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Infant Bacterial Therapeutics2016 6 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 Review of Activities 9 Introduction and Overview 9 Global Investment Environment 9 Livermore’s Strategy 11 Financial portfolio and trading activity 11 Events after the Reporting Date 14 Litigation 14 Report of the Directors 15 The Board’s Objectives 15 The Board of Directors 15 Directors’ responsibilities in relation to the consolidated financial statements 15 Disclosure of information to the Auditor 16 Substantial Shareholdings 16 Corporate Governance Statement 17 Introduction 17 The Board Constitution and Procedures 17 Board Committees 17 Remuneration Committee 17 Audit Committee 17 Communication with Investors 18 Internal Control 18 Going concern 18 Independence of Auditor 18 4 Annual Report 2016 Remuneration Report 19 Directors’ Emoluments 19 Directors’ Interests 19 Interests of Directors in share options 20 Share Option Scheme 20 Remuneration Policy 20 Review of the Business and Risks 22 Risks 22 Share Capital 22 Related Party Transactions 22 Report of the independent auditor to the members of Livermore Investments Group Limited 23 Consolidated Statement of Financial Position as at 31 December 2016 29 Consolidated Statement of profit or loss for the year ended 31 December 2016 30 Consolidated Statement of Comprehensive Income for the year ended 31 December 2016 31 Consolidated Statement of changes in equity for the year ended 31 December 2016 32 Consolidated Statement of cash flows for the year ended 31 December 2016 34 Notes on the Financial Statements 36 Shareholder Information 87 Registrars 87 Website 87 Direct Dividend Payments 87 Lost Share Certificate 87 Duplicate Shareholder Accounts 87 Notice of Annual General Meeting 88 Corporate Directory 91 5 Highlights • Net Asset Value per share increased 16 8% to USD 0 90 (December 2015: USD 0 77) • • In addition, the Company returned USD 22 9m to shareholders in 2016 by distributing a dividend of USD 0 0858 per share and buying back 17,475,585 shares at an average price of GBP 0 34 Successfully sold its Wyler Park property in Bern in 2016 The investment generated a total return of 122% on the investment amount • CLO portfolio performed strongly generating over 41% gains in 2016 6 Annual Report 2016 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 2016 The year-end NAV was USD 0 90 per share after payment of a USD 15m dividend, USD 0 0858 per share (2015 NAV: USD 0 77 per share) Further, the Company bought back 17,475,585 shares in the year for a total cost of USD 7 86m Net profit, including discontinued operations, for the year was USD 34 0m (2015 Net loss: USD 4 7m) Following the successful refinancing and lease extension with SBB of its Wyler Park property in Bern, the Company took advantage of strong demand for properties offering stable yields in the market and sold the property in October 2016 generating a total return of 122% on invested capital The Company recorded gains from the sale of the Wyler Park property and a solid performance from the financial portfolio as the CLO market recovered sharply after management took advantage of low prices earlier in the year Interest and dividend income from the financial portfolio totalled USD 26 3m (2015: USD 25 7m) Financial Review The NAV of the Group at 31 December 2016 was USD 157 2m (2015: USD 148 6m) Net profit, including discontinued operations, during the year was USD 34m, which represents earnings per share of USD 0 19 Administrative expenses, including discontinued operations, excluding provisions were USD 8 2m (2015: USD 5 2m) 7 The overall change in the NAV is primarily attributed to the following: Shareholders’ funds at beginning of year Income from investments Disposal of Wyler Park Other income Realised gains / (losses) on investments Loss on impairment of investments Unrealised gains on investments Unrealised exchange profit / (losses) Administration costs Net finance costs Tax credit / (charge) Increase / (decrease) in net assets from operations Purchase of own shares Dividends paid Shareholders’ funds at end of year Net Asset Value per share Dividend & Buyback 31 December 2016 US $m 31 December 2015 US $m 148 6 30 4 7 6 - 0 3 - (2 9) 1 7 (8 2) (1 2) 3 8 31 5 (7 9) (15 0) 157 2 160 0 30 9 - 0 1 (2 5) (31 7) 8 4 (0 4) (5 2) (2 5) (2 0) (4 9) (1 5) (5 0) 148 6 US $0 90 US $0 77 For the year ended 31 December 2016, the Board announced an interim dividend of USD 15m (USD 0 0858 per share) to members on the register on 6 January 2017 The dividend was paid on 27 January 2017 During 2016, the Company bought back 17,475,585 shares to be held in treasury for a total cost of USD 7 86m As at 31 December 2016, the Company held 129,306,403 shares in treasury Richard B Rosenberg Chairman Noam Lanir Chief Executive Officer 25 May 2017 8 Annual Report 2016 Review of Activities Introduction and Overview The Company had a very strong performance in 2016, demonstrating the knowledge and skills of the management team to create value as well as the resilience of the portfolio Despite a tough start from a global economy and financial markets perspective, the Company generated a 16 8% increase in Net Asset Value per share in 2016 The success in 2016 came headwinds in the energy and commodity markets and unexpected geo-political events such as “Brexit” and the US election results During the year, significant effort was put into actively managing the CLO portfolio as well as negotiating the sale of the Wyler Park property Active CLO portfolio management included several secondary purchases when the markets mispriced credit risk earlier in the year as well as engaging with CLO managers to manage risky loans and taking advantage of the weak US Leveraged Loan market to increase spread on the underlying collateral Further, management converted its existing warehouse into a CLO and the warehouse generated a 23% return over its 10 months’ life The Wyler Park sale was accomplished as a sale of shares of the company holding the Wyler Park asset generating a total return of 122% on invested capital The sale generated USD 57 2m in net cash to the Company In 2016, the Group generated interest and dividend income of USD 26 3m and investment property income of USD 4 5m The Group reported NAV/share of USD 0 90 after a dividend of USD 0 0858/ share (2015: USD 0 77) and net profit of USD 34m Administrative expenses amount to USD 8 2m (2015: USD 5 2m) and finance costs were USD 1 2m (2015: USD 2 5m) The Group does not have an external management company structure and thus does not bear the burden of external management and performance fees Furthermore, 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 interests with those of its shareholders, management believes that the Group is well positioned to benefit from current market conditions Global Investment Environment The moderate global economic recovery continued in 2016 Following subdued growth in the first half of the year, the global economy gained momentum primarily stimulated by developments in the US Favourable financing conditions, robust economic growth in China and the stabilisation of commodity prices contributed to the slight upturn in global manufacturing The economic situation in many commodity exporting countries, however, remained challenging Oil and commodity prices recovered somewhat over the course of the year Inflation, as measured by the CPI, remained below central bank targets in most advanced economies Compared to 2015, however, annual inflation recorded a slight increase in most cases, predominantly due to higher energy prices In the euro area, inflation dropped to an average of 0 2%, remaining well short of the ECB’s price stability objective of ‘below, but close to 2%’ In the US, inflation 9 reached 2 1% in December 2016, its highest level since June 2014, and averaged 1 3% in 2016, following virtual price stagnation in the previous year Economic growth in the US averaged 1 6% in 2016, down significantly over the previous year The strength of the US dollar and rising credit risk premia dampened investment and exports Furthermore, investment activity in the energy and mining sector continued to decline due to low oil and commodity prices In the second half of the year, however, the US economy gained momentum driven by private consumption The labour market edged closer to full employment with the unemployment rate down to 4 7% by the end of the year In the euro area, GDP advanced by 1 7% in 2016, having grown by 2 0% the previous year The expansionary monetary policy of the European Central Bank (ECB) continued to bolster economic developments The economy picked up in all euro area countries and was broad based, with Germany remaining the driving force Low energy prices and favourable financing conditions contributed to domestic demand, while exports expanded slightly thanks to the weak euro Employment continued to gain momentum and the unemployment rate dropped below 10% Japan’s moderate economic recovery continued in 2016, with GDP advancing by 1 0% However, the substantial appreciation of the yen in the first half of 2016 weighed significantly on the Japanese economy Consequently, the government launched a comprehensive economic stimulus package and postponed the next consumption tax increase The labour market continued to improve and the unemployment rate registered a further decline, dropping to 3 1% by December Switzerland’s economy gained some momentum in 2016, sustaining its recovery from the sharp appreciation of the Swiss franc at the beginning of 2015 GDP was up by 1 3%, following growth of 0 8% in the previous year whereas the situation on the labour market continued to stabilise Disappointing manufacturing indicators in China at the beginning of the year raised concerns about the country’s growth outlook, leading to turbulence on the international financial markets Monetary and fiscal stimulus measures subsequently helped to stabilise the economy GDP growth averaged 6 7% in 2016 The Indian economy developed favourably overall GDP grew slightly above potential (around 7%) in the first three quarters In addition, the government made some headway with important reform packages, such as the nationwide harmonisation of the goods and services tax In November, the government carried out a surprise currency reform aimed at curtailing the shadow economy, but bottlenecks in the supply and distribution of new banknotes put a considerable damper on economic growth In view of low core inflation, central banks in many countries maintained their expansionary monetary policies One exception was the US, where inflation had come in close to target Given the favourable labour market situation and satisfactory inflation development, the US Federal Reserve raised the target range for its policy rate by 0 25 percentage points to between 0 5% and 0 75% in December The ECB, by contrast, introduced further substantial easing measures lowering its deposit rate by 0 1 percentage points to – 0 4%, and the main refinancing rate by 0 05 percentage points to 0% Furthermore, it increased its monthly asset purchases and pledged to purchase corporate bonds for the first time Persistently low inflation induced the Bank of Japan to adopt negative rates and yield curve control policies Global financial markets started the year on the back foot as concerns over China’s growth and capital flight issues took hold and the market digested the US Federal Reserve’s expectation of 10 Annual Report 2016 multiple rate hikes in 2016 Already high credit risk premia and the downslide in oil and commodity markets did not help the situation However, the financial markets recovered sharply from March onwards as the ECB and the Bank of Japan instituted additional easing measures and data out of China was supportive The S&P 500 Index dropped 11 5% but recovered sharply and ended the year 9 8% higher than the start of the year whereas the EuroStoxx 50 Index recovered to almost flat levels after dropping 18 5% earlier in the year The yields on the US treasury bonds ended marginally higher at 2 444% versus 2 2694% at the start of the year as expectations of expansionary fiscal policies took hold with the election of a new US President However, German and Euro area government bond yields declined on account of lower interest rates and additional monetary policy easing Credit spreads recovered sharply in response to better growth prospects, recovery in energy and commodity markets, and additional monetary policy easing US High yield and Leveraged Loan markets generated total returns of 17 5% and 9 88% as measured by the Bloomberg Barclays US Corporate High Yield Total Return Index and the Credit Suisse Leveraged Loan Index respectively Sources: Board of Governors of the Federal Reserve System, European Central Bank (ECB), Swiss National Bank, Bloomberg, Morgan Stanley Livermore’s Strategy The financial portfolio is focused on fixed income instruments which generate regular cash flows and include exposure mainly to senior secured and usually broadly syndicated US loans and to a limited extent emerging market debt through investments in CLOs This part of the portfolio is geographically focused on the US 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 Financial portfolio and trading activity The Group manages a financial portfolio valued at USD 103 3m as at 31 December 2016, which is invested mainly in fixed income and credit related securities The following is a table summarizing the financial portfolio as of year-end 2016 Name 2016 Book Value US $m 2015 Book Value US $m Investment in the loan market through CLOs Open Warehouse facilities Hedge Funds Perpetual Bonds Other Public Equities Invested Total Cash Total 81 8 17 3 1 0 1 2 2 0 103 3 60 4 163 7 66 0 5 0 1 0 1 8 2 9 76 7 25 8 102 5 11 Senior Secured Loans and Collateralized Loan Obligations (CLO): US senior secured loans are a floating rate asset class with a senior secured claim on the borrower and with overall low volatility and low correlation to the equity market CLOs are managed portfolios invested into diversified pools of senior secured loans and financed with long term financing With the energy and commodity complex continuing to trade at very low levels, 2016 had a difficult start for the credit and US Leveraged Loan and CLO market US senior secured loans offered wide spreads and very attractive risk-return characteristics By mid-March, however, the credit markets and US Leveraged Loan markets started a strong recovery as investors saw the value and concerns about defaults and economic growth diminished The US Leveraged Loan market returned an impressive 9 88% in 2016 as measured by the Credit Suisse Leveraged Loan Index, the highest annual return since 2010 As expected, CLO managers also took advantage of the weaker loan market earlier in the year and invested in higher spreads and lower priced loans to add value In addition, with the specialized experience of management, the Company bought strong performing CLO equity positions at deep discount, while the existing portfolio continued to outperform the market - highlighting management’s strong selection and origination expertise Further, as spreads in the debt markets tightened, management worked with its CLO managers and refinanced a few of its positions to lower the cost of financing in those CLOs The Group’s CLO portfolio generated a return of approximately 40% in 2016 and continued to generate strong cash flows aggregating USD 26 0m in 2016 In addition, the Group converted its warehouse into a CLO and generated a 23% cash return during the 10 month warehousing period In the second half of the year, the Company invested in the first-loss tranche of three new warehouse facilities with long tenures and no mark-to-market triggers Management successfully converted these warehouses into new issue CLOs in 2017 as it expects cost of CLO financings to decline materially given the demand for floating rate secured debt As of the end of the year 2016, all of the Group’s US CLO equity positions were passing their Overcollateralization (OC) tests and remained robust Management continues to actively monitor the CLO portfolio and position it towards longer reinvestment periods with better quality loans and conduct relative value as well as opportunistic trading Looking into the near future, management believes that default rates should continue to stay below historical averages as only 4 4% of the US Leveraged Loan market matures before 2019 and the new US Government expects to increase economic growth Management continues to focus on sectors such as Retail, Healthcare and Energy that are expected to undergo shifts due to technology or regulation While management maintains a positive view on the CLO portfolio, mid-long term performance may be negatively impacted by a strong pull back in the US or European economy or geo-political events that could result in a spike in defaults Despite positive developments in the overall health of the US economy, we acknowledge the continued below trend growth globally as well as headwinds relating to the potential monetary tightening in the US, weak commodity markets and geopolitical risks The Group’s CLO portfolio is divided into the following geographical areas: US CLOs Global Credit CLOs European CLOs 2016 Amount US $000 78,725 2,495 548 81,768 Percentage 96 28% 3 05% 0 67% 100% 2015 Amount US $000 60,401 4,780 765 65,946 Percentage 91 6% 7 2% 1 2% 100% 12 Annual Report 2016 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 The Group expects material exits of portfolio companies from funds to materialize between 2017 and 2020 During the reporting period distributions of USD 0 2m were received from SRS Private The following summarizes the book value of the private equity funds as at year-end 2016 Name Evolution Venture (Israel) SRS Private (India) Elephant Capital (India) Da Vinci (Russia) Panda Capital (China) Other investments India Blue Mountains (India) Total Book\ValueUS $m 1 9 1 3 0 6 0 4 0 3 1 0 - 5 5 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 mobile keyboard and language correction software company, a software company operating in the digital radio market, a software test tool developer, and a virtualization technology company The virtualization technology company has been performing well SRS Private Fund: SRS Private is a private equity fund focused on real estate in India The fund has invested in residential and mixed use projects in India 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 In 2016, the fund distributed USD 0 2m from proceeds of its investment in SRS Charminar Elephant Capital: India-focused private equity fund, which is AIM quoted (Ticker: ECAP) During the period, the fund delisted from the LSE/AIM market in order to reduce costs given the small size of the remaining fund Livermore owns 9 9% of the delisted fund As of August 2016, the fund reported an unaudited NAV of 0 36 pence per share 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 Panda Capital: Panda Capital is a China-based private equity fund focused on early-stage industrial operations in China 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 13 manager is in the process of building up operational capacity for product manufacturing India Blue Mountains: India Blue Mountains was a hotel and hospitality development fund that has been reorganized into three separate companies each holding a hotel development in India in Mumbai, Pune and Goa Once developed, 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 now operational Given the high debt load on the individual assets, as well as delays and underperformance, net asset values for the properties held under the SPVs have been reduced to nil The following table reconciles the review of activities to the Group’s financial assets as of 31 December 2016 Name Financial Portfolio Private Equity Funds Total Financial assets at fair value through profit or loss (note 5) Financial assets at fair value through other comprehensive income (note 6) Total Events after the reporting date 2016 Book Value US $m 103 3 5 5 108 8 102 1 6 7 108 8 The three warehouse facilities that the Company invested in, during 2016, were converted to CLOs in May 2017 For two out of the three warehouses, with a carrying amount as at 31 December 2016 of USD 11 185m, the company invested an additional amount of USD 15 5m during 2017 (before their conversion) For these two warehouses, Livermore’s investment amount plus net carry amounting to USD 28 1m became receivable in May 2017 For the other one, with a carrying amount as at 31 December 2016 of USD 6 066m, the Company invested an additional amount of USD 3m during 2017 (before its conversion) For that warehouse, the amount to be received has not yet been determined, however it is expected that it will exceed Livermore’s investment amount There were no other material events after the end of the reporting year, which have a bearing on the understanding of these consolidated financial statements Litigation At the time of this Report, there is one matter in litigation that the Group is involved in Further information is provided in note 33 to the consolidated financial statements 14 Annual Report 2016 Report of the Directors The Directors submit their annual report and audited consolidated financial statements of the Group for the year ended 31 December 2016 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 61), 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 50), 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 eighteen 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 49), Executive Director and Chief Investment Officer Ron was appointed as Executive Director and Chief Investment Officer on 10 August 2007 Ron has led the establishment and development of Livermore’s investment platform as a leading specialized house in the credit space Ron also 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 investment 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 16 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 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 15 In preparing these consolidated financial statements, the Directors are required to: • Select suitable accounting policies and then apply them consistently; • Make judgments and estimates that are reasonable and prudent; • • State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; Prepare the consolidated financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business he 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 23 April 2017 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 133,936,588 44 04 RB Investments GmbH 25,456,903 Merrill Lynch Pierce, Fenner & Smith, Inc 9,329,051 8 37 3 07 76 62 14 56 5 34 * after consideration of treasury shares (note 15) 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% or more of the issued share capital of the Company or could, directly or indirectly, jointly or severally, exercise control over the Company Details of transactions with Directors are disclosed in note 31 to the consolidated financial statements 16 Annual Report 2016 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 (the “Code”) 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, 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 17 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 auditor that it is independent; a review of fees paid to the auditor in respect of audit and non-audit services 18 Annual Report 2016 Remuneration Report The Directors’ emoluments, benefits and shareholdings during the year ended 31 December 2016 were as follows: Directors’ Emoluments Each of the Directors has a service contract with the Company Director Date of agreement Fees US $000 Benefits US $000 Reward payments US $000 Total emoluments 2016 US $000 Total emoluments 2015 US $000 Richard Barry Rosenberg 10/06/05 Noam Lanir 10/06/05 Ron Baron 01/09/07 60 400 350 - 45 - 50 500 110 945 91 445 3,628 3,978 1,878 The dates are presented in day / month / year format Directors’ Interests Interests of Directors in ordinary shares Director Notes As at 31 December 2016 As at 31 December 2015 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 133,936,588 44 041% 76 620% 151,412,173 49 787% 78 740% 25,456,903 8 371% 14 560% 25,456,903 8 371% 13 240% 15,000 0 005% 0 01% 15,000 0 005% 0 01% 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 19 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 13) Another loan of USD 2 500m was made during the year, for the acquisition of shares in the Company Interest is payable on the loan at 6 month US LIBOR plus 0 25% per annum and the loan is secured on the shares acquired The loan is repayable on the earlier of the employee leaving the Company or April 2020 The loan is included within trade and other receivables (note 13) Interests of Directors in share options No of options at 31 December 2016 Date of grant Exercise price, GBP Exercise Price**, US $ Vesting period of options Richard Barry Rosenberg 500,000 13/05/08 0 30 0 37 Vested The options are exercisable up to 10 years after the date of grant No options were exercised during the year ended 31 December 2016 * 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 2016 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: • 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 • 20 Annual Report 2016 • • • • • • • 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 21 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 investment geography selection and concentration), balance sheet risk 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 (gearing) and/or 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 Further information on Financial risk management is provided in note 36 of the consolidated financial statements Share Capital There was no change in the authorised share capital during the year to 31 December 2016 The authorised share capital is 1,000,000,000 ordinary shares with no par value Related party transactions Details of any transactions of the Group with related parties during the year to 31 December 2016 are disclosed in note 31 to the consolidated financial statements By order of the Board of Directors Chief Executive Officer 25 May 2017 22 Annual Report 2016 Independent Auditor’s Report to the Members of Livermore Investments Group Limited Report on the Audit of the Consolidated Financial Statements Opinion We have audited the 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 2016, the consolidated statements of profit or loss, comprehensive income, changes in equity, and cash flows for the year then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies In our opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2016 and of its consolidated financial performance and its consolidated cash flows for the year then ended, in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISA) Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the consolidated financial statements in Cyprus, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion Emphasis of Matter We draw attention to note 33 to the consolidated financial statements, which describes the existence of a material uncertainty over the outcome of a legal case against one of the custodian banks that the Group uses and Livermore as the beneficial owner Our opinion is not modified in respect of this matter 23 Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters We have determined the matters described below to be the key audit matters to be communicated in our report Key audit matter How the matter was addressed Material uncertainty over legal case (see Emphasis of matter paragraph) As disclosed in note 33, one of the custodian banks that the Company uses, faces a contingent claim with regards to the redemption of shares which were bought in 2008 at the request of Livermore and on its behalf We obtained written updates on the status of the case as well as the estimate for the potential outcome of the legal case from the legal advisors of the custodian bank We have also searched public records over the internet to identify any developments in relation to the case Due to the potential amount of exposure and the material uncertainty over the existence of any obligation for the Company and its outcome, the legal case has been identified as a key audit matter Investments’ existence and activity As presented on the statement of financial position and in note 8, the Company has financial assets measured at fair value of $114m These financial assets are held either through custodian banks or directly by the Company Since these investments make up the majority of the financial assets of the Company we considered their existence and activity as a key audit matter We have considered the adequacy of disclosures the discussed with Management and developments and surrounding uncertainties in relation to the case For investments held through custodian banks we have confirmed the existence and ownership of investments by: • • tracing significant investment activity to custodian statements requesting and obtaining custodian letters confirming the holding of each investment as at the reporting date For other significant investments we have requested and obtained direct confirmations from fund managers for the Company’s holding 24 Annual Report 2016 Investments’ valuation - Level 3 The Company has financial assets of $28m classified within fair value hierarchy as level 3, as disclosed in note 8 The fair value of level 3 financial assets is generally determined either based on third party valuations, or when not available, based on adjusted Net Asset Value (NAV) calculations using inputs from third parties Due to the use of judgement, the existence of unobservable inputs and the significant total value of financial assets within the level 3 hierarchy, we consider the valuation of these investments as a key audit matter Implementation of IFRS9 “Financial Instruments” Livermore has elected to apply IFRS 9 “Financial Instruments” as issued in July 2014, earlier than its effective date as described in note 3 of the consolidated financial statements The application of IFRS 9 was considered a key audit matter since it had a material impact on the financial statements In assessing the valuation of level 3 financial assets we have: • • • discussed the valuation methodologies applied with Management and assessed their appropriateness for each investment where applicable, reviewed third party valuations and assessed the method well as the qualifications and as independence of the valuer In a single case where the valuation has been performed by Management, evaluated the reasonableness of the underlying assumptions and verified that the inputs used are from reliable third - party sources evaluated the adjusted NAV calculations performed by Management and assessed the inputs used considered the adequacy of d i s c l o s u r e s in relation to the valuation methodologies used for each class of level 3 financial assets • • We have reviewed and assessed: • the appropriateness and adequacy of the relevant accounting policies the proper classification and measurement of financial assets and liabilities the adequacy of disclosures in relation to the application of IFRS 9 • • We have also recalculated the financial impact on the transition to IFRS 9 25 Disposal of Livermore Investment AG Following the disposal of Livermore Investment AG (refer to note 23), the investment property activities of the Group discontinued In addition to the above, upon the discontinuance of its investment property activities, Livermore met the definition of an investment entity, as this is defined in IFRS 10 “Consolidated Financial Statements” Since the above disposal had a pervasive effect on the consolidated financial statements we considered it to be a key audit matter We have evaluated whether Management requirements of has properly applied IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” by: the • • terms of sale contract recalculated the gain on the disposal and verify that the calculation is in line with the ensuring that the results and cash flows of the discontinued operations have been properly presented and adequate disclosures have been made We have evaluated whether Livermore meets the definition of an investment entity in accordance with the criteria set by IFRS 10 We have also evaluated the transition to an investment entity by: • • • relevant accounting policies assessing applied and disclosures made confirming that the consolidation of subsidiaries ceased upon the date of change in status assessing the recognition and measurement of the investments in subsidiaries as well as the amounts receivable from or payable to subsidiaries as at the date of change in status Other Information The Board of Directors is responsible for the other information The other information comprises the information included in the Highlights, Chairman’s and Chief Executive’s Review, Review of Activities, Report of the Directors, Corporate Governance Statement, Remuneration Report, Review of the Business and Risks, the Shareholder Information, the Notice of Annual General Meeting and the Corporate Directory but does not include the consolidated financial statements and our auditor’s report thereon Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact We have nothing to report in this regard 26 Annual Report 2016 Responsibilities of the Board of Directors 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, 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 In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so The Board of Directors is responsible for overseeing the Group’s financial reporting process Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements As part of an audit in accordance with ISA, we exercise professional judgment and maintain professional scepticism throughout the audit We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control • • • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors Conclude on the appropriateness of the Board of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report However, future events or conditions may cause the Group to cease to continue as a going concern Evaluate the overall presentation, structure and content of the consolidated financial statements, • 27 • including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves a true and fair view Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements We are responsible for the direction, supervision and performance of the group audit We remain solely responsible for our audit opinion We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit We also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication 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 The engagement partner on the audit resulting in this independent auditor’s report is Mr Nicos Mouzouris Nicos Mouzouris Certified Public Accountant and Registered Auditor for and on behalf of Grant Thornton (Cyprus) Ltd Certified Public Accountants and Registered Auditors Limassol, 25 May 2017 28 Annual Report 2016 Livermore Investments Group Limited Consolidated Statement of Financial Position as at 31 December 2016 Note 2016 US $000 2015 US $000 Assets Non-current assets Property, plant and equipment Available- for-sale financial assets Financial assets at fair value through profit or loss Financial assets at fair value through other comprehensive income Investment property Investments in subsidiaries Trade and other receivables Current assets Trade and other receivables Available- for-sale financial assets Financial assets at fair value through profit or loss Financial assets at fair value through other comprehensive income 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 Deferred tax Provisions Current liabilities Bank loans Bank overdrafts Trade and other payables Provisions Dividend payable Derivative financial instruments Total liabilities Total equity and liabilities Net asset valuation per share 4 5 6 9 11 13 13 4 5 6 14 15 15 18 12 32 18 19 20 32 21 17 - - 81,769 5,634 - 5,252 2,513 95,168 5,427 - 20,318 1,039 - 60,383 87,167 26 78,464 1,533 - 123,324 - 1,128 204,475 4,490 2,683 8,268 - 6 25,770 41,217 182,335 245,692 - 169,187 (39,842) 27,829 - 177,053 2,631 (31,047) 157,174 148,637 - - - - - 1,160 8,616 385 15,000 - 25,161 75,003 3,937 385 79,325 1,407 13,208 2,770 128 - 217 17,730 25,161 182,335 97,055 245,692 Basic and diluted net asset valuation per share (US $) 22 0 90 0 77 These consolidated Financial Statements were approved by the Board of Directors on 25 May 2017 The notes 1 to 37 form part of these consolidated financial statements 29 Livermore Investments Group Limited Consolidated Statement of Profit or Loss for the year ended 31 December 2016 Continuing operations Investment income Interest and dividend income Profit / (loss) on investments Gross profit / (loss) Other income Administrative expenses Operating profit / (loss) Finance costs Profit / (loss) before taxation Taxation charge Note 2016 US $000 2015 US $000 25 26 26,334 1,695 25,675 (33,955) 28,029 (8,280) - 35 27 (7,888) (4,749) 20,141 (218) (12,994) (1,114) 19,923 (14,108) (38) (15) 28 29 Profit / (loss) for the year from continuing operations 19,885 (14,123) Discontinued operation Profit for the year on discontinued operations 23 Profit / (loss) for the year 14,091 33,976 9,364 (4,759) Earnings per share Basic and diluted earnings per share ( US $) • From continuing operations • On discontinued operations 30 30 0 11 0 08 0 19 (0 07) 0 05 (0 02) The profit / (loss) for the year (both from continuing and discontinued operations) is wholly attributable to the owners of the parent The notes 1 to 37 form part of these consolidated financial statements 30 Annual Report 2016 Livermore Investment Group Limited Consolidated Statement of Comprehensive Income for the year ended 31 December 2016 Note 2016 US $000 2015 US $000 33,976 (4,759) Profit / (loss) for the year Other comprehensive income: Items that will be reclassified subsequently to the profit or loss • Available for sale financial assets – fair value losses • Foreign exchange gains / (losses) from translation of subsidiaries Items that are not reclassified subsequently to profit or loss • • Financial assets designated at fair value through other comprehensive income – fair value losses 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 Foreign exchange losses reclassified on disposal of subsidiary 26 26 23 Total comprehensive income for the year - (34,906) 190 (314) 34,166 (39,979) (4,301) - - - 1,538 1,538 31,403 3,459 31,726 - 35,185 (4,794) The total comprehensive income for the year is wholly attributable to the owners of the parent The notes 1 to 37 form part of these consolidated financial statements 31 Livermore Investments Group Limited Consolidated Statement of Changes in Equity for the year ended 31 December 2016 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 2015 Purchase of own shares Dividends Transfer on expiry of options 16 Transactions with owners Loss for the year Other comprehensive income: Available-for-sale financial assets • Fair value losses • Reclassification to profit or loss due to disposals • Reclassification to profit or loss due to impairment Foreign exchange gains arising from translation of subsidiaries Total comprehensive income for the year Balance at 31 December 2015 Adjustment on initial application of IFRS 9 As restated Purchase of own shares Dividends 26 26 3 1 Transfer on expiry of options 16 Transactions with owners - - - - - - - - - - - - - - - - - - 215,499 (36,902) 5,777 (1,414) (1,426) (21,560) 159,974 - - - - - - - - - - (1,544) - - (1,544) - - (271) (271) - - - - - - - - - - - - - - - - - - - - - - - - - - (1,544) (4,999) (4,999) 271 - (4,728) (6,543) (4,759) (4,759) (34,906) - (34,906) 3,459 31,726 - - 3,459 31,726 (314) - - (314) (314) 279 (4,759) (4,794) 215,499 (38,446) 5,506 (1,728) (1,147) (31,047) 148,637 - - - - (34,471) 34,471 - 215,499 (38,446) 5,506 (1,728) (35,618) 3,424 148,637 - - - - (7,866) - - - - (5,429) (7,866) (5,429) - - - - - - - - - (7,866) (15,000) (15,000) 5,429 - (9,571) (22,866) 32 Annual Report 2016 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 Profit for the year Other comprehensive income: Financial assets at fair value through OCI- Fair value losses Foreign exchange gains arising from translation of subsidiaries Foreign exchange losses reclassified on disposal of subsidiary 23 Total comprehensive income for the year Balance at 31 December 2016 - - - - - - - - - - - - - - - 33,976 33,976 - - - - - - - - - (4,301) 190 - - 1,538 - - - (4,301) 190 1,538 1,728 (4,301) 33,976 31,403 215,499 (46,312) 77 - (39,919) 27,829 157,174 The notes 1 to 37 form part of these consolidated financial statements. 33 Livermore Investments Group Limited Consolidated Statement of Cash Flows for the year ended 31 December 2016 Cash flows from operating activities (Loss) / profit before tax 19,923 (13,731) Note 2016 US $000 2015 US $000 Adjustments for Depreciation Provision charge Interest expense Interest and dividend income Gain / (Loss) on investments Exchange differences 32 28 25 26 Changes in working capital Decrease in trade and other receivables* Increase in trade and other payables* Cash flows from operations Interest and dividends received Settlement of litigation 32 Tax paid Net cash from operating activities Cash flows from investing activities Proceeds from disposal of subsidiary – net of cash and cash equivalents disposed 23 Acquisition of investments Proceeds from sale of investments Settlement of derivative Acquisition of associate Capital return of associate 10 7 - 216 (26,334) (1,695) (243) (8,126) 24,486 4,251 20,611 26,561 (128) (39) 47,005 31,752 (37,039) 14,462 (148) - - 16 513 267 (25,675) 33,955 558 (4,097) 17,053 649 13,605 25,969 - (18) 39,556 - (32,415) 13,679 2,332 (7,500) 8,183 Net cash used for investing activities 9,027 (15,721) 34 Annual Report 2016 Note 2016 US $000 2015 US $000 Cash flows from financing activities Purchase of own shares 15 Interest paid Dividends paid Net cash used for financing activities Net increase / (decrease) in cash and cash equivalents: • from continuing operations • of discontinued operations 23 Cash and cash equivalents at the beginning of the year Exchange differences on cash and cash equivalents Cash and cash equivalent of subsidiaries, removed on change in investment entity status 2 1 (7,866) (331) - (8,197) 47,835 826 12,562 (245) (1,755) (1,544) (390) (4,999) (6,933) 16,902 2,332 (6,548) (124) - Cash and cash equivalents at the end of the year 14 59,223 12,562 *other than movements on change in investment entity status The notes 1 to 37 form part of these consolidated financial statements 35 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 Company changed to investment activities on 1 January 2007 Before that the principal activity of the Company 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 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 an accrual basis (other than for cash flow information) using the significant accounting policies and measurement bases summarised in note 3, and also on a going concern assumption The financial information is presented in US dollars because this is the currency in which the Company primarily operates The Directors have reviewed the accounting policies used by the Company and consider them to be the most appropriate 2 1 Investment entity status On 28 October 2016, Livermore disposed to a third party the 100% of the shares of its subsidiary Livermore Investments AG in Switzerland, and as a result discontinued its investment property activities that constituted an operating segment of the Group (notes 23 and 24) The Directors have determined that since the discontinuance of its investment property activities, Livermore meets the definition of an investment entity, as this is defined in IFRS 10 “Consolidated Financial Statements” As per IFRS 10 an investment entity is an entity that: • obtains funds from one or more investors for the purpose of providing those investors with investment management services; commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and • • measures and evaluates the performance of substantially all of its investments on a fair value basis In accordance with IFRS 10, an investment entity is exempted from consolidating its subsidiaries, unless any subsidiary which is not itself an investment entity mainly provides 36 Annual Report 2016 services that relate to the investment entity’s investment activities In Livermore’s situation, none of its subsidiaries provides such services Given the above, these financial statements consolidate the Company’s subsidiaries up to 28 October 2016 As of that date, the subsidiaries have been de-consolidated, and recognised as Investments in subsidiaries at their fair value as at 28 October 2016 (note 11) No material gains or losses occurred on this transition 3 Accounting Policies The significant accounting policies applied in the preparation of the consolidated financial statements are as follows: Adoption of new and revised IFRS 3 1 As from 1 January 2016, 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 In addition to the above, the Company has elected to apply IFRS 9 “Financial Instruments” as issued in July 2014, earlier than its effective date, because the new accounting policies reflect better the Company’s business model and provide more reliable and relevant information for its users to assess the amounts and timing of future cash flows IFRS 9 replaces IAS 39 ‘’Financial Instruments: Recognition and Measurement’’ The new standard introduces extensive changes to IAS 39’s guidance on the classification and measurement of financial assets and introduces a new ‘expected credit loss’ model for the impairment of financial assets The date of the initial application of IFRS 9 is 1 January 2016 In accordance with the transitional provisions in IFRS 9 (par 7 2 15), comparative figures have not been restated, and therefore are presented in accordance with the previously applied policies in accordance with IAS 39 The most significant impact of the adoption of IFRS 9, was on the classification and measurement of the Company’s financial assets The Directors have reviewed the classification and measurement of the Company’s financial assets based on the new criteria that consider the assets’ contractual cash flows and the business model in which they are managed, and determined that: • • • Financial assets previously classified as “financial assets at amortised cost”, shall remain in this same category Financial assets previously classified as “financial assets at fair value through profit or loss”, shall remain in this same category Financial assets previously classified as “available-for-sale” shall be reclassified as “financial assets at fair value through profit or loss” However, the Directors on initial application date have made an irrevocable election to designate certain equity investments that are not held for trading, which were previously classified as “available- for-sale”, as “financial assets at fair value through other comprehensive income” 37 The impact of the adoption of IFRS 9 is summarized as follows: 31 December 2016 US $000 1 January 2016 US $000 Reclassification out of Available-for-sale financial assets (95,566) (81,147) Reclassification to Financial assets at fair value through profit or loss 85,429 67,196 Designated as Financial assets at fair value through other comprehensive income 10,137 13,951 Net assets impact - - Adjustment to Retained earnings 34,832 34,471 Adjustment to Investments revaluation reserve (34,832) (34,471) Equity impact - - Also, the profit or loss for the year 2016 is higher by USD 3 669m (representing an increase of USD 0 02 on basic and diluted earnings per share for 2016) due to the adoption of IFRS 9 This is mostly attributable to the fact that the additional fair value losses recognised in profit or loss are less than the impairment losses on available-for-sale financial assets that would have been recognised based on IAS 39 The adoption of IFRS 9 did not have any significant impact on the Company’s financial liabilities The following Standards, Amendments to Standards and Interpretations had been issued by the date of authorisation of these consolidated financial statements but are not yet effective (nor early adopted), or have not yet been endorsed by the EU, for the year ended 31 December 2016: 38 Annual Report 2016 IFRS 14: “Regulatory Deferral Accounts” IFRS 15: Customers” “Revenue from Contracts with IFRS 16: “Leases” IFRIC 22: “Foreign Currency Transactions and Advance Consideration“ Annual Improvements to IFRS 2014–2016 Cycle Amendment to Measurement Transactions” IFRS 2: “Classification and Payment based Share of Amendments to IFRS 4: “Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts” Amendment to IFRS 10, and IAS 28: “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” Clarifications to IFRS 15: “Revenue from Contracts with Customers” Amendment to IAS 7: “Disclosure Initiative” Amendment to IAS 12: “Recognition of Deferred Tax Assets for Unrealised Losses” Amendment to IAS 40: “Transfers of Investment Property” Endorsed by the EU No Yes No No No No No Effective (IASB) for annual periods beginning on or after 1 January 2016 1 January 2018 1 January 2019 1 January 2018 1 January 2017 / 2018 1 January 2018 1 January 2018 No to be determined No No No No 1 January 2018 1 January 2017 1 January 2017 1 January 2018 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 financial statements 3 2 Basis of consolidation (policy applied up to 28 October 2016 – refer to note 2 1) 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 39 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 included in the consolidated financial statements from the effective date of acquisition or up to the effective date of disposal 3 3 Investments in subsidiaries (policy applied since 28 October 2016 – refer to note 2 1) Subsidiaries are entities controlled either directly or indirectly by the Company Investments in subsidiaries are initially recognised at their fair value and subsequently measured at fair value through profit or loss Subsequently, any gains or losses arising from changes in their fair value are included in profit or loss for the year Dividends and other distributions from subsidiaries are recognised as income when the Company’s right to receive payment has been established A subsidiary which provides services that relate to the Company’s investment activities is consolidated rather than included within the investments in subsidiaries measured at fair value through profit or loss 3 4 Investments in associates and joint ventures An associate is an entity over which the Company is able to exert significant influence but not control A joint venture is an arrangement that the Company controls jointly with one or more other investors, and over which the Company 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 Dividends and other distributions from associates and joint ventures are recognised as income when the Company’s right to receive payment has been established 3 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 40 Annual Report 2016 3 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 becomes 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 3 7 Interest and dividend income • • Interest income is recognised based on the effective interest method Dividend income is recognised on the date that the Company’s right to receive payment is established, which in the case of quoted securities is the ex-dividend date 3 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 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 41 3 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 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 3 10 Investment property 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 3 11 Equity instruments Equity instruments issued by the Company are recorded at proceeds received, net of direct issue costs Own equity instruments purchased by the Company or its subsidiaries are recorded at the consideration paid, including directly associated costs, 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 received 3 12 Share Options IFRS 2 “Share-based Payment” requires the recognition of equity settled share based payments at fair value at the date of grant The Company 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 42 Annual Report 2016 The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of the shares that will eventually vest and adjusted for the effect of non market-based vesting conditions The corresponding credit is taken to the share option reserve On exercise of the options any related amounts recognised in the share option reserve are transferred to share premium On lapse of the options any related amounts recognised in the share option reserve are transferred to retained earnings 3 13 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 2016 or 2015 3 14 Financial assets (policy applied as from 1 January 2016 – refer to note 3 1) Financial assets are recognised when the Company 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 Company 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 Company transfers substantially all the risks and rewards of ownership of the asset, or if the Company neither retains nor transfers substantially all the risks and rewards of ownership but does transfer control of that asset The Company classifies its financial assets in the following measurement categories: those to be measured at fair value (either through other comprehensive income, or through profit or loss), and those to be measured at amortised cost (a) (b) The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss Financial assets at fair value through profit or loss The Company classifies the following financial assets at fair value through profit or loss: 43 equity investments that are held for trading; (a) (b) other equity investments for which the Directors have not elected to recognise fair value gains and losses through other comprehensive income; and (c) debt investments that do not qualify for measurement at either amortised cost or at fair value through other comprehensive income All financial assets within this category are measured at their fair value, with changes in value recognised in the profit or loss when incurred Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income (OCI) comprise equity securities which are not held for trading, and for which the Company has made an irrevocable election at initial recognition to recognise changes in fair value through OCI rather than profit or loss Where the Company’s management has elected to present fair value gains and losses on equity investments in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss Dividends from such investments continue to be recognised in profit or loss when the Company’s right to receive payments is established Financial assets at amortised cost Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost A gain or loss on a financial asset that is measured at amortised cost is recognised in profit or loss when the asset is derecognised or impaired Interest income from these financial assets is recognised based on the effective interest rate method Impairment The Company assesses on a forward looking basis the expected credit losses associated with its assets carried at amortised cost The impairment methodology applied depends on whether there has been a significant increase in credit risk For trade and other receivables only, the Company applies the simplified approach permitted by IFRS 9, which permits expected lifetime losses to be recognised from initial recognition of the receivables Write offs The Company writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery, e g when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings Financial assets written off may still be subject to enforcement activities, taking into account legal advice where appropriate Any recoveries made are recognised in profit or loss 3 15 Financial assets (policy applied until 31 December 2015 – refer to note 3 1) 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 44 Annual Report 2016 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 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 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 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 transaction 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 financial 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 45 An assessment for impairment is undertaken at least at each reporting date, following the IAS 39 guidance 3 16 Financial liabilities Financial liabilities are recognised when the Company 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 transaction costs, except for financial liabilities carried at fair value through profit or loss, which are measured initially at fair value Financial liabilities at amortised cost After initial recognition financial liabilities are measured at amortised cost using the effective interest rate method Derivative financial liabilities The Company’s financial liabilities also include financial derivative instruments All derivative financial instruments which are not designated as hedging instruments are measured at fair value through profit or loss 3 17 Cash and cash equivalents Cash comprises cash in hand and on demand deposits 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 a component of cash and cash equivalents, since they form an integral part of the Company’s cash management 3 18 Provisions Provisions are recognised when the Company 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 Company are charged to the profit or loss as they are incurred 3 19 Discontinued operations A discontinued operation is a component of the Group that either has been disposed of, or 46 Annual Report 2016 is classified as held for sale, and: (a) represents a separate major line of business or geographical area of operations; (b) is part of a single co ordinated plan to dispose of a separate major line of business or geographical area of operations; or (c) is a subsidiary acquired exclusively with a view to resale The results from discontinued operations are presented in a single amount in the profit or loss with further analysis in the notes This amount comprises the post tax profit or loss of discontinued operations and the post tax gain or loss resulting from the measurement and disposal of relevant assets The comparative disclosures for discontinued operations relate to the operations that have been discontinued during the current reporting period 3 20 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 3 21 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 Company’s accounting policies It also requires the use of assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances Critical accounting judgments Impairment of financial assets at amortised cost i The allowance for impairment on related party receivables (note 13) is based on assumptions about risk of default and expected loss rates for expected lifetime losses The Company uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Company’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period For details of the key assumptions and inputs used The Company assesses at each reporting date whether financial assets at amortised cost are impaired If impairment has occurred, this loss is recognised in profit or loss ii Classification of financial assets 47 judgement The Management exercises significant in determining the appropriate classification of the financial assets of the Company The Directors determine the appropriate classification of the Company’s financial assets based on Livermore’s business model An entity’s business model refers to how an entity manages its financial assets in order to generate cash flows, considering all relevant and objective evidence The factors considered include the contractual terms and characteristics which are very carefully examined, and also the Company’s intentions and expected needs for realisation of the financial assets All investments (except from certain equity instruments that are designated at fair value through other comprehensive income) are classified as at fair value through profit or loss, because this reflects more fairly the way these assets are managed by the Company The Company’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 Company’s Board of Directors and other key management personnel Estimation uncertainty Fair value of financial instruments 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 8 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 3 22 Comparatives The comparative figures in the consolidated statement of profit or loss and the consolidated statement of cash flows have been restated for the effect of discontinued operations 48 Annual Report 2016 4 Available-for-sale financial assets Non-current assets Fixed income investments (CLO Income Notes) Private equities Current assets Public equity investments Hedge funds 2016 US $000 2015 US $000 - - - - - - 65,946 12,518 78,464 1,619 1,064 2,683 For description of each of the above categories, refer to note 7 During 2015, 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 2015 of USD 31 726m are included within loss on investments (note 26), and represent impairment losses arising due to: Significant fall in value Prolonged fall in value Significant and prolonged fall in value 5 Financial assets at fair value through profit or loss 2016 US $000 - - - - 2015 US $000 11,119 1,490 19,117 31,726 2016 US $000 2015 US $000 Non-current assets Fixed income investments (CLO Income Notes) 81,769 Private equities Real estate entities Current assets Fixed income investments Public equity investments - - 81,769 18,368 1,950 20,318 - 330 1,203 1,533 6,655 1,613 8,268 49 For description of each of the above categories, refer to note 7 The above investments represent financial assets that are mandatorily measured at fair value through profit or loss The Company treats its investments in the loan market through CLOs as non-current investments as the Company generally intends to hold such investments over a period longer than twelve months 6 Financial assets at fair value through other comprehensive income Non-current assets Private equities Current assets Hedge funds 2016 US $000 2015 US $000 5,634 1,039 - - For description of each of the above categories, refer to note 7 The above investments are non-trading equity investments that have been designated at fair value through other comprehensive income 7 Financial assets at fair value The Company allocates its non-derivative financial assets at fair value (notes 4, 5 and 6) as follows: • • • • • Fixed income investments relate to fixed and floating rate bonds, perpetual bank debt, investments in the loan market through CLOs, and investments in open warehouse facilities Private equities relate to investments in the form of equity purchases 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 influence Main investments under this category are in the fields of real estate Hedge funds relate to equity 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 50 Annual Report 2016 8 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 • Fixed Income Investments, and Public Equity Investments are valued per their closing market prices on quoted exchanges, or as quoted by market maker Investments in open warehouse facilities that have not yet been converted to CLOs, are valued based on an adjusted net asset valuation The Company values the CLOs based on the valuation reports provided by market makers CLOs are typically valued by market makers using discounted cash flow models The key assumptions for cash flow projections include default and recovery rates, prepayment rates and reinvestment assumptions on the underlying portfolios (typically senior secured loans) of the CLOs Default and recovery rates: The amount and timing of defaults in the underlying collateral and the amount and timing of recovery upon a default affect are key to the future cash flows a CLO will distribute to the CLO equity tranche All else equal, higher default rates and lower recovery rates typically lead to lower cash flows Conversely, lower default rates and higher recoveries lead to higher cash flows Prepayment rates: Senior loans can be pre-paid by borrowers CLOs that are within their reinvestment period may, subject to certain conditions, reinvest such prepayments into other loans which may have different spreads and maturities CLOs that are beyond their reinvestment period typically pay down their senior liabilities from proceeds of such pre-payments Therefore the rate at which the underlying collateral prepays impacts the future cash flows that the CLO may generate Reinvestment assumptions: A CLO within its reinvestment period may reinvest proceeds from loan maturities, prepayments, and recoveries into purchasing additional loans The reinvestment assumptions define the characteristics of the loans that a CLO may reinvest in These assumptions include the spreads, maturities, and prices of such loans 51 Reinvestment into loans with higher spreads and lower prices will lead to higher cash flows Reinvestment into loans with lower spreads will typically lead to lower cash flows Discount rate: The discount rate indicates the yield that market participants expect to receive and is used to discount the projected future cash flows Higher yield expectations or discount rates lead to lower prices and lower discount rates lead to higher prices for CLOs Private Equities 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 Hedge 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 Real Estates entities are valued by independent qualified property valuers with substantial relevant experience on such investments Underlying property values are determined based on their estimated market values Derivative instruments are valued at fair value as provided by counter parties (banks) of the derivative agreement Investments in subsidiaries are valued at fair value as determined on an adjusted net asset valuation basis • • • • • 52 Annual Report 2016 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: 2016 US $000 Level 1 2016 US $000 Level 2 2016 US $000 Level 3 2016 US $000 Total 2015 US $000 Level 1 2015 US $000 Level 2 2015 US $000 Level 3 2015 US $000 Total Assets Fixed income investments Private equities 1,117 81,769 17,251 100,137 1,634 65,946 5,021 72,601 Public equity investments 1,951 Hedge funds Real estate entities Investments in subsidiaries - - - - - - 1,038 - - 5,634 - - - 5,634 1,951 1,038 - 5,252 5,252 - 3,232 - - - - - 1,064 - - 12,848 12,848 - - 1,203 3,232 1,064 1,203 - - 3,068 82,807 28,137 114,012 4,866 67,010 19,072 90,948 Liabilities Forward contract - - - - - - - - - - 217 217 - - 217 217 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, except from a certain equity instrument that was delisted and therefore transferred from Level 1 to Level 3 in 2016 53 Financial assets within level 3 can be reconciled from beginning to ending balances as follows: At fair value through OCI Available-for-sale At fair value through profit or loss Derivative financial instruments Investments in subsidiarie Private equities US $000 Private equities US $000 Other investments US $000 Real estate US$000 Private equities US $000 Fixed Income investments US $000 Total return swap US $000 US $000 Total US $000 As at 1 January 2015 Purchases Settlement (Losses) / gains recognised in: • Profit or loss • Other comprehensive income Exchange difference As at 1 January 2016 Transfer on initial application of IFRS 9 (note 3 1) Change in investment entity status (note 2 1) Transfer from Level 1 Purchases Settlement (Losses) / gains recognised in: - - - - - - - 17,157 - (59) (4,177) (403) - 12,518 12,848 (12,518) - 369 - (3,308) • Profit or loss - • Other comprehensive income (4,275) Exchange difference - As at 31 December 2016 5,634 - - - - - - - - - - - - - - - - - - - - - - - - 1,476 330 - 1,125 - - - 104 - (377) - - - - - 5,000 - - (1,332) 21 207 - - 1,203 330 5,021 - (330) (1,288) - - - - - 85 - - - - - - - - - - - - 17,000 (6,062) 1,292 - - 17,251 - - - - - - - - 20,088 5,000 (1,391) (3,845) (403) (377) 19,072 - 5,567 4,279 - - - 369 17,000 (9,370) (315) 977 - (4,275) - 85 5,252 28,137 54 - - - - - - - - - - - - Annual Report 2016 The above gains and losses recognised can be allocated as follows: At fair value through OCI Available-for-sale At fair value through profit or loss Derivative financial instruments Investments in subsidiarie Private equities US $000 Private equities US $000 Other investments US $000 Real estate US$000 Private equities US $000 Fixed Income investments US $000 Total return swap US $000 US $000 Total US $000 2015 Profit or loss • • Financial assets held at year-end Financial assets not held at year-end Other comprehensive income • Financial assets held at year-end Total (losses) / gains for 2015 2016 Profit or loss • Financial assets held at year-end Other comprehensive income • Financial assets held at year-end Total (losses) / gains for 2016 - - - - - - (4,275) (4,275) (4,177) - (4,177) (403) (4,580) - - - - 104 - 104 - 104 - - - - - - - - - - - - - - - - - 21 207 21 - 21 - - 207 - 207 - - - - - (4,052) 207 (3,845) (403) (4,248) 1,292 - (315) 977 - - - 1,292 - - - (4,275) (315) (3,298) 55 The Company has not developed any quantitative unobservable inputs for measuring the fair value of its level 3 financial assets at 31 December 2016 and 2015 Instead the Company 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 9 Investment property Valuation as at 1 January Fair value (loss) / gain Additions Exchange difference Disposal (note 23) As at 31 December 2016 US $000 123,324 (102) 102 1,439 (124,763) - 2015 US $000 116,609 7,819 - (1,104) - 123,324 The investment property relates to Wyler Park property in Bern, Switzerland, which was used for earning rental income 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 2015 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 significant inputs and assumptions are developed in close consultation with management The fair values of investment property were 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 56 Annual Report 2016 Future rental income The future minimum rental income under non-cancellable rental agreements, is receivable as follows: Less than 1 year Between 1 and 5 years Over 5 years 2016 US $000 - - - - 2015 US $000 5,629 23,050 36,879 65,558 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 2015 10 Investments in associate and joint venture As at 1 January Additions Capital return Fair value gain As at 31 December 2016 US $000 - - - - - 2015 US $000 - 7,500 (8,183) 683 - Name of investee Type of investment Place of incorporation Proportion of voting rights held Silvermore Ltd Joint venture Cayman Islands 50% Principal activity I n v e s t m e n t Holding (dormant) During 2015 , the Group invested in a 25% interest in Highbridge Loan Management Warehouse 7-2015 Ltd (a company incorporated in Cayman Islands), through its subsidiary Mountview Holdings Ltd, until Highbridge was converted into a CLO After the conversion into a CLO the entity ceased to be an associate of the Company 57 11 Investments in subsidiaries As at 1 January Additions (note 2 1) Fair value loss As at 31 December 2016 US $000 - 5,567 (315) 5,252 2015 US $000 - - - - Details of the investments in which the Company has a controlling interest as at 31 December 2016 are as follows: Name of Subsidiary Place of incorporation Holding Proportion of voting rights and shares held Livermore Properties Limited Mountview Holdings Limited Sycamore Loan Strategies Ltd Livermore Israel Investments Ltd Ordinary shares 100% Principal activity Holding of investments Ordinary shares 100% Investment vehicle British Virgin Islands British Virgin Islands Cayman Islands Ordinary shares 100% Investment vehicle Israel Ordinary shares 100% Livermore Capital AG Switzerland Ordinary shares 100% Livermore Investments Cyprus Limited Cyprus Ordinary shares 100% Sandhirst Limited Cyprus Ordinary shares 100% Holding of investments Administration services Administration services Holding of investments Silvermore 2 Ltd and Enaxor S a r l were dissolved during the year The shares of Sandhirst Limited which were previously held by Enaxor S a r l were transferred upon the liquidation of the latter to the Company Livermore Investments AG was sold during 2016 (note 23) There are no restrictions in receiving any amounts from any subsidiary, including cash dividends or repayments of loans and advances 58 Annual Report 2016 12 Deferred tax The Company is a British Virgin Islands (BVI) international business company and, under the BVI laws, is not subject to taxation Deferred taxes relate to temporary differences between carrying amounts and corresponding tax base of its subsidiaries, in Switzerland The deferred tax shown in the consolidated statement of financial position relates to the following items: Investment property – revaluation surplus Tax losses Net deferred tax (liability) 2016 US $000 - - - 2015 US $000 6,362 (2,425) 3,937 The movement on the deferred taxation account is as follows: Investment property US $000 Derivative financial instruments US $000 Tax losses US $000 Total US $000 As at 1 January 2015 (5,805) 47 3,486 (2,272) (Charged) / credited to profit or loss (note 23) • timing differences Exchange difference (895) 338 (46) (1) (913) (148) (1,854) 189 As at 1 January 2016 (6,362) (Charged) / credited to profit or loss (note 23) • timing differences Exchange difference Reversal on disposal of subsidiary (note 23) - (77) 6,439 As at 31 December 2016 - - - - - - 2,425 (3,937) (380) 28 (2,073) (380) (49) 4,366 - - As at 31 December 2016 and 2015 there is no unrecognised deferred tax asset 59 13 Trade and other receivables 2016 US $000 2015 US $000 Financial items Accrued interest and dividend income Amounts due by related parties (note 31) Other receivables Allowance for impairment Non-Financial items Other assets (note 31) Prepayments Allocated as: Current assets Non-current assets (note 31(2) and 31(3)) 65 9,634 - (2,940) 6,759 1,128 53 7,940 5,427 2,513 7,940 304 2,514 272 - 3,090 2,256 272 5,618 4,490 1,128 5,618 Allowance for impairment The allowance relates to amounts due by subsidiaries (note 31), which are regarded as credit- impaired and have been assessed on an individual basis The Directors in determining that these amounts are credit-impaired have considered that the specific subsidiaries are in net liability position without prospects currently of generating adequate profits and cash flows to become able to repay in full the amounts due to the Company Their recoverable amount has been determined based on an adjusted net asset valuation basis, which the Directors regard as approximation to the present value of the estimated future cash inflows from those subsidiaries As at 1 January Addition (note 2 1) Charge for the year As at 31 December 2016 US $000 - 2,818 122 2,940 2015 US $000 - - - - 60 Annual Report 2016 For the remaining receivables of financial nature, there are no lifetime expected losses Therefore no corresponding allowance for impairment has been recognised No receivable amounts have been written-off during either 2016 or 2015 14 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 Bank overdrafts used for cash management purposes 2016 US $000 2015 US $000 60,383 (1,160) 25,770 (13,208) Cash and cash equivalents 59,223 12,562 15 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 2015 and 31 December 2016 304,120,401 215,499 Treasury shares As at 1 January 2015 Additions As at 1 January 2016 Additions Number of shares 108,830,818 3,000,000 US $000 36,902 1,544 111,830,818 17,475,585 38,446 7,866 As at 31 December 2016 129,306,403 46,312 61 In the consolidated statement of financial position the amount included as share premium and treasury shares comprises of: Share premium Treasury shares 2016 US $000 215,499 (46,312) 169,187 2015 US $000 215,499 (38,446) 177,053 16 Share options The Company has a share option scheme for acquiring ordinary shares of the Company Outstanding options As at1 January 2015 Options expired As at 31 December 2015 Options expired As at 31 December 2016 Exercisable options As at1 January 2015 Options expired As at 31 December 2015 Options expired As at 31 December 2016 Number of options 11,340,000 (690,000) 10,650,000 (10,150,000) 500,000 Number of options 11,340,000 (690,000) 10,650,000 (10,150,000) 500,000 Average exercise price GBP Average exercise price* USD 0 75 0 71 0 76 0 78 0 30 1 18 1 05 1 12 0 96 0 37 Average exercise price GBP Average exercise price* USD 0 75 0 71 0 76 0 78 0 30 1 18 1 05 1 12 0 96 0 37 62 Annual Report 2016 Details of share options outstanding at 31 December 2016 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 166,667 13/05/08 13/05/09 13/05/09 13/05/18 0 30 166,667 13/05/08 13/05/10 13/05/10 13/05/18 0 30 166,666 13/05/08 13/05/11 13/05/11 13/05/18 0 30 0 37 0 37 0 37 500,000 21,703 24,115 25,820 71,638 * 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 2016 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 17 Derivative financial instruments Current liabilities Forward contract 2016 US $000 2015 US $000 - 217 Forward contracts The Group uses forward foreign exchange contracts to mitigate exchange rate exposure arising from forecast transactions between USD and CHF As at the reporting date the outstanding forward agreements are as follows: Notional contract amount USD 5,000,000 USD 5,000,000 USD 10,000,000 USD 5,000,000 Foreign exchange currency Contract termination date CHF CHF CHF CHF 0 9965 0 9988 1 0096 1 0234 Contract termination date 19 February 2016 19 February 2016 19 February 2016 19 February 2016 63 Forward contracts are considered by the Management as economic hedge arrangements but have not been designated as hedging instruments for accounting purposes and their fair value changes are recognised in the profit or loss The calculation of the fair value of forward contracts is based on the contractual cash flows of future anticipated net settlement using the foreign exchange rates prevailing at the reporting date For the year ended 31 December 2016 a net fair value gain of USD 0 069m (2015: USD 0 991) has been recognised in the profit or loss in relation to all derivative financial instruments 18 Bank Loans As at 1 January Additions Interest charge Repayments of principal Repayments of interests Exchange difference Refinancing fees Amortization of refinancing fees Disposal (note 23) As at 31 December Allocated as: Current bank loans Non-current bank loans 2016 US $000 76,410 - 923 (1,138) (923) 936 - 79 (76,287) - - - - 2015 US $000 78,092 78,822 1,278 (79,751) (1,278) (541) (212) - - 76,410 1,407 75,003 76,410 The bank loan relates to Wyler Park investment property purchase (note 9) and was secured on this property 19 Bank Overdrafts Short term bank overdrafts 2016 US $000 1,160 2015 US $000 13,208 64 Annual Report 2016 Bank overdrafts bear Libor + lender’s margin and have an average interest rate of 3 49% (2015: 1 78%) The Company’s bank overdraft facilities are secured by the Company’s financial assets portfolio up to an amount, as at 31 December 2016, of USD 31 8m The Company’s bank overdraft undrawn facilities at 31 December 2016 amount to USD 30 6m 20 Trade and other payables 2016 US $000 2015 US $000 Financial items Trade payables Amounts due to related parties (note 31) Accrued expenses Non-Financial items Employee benefits accrued Prepayment from tenants VAT payable 6 3,233 2,327 5,566 3,050 - - 8,616 444 1,377 386 2,207 - 510 53 2,770 21 Dividend payable Dividend payable 2016 US $000 15,000 2015 US $000 - At 15 December 2016, the Board announced an interim dividend of USD 15m (USD 0 0858 per share) to members on the register on 6 January 2017 The dividend was paid on 27 January 2017 65 22 Net asset value per share 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 2016 and 31 December 2015 Net assets attributable to ordinary shareholders (USD 000) 2016 2015 157,174 148,637 Closing number of ordinary shares in issue 174,813,998 195,289,583 Basic net asset value per share (USD) 0 90 0 77 Net assets attributable to ordinary shareholders (USD 000) 157,174 148,637 Dilutive share options – exercise amount 185 221 Net assets attributable to ordinary shareholders including the effect of potentially diluted shares (USD 000) 157,359 148,858 Closing number of ordinary shares in issue 174,813,998 195,289,583 Dilutive share options 500,000 500,000 Closing number of ordinary shares including the effect of potentially diluted shares 175,313,998 192,789,583 Diluted net asset value per share (USD) 0 90 0 77 Number of Shares Ordinary shares Treasury shares 304,120,401 304,120,401 (129,306,403) (111,830,818) Closing number of ordinary shares in issue 174,813,998 192,289,583 66 Annual Report 2016 The Share options (note 16) 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 2016 and 2015 All other share options do not impact the diluted net asset value per share for 2015 (expired in 2016) as their exercise price was higher than the net asset value per share at 31 December 2015 Repurchase 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 repurchase of Ordinary shares at a discount to the underlying net asset value enhances the net asset value per share of the remaining equity shares In 2016, the Company bought an additional 17,475,585 of its Ordinary shares at an average price of USD 0 45 per share In 2015, the Company bought 3,000,000 of its Ordinary shares at an average price of USD 0 51 per share (note 31) 23 Discontinued operations The discontinued operations relate to the investment property (Wyler Park) activities that constituted an operating segment of the Group (note 24) These activities were carried out through the Group’s subsidiary, Livermore Investments AG in Switzerland, of which 100% of shares were disposed to a third party on 28 October 2016 23 1 Profit or loss 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 Details of profit or loss items of the discontinued operations are as follows: Gross rental income Direct expenses Other operating expenses Investment property revaluation Bank interest on investment property loan Gain on disposal of subsidiary (note 23 2) Profit before taxation on discontinued operations Taxation credit / (charge) (note 23 3) Profit for the year on discontinued operations 2016 US $000 4,459 (423) (278) (102) (1,004) 7,563 10,215 3,876 14,091 2015 US $000 5,634 (407) (406) 7,819 (1,340) - 11,300 (1,936) 9,364 67 23 2 Gain on disposal of subsidiary 2016 US $000 2015 US $000 Cash consideration received Net assets at disposal date - investment property - cash and cash equivalents - other assets - Bank loan - other liabilities Foreign exchange losses reclassified from translation reserve 31,758 (124,763) (6) (1,075) 76,287 26,900 (1,538) Gain on disposal of subsidiary 7,563 - - - - - - - - 23 3 Taxation Taxation credit / (charge) on the discontinued operations is analysed as follows: Tax on ordinary activities Deferred taxation (note 12) Taxation credit / (charge) 2016 US $000 (110) 3,986 3,876 23 4 Cash flows Details of the cash flows of the discontinued operations are as follows: Operating activities Investing activities Financing activities Translation differences on foreign operations’ cash and cash equivalents Net cash from discontinued operations 2016 US $000 2,975 (102) (2,061) 14 826 2015 US $000 (82) (1,854) (1,936) 2015 US $000 4,831 - (2,481) (18) (1,854) 2,332 68 Annual Report 2016 24 Segment reporting The Group’s monitoring and strategic decision making process in relation to its investments is separated into two activity lines which are also identified as the Group’s operating segments These operating segments are monitored and strategic decisions are made on the basis of segment operating results Segment information can be analysed as follows: Equity and debt instruments investment activities Investment property activities Total per financial statements 2016 US $000 2015 US $000 2016 US $000 2015 US $000 2016 US $000 2015 US $000 Segment results Investment income Interest and dividend income Investment property income Gain / (loss) on investments 26,334 25,675 - - 26,334 25,675 - - 4,036 5,227 4,036 5,227 1,695 (33,955) (102) 7,819 1,593 (26,136) Gross profit / (loss) 28,029 (8,280) 3,934 13,046 31,963 4,766 Other income Administrative expenses Operating profit / (loss) - 35 - - - 35 (7,692) (4,510) (478) (645) (8,170) (5,155) 20,337 (12,755) 3,456 12,401 23,793 (354) Finance costs (212) (1,109) (1,008) (1,345) (1,220) (2,454) Profit / (loss) before taxation Taxation (charge) / credit Profit / (loss) for year 20,125 (13,864) 2,448 11,056 22,573 (2,808) (5) - 3,844 (1,951) 3,839 (1,951) 20,120 (13,864) 6,292 9,105 26,412 (4,759) Segment assets 182,335 121,104 Segment liabilities 25,161 15,681 - - 124,588 182,335 245,692 81,374 25,161 97,055 69 The Group’s investment income and its investments are divided into the following geographical areas: Equity and debt instruments investment activities Investment property activities (discontinued – note 23 1) Total per financial statements 2016 US $000 2015 US $000 2016 US $000 2015 US $000 2016 US $000 2015 US $000 Investment Income Switzerland Other European countries United States India Asia - 330 27,850 102 (203) - (22) (5,950) (2,235) (73) 3,884 13,046 3,884 13,046 - - - - - - 330 (22) 27,850 (5,950) 102 (203) (2,235) (73) 4,766 28,079 (8,280) 3,884 13,046 31,963 Investments Switzerland Other European countries United States India Asia 726 3,341 5,089 100,399 2,022 7,524 72,030 10,004 3,825 114,012 90,948 - - - - - - 123,324 726 123,324 - - - - 3,341 5,089 100,399 72,030 2,022 7,524 10,004 3,825 123,324 114,012 214,272 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 2016, 81 6% of the Group’s rent relates to rental income from a single customer (SBB – Swiss national transport authority) in the investment property activities segment (2015: 81 9%) 70 Annual Report 2016 25 Interest and dividend income Interest from investments Dividend income 2016 US $000 114 26,220 26,334 2015 US $000 127 25,548 25,675 No dividend income has been recognised in 2016 in relation to investments designated at fair value through other comprehensive income 26 Profit / (loss) on investments Loss on sale of investments Loss due to impairment of available-for-sale financial assets Fair value profit/(losses) on financial assets through profit or loss Fair value gain on associate Fair value loss on investment in subsidiaries Fair value gains on derivative instruments Bank custody fees 2016 US $000 - - 2,056 - (315) 69 (115) 1,695 2015 US $000 (3,459) (31,726) (320) 683 - 991 (124) (33,955) The investments disposed of during the year resulted in the following realised losses (i e in relation to their original acquisition cost): Available-for-sale At fair value through profit or loss 2016 US $000 - (3,540) (3,540) 2015 US $000 (5,723) (303) (6,026) 71 27 Administrative expenses Legal expenses Directors’ fees and expenses Other salaries and expenses Professional and consulting fees Office costs Depreciation Other operating expenses Provision charge Audit fees Impairment charge on receivables 2016 US $000 19 5,033 149 1,879 172 7 388 - 119 122 2015 US $000 63 2,414 176 806 254 13 414 513 96 - 7,888 4,749 Throughout 2016 the Group employed 6 members of staff (2015: 7), and the Company employed 2 members of staff (2015: 2) Other salaries and expenses include USD 18,706 of social insurance and similar contributions (2015: USD 21,640), as well as USD 16,655 of defined contributions plan costs (2015: USD 6,593) 28 Finance costs Finance costs Other bank interest Foreign exchange loss 29 Taxation Current tax charge 2016 US $000 2015 US $000 216 2 218 2016 US $000 38 38 267 847 1,114 2015 US $000 15 15 The parent company is a British Virgin Islands (BVI) international business company 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 72 Annual Report 2016 30 Earnings per share Basic earnings per share has been calculated by dividing the profit for the year attributable to ordinary shareholders of the parent Company by the weighted average number of ordinary 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 2016 and the year ended 31 December 2015 2016 2015 Continuing operations Profit / (loss) for the year attributable to ordinary shareholders of the parent (USD 000) 19,885 (14,123) Weighted average number of ordinary shares outstanding 186,255,696 194,599,172 Basic earnings per share (USD) 0 11 (0 07) Weighted average number of ordinary shares outstanding 186,255,696 194,599,172 Dilutive effect of share options 24,715 59,005 Weighted average number of ordinary shares including the effect of potentially dilutive shares 186,280,411 194,658,177 Diluted earnings per share (USD) 0 11 (0 07) 2016 2015 Discontinued operations Profit / (loss) for the year attributable to ordinary shareholders of the parent (USD 000) 14,091 9,364 Weighted average number of ordinary shares outstanding 186,255,696 194,599,172 Basic earnings per share (USD) 0 08 0 05 Weighted average number of ordinary shares outstanding 186,255,696 194,599,172 Dilutive effect of share options 24,715 59,005 Weighted average number of ordinary shares including the effect of potentially dilutive shares 186,280,411 194,658,177 Diluted earnings per share (USD) 0 08 0 05 The Share options (note 16) 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 2016 and 2015 All other share options do not impact the diluted earnings per share for 2015 (expired in 2016) as their exercise price was higher than the average market price of the Company’s shares during the year ended 31 December 2015 73 31 Related party transactions The Company is controlled by Groverton Management Ltd, an entity owned by Noam Lanir, which at 31 December 2016 held 76 62% (2015: 78 74%) of the Company’s effective voting rights 2016 US $000 2015 US $000 Amounts receivable from subsidiaries Livermore Properties Limited Sandhirst Limited Allowance for impairment Amounts receivable from key management Directors’ current accounts Other assets Loan receivable Amounts payable to subsidiaries Livermore Investments Cyprus Limited Livermore Capital AG Livermore Israel Investments Ltd Amounts payable to other related party Loan payable Amounts payable to key management Directors’ current accounts Other key management personnel 3,103 1,018 (2,940) 1,181 3,000 1,128 2,513 6,641 (169) (687) (2,210) (878) (149) (149) (13) (5) (18) - - - - 2,514 2,256 - 4,770 - - - (80) (499) (499) (35) (843) (878) (1) (1) (1) (1) (2) (3) (4) (4) (4) (5) (4) (6) 74 Annual Report 2016 Key management compensation Short term benefits Executive Directors' fees Executive Directors' reward payments Non-executive Directors' fees Non-executive Directors' reward payments Other key management fees 795 4,128 60 50 1,092 6,125 (7) 795 1,528 69 22 383 2,797 (1) The amounts receivable from subsidiaries and the Director’s current accounts with debit balances are interest free, unsecured, and have no stated repayment date (2) 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 is 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 are classified as “other assets” and are included under trade and other receivables (note 13) (3) A loan of USD 2 500m was made to a key management employee, during the year, for the acquisition of shares in the Company Interest is payable on the loan at 6 month US LIBOR plus 0 25% per annum and the loan is secured on the shares acquired The loan is repayable on the earlier of the employee leaving the Company or April 2020 The loan is included within trade and other receivables (note 13) (4) The amounts payable to subsidiaries and Director’s current accounts with credit balances are interest free, unsecured, and have no stated repayment date (5) A loan with a balance at 31 December 2016 of USD 0 149m (31 December 2015: USD 0 499m) has been received from a related company (under common control), 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) (6) The amount payable to other key management personnel relates to a payment made on behalf of the Company for investment purposes and accrued consultancy fees (7) These payments were made directly to companies which are related to Directors No social insurance and similar contributions nor any other defined benefit contributions plan costs were incurred for the Group in relation to its key management personnel in either 2016 or 2015 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 2016 held a total of 1 941m shares at a value of USD 0 973m (2015: 1 941m shares at a value of USD 0 931m) which represents 4% of its effective voting rights The investment in Babylon Ltd is held through the subsidiary Livermore Israel Investments Ltd (2015: included within public equity investments under financial assets at fair value through profit or loss – note 5) 75 In 2016, the Company bought 17,475,585 (2015: 3,000,000) of its Ordinary shares from Groverton Management Ltd, at an average price of USD 0 45 per share (2015: USD 0 51 per share) These shares are included in Treasury shares (note 15) As at the reporting date Livermore had 335,816 number of shares of Wanaka Capital Partners Mid- Tech Opportunity Fund registered in its name but held for the absolute benefit of a related company (other related party - under common control) These shares are not included in the financial assets on the consolidated statement of financial position During the year the Company received administrative services of USD 0 048m (2015: 0 039m) in connection with investments from a related company (other related party - under common control), Mash Medical Life Tree Marketing Ltd 32 Provisions The movement in provisions for the year is as follows: As at 1 January Additions (note 33) Settlements As at 31 December Allocated as: Current liability Non-current liability 33 Litigation 2016 US $000 2015 US $000 513 - (128) 385 385 - 385 - 513 - 513 128 385 513 Fairfield Sentry Ltd vs custodian bank and beneficial owners One of the custodian banks that the Company uses faces a contingent claim up to USD 2 1m, and any interest as will be decided by a US court and related legal fees, with regards to the redemption of shares in Fairfield Sentry Ltd, which were bought in 2008 at the request of Livermore and on its behalf The same case was also filed in BVI where the Privy Council ruled against the plaintiffs As a result of the surrounding uncertainties over the existence of any obligation for Livermore, as well as for the potential amount of exposure, the Directors cannot form an estimate of the outcome for this case and therefore no provision has been made No further information is provided on the above case as the Directors consider it could prejudice its outcome 76 Annual Report 2016 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 claimed 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 Prior to the filing of the lawsuit in Israel, the Company filed a claim against the plaintiff in the Court in Cyprus based upon claims concerning breach of faith of the plaintiff towards his employers Litigation was completed in Israel 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 On 10 June 2015 the court held a hearing of the appeal and suggested that both sides settle the dispute by means of mediation On 20 January 2016 the parties reached an agreement for an out of court settlement, for which a corresponding provision has been made (note 32) 34 Commitments The Company has expressed its intention to provide financial support to its subsidiaries, where necessary to enable them to meet their obligations as they fall due Other than the above, the Company has no capital or other commitments as at 31 December 2016 35 Events after the reporting date The three warehouse facilities that the Company invested in, during 2016, were converted to CLOs in May 2017 For two out of the three warehouses, with a carrying amount as at 31 December 2016 of USD 11 185m, the Company invested an additional amount of USD 15 5m during 2017 (before their conversion) For these two warehouses, Livermore’s investment amount plus net carry amounting to a total of USD 28 1m became receivable in May 2017 For the other one, with a carrying amount as at 31 December 2016 of USD 6 066m, the Company invested an additional amount of USD 3m during 2017 (before its conversion) For that warehouse, the amount to be received has not yet been determined, however it is expected that it will exceed Livermore’s investment amount There were no other material events after the end of the reporting year, which have a bearing on the understanding of these consolidated financial statements 36 Financial risk management objectives and policies Background The Group’s financial instruments comprise available for sale financial assets, financial assets at fair value through profit or loss, derivatives, cash balances and receivables and payables that arise directly from its operations For an analysis of financial assets and liabilities by category, refer to note 37 Risk objectives and policies The objective of the Group is to achieve growth of shareholder value, in line with reasonable risk, taking into consideration that the protection of long-term shareholder value is paramount The policy of the Board is to provide a framework within which the investment manager can operate and deliver the objectives of the Group 77 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 financial instruments denominated in foreign currencies held by the Group at 31 December 2016 is the following: 2016 US $000 2016 US $000 2016 US $000 2015 US $000 2015 US $000 2015 US $000 Financial assets Liabilities Net value Financial assets Liabilities Net value British Pounds (GBP) Euro Swiss Francs (CHF) Indian Rupee (INR) 1,754 2,715 8,090 - (355) (284) (1,966) - Israel Shekels (ILS) 5,052 (2,212) - (6) 1,399 2,431 6,124 - 2,840 (6) 1,611 2,641 28,653 7,099 2,850 - (4,475) (2,864) (253) (9) - (90) (5) 2,388 28,644 7,099 2,760 (5) 17,611 (4,823) 12,788 42,854 (4,832) 38,022 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 2016 would have the following impact A 10% decrease of the following currencies against USD would have an approximately equal but opposite impact 78 Others Total Annual Report 2016 2016 US $000 2016 US $000 2015 US $000 2015 US $000 Profit or loss Other comprehensive income Profit or loss Other comprehensive income British Pounds (GBP) Euro Swiss Francs (CHF) Indian Rupee (INR) Israel Shekels (ILS) 77 243 590 - 284 63 - - - - (445) 162 2,842 - 273 Total 1,194 63 2,832 159 77 - 710 3 949 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 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 these banking facilities utilised at 31 December 2016 was USD 1 2m (2015: USD 13 2m) As at 31 December 2016 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 through CLO equity tranches as well as through warehousing facilities An investment in the CLO equity tranche or first loss tranche of a warehouse represents a leveraged investment into such loans As these loans (assets of a CLO) 79 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 and warehouse first loss tranches is normally linked to the floating rate benchmark and thus normally do not carry substantial interest rate risk 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 Total 2016 US $000 2015 US $000 3,550 156,970 160,520 1,160 1,160 4,534 93,836 98,370 89,618 89,618 Changes in market interest rates will affect the valuation of fixed rate interest bearing instruments A 1% (100 basis points) increase in market interest rates would result in an estimated 0 72% increase in the net asset value as at 31 December 2016 (2015: -0 18%) 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 2016 US $000 2016 US $000 2015 US $000 2015 US $000 Profit or loss Other comprehensive income Profit or loss Other comprehensive income Financial assets • • fair value changes interest changes (256) 1,397 Financial liabilities • interest changes (12) 1,129 - - - - (269) 888 (896) (277) - - - - The above analysis assumes that all other variables, in particular currency rates, remain constant 80 Annual Report 2016 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 as well as first loss tranches of warehouse facilities 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 assets (excluding level 3 investments) would result in a 6 56% change in the net asset value as at 31 December 2016 (2015: 4 84%), and would have the following impact (either positive or negative, depending on the corresponding sign of the change): 2016 US $000 2016 US $000 2015 US $000 2015 US $000 Profit or loss Other comprehensive income Profit or loss Other comprehensive income Available-for-sale financial assets Financial assets at fair value through other comprehensive income Financial assets at fair value through profit or loss - - 10,209 10,209 - 104 - 104 - - 358 358 6,721 - - 6,721 81 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 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 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 fixed income investments (mainly CLOs) and to a lesser extend in respect of its financial assets at amortised cost, and other instruments held for trading (perpetual bonds) The Group’s maximum credit risk exposure at 31 December 2016 is as follows: 2016 US $000 2015 US $000 Financial assets: At amortised cost • • Trade and other receivables Cash at bank Available-for-sale financial assets 6,759 60,383 67,142 - Financial assets at fair value through profit or loss 100,137 167,279 3,090 25,770 28,860 65,946 6,655 101,461 No collaterals are held by the Company itself in relation to the Company’s financial assets subject to credit risk The fair values of the above financial assets at fair value through profit or loss are also affected by the credit risk of those instruments However, it is not practical to provide an 82 Annual Report 2016 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 The Group has exposure to US senior secured loans and to a lesser degree emerging market loans through CLO equity tranches as well as warehouse first loss tranches These loans are primarily non-investment grade loans or interests in non-investment grade loans, which are subject to credit risk among liquidity, market value, interest rate, reinvestment and certain other risks It is anticipated that these non-investment grade loans generally will be subject to greater risks than investment grade corporate obligations A non-investment grade loan or debt obligation or an interest in a non-investment grade loan is generally considered speculative in nature and may become a defaulted security for a variety of reasons A defaulted security may become subject to either substantial workout negotiations or restructuring, which may entail, among other things, a substantial reduction in the interest rate, a substantial write-down of principal, and a substantial change in the terms, conditions and covenants with respect to such defaulted security In addition, such negotiations or restructuring may be quite extensive and protracted over time, and therefore may result in substantial uncertainty with respect to the ultimate recovery on such defaulted security Bank loans have historically experienced greater default rates than has been the case for investment grade securities The Group has no investment in sovereign debt as at 31 December 2016 or 2015 At 31 December the credit rating distribution of the Group’s asset portfolio subject to credit risk was as follows: Rating 2016 Amount US $000 Percentage 2015 Amount US $000 Percentage AA A+ A A- BB BB+ BB- Not Rated 30,870 18 5% 18,772 - 82 - - 29,495 17 6% 2,433 1,117 - 103,282 167,279 1 5% 0 7% - 61 7% 100% - 976 6,326 2,900 1,116 518 70,853 101,461 18 5% - 1 0% 6 2% 2 9% 1 1% 0 5% 69 8% 100% Included within “not rated” amounts are investments in loan market through CLOs of USD 79 336m and open warehouses of USD 17 251m (2015: CLOs of USD 63 046m and open warehouses of USD 5 020m) 83 The modelled IRRs on the CLO portfolio as well as the warehouse first loss tranches are in low teens percentage points Liquidity Risk The following table summarizes the contractual cash outflows in relation to the Group’s financial liabilities according to their maturity Carrying amount 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 2016 Bank overdraft 1,160 1,160 Trade and other payables 5,566 5,566 Total 6,726 6,726 - - - - - - - - - Carrying amount 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 2015 Bank loan 76,410 2,477 2,557 75,531 Bank overdraft 13,208 13,208 Trade and other payables 2,207 2,207 - - - - Total 91,825 17,892 2,557 75,531 - - - - 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 Warehouse facilities are private negotiated financing facilities and are not traded and have no active 84 Annual Report 2016 market The Company, however, can opt to terminate such facility 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 2016, the Group had liquid investments totalling USD 146 3m, comprising of USD 60 4m in cash and cash equivalents, USD 81 8m in investments in loan market through CLOs, USD 1 1m in other fixed income investments, USD 2 0m in public equities and USD 1 0m in hedge funds Management structures and manages the Group’s portfolio based on those investments which are considered to be long term, core investments and those which could be readily convertible to cash, are expected to be realised within normal operating cycle and form part of the Group’s treasury function Capital Management The Group considers its capital to be its issued total equity (i e its share capital and all of its reserves) 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 Net Debt Total equity 2016 US $000 (60,383) 1,160 - 2015 US $000 (25,770) 13,208 76,410 (59,223) 63,848 157,174 148,637 Net debt to equity ratio (0 38) 0 43 The significant improvement in the ratio is mainly due to the disposal of investment property activities (note 23) and the bank loan associated with it 85 37 Financial assets and liabilities by class Financial assets: Loans and receivables Financial assets at amortised cost Available-for-sale financial assets Financial assets at fair value through profit or loss Financial assets designated at fair value through other comprehensive income Note 2016 US $000 2015 US $000 13, 14 13, 14 4 5 - 67,142 - 102,087 28,860 - 81,147 9,801 6 6,673 - 175,902 119,808 Financial liabilities: Financial liabilities at amortised cost 18,19,20 6,726 91,825 Financial liabilities at fair value through profit or loss: Derivative financial instruments 17 - 6,726 217 92,042 The carrying amount of the financial assets and liabilities at amortised cost approximates to their fair value 86 Annual Report 2016 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 87 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 29 August 2017 at 10am for the purposes of the following: To consider, and if thought fit, to pass the following resolutions, numbers 1 to 4 of which will be proposed as Resolutions of Members and numbers 5 to 7 of which will be proposed as Special Resolutions: 1 2 To receive and adopt the Report of Directors, the financial statements and the Report of the Auditor for the year ended 31 December 2016 To re-appoint Grant Thornton Cyprus as auditor of the Company to hold office from the conclusion of this Meeting until the conclusion of the next general meeting at which financial statements are laid before the Company 3 To authorise the Directors to determine the auditor’s remuneration 4 That for the purposes of article 5 1 of the Articles of Association of the Company: (a) the Directors be and are generally and unconditionally authorised to allot up to a maximum aggregate amount of 116,542,664 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 2018 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) provided that not more than 58,271,332 of such new ordinary shares shall be issued otherwise than by way of a fully pre-emptive rights issue; and (b) the Company be and is hereby authorised to make prior to the expiry of such period (b) any offer or agreement which would or might require such ordinary shares to be issued in pursuance of any such offer or agreement notwithstanding the expiry of the authority given by this resolution; so that all previous authorities of the Directors pursuant to the said article 5 1 be and are hereby revoked 5 THAT, subject to the passing of resolution 4 set out in the Notice convening this Meeting, the Directors be and are empowered in accordance with article 5 2 of the Articles of Association of the Company to allot new ordinary shares of no par value in the capital of the Company (“ordinary shares”) for cash, pursuant to the authority conferred on them to allot such shares by that resolution 4 as if the pre-emption provisions contained in article 5 2 did not apply to any such allotment, provided that the power conferred by this resolution shall be limited to: (a) the allotment of ordinary shares in connection with an issue or offering in favour (a) of holders of ordinary shares and any other persons entitled to participate in such issue or offering where the shares respectively attributable to the interests of such holders and persons are proportionate (as nearly as may be) to the respective number of ordinary shares held by or deemed to be held by them on the record date of such allotment, subject only to such exclusions or other arrangements as the Directors may consider necessary or expedient to deal with fractional entitlements or legal or practical problems 88 Annual Report 2016 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 17,481,399 of such ordinary shares (representing approximately 10% of the Company’s issued ordinary share capital as at the date of this Notice), and this power, unless renewed, shall expire at the end of the Annual General Meeting of the Company in 2018 or, if earlier, 15 months from the date of the passing of this resolution (unless previously revoked or varied by the Company in general meeting) but shall extend to the making, before such expiry, of an offer or agreement which would or might require ordinary shares to be allotted after such expiry and the Directors may allot such shares in pursuance of such offer or agreement as if the authority conferred hereby had not expired 6 7 THAT in accordance with the Articles of Association of the Company and the BVI Business Companies Act (as amended, the “BVI Companies Act”), the Company acting by the Directors be and is hereby unconditionally authorised to cancel, by way of surrender for no consideration pursuant to section 59(1A) of the BVI Companies Act, the 129,306,403 treasury shares registered in the name of the Company, as a capital reduction authorised hereby pursuant to articles 9 6 and 42 2 of the Articles of Association of the Company 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 34,962,798; (b) 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 (c) 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 26 June 2017 89 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 (v) Resolution 5 – Disapplication of pre-emption rights - If the Directors wish to allot any equity securities for cash, the Articles of Association of the Company require that such equity securities are offered first to existing shareholders in proportion to their existing holdings The Directors intend to adhere to the provisions in the Pre-Emption Group’s Statement of Principles, as updated in March 2015 and therefore Resolution 5 asks shareholders to grant the Directors authority to allot shares for cash on a non-pre-emptive basis pursuant to the authority in Resolution 4, but such allotment shall not be: in excess of an amount equal to 5% of the total issued ordinary share capital of the Company (excluding treasury shares as at of the date of this Notice); or in excess of an amount equal to 7 5% of the total issued ordinary share capital of the Company (excluding treasury shares) within a rolling three-year period, without prior consultation with shareholders b) a) in each case other than in connection with an acquisition or specified capital investment which is announced contemporaneously with the allotment or which has taken place in the preceding six-month period and is disclosed in the announcement of the allotment Resolution 5 also asks shareholders to disapply the statutory pre-emption provisions in connection with a rights issue, but only in relation to the amount permitted under Resolution 4, and allows the Directors, in the case of a rights issue, to make appropriate arrangements in relation to fractional entitlements or other legal or practical problems that might arise 90 Annual Report 2016 Principal Bankers 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 UBS AG Paradeplatz 6 CH-8098 Zürich Switzerland Bank Julius Baer & Co Ltd Bahnhofstrasse 36, CH-8010 Zurich, 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 143, Spyrou Kyprianou Avenue Limassol 3083 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 91 6
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