2019
9
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Livermore’s Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Financial portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Events after the Reporting Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Report of the Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
The Board’s Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
The Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Directors’ responsibilities in relation to the financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Disclosure of information to the Auditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Substantial Shareholdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Corporate Governance Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
The Board Constitution and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Board Committees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Remuneration Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Audit Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
The Quoted Company Alliance (QCA) Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Communication with Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Internal Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Going concern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Annual Report 2019
4
Independence of Auditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Remuneration Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Directors’ Emoluments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Directors’ Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Remuneration Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Review of the Business and Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Independent Auditor’s Report to the Members of Livermore Investments Group Limited . . . . . . . . . . . . . . . 27
Consolidated Statement of Financial Position as at 31 December 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Consolidated Statement of profit or loss for the year ended 31 December 2019 . . . . . . . . . . . . . . . . . . . . . 33
Consolidated Statement of Comprehensive Income for the year ended 31 December 2019 . . . . . . . . . . . . . 34
Consolidated Statement of changes in equity for the year ended 31 December 2019 . . . . . . . . . . . . . . . . . . 35
Consolidated Statement of cash flows for the year ended 31 December 2019. . . . . . . . . . . . . . . . . . . . . . . . 36
Notes on the Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Shareholder Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Registrars. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Website . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Direct Dividend Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Lost Share Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Duplicate Shareholder Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Corporate Directory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
5
Highlights
•
Net loss for the year was USD 1.1m (2018: net profit of USD 5.2m).
•
Net Asset Value per share remains stable at USD 0.99 (2018: USD 1.00).
• At 30 December 2019, the Company announced an interim dividend of USD 6m (USD 0.0343 per
share) to members on the register on 24 January 2020. The dividend was paid on 21 February 2020.
• CLO portfolio and warehouse generated USD 28.5m in distributions and USD 3.35m in net gains
in 2019.
Annual Report 2019
6
Chairman’s and Chief Executive’s Review
Introduction
We are pleased to announce the financial results for Livermore Investments Group Limited
(“Livermore” or “the Company”) for the year ended 31 December 2019. References to the Company
hereinafter also include its consolidated subsidiaries (note 8).
The year-end NAV was USD 0.99 per share (2018 NAV: USD 1.00 per share). Net loss for the year was
USD 1.1m (2018 Net profit: USD 5.2m).
The Company recorded net gains of USD 3.35m from its US CLO and warehousing portfolio. Interest
and distribution income from the financial portfolio totalled USD 29.0m (2018: USD 31.5m). The
Company ended the year with over USD 56m in cash at hand.
References to financial statements hereinafter are to the Company’s consolidated financial
statements.
Financial Review
The NAV of the Company at 31 December 2019 was USD 173.1m (2018: USD 174.3m). Net loss,
during the year was USD 1.1m, which represents earnings / (Loss) per share of USD (0.006).
Operating expenses were USD 5.1m (2018: USD 8.9m).
7
The overall change in the NAV is primarily attributed to the following:
Shareholders’ funds at beginning of year
Income from investments
Realised losses on investments
Unrealised losses on investments
Operating expenses
Net finance income
Tax charge
Increase in net assets from operations
Dividends paid
Shareholders’ funds at end of year
31 December 2019
US $m
31 December 2018
US $m
174.3
29.0
-
(25.5)
(5.1)
0.5
(0.1)
(1.2)
-
173.1
175.4
31.5
(0.1)
(15.6)
(8.9)
-
-
6.9
(8.0)
174.3
Net Asset Value per share
US $0.99
US $1.00
Dividend & Buyback
At 30 December 2019, the Board announced an interim dividend of USD 6m (USD 0.0343 per share) to
members on the register on 24 January 2020. The dividend was paid on 21 February 2020.
The Board of Directors will decide on the Company’s dividend policy for 2020 based on profitability,
liquidity requirements, portfolio performance, market conditions, and the share price of the Company
relative to its NAV.
The Company has no shares in treasury.
Richard B Rosenberg
Chairman
Noam Lanir
Chief Executive Officer
19 May 2020
Annual Report 2019
8
Review of Activities
Introduction and Overview
Overall 2019 was a strong year for most asset classes. Public equities, government bonds, fixed
rate investment bonds and high yield bonds performed well. Floating rate instruments in the US,
however, suffered as the US Federal Reserve began a series of rate cuts reducing their attractiveness.
The trade tensions between the US and China also weighed on the US senior secured loan market
sentiment. Through this all, the CLO and warehouse portfolio of the Company generated strong cash
distributions of USD 28.5m in 2019. The volatility and idiosyncratic credit concerns in the US senior
secured loan market, however, impacted the year-end valuations of CLO positions reducing the net
gain on the CLO and warehousing portfolio to USD 3.35m (2018: USD 14m). The Company managed
its CLO and warehousing portfolio actively and generated gains in a year that saw most investors in
the CLO market experience some losses. Further, the Company focused on strengthening its liquidity
and cash position throughout the year in expectation of late cycle behaviour in the credit markets.
In 2019, the Company reported NAV/share of USD 0.99 and net loss of USD 1.1m. Interest and
distribution income amounted to USD 29.0m, of which, USD 28.5m was generated from the CLO
and warehousing portfolio. The net return of the CLO and warehousing portfolio was USD 3.35m as
mark-to-market changes contributed to a loss of USD 25.6m. Operating expenses amounted to
USD 5.1m.
The Company’s income in 2019 was derived mainly from its CLO portfolio distributions and warehouse
carry. During the year, the CLO and warehousing portfolio generated USD 28.5m in income. CLO
equity positions typically generate higher cash flow than their expected IRRs because it is expected
that future defaults in the loans held by CLOs may erode the residual value over time. Thus, the
performance of the Company’s CLO portfolio is mainly through the cash flow generated on a regular
basis.
During 2019, management worked with CLO managers and bankers to convert three warehouses in
new issue CLOs. At the same time, the Company increased its cash position substantially ending the
year with over USD 56m of cash at hand.
During the year, the Company invested an additional USD 50.2m in new issue and select secondary
CLO equity and warehouse positions and disposed USD 61.2m of CLO equity and warehouse exposure.
The Company 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 has 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 Company is well positioned
to benefit from current market conditions.
9
Global Investment Environment
Global economic growth weakened in 2019, affecting mostly large economies and pronounced mostly
in the industrial sector. Global trade in goods deteriorated due to a slump in global manufacturing
and subdued investment activity as the trade disputes and tariffs between the US and China
worsened. The political unrest caused by the UK’s exit from EU, which was finally achieved at
the end of January 2020, also had a dampening effect. Growth slowed in Europe, India, China and
Russia. The emergence of the coronavirus towards the end of 2019 led to disruptions in China that
started to spill over to the rest of the global economy. Consumer price inflation declined in most
advanced economies compared with 2018, primarily as a result of lower increases in energy and
food prices. Core inflation changed marginally in most countries. The unemployment rate dropped
in most economies and labour market strengthened overall.
Financial conditions eased in second half of 2019 supported by accommodative actions by central
banks and positive developments on political front, including progress on the US–China trade
negotiations and diminished risks of a disorderly Brexit. Global equity prices moved higher later
in the year, sovereign bond spreads in the European periphery narrowed, and emerging markets
rebounded as well.
USA: Economic growth slowed somewhat in 2019 with GDP growth rate at 2.3% as compared to 3%
in 2018. Consumer spending and residential investments in the US increased a moderate rate in the
second half of 2019 whereas businesses fixed investments due to trade policy uncertainty and weak
global growth. Lower oil prices curbed investment activity in the energy sector. Private consumption
remained a driving force on the back of solid disposable income and upbeat consumer confidence.
With mortgage rates declining, construction investment also recovered from the contraction in
2018. Overall capacity utilisation remained good. The labour market continued to strengthen and
the labour force participation rate also increased. Wage gains remained moderate but at an above
level from last year. The unemployment rate moved down from 3.9% at the end of 2018 to 3.5% in
December 2019.
In the US, annual average headline inflation fell to 1.8% in 2019 while core rate remained steady
at 2.2%. The Federal Reserve’s preferred price inflation measure, personal consumption expenditure
(PCE) deflator, which excludes volatile energy and food prices, weakened in the first half of the year
but picked up again later in the year. In December it was 1.6%, slightly below the Federal Reserve’s
target of 2%.
The slowdown in economic growth and inflationary pressures, coupled with heightened risks
prompted the Federal Reserve to change the course of its monetary policy. In the second half of
2019, the FOMC lowered the target range a cumulative 75 basis points, bringing it to the current
range of 1.5 to 1.75 % undoing the increases made in 2018 to counter the possibility of a more
pronounced weakening in growth.
Euro Area: Economic activity weakened in the euro area. Real GDP rose by 1.2% on an annual
average basis, its lowest value recorded since the sovereign debt crisis in 2013. There was modest
growth in equipment investments and exports. Trade tensions and regulatory changes in the
automotive industry particularly impacted Germany as overall capacity utilization declined. Despite
this backdrop, consumption in the euro area remained supportive due to a robust labour market with
the unemployment rate falling to 7.4% and wage growth picking up somewhat.
European headline inflation declined to 1.2%, having at times been pushed above 2% in 2018 by
higher energy prices whereas core inflation hovered around 1.0%.
Annual Report 2019
10
Considering the economic and inflation conditions, the European Central Bank (ECB) lowered its
deposit rate by 0.1 percentage points in September taking it further into negative territory (minus
0.5%). It also announced its intention to maintain key rates at their present or lower levels until
inflation dynamics are sufficiently robust. Further, the ECB decided to restart asset purchases from
November, having previously left its holdings unchanged since the end of 2018. Net asset purchases
are expected to end shortly before the ECB raises its key rates again.
Japan: Japan’s GDP grew at 0.8% supported by the solid performance of the services sector. Overall
production capacity utilisation remained good. The development of GDP growth over the course of
the year was influenced by special factors such as exceptional public holidays in May, a powerful
typhoon in October and an increase in the consumption tax as of 1 October. Fiscal policy measures
partially cushioned the curbing economic impact of the higher consumption tax. Labour market
conditions remained favourable and the unemployment rate declined to its lowest level at 2.2%.
Headline inflation in Japan decreased to 0.5%, while core inflation rose to 0.4%. The free education
programme introduced to stabilise the economy largely offset the inflation effect of the higher
consumption tax. Medium-term inflation expectations also persisted significantly below the Bank
of Japan’s target of 2%.
The Bank of Japan maintained the target for 10-year government bond yields at around 0% and its
short-term deposit rate at – 0.1%. The Bank of Japan intends to maintain interest rates at a low
level for as long as progress towards its inflation target of 2% remains uncertain.
China: GDP growth in China was at 7.1%, weaker than 2018. This was due to weaker manufacturing
output owing to trade tensions with the US which imposed additional tariffs on more than two-
thirds of imports from China by the end of the year. The modest domestic demand for vehicles and
weaker demand for information and communications technology (ICT) sector weighed on industrial
activity. Growth remained robust in the services sector.
Headline inflation in China rose to 2.9%, whereas core inflation fell to 1.6%.
The People’s Bank of China left its policy rate unchanged. However, it cut commercial banks’ reserve
requirement ratios in several steps with the aim of reducing financing costs for businesses and
boosting lending. The government launched fiscal policy measures to support the economy including
tax cuts for households and companies and increased infrastructure spending.
Brazil, India and Russia: Economic growth remained lacklustre in Brazil but did not weaken any
further compared to 2018, while India and Russia both recorded declines. There were problems at a
few banks in India that led to a tightening in credit conditions. GDP growth in India fell well below
potential at 5.3% and government lowered the corporate tax rate to provide support to the economy.
Headline inflation in Brazil was at 3.7%, largely unchanged from 2018. In India, headline inflation of
3.7% was somewhat lower year-on-year, while the core rate was markedly weaker. Russia recorded a
rise in headline inflation of 4.5% driven by the increase in the value added tax and the depreciation
of the rouble.
Policy rate cuts were made by the central banks of India (by 1.35 percentage points to 5.15%),
Russia (by 1.25 percentage points to 6.5%), and Brazil (by 2.0 percentage points to 4.5%)
Commodities
Commodity prices declined over the year, albeit with marked fluctuations. Early 2019 saw recovery
in oil prices as OPEC restrained supply but lowered again due to modest economic growth worldwide.
Prices of Brent Crude at the end of 2019 stood at approximately USD 66 per barrel. The lower oil
prices curbed investment activity in the energy sector. Gold prices rallied. Industrial metals prices
declined on average due to US tariffs on China and slowdown in manufacturing industries.
11
Equities
The equity market rebounded in early 2019 due to the Federal Reserve’s shift to policy easing. The
rally stalled mid-year due to concerns about global economic growth. Emerging markets rebounded
as well. The Information Technology sector topped in gains. Demand concerns and lower prices held
back energy whereas debate in the US over drug prices weighed on healthcare. Industrials did well
despite low manufacturing demand. The financial sector slightly underperformed the MSCI world as
flat or inverted yield curves dented earnings.
Loan Market
Overall, 2019 delivered strong returns across most major asset classes. The Credit Suisse Leverage
Loan Index6 (“CSLLI”) generated a return of 8.17%, while the S&P 500 Index and Merrill Lynch High
Yield Master II Index7 (“MLHYI”) generated returns of 31.49% and 14.41%, respectively. U.S. high
yield funds saw a net inflow of $18.8 billion for 2019 due to reduction in demand for floating rate
exposure as US interest rates trended lower. According to S&P Capital IQ, total institutional loan
issuance was $309.4 billion, down 29% from 2018, while total institutional loans outstanding stood
at $1.2 trillion as of December 31, 2019. During 2019, the loan market grew 4% from the $1.15
trillion outstanding as of December 31, 2018. For many corporate borrowers in the leveraged loan
market, both top-line revenue and EBITDA grew during 2019, though at a slower pace than 2018.
Interest coverage ratios remained strong as many corporate borrowers over the last several years
were able to take advantage of the strong demand for loans and more flexible terms to refinance
their existing debt. They were also able to extend loan maturity dates.
CLO Market
After a strong performance in early 2019 across the CLO market, a divergence based on credit
quality emerged during 2019, as high- and low-quality assets became increasingly bifurcated. A few
one-off credit events in certain borrowers raised idiosyncratic risk in the markets and credits rated
B3/B or lower faced increased attention, and investors exhibited a preference for higher quality
issuers. This trend reversed itself late in the year, with many investors believing the sell off in B3/B
loans was overdone.
2019 was another strong year for CLO issuance. According to S&P Capital IQ, total new US CLO
issuance in 2019 was $118 billion, with a modest 8% decline from 2018’s record-breaking $129
billion of new issuance. Refinancing and reset volumes fell markedly as the cost of debt remained
relatively high compared to 2017 and 2018. In early 2020, however, the market saw a sharp tightening
for most classes of CLO debt versus year end levels and several deals refinanced their cost of debt
to lower levels.
The par-weighted default rate finished 2019 at 1.39%, falling from 1.63% at the end of 2018 and
significantly lower than the 2.9 long-term default rate, according to S&P LCD.
Sources: Board of Governors of the Federal Reserve System, European Central Bank (ECB), Swiss National Bank, Bloomberg,
Morgan Stanley
Annual Report 2019
12
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
The Company manages a financial portfolio valued at USD 101.2m as at 31 December 2019, which
is invested mainly in fixed income and credit related securities.
The following is a table summarizing the financial portfolio as of year-end 2019
Name
2019
Book Value US $m
2018
Book Value US $m
Investment in the loan market through CLOs
98.4
Open Warehouse facilities
Hedge Funds
Perpetual Bonds
Other Public Equities
Invested Total
Cash
Total
-
-
1.1
1.7
101.2
56.5
157.7
97.1
38.4
1.1
1.1
1.5
139.2
26.2
165.4
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.
Following a sharp sell-off in late Q4 2018, the US senior secured loan market recovered significantly in Q1
2019. However due to an uncertain growth outlook and some “idiosyncratic” credit issues with low recovery
prospects, the loan market declined and the CLO market followed suit. Further, rate reductions by the US
Federal Reserve resulted in lower demand for floating rate instruments and outflows from retail funds
continued throughout the year. The trend reversed somewhat towards the end of the year as the US Federal
Reserve indicated stopping further rate cuts and the trade tensions with China seemed closer to resolution.
13
At the same time, however, earnings continued to stay relatively strong for most borrowers in the US
senior secured market, albeit at a lower growth rate than the prior year. Default rates also continued to
stay below historical average levels (1.39% at the end of 2019 as compared to 1.63% at the end of 2018
and significantly lower than the 2.9% long-term default rate, according to S&P LCD). In addition, the near
to mid-term outlook remained benign due to looser covenants and few near-term loan maturities. While
default rates can stay low, we expect price volatility to stay at higher levels than prior years.
After a strong recovery in early 2019, the CLO market saw a divergence based on credit quality as high- and
low-quality loans became increasingly bifurcated as the market focused on the increased B3 rated assets
in the loan market and CLO portfolios. Despite higher liability costs, 2019 saw strong new CLO issuance
although the amount of refinancing and reset activity diminished sharply from 2018. According to S&P
Capital IQ, total new US CLO issuance in 2019 was $118 billion as compared to $129 billion of new issuance
in 2018. In early 2020, however, the market saw a sharp tightening for most classes of CLO debt versus year
end levels and several deals refinanced their cost of debt to lower levels.
The Company’s CLO and warehousing portfolio generated cash flow of USD 28.5m and a net return of about
USD 3.35m in 2019. The Company converted three warehouses into CLOs and generated about USD 6.275m
in carry during the year. While CLO distributions remained strong, prices of CLO equity and mezzanine
tranches and liquidity remained poor. Management took some advantage of the lower prices and lack of
liquidity to purchase some long reinvestment period and clean CLO equity positions in Q4 of 2019.
At the same time, the Company evaluated the impact of higher loan price volatility and the late cycle
behaviour in the credit markets and focused on reducing risk and improving its liquidity and cash position.
As of year-end 2019, the Company had USD 56.5m in cash and no debt. Further, about 91% of the portfolio
by market value was invested in CLOs with over two years of reinvestment period remaining.
As of the end of the year 2019, all of the Company’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 through recycling old CLOs into new or
refinancing them with extended reinvestment periods, as well as conducting relative value and opportunistic
trading.
While default rates continue to stay below historical averages and only a small percentage of the loans in
the Company’s CLO portfolio matures before 2021, management expects credit markets to remain volatile
in the near future. Although management maintains a positive view on the CLO portfolio, its near to mid-
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.
Annual Report 2019
14
The Company’s CLO portfolio is divided into the following geographical areas:
US CLOs
2019
Amount
US $000
98,418
98,418
Percentage
100.00%
100%
2018
Amount
US $000
97,081
97,081
Percentage
100.00%
100%
Private Equity Funds
The other private equity investments held by the Company are incorporated in the form of Managed Funds
(mostly closed end funds) mainly in Israel and the emerging economies. The investments of these funds
into their portfolio companies were mostly done in 2008 and 2009. The Company expects material exits of
portfolio companies from funds to materialize over the next couple of years.
The following summarizes the book value of the private equity funds as at year-end 2019
Name
Evolution Venture (Israel)
Elephant Capital (India)
Panda Capital (China)
Da Vinci (Russia)
Other investments
Total
Book Value US $m
3.4
0.7
0.3
0.1
1.7
6.2
Evolution Venture: Evolution is an Israel focused Venture Capital fund. It invests in early stage
technology companies. Its main asset is its investment in a virtualization technology company,
which continues to perform well.
Elephant Capital: India-focused private equity fund, which was AIM quoted (Ticker: ECAP). 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.
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.
The following table reconciles the review of activities to the Company’s financial assets as of 31
December 2019
15
Name
Financial Portfolio
Private Equity Funds
Total
Financial assets at fair value through profit or loss (note 4)
Financial assets at fair value through other comprehensive
income (note 5)
Total
2019
Book Value US $m
101.2
6.2
107.4
101.2
6.2
107.4
Events after the reporting date
Details of materials events after the reporting date are disclosed in note 26 to the financial
statements.
Litigation
At the time of this Report, there is one matter in litigation that the Company is involved in. Further
information is provided in note 24 to the financial statements.
Annual Report 2019
16
Report of the Directors
The Directors submit their annual report and audited financial statements of the Company for the
year ended 31 December 2019.
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 Company’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 64), Non-Executive Director, Chairman of the Board
Richard joined the Company 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 53), Founder and Chief Executive Officer
Noam founded the Company in July 1998, to develop a specialist online marketing operation. Noam
has led the growth and development of the Company’s operations over the last twenty 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 52), 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
18 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 an LLB (LAW) and BA in Economics from
Tel Aviv University. Ron is also the founder and owner of the Israel Cycling Academy a non-profit
professional cycling team.
Augoustinos Papathomas (age 57), Non-Executive Director
Augoustinos joined the Board in February 2019. He is a trained and qualified UK Chartered
Accountant. He is the senior Partner of APP Audit and APP Advisory in Cyprus with over 30 years
of experience in assurance, taxation and advisory for local and international clients. He is also an
insolvency practitioner with experience in many liquidations and receiverships. Augoustinos has
served as a director in various bodies and organisations and currently he is the chairman of the
Famagusta Chamber of Commerce and Industry in Cyprus.
17
Directors’ responsibilities in relation to the financial statements
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with
applicable law and International Financial Reporting Standards as adopted by the European Union.
The Directors are required to prepare financial statements for each financial year which give a true and fair
view of the financial position of the Company, and its financial performance and cash flows for that period.
In preparing these 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 financial statements on the going concern basis unless it is inappropriate to
presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records that are sufficient to show and
explain the Company’s transactions, and at any time enable the financial position of the Company
to be determined with reasonable accuracy and enable them to ensure that the 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 Company 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 Company’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.
Annual Report 2019
18
Substantial Shareholdings
As at 24 April 2020 the Directors are aware of the following interests in 3 per cent or more of the
Company’s issued ordinary share capital:
Groverton Management Ltd
Ron Baron
Number of Ordinary
Shares
% of issued ordinary
share capital
133,936,588
25,456,903
76.62
14.56
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 23 to the financial statements.
19
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.
The Board Constitution and Procedures
The Company is controlled through the Board of Directors, which comprised one Non-Executive
Director until the appointment of a new Non-Executive Director in February 2019 and two Executive
Directors. The Chief Executive’s responsibility is to focus on co-ordinating the company’s business and
implementing Company 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 Company, 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. This committee had one member until the appointment of a new Non-Executive
Director in February 2019. 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. This committee had one member until the
appointment of a new Non-Executive Director in February 2019. The duties of the Committee include
monitoring the auditor’s performance and reviewing accounting policies and financial reporting
procedures.
Annual Report 2019
20
The Quoted Company Alliance (QCA) Code
The Directors recognise the importance of good corporate governance and have chosen to apply
the Quoted Companies Alliance Corporate Governance Code (the ‘QCA Code’). The QCA Code was
developed by the QCA in consultation with a number of significant institutional small company
investors, as an alternative corporate governance code applicable to AIM companies. The underlying
principle of the QCA Code is that “the purpose of good corporate governance is to ensure that the
company is managed in an efficient, effective and entrepreneurial manner for the benefit of all
shareholders over the longer term”. The Directors anticipate that whilst the Company will continue
to comply with the QCA Code, given the Group’s size and plans for the future, it will also endeavour
to have regard to the provisions of the UK Corporate Governance Code as best practice guidance to
the extent appropriate for a company of its size and nature. To see how the Company addresses the
key governance principles defined in the QCA Code please refer to the table listed on the Company’s
website, which was last reviewed and updated in February 2020.
A complete index of the disclosures required by the QCA Code, including those on the Company’s
website, can be found at http://www.livermore-inv.com/CorporateGovernance.
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 Company’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 Company 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 Company operates a sound system of internal control, which is designed to ensure that the risk
of misstatement or loss is kept to a minimum.
Given the Company’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 Company is of an appropriate size.
The Board undertakes a review of its internal controls on an ongoing basis.
21
Going Concern
The Directors have reviewed the current and projected financial position of the Company, making
reasonable assumptions about interest and distribution income, future trading performance, valuation
projections and debt requirements. On the basis of this review, the Directors have a reasonable
expectation that the Company has 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.
Annual Report 2019
22
Remuneration Report
The Directors’ emoluments, benefits and shareholdings during the year ended 31 December 2019
were as follows:
Directors’ Emoluments
Each of the Directors has a service contract with the Company.
Total emoluments
2019
US $000
2018
US $000
82
745
131
945
Reward
payments
US $000
25
300
1,100
1,450
4,654
-
30
-
Director
Date of
agreement
Fees
US $000
Benefits
US $000
Richard Barry
Rosenberg
10/06/05
Noam Lanir
10/06/05
Ron Baron
01/09/07
Augoustinos
Papathomas
01/02/19
57
400
350
30
-
45
-
-
The dates are presented in day / month / year format.
Directors’ Interests
Interests of Directors in ordinary shares
Notes
As at 31 December 2019
As at 31 December 2018
Number of
Ordinary
Shares
Percentage of
ordinary share
capital
Number of Ordinary
Shares
Percentage of
ordinary share
capital
Noam Lanir
a)
133,936,588
76.620%
133,936,588
76.620%
Ron Baron
25,456,903
14.560%
25,456,903
14.560%
Richard
Barry Rosenberg
Notes:
15,000
0.01%
15,000
0.01%
a) Noam Lanir has his interest in ordinary shares by virtue of the fact that he owns directly
23
or indirectly all of the issued share capital of Groverton Management Limited. Further
information is provided in note 23 to the financial statements.
Remuneration Policy
The Company’s policy has been designed to ensure that the Company has the ability to attract, retain and
motivate executive Directors and other 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 Company’s stated purpose to maximize
long-term shareholder value
the remuneration structure will reflect a just system of rewards for the participants
the overall quantum of all potential remuneration components will be determined by the exercise
of informed judgement of the independent remuneration committee, taking into account the
success of the Company 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 Company, will be
taken into account, especially when determining annual salary increases.
•
•
•
•
•
Annual Report 2019
24
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 Company operates, and include economic recession, declining corporate
profitability, higher corporate default rates and lower than historical recoveries, rising inflation and
interest rates and excessive stock-market speculation.
The Company’s portfolio is exposed to interest rate changes, credit risk, liquidity risk and volatility
particularly in the US. 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 emerging markets are exposed to governmental and regulatory risks.
The mitigation of these risks is achieved by following micro and macroeconomic trends and changes,
regular monitoring of underlying assets and price movements and investment diversification. The
Company also engages from time to time in certain hedging activities to mitigate these risks.
In March 2020, the World Health Organisation recognised that coronavirus (COVID-19) was in the
state of a pandemic. The Company continues to monitor the COVID-19 pandemic situation closely,
with a focus on the impact on the Company’s CLO and US senior secured loan portfolios. The spread
of the virus, government policy responses and changing demand patterns are expected to have a
negative impact on the operations and earnings of some of the borrowers in the CLO portfolio. The
Company has been in close contact with managers of its individual CLO positions and is tracking the
level of rating downgrades of underlying loans to CCC+/Caa rating and a worsening default outlook.
A significant concentration of CCC+/Caa rated loans can turn off the distributions to the equity and
lower mezzanine tranches of CLOs and would result in significant drop in the market values of those
CLO portfolio constituents. The full extent of the impact will depend on the length and severity of the
crisis and is expected to vary widely between sectors and companies.
The Company has been positioned very conservatively for several months with high liquidity and cash
reserves (in excess of USD 60m as of 31 March 2020) and a CLO portfolio that consists largely of CLOs
with long reinvestment periods, which should benefit somewhat from the volatility in the market. The
Company has no debt.
Internal risks to shareholders and their returns are related to Portfolio risks (investment and geography
selection and concentration), balance sheet risk (gearing) and/or investment mismanagement risks.
The Company’s portfolio has a significant exposure to senior secured loans of US companies and
therefore has a concentration risk to this asset class.
A periodic internal review is performed to ensure transparency of Company activities and investments.
All service providers to the Company are regularly reviewed. The mitigation of the risks related to
investments is effected by investment restrictions and guidelines and through reviews at Board Meetings.
As the portfolio of the Company is currently invested in USD denominated assets, movements in other
currencies are expected to have a limited impact on the business.
On the asset side, the Company’s exposure to interest rate risk is limited to the interest-bearing
25
deposits and portfolio of bonds and loans in which the Company invests. Currently, the Company is
primarily invested in sub-investment grade corporate loans through CLOs, which exposes the Company
to credit risk (defaults and recovery rates, loan spreads over base rate) as well as liquidity risks in the
CLO market.
Management monitors liquidity to ensure that sufficient liquid resources are available to the Company.
The Company’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 27 of the financial statements.
Share Capital
There was no change in the authorised share capital during the year to 31 December 2019. The
authorised share capital is 1,000,000,000 ordinary shares with no par value.
Related party transactions
Details of any transactions of the Company with related parties during the year to 31 December
2019 are disclosed in note 23 to the financial statements.
By order of the Board of Directors
Chief Executive Officer
19 May 2020
Annual Report 2019
26
Independent Auditor’s Report to the
Members of Livermore Investments
Group Limited
(cid:0)
(cid:1)
(cid:2)
(cid:3)
(cid:2)
(cid:4)
(cid:3)
We have audited the consolidated financial statements of Livermore Investments Group Limited
(the ‘’Company’’) and its subsidiaries Livermore Investments Cyprus Limited and Livermore Capital
AG (the ‘’Group’’), which are presented in pages 32 to 68 and comprise the consolidated statement
of financial position as at 31 December 2019, and the consolidated statements of profit or loss,
comprehensive income, changes in equity and cash flows for the year then ended, and 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 2019, and of its consolidated
financial performance and its consolidated cash flows for the year then ended in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the European Union.
(cid:5)
(cid:6)
(cid:7)
(cid:2)
(cid:7)
(cid:8)
(cid:4)
(cid:9)
(cid:0)
(cid:1)
(cid:2)
(cid:3)
(cid:2)
(cid:4)
(cid:3)
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our
responsibilities under those standards are further described in the ‘’Auditor’s Responsibilities for
the Audit of the Consolidated Financial Statements’’ section of our report. We are independent
of the Group in accordance with the International Ethics Standards Board for Accountants’
International Code of Ethics for Professional Accountants (including International Independence
Standards) (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 opinion.
(cid:10)
(cid:11)
(cid:1)
(cid:12)
(cid:6)
(cid:7)
(cid:2)
(cid:7)
(cid:4)
(cid:8)
(cid:13)
(cid:6)
(cid:14)
(cid:14)
(cid:15)
(cid:9)
(cid:16)
(cid:17)
(cid:3)
(cid:18)
(cid:9)
(cid:2)
(cid:3)
(cid:0)
(cid:19)
(cid:18)
(cid:4)
(cid:4)
(cid:15)
(cid:14)
(cid:6)
(cid:14)
(cid:11)
(cid:15)
(cid:8)
(cid:6)
(cid:20)
(cid:15)
(cid:21)
(cid:6)
(cid:22)
(cid:23)
(cid:22)
(cid:6)
(cid:2)
(cid:11)
We draw attention to note 24 of the consolidated financial statements which describes the
uncertainty outcome of a legal claim against one of the custodian banks that the Group and the
Company uses on its behalf. Our opinion is not modified in respect of this matter.
27
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. This is
not a complete list of all risks identified by our audit.
Investments’ valuation Level 3
Refer to note 7 of the consolidated financial statements.
The Key audit matter
How the matter was addressed in our audit
The Group has financial assets of $12m
classified within fair value hierarchy at level 3,
as disclosed in note 7. 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 significant judgments by the
Directors, 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.
Our audit work included, but was not restricted to:
discussing and obtaining an understanding of
•
the valuation methodologies applied by the
directors and assessing their appropriateness
for each investment;
•
•
•
obtaining third party confirmations indicating
the NAV/Fair value of the investments and
comparing to clients’ records; and evaluating
the independent professional valuer’s
competence, capabilities and objectivity;
in cases where the valuations have been
performed by the directors, evaluating the
reasonableness of the underlying assumptions
and verifying the inputs used; as from reliable
third – party sources; and
considering the adequacy of consolidated
financial statement disclosures in relation to
the valuation methodologies used for each
class of level 3 financial assets.
Key observations
We concluded that the judgements and estimates
used by the management in determining the Fair
value of investments were reasonable and the
disclosures made in relation to these matters in the
consolidated financial statements were appropriate.
Annual Report 2019
28
(cid:0)
(cid:14)
(cid:12)
(cid:15)
(cid:9)
(cid:24)
(cid:3)
(cid:4)
(cid:9)
(cid:2)
(cid:4)
(cid:3)
(cid:8)
(cid:11)
(cid:6)
(cid:14)
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, 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.
(cid:25)
(cid:15)
(cid:7)
(cid:7)
(cid:1)
(cid:4)
(cid:3)
(cid:2)
(cid:26)
(cid:2)
(cid:2)
(cid:22)
(cid:14)
(cid:2)
(cid:15)
(cid:7)
(cid:4)
(cid:8)
(cid:14)
(cid:12)
(cid:15)
(cid:5)
(cid:6)
(cid:8)
(cid:28)
(cid:15)
(cid:14)
(cid:7)
(cid:8)
(cid:4)
(cid:9)
(cid:27)
(cid:4)
(cid:2)
(cid:9)
(cid:18)
(cid:4)
(cid:9)
(cid:4)
(cid:9)
(cid:14)
(cid:12)
(cid:15)
(cid:23)
(cid:4)
(cid:3)
(cid:7)
(cid:4)
(cid:22)
(cid:2)
(cid:27)
(cid:6)
(cid:14)
(cid:15)
(cid:27)
(cid:29)
(cid:2)
(cid:3)
(cid:3)
(cid:18)
(cid:2)
(cid:3)
(cid:6)
(cid:6)
(cid:22)
(cid:30)
(cid:14)
(cid:6)
(cid:14)
(cid:15)
(cid:11)
(cid:15)
(cid:14)
(cid:7)
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.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
(cid:31)
(cid:19)
(cid:27)
(cid:2)
(cid:14)
(cid:4)
(cid:9)
(cid:7)
(cid:25)
(cid:15)
(cid:7)
(cid:7)
(cid:1)
(cid:4)
(cid:3)
(cid:2)
(cid:26)
(cid:2)
(cid:22)
(cid:2)
(cid:14)
(cid:2)
(cid:15)
(cid:7)
(cid:8)
(cid:4)
(cid:9)
(cid:14)
(cid:12)
(cid:15)
(cid:31)
(cid:19)
(cid:27)
(cid:2)
(cid:14)
(cid:4)
(cid:8)
(cid:14)
(cid:15)
(cid:23)
(cid:12)
(cid:4)
(cid:3)
(cid:7)
(cid:4)
(cid:22)
(cid:2)
(cid:27)
(cid:6)
(cid:14)
(cid:15)
(cid:27)
(cid:29)
(cid:2)
(cid:3)
(cid:3)
(cid:18)
(cid:2)
(cid:3)
(cid:6)
(cid:6)
(cid:22)
(cid:30)
(cid:14)
(cid:6)
(cid:14)
(cid:15)
(cid:11)
(cid:15)
(cid:14)
(cid:7)
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 ISAs, 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.
29
•
•
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,
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
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.
regarding
financial
the
We communicate with the those charged with governance regarding, among other matters, the
planned scope and timing of the audit and significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our independence, and where applicable,
related safeguards.
From the matters communicated with those charged with governance, we determine those matters
that were of most significance in the audit of the 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.
(cid:0)
(cid:14)
(cid:12)
(cid:15)
(cid:9)
(cid:13)
(cid:6)
(cid:14)
(cid:14)
(cid:15)
(cid:9)
This report, including the opinion, has been prepared for and only for the Group’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 Mrs Froso
Yiangoulli.
Annual Report 2019
30
Froso Yiangoulli
Certified Public Accountant and Registered Auditor
for and on behalf of
Grant Thornton (Cyprus) Ltd
Certified Public Accountants and Registered Auditors
Nicosia, 19 May 2020
31
Livermore Investments Group Limited
Consolidated Statement of Financial Position as at 31 December 2019
Note
2019
US $000
2018
US $000
Assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Financial assets at fair value through profit or loss
Financial assets at fair value
through other comprehensive income
Investments in subsidiaries
Current assets
Trade and other receivables
Financial assets at fair value through profit or loss
Financial assets at fair value through other
comprehensive income
Cash and cash equivalents
Total assets
Equity
Share capital
Share premium
Other reserves
Retained earnings
Total equity
Liabilities
Non-current liabilities
Lease liability
Current liabilities
Trade and other payables
Lease liability – current portion
Current tax payable
Total liabilities
Total equity and liabilities
Net asset value per share
4
5
8
9
4
5
10
11
11
13
45
329
98,418
6,204
5,787
110,783
8,251
2,837
-
56,499
67,587
21
-
97,081
6,387
5,205
108,694
3,168
41,067
1,117
26,214
71,566
178,370
180,260
-
169,187
(20,598)
24,491
-
169,187
(20,279)
25,425
173,080
174,333
248
-
4,907
83
52
5,042
5,927
-
-
5,927
5,290
178,370
5,927
180,260
Basic and diluted net asset value per share (US $)
15
0.99
1.00
These financial statements were approved by the Board of Directors on 19 May 2020.
The notes 1 to 28 form part of these consolidated financial statements.
Annual Report 2019
32
Livermore Investments Group Limited
Consolidated Statement of Profit or Loss for the year ended 31 December 2019
Investment income
Interest and distribution income
Changes in value of investments
Note
17
18
2019
US $000
2018
US $000
29,028
31,541
(25,358)
(17,380)
3,670
14,161
Operating expenses
19
(5,132)
(8,973)
Operating (loss) / profit
Finance costs
Finance income
(Loss) / profit before taxation
Taxation charge
(Loss)/ profit for the year
(Loss) / earnings per share
20
20
21
(1,462)
(18)
550
(930)
(151)
(1,081)
5,188
(245)
233
5,176
(14)
5,162
Basic and diluted (loss) / earnings per share ( US $)
22
(0.006)
0.03
The (loss) / profit for the year is wholly attributable to the owners of the parent.
The notes 1 to 28 form part of these consolidated financial statements.
33
Livermore investments Group Limited
Consolidated Statement of Comprehensive Income for the year ended 31 December 2019
(Loss) / profit for the year
Other comprehensive income:
Items that will be reclassified subsequently to profit or loss
Foreign exchange gains 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) / gains
•
capital return
2019
US $000
2018
US $000
(1,081)
5,162
9
12
(181)
-
313
1,400
Total comprehensive (loss) / income for the year
(1,253)
6,887
The total comprehensive (loss) / income for the year is wholly attributable to the owners of the parent.
The notes 1 to 28 form part of these consolidated financial statements.
Annual Report 2019
34
Livermore Investments Group Limited
Consolidated Statement of Changes in Equity for the year ended 31 December 2019
Note
Share
capital
US
$000
Share
premium
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 2018
Dividends
Transfer on expiry of options
Transactions with owners
Profit for the year
Other comprehensive income:
Financial assets at fair value
through OCI
•
•
fair value gains
capital return
Foreign exchange gains on
Translation of subsideiaries
Transfer of realised losses
Total comprehensive income for the year
Balance at 31 December 2018
Loss for the year
Other comprehensive income:
Financial assets at fair value
through OCI - fair value losses
Foreign exchange gains on
translation of subsidiaries
Transfer of realised gains
Total comprehensive loss for the year
Balance at 31 December 2019
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
169,187
-
-
-
-
-
-
-
-
-
-
-
-
-
-
169,187
169,187
77
-
(77)
(77)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12
-
12
12
-
-
9
-
9
(38,055)
44,236
175,445
-
-
-
-
(7,999)
(7,999)
77
-
(7,922)
(7,999)
5,162
5,162
313
1,400
-
-
-
-
16,051
(16,051)
313
1,400
12
-
17,764
(10,889)
6,887
(20,291)
25,425
174,333
-
(1,081)
(1,081)
(181)
-
(147)
(328)
-
-
147
(181)
9
-
(934)
(1,253)
21
(20,619)
24,491
173,080
(cid:100)(cid:346)(cid:286)(cid:3)(cid:374)(cid:381)(cid:410)(cid:286)(cid:400)(cid:3)(cid:1005)(cid:3)(cid:410)(cid:381)(cid:3)(cid:1006)(cid:1012)(cid:3)(cid:296)(cid:381)(cid:396)(cid:373)(cid:3)(cid:393)(cid:258)(cid:396)(cid:410)(cid:3)(cid:381)(cid:296)(cid:3)(cid:410)(cid:346)(cid:286)(cid:400)(cid:286)(cid:3)(cid:272)(cid:381)(cid:374)(cid:400)(cid:381)(cid:367)(cid:349)(cid:282)(cid:258)(cid:410)(cid:286)(cid:282)(cid:3)(cid:302)(cid:374)(cid:258)(cid:374)(cid:272)(cid:349)(cid:258)(cid:367)(cid:3)(cid:400)(cid:410)(cid:258)(cid:410)(cid:286)(cid:373)(cid:286)(cid:374)(cid:410)(cid:400)(cid:856)(cid:3)
35
Livermore Investments Group Limited
Consolidated Statement of Cash Flows for the year ended 31 December 2019
Cash flows from operating activities
(Loss) / profit before tax
(930)
5,176
Note
2019
US $000
2018
US $000
Adjustments for
Depreciation
Interest expense
Interest and distribution income
Bank interest income
Changes in value of investments
Exchange differences
20
17
20
18
20
Changes in working capital
(Increase) / decrease in trade and other receivables
(Decrease) / increase in trade and other payables
Cash flows from operations
Interest and distributions received
Tax paid
Net cash from operating activities
Cash flows from investing activities
Acquisition of investments
Proceeds from sale of investments
Proceeds from capital return
Net cash used in investing activities
Cash flows from financing activities
Lease liability payments
Interest paid
Dividends paid
Net cash used in financing activities
98
18
8
30
(29,028)
(31,541)
(437)
25,358
(113)
(5,034)
(5,391)
(1.020)
(11,445)
29,756
(98)
18,213
(50,200)
62.273
-
12,073
(96)
(18)
-
(114)
(233)
17,380
215
(8,965)
2,576
1,950
(4,339)
31,748
(14)
27,295
(120,027)
91,623
1,400
(27,004)
-
(30)
(7,999)
(8,029)
Annual Report 2019
36
Note
2019
US $000
2018
US $000
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Exchange differences on cash and cash equivalents
Translation differences on foreign operations’ cash and
cash equivalents
30,172
26,214
113
(7,738)
34,175
(215)
(8)
Cash and cash equivalents at the end of the year
10
56,499
26,214
The notes 1 to 28 form part of these consolidated financial statements.
37
Notes on the Consolidated
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. During 2019 the Company became a tax resident in the Republic of Cyprus.
1.6. 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 (“the financial statements”) of Livermore Investments
Group Limited have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as adopted by the European Union. The 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 basis.
The financial information is presented in US dollars because this is the currency in which the
Company primarily operates (i.e. the Company’s functional currency).
References to the Company hereinafter also include its consolidated subsidiaries (note 8).
The Directors have reviewed the accounting policies used by the Company and consider them
to be the most appropriate.
3. Accounting Policies
The significant accounting policies applied in the preparation of the financial statements are
as follows:
3.1. Adoption of new and revised IFRS
As from 1 January 2019, the Company adopted any applicable new or revised IFRS and
relevant amendments which became effective, and also were endorsed by the European Union.
The Company has applied IFRS 16 ‘Leases’ since its date of initial application, being 1
January 2019. IFRS 16 replaces IAS 17 ‘Leases’ along with three Interpretations (IFRIC
4 ‘Determining whether an Arrangement contains a Lease’, SIC 15 ‘Operating Leases-
Annual Report 2019
38
Incentives’ and SIC 27 ‘Evaluating the Substance of Transactions Involving the Legal Form
of a Lease’).
The Company recognised on 1 January 2019 a right-of-use asset and a related lease liability
in connection with a former operating lease, with a remaining lease term at that date of
5 years. The right-of-use asset at that date has been measured at USD 411,041 equal to
the lease liability, without including any initial direct costs. For a second former operating
lease that has a short-term lease term, the Company elected to recognise the lease expense
on a straight-line basis over the lease term.
IFRS 16 has been applied using the modified retrospective approach. No adjustment to
opening retained earnings occurred. Prior periods have not been restated.
The adoption of the above at 1 January 2019, including IFRS 16, did not have any material
effect on the financial statements.
The following IFRS (including relevant amendments and interpretations) had been issued
by the date of authorisation of these financial statements but are not yet effective, or have
not yet been endorsed by the EU, for the year ended 31 December 2019:
• Amendment to
IFRS 3: “Definition of a
Business”
Endorsed by
the EU
Effective date
(IASB)
No
1 January 2020
• Amendments to IFRS 9, IAS 39 and IFRS17:
“Interest Rate Benchmark Reform”
Yes
1 January 2020
• Amendment to IFRS 10, and IAS 28: “Sale or
Contribution of Assets between an Investor
and its Associate or Joint Venture”
•
•
IFRS 14: “Regulatory Deferral Accounts”
IFRS 17: “Insurance Contracts”
• Amendment
to
IAS 1: “Classification of
Liabilities as Current or Non-current”
No
No
No
No
to be
determined
1 January 2016
1 January 2021
1 January 2022
• Amendments to IAS 1 and IAS 8: “Definition of
Material”
Yes
1 January 2020
• Amendments to References to the Conceptual
Framework in IFRS Standards
Yes
1 January 2020
The Board of Directors expects that when the above Standards or Interpretations become
effective in future periods, they will not have any material effect on the financial statements.
3.2. Investments in subsidiaries and basis of consolidation
Subsidiaries are entities controlled either directly or indirectly by the Company.
39
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 Directors have determined that Livermore meets the definition of an investment entity,
as this is defined in IFRS 10 “Financial Statements”. As per IFRS 10 an investment entity is
an entity that:
(a) obtains funds from one or more investors for the purpose of providing those investors with
(b)
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
(c) measures and evaluates the performance of substantially all of its investments on a fair
value basis.
An investment entity is exempted from consolidating its subsidiaries, unless any subsidiary
which is not itself an investment entity mainly provides services that relate to the investment
entity’s investment activities. The financial statements consolidate the Company and its
subsidiaries providing such services (note 8 shows further details of the consolidated and
unconsolidated subsidiaries).
Investments in unconsolidated 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 unconsolidated subsidiaries are recognised as
income when the Company’s right to receive payment has been established.
A subsidiary that is not an investment entity itself and 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.
The financial statements of the consolidated subsidiaries are prepared using uniform
accounting policies. Where necessary, adjustments are made to the financial statements
of consolidated subsidiaries to bring their accounting policies into line with those used by
the Company. All consolidated 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 consolidated subsidiaries acquired or disposed of during
the year are consolidated from the effective date of acquisition or up to the effective date
of disposal.
3.3. Current assets are those which, in accordance with IAS 1 Presentation of Financial
Statements are:
• expected to be realised within the Company’s 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
Annual Report 2019
40
• cash and cash equivalents not restricted in their use.
All other assets are non-current.
3.4. Interest and distribution income
•
•
Interest income is recognised based on the effective interest method.
Distribution 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.
3.5. Foreign currency
The financial statements of the Company are presented in USD, which is the currency of
the primary economic environment in which it operates (its functional currency).
Transactions in foreign currencies 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 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 as part of the fair value gain or loss except for differences arising
on the re-translation of non-monetary financial assets designated at fair value through
other comprehensive income 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 consolidated subsidiaries that have a functional
currency different from US dollars are translated into the presentation currency as follows:
(a) assets and liabilities are translated at the closing rate at the reporting date;
(b)
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
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
(c)
3.6. Taxation
Current tax is the tax currently payable based on taxable profit for the year in accordance
with the tax laws applicable and enacted.
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.
3.7. Equity instruments
Equity instruments issued by the Company are recorded at proceeds received, net of direct issue costs.
The share premium account includes any premiums received on the initial issuing of the
41
share capital. Any transaction costs associated with the issuing of shares are deducted
from the premium received.
3.8. Financial assets
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:
(a) those to be measured at fair value (either through other comprehensive income, or through
profit or loss), and
(b) those to be measured at amortised cost.
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:
(a) equity investments that are held for trading;
(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
Annual Report 2019
42
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.
The classification of debt instruments 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.
Impairment
The Company assesses the expected credit losses associated with its assets carried at
amortised cost, on a forward-looking basis. 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.
3.9. 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.
3.10. 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.
Any 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.
3.11. Segment reporting
In making investment decisions, Management assesses individual investments and then, in
analysing their performance, it receives and uses information for each investment product
43
separately rather than based on any segmental information. Given that, Management
regards that the Company’s activities fall under a single operating segment.
3.12. 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 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 judgements
(i)
Classification of financial assets
Management exercises significant judgement 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 financial assets 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.
(ii) Consolidation of subsidiaries
Management exercised significant judgment in determining which of the subsidiaries
that are not investment entities themselves, provide services that relate to the Company’s
investment activities and therefore need to be consolidated rather than included within
the investments in subsidiaries measured at fair value through profit or loss.
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 7. In applying the valuation techniques management
makes maximum use of market inputs, and uses estimates and assumptions that are, as far
as possible, consistent with observable data that market participants would use in pricing
the instrument. Where applicable data is not observable (level 3), management uses its
best estimates which may vary from the actual prices that would be achieved in an arm’s
Annual Report 2019
44
length transaction at the reporting date. Further information on level 3 valuations of
financial assets is provided in note 7.2.
4. Financial assets at fair value through profit or loss
Non-current assets
Fixed income investments (CLOs)
Current assets
Fixed income investments
Public equity investments
2019
US $000
2018
US $000
98,418
98,418
1,127
1,710
2,837
97,081
97,081
39,590
1,477
41,067
For description of each of the above categories, refer to note 6.
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.
5. Financial assets at fair value through other comprehensive income
Non-current assets
Private equities
Current assets
Hedge funds
2019
US $000
2018
US $000
6,204
6,387
-
1,117
For description of each of the above categories, refer to note 6.
The above investments are non-trading equity investments that have been designated at fair
value through other comprehensive income.
45
6. Financial assets at fair value
The Company allocates its non-derivative financial assets at fair value (notes 4 and 5) 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.
Public equity investments relate to investments in shares of companies listed on public
stock exchanges.
Hedge funds relate to equity investments in funds managed by sophisticated investment
managers that pursue investment strategies with the goal of generating absolute returns.
•
•
•
7. Fair value measurements of financial assets and liabilities
The table in note 7.2 presents financial assets and liabilities 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.
7.1 Valuation of financial assets
•
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 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
Annual Report 2019
46
other loans which may have different spreads and maturities. CLOs that are beyond their
reinvestment period typically pay down their senior liabilities from proceeds of such
pre-payments. Therefore, the rate at which the underlying collateral prepays impacts the
future cash flows that the CLO may generate.
Reinvestment assumptions: A CLO within its reinvestment period may reinvest proceeds
from loan maturities, prepayments, and recoveries into purchasing additional loans.
The reinvestment assumptions define the characteristics of the loans that a CLO may
reinvest in. These assumptions include the spreads, maturities, and prices of such loans.
Reinvestment into loans with higher spreads and lower prices will lead to higher cash
flows. Reinvestment into loans with lower spreads will typically lead to lower cash flows.
Discount rate: The discount rate indicates the yield that market participants expect to receive
and is used to discount the projected future cash flows. Higher yield expectations or discount
rates lead to lower prices and lower discount rates lead to higher prices for CLOs.
•
Private Equities are valued using market valuation techniques as determined by the
Directors, mainly on the basis of valuations reported by third-party managers of such
investments. Real Estate 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.
• 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.
•
Investments in subsidiaries are valued at fair value as determined on an adjusted net
asset valuation basis.
7.2 Fair value hierarchy
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:
2019
US
$000
Level 1
2019
US
$000
Level 2
2019
US
$000
Level 3
2019
US
$000
Total
2018
US
$000
Level 1
2018
US
$000
Level 2
2018
US
$000
Level 3
2018
US
$000
Total
1,127
98,418
-
99,545
1,100
97,081
38,490
136,671
-
-
-
-
6,204
-
-
6,204
1,710
-
5,787
5,787
-
1,477
-
-
-
-
1,117
6,387
-
-
6,387
1,477
1,117
-
5,205
5,205
Assets
Fixed income
investments
Private equities
-
Public equity investments
1,710
Hedge funds
Investments in
subsidiaries
-
-
Liabilities
-
-
-
-
-
-
-
-
2,837
98,418
11,991
113,246
2,577
98,198
50,082
150,857
The methods and valuation techniques used for the purpose of measuring fair value are
unchanged compared to the previous reporting year.
No financial assets or liabilities have been transferred between different levels.
47
Financial assets within level 3 can be reconciled from beginning to ending balances as follows:
At fair value
through OCI
Private equities
US $000
At fair value
through
profit or loss
Fixed Income
investments
US $000
As at 1 January 2018
Purchases
Settlement
Gains / (losses)
recognised in:
-
Profit or loss
- Other
comprehensive
income
As at 1 January 2019
Purchases
Settlement
Gains / (losses)
recognised in:
-
Profit or loss
- Other
comprehensive
income
7,129
-
(1,055)
-
313
6,387
-
(33)
(150)
As at 31 December 2019
6,204
25,515
75,000
(62,500)
475
-
38,490
23,000
(60,500)
(990)
-
-
Investments in
subsidiaries
US $000
5,426
-
-
(221)
-
5,205
-
-
582
-
Total
US $000
38,070
75,000
(63,555)
254
313
50,082
23,000
(60,533)
(408)
(150)
5,787
11,991
Annual Report 2019
48
The above gains and losses recognised can be allocated as follows:
At fair value
through OCI
Private equities
US $000
At fair value
through
profit or loss
Fixed Income
investments
US $000
Investments in
subsidiaries
US $000
Total
US $000
-
-
313
313
990
(515)
-
(221)
-
-
475
(221)
769
(515)
313
567
At fair value
through OCI
Private equities
US $000
At fair value
through
profit or loss
Fixed Income
investments
US $000
Investments in
subsidiaries
US $000
Total
US $000
-
-
(150)
(150)
-
(990)
-
(990)
582
-
-
582
582
(990)
(150)
(558)
2018
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 gains / (losses) for 2018
2019
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 gains / (losses) for 2019
49
The Company has not developed any quantitative unobservable inputs for measuring the fair
value of its level 3 financial assets at 31 December 2019 and 2018. Instead the Company used
prices from third-party pricing information without adjustment.
Fixed income investments within level 3 represent open warehouses that have been valued
based on their net asset value. The net asset value of a warehouse is primarily driven by the
fair value of its underlying loan asset portfolio (as determined by the warehouse’s manager)
plus received and accrued interest less the nominal value of the financing and accrued interest
on the financing. In all cases, due to the nature and the short life of a warehouse, the carrying
amounts of the warehouses’ underlying assets and liabilities are considered as representative
of their fair values.
Private equities within level 3 represent investments in private equity funds. Their value has
been determined by each fund manager based on the funds’ net asset value. Each fund’s net
asset value is primarily driven by the fair value of its underlying investments. In all cases,
considering that such investments are measured at fair value, the carrying amounts of the
funds’ underlying assets and liabilities are considered as representative of their fair values.
Investments in subsidiaries have been valued based on their net asset position. The main
assets of the subsidiaries represent investments measured at fair value and receivables from
the Company itself. Their net asset value is considered as a fair approximation of their fair
value.
A reasonable change in any individual significant input used in the level 3 valuations is not
anticipated to have a significant change in fair values as above.
8.
Investments in subsidiaries
Unconsolidated subsidiaries
As at 1 January
Fair value gain / (loss)
As at 31 December
2019
US $000
2018
US $000
5,205
582
5,787
5,426
(221)
5,205
Annual Report 2019
50
Details of the investments in which the Company has a controlling interest as at 31 December
2019 are as follows:
Name of Subsidiary
Place of
incorporation
Holding
Voting
rights and
shares held
Principal
activity
Consolidated subsidiaries
Livermore Capital AG
Switzerland
Ordinary shares
100%
Livermore Investments
Cyprus Limited
Cyprus
Ordinary shares
100%
Unconsolidated subsidiaries
Livermore Properties Limited
Mountview Holdings Limited
British Virgin
Islands
British Virgin
Islands
Ordinary shares
100%
Ordinary shares
100%
Sycamore Loan Strategies Ltd Cayman Islands
Ordinary shares
100%
Livermore Israel Investments Ltd
Israel
Ordinary shares
100%
Sandhirst Limited
Cyprus
Ordinary shares
100%
Administration
services
Administration
services
Under
liquidation-
see below
Holding of
investments
Investment
vehicle
Investment
vehicle
Holding of
investments
Holding of
investments
Livermore Investments Cyprus Ltd during the period ceased its activities, and as a result
has been deconsolidated by 30 June 2019. The Directors’ intention is to dissolve it after
the reporting date. The fair value and the net asset value (no assets or liabilities) at
30 June 2019 is nil, therefore upon deconsolidation no amount has been added to the
investment in subsidiaries.
51
9. Trade and other receivables
Financial items
Accrued interest and distribution
income
Amounts due by related parties
(note 23)
Non-Financial items
Prepayments
VAT receivable
2019
US $000
2018
US $000
80
8,091
8,171
71
9
8,251
1
3,104
3,105
60
3
3,168
For the Company’s receivables of a financial nature, no lifetime expected credit losses and
no corresponding allowance for impairment have been recognised, as their default rates have
been determined to be close to 0%.
No receivable amounts have been written-off during either 2019 or 2018.
10. Cash and cash equivalents
Cash and cash equivalents included in the consolidated statement of cash flows comprise the
following at the reporting date:
Demand deposits
Short-term fixed deposits
Cash at bank
2019
US $000
41,499
15,000
56,499
2018
US $000
26,214
-
26,214
Annual Report 2019
52
11. 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
US $000
As at 31 December 2019 and 2018
174,813,998
169,187
12. Share options
The Company had a share option scheme under which it granted share options to employees
for acquiring ordinary shares of the Company. The options lapsed at the earliest of the expiry
date of exercise period or the termination of the corresponding employee’s service. The last
tranche of options lapsed unexercised during 2018.
13. Trade and other payables
Financial items
Trade payables
Amounts due to related parties (note 23)
Accrued expenses
2019
US $000
2018
US $000
23
4,468
416
4,907
44
5,488
395
5,927
14. Dividend
At 30 December 2019, the Board announced an interim dividend of USD 6m (USD 0.0343 per share)
to members on the register on 24 January 2020. The dividend was paid on 21 February 2020.
53
15. 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 in issue during the relevant
financial periods.
Net assets attributable to
ordinary shareholders (USD 000)
Closing number of ordinary
shares in issue
Basic net asset value per share
(USD)
2019
173,080
2018
174,333
174,813,998
174,813,998
0.99
1.00
The diluted net asset value per share equals the basic net asset value per share since no
potentially dilutive shares exist as at 31 December 2019 and 2018.
16. Segment reporting
The company’s activities fall under a single operating segment.
The Company’s investment income and its investments are divided into the following
geographical areas:
Investment Income
Other European countries
United States
India
Asia
Investments
Other European countries
United States
India
Asia
2019
US $000
(463)
5,096
(171)
(792)
3,670
2,215
100,235
716
10,080
113,246
2018
US $000
(217)
15,411
(89)
(944)
14,161
2,209
138,310
712
9,626
150,857
Investment income, comprising interest and distribution income as well as gains or losses on
investments, is allocated on the basis of the issuer’s location. Investments are also allocated
based on the issuer’s location.
The Company has no significant dependencies, in respect of its investment income, on any single issuer.
Annual Report 2019
54
17. Interest and distribution income
Interest from investments
Distribution income
2019
US $000
695
28,333
29,028
2018
US $000
101
31,440
31,541
Interest and distribution income is analysed between different categories of financial assets,
as follows:
2019
2018
Interest from
investments
US $000
Distribution
income
US $000
Total
US $000
Interest from
investments
US $000
Distribution
income
US $000
Total
US $000
Financial assets at
fair value through
profit or loss
Fixed income
investments
Public equity
investments
Financial assets at
fair value through
other comprehensive
income
Private equities
Financial assets at
amortised cost
Loan receivable
(note 23)
695
28,002
28,697
-
331
331
75
-
29,728
29,803
868
868
695
28,333
29,028
75
30,596
30,671
-
-
-
-
-
-
695
28,333
29,028
-
844
844
26
101
-
26
31,440
31,541
The Company’s distribution income derives from multiple issuers. The Company does not have
concentration to any single issuer.
55
18. Changes in value of investments
Fair value losses on financial
assets through profit or loss
Fair value gain / (loss) on
investment in subsidiaries
2019
US $000
(25,940)
582
(25,358)
2018
US $000
(17,159)
(221)
(17,380)
The investments disposed of had the following cumulative (i.e. from the date of their acquisition up to
the date of their disposal) financial impact in the Company’s net asset position:
Disposed in 2019
Disposed in 2018
Realised
(losses)/
gains*
Cumulative
distribution or
interest
Total
financial
impact
Realised
(losses)/
gains*
Cumulative
distribution
or interest
Total
financial
impact
US $000
US $000
US $000
US $000
US $000
US $000
(9,926)
19,839
9,913
(7,703)
31,875
24,172
Financial assets
at fair value
through profit or
loss
Fixed income
investments
Public equities
-
-
-
622
1
623
(9,926)
19,839
9,913
(7,081)
31,876
24,795
Financial assets
at fair value
through OCI
Private equities
147
(9,779)
301
448
20,140
10,361
(16,051)
(23,132)
1,777
(14,274)
33,653
10,521
* difference between disposal proceeds and original acquisition cost
Annual Report 2019
56
19. Operating expenses
Directors’ fees and expenses
Other salaries and expenses
Professional fees
Legal expenses
Bank custody fees
Office costs
Depreciation
Other operating expenses
Audit fees
2019
US $000
2,307
202
1,360
18
111
221
98
726
89
2018
US $000
5,730
156
1,896
27
104
382
8
588
82
5,132
8,973
Throughout 2019 the Company employed 4 members of staff (2018: 4). Two of those members are
the Company’s executive Directors.
Other salaries and expenses include USD 10,708 of social insurance and similar contributions (2018:
USD 13,445), as well as USD 4,898 of defined contributions plan costs (2018: USD 3,252).
20. Finance costs and income
Finance costs
Bank interest expense
Foreign exchange loss
Finance income
Bank interest income
Foreign exchange gain
2019
US $000
2018
US $000
18
-
18
437
113
550
30
215
245
233
-
233
57
21. Taxation
Current tax charge
2019
US $000
151
2018
US $000
14
The Company is a British Virgin Islands (BVI) international business company and until early
2019 was not subject to corporation tax, under the BVI laws. During 2019 the Company became
a tax resident in the Republic of Cyprus and since then it is subject to taxation under the tax
law and regulations in Cyprus.
The current tax charge relates to the results of the Company for 2019, as explained above, and
the Company’s consolidated subsidiaries in Switzerland and Cyprus (note 8).
22. (Loss) / earnings per share
The basic (loss) / earnings per share has been calculated by dividing the (loss) / profit for the year
attributable to ordinary shareholders of the Company by the weighted average number of ordinary
shares in issue of the Company during the relevant financial year.
(Loss) / profit for the year attributable
to ordinary shareholders of the parent
(USD 000)
Weighted average number of ordinary
shares outstanding
2019
(1,081)
2018
5,162
174,813,998
174,813,998
Basic earnings per share (USD)
(0.006)
0.03
The diluted (loss) / earnings per share equals the basic (loss) / earnings per share since no
potentially dilutive shares were in existence during 2019 and 2018.
Annual Report 2019
58
23. Related party transactions
The Company is controlled by Groverton Management Ltd, an entity owned by Noam Lanir, which
at 31 December 2019 held 76.62% (2018: 76.62%) of the Company’s voting rights.
2019
US $000
2018
US $000
Amounts receivable from unconsolidated
subsidiaries
Sandhirst Ltd
161
104
(1)
Amounts receivable from key management
Loan receivable
1,000
-
Amounts receivable from parent company
Loan receivable
6,930
3,000
Amounts payable to unconsolidated
subsidiaries
Livermore Israel Investments Ltd
(3,522)
(3,522)
Amounts payable to other related party
Loan payable
Amounts payable to key management
Directors’ current accounts
Other key management personnel
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
(149)
(7)
(790)
(797)
795
1,400
87
25
890
3,197
(149)
(1,105)
(712)
(1,817)
795
4,804
60
71
1,084
6,814
(2)
(3)
(4)
(5)
(4)
(6)
(7)
(8)
59
(1) The amounts receivable from unconsolidated subsidiaries and any Director’s current accounts with
debit balances are interest free, unsecured, and have no stated repayment date.
(2) A loan with a balance at 31 December 2019 of USD 1m was made during the year to a key
management employee and a Company’s Director. The loan is free of interest, is unsecured and is
repayable on demand. This loan is included within trade and other receivables (note 9).
(3) A loan with a balance at 31 December 2019 of USD 6.93m was made to the Company’s parent,
Groverton Management Ltd. The loan is free of interest, is unsecured and is repayable on demand.
This loan is included within trade and other receivables (note 9).
(4) The amounts payable to unconsolidated 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 2019 of USD 0.149m (31 December 2019: USD 0.149m) has
been received from a related company (under common control), Chanpak Ltd. The loan is free of
interest, is unsecured and is repayable on demand. This loan is included within trade and other
payables (note 13).
(6) The amount payable to other key management personnel relates to payments 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 the Directors.
(8) Other key management fees are included within professional fees (note 19).
No social insurance and similar contributions nor any other defined benefit contributions plan costs
were incurred for the Company in relation to its key management personnel in either 2019 or 2018.
Noam Lanir, through an Israeli partnership, is the major shareholder of Babylon Ltd, an Israel based
Internet Services Company. The Company as of 31 December 2019 held a total of 1.941m shares at
a value of USD 1.199m (2018: 0.618m shares at a value of USD 0.845m) which represents 4% of
its effective voting rights. The investment in Babylon Ltd is held through the Company’s subsidiary
Livermore Israel Investments Ltd.
24. Litigation
Fairfield Sentry Ltd vs custodian bank and beneficial owners
One of the custodian banks that the Company used 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. If the claim proves to be successful Livermore will have to compensate the custodian bank
since the transaction was carried on Livermore’s 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.
25. 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
2019.
Annual Report 2019
60
26. Events after the reporting date
In March 2020, the World Health Organisation recognised that coronavirus (COVID-19)
was in the state of pandemic. The Company continues to monitor the COVID-19 pandemic
situation closely, with a focus on the impact on the Company’s CLO and US senior secured
loan portfolios. The spread of the virus, government policy responses and changing demand
patterns are expected to have a negative impact on the operations and earnings of some of
the borrowers in the CLO portfolio. The Company has been in close contact with managers of
its individual CLO positions and is tracking the level of rating downgrades of underlying loans
to CCC+/Caa rating and a worsening default outlook. A significant concentration of CCC+/Caa
rated loans can turn off the distributions to the equity and lower mezzanine tranches of CLOs
and would result in significant drop in the market values of those CLO portfolio constituents.
The full extent of the impact will depend on the length and severity of the crisis and is
expected to vary widely between sectors and companies.
The Company has been positioned very conservatively for several months with high liquidity
and cash reserves (in excess of USD 60m as of 31 March 2020) and a CLO portfolio that
consists largely of CLOs with long reinvestment periods, which should benefit somewhat from
the volatility in the market. The Company has no debt.
In 2020 the Company invested an amount of USD 15m to a warehouse facility. Livermore’s
investment amount plus net carry amounting to a total of USD 16.5m became receivable in
March 2020.
There were no other material events after the end of the reporting year, which have a bearing
on the understanding of these financial statements.
27. Financial risk management objectives and policies
Background
The Company’s financial instruments comprise financial assets at fair value through profit or
loss, financial assets at fair value through other comprehensive income, and financial assets
and liabilities at amortised cost that arise directly from its operations. For an analysis of
financial assets and liabilities by category, refer to note 28.
Risk objectives and policies
The objective of the Company 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 Company.
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 Company in general does not hedge its
currency exposure. The Company discretionally and partially hedges against foreign currency
movements affecting the value of the investment portfolio based on its view on the relative
61
strength of certain currencies. Any hedging transactions represent economic hedges; the
Company 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 Company at 31 December 2019 is
the following:
2019
US $000
2019
US $000
2019
US $000
2018
US $000
2018
US $000
2018
US $000
Financial
assets
Financial
liabilities
Net value
Financial
assets
Financial
liabilities
Net value
British Pounds (GBP)
Euro
Swiss Francs (CHF)
Israel Shekels (ILS)
2,850
537
3,592
5,153
(138)
(62)
(129)
(3,522)
2,712
475
3,463
1,631
2,690
482
3,507
5,814
(140)
(27)
(50)
(3,522)
2,550
455
3,457
2,292
Total
12,132
(3,851)
8,281
12,493
(3,739)
8,754
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 2019 would have the following impact. A 10% decrease of the following
currencies against USD would have an approximately equal but opposite impact.
2019
US $000
2019
US $000
2018
US $000
2018
US $000
Profit or loss
Other
comprehensive
income
Profit or loss
Other
comprehensive
income
British Pounds (GBP)
Euro
Swiss Francs (CHF)
Israel Shekels (ILS)
200
47
346
163
72
-
-
-
184
46
346
229
Total
756
72
805
71
-
-
-
71
The above analysis assumes that all other variables in particular, interest rates, remain constant.
Annual Report 2019
62
Interest rate risk
The Company is exposed to interest rate risk on its interest-bearing instruments which are
affected by changes in market interest rates.
As at 31 December 2019 the Company had no financial liabilities that bore an interest rate risk.
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 Company 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 Company’s fixed rate financial assets is likely to be negatively impacted by an increase in
interest rates. The interest income of the Company’s floating rate financial assets is likely to
be positively impacted by an increase in interest rates.
The Company 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)
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 Company’s financial assets and liabilities affected by interest rate changes are as follows:
Financial assets – subject to:
•
fair value changes
•
interest changes
Total
2019
US $000
1,128
56,499
57,627
2018
US $000
1,100
26,214
27,314
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.
2019
US $000
2019
US $000
2018
US $000
2018
US $000
Profit or loss
Other
comprehensive
income
Profit or loss
Other
comprehensive
income
(2)
565
563
-
-
-
(160)
262
102
-
-
-
Financial assets
•
•
fair value changes
interest changes
The above analysis assumes that all other variables, in particular currency rates, remain constant.
63
Market price risk
By the nature of its activities, most of the Company’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 Company 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 Company 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 Company mainly has investments in CLO equity tranches as well as first
loss tranches of warehouse facilities. Investments in the equity tranche of US CLOs represent
a levered exposure to senior secured corporate loans in the US, and are thus subject to many
risks including but not limited to lack of liquidity, credit or default risk, and risks related to
movements in market prices as well as the variations of risk premium in the market.
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 Company’s portfolio of financial assets (excluding
level 3 investments) would result in a 5.85% change in the net asset value as at 31 December
2019 (2018: 7.99%), and would have the following impact (either positive or negative,
depending on the corresponding sign of the change):
2019
US $000
2019
US $000
2018
US $000
2018
US $000
Profit or
loss
Other
comprehensive
income
Profit or loss
Other
comprehensive
income
Financial assets at fair
value through other
comprehensive income
Financial assets at fair value
through profit or loss
-
10,125
10,125
-
-
-
13,815
13,815
112
-
112
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.
Annual Report 2019
64
Credit Risk
The Company 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 Company is exposed to
a migration of credit rating, widening of credit spreads and default of any specific issuer.
The Company 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 Company 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 Company’s maximum credit risk exposure at 31 December 2019 is as follows:
Financial assets:
At amortised cost
•
•
Trade and other receivables
Cash at bank
Financial assets at fair value through profit or loss
2019
US $000
2018
US $000
8,172
56,499
64,671
99,545
164,126
3,105
26,214
29,319
136,671
165,990
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
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 Company 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.
65
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 Company has no investment in sovereign debt as at 31 December 2019 or 2018.
At 31 December the credit rating distribution of the Company’s asset portfolio subject to
credit risk was as follows:
Rating
2019 Amount
US $000
Percentage
2018 Amount
US $000
Percentage
AA
A
A-
B
BB+
BBB
B-
Not Rated
48,143
6,433
-
874
1,127
1,936
4,239
101,464
164,189
29.3%
3.9%
-
0.5%
0.7%
1.2%
2.6%
61.8%
100%
18,632
11.2%
2,703
3,570
2,073
1,101
1,309
-
136,602
165,990
1.6%
2.2%
1.2%
0.7%
0.8%
-
82.3%
100%
Included within “not rated” amounts are investments in loan market through CLOs (equity
tranches) of USD 98.417m and open warehouses of USD 0.0m (2018: CLOs of USD 97.080m
and open warehouses of USD 38.490m).
The modelled IRRs on the CLO portfolio as well as the warehouse first loss tranches are in low
teens percentage points.
Annual Report 2019
66
Liquidity Risk
The following table summarizes the contractual cash outflows in relation to the Company’s
financial liabilities according to their maturity.
Carrying
amount
US $000
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 2019
Trade and other payables
4,907
Total
4,907
4,907
4,907
-
-
-
-
-
-
Carrying
amount
US $000
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 2018
Trade and other payables
5,927
5,927
Total
5,927
5,927
-
-
-
-
-
-
A small proportion of the Company’s portfolio is invested in mid-term private equity investments
with low or no liquidity. The investments of the Company 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
market. The Company, however, can opt to terminate such facility.
Management takes 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 2019, the Company had liquid investments totalling USD 157.7m, comprising of USD
56.5m in cash and cash equivalents, USD 98.4m in investments in loan market through CLOs, USD 1.1m
in other fixed income investments, USD 1.7m in public equities. Management structures and manages
the Company’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 Company’s treasury function.
67
Capital Management
The Company considers its capital to be its issued total equity (i.e. its share capital and all of
its reserves).
The Company 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
Net Debt
Total equity
Net debt to equity ratio
28. Financial assets and liabilities by class
2019
US $000
(56,499)
(56,499)
173,080
(0.33)
2018
US $000
(26,214)
(26,214)
174,333
(0.15)
Note
2019
US $000
2018
US $000
Financial assets:
Financial assets at amortised cost
9,10
64,750
29,382
Financial assets at fair value through
profit or loss
Financial assets designated at fair value
through other comprehensive income
4
5
101,255
138,148
6,204
7,504
172,209
175,034
Financial liabilities:
Financial liabilities at amortised cost
13
4,907
5,927
The carrying amount of the financial assets and liabilities at amortised cost approximates to
their fair value.
Annual Report 2019
68
Shareholder Information
Registrars
All enquiries relating to shares or shareholdings should be addressed to:
Link Asset Services
34 Beckenham Road
Beckenham
Kent BR3 4TU
Telephone: 0871 664 0300
Facsimile: 020 8639 2342
Change of Address
Shareholders can change their address by notifying Link Asset Services 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 Link Asset Services.
Lost Share Certificate
If your share certificate is lost or stolen, you should immediately contact Link Asset Services on
0871 664 0300who 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
Link Asset Services on 0871 664 0300.
Please note that the Directors of the Company are not seeking to encourage shareholders to either
buy or sell the Company’s shares.
69
Principal Bankers
Banque J. Safra Sarasin (Luxembourg) SA
17 - 21, Boulevard Joseph II L-1840
Luxembourg
CBH Compagnie Bancaire Helvétique SA
Löwenstrasse 29 Zurich 8021
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
Link Asset Services34 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
Annual Report 2019
70
9