV and share price Due to the
very low exposure of the Group to public equities, and having no specific correlation to any
market, the equity price risk is low The portfolio as a whole does not correlate exactly to any
Index
Management of risks is primarily achieved by having a diversified portfolio to spread the
market price risk The Group has investments in CLO equity tranches These investments
represent leveraged exposure to typically senior secured loans Investments in CLOs are subject
to many risks including market price risk, liquidity, credit risk, interest rate, reinvestment and
certain other risks
Prices of these CLO investments may be volatile and will generally fluctuate due to a variety
of factors that are inherently difficult to predict, including but not limited to changes in
prevailing credit spreads and yield expectations, interest rates, underlying portfolio credit
quality and market expectations of default rates on non-investment grade loans, general
economic conditions, financial market conditions, legal and regulatory developments, domestic
and international economic or political events, developments or trends in any particular
industry, and the financial condition of the obligors that constitute the underlying portfolio
80
Annual Report 2012
A 10% uniform change in the value of the Group’s portfolio of financial instruments (excluding
private equities and financial and minority holdings) would result in a 6 63% change in the
net asset value as at 31 December 2012 (2011: 6 81%), and would have the following impact
(either positive or negative, depending on the corresponding sign of the change):
2012
US $000
2012
US $000
2011
US $000
20101
US $000
Profit or loss
Other
comprehensive
income
Profit or loss
Other
comprehensive
income
12
7,732
26
6,639
3,703
3,715
-
3,242
-
7,732
3,268
6,639
Available-for-sale
financial assets
Financial assets at fair
value through profit or
loss
Derivatives
The Investment Manager may use derivative instruments in order to mitigate market risk
or to take a directional investment These provide a limited degree of protection against a
rise in interest rates and would not materially impact the portfolio returns if a large market
movement did occur
Credit Risk
The Group invests in a wide range of securities with various credit risk profiles including
investment grade securities and sub investment grade positions The investment in debt
instruments is both in investment grade securities and in sub investment grade or unrated
debt instruments The investment manager mitigates the credit risk via diversification across
issuers However, the Group is exposed to a migration of credit rating, widening of credit
spreads and default of any specific issuer
The Group only transacts with regulated institutions on normal market terms which are trade
date plus one to three days The levels of amounts outstanding from brokers are regularly
reviewed by the management The duration of credit risk associated with the investment
transactions is the period between the date the transaction took place, the trade date and
the date the stock and cash are transferred, the settlement date The level of risk during the
period is the difference between the value of the original transaction and its replacement with
a new transaction The Group is mainly exposed to credit risk in respect of its interest bearing
investments of USD 83 4m (2011: USD 82 5m) The Group’s maximum credit risk exposure at 31
December 2012 is USD 99 0m (2011: USD 92 4m)
The fair values of the Group’s investments in bonds and other debt instruments are also
affected by the credit risk of those instruments However, it is not practical to provide an
analysis of the changes in fair values due to the credit risk impact for the year or previous
81
Annual Report 2012
periods, nor to provide any relevant sensitivity analysis
The Group has exposure to US senior secured loans and to a lesser degree emerging market
loans through CLO equity tranches These loans are primarily non-investment grade loans
or interests in non-investment grade loans, which are subject to credit risk among liquidity,
market value, interest rate, reinvestment and certain other risks It is anticipated that these
non-investment grade loans generally will be subject to greater risks than investment grade
corporate obligations
A non-investment grade loan or debt obligation or an interest in a non-investment grade
loan is generally considered speculative in nature and may become a defaulted security for
a variety of reasons A defaulted security may become subject to either substantial workout
negotiations or restructuring, which may entail, among other things, a substantial reduction
in the interest rate, a substantial write-down of principal, and a substantial change in the
terms, conditions and covenants with respect to such defaulted security In addition, such
negotiations or restructuring may be quite extensive and protracted over time, and therefore
may result in substantial uncertainty with respect to the ultimate recovery on such defaulted
security Bank loans have historically experienced greater default rates than has been the case
for investment grade securities
The Group has no investment in sovereign debt as at 31 December 2012 or 2011
At 31 December the credit rating distribution of the Group’s asset portfolio subject to credit
risk (bonds and other debt instruments, bank balances and receivables) was as follows:
Rating
2012 Amount
US $000
Percentage
2011 Amount
US $000
Percentage
AA
A
A+
A-
BBB
BBB+
BBB-
B
BB
BB+
BB-
-
-
895
872
463
14,334
1,196
-
1,012
5,221
481
-
-
0 9%
0 9%
0 5%
14 5%
1 2%
-
1 0%
5 3%
0 5%
1,000
8,598
-
841
2,522
9,100
3,388
2,343
2,405
5,669
-
1 0%
9 0%
-
1 0%
3 0%
10 0%
4 0%
2 0%
3 0%
6 0%
-
82
Annual Report 2012
C
Not Rated
-
74,536
99,010
-
75 2%
100%
192
56,355
92,413
0 0%
61 0%
100%
Included within “not rated” amounts are investments in loan market through CLOs of USD
73 181m (2011: USD 53 814m)
The modelled IRRs on the CLO portfolio are in the low-mid teens with current cash
distributions of over 25%
Liquidity Risk
The major financial liability of the Group is the bank loan of CHF 78 9m (USD 86 2m) used for
purchase of a real estate property, which has a maturity in 2014 The loan is collateralized
by property valued at CHF 115 9m (USD 126 5m) at 31 December 2012 The loan is non-
recourse, i e the holding company and its assets (apart from the Wyler Park property) are
neither pledged for this loan nor liable for recovery in case of default The following table
summarizes the contractual cash outflows in relation to the Group’s financial liabilities
according to their maturity
Less than 1
year
US $000
Between 1 and
2 years
US $000
Between 2 and
5 years
US $000
Over 5 years
US $000
31 December 2012
Borrowings
20,503
86,909
Derivative financial
instruments
Other financial
liabilities
3,460
2,085
6,191
-
Total
30,154
88,994
-
-
-
-
-
-
-
-
83
Annual Report 2012
Less than 1
year
US $000
Between 1
and 2 years
US $000
Between 2
and
5 years
US $000
Over 5 years
US $000
31 December 2011
Borrowings
29,005
764
84,985
Derivative financial
instruments
Financial guarantee
contract
3,373
3,172
2,018
842
Other financial liabilities
1,853
-
-
Total
35,073
3,936
87,003
-
-
-
-
A significant proportion of the Group’s portfolio is invested in mid-term private equity
investments with low or no liquidity The investments of the Group in publicly traded securities
are subject to availability of buyers at any given time and may be very low or non-existent
subject to market conditions
There is currently no exchange traded market for CLO securities and they are traded over-
the-counter through private negotiations or auctions subject to market conditions Currently
the CLO market is liquid, but in times of market distress the realization of the investments
in CLOs through sales may be below fair value The Group treats its investments in the loan
market through CLOs as non-current investments as the Group generally intends to hold such
investments over a longer period
The management take into consideration the liquidity of each investment when purchasing
and selling in order to maximise the returns to shareholders by placing suitable transaction
levels into the market
At 31 December 2012, the Group had liquid investments totalling USD 127 6m, comprising
of USD 14 5m in cash and cash equivalents, USD 73 2 in investments in loan market through
CLOs, USD 10 2m in fixed income investments, USD 26 7m in public equities and USD 3 0m
in hedge funds Management structures and manages the Group’s portfolio based on those
investments which are considered to be long term, core investments and those which could
be readily convertible to cash, are expected to be realised within normal operating cycle and
form part of the Group’s treasury function
The following table lists the contractual cash inflows in relation to the Group’s financial
assets with a contractual maturity based on their maturity
84
Annual Report 2012
Less than 1
year
US $000
Between 1 and
2 years
US $000
Between 2and
5 years
US $000
Over 5 years
US $000
31 December 2012
Available-for-sale
financial assets
Financial assets at fair
value through profit or
loss
5
-
Cash at bank
14,505
Other financial assets
1,492
16,002
-
-
-
1,432
71,749
1,012
10,248
2,444
81,997
Less than 1
year
US $000
Between 1 and
2 years
US $000
Between 2and
5 years
US $000
Over 5 years
US $000
-
10,879
-
55,489
473
-
3,010
19,080
31 December 2011
Available-for-sale
financial assets
Financial assets at fair
value through profit or
loss
Cash at bank
2,060
Other financial assets
8,538
11,071
10,879
3,010
74,569
85
Annual Report 2012
Capital Management
The Group considers its capital to be its issued share capital and all of its reserves
Net debt to equity
The Group manages its capital to ensure that it will be able to continue as a going concern
while maximising the return to shareholders through the optimisation of the balance between
its net debt and equity
Net debt to equity ratio is calculated using the following amounts as included on the
consolidated statement of financial position, for the reporting periods under review:
Cash at bank
Bank overdrafts
Bank loans
Short term bank loans
Net Debt
Total equity
2012
US $000
(14,505)
19,759
86,258
-
2011
US $000
(2,060)
19,306
84,316
8,935
91,512
110,497
172,976
145,437
Net debt to equity ratio
0 53
0 76
The decrease of the ratio in 2012 is mainly attributable to the profitability of the year that
increased Group’s equity At the same time increases in cash and cash equivalents during
the year decreased the Group’s net debt The Board believes that the ratio remains at an
acceptable and manageable level
Re-purchase of own shares
The Board believes that the ability of the Company to re-purchase its own Ordinary shares in
the market may potentially benefit equity shareholders of the Company The re-purchase of
Ordinary shares at a discount to the underlying net asset value enhances the net asset value
per share of the remaining equity shares
Under this policy, in 2012, the Company bought 56,052,180 (2011: 27,497,119) of its Ordinary
shares at an average price of USD 0 29 (2011: USD 0 26) per share
86
Annual Report 2012
37 Financial assets and liabilities by IAS 39 category
Financial assets:
Loans and receivables:
Trade and receivables
Cash at bank
Available-for-sale financial assets
Financial assets at fair value through
profit or loss
Financial liabilities:
Note
2012
US $000
2011
US $000
11
12
4
5
1,492
14,505
15,997
103,921
39,511
159,429
8,538
2,060
10,598
101,585
34,347
146,530
Note
2012
US $000
2011
US $000
Non-current liabilities
Financial liabilities at amortised cost:
Bank loan
Bank loan
Short term bank loans
Other financial liabilities
Financial guarantee contract
15
17
18
19
32
Financial liabilities at fair value through
profit or loss:
Derivative financial instruments
16
86,258
19,759
-
6,191
-
84,316
19,306
8,935
1,853
842
112,208
115,252
5,526
117,734
8,515
123,767
The carrying amount of the financial assets and liabilities at amortised cost approximates to
their fair value
Auditors’ report on page 31
87
Annual Report 2012
Shareholder Information
Registrars
All enquiries relating to shares or shareholdings should be addressed to:
Capita Registrars
PXS
34 Beckenham Road
Beckenham
Kent BR3 4TU
Telephone: 0870 162 3100
Facsimile: 020 8639 2342
Change of Address
Shareholders can change their address by notifying Capita Registrars in writing at the above address
Website
www livermore-inv com
The Company’s website provides, amongst other things, the latest news and details of the Company’s
activities, share price details, share price information and links to the websites of our brands
Direct Dividend Payments
Dividends can be paid automatically into shareholders’ bank or building society accounts Two
primary benefits of this service are:
•
•
There is no chance of the dividend cheque going missing in the post; and
The dividend payment is received more quickly because the cash sum is paid directly into the
account on the payment date without the need to pay in the cheque and wait for it to clear
As an alternative, shareholders can download a dividend mandate and complete and post to Capita
Registrars
Lost Share Certificate
If your share certificate is lost or stolen, you should immediately contact Capita Registrars on 0870
162 3100 who will advise on the process for arranging a replacement
Duplicate Shareholder Accounts
If, as a shareholder, you receive more than one copy of a communication from the Company you may
have your shares registered in at least two accounts This happens when the registration details of
separate transactions differ slightly If you wish to consolidate such multiple accounts, please call
Capita Registrars on 0870 162 3100
Please note that the Directors of the Company are not seeking to encourage shareholders to either
buy or sell the Company’s shares
88
Annual Report 2012 Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting of Livermore Investments Group Limited
(the “Company”) will be held at the offices of Travers Smith LLP at 10 Snow Hill, London, EC1A 2AL
on 27 August 2013 at 10am for the purposes of the following:
To consider, and if thought fit, to pass the following resolutions, numbers 1 to 4 of which will be
proposed as Resolutions of Members and numbers 5 and 6 of which will be proposed as Special
Resolutions:
1
2
To receive and adopt the Report of Directors, the financial statements and the Report of the
Auditor for the year ended 31 December 2012
To re-appoint Grant Thornton Cyprus as auditor of the Company to hold office from the
conclusion of this Meeting until the conclusion of the next general meeting at which financial
statements are laid before the Company
3
To authorise the Directors to determine the auditor’s remuneration
4
That for the purposes of article 5 1 of the Articles of Association of the Company:
(a)
(b)
the Directors be and are generally and unconditionally authorised to allot up to a maximum
aggregate amount of 65,084,527 new ordinary shares of no par value of the Company to
such persons and at such times and on such terms as they think proper during the period
expiring at the end of the Annual General Meeting of the Company in 2014 or, if earlier, 15
months from the date of the passing of this resolution (unless previously revoked or varied
by the Company in general meeting); and
the Company be and is hereby authorised to make prior to the expiry of such period any
offer or agreement which would or might require such ordinary shares to be issued in
pursuance of any such offer or agreement notwithstanding the expiry of the authority
given by this resolution;
so that all previous authorities of the Directors pursuant to the said article 5 1 be and are
hereby revoked
5
THAT, subject to the passing of resolution 4 set out in the Notice convening this Meeting, the
Directors be and are empowered in accordance with article 5 2 of the Articles of Association
of the Company to allot new ordinary shares of no par value in the capital of the Company
(“ordinary shares”) for cash, pursuant to the authority conferred on them to allot such shares
by that resolution 4 as if the pre-emption provisions contained in article 5 2 did not apply to
any such allotment, provided that the power conferred by this resolution shall be limited to:
(a)
the allotment of ordinary shares in connection with an issue or offering in favour of
holders of ordinary shares and any other persons entitled to participate in such issue or
offering where the shares respectively attributable to the interests of such holders and
persons are proportionate (as nearly as may be) to the respective number of ordinary
shares held by or deemed to be held by them on the record date of such allotment, subject
only to such exclusions or other arrangements as the Directors may consider necessary or
expedient to deal with fractional entitlements or legal or practical problems under the
laws or requirements of any recognised regulatory body or stock exchange in any territory;
and
89
Annual Report 2012
(b)
the allotment of up to an aggregate amount of 9,762,679 of such ordinary shares,
and this power, unless renewed, shall expire at the end of the Annual General Meeting
of the Company in 2014 or, if earlier, 15 months from the date of the passing of this
resolution (unless previously revoked or varied by the Company in general meeting) but
shall extend to the making, before such expiry, of an offer or agreement which would or
might require ordinary shares to be allotted after such expiry and the Directors may allot
such shares in pursuance of such offer or agreement as if the authority conferred hereby
had not expired
6
That, in accordance with the Articles of Association of the Company, the Company be and
is hereby generally and unconditionally authorised to make market purchases (within the
meaning of section 693 of the UK Companies Act 2006 (as amended)) on the AIM market
of the London Stock Exchange plc of ordinary shares of no par value in the capital of the
Company (“ordinary shares”) provided that:
(a)
(b)
(c)
the maximum number of ordinary shares hereby authorised to be purchased is 26,925,469;
the authority hereby conferred (unless previously renewed or revoked) shall expire at the
conclusion of the Annual General Meeting of the Company next following the Meeting at
which this resolution is passed; and
the Company may, under the authority hereby conferred and prior to the expiry of that
authority, make a contract to purchase its own shares which will or may be executed
wholly or partly after the expiry of that authority and may make a purchase of its own
shares in pursuance of such contract
A member of the Company unable to attend the Meeting may be represented at the Meeting by a
proxy appointed in accordance with the Notes attached hereto
By order of the Board
Chris Sideras
Company Secretary
Trident Chambers
PO Box 146
Road Town
Tortola
British Virgin Islands
25 June 2013
Notes
(i)
A member entitled to attend and vote at the Meeting convened by the above Notice is
entitled to appoint one or more proxies to attend and, on a poll, to vote in his place A
proxy need not be a member of the Company Completion of the Form of Proxy will not
prevent you from attending and voting in person
(ii)
To appoint a proxy you should complete the Form of Proxy enclosed with this Notice of
Annual General Meeting To be valid, the Form of Proxy, together with the power of attorney
or other authority (if any) under which it is signed or a notarially certified or office copy of
90
Annual Report 2012
(iii)
(iv)
the same, must be delivered to the offices of Capita Registrars, PXS, 34 Beckenham Road,
Beckenham, Kent BR3 4TU by no later than 48 hours (not including weekends or banks
holidays) before the time fixed for the Meeting or any adjourned meeting
In the case of joint holders, the vote of the senior holder who tenders a vote whether in
person or by proxy shall be accepted to the exclusion of the votes of the other joint holders
and, for this purpose, seniority shall be determined by the order in which the names stand
in the register of members of the Company in respect of the relevant joint holding
In the case of holders of depositary interests representing ordinary shares in the Company,
a Form of Direction must be completed in order to appoint Capita IRG Trustees Limited, the
Depository, to vote on the holder’s behalf at the Meeting or, if the Meeting is adjourned,
at the adjourned meeting To be effective, a completed and signed Form of Direction (and
any power of attorney or other authority under which it is signed) must be delivered to the
Company’s Transfer Agent, Capita Registrars, PXS, 34 Beckenham Road, Beckenham, Kent,
BR3 4TU by no later than 72 hours (not including weekends or bank holidays) before the
time fixed for the Meeting or any adjourned meeting
Completion of the Form of Direction will not prevent you from attending and voting in
person Depository Interest holders wishing to attend the Meeting should contact the
Depository on the above address or email custodymgt@capitaregistrars com to request a
Letter of Corporate Representation no later than 72 hours (not including weekends or bank
holidays) before the time fixed for the Meeting or any adjourned meeting
91
Annual Report 2012
Principal Bankers
Leumi Bank
Dianastrasse 5
Zurich 8002
Switzerland
Bank Hapoalim
18 Boulevard Royal
BP 703
L-2017
Luxembourg
FIBI Bank
Seestrasse 61
Zurich 8027
Switzerland
Credit Suisse AG
Seeefldstrasse 1
Zurich 8070
Switzerland
Corporate Directory
Secretary
Chris Sideras
Registered Office
Trident Chambers
PO Box 146
Road Town
Tortola
British Virgin Islands
Company Number
475668
Registrars
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
England
Auditor
Grant Thornton (Cyprus) Ltd
41-49 Agiou Nicolaou Str
Nicosia
Cyprus
Solicitors
Travers Smith
10 Snow Hill
London
EC1A 2AL
England
Nominated Adviser & Broker
Arden Partners plc
125 Old Broad Street
London
EC2N 1AR
England
92
Annual Report 2012