3
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 18
Report of the Directors 19
The Board’s Objectives 19
The Board of Directors 19
Directors’ responsibilities in relation to the consolidated financial statements 19
Disclosure of information to the Auditor 20
Substantial Shareholdings 20
Corporate Governance Statement 21
Introduction 21
The Board Constitution and Procedures 21
Board Committees 21
Remuneration Committee 21
Audit Committee 21
Communication with Investors 22
Internal Control 22
Going concern 22
Independence of Auditor 22
4
Annual Report 2013 Remuneration Report 23
Directors’ Emoluments 23
Directors’ Interests 23
Interests of Directors in share options 24
Share Option Scheme 24
Remuneration Policy 24
Review of the Business and Risks 26
Risks 26
Share Capital 26
Related Party Transactions 27
Report of the independent auditor to the members of Livermore Investments Group Limited 28
Consolidated Statement of Financial Position as at 31 December 2013 30
Consolidated Statement of profit or loss for the year ended 31 December 2013 31
Consolidated Statement of Comprehensive Income for the year ended 31 December 2013 32
Consolidated Statement of Changes in Equity for the year ended 31 December 2013 33
Consolidated Statement of Cash Flows for the year ended 31 December 2013 35
Notes on the Financial Statements 37
Shareholder Information 89
Registrars 89
Website 89
Direct Dividend Payments 89
Lost Share Certificate 89
Duplicate Shareholder Accounts 89
Notice of Annual General Meeting 90
Corporate Directory 93
5
Highlights
•
Net Asset Value per share - USD 0 86 (December 2012: USD 0 87)
•
Performance driven as in past years by profitable activity in the US loan market partially offset
by a decline in the share price of Babylon
•
Wyler Park property in Bern, Switzerland fully let
•
No material developments in the private equity portfolio
•
During 2013, the Company purchased 3,445,755 shares to be held in treasury
6
Annual Report 2013 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 2013
The year-end NAV was USD 0 86 per share (2012 NAV: USD 0 87 per share) Net profit for the year
was USD 2 5m (2012 Net Profit: USD 25 7m) The portfolio remained diversified across sectors with
increased exposure to senior secured loans through investments into US cash CLOs (Collateralized
Loan Obligations)
As of year-end 2013, the Group NAV was at USD 0 86 per share The gains were largely attributed, as
in last years, to the income from the CLO portfolio partly offset by losses on the Group’s investment
in Babylon following its termination of a key agreement with Google and one-off administrative
expenses Interest and dividend income from the financial portfolio totalled USD 29 1m (2012: USD 22 8m)
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 2013 was USD 168 4m Net profit during the year was
USD 2 5m, which represents earnings per share of USD 0 01
Administrative expenses excluding provisions were USD 12 3m (2012: USD 5 0m)
7
The overall change in the NAV is primarily attributed to the following:
Shareholders’ funds at beginning of year
Income from investments
Other income
Realised (losses) / gains on investments
Loss on impairment on investments
Unrealised (losses) / gains on investments
Unrealised exchange gains
Administration costs including provisions
Net finance costs
Tax charge
(Decrease) / Increase in net assets from operations
Purchase of own shares
Shareholders’ funds at end of year
31 December
2013
US $m
31 December
2012
US $m
173 0
34 5
0 1
(0 6)
(2 5)
(16 0)
0 1
(12 3)
(4 3)
(1 9)
(2 9)
(1 7)
168 4
145 4
28 2
0 7
6 8
(18 1)
36 9
0 0
(5 0)
(4 3)
(1 2)
44 0
(16 4)
173 0
Net Asset Value per share
US $0 86
US $0 87
Dividend & Buyback
During 2013, the Company bought back 3,445,755 shares to be held in treasury for a total cost of
USD 1 72m No dividend was declared for the year ended 31 December 2013 In January 2014, the
Company announced an interim dividend of USD 5m (USD 0 0256 per ordinary share)
To date, the Company has purchased 108,830,818 shares to be held in treasury for a total cost of
USD 36 9m
Annual General Meeting
The Group’s Annual General Meeting will be held on 26 August 2014 The Notice for the meeting is
on page 90 of this report
The Chairman and CEO would like to thank the investment team for their continued great performance
Richard B Rosenberg
Chairman
Noam Lanir
Chief Executive Officer
26 May 2014
8
Annual Report 2013
Review of Activities
Introduction and Overview
2013 was a historic year for developed world monetary policy as the US Federal Reserve embarked
on an open-ended bond and mortgage buying program, the Bank of Japan announcing its intention
to double the monetary base, and the European Central Bank reducing its interest rates In response,
developed economy stock markets hit record highs and the housing market in the US improved
significantly in the first half of 2013 due to lower mortgage rates and increased confidence The
fixed income market, however, declined after the US Federal Reserve announced its intention to
eventually reduce its bond buying program Bond yields and mortgage rates rose in anticipation of
higher rates in the near future slowing the rate of improvement in the housing market considerably
Despite the challenges in the fixed income market, the Group’s exposure to credit markets generated
a 30% return The Group NAV/share was at USD 0 86 per share The gains in the credit portfolio were
offset by a significant fall in the share price of Babylon due to the termination of its agreement with
Google in October 2013, and one-off administrative expenses
The year-end NAV was USD 0 86 per share (2012 NAV: USD 0 87 per share) The portfolio remained
diversified across sectors with increased exposure to US senior secured loans and emerging market
debt, through its CLO portfolio
In 2013, the Group generated interest and dividend income of USD 29 1m and investment property
income of USD 5 5m The Group’s results (net income of USD 2 5m) relate mainly to gains and
interest and dividend income from the financial portfolio At the same time the results were
negatively affected by the performance of Babylon shares Administrative expenses amounted to
USD 12 3m Finance costs were USD 5 2m, of which USD 3 6m 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 its strong foothold in the US
CLO market as well as 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
In 2013, global economic growth remained weak and strongly affected by downside risks Persistent
uncertainty, the restrictive fiscal policy in many countries and the continued strain imposed by
structural problems had a dampening impact During the course of the year, there were increasing
signs of a modest recovery in Europe A contributory factor here was the alleviation of the European
financial and government debt crisis In the US, economic growth firmed, and in Japan the economy
picked up noticeably In many emerging economies, economic growth remained subdued, partly as a
result of restrained demand from the advanced economies
In the US, economic recovery continued at a moderate pace in the first half of the year despite
9
the strong headwinds created by federal fiscal policy Housing contributed significantly to recent
increases in economic activity Home sales, house prices, and residential construction increased over
the period supported by low mortgage rates and improved confidence in both the housing market
and the economy Conditions in the labour market improved and the unemployment rate stood at
7 5% in June, down from 7 9% at the end of 2012 whereas inflation continued to remain low
Growth in economic activity picked up in the second half of 2013 Real GDP is estimated to have
risen at an annual rate of 3 75%, up from a 1 75% increase in the first half The labour market
continued to improve over the second half of the year and the unemployment rate fell to 6 7%
by the end of the year but inflation continued to remain low Household net worth rose further as
key asset prices continued to increase, credit became more available while interest rates remained
low, and economic conditions in the rest of the world improved overall in spite of the turbulence
in emerging financial markets Consumer spending, business investment, and exports all increased
more rapidly in the latter part of the year In contrast, the recovery in the housing sector appeared
to pause in the second half of the last year following increases in mortgage interest rates in the
spring and summer
The euro area economy emerged from recession in 2013 as a result of a gradual revival in domestic
demand – supported by accommodative monetary policy as well as improving economic and financial
market sentiment However, the ongoing process of balance sheet adjustment in the public and
private sector and high unemployment continued to dampen economic activity Inflation declined
perceptibly throughout 2013, reflecting receding contributions from energy and food prices, as well
as weaker underlying price pressures On average, inflation stood at 1 4% in 2013, after 2 5% in 2012
The underlying pace of monetary growth remained subdued and loan growth continued to decline,
mainly on account of weak credit demand, although adverse factors weighing on credit supply also
played a role Financing conditions improved in 2013 amid an abating sovereign debt crisis on account
of further fiscal consolidation, a reduction of macroeconomic imbalances particularly in vulnerable
euro area countries, and progress towards banking union However, financial fragmentation along
national borders persisted, particularly in credit markets
The economy in Switzerland progressed relatively favourably with the real GDP growing by 2 0%
while unemployment stabilised at 3 2% in the second half of the year The main growth drivers
were domestic consumption and residential construction, which benefited from positive income
developments, immigration and favourable financing conditions Export industries, by contrast,
continued to suffer from the weak global economy and the high value of the Swiss franc The
downward pressure on prices persisted, although it was less pronounced than in 2012 On average
for the year, consumer prices fell by 0 2% in 2013, following a decline of 0 7% in the previous year
Central banks activity heavily influenced financial markets as the US Federal Reserve bought USD
80bn of US Treasury Securities and Mortgage Bonds and the BOJ embarked on their version of
quantitative easing with an announcement to double the monetary base over the next years In
the light of a weaker inflation outlook, the European Central Bank lowered key interest rates in
May and again in November to 0 25% Asset prices rose in response until May when the US Federal
Reserve announced its intention to reduce its quantitative easing program Emerging country
financial markets were pressured the most following this announcement After the blip during
summer, financial markets in the developed economies resumed their rise as the US Federal Reserve
eventually delayed reducing its quantitative easing program
In equity markets, the US S&P 500 Index ended higher by 29 6% from the beginning of the year and
the EuroStoxx 50 Index increased 17 9% largely on account of significant monetary policy support
in the US and Euro zone
10
Annual Report 2013 High yield and bank loan spreads tightened substantially in 2013, especially from January to mid-
May as investors chased yield Although the Treasury and Investment Grade markets had a lacklustre
performance, High Yield and the Leveraged Loan markets performed relatively well amid steady
credit fundamentals, low default rates, increased inflows into loan funds and the strong pace of
CLO issuance High yield issuance swelled to USD 340bn in 2013 whereas bank loan new issuance
recorded its highest total ever of USD 455bn as compared to USD 295bn in 2012 As of year-end
2013, the US last 12-month institutional loan default rate by principal was 2 11% and the S&P/LSTA
Leveraged Loan Total Return Index generated 5 29% in 2013
Sources: Board of Governors of the Federal Reserve System, European Central Bank (ECB), Bloomberg, Swiss National Bank
Livermore’s Strategy
The financial portfolio is focused on fixed income instruments which generate regular cash flows
and include mainly exposure to senior secured and usually broadly syndicated US loans as well as
emerging market debt through investments into CLOs This part of the portfolio is geographically
focused on the US with some exposure to Europe and emerging markets In addition, the financial
portfolio includes 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
42 0
8 9
6 8
1 6
59 3
11
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 84m (USD 5 22m)
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 58m (USD 0 62m)
Livermore is the sole owner of Wyler Park through its wholly owned Swiss subsidiary, Livermore
Investments AG The loan outstanding on the project as of 31 December 2013 is CHF 78 4m (USD
88 0m), which is a non-recourse loan to Livermore Investments AG backed only by this property The
loan balance is fully repayable on 12 July 2014 However, the Group is currently negotiating the
refinancing of this loan with a Swiss Bank for a term of another five years
The valuation of the property on current-use basis as of year-end 2013 is CHF 115 7m (USD 129 9m)
and of year end 2012 was CHF 115 9m (USD 126 5m)
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
Livermore invested USD 20m in 2008 in a leading Indian Real Estate company, in association with
SRS Private and other investors as part of a total investment of USD 132 1m 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 As reported previously, the Manager for this investment served a put
option exercise notice to the promoters in 2009 and entered into an arbitration process to resolve
disputes The arbitrator ruled in favour of investors and awarded investors the investment plus
interest amounting to 30% IRR until 14 August 2009 and 18% IRR thereafter Further, 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 2013 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 80% shareholder
and control the management of the company
In 2013, SRS 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 8 9m (2012: USD 10 1m)
12
Annual Report 2013 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 facilities are currently located in the US and in Switzerland
with a new low cost facility in Romania recently built-out The company has a large market share in
the US with Boeing and in Europe with Airbus In 2013, sales in the Aerospace Components segment
declined by 2%
The Energy Storage business 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 The Energy Storage business division benefited
from its strong position in the growing market of medical technology, which is largely independent
of economic conditions Revenues in the Energy Storage segment increased by 5% in 2013
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 business segment faced stagnant revenues in 2013
For the year ended 2013, Montana recorded sales of EUR 524 9m (2012: EUR 440 7m) and EBITDA
of EUR 78 9m (2012: 61 2m)
In July 2013 Montana raised EUR 90m through secured loans of 3 and 5 year maturities Proceeds
from the loan will be partially used to refinance existing bank loans and finance the growth of the group
In January 2014, MTC and Livermore entered into an agreement whereby MTC will buy back its
shares from Livermore at EUR 4 56 per share in June 2014 for a total consideration of EUR 6 9m
MTC has paid Livermore EUR 2m as security deposit which can be forfeited if MTC does not pay the
remaining consideration in June 2014
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
2013 the investment environment relating to most funds was challenging and the Group expects
that material exits of portfolio companies should materialize between 2015 and 2017 During the
reporting period a distribution of USD 0 472m from Da Vinci fund and Blue Ridge fund were carried out
13
The following summarizes the book value of the private equity funds as of year-end 2013
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
3 6
2 6
1 7
0 4
0 6
0 6
0 3
0 3
10 1
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 32 5%
of the net asset value of the fund is invested in mixed-use assets (commercial and residential combined),
13 1% is in SRS Charminar, 21 2% is in residential assets, 10 9% is invested at the entity level of real estate
developers, 0 7% in hospitality related assets, and 21 6% in cash and receivables As of year-end 2013, the
investment was valued at USD 3 6m
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 a Novotel brand hotel with 223 rooms built on a land area of 70,200 sq ft with
a total built-up area of approximately 373,043 sq ft which includes 37,248 sq ft of commercial
area Two floors have been earmarked for commercial office space The hotel opened for business in
December 2013 The Mumbai hotel is on a 82,609 sq ft land site with a gross area of approximately
573,960 sq ft The hotel will be a Novotel brand hotel with 543 rooms The property location is in
close proximity to the Mumbai International Airport and Domestic Airport
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
14
Annual Report 2013
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 further
impair the investment by USD 0 545m
Elephant Capital: India-focused private equity fund, which is AIM quoted (Ticker: ECAP) Its portfolio
investments include a leading tiles manufacturer in India, an established automotive components
manufacturer, a media business with an exclusive content library, and an online venture to distribute
cricket related content
As of August 2013, the audited NAV of the fund was 33 pence per share 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 and its portfolio is available at www elephantcapital com
Da Vinci: The fund is primarily focused on Russia and CIS countries and is primarily invested in
the Moscow Exchange and a Ukrainian coal company 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 USD
4 2bn The Company received USD 0 277m in distributions from the fund in 2013 The Group’s
investment in the fund was valued at USD 0 6m as of 31 December 2013
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 In 2013, the Company received USD
0 195m of distributions from the fund
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 As the fund is close to its end of life, the fund
manager has proposed a restructuring in Q1 2014 whereby consenting limited partners will remain
in the fund and non-consenting limited partners will be bought out by the fund at the prevailing net
asset value Livermore has decided to stay in the fund
Financial portfolio and trading activity
The Group manages a financial portfolio valued at USD 98m (net of leverage) as at 31 December
2013, which is invested mainly in fixed income securities and special situation equity opportunities
During the period, management reduced exposure to subordinated and perpetual debt issued by
European banks at profitable levels
15
The following is a table summarizing the financial portfolio as of year-end 2013
Name
2013
Book Value US $m
2012
Book Value US $m
Investment in the loan market through CLOs
Babylon
Hedge Funds
Corporate bonds
Other Public Equities
Total
Total net of leverage
91 9
9 2
2 2
1 9
2 8
108 0
98 0
73 2
22 3
3 0
10 5
2 8
111 8
103 0
Senior Secured Loans and Collateralized Loan Obligations (CLO):
During 2013 the Group continued to re-invest distributions from its CLO portfolio into new issue
CLO transactions CLOs are managed portfolios invested into diversified pools of senior secured
loans and financed with long term financing pre-fixed at the time of issuance
The US senior secured loan market continued to offer good risk adjusted returns as an inflation
linked asset class with a senior secured claim on the borrower and with overall low volatility and
low correlation to equity market The CLO structure proved itself through the financial crisis and
thereafter as a robust means of investing into the loan asset class
The US corporate credit market continued to perform strongly during 2013 New issue loan volumes
surged to USD 455bn in 2013 (2012: USD 295bn) driven primarily by opportunistic re-pricing and
re-financings by existing issuers as investors poured over USD 70bn into loan funds and USD 82bn
of new issues CLO transactions were originated in 2013 US loan issuers continued to address near
term maturities leaving only 2 6% of loans in the S&P/LSTA Leverage Loan Index to mature before
2016 as compared to 12 5% at the end of 2012 The S&P/LTSA Leverage Loan Index generated a total
return of 5 29% in 2013 As a result of the strong demand for loans, issuers were able to reduce
spreads and increase leverage Trailing 12 month default rate for the S&P/LTSA index was 2 11% by
principal amount at the end of the last quarter of 2013 and is much below the historical average
The CLO portfolio continued to perform well on account of low current default rates and a benign
default outlooks and relatively stable credit fundamentals of their underlying loans At the end of
the reporting period all of our CLO investments were passing their coverage tests (thereby making
dividend distributions) During the year, the portfolio generated USD 28 4m in cash distributions
CLO payments remained strong but reduced as loan spreads narrowed on account of aggressive
re-pricings and re-financings in the loan market and higher pre-payment rates Cash distributions
from pre-crisis CLOs continue to decline as these CLOs begin amortization of the cheapest liabilities
or face other reinvestment constraints, divert cash-flow to pay manager incentive fees, and loan
re-pricing activity reduces excess spread While new issue CLOs also face lower excess spread, they
16
Annual Report 2013
have longer reinvestment periods which should enable them to weather a downturn, and benefit
from wider spreads or any volatility in loan prices in the future The Group has continued to reduce
exposure to pre-crisis CLOs and focus on post crisis CLOs As of 31 December 2013, over 67pc of the
Group CLO portfolio is invested in post-crisis CLOs
Secondary market prices for CLOs rose in January 2013 but subsequently fell as high prepayment
rates and significant loan re-pricing activity reduced excess spread and future anticipated cash
distributions Pre-crisis CLOs which were past their reinvestment periods faced very high prepayment
rates and paid down their cheapest liabilities at a faster pace Secondary market prices for post-
crisis CLO equity gained sharply in the second half of 2013 as loan spreads stabilized at wider levels
and CLO managers took advantage of volatility during the summer
As US interest rates are expected to remain low until 2015 and very few loans mature in the
near term, corporate defaults are expected to remain low in the near-medium term Management
believes that the environment should remain attractive for investments in CLO income notes In
2013, Livermore launched two new issue cash-flow CLOs as an anchor investor and participated in
select US and emerging market new issue CLOs of leading managers
In September 2013, Marc Boatwright, who served as the Senior Portfolio Manager of ING’s Senior
Loan Group, left ING to launch a credit investment platform in the US The new platform (“Covenant
Credit Partners” or “Covenant”) is a partnership between the management team of Covenant and
Livermore with the aim to manage CLOs and new loan funds in the future As of 31 December 2013,
Livermore had extended a loan of USD 0 914m to Covenant Credit Partners
While management maintains a positive view on the CLO portfolio, mid-long term performance may
be negatively impacted by a pull back into a substantial recession in the US or Europe or a geo-
political event that could result in a spike in defaults Despite positive developments in the overall
health of the US economy, we acknowledge the high unemployment, continued EU sovereign debt
issues as well as the headwinds the economy may face relating to the potential monetary tightening
and geopolitical risks
The Group’s CLO portfolio is divided into the following geographical areas:
US CLOs
Global Credit CLOs
European CLOs
2013
Amount
US $000
64,874
25,021
1,986
91,881
Percentage
70 6%
27 2%
2 2%
100%
2012
Amount
US $000
53,080
18,597
1,504
73,181
Percentage
72 5%
25 4%
2 1%
100%
17
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
The company generates revenues through Search and Advertising, Online Sales, and Corporate Sales
with the large share of revenues coming from Search in partnership with Google and other search
providers In Q4 2013, Google terminated its agreement with Babylon which led to a sharp drop in
the share price 2013 Revenues declined to USD 163 9m as compared to USD 177 6m in 2012 and a
further decline in revenues and net income is expected
In Q1 2014, Livermore sold approximately half its shareholding in Babylon at an average price of
USD 1 98 and now holds approximately 4% of Babylon’s issued share capital
Noam Lanir, the majority shareholder of the Group, is also a major shareholder in Babylon (note 32)
The following table reconciles the review of activities to the Group’s financial assets and investment
property as of year-end 2013
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 & 16)
Total
Events after the reporting date
2013
Book Value US $m
59 3
10 1
108 0
177 4
120 0
15 4
42 0
177 4
Events after the reporting date are described in note 36 of the consolidated financial statements
Litigation
At the time of this Report, there is one matter in litigation against the Group Further information
is provided in note 34 to the consolidated financial statements
18
Annual Report 2013 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 58), 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 47), 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 46), 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 advising banks and large corporations on
corporate transactions, including buy-outs and privatisations Ron has over 12 years of experience
as an investment manager with particular focus on the US credit market and CLOs He holds an MBA
from INSEAD Fontainebleau and a LLB (LAW) and BA in Economics from Tel Aviv University
The Directors submit their annual report and audited consolidated financial statements of the Group
for the year ended 31 December 2013
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:
19
•
•
•
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
Substantial Shareholdings
As at 22 April 2014 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
79 07
7 13
4 78
* after consideration of treasury shares (note 14)
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 32 to the consolidated financial statements
20
Annual Report 2013 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 – September 2012 (“the Code”) However, the Company is keen to adopt and promote the
provisions of that Code Up to 31 December 2013 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
21
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;
• 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
22
Annual Report 2013 Remuneration Report
The Directors’ emoluments, benefits and shareholdings during the year ended 31 December 2013
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
2013
US $000
Total
emoluments
2012
US $000
Richard Barry
Rosenberg
10/06/05
Noam Lanir
10/06/05
Ron Baron
01/09/07
71
400
350
-
45
-
-
1,800
6,412
-
-
-
71
88
2,245
6,762
1,445
1,350
The dates are presented in day / month / year format
Directors’ Interests
Interests of Directors in ordinary shares
Notes
As at 31 December 2013
As at 31 December 2012
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%
79 068% 154,412,173
50 773%
77 697%
13,915,419
4 576%
7 126%
13,915,419
4 576%
7 002%
15,000
0 005%
0 008%
15,000
0 005%
0 008%
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) In 2007, loans of USD 5 523m were made to RB Investments GMBH, a company owned by Ron
Baron, 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
23
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 The relevant reduction in the loan amount for the year was USD
1 128m The loans together with their related accrued interest of USD 0 117m were classified
as “other assets” and are included under trade and other receivables (note 12)
Interests of Directors in share options
No of options at
31 December 2013
Date of grant
Exercise
price, GBP
Exercise
Price**,
US $
Vesting period
of options
Noam Lanir
10,000,000
19/07/06
0 78
1 29
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 50
1 29
1 18
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 2013
** 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
2013
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 of other Group entities
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:
24
Annual Report 2013
•
•
•
•
•
•
•
•
•
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
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
25
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 US companies and
emerging market countries 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 2013 The
authorised share capital is 1,000,000,000 ordinary shares with no par value
26
Annual Report 2013 Related party transactions
Details of any transactions of the Group with related parties during the year to 31 December 2013
are disclosed in note 32 to the consolidated financial statements
By order of the Board of Directors
Chief Executive Officer
26 May 2014
27
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 2013 and the
consolidated statements of profit or loss, 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 2013 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
28
Annual Report 2013 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
Limassol
Date: 26 May 2014
29
Livermore Investments Group Limited
Consolidated Statement of Financial Position as at 31 December 2013
Note
2013
US $000
2012
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
Investments in associate and joint venture
Other assets
Current assets
Trade and other receivables
Available- for-sale financial assets
Financial assets at fair value through profit or loss
Current tax asset
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 loans
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
9
12
12
4
5
21
13
14
14
16
17
11
16
18
19
20
33
21
17
23
116,846
2,157
129,916
5,524
3,384
257,850
3,399
3,242
13,244
6
4,150
24,041
30
99,492
3,716
126,543
-
4,512
234,293
2,779
4,429
35,795
-
14,505
57,508
281,891
291,801
-
178,597
13,539
(23,765)
-
180,319
18,896
(26,239)
168,371
172,976
-
-
1,956
1,956
87,974
15,188
3,475
2,776
26
-
2,125
111,564
113,520
281,891
86,258
2,068
519
88,845
-
19,759
-
6,361
300
102
3,458
29,980
118,825
291,801
Basic and diluted net asset valuation per share (US $)
22
0 86
0 87
These consolidated Financial Statements were approved by the Board of Directors on 26 May 2014
30
Annual Report 2013
The notes on pages 37 to 88 form part of these consolidated financial statements
Livermore Investments Group Limited
Consolidated Statement of Profit or Loss for the year ended 31 December 2013
Investment income
Interest and dividend income
Investment property income
(Loss) / gain 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
2013
US $000
2012
US $000
24
25
26
27
28
29
29
30
29,068
5,473
(13,652)
20,889
55
(12,259)
8,685
(5,242)
906
4,349
(1,875)
22,772
5,382
7,306
35,460
694
(5,029)
31,125
(4,868)
610
26,867
(1,210)
2,474
25,657
Basic and diluted earnings per share ( US $)
31
0 01
0 12
The profit for the year is wholly attributable to the owners of the parent
The notes on pages 37 to 88 form part of these consolidated financial statements
31
Livermore Investment Group Limited
Consolidated Statement of Comprehensive Income for the year ended 31 December 2013
Profit for the year
Note
2013
US $000
2012
US $000
2,474
25,657
Other comprehensive income:
Items that will be reclassified subsequently to the profit or loss
• Available for sale financial assets – fair value (losses) / gains
(8,840)
3,329
•
Foreign exchange gains from translation of subsidiaries
Reclassification to profit or loss
Available for sale financial assets
• Reclassification to profit or loss due to disposals
• Reclassification to profit or loss due to impairment
26
26
Total comprehensive income for the year
92
6
(6,274)
28,992
892
2,499
3,391
(2,883)
(3,178)
18,133
14,955
43,947
The total comprehensive income for the year is wholly attributable to the owners of the parent
The notes on pages 37 to 88 form part of these consolidated financial statements
32
Annual Report 2013 Livermore Investments Group Limited
Consolidated Statement of Changes in Equity for the year ended 31 December 2013
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 2012
Purchase of own shares
14
Transactions with owners
Profit for the year
Other comprehensive
income:
Available-for-sale financial
assets
• Fair value gains
• Reclassification to
profit or loss due to
disposals
• Reclassification to
profit or loss due to
impairment
Foreign exchange gains
arising from translation of
subsidiaries
Total comprehensive
income for the year
Balance at 31 December
2012
26
26
Purchase of own shares
14
Transactions with owners
Profit / (loss) for the year
Other comprehensive
income:
Available-for-sale financial
assets
• Fair value losses
• Reclassification to
profit or loss due to
disposals
26
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
215,499 (18,772)
5,777
(886)
(4,285)
(51,896)
145,437
-
-
-
-
-
-
-
-
(16,408)
(16,408)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6
6
-
-
-
-
-
(16,408)
(16,408)
25,657
25,657
3,329
-
3,329
(3,178)
18,133
-
-
(3,178)
18,133
-
-
6
18,284
25,657
43,947
215,499 (35,180)
5,777
(880)
13,999
(26,239)
172,976
-
-
-
-
-
(1,722)
(1,722)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,722)
(1,722)
2,474
2,474
(8,840)
892
-
-
(8,840)
892
33
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
• Reclassification to
profit or loss due to
impairment
26
Foreign exchange gains
arising from translation of
subsidiaries
Total comprehensive
income for the year
Balance at 31 December
2013
-
-
-
-
-
-
-
-
-
-
-
-
-
-
92
2,499
-
-
-
2,499
92
92
(5,449)
2,474
(2,883)
215,499 (36,902)
5,777
(788)
8,550
(23,765)
168,371
The notes on pages 37 to 88 form part of these consolidated financial statements.
34
Annual Report 2013 Livermore Investments Group Limited
Consolidated Statement of Cash Flows for the year ended 31 December 2013
Note
2013
US $000
2012
US $000
4,349
26,867
Cash flows from operating activities
Profit before tax
Adjustments for
Depreciation
Provisions for legal and other cases
Interest expense
Interest and dividend income
Loss / (Gain) on investments
Exchange differences
3
33
29
24
26
29
Changes in working capital
(Increase) / Decrease in trade and other receivables
(Decrease) / 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
Acquisition of associate and joint venture
9
Net cash used for investing activities
32
(274)
4,739
(29,068)
13,652
503
(6,067)
(817)
(3,539)
(10,423)
28,821
(572)
17,826
(43,597)
28,850
(5,000)
(19,747)
81
-
4,868
(22,772)
(7,306)
(610)
1,128
213
5,058
6,399
28,732
(228)
34,903
(44,456)
53,151
-
8,695
Cash flows from financing activities
Purchase of own shares
Proceeds from bank loans
Repayments of bank loans
14
(1,722)
48,374
(16,408)
103,975
(45,605)
(113,077)
35
Interest paid
Note
2013
US $000
(4,739)
Settlement of litigation
33
-
2012
US $000
(4,868)
(833)
Net cash used for financing activities
(3,692)
(31,211)
Net (decrease) / increase 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
(5,613)
(5,254)
(182)
11
12,387
(17,246)
(417)
22
Cash and cash equivalents at the end of the year
13
(11,038)
(5,254)
The notes on pages 37 to 88 form part of these consolidated financial statements
36
Annual Report 2013 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 activities 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
Investments in associates and joint ventures are 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 2013, 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 consolidated financial
statements, other than as described below:
•
IFRS 10:
IAS 27:
‘’Consolidated and Separate Financial Statements’’ and SIC 12: ‘’Consolidation
‘’Consolidated Financial Statements’’
(IFRS 10) supersedes
37
Special Purpose Entities’’ in relation to consolidation IFRS 10 revises the definition
of control and provides extensive new guidance on its application These new
requirements have the potential to affect which of the Group’s investees are
considered to be subsidiaries and therefore to change the scope of consolidation
The requirements on consolidation procedures, accounting for changes in non
controlling interests and accounting for loss of control of a subsidiary are unchanged
Management has reviewed its control assessments in accordance with IFRS 10 and has
concluded that there is no effect on the classification (as subsidiaries or otherwise)
of any of the Group’s investees held during the periods covered by these consolidated
financial statements
•
•
•
In accordance with IFRS 11: “Joint Arrangements”, which supersedes IAS 31: “Interests in
Joint Ventures” the method of proportionate consolidation of jointly controlled entities
is eliminated Based on IFRS 11 such interests are equity accounted in accordance with
the revised IAS 28: “Investments in Associates and Joint Ventures”
IFRS 12: ‘’Disclosure of Interests in Other Entities’’ (IFRS 12) integrates and makes
consistent the disclosure requirements for various types of investments, including
unconsolidated structured entities It introduces new disclosure requirements about
the risks to which an entity is exposed from its involvement with structured entities
IFRS 13 ‘Fair Value Measurement’ clarifies the definition of fair value and provides
related guidance and enhanced disclosures about fair value measurements It does not
affect which items are required to be fair valued The scope of IFRS 13 is broad and
it applies for both financial and non financial items for which other IFRSs require or
permit fair value measurements or disclosures about fair value measurements, except in
certain circumstances IFRS 13 applies prospectively, hence its disclosure requirements
need not be applied to comparative information in the first year of application (unless
required previously by IFRS 7 ‘Financial Instruments: Disclosures’)
• 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, 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
All IFRS issued by the International Standards Board (IASB) which are effective for the year
ended 31 December 2013, 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
38
Annual Report 2013
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 2013:
Endorsed by
the EU
Effective for annual
periods beginning
on or after
IFRS 9: “Financial Instruments”
IFRS 14: “Regulatory Deferral Accounts”
IFRIC 21: “Levies”
Annual Improvements 2010–2012 Cycle
Annual Improvements 2011–2013 Cycle
Amendment to IFRS 10, IFRS 12, and IAS 27:
“Investment Entities”
Amendment to IAS 19: “Defined Benefit Plans:
Employee Contributions”
Amendment to IAS 32: “Offsetting Financial
Assets and Financial Liabilities”
Amendment to IAS 36: “Recoverable Amount
Disclosures for Non Financial Assets”
Amendment to IAS 39: “Novation of Derivatives
and Continuation of Hedge Accounting
No
No
No
No
No
Yes
No
Yes
Yes
Yes
Not set
1 January 2016
1 January 2014
1 July 2014
1 July 2014
1 January 2014
1 July 2014
1 January 2014
1 January 2014
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
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 all of its subsidiaries Control is achieved where the Company is exposed, or has right,
to variable returns from its involvement with a subsidiary and has the ability to affect
those returns through its power over the subsidiary
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 subsidiaries
have a reporting date of 31 December
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
39
included in the consolidated financial statements from the effective date of acquisition or
up to the effective date of disposal
2 4
Investments in associates and joint ventures
An associate is an entity over which the Group is able to exert significant influence but not
control
A joint venture is an arrangement that the Group controls jointly with one or more other
investors, and over which the Group has rights to a share of the arrangement’s net assets
rather than direct rights to underlying assets and obligations for underlying liabilities
Investments in associates and joint ventures are measured at fair value through profit or
loss in accordance with IAS 39, based on the exemption available by IAS 28 “Investments in
Associates and Joint Ventures” for entities that are venture capital organisations or similar
entities
2 5 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 6
Investment property income
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
the life of the lease Rental income and services charged are stated net of VAT and other
related taxes
2 7
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 8 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
40
Annual Report 2013
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 9 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
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
41
2 10 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 11 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 12 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
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 13 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
42
Annual Report 2013
On lapse of the options any related amounts recognised in the share option reserve are
transferred to retained earnings
2 14 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 15 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 2013 or 2012
2 16 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
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 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
43
• 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 impairment 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
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 17 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
44
Annual Report 2013
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:
(i)
(ii)
the amount determined in accordance with IAS 37; and
the amount initially recognised less, when appropriate, cumulative
amortisation recognised in accordance with IAS 18
2 18 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
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 19 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 20 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
45
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
Classification of financial assets
(ii)
The Management exercises significant
in determining the appropriate
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
Determination of the nature of the investment in Silvermore (note 9)
(iii)
Management exercised its judgment in determining that the investment in Silvermore,
where the Group holds 50% of equity interests and another investor holds the other 50%,
is in substance a joint arrangement, as defined in IFRS 11 The type of the arrangement has
46
Annual Report 2013
been determined to be a joint venture
(iv)
Determination of the nature of the investment in Covenant Credit Partners LLC
(note 9)
Management exercised its judgment in determining that the investment in Covenant Credit
Partners LLC is in substance an investment in associate In arriving to this conclusion,
Management considered that although the Group through its subsidiary Blackline
Investments Inc has a 52 5% equity interest, the other investor holding 47 5% in effect
controls the relevant activities of Covenant Credit Partners LLC by virtue of an agreement
Deferred tax assets
(v)
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
Refer also to note 4 for estimation uncertainty over the fair value determination of the
investment in SRS Charminar
Fair value of investments in associate and joint venture
(ii)
Management uses valuation techniques in measuring the fair value of the investments in
associate and joint venture Details of the bases used are disclosed in note 7 In applying
the valuation techniques management makes maximum use of market inputs, and uses
47
estimates and assumptions that are, as far as possible, consistent with observable data
that market participants would use in pricing the investments 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
Fair value of investment property
(iii)
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
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
(iv)
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
Comparatives
(v)
The interest cost in relation to two interest rate swaps, both with a notional of CHF
10,000,000 – see note 17, have been reclassified from the interest from investments to
finance costs (note 29)
The above reclassification has no impact on the Group’s financial position at any
comparative reporting date; therefore, no consolidated statement of financial position at
1 January 2012 is presented
48
Annual Report 2013
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 2012
Additions
As at 1 January 2013
Additions
360
7
367
10
145
18
163
13
As at 31 December 2013
377
176
Accumulated
depreciation
As at 1 January 2012
Charge for the year
As at 1 January 2013
Charge for the year
(309)
(58)
(367)
(10)
As at 31 December 2013
(377)
Net book value
As at 31 December 2013
As at 31 December 2012
-
-
(145)
(9)
(154)
(10)
(164)
12
9
106
5
111
2
113
(88)
(7)
(95)
(7)
(102)
11
16
26
-
26
-
637
30
667
25
26
692
(14)
(7)
(21)
(5)
(26)
-
5
(556)
(81)
(637)
(32)
(669)
23
30
4 Available-for-sale financial assets
Non-current assets
Fixed income investments
Private equities
Financial and minority holdings
2013
US $000
2012
US $000
91,881
15,897
9,068
116,846
73,181
15,842
10,469
99,492
49
Current assets
Public equity investments
Hedge funds
Other investments
2,214
1,026
2
3,242
3,516
908
5
4,429
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 2013, the Group’s exposure to CLO Income Notes increased by USD 18 7m The total
investment in CLO Income Notes as at 31 December 2013 amounts to USD 91 9m
During 2013, 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 2013, of USD 2 499m (2012 USD 18 133m), are included
within loss on investments (note 26), and represent impairment losses arising due to:
Significant fall in value
Prolonged fall in value
Investment in SRS Charminar
2013
US $000
1,707
792
2,499
2012
US $000
16,816
1,317
18,133
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
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 83m as at 31 December 2013 (2012: 98 9m) 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
50
Annual Report 2013
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 2013, there was no
change in the status of this case
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 At the date of issuance of the consolidated financial statements,
the necessary Regulatory Approvals were not obtained
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 2013 is USD 8 9m
(2012: USD 10 1m), 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
Private”) with a carrying amount at reporting date of USD 3 6m (2012: USD 4m) 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 2013 amounts approximately to 13 1% (2012: 16 2%) of its net assets
51
5 Financial assets 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
2013
US $000
2012
US $000
569
1,588
2,157
1,609
10,137
1,209
289
13,244
1,965
1,751
3,716
10,248
23,182
2,078
287
35,795
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 categorises its financial assets at fair value as follows:
Fixed income investments relate to fixed and floating rate bonds, perpetual bank debt, 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
• 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.
52
Annual Report 2013
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
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
that the entity can access at the measurement date;
• Level 2: inputs other than quoted prices included within Level 1 that are observable for
the asset or liability, either directly or indirectly; and
Level 3: unobservable inputs for the asset or liability
•
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
Investments are valued per their closing
Public Equities, and Fixed
bid market prices on quoted exchanges, or as quoted by market maker
Income
•
the CLOs based on
reports provided by
The Group values
market makers CLOs are typically valued by market makers using discounted
cash
include
default and recovery rates, prepayment rates and reinvestment assumptions
loans) of the CLOs
on the underlying portfolios
flow models The key assumptions
(typically senior secured
flow projections
the valuation
for cash
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
53
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
•
•
•
•
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
The investment in joint venture is valued based on its underling agreement (ISDA)
entered (i e a total return swap) The agreement’s fair value is provided by counter
party bank
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:
2013
US
$000
Level 1
2013
US
$000
Level 2
2013
US
$000
Level 3
2013
US
$000
Total
2012
US
$000
Level 1
2012
US
$000
Level 2
2012
US
$000
Level 3
2012
US
$000
Total
Assets
Fixed income
investments
Private equities
Financial and minority
holdings
1,609
91,881
-
93,490
10,248
73,181
-
83,429
6,816
-
9,650
16,466
5,489
9,068
9,068
-
Public equity investments
12,351
Hedge funds
Real estate entities
Investment in associate
and joint venture
-
-
-
Other investments
289
-
-
1,588
-
-
-
2
12,351
26,698
2,235
1,588
5,524
-
-
-
291
287
-
-
-
2,235
5,524
-
-
-
2,986
-
-
-
12,317
17,806
10,469
10,469
-
-
1,752
26,698
2,986
1,752
-
5
-
292
21,065
99,640
20,308
141,013
42,722
76,167
24,543
143,432
Liabilities
Interest rate swaps
-
-
2,125
2,125
-
-
2,125
2,125
-
-
5,526
5,526
-
-
5,526
5,526
54
Annual Report 2013
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
Financial assets within level 3 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
As at 1 January
2012
15,226
11,078
5,549
1,454
1,575
34,882
Purchases
-
1,535
-
-
-
1,535
Gains / (losses)
recognised in:
• 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 32)
(5,523)
As at 1 January
2013
10,469
10,352
Sales
Purchases
Gains / (losses)
recognised in:
-
-
-
263
-
-
-
5
-
-
59
-
-
4,477
59
(5,523)
1,752
1,965
24,543
-
-
(725)
-
(725)
263
• Profit or loss
(1,401)
(517)
(3)
(603)
(671)
(3,195)
• Other
comprehensive
income
Exchange difference
-
-
(1,017)
-
As at 31 December
2013
9,068
9,081
-
-
2
-
439
-
-
(1,017)
439
1,588
569
20,308
55
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
(7,925)
(3,570)
-
-
(7,925)
(3,570)
3,168
1,309
-
-
3,168
1,309
(21)
-
(21)
-
-
-
239
-
239
-
-
-
390
(10,887)
-
-
390
(10,887)
-
-
-
4,477
-
4,477
(4,757)
(2,261)
(21)
239
390
(6,410)
(1,401)
(517)
-
-
(1,401)
(517)
(3)
-
(3)
(603)
(671)
(3,195)
-
-
-
(603)
(671)
(3,195)
2012
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
Total gains / (losses)
for 2012
2013
Profit or loss
•
•
Financial assets
held at year-end
Financial assets
no longer held
Other comprehensive
income
56
Annual Report 2013
•
•
Financial assets
held at year-end
Financial assets
no longer held
Total gains / (losses)
for 2013
-
-
-
(1,017)
-
(1,017)
-
-
-
-
-
-
-
-
-
(1,017)
-
(1,017)
(1,401)
(1,534)
(3)
(603)
(671)
(4,212)
The Group has not developed any quantitative unobservable inputs for measuring the fair
value of its level 3 financial assets at 31 December 2013 and 2012 Instead the Group used
prices from third-party pricing information without adjustment
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
Fair value (loss) / gain –
recognised in profit or loss
Exchange difference
As at 31 December
2013
US $000
126,543
(179)
3,552
129,916
2012
US $000
122,518
961
3,064
126,543
The investment property relates to Wyler Park property in Bern, Switzerland, which is used for
earning rental income The Group has no restriction on the realizability of the property or the
remittance of income and any proceeds of disposal
Wyler Park property investment loan (note 16) is secured on the property itself
Fair valuation
The investment property is the Group’s only non-financial asset measured at fair value on a
recurring basis, and its fair value is classified within the fair value hierarchy as level 3
The investment property was valued by the independent professional valuers Wüest & Partners
as at 31 December 2013 and 2012 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 The investment property is revalued annually on 31
December
The significant inputs and assumptions are developed in close consultation with management
The valuation processes and fair value changes are reviewed by the Board of Directors at each
reporting date
57
The fair values of investment property are estimated using the discounted cash-flow (DCF)
method With this method, the current market value of a 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
each property with due allowance for specific opportunities and threats, and with adjustment
in line with market conditions and risks All projected cash flows are presented to ensure
maximum transparency
The valuations are based on the following assumptions:
• The property has been appraised as continuation scenario That means, that no change
of use scenarios have been calculated as well that would result to a higher value
• A one-period DCF model was adopted 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 Rates are determined individually
for each property on the basis of appropriate benchmarks derived from arm’s-length
transactions They may be broken down as follows: risk-free interest rate + property
risk (immobility of capital) + premium for macro-location + premium for micro-location
depending on use + premium for property quality and income risk + any other specific
premiums
Unless otherwise stated, the valuations assume 1% annual inflation for income and
all expenditure Where a nominal discount rate is applied, this is adjusted accordingly
•
Credit risks posed by specific tenants are not explicitly factored into the valuation
• Allowance is made for the specific indexing provisions in existing leases An indexing
•
•
factor of 80% (Swiss average) is assumed for the period following lease expiry
For existing tenancies, the timing of individual payments is assumed to comply with
the terms of the lease
• Following lease expiry, cash flows for commercial premises are taken to be quarterly in
•
advance, for housing monthly in advance
In terms of running costs, entirely separate service charge accounts are assumed, with
no tenancy-related ancillary costs to be borne by the owner
• The maintenance (repair and upkeep) costs were calculated by means of a lifecycle
analysis of the individual building elements The building structure’s remaining lifespan
was estimated and periodic refurbishments modelled on the basis of the general
condition of the fabric as determined during the property inspection
Appropriate annual reserves were calculated accordingly and plausibility tested using
comparables and Wüest & Partner’s own benchmarks The calculation factors in 100% of
repair costs in the first 10 years; the proportion applied from year 11 onwards is limited to the
value-preserving investments (recoverable share)
The valuations are sensitive to the above inputs, all of which are unobservable
Future rental income
The future minimum rental income under non-cancellable rental agreements, is receivable as
follows:
58
Annual Report 2013
Less than 1 year
Between 1 and 5 years
Over 5 years
2013
US $000
5,851
26,105
-
31,956
2012
US $000
5,794
25,820
5,164
36,778
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 2013 and 31 December 2012
respectively
9
Investments in associate and joint venture
As at 1 January
Additions
Fair value gain
As at 31 December
2013
US $000
-
5,000
524
5,524
Name of
investee
Type of
investment
Place of
incorporation
Principal
activity
Proportion of
voting rights
held
2012
US $000
-
-
-
-
Fair value
2013
US
$000
2012
US
$000
Silvermore Ltd
Joint
venture
Covenant Credit
Partners LLC*
Associate
Cayman
Islands
Delaware,
US
Investment
holding
Investment
holding
50%
5,524
52 5%
-
5,524
-
-
-
*Held by the subsidiary Blackline Investments Inc
The activities of both the joint venture and the associate are in line with the Group’s activities
and strategy
59
The joint venture does not prepare any financial information As at year end Silvermore was
a contractual party to a Total Return Swap (ISDA) agreement with Citibank N A with market
price of US$ 5 5m As at that date Silvermore had no other assets or liabilities
The associate also does not prepare any financial information As at year end Covenant
Credit Partners had not entered into any contractual arrangements As at that date Covenant
Credit Partners had a net liability position of USD 0 807m mainly due to the incurrence of
administrative expenses
10 Details of subsidiaries
Details of the investments in which the Group has a controlling interest are as follows:
Name of Subsidiary
Livermore Properties
Limited
Livermore Israel
Investments Limited
Proportion of
voting rights
and shares
held
Holding
Ordinary shares
100%
Place of
incorporation
British Virgin
Islands
Israel
Ordinary shares
100%
Blackline Investments Inc *
USA
Ordinary shares
52 5%
Livermore Capital AG
Switzerland
Ordinary shares
100%
Livermore Investments 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%
* Blackline Investments Inc was established during the year
** Held by Enaxor S a r l
Principal activity
Holding of
investments
Holding of
investments
(Dormant)
Holding of
investments
Administration
services
Real Estate owner
and management
Holding of
investment
Administration
services
Holding of
investments
Livermore Management Limited has been closed by the Group during the year
Livermore Real Estate I AG has been liquated by the Group during the year
11 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
60
Annual Report 2013
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)
2013
US $000
(5,845)
344
3,545
(1,956)
2012
US $000
(4,503)
916
3,068
(519)
The movement on the deferred taxation account is as follows:
Investment
property
US $000
Derivative
financial
instruments
US $000
Tax losses
US $000
As at 1 January 2012
(3,538)
1,423
2,603
Total
US $000
488
(Charged) / credited to
profit or loss (note 30)
•
timing differences
Exchange difference
(863)
(102)
(532)
25
393
72
(1,002)
(5)
As at 1 January 2013
(4,503)
916
3,068
(519)
(Charged) / credited to
profit or loss (note 30)
•
timing differences
Exchange difference
(1,211)
(131)
(596)
24
390
87
(1,417)
(20)
As at 31 December 2013
(5,845)
344
3,545
(1,956)
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 2013 and 2012 there is no unrecognised deferred tax asset
61
12 Trade and other receivables
Financial items
Accrued interest and dividend
income
Amounts due by related parties
(note 32)
Other receivables
Non-Financial items
Other assets (note 32)
Prepayments
Allocated as:
Current assets
Non-current assets
2013
US $000
2012
US $000
79
1,339
654
2,072
4,512
199
6,783
3,399
3,384
6,783
313
533
646
1,492
5,640
159
7,291
2,779
4,512
7,291
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 79m (2012: USD
0 313m) 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 277m (2012: USD 0 578m) paid on behalf of
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 relevant reduction in the loan amount
for the year was USD 1 128m The amount of non-current assets shown above relates wholly
to this item
62
Annual Report 2013
13 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
2013
US $000
2012
US $000
4,150
14,505
Bank overdrafts used for cash management purposes
(15,188)
(19,759)
Cash and cash equivalents for the purposes of the
consolidated statement of cash flows
(11,038)
(5,254)
14 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 2012 and 31 December 2013
304,120,401
215,499
Treasury shares
As at 1 January 2012
Additions
As at 1 January 2013
Additions
Number of
shares
49,332,883
56,052,180
US $000
18,772
16,408
105,385,063
3,445,755
35,180
1,722
As at 31 December 2013
108,830,818
36,902
63
In the consolidated statement of financial position the amount included comprises of:
Share premium
Treasury shares
2013
US $000
215,499
(36,902)
178,597
2012
US $000
215,499
(35,180)
180,319
15 Share options
The Company has a share option scheme for acquiring ordinary shares of the Company
Outstanding options
As at 31 December 2012 and 31
December 2013
Number of
options
Average
exercise price
GBP
Average exercise
price* USD
11,340,000
0 75
1 25
Exercisable options
As at 31 December 2012 and 31
December 2013
Number of
options
Average
exercise price
GBP
Average exercise
price* USD
11,340,000
0 75
1 25
Details of share options outstanding at 31 December 2013
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
3,383,334
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
1 18
1 18
1 18
1 29
1 29
1 29
0 50
82,739
94,333
103,948
1,608,710
1,824,133
2,001,774
21,703
64
Annual Report 2013
166,667
13/05/08
13/05/10 13/05/10
13/05/18
0 30
166,666
13/05/08
13/05/11
13/05/11
13/05/18
0 30
11,340,000
0 50
0 50
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 2013
16 Bank Loans
As at 1 January
Repayment
Exchange difference
As at 31 December
Allocated as:
Current bank loans
Non-current bank loans
2013
US $000
86,258
(706)
2,422
87,974
87,974
-
87,974
2012
US $000
84,316
(167)
2,109
86,258
-
86,258
86,258
The bank loan relates to Wyler Park investment property purchase (note 8) and is secured on
this property The loan balance is fully repayable on 12 July 2014 However, the Group is
currently negotiating the refinancing of this loan with a Swiss Bank for a term of another five
years
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 17) Consequently, the loan’s effective
interest rate is 4 15%
65
17 Derivative financial instruments
Non-current liabilities
Interest rate swaps
Current liabilities
Interest rate swaps
2013
US $000
2012
US $000
-
2,068
2,125
3,458
During 2013 and 2012 the Group used forward currency contracts; however, no such
derivatives were open at 31 December 2013 or 2012
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 78,353,556
(2011: CHF
79,981,921)
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 2013 a fair value gain of USD 3,524,094 (2012: gain USD
3,112,852) has been recognised in the profit or loss in relation to all derivative financial instruments
18 Bank Overdrafts
Short term bank overdrafts
2013
US $000
15,188
2012
US $000
19,759
66
Annual Report 2013
Short term bank overdrafts bear Libor + lender’s margin and have an average interest rate of
1 77% (2012 2 46%)
The Group’s bank overdraft facilities are secured by the Group’s financial assets portfolio up to
an amount, as at 31 December 2013, of USD 53m
19 Short term bank loans
Short term bank loans
2013
US $000
3,475
2012
US $000
-
Short term bank loans bear Libor + lender’s margin and had an average interest rate of 2 66%
(2012 1 64%)
The Group’s short term bank loan facilities were secured by the Group’s financial assets
portfolio
20 Trade and other payables
2013
US $000
2012
US $000
Financial items
Trade payables
Amounts due to related parties
(note 32)
Accrued expenses
Non-Financial items
VAT payable
532
1,212
964
2,708
68
2,776
1,233
4,012
946
6,191
170
6,361
The Directors consider that the carrying amount of trade and other payables approximates to
their fair value All amounts fall due within one year
67
21 Current tax payable
Corporation Tax
22 Net asset value per share
2013
US $000
(6)
2012
US $000
102
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 2013 and 31 December 2012
Net assets attributable to ordinary shareholders
(USD 000)
2013
2012
168,371
172,976
Closing number of ordinary shares in issue
195,289,583
198,735,338
Basic net asset value per share (USD)
0 86
0 87
Net assets attributable to ordinary shareholders
(USD 000)
168,371
172,976
Dilutive share options – exercise amount
247
242
Net assets attributable to ordinary shareholders
including the effect of potentially diluted shares
(USD 000)
168,618
173,218
Closing number of ordinary shares in issue
195,289,583
198,735,338
Dilutive share options
500,000
500,000
Closing number of ordinary shares including the
effect of potentially diluted shares
195,789,583
199,235,338
68
Annual Report 2013
Diluted net assets value per share (USD)
0 86
0 87
Number of Shares
Ordinary shares
Treasury shares
304,120,401
304,120,401
(108,830,818)
(105,385,063)
Closing number of ordinary shares in issue
195,289,583
198,735,338
The Share options (note 15) granted on 13 May 2008 have a dilutive effect on the net asset
value per share, given that their exercise price is lower than the net asset value per Company’s
share at 31 December 2013 and 2012 All other share options do not impact the diluted
earnings per share for 2013 and 2012 as their exercise price was higher than the net asset
value per Company’s share at 31 December 2013 and 2012
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 2013, the Company bought 3,445,755 (2012: 56,052,180) of its Ordinary
shares at an average price of USD 0 50 (2012: USD 0 29) per share
23 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
69
Segment information can be analysed as follows
Equity and debt
instruments
investment activities
Investment
property
activities
Total per financial
statements
2013
US $000
2012
US $000
2013
US $000
2012
US $000
2013
US $000
2012
US $000
Segment results
Investment income
Interest and dividend
income
Investment property
income
Gain / (loss) on
investments
Gross profit
Other income
Administrative
expenses
29,068
22,772
-
-
29,068
22,772
-
-
5,473
5,382
5,473
5,382
(16,324)
3,830
2,672
3,476
(13,652)
7,306
12,744
26,602
8,145
8,858
20,889
35,460
55
694
-
-
55
694
(11,122)
(4,211)
(1,137)
(818)
(12,259)
(5,029)
Operating profit
1,677
23,085
7,008
8,040
8,685
31,125
Finance costs
(1,680)
(1,314)
(3,562)
(3,554)
(5,242)
(4,868)
Finance income
906
610
-
-
906
610
Profit before
taxation
903
22,381
3,446
4,486
4,349
26,867
Taxation charge
(411)
(44)
(1,464)
(1,166)
(1,875)
(1,210)
Profit for year
492
22,337
1,982
3,320
2,474
25,657
Segment assets
150,875
163,648
131,016
128,153
281,891
291,801
Segment liabilities
20,798
26,351
92,722
92,474
113,520
118,825
70
Annual Report 2013
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
2013
US $000
2012
US $000
2013
US $000
2012
US $000
2013
US $000
2012
US $000
-
-
8,145
8,858
8,145
8,858
(888)
(2,391)
18,941
(3,749)
(1,560)
12,744
34,707
(8,279)
2,565
26,602
-
-
-
-
-
-
(888)
(2,391)
18,941
34,707
(3,749)
(8,279)
(1,560)
2,565
8,145
8,858
20,889
35,460
-
-
129,916
126,543
129,916
126,543
14,521
23,055
98,406
14,887
13,199
75,575
18,405
26,397
-
-
-
-
-
-
-
-
14,521
23,055
98,406
75,575
14,887
18,405
13,199
26,397
141,013
143,432
129,916
126,543
270,929
269,975
Investment Income
Switzerland
Other European
countries
United States
India
Asia
Investments
Switzerland
Other European
countries
United States
India
Asia
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 2013, 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 (2012: 89%)
71
24 Interest and dividend income
Interest from investments
Dividend income
25 Investment property income
Gross rental income
Direct expenses
2013
US $000
663
28,405
29,068
2013
US $000
5,846
(373)
5,473
2012
US $000
2,208
20,564
22,772
2012
US $000
5,793
(411)
5,382
All direct expenses relate to the generation of rental income
26 (Loss) / gain on investments
(Loss) / gain on sale of investments
Investment property revaluation
Foreign exchange gain
Loss due to impairment of available-for-sale
financial assets
Fair value (losses) / gains on financial assets
through profit or loss
Fair value gains on investment in joint venture
Fair value gains on derivative instruments
Bank custody fees
2013
US $000
(892)
(179)
81
2012
US $000
3,178
961
130
(2,499)
(18,133)
(13,985)
18,234
524
3,519
(221)
(13,652)
-
3,124
(188)
7,306
The investments disposed of during the year resulted in the following realised (losses) / gains
(i e in relation to their original acquisition cost):
72
Annual Report 2013
Available-for-sale
At fair value through profit or loss
27 Other income
Disposal gain
Warehouse Carry income
Insurance claim received
Gain on liquidation of subsidiaries
28 Administrative expenses
Legal expenses
Directors’ fees and expenses
Professional and consulting fees
Other salaries and expenses
Office cost
Depreciation
Other operating expenses
Provisions for legal and other cases - reversal
Audit fees
2013
US $000
(3,953)
898
(3,055)
2012
US $000
497
22
519
2013
US $000
2012
US $000
-
-
-
55
55
2013
US $000
57
9,078
1,667
769
284
32
512
(274)
134
12,259
250
244
200
-
694
2012
US $000
93
2,593
828
503
306
81
426
-
199
5,029
Throughout 2013 the Group employed 7 members of staff (2012: 6)
Other salaries and expenses include USD 40,694 of social insurance and similar contributions
(2012: USD 31,858), as well as USD 15,255 of defined contributions plan costs (2012: USD
18,750)
73
29 Finance costs and income
Finance costs
Bank interest on investment property loan*
Other swap interest cost
Other bank interest
Foreign exchange loss
Finance income
Foreign exchange gain
2013
US $000
2012
US $000
3,555
689
495
503
5,242
3,547
632
689
-
4,868
906
610
Net finance costs
4,336
4,258
*Includes interest payments on a related swap (note 16)
30 Taxation
Current tax charge
Prior year tax charge
Deferred tax charge
2013
US $000
2012
US $000
458
-
1,417
1,875
200
8
1,002
1,210
The tax charge for the year can be reconciled to
the accounting profit as follows:
Profit before tax
4,349
26,867
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
706
(702)
61
(38)
-
411
928
(855)
63
(109)
8
44
74
Annual Report 2013
Property tax
Deferred tax charge
20
1,417
129
1,002
Tax for the year
1,875
1,210
The parent 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 in Switzerland and Cyprus
31 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
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 2013 and the year ended 31
December 2012
Profit for the year attributable to ordinary shareholders
of the parent (USD 000)
2013
2012
2,474
25,657
Weighted average number of ordinary shares outstanding
196,692,363
220,907,964
Basic earnings per share (USD)
0 01
0 12
Weighted average number of ordinary shares outstanding
196,692,363
220,907,964
Dilutive effect of share options
83,102
-
Weighted average number of ordinary shares including
the effect of potentially dilutive shares
196,775,465
220,907,964
Diluted earnings per share (USD)
0 01
0 12
The decrease in the weighted average number of ordinary shares outstanding is due to the
acquisition of treasury shares during the year (note 14)
The Share options (note 15) granted on 13 May 2008 have a dilutive effect on the weighted
average number of ordinary shares only, given that their exercise price is lower than the
average market price of the Company’s shares on the London Stock Exchange (AIM division)
during the year ended 31 December 2013 (2012: no dilutive effect since exercise price was
higher than the average market price) All other share options do not impact the diluted
earnings per share for 2013 and 2012 as their exercise price was higher than the average
market price of the Company’s shares during the year ended 31 December 2013 and 2012
75
32 Related party transactions
The Group is controlled by Groverton Management Ltd, an entity owned by Noam Lanir, which
at 31 December 2013 held 79 06% (2012: 77 70%) of the Company’s effective voting rights
2013
US $000
2012
US $000
Amounts receivable from key management
Other assets
Directors’ current accounts
Amounts receivable from associate
Promissory notes
Amounts payable to other related party
Loan payable
Trade payable
Key management compensation
Short term benefits
Executive directors' fees
Executive directors' reward payments
Non-executive directors' fees
4,512
425
4,937
914
914
(1,212)
-
(1,212)
795
8,212
71
9,078
(1)
(2)
(3)
(4)
5,640
533
6,173
-
-
(4,012)
(810)
(4,822)
795
1,700
98
2,593
(1) 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 The relevant reduction in the loan amount
for the year was USD 1 128m The loans together with their related accrued interest of USD 0 117m
were classified as “other assets” and are included under trade and other receivables (note 12)
76
Annual Report 2013
(2) Demand promissory notes of USD 0 914m were made from Covenant Credit Partners LLC
(maker) to Blackline Investments Inc (holder) Interest on these notes is at 2 0% per annum
and is repayable on the earlier of the holder demand or May 2014
(3) A loan with a balance at 31 December 2013 of USD 1 2m (31 December 2012: USD 4 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 20)
(4) These payments were made directly to companies to which they are related
No social insurance and similar contributions nor any other defined benefit contributions plan costs
incurred for the Group in relation to its key management personnel in either 2013 or 2012
Noam Lanir, through an Israeli partnership, is the major shareholder of Babylon Limited, an Israel
based Internet Services Company The Group as of 31 December 2013 it held a total of 3 915m
shares at a value of USD 9 3m (2012: 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)
33 Provisions
The movement in the provisions for the year is as follows:
2013
US $000
2012
US $000
300
(274)
-
-
26
1,142
-
(833)
(9)
300
As at 1 January
Amounts reversed
Settlements
Exchange differences
As at 31 December
34 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
77
employers Litigation was completed in Israel and a final decision is pending
On 5 March 2014, the Labor Court in Tel Aviv issued a ruling in which the court denied most
of the plaintiff’s claims and accepted only his claim for termination of employment On 16
April 2014 the plaintiff filed an appeal against the ruling
No further information is provided on the above case as the Directors consider it could
prejudice the outcome of the appeal
35 Commitments
The Group has no capital or other commitments as at 31 December 2013
36 Events after the reporting date
After the reporting period, Livermore has entered into an agreement with Montana Tech
Components to sell its shareholding at an average price of EUR 4 56 per share realizing a
gain of USD 2 7m in relation to the carrying amount of the investment as at the year end The
transaction is expected to close on 30 June 2014
In January 2014, the Company announced an interim dividend of USD 5m (USD 0 0256 per
ordinary share)
In the first quarter of 2014, Livermore sold approximately half its shareholding in Babylon
at an average price of USD 1 98 and now holds approximately 4% of Babylon’s issued share
capital
37 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 38
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 2013 is the following:
78
Annual Report 2013
2013
US $000
2013
US $000
2013
US $000
2012
US $000
2012
US $000
2012
US $000
Liabilities
Net value
Financial
assets
Liabilities Net value
British Pounds (GPB)
Euro
Financial
assets
2,160
5,106
(12,273)
(10,113)
(203)
Swiss Francs (CHF)
41,097
(1,646)
Indian Rupee (INR)
Israel Shekels (ILS)
Others
Total
8,944
9,989
-
-
(4,204)
(2,350)
8,650
7,856
42,660
10,106
22,940
-
(13,478)
(4,828)
(154)
(1,228)
-
(7,851)
(2,816)
7,702
41,432
10,106
15,089
(2,816)
4,903
39,451
8,944
5,785
(2,350)
67,296
(20,676)
46,620
92,212
(25,527)
66,685
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
denominated in non-USD currencies
A 10% increase of the following currency rates against the rate of United States Dollar (USD)
at 31 December 2013 would have the following impact A 10% decrease of the following
currencies against USD would have an approximately equal but opposite impact
2013
US $000
2013
US $000
2012
US $000
2012
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
(1,011)
490
3,945
894
579
4,897
-
-
-
-
-
-
(483)
770
4,143
1,011
1,509
6,950
-
-
-
-
-
-
79
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 88 0m (2012:
USD 86 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 2013 was USD 18 6m (2012: USD 19 7m)
As at 31 December 2013 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
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
80
Annual Report 2013
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
2013
US $000
2012
US $000
1,609
96,030
97,639
106,637
2,125
108,762
9,954
87,980
97,934
106,017
5,526
111,543
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 0 91% change in the net asset value as at 31 December 2013 (2012: 1 22%)
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
2013
US $000
2013
US $000
2012
US $000
2012
US $000
Profit or loss
Other
comprehensive
income
Profit or loss
Other
comprehensive
income
(137)
960
669
38
1,530
-
-
-
-
-
(535)
880
1,739
21
2,105
-
-
-
-
-
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
81
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 and a total return swap
referencing a portfolio of senior secured loans (note 9) 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
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 80% change in the
net asset value as at 31 December 2013 (2012: 6 63%), and would have the following impact
(either positive or negative, depending on the corresponding sign of the change):
2013
US $000
2013
US $000
2012
US $000
2012
US $000
Profit or loss
Other
comprehensive
income
Profit or loss
Other
comprehensive
income
8
9,490
12
7,732
1,484
552
2,044
-
-
3,703
-
-
-
9,490
3,715
7,732
Available-for-sale
financial assets
Financial assets at fair
value through profit or
loss
Investment in joint
venture
82
Annual Report 2013
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 93 5m (2012: USD 83 4m) The Group’s maximum credit risk exposure at
31 December 2013 is as follows:
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
Investments in associate and joint venture
2013
US $000
2012
US $000
726
4,150
4,876
91,880
1,609
5,524
103,889
1,077
14,505
15,582
73,181
10,248
-
99,011
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
periods, nor to provide any relevant sensitivity analysis
83
The Group has exposure to US senior secured loans and to a lesser degree emerging market
loans through CLO equity tranches and a total return swap facility (note 9) 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 2013 or 2012
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
2013 Amount
US $000
A+
A-
BBB
BBB+
BBB-
BB
BB+
BB-
Not Rated
337
-
-
3,892
-
3,440
1,090
519
94,611
103,889
Percentage
0 3%
-
-
3 8%
-
3 3%
1 0%
0 5%
91 1%
100%
2012 Amount
US $000
Percentage
895
872
463
0 9%
0 9%
0 5%
14,334
14 5%
1,196
1,012
5,221
481
74,536
99,010
1 2%
1 0%
5 3%
0 5%
75 2%
100%
Included within “not rated” amounts are investments in loan market through CLOs of USD
88 440m (2012: USD 73 181m)
The modelled IRRs on the CLO portfolio are in the high single digit to low teens percentage
points with current cash distributions of over 20%
84
Annual Report 2013
Liquidity Risk
The major financial liability of the Group is the bank loan of CHF 78 4m (USD 88 0m) used for
purchase of a real estate property, which has a maturity in 2014 The loan is collateralized
by property valued at CHF 115 7m (USD 129 9m) at 31 December 2013 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 2013
Borrowings
107,309
Derivative financial
instruments
Other financial
liabilities
2,125
2,708
Total
112,142
-
-
-
-
-
-
-
-
-
-
-
-
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
3,460
2,085
Other financial liabilities
6,191
-
Total
30,154
88,994
-
-
-
-
-
-
-
-
85
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 2013, the Group had liquid investments totalling USD 111 8m, comprising of
USD 4 2m in cash and cash equivalents, USD 91 9 in investments in loan market through CLOs,
USD 1 6m in fixed income investments, USD 11 9m in public equities and USD 2 2m 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
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 2013
Available-for-sale financial
assets
Financial assets at fair
value through profit or loss
Cash at bank
Other financial assets
2
-
4,150
2,072
6,224
-
-
-
-
-
224
91,657
289
1,609
513
93,266
86
Annual Report 2013
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
Cash at bank
Other financial assets
5
-
14,505
1,492
16,002
Capital Management
-
-
-
-
-
1,432
71,749
1,012
10,248
2,444
81,997
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
2013
US $000
(4,150)
15,188
87,974
3,475
2012
US $000
(14,505)
19,759
86,258
-
102,487
91,512
168,371
172,976
Net debt to equity ratio
0 61
0 53
87
The Group utilized cash at bank in 2013 to make additional investments as well as buy back
shares which resulted in an increase of the net debt to equity ratio The Board believes that
the ratio remains at an acceptable and manageable level
38 Financial assets and liabilities by IAS 39 category
Note
2013
US $000
2012
US $000
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:
Financial liabilities at amortised cost:
Bank loan
Bank overdrafts
Short term bank loans
Other financial liabilities
12
13
4
5,9
16
18
19
20
2,072
4,150
6,222
120,088
20,925
147,235
87,974
15,188
3,475
2,708
109,345
1,492
14,505
15,997
103,921
39,511
159,429
86,258
19,759
-
6,191
112,208
Financial liabilities at fair value through
profit or loss:
Derivative financial instruments
17
2,125
111,470
5,526
117,734
The carrying amount of the financial assets and liabilities at amortised cost approximates to
their fair value
Auditors’ report on page 41
88
Annual Report 2013
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
89
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 26 August 2014 at 10am for the purposes of the following:
To consider, and if thought fit, to pass the following resolutions, numbers 1 to 5 of which will be
proposed as Resolutions of Members and numbers 6 and 7 of which will be proposed as Special
Resolutions:
1
2
3
To receive and adopt the Report of Directors, the financial statements and the Report of the
Auditor for the year ended 31 December 2013
To re-elect Mr Ron Baron, who is due to retire as Director in accordance with the Articles of
Association of the Company
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
4
To authorise the Directors to determine the auditor’s remuneration
5
That for the purposes of article 5 1 of the Articles of Association of the Company:
(a)
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
(b)
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
6
THAT, subject to the passing of resolution 5 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
90
Annual Report 2013
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
(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
7
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)
the maximum number of ordinary shares hereby authorised to be purchased is 26,925,469;
(b)
(c)
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 2014
91
Notes
(i)
(ii)
(iii)
(iv)
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
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 the same, must be delivered to the offices of Capita Asset Services, PXS1, 34 Beckenham
Road, Beckenham, Kent, BR3 4ZF 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
Depositary, 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 Asset Services, 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@capita co uk to request a Letter of Corporate Representation
92
Annual Report 2013
Principal Bankers
Leumi Bank
Dianastrasse 5
CH-8002
Zurich
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
PXS
34 Beckenham Road
Beckenham
Kent BR3 4TU
England
Auditor
Grant Thornton (Cyprus) Ltd
10 Filiou Zannetou Street
Limassol 3021
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
93
3