Financial Highlights
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
(years ended December 31)
2017
$
2016
$
2015
$
2014
$
2013
$
SUMMARY OF OPERATIONS
Total revenues and investment gains (loss)
Net income (loss)
Diluted earnings (loss) per share
488,972
197,805
60.03
335,828
117,181
34.50
(166,763)
(111,261)
(35.39)
297,551
141,179
41.26
489,676
243,324
73.20
FINANCIAL DATA
Total assets
Total equity
2,976,026
1,063,385
2,563,217
942,562
2,146,380
856,290
2,020,142
821,740
1,400,326
630,362
COMMON STOCK INFORMATION
The company’s common shares are listed on the Toronto Stock Exchange under the symbol SEC.
FISCAL QUARTER
First
Second
Third
Fourth
2017
$
2016
$
High
175.64
211.05
231.55
250.00
Low
162.99
171.00
210.43
226.13
High
153.00
173.00
154.00
181.99
Low
122.42
126.00
134.91
148.47
TOTAL ASSETS ($ thousands)
TOTAL EQUITY ($ thousands)
BOOK VALUE PER SHARE
2,976,026
1,063,385
344.00
2,563,217
942,362
304.00
2,146,380
2,020,142
856,290
821,740
276.00
264.00
1,400,326
630,362
201.69
2013 2014 2015 2016 2017
2013 2014 2015 2016 2017
2013 2014 2015 2016 2017
2017 annual report
1
OVERALL PERFORMANCE
Senvest Capital (“Senvest” or the “Company”) continued its
successful run from 2016 with a good year of performance
noted by outperforming broader equity indices through the
first three quarters and then experiencing a pullback in the
fourth quarter. Wall Street strategists had modest expectations
for the markets at the start of 2017, with Barron’s citing an
average of a 5% projected gain for the S&P 500. Equity
markets, of course, defied predictions as the U.S. equity market
saw the best returns since 2013 (Morgan Stanley). The strong
stock market performance was noted for its low volatility, lack
of correlation among stocks, strength of the technology sector
and the momentum factor.
Technology stocks performed as the best sector (up 39%) in
the S&P 500, also leading the tech-heavy Nasdaq to outpace
other U.S. benchmark indices (up 33% for the year). The
“FAANG” stocks (Facebook, Amazon, Apple, Netflix, Google)
contributed 37% of the Nasdaq’s gains, with those stocks
increasing anywhere from 30% to 55%.
The “VIX” (a volatility index established by the Chicago Board
Options Exchange which measures investors’ expectation
of 30-day volatility in the S&P 500, widely regarded as a
measure of market risk and a “fear gauge”) remained low all
year, averaging a measure of 11.1 and hit an all-time low level
of just above 9. The S&P 500 moved 1% or more eight times
last year – the last time it moved eight times or fewer was
1965 and the 60-year average, until last year, was 53 times
(Morgan Stanley). Record low correlations between stocks
were also featured in last year’s market dynamics. Analysts at
S&P Global hypothesized that “markedly different reactions to
the year’s major events created stronger diversification effects,
dampening volatility in the benchmarks.”
The past year was notable for the performance of the
“Momentum factor”. Goldman Sachs reported “2017 was an
exceptional year for the Momentum factor, especialy in the
US – the first year where Momentum outperformed all other
factors”. Senvest was able to generate comparable to market
returns in 2017 (even though we underperformed the market
in the fourth quarter) while not being part of the Momentum
game. Our modus operandi has always been that of stock
pickers.
In last year’s annual letter, we discussed our optimism for
the economy, equity markets and our investments. Despite a
remarkable year of tumult, the Trump administration has largely
delivered on three of the four tailwinds we mentioned. Even
with all the uncertainty of what this unconventional President
might bring, his administration’s notable achievements, from a
business perspective, included passage of tax reform legislation
and reduced regulation. (As usual we do not comment on the
administration’s non-business related platform). Tax reform
established lower corporate tax rates and incentives (which
would create higher earnings and increased capital spending)
and generally lower consumer tax rates (greater disposable
income, except for certain high income tax states). On the
regulatory front, according to the U.S. Chamber of Commerce
the administration completed 67 deregulatory actions to
only three new regulatory actions, reducing the burden of
regulations, they estimate, by $570 million annually. While
the absolute numbers may not be impressive, this represents
a major inflection from the consistent burden in prior years
(for example, an added $6.9 billion annually in 2015 alone)
and the first time the cumulative regulatory burden has been
reduced. Perhaps even more importantly, the New York Times
observes “…the administration has instilled faith in business
executives that new regulations are not coming.” In addition
to higher earnings and less commercial friction, the change in
the regulatory environment creates a meaningful change in
business confidence, which one would expect to lead to more
business investment.
As 2018 begins the public perception appears to be that “Every
major economy on earth is expanding at once, a synchronous
wave of growth that is creating jobs, lifting fortunes and
tempering fears of popular discontent.” (NY Times, January
27, 2018). Small business and consumer confidence soared
post the Trump election and remained close to their highs
into year end. European economic sentiment and consumer
confidence has also registered new highs not seen for more
than a decade. In light of the strong global economy, it’s no
surprise that domestic equity markets have hit all-time highs.
We do not know what the 2018 year will bring but one would
think that market volatility has nowhere to go but up.
Some of the largest holdings as at December 31, 2017 were,
Paramount Resources (POU), Tower Semiconductors (TSEM),
Radware (RDWR), Quotient Technology (QUOT), TrueCar
(TRUE), Solar Edge (SEDG) and Northstar Realty Europe (NRE).
While Canadian oil and gas exploration and production
company POU was the biggest loser in the fourth quarter, it
was still one of the top winners for the 2017 year as a whole.
We have discussed this investment in past letters and we
view the fourth quarter decline as a speedbump rather than
as an indicator of problems. In December, POU management
announced a normal course issuer bid indicating that they see
value in their stock. Analog semiconductor foundry Tower
Semiconductor (“TSEM”) was the largest gainer for the year.
TSEM continued its spectacular performance with a 10% price
increase in the fourth quarter. The company has announced a
partnership with a Chinese company to co-develop a new fab
in China. This should enable TSEM to address the large and
burgeoning Chinese market while simultaneously increasing
capacity with
relatively minimal capital expenditure.
Management has a track record of growing capacity in an
intelligent, capital efficient manner. Solar energy equipment
supplier Solar Edge (“SEDG”) was the second biggest gainer
in 2017 and also increased by over 30% in the fourth quarter.
SEDG has unveiled its next generation power optimizer, a
larger capacity commercial inverter to address large scale
commercial installations and an innovative product for the
electric vehicle charger market. TrueCar (“TRUE”), an online
marketplace that enables price discovery for car buyers and
introductions to car dealers, had an up and down year. It
performed very well in certain parts of the year while suffering
large price declines in other parts of the year.
On the negative side, Depomed was the biggest loser in the
2017 year. The problems with Depomed have been discussed
in prior letters, as well as the long road ahead for the
restructuring it undertook earlier in the year. Depomed had
positive performance in the fourth quarter so it seems that
the stock has stabilized for now. Aegean Marine Petroleum
Network (ANW) was another of the biggest losers in 2017.
Management has attributed the poor performance to unusually
2
Management’s Discussion and Analysis2017 annual report competitive conditions in a few of its larger ports. ANW’s
business historically has been lumpy and the company has a
history of sporadically posting a weak quarter. Management
has announced ongoing cost cutting initiatives which involve
asset sales and a move to more of an “asset light” brokering
business model.
Senvest recorded a net income attributable to the owners of
the parent of $166.0 million or $60.03 per basic and diluted
common share for the year ended December 31, 2017. This
compares to net income attributable to owners of the parent of
$96.8 million or $34.50 per basic and diluted common share
for the 2016 year. After prior years where there was significant
appreciation in the US dollar versus the Canadian dollar, the
current year has seen a reversal of some of that appreciation.
For the year, the result has been a currency translation loss
of about $58.5 million from the net income attributable to
the owners of the parent. This amount is not reported in
the Company’s income statement rather it is reflected in its
Comprehensive income. As a result the comprehensive income
attributable to owners of the parent was $107.4 million
The Company’s income from equity investments in 2017 was
the biggest contributor to the net income recorded and was
more than the corresponding amount in 2016. The net gain
on equity investments and other holdings (and also securities
sold short and derivative liabilities) totalled $485.9 million in
the current year versus $322.0 million in 2016. Due to the
depreciation of the US dollar versus other major currencies,
our foreign exchange loss for the year was approximately
$19.7 million
The Company has made significant investments in its US
operations, primarily in people, systems, technology and
office space. This investment represents a significant effort in
a short amount of time to raise the quality of its infrastructure
and personnel. As a result, the Company’s operating costs
have been increasing in the recent past from historical levels.
The compensation costs have increased for this year versus the
prior year due to significantly higher bonus payments. Interest
expense is also significantly higher than the prior year due to
both higher interest rates and higher short rebate costs.
The Senvest Master Fund (Senvest Partners Fund) is focused
primarily on small and mid-cap companies. The fund recorded
a profit of over 17% net of fees for the year. In April the
fund marked its 20 year anniversary. With most of the long
portfolio invested in small and mid-cap stocks, the fund
outperformed its most relevant benchmark, the Russell 2000,
for the year. The fund was a little below the S&P 500 index
for the year but does not consider this index as a benchmark.
The Senvest Israel Partners Fund was initiated in 2003 to focus
on investing in Israel related companies. This fund recorded a
profit of almost 33% net of fees for the year (monthly results
of both funds can be found on the Company’s website). The
two funds had approximately $1.57 billion of net assets under
management at December 31, 2017. Both of these funds are
consolidated into the accounts of the Company.
The Company has a portfolio of real estate investments as
at December 31, 2017. One part of this amount represents
investments in different US REITs. These REITs are not publicly
traded and there is no established market for them. The most
likely scenario for a disposal of these holdings is an eventual
sale of the underlying real estate properties of the REITs and
the distribution to its holders. Also, there are minority interests
in private entities whose main assets are real estate properties.
As described above for the REITs, the most likely scenario for a
disposal of these holdings is an eventual sale of the underlying
real estate properties.
The Company also has investment properties in lands and
buildings used to earn rental income. Investment properties
are initially measured at cost, including transaction costs.
Subsequent to initial recognition, investment properties will
be remeasured at fair value, using the fair value model. The
fair value is based on external valuations from third party
valuators. Gains or losses arising from changes in fair value
of investment properties will be included in the Company’s
net profit or loss. The Company acquired a majority of these
properties pursuant to a business combination. The Company
(the acquirer) purchased 100% of the voting and equity interests
of Bogas Costa Del Sol SL, Globalbox Arganda SL, Globalbox
Rivas SL and Coldstream SL (the acquirees) on January 16,
2017. The payment was cash consideration of approximately
$9.8 million. The transaction was accounted for under the
purchase method. The net assets of the acquired companies
were valued at fair value and there was no resulting goodwill
on the purchase. There was no contingent consideration nor
any non-controlling interests that arose due to the transaction.
The related debt against these investment properties as at
December 31, 2017 totaled approximately $4.5million and has
been included as part of Trade and other payables.
The Company consolidates the Senvest Management LLC entity
that serves as the investment manager of Senvest Partners and
Senvest Israel Partners as well as the general partners of the
funds. The portion of the expected residual returns of structured
entities that do not belong to the Company is reflected as a
non-controlling interest on the statement of financial position.
This non-controlling interest is owned by an executive of the
Company and totalled $119.9 million as at December 31, 2017
from $98.1 million as at December 31, 2016.
At the end of December 31, 2017, Senvest had total consolidated
assets of $2,976.0 million versus $2,563.2 million at the end
of 2016. The main reason for this was the change in equity
investments and other holdings. Equity investments and other
holdings increased to $2,533.1 million from $2,289.3 million
in the prior year. The Company purchased $1,552.9 million
of investment holdings in the year and sold $1,808.3 million
of such holdings. The Company’s liabilities increased to
$1,912.6 million this year versus $1,620.7 million in 2016. A
contributor to this increase was a $115.0 million change in the
liability for redeemable units. One reason for the increase in
this account was the appreciation of the interests of the non-
Senvest investors in the funds. In addition, the securities sold
short and derivative liabilities also increased by approximately
$190 million from the end of the prior year. The proceeds of
securities sold short were $2,627.0 million and the amount of
shorts covered was $2,568.1 million in the year. Both these
figures were more than the corresponding amounts for the
prior year. The net selling resulted in an increase in our short
position. As a whole, the 2017 year was less volatile than 2016.
3
Management’s Discussion and Analysis2017 annual report
Functional currency
Items included in the financial statements of each of the
Company’s entities are measured using the currency of the
primary economic environment in which the entity operates
(the functional currency). The functional currency of the
parent company is the US dollar.
to use short-term floating rate debt. The Company does not
mitigate its exposure to interest rate fluctuation on floating
rate debt. If interest rates spike, then the Company could
enter into interest rate swaps or more probably just reduce
its debt level. As at December 31, 2017, the Company had
listed sufficient equity securities that it can sell to reduce its
floating rate debt to zero.
Presentation currency
Currency risks
The Company has adopted the Canadian dollar as its
presentation currency, which in the opinion of management
is the most appropriate presentation currency. Historically,
the Company’s consolidated financial statements have been
presented in Canadian dollars, and since the company’s shares
are listed on a Canadian stock exchange, management believes
it would better serve the use of shareholders to continue issuing
consolidated financial statements in Canadian dollars. The US
dollar consolidated financial statements are translated into
the presentation currency as follows: assets and liabilities – at
the closing rate at the date of the consolidated statement of
financial position; and income and expenses – at the average
rate for the period. All resulting changes are recognized in other
comprehensive income (loss) as currency translation differences.
Equity items are translated using the historical rate.
Risks
Financial risk factors
The Company’s activities expose it to a variety of financial
risks: market risk (including fair value interest rate risk, cash
flow interest rate risk, currency risk and equity price risk),
credit risk and liquidity risk.
The Company’s overall risk management program seeks to
maximize the returns derived for the level of risk to which the
Company is exposed and seeks to minimize potential adverse
effects on the Company’s financial performance. Managing
these risks is carried out by management under policies
approved by the Board.
The Company uses different methods to measure and manage
the various types of risk to which it is exposed; these methods
are explained below.
Market risk
Fair value and cash flow interest rate risks
Interest rate risk is the risk that the fair value or future cash
flows of a financial instrument will fluctuate as a result of
changes in market interest rates.
The majority of the Company’s debt is based on floating rates
which expose the Company to cash flow interest rate risk.
The Company does not have a long-term stream of cash flows
that it can match against this type of fixed debt, so it prefers
Currency risk refers to the risk that values of monetary financial
assets and liabilities denominated in foreign currencies will
vary as a result of changes in underlying foreign exchange
rates. The Company’s functional currency is the US dollar.
The Company has foreign currency exposure to the Canadian
dollar, the British pound sterling, the Euro, the Swedish krone,
and the Israeli shekel.
Equity price risk
Equity price risk is the risk that the fair value of equity
investments and other holdings and equities sold short and
derivatives will vary as a result of changes in the market
prices of the holdings. The majority of the Company’s equity
investments and other holdings and all of the securities sold
short are based on quoted market prices as at the consolidated
statement of financial position date. Changes in the market
price of quoted securities and derivatives may be related to
a change in the financial outlook of the investee entities or
due to the market in general. Where non-monetary financial
instruments − for example, equity securities − are denominated
in currencies other than the US dollar, the price, initially
expressed in a foreign currency and then converted into US
dollars, will also fluctuate because of changes in foreign
exchange rates.
Securities sold short represent obligations of the Company
to make future delivery of specific securities and create an
obligation to purchase the security at market prices prevailing
at the later delivery date. This creates the risk that the company’s
ultimate obligation to satisfy the delivery requirements will
exceed the amount of the proceeds initially received or the
liability recorded in the consolidated financial statements. In
addition, the Company has entered into derivative financial
instruments, which have a notional value greater than their
fair value, which is recorded in the financial statements. This
creates a risk that the Company could settle these instruments
at a value greater or less than the amount that they have been
recorded in the financial statements.
The Company’s equity investments and other holdings have
a downside risk limited to their carrying value, while the
risk of equities sold short and derivatives is open ended. The
Company is subject to commercial margin requirements which
act as a barrier to the open-ended risks of the securities sold
short and derivatives. The Company closely monitors both its
equity investments and other holdings and its equities sold
short and derivatives.
4
Management’s Discussion and Analysis2017 annual report
The impact of a 30% change in the market prices of the Company’s equity holdings with quoted value and derivatives, securities sold
short and derivative liabilities as at December 31, 2017 would be as follows (in thousands):
Equity investments and other holdings
Listed equity securities and derivatives
Securities sold short and derivative liabilities
Before-tax impact on net earnings
Fair value
2,395,241
(899,655)
Estimated fair value
30% price increase
Estimated fair value
30% price decrease
3,113,813
(1,169,551)
448,676
1,676,668
(629,758)
(448,676)
Liquidity risk
Capital risk management
Liquidity risk is the risk the Company will encounter difficulties
in meeting its financial obligations. The Company’s largest
assets are equity investments and other holdings. Most of these
assets are made up of equities in public holdings which can be
liquidated in a relatively short time. Due to its large holding
of liquid assets, the Company believes that it has sufficient
resources to meet its obligations.
All financial liabilities other than securities sold short and
derivative liabilities and some other payables as at the
consolidated statement of financial position date mature
or are expected to be repaid within one year. The liquidity
risk related to these liabilities is managed by maintaining a
portfolio of liquid investment assets.
Credit risk
Credit risk is the risk that a counterparty will fail to fulfill its
obligations under a contract and will cause the Company to
suffer a loss.
All transactions in listed securities are settled or paid for
upon delivery using approved brokers. The risk of default is
considered minimal, as delivery of securities sold is executed
only once the broker has received payment. Payment is made
on a purchase once the securities have been received by
the broker. The trade will fail if either party fails to meet its
obligations.
The Company is also exposed to counterparty credit risk on
its cash and cash equivalents, restricted short term investment
and due from brokers.
From time to time, the Company enters into derivative
financial instruments consisting primarily of options and
warrants to purchase or sell equities, equity indices and
currencies, equity swaps, foreign currency forward contracts,
and foreign currency futures contracts. These derivative
instruments are marked to market. There is deemed to be no
credit risk for futures and certain options that are traded on
exchanges. The warrant contracts and certain options that are
not traded on an exchange allow the company to purchase
underlying equities at a fixed price. Equity swaps represent
future cash flows that are agreed to be exchanged between the
Company and counterparties at set dates in the future. Foreign
currency forward contracts are contracts to buy or sell foreign
currencies at a specified price at a future point in time.
The Company’s objective when managing its capital is to
maintain a solid capital structure appropriate for the nature
of its business. The Company considers its capital to be its
shareholders equity. The Company manages its capital
structure in light of changes in economic conditions. To
maintain or adjust its capital structure, the Company initiates
normal course issuer bids or adjusts the amount of dividends
paid. The Company monitors capital on the basis of its net
liabilities-to-capital ratio, which is as follows (in millions):
Total net liabilities
Total equity
Debt to Capital ratio
December 31,
2017
December 31,
2016
$1,612.6
$1,063.4
1.52
$1,429.1
$942.6
1.52
The Company’s goal is to maintain a net debt to Capital ratio
below 2.0 in order to limit the amount of risk. The Company
defines its net liabilities to equal its total liabilities less its
due from brokers. The Company believes that limiting its net
liabilities to Capital ratio in this manner is the best way to
control risk. The Company’s net liabilities to capital ratio
stayed at 1.52 at the end of December 2017 from the same
ratio at the end of 2016.
Investment Risk
To the extent not discussed above, the Company is subject to
additional risks with respect to the investments made.
The value of the Company’s portfolio may decrease as well as
increase, due to a variety of factors, including general economic
conditions, and market factors. Additionally, investment
decisions made by the Company may not always be profitable
or prove to have been correct. Investment strategies, at any
given time, may incur significant losses. Losses can occur for
a number of reasons, including but not limited to, an overall
decline in the underlying market, a lack of liquidity in the
underlying markets, excessive volatility in a particular market,
government intervention or monetary and/or fiscal policies of
a specific region or country. The profitability of a significant
portion of the Company’s investments also depends to a great
extent upon the Company’s ability to correctly assess the
future course of the price movements of securities and other
investments. There can be no assurance that the Company will
be able to accurately predict these price movements.
5
Management’s Discussion and Analysis2017 annual report
The Company’s investment strategy is speculative and involves
risk. The Company trades in options and other derivatives, as
well as using short sales and utilizing leverage. The portfolio
may not be diversified among a wide range of issuers or
industries. In addition, the Company may take concentrated
positions in its high conviction ideas, invest in high yield
securities or invest in foreign markets outside the US and
Canada. Accordingly, the investment portfolio may be subject
to more rapid change in value than would be the case if the
Company were required to maintain a wide diversification
in the portfolios among industries, areas, types of securities
and issuers.
The Company may make investments in the securities of high
growth companies. More specifically, the Company may have
significant investments in smaller-to-medium sized companies
with market capitalizations of less than $2 billion US. While
smaller companies may have potential for rapid growth, they
often involve higher risks because they lack the management
experience, financial resources, product diversification, and
competitive strengths of larger corporations. These factors
make smaller companies far more likely than their larger
counterparts to experience significant operating and financial
setbacks that threaten their short-term and long-term viability.
In addition, in many instances, the frequency and volume
of their trading is substantially less than is typical of larger
companies. As a result, the securities of smaller companies may
be subject to wider price fluctuations and exiting investments
in such securities at appropriate prices may be difficult, or
subject to substantial delay. Furthermore, some of the portfolio
may be invested in technology, technology-related markets
and biotech. These types of companies may allocate greater
than usual amounts to research and product development. The
securities of such companies may experience above-average
price movements associated with the perceived prospects of
success of the research and development programs. Also, these
companies could be adversely affected by lack of commercial
acceptance of a new product or products or by technological
change and obsolescence. Some of these companies may have
limited operating histories. As a result, these companies may
face undeveloped or limited markets, have limited products,
have no proven profit-making history, operate at a loss or
with substantial variations in operating results from period
to period, have limited access to capital and/or be in the
developmental stages of their businesses.
The Company tries to manage the above risks by monitoring its
leverage, actively following its investee companies and trying
to react to market conditions. At the same time the Company
expects its portfolio to exhibit a higher degree of volatility
than portfolios that invest in larger more stable companies
and that invest within more defined limits. As at December
31, 2017, approximately 90% of the Company’s portfolio was
invested in Level 1 securities. The Company monitors its Level
1 securities as percentage of its total investments; however,
it does not have a fixed number that this percentage cannot
fall below.
Critical accounting estimates and judgments
The Company makes estimates and assumptions concerning
the future that will, by definition, seldom equal actual results.
The following are the estimates applied by management that
most significantly affect the Company’s consolidated financial
statements. These estimates have a significant risk of causing
a material adjustment to the carrying amounts of assets and
liabilities within the next financial year.
Consolidation of entities in which the company holds less than
50% of the voting rights.
Management considers that the company has de facto control
of Senvest Management LLC (SML), RIMA Senvest Master
Fund GP LLC, and Senvest Israel Partners GP LLC., three
legal entities wholly owned by an executive of the Company,
because of the Company’s board representation and the
contractual terms of the investment advisory agreement. SML
is the investment adviser to the Funds, whereas RIMA Senvest
Master Fund GP LLC is the General Partner of Senvest Master
Fund LP and Senvest Israel Partners GP LLC is the General
Partner of Senvest Israel Partners Master Fund LP.
Management considers that the Company has control of Senvest
Master Fund LP, Senvest Israel Partners Master Fund LP and
Senvest Cyprus Recovery Investment Partners LP even though
the Company has less than 50% of the voting rights in each
of the Funds. The Company assessed that the removal rights
of non-affiliated unitholders are exercisable but not strong
enough given the Company’s decision-making authority over
relevant activities, the remuneration to which it is entitled and
its exposure to returns. The Company, through its structured
entity, is the majority unitholder of each of the Funds and acts
as a principal while there are no other unitholders forming a
group to exercise their votes collectively.
Fair value estimates of financial instruments
The fair value of financial instruments where no active market
exists or where quoted prices are not otherwise available are
determined by using valuation techniques. In these cases,
the fair values are estimated from observable data in respect
of similar financial instruments or by using models. Where
market observable inputs are not available, they are estimated
based on appropriate assumptions. To the extent practical,
models use only observable data; however, areas such as credit
risk (both the company’s own credit risk and counterparty
credit risk), volatilities and correlations require management
to make estimates. Changes in assumptions about these factors
could affect the reported fair value of financial instruments.
Financial instruments in Level 1
The fair value of financial assets and financial liabilities
traded in active markets are based on quoted market prices
at the close of trading on the balance sheet date. The quoted
market price used for financial assets and financial liabilities
held by the Company is the close price. Investments classified
in Level 1 include active listed equities and derivatives traded
on an exchange. The financial assets classified as Level 1 were
approximately 90% of the total financial assets.
Financial instruments in Level 2
Financial instruments classified with Level 2 trade in markets
that are not considered to be active but are valued based
on quoted market prices, dealer quotations or valuation
techniques that use market data. These valuation techniques
maximize the use of observable market data where available
and rely as little as possible on entity-specific estimates. If
all significant inputs required to fair value an instrument
are observable, the instrument is included in Level 2. These
include corporate bonds, thinly traded listed equities, over-
the-counter derivatives and private equities.
6
Management’s Discussion and Analysis2017 annual report The Company uses a variety of methods and makes assumptions
that are based on market conditions existing at each year-end
date. Valuation techniques used for non-standardized financial
instruments such as options and other over-the-counter
derivatives include the use of comparable recent arm’s length
transactions, reference to other instruments that are substantially
the same, discounted cash flow analyses, option pricing models
and other valuation techniques commonly used by market
participants, making maximum use of market inputs and relying
as little as possible on entity-specific inputs. The financial assets
classified as Level 2 were under 6% of the total financial assets.
Financial instruments in Level 3
Investments classified in Level 3 have significant unobservable
inputs, as they trade infrequently. Level 3 instruments consist
mainly of unlisted equity investments and real estate investments.
As observable prices are not available for these securities, the
Company has used valuation techniques to derive the fair value.
The financial assets classified as Level 3 were under 5% of the
total fair value of financial assets.
Level 3 valuations are reviewed by the Company’s Chief
Financial Officer (CFO), who reports directly to the Board on a
quarterly basis in line with the Company’s reporting dates. On
an annual basis, close to the year-end date, the Company obtains
independent, third party appraisals to determine the fair value of
the Company’s most significant Level 3 holdings. The quarterly
and annual valuations of the significant level 3 holdings are
carried out externally. The Company’s CFO reviews the results of
the independent valuations. Emphasis is placed on the valuation
model used to determine its appropriateness, the assumptions
made to determine whether it is consistent with the nature of the
investment, and market conditions and inputs such as cash flow
and discount rates to determine reasonableness.
As at December 31 2017, Level 3 instruments are in various
entities and industries. The real estate investments are made up
of investments in private real estate companies, in real estate
income trusts and in investment properties. For the main Level
3 instruments, the Company relied on appraisals carried out by
independent third party valuators or on recent transactions. There
was no established market for any of these investments, so the
most likely scenario is a disposal of the underlying assets. For
the investments in real estate income trusts, the company relied
mainly on audited financial statements, valuing the assets at
fair value. The most likely scenario is an eventual sale of the
underlying properties and their subsequent distribution to the
holders.
Liability for redeemable units
Liability for redeemable units represents the units in the
consolidated funds that are not owned by the Company. Units
may be redeemed as of the end of any calendar quarter; provided,
however, that redemptions made within the first 24 months will
be subject to a redemption fee which is payable to the funds. In
addition, there are notice periods of 60 days that must be given
prior to any redemption. Senvest Cyprus Recovery Investment
Fund LP has units that cannot be redeemed until December
2018. These units are recognized initially at fair value, net of
any transaction costs incurred, and subsequently measured at
redemption amount. At the individual fund level, this item is not
shown as a liability but as part of shareholders equity. It is deemed
to be a liability only for the consolidated financial statements as
they are prepared from the point of view of the parent company.
Income taxes
TThe Company is subject to income taxes in numerous jurisdictions.
Significant judgment is required in determining the worldwide
provisions for income taxes. There are many transactions and
calculations for which the ultimate tax determination is uncertain.
The Company recognizes liabilities for anticipated tax audit
issues based on estimates of whether additional taxes will be due.
Where the final tax outcome of these matters is different from the
amounts that were initially recorded, such differences will impact
the current and deferred income tax assets and liabilities in the
year in which such determination is made.
QUARTERLY RESULTS
(In thousands except for earnings (loss) per share information)
Total revenue and
investments gain (losses)
Net income (loss) –
owners of the parent
Earnings (loss)
per share
2,234
236,284
121,348
129,106
64,623
328,896
73,023
)
(130,714
491
74,964
42,669
47,843
26,923
109,942
14,748
)
(54,830
0.29
27.10
15.40
17.24
9.67
39.08
5.22
)
(19.47
Year
2017-4
2017-3
2017-2
2017-1
2016-4
2016-3
2016-2
2016-1
7
Management’s Discussion and Analysis2017 annual report CONTRACTUAL OBLIGATIONS
(In thousands)
Due to Brokers
Operating leases
Other commitments
Total
Less than 1 year
1-3 years
4-5 years
16,784
1,182
9,641
27,607
-
2,484
-
2,484
-
2,176
-
2,176
Total
16,784
5,842
9,641
32,267
SELECTED ANNUAL INFORMATION
(In thousands except for earnings (loss) per share information)
Total revenue and investment gains (loss)
Net income (loss) – owners of the parent
Earnings (loss) per share
2017
488,972
165,967
60.03
2016
335,828
96,783
34.50
2015
(166,763
(99,826
(35.39
)
)
)
Total assets
2,976,026
2,563,217
2,146,380
The Company has had wide swings in profitability from
quarter to quarter in the past two years, as seen above. Of the
eight most recent quarters, there have been seven profitable
quarters and one losing quarters. Still the profit has fluctuated
a significant amount quarter to quarter. Also, the highest
earning quarter showed a profit of over $100 million and the
least profitable quarter had a loss of over $50 million. These
wide swings are primarily due to the large quarterly mark
to market adjustments in the Company’s portfolio of public
holdings. However, we expect the volatility and choppiness of
the markets to result in wide profit swings from year to year
and from quarter to quarter. Reference is made to the section
on Investment risk above.
The Company maintains accounts with several major financial
institutions in the U.S. who function as the Company’s main
prime brokers. The Company has assets with the prime brokers
pledged as collateral for leverage. Although the prime brokers
are large financial institutions, there is no guarantee that any
financial institution will not become insolvent. In addition,
there may be practical or time problems associated with
enforcing the Company’s rights to its assets in the case of such
insolvency.
While both the U.S. Bankruptcy Code and the Securities
Investor Protection Act seek to protect customer property in
the event of a failure, insolvency or liquidation of a broker
dealer, there is no certainty that, in the event of a failure of
a broker dealer that has custody of the Company’s assets,
the company would not incur losses due to its assets being
unavailable for a period of time, ultimately less than full
recovery of its assets, or both. As a significant majority of the
Company’s assets are in custody with four prime brokers, such
losses could be significant.
On August 14, 2017, Senvest commenced a new normal
course issuer bid to purchase a maximum of 82,000 of its
own common shares until August 13, 2018. There were 25,400
shares repurchased under the new bid and 38,100 purchased
for the year. The number of common shares outstanding as at
December 31, 2017 was 2,739,724 and as at March 28, 2018
was 2,725,924. There were no stock options outstanding as
at December 31 2017 and none have been issued since 2005.
The Company has financing with a bank, composed of a credit
facility and a guarantee facility. A first ranking movable
hypothec in the amount of $30 million on all of its assets has
been granted as collateral for both of the facilities. According
to the terms of the facilities, the Company is required to
comply with certain financial covenants. During the period,
the Company met the requirements of all the covenants. The
Company also has margin facilities with brokers.
New and amended accounting standard
adopted in 2017
The Company has applied the following standards and
amendments for the first time for their annual reporting period
commencing January 1, 2017:
• Recognition of Deferred Tax Assets for Unrealized
Losses – Amendments to IAS 12, and
• Disclosure initiative – Amendments to IAS 7.
The adoption of these amendments did not have any impact
on the amounts recognized in prior periods. The amendments
also do not affect significantly the current or future periods.
Accounting standards and amendments issued but not
yet adopted
The Company presents the developments that are relevant to
its activities and transactions. The following revised standards
and amendments are not mandatory for December 31, 2017
reporting periods and have not been applied in preparing these
consolidated financial statements. The Company has not early
adopted these standards and amendments.
• IFRS 15, Revenue
from Contracts with Customers
(IFRS 15), deals with revenue recognition and establishes
principles for reporting useful information to users of
financial statements about the nature, amount, timing and
uncertainty of revenue and cash flows arising from an
entity’s contracts with customers. Revenue is recognized
when a customer obtains control of a good or service and
8
Management’s Discussion and Analysis2017 annual report thus has the ability to direct the use and obtain the benefits
from the good or service. The standard replaces IAS 18,
Revenue, and IAS 11, Construction Contracts, and related
interpretations. The standard is effective for annual periods
beginning on or after January 1, 2018 and earlier application is
permitted. The Company is in the final stage of analyzing the
impact of the adoption of IFRS 15. The impact is not expected
to be significant.
IASB
• In July 2014, the
issued the complete version
of IFRS 9, Financial Instruments (IFRS 9), first issued in
November 2009, which brings together the classification and
measurement, impairment and hedge accounting phases of
the IASB’s project to replace IAS 39, Financial Instruments:
Recognition and Measurement.
IFRS 9 introduces a principles-based approach to the
classification of financial assets based on an entity’s business
model and the nature of the cash flows of the asset. All financial
assets, including hybrid contracts, are measured at fair value
through profit or loss, fair value through other comprehensive
income or amortized cost. For financial liabilities, IFRS 9
includes the requirements for classification and measurement
previously included in IAS 39. IFRS 9 also introduces an
expected loss impairment model for all financial assets not at
fair value through profit or loss. Finally, IFRS 9 introduces a new
hedge accounting model that aligns the accounting for hedge
relationships more closely with an entity’s risk management
activities, permits hedge accounting to be applied more
broadly to a greater variety of hedging instruments and risks,
and requires additional disclosures. The standard is effective
for annual periods beginning on or after January 1, 2018.
The Company is currently in the final stage of analyzing the
impact of the adoption of IFRS 9 on the consolidated financial
statements. The Company does not expect the new guidance
to significantly affect the classification of measurement of its
financial assets.
• IFRS 16, Leases, was published in January 2016 by the IASB.
This standard will replace the current guidance in IAS 17,
Leases, and require lessees to recognize an asset and a lease
liability reflecting a “right-of-use asset” and future lease
payments, respectively, for virtually all lease contracts. The
standard applies to annual periods beginning on or after
January 1, 2019, with earlier application permitted if IFRS 15
is adopted. The Company is currently assessing the impact of
this standard on the consolidated financial statements. As at
December 31, 2017, the operating leases disclosed in Note 20
to the audited consolidated financial statements are in scope
with IFRS 16.
• IFRS 10, Consolidated Financial Statements, and IAS 28,
Investments in Associates and Joint Ventures, were amended
in 2014 to address an inconsistency between those standards
when accounting for the sale or a contribution of assets
between an investor and its associate or joint venture. The
main consequence of the amendments is that a full gain or
loss is recognized when the transaction involves a business
combination, whereas a partial gain is recognized when the
transaction involves assets that do not constitute a business.
The mandatory effective date of this amendment will be
determined by the IASB at a future date. Voluntary application
is permitted.
• The amendment to IAS 40 related to the transfers of investment
property clarify that transfers to, or from, investment property
can only be made if there has been a change in use that is
supported by evidence that a change in use as occurred.
A change in use occurs when the property meets, or ceases
to meet, the definition on investment property. A change in
intention alone is not sufficient to support a transfer. The
amendments are effective for annual periods beginning on
or after January 1, 2018 with earlier adoption permitted. The
Company is currently assessing the impact of this standard on
the consolidated financial statements.
Related party transactions
The Company consolidates the Senvest Management LLC entity
that serves as the investment manager of Senvest Partners and
Senvest Israel Partners as well as the general partners of the
funds. The portion of the expected residual returns of structured
entities that do not belong to the Company is reflected as a
non-controlling interest on the statement of financial position.
This non-controlling interest is owned by an executive of the
Company and totalled $119.9 million as at December 31, 2017
from $98.1 million as at December 31, 2016.
Significant Equity Investments
For information on a summary of financial information from
certain significant investees please refer to the 2017 annual
report. The accounts of Senvest Partners, Senvest Israel Partners
and Senvest Cyprus Recovery Investment Fund are consolidated
with the Company’s accounts.
FORWARD LOOKING STATEMENTS
This MD&A contains “forward looking statements” which
reflect the current expectations of management regarding our
future growth, results of operations, performance and business
prospects and opportunities. Wherever possible, words such as
“may”, “would”, “could”, “will”, “anticipate”,“believe”, “plan”,
“expect”, “intend”, “estimate”, “aim”, “endeavour”, “likely”,
“think” and similar expressions have been used to identify
these forward looking statements. These statements reflect our
current beliefs with respect to future events and are based on
information currently available to us. Forward looking statements
involve significant known and unknown risks, uncertainties
and assumptions. Many factors could cause our actual results,
performance or achievements to be materially different from
any future results, performance or achievements that may
be expressed or implied by such forward looking statements
including, without limitation, those Risk Factors listed in the
Company’s annual information form. Should one or more of
these risks or uncertainties materialize, or should assumptions
underlying the forward looking statements prove incorrect, actual
results, performance or achievements could vary materially from
those expressed or implied by the forward looking statements
contained in this MD&A. These forward looking statements are
made as of March 29, 2018 and will not be updated or revised
except as required by applicable securities law.
OTHER FINANCIAL INFORMATION
There is additional financial information about the Company on
Sedar at www.sedar.com and on the Company’s website at www.
senvest.com, as well the Company’s or Senvest Management’s
U.S. SEC section 13 and other filings on www.sec.gov.
9
Management’s Discussion and Analysis2017 annual report Management’s Discussion and Analysis
INTERNAL CONTROLS
Disclosure controls and procedures
Internal control over financial reporting
Our disclosure controls and procedures are designed to provide
reasonable assurance that information required to be disclosed
by us in reports filed or submitted under Canadian securities
laws is recorded, processed, summarized and reported within the
time periods specified under those laws, and include controls
and procedures that are designed to ensure that the information
is accumulated and communicated to management, including
Senvest’s President and CEO and Vice-President and CFO, to allow
timely decisions regarding required disclosure. As at December 31,
2017, management evaluated, under the supervision of and with
the participation of the CEO and the CFO, the effectiveness of our
disclosure controls and procedures, under National Instrument 52-
109 – Certification of Disclosure in Issuers’ Annual and Interim
Filings. Based on that evaluation, the CEO and CFO concluded
that our disclosure controls and procedures were effective as at
December 31, 2017.
Management is responsible for establishing and maintaining
adequate internal control over financial reporting under National
Instrument 52-109. Our internal control over financial reporting
is a process designed under the supervision of the CEO and CFO to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with IFRS. However, because of its inherent
limitations, internal control over financial reporting may not
prevent or detect misstatements on a timely basis. Management
evaluated, under the supervision of and with the participation
of the CEO and the CFO, the effectiveness of our internal control
over financial reporting as at December 31, 2017, based on the
criteria established in the Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Based on that evaluation, the
CEO and CFO concluded that our internal control over financial
reporting was effective as at December 31, 2017. There have
been no changes during the year ended December 31, 2017 in
our internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Victor Mashaal
Chairman of the Board and President
March 29, 2018
(Management Discussion and Analysis (“MD&A”) provides a review of Senvest Capital Inc.’s operations, performance and financial condition for the period ended December 31, 2017, and should be read in
conjunction with the 2017 annual filings. Readers are also requested to visit the SEDAR website at www.sedar.com for additional information. This MD&A also contains certain forward-looking statements
with respect to the Corporation. These forward-looking statements, by their nature necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by
these forward-looking statements. We consider the assumptions on which these forward-looking statements are based to be reasonable, but caution the reader that these assumptions regarding future events,
many of which are beyond our control may ultimately prove to be incorrect.)
10
2017 annual report
Management’s Report
The consolidated financial statements for the fiscal year ended December 31, 2017 and December 31, 2016, were prepared by the
management of Senvest Capital Inc., reviewed by the Audit Committee and approved by the Board of Directors. They were prepared
in accordance with International Financial Reporting Standards and are consistent with the company’s business.
The company and its subsidiaries maintain a high quality of internal controls, designed to provide reasonable assurance that the
financial information is accurate and reliable. The information included in this Annual Report is consistent with the financial
statements contained herein.
The financial statements have been audited by PricewaterhouseCoopers LLP, the company’s auditors, whose report is provided below.
Victor Mashaal
Chairman of Board and President
Senvest Capital Inc.
March 29, 2018
Independent Auditor’s Report
To the Shareholders of Senvest Capital Inc.
We have audited the accompanying consolidated financial statements of Senvest Capital Inc. and its subsidiaries, which comprise
the consolidated statements of financial position as at December 31, 2017 and 2016 and the consolidated statements of income,
comprehensive income, changes in equity and cash flows for the years then ended, and the related notes, which comprise a summary
of significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in
accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement
of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal
control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion..
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Senvest Capital
Inc. and its subsidiaries as at December 31, 2017 and 2016 and their financial performance and their cash flows for the years then
ended in accordance with International Financial Reporting Standards.
1 CPA auditor, CA, public accountancy permit No. A125840
Montréal, Quebec
March 29, 2018
11
2017 annual report Consolidated Statements of Financial Position
AS AT DECEMBER 31, 2017 AND 2016
(IN THOUSANDS OF CANADIAN DOLLARS)
Note
4
5(a)
5(b)
6
7
8
9
5(a)
11
5(b)
6
12(b)
13
17
2017
$
2016
$
53,122
460
299,996
2,533,174
12,681
30,789
26,738
13,771
5,295
26,978
459
191,602
2,289,288
12,461
35,938
1,874
-
4.617
2,976,026
2,563,217
2,276
29,130
16,784
917,511
10,265
16,992
-
43,485
876,198
509
20,055
56,754
727,644
2,299
3,315
1,253
47,599
761,227
1,912,641
1,620,655
22,751
122,019
798,718
943,488
119,897
1,063,385
23,057
180,596
640,816
844,469
98,093
942,562
2,976,026
2,563,217
Assets
Cash and cash equivalents
Restricted short-term investments
Due from brokers
Equity investments and other holdings
Investments in associates
Real estate investments
Investment properties
Income taxes receivable
Other assets
Total assets
Liabilities
Bank advances
Trade and other payables
Due to brokers
Securities sold short and derivative liabilities
Redemptions payable
Subscriptions received in advance
Income taxes payable
Deferred income tax liabilities
Liability for redeemable units
Total liabilities
Equity
Equity attributable to owners of the parent
Share capital
Accumulated other comprehensive income
Retained earnings
Total equity attributable to owners of the parent
Non-controlling interest
Total equity
Total liabilities and equity
Approved by the Board of Directors
Victor Mashaal, Director
Frank Daniel, Director
12
2017 annual reportThe accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Income
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(IN THOUSANDS OF CANADIAN DOLLARS. EXCEPT PER SHARE DATA)
Revenue
Interest income
Net dividend income
Other income
Investment gains (losses)
Net change in fair value of equity investments and other holdings
Net change in fair value of real estate investments
Net change in fair value of investment properties
Share of profit (loss) of associates
Foreign exchange loss
Total revenue and net investment gains
Operating costs and other expenses
Employee benefit expense
Interest expense
Transaction costs
Other operating expenses
Change in redemption amount of redeemable units
Income before income tax
Note
7
2017
$
6,972
5,940
2,504
2016
$
4,184
10,561
810
15,416
15,555
485,893
321,977
3,814
1,345
2,182
(19,678
)
5,147
111
(505
)
(6,457
)
473,556
320,273
488,972
335,828
54,138
40,930
12,037
14,748
27,769
18,669
7,960
9,917
121,853
64,315
146,030
133,726
221,089
137,787
Income tax expense
12(a)
23,284
20,606
Net income for the year
Net income attributable to:
Owners of the parent
Non-controlling interests
197,805
117,181
165,967
31,838
96,783
20,398
Earnings per share attributable to owners of the parent:
Basic and diluted
14
60.03
34.50
13
2017 annual reportThe accompanying notes are an integral part of these consolidated financial statements. Consolidated Statements of Comprehensive Income
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(IN THOUSANDS OF CANADIAN DOLLARS)
Net income for the year
Other comprehensive loss
Currency translation differences
Comprehensive income for the year
Comprehensive income attributable to:
Owners of the parent
Non-controlling interests
Other comprehensive loss is composed solely of items that will not be reclassified subsequently to net income.
2017
$
2016
$
197,805
117,181
(66,014
)
(24,667
)
131,791
92,514
107,390
24,401
74,237
18,277
14
2017 annual reportThe accompanying notes are an integral part of these consolidated financial statements. Consolidated Statements of Changes in Equity
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(IN THOUSANDS OF CANADIAN DOLLARS)
Equity attributable to owners of the parent
Share
capital
$
Note
Accumulated
other
comprehensive
income
$
Retained
earnings
$
Non-
controlling
interests
$
Total
$
Total
equity
$
Balance – December 31, 2015
23,376
203,142
549,774
776,292
79,998
856,290
Net income for the year
Other comprehensive loss
Comprehensive income (loss) for the year
-
-
-
-
96,783
96,783
(22,546
)
-
(22,546
)
20,398
(2,121
)
117,181
(24,667
)
(22,546
)
96,783
74,237
18,277
92,514
Repurchase of common shares
13
(319
)
Contribution from non-controlling interests
Distributions to non-controlling interests
-
-
-
-
-
(5,741
)
(6,060
)
-
-
-
-
-
1,590
(1,772
)
(6,060
)
1,590
(1,772
)
Balance – December 31, 2016
23,057
180,596
640,816
844,469
98,093
942,562
Net income for the year
Other comprehensive loss
Comprehensive income (loss) for the year
-
-
-
-
165,967
165,967
(58,577
)
-
(58,577
)
31,838
(7,437
)
197,805
(66,014
)
(58,577
)
165,967
107,390
24,401
131,791
Repurchase of common shares
Distributions to non-controlling interests
13
(306
)
-
-
-
(8,065
)
(8,371
)
-
-
-
(2,597
)
(8,371
)
(2,597
)
Balance – December 31, 2017
22,751
122,019
798,718
943,488
119,897
1,063,385
15
2017 annual reportThe accompanying notes are an integral part of these consolidated financial statements. Consolidated Statements of Cash Flows
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED)
Cash flows provided by (used in)
Operating activities
Net income for the year
Adjustments for non-cash items
Purchase of equity investments and other holdings held for trading
Purchase of securities sold short and derivative liabilities
Proceeds on sale of equity investments and other holdings held for trading
Proceeds from securities sold short and derivative liabilities
Dividends and distributions received from real estate investments
Changes in working capital items
Net cash provided by (used in) operating activities
Investing activities
Transfers to restricted short-term investments
Purchase of real estate investments
Purchase of investment properties
Purchase of equity investments and other holdings designated as
fair value through profit or loss
Proceeds on sale of equity investments and other holdings designated as
fair value through profit or loss
Proceeds from investments in associates
Acquisition of subsidiaries, net of cash acquired
Net cash used in investing activities
Financing activities
Contribution from non-controlling interests
Distributions paid to non-controlling interests
Increase in bank advances
Repurchase of common shares
Proceeds from issuance of redeemable units
Amounts paid on redemption of redeemable units
Net cash provided by financing activities
Increase (decrease) in cash and cash equivalents during the year
Effect of changes in foreign exchange rates on cash and cash equivalents
Cash and cash equivalents – Beginning of year
Cash and cash equivalents – End of year
Amounts of cash flows classified in operating activities:
Cash paid for interest
Cash paid for dividends on equities sold short
Cash received on interest
Cash received on dividends
Cash paid for income taxes
Note
15(a)
15(b)
18
4
2017
$
2016
$
197,805
(348,261
)
(1,552,882
)
(2,568,067
)
1,808,257
2,626,988
8,199
(165,844
)
117,181
(186,721
)
(1,008,552
)
(1,208,881
)
924,817
1,675,155
15,662
(336,884
)
6,195
(8,223
)
(32
)
(2,561
)
(7,630
)
(12,457
)
21,949
1,106
(9,658
)
(9,283
)
-
(2,597
)
1,863
(8,371
)
123,954
(83,137
)
31,712
28,624
(2,480
)
26,978
53,122
40,412
10,699
5,482
13,831
34,528
(15
)
(520
)
-
(3,956
)
2,674
647
-
(1,170
)
1,590
(1,772
)
262
(6,060
)
35,243
(21,929
)
7,334
(2,059
)
(889
)
29,926
26,978
7,737
6,051
4,607
16,044
15,538
The accompanying notes are an integral part of these consolidated financial statements.
16
2017 annual report 1 General information
Senvest Capital Inc. (the “Company”) was incorporated under
Part I of the Canada Corporations Act on November 20, 1968
under the name Sensormatic Electronics Canada Limited, and was
continued under the Canada Business Corporations Act under
the same name effective July 23, 1979. On April 21, 1991, the
Company changed its name to Senvest Capital Inc. The Company
and its subsidiaries hold investments in equity and real estate
holdings that are located predominantly in the United States. The
Company’s head office and principal place of business is located
at 1000 Sherbrooke Street West, Suite 2400, Montréal, Quebec
H3A 3G4. The Company’s shares are traded on the Toronto
Stock Exchange under the symbol “SEC”. Refer to note 17 for the
composition of the Company.
2 Summary of significant accounting policies
Basis of preparation
The Company prepares its consolidated financial statements in
accordance with International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards
Board (IASB) as set out in Part I of the Chartered Professional
Accountants of Canada (CPA Canada) Handbook – Accounting.
The Board of Directors (Board) approved these consolidated
financial statements for issue on March 29, 2018.
The preparation of consolidated financial statements in conformity
with IFRS requires the use of certain critical accounting estimates.
It also requires management to exercise its judgment in the
process of applying the Company’s accounting policies. The
areas involving a higher degree of judgment or complexity or
areas where assumptions and estimates are significant to the
consolidated financial statements are disclosed in note 3.
Basis of measurement
The consolidated financial statements have been prepared under
the historical cost convention, except for financial assets and
financial liabilities held at fair value through profit or loss,
including derivative instruments which have been measured at
fair value.
Consolidation
Business Combinations
The acquisition method of accounting is used to account for
all business combinations. The consideration transferred for
the acquisition of a subsidiary comprises the fair values of the
assets transferred. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are, with
limited exceptions, measured initially at their fair values at the
acquisition date. The company recognizes any non controlling
interest in the acquired entity on an acquisition-by-acquisition
basis either at fair value or at the non-controlling interest’s
proportionate share of the acquired entity’s net identifiable assets.
Acquisition related costs are expensed as incurred. The excess
of the consideration transferred, amount of any non-controlling
interest in the acquired entity, and acquisition-date fair value
of any previous equity interest in the acquired entity over the
fair value of the net identifiable assets acquired is recorded as
goodwill. If those amounts are less than the fair value of the
net identifiable assets of the business acquired, the difference is
recognized directly in profit or loss as a bargain purchase. If the
business combination is achieved in stages, the acquisition date
carrying value of the acquirer’s previously held equity interest
in the acquiree is remeasured to fair value at the acquisition
date. Any gains or losses arising from such remeasurement are
recognized in profit or loss.
Subsidiaries
Subsidiaries are all entities (including structured entities) over
which the Company has control. The Company controls an
entity when it is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability to affect
those returns through its power over the entity. Subsidiaries are
consolidated from the date on which control is transferred to the
Company. They are deconsolidated from the date that control
ceases.
The financial statements of the Company consolidate the accounts
of the Company, its subsidiaries and its structured entities. All
intercompany transactions, balances and unrealized gains
and losses from intercompany transactions are eliminated on
consolidation. Where applicable, amounts reported by subsidiaries,
associates and structured entities have been adjusted to conform
with the Company’s accounting policies.
Investments in associates
Associates are entities over which the Company has significant
influence but not control, generally accompanying a holding of
between 20% to 50% of the voting rights. The financial results
of the Company’s investments in its associates are included in
the Company’s consolidated financial statements according to the
equity method.
Subsequent to the acquisition date, the Company’s share of
profits or losses of associates is recognized in the consolidated
statement of
income. The cumulative post-acquisition
movements are adjusted against the carrying amount of the
investment. When the Company’s share of losses in an associate
equals or exceeds its interest in the associate, including any
other unsecured receivables, the Company does not recognize
further losses, unless it has incurred obligations or made
payments on behalf of the associate.
Dilution gains and losses arising from changes in interests in
investments in associates are recognized in the consolidated
statement of income.
The Company assesses at each year-end whether there is any
objective evidence that its interests in associates are impaired.
If impaired, the carrying value of the Company’s share of the
underlying assets of associates is written down to its estimated
recoverable amount (being the higher of fair value less cost to
sell and value in use) and charged to the consolidated statement
of income. In accordance with International Accounting Standard
(IAS) 36, Impairment of Assets, impairment losses are reversed
in subsequent years if the recoverable amount of the investment
subsequently increases and the increase can be related objectively
to an event occurring after the impairment was recognized.
17
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED)
Liability for redeemable units
Consolidation and foreign operations
Liability for redeemable units represents the units in Senvest
Master Fund, L.P., Senvest Israel Partners Master Fund, L.P. and
Senvest Cyprus Recovery Investment Partners, L.P. Fund (the Funds
or individually the Fund) that are not owned by the Company.
Senvest Master Fund, L.P. and Senvest Israel Partners Master
Fund, L.P. units may be redeemed as of the end of any calendar
quarter; however, redemptions made within the first 24 months
will be subject to a redemption fee of 3% to 5% which is payable
to Senvest Master Fund, L.P. and Senvest Israel Partners Master
Fund, L.P. In addition, there are notice periods of 60 days that
must be given prior to any redemption. Senvest Cyprus Recovery
Investment Partners, L.P. Fund has units that cannot be redeemed
until December 31, 2018. These units are recognized initially at fair
value, net of any transaction costs incurred, and subsequently units
are measured at the redemption amount.
Redeemable units are issued and redeemed at the holder’s option at
prices based on each Fund’s net asset value per unit at the time of
subscription or redemption. Each Fund’s net asset value per unit is
calculated by dividing the net assets attributable to the holders of
each class of redeemable units by the total number of outstanding
redeemable units for each respective class. In accordance with the
provisions of the Funds’ offering documents, investment positions
are valued at the close price for the purpose of determining the net
asset value per unit for subscriptions and redemptions
Non-controlling interests
Non-controlling interests represent equity interests in the
consolidated structured entity owned by outside parties. The
share of net assets of the structured entity attributable to non-
controlling interests is presented as a component of equity. Their
share of net income (loss) and comprehensive income (loss) is
recognized directly in equity. Changes in the parent company’s
ownership interest in the structured entity that do not result in a
loss of control are accounted for as equity transactions.
Foreign currency translation
Functional currency
Items included in the financial statements of each of the
Company’s entities are measured using the currency of the
primary economic environment in which the entity operates
(the functional currency). The functional currency of the parent
company is the US dollar.
Transactions and balances
Foreign currency transactions are translated into the relevant
functional currency using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses
resulting from the settlement of foreign currency transactions
and from the translation at year-end exchange rates of monetary
assets and liabilities denominated in currencies other than an
entity’s functional currency are recognized in the consolidated
statement of income.
All foreign exchange gains and losses are presented in the
consolidated statement of income in foreign exchange gain (loss).
.
The financial statements of an entity that has a functional
currency different from that of the parent company are translated
into US dollars as follows: assets and liabilities – at the closing
rate at the date of the consolidated statement of financial position;
and income and expenses – at the average rate for the period (as
this is considered a reasonable approximation of actual rates). All
resulting changes are recognized in other comprehensive loss as
currency translation differences.
When an entity disposes of its interest in a foreign operation, or
loses control or significant influence over a foreign operation,
the foreign exchange gains or losses accumulated in other
comprehensive loss related to the foreign operation are recognized
in net income. If an entity disposes of part of an interest in a
foreign operation which remains a subsidiary, a proportionate
amount of foreign exchange gains or losses accumulated in
other comprehensive loss related to the subsidiary are reallocated
between controlling and non-controlling interests.
Presentation currency
The Company has adopted the Canadian dollar as its presentation
currency, which in the opinion of management is the most
appropriate presentation currency. Historically, the Company’s
consolidated financial statements have been presented in
Canadian dollars, and since the Company’s shares are listed on a
Canadian stock exchange, management believes it would better
serve the use of shareholders to continue issuing consolidated
financial statements
in Canadian dollars. The US dollar
consolidated financial statements described above are translated
into the presentation currency as follows: assets and liabilities –
at the closing rate at the date of the consolidated statement of
financial position; and income and expenses – at the average
rate for the period. All resulting changes are recognized in other
comprehensive loss as currency translation differences. Equity
items are translated using the historical rate.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, deposits held
with banks and other short-term highly liquid investments with
original maturities of three months or less.
Financial instruments
At initial recognition, the Company classifies its financial
instruments in the following categories, depending on the purpose
for which the instruments were acquired:
a) Financial assets and financial liabilities at fair value through
profit or loss
Classification
The Company classifies its equity investments and other
holdings, real estate investments and equities sold short and
derivatives as financial assets or financial liabilities at fair value
through profit or loss. This category has two subcategories:
financial assets or financial liabilities held for trading and
those designated at fair value through profit or loss.
18
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) i) Financial assets and financial liabilities held for trading
A financial asset or financial liability is classified as held
for trading if it is acquired or incurred principally for the
purpose of selling or repurchasing in the near term or if
on initial recognition it is part of a portfolio of identifiable
financial investments that are managed together and for
which there is evidence of a recent actual pattern of short-
term profit-taking. Derivatives are also categorized as held
for trading. The Company does not classify any derivatives
as hedges in a hedging relationship.
The Company makes short sales in which a borrowed security
is sold in anticipation of a decline in the market value of
that security, or it may use short sales for various arbitrage
transactions.
From time to time, the Company enters into derivative financial
instruments for speculative purposes. These instruments are
marked to market, and the corresponding gains and losses
for the year are recognized in the consolidated statement of
income. The carrying value of these instruments is fair value,
which approximates the gain or loss that would be realized if
the position were closed out as at the consolidated statement
of financial position date. The fair value is included in equity
investments and other holdings if in an asset position or
securities sold short and derivative liabilities if in a liability
position.
ii) Financial assets and financial liabilities designated as fair
value through profit or loss
Financial assets and financial liabilities designated as fair
value through profit or loss are financial instruments that are
not classified as held for trading but are managed, and their
performance is evaluated on a fair value basis in accordance
with the Company’s documented investment strategy.
The Company’s policy requires management to evaluate
the information about these financial assets and financial
liabilities on a fair value basis together with other related
financial information.
Recognition, derecognition and measurement
Regular purchases and sales of investments are recognized on
the trade date – the date on which the Company commits to
purchase or sell the investment. Financial assets and financial
liabilities at fair value through profit or loss are initially
recognized at fair value. Transaction costs are expensed as
incurred in the consolidated statement of income.
Subsequent to initial recognition, all financial assets and
financial liabilities at fair value through profit or loss
are measured at fair value. Gains and losses arising from
changes in the fair value of financial assets or financial
liabilities at fair value through profit or loss are presented
in the consolidated statement of income in net change in
fair value of equity investments and other holdings or net
change in fair value of real estate investments in the period
in which they arise.
Dividend income from financial assets at fair value through
profit or loss is recognized in the consolidated statement
of income as net dividend income when the Company’s
right to receive payment is established. Dividend expense
on securities sold short is included in net dividend income.
Interest on debt securities at fair value through profit or loss
is recognized in the consolidated statement of income in
interest income based on the effective interest rate.
Financial assets and financial liabilities are recognized when
the Company becomes a party to the contractual provisions
of the instrument. Financial assets are derecognized when
the rights to receive cash flows from the assets have expired
or have been transferred and the Company has transferred
substantially all risks and rewards of ownership.
Financial assets and financial liabilities are offset and the net
amount reported in the consolidated statement of financial
position when there is a legally enforceable right to offset
the recognized amounts and when there is an intention to
settle on a net basis or realize the asset and settle the liability
simultaneously.
b) Loans and receivables
Classification
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an
active market. The Company’s loans and receivables comprise
cash and cash equivalents, restricted short-term investments
and due from brokers, as well as loans to employees, which are
included in other assets.
Recognition, derecognition and measurement
Loans and receivables are initially recognized at fair value.
Subsequently, loans and receivables are measured at amortized
cost using the effective interest method less a provision for
impairment.
At each reporting date, the Company assesses whether there
is objective evidence that a financial asset is impaired. If such
evidence exists, the Company recognizes an impairment loss
as follows:
• The loss is the difference between the amortized cost of the
loan or receivable and the present value of the estimated
future cash flows, discounted using the instrument’s original
effective interest rate. The carrying amount of the asset is
reduced by this amount either directly or indirectly through
the use of an allowance account.
• Impairment losses on financial assets carried at amortized
cost are reversed in subsequent periods if the amount of the
loss decreases and the decrease can be related objectively
to an event occurring after the impairment was recognized.
19
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED)
c) Financial liabilities at amortized cost
Income tax
Classification
Financial liabilities at amortized cost comprise bank advances,
trade and other payables, due to brokers, redemptions payable
and subscriptions received in advance.
Recognition, derecognition and measurement
Trade and other payables are initially recognized at fair
value. Subsequently, trade and other payables are measured
at amortized cost using the effective interest method.
Bank advances, due to brokers, redemptions payable and
subscriptions received in advance are recognized initially at fair
value, net of any transaction costs incurred (where applicable),
and subsequently at amortized cost using the effective interest
method.
Due from and to brokers
Amounts due from and to brokers represent positive and negative
cash balances or margin accounts, and pending trades on the
purchase or sale of securities.
Where terms in the prime brokerage agreements permit the prime
broker to settle margin balances with cash accounts or collateral,
the due from brokers cash balances are offset against the due to
brokers margin balances at each prime broker.
A provision for impairment of amounts due from brokers is
established when there is objective evidence that the Company
will not be able to collect all amounts due from the relevant
broker. Significant financial difficulties of the broker, probability
that the broker will enter bankruptcy or financial reorganization,
and default in payments are considered indicators that the amount
due from brokers is impaired. Once a financial asset or a group
of similar financial assets has been written down as a result of an
impairment loss, interest income is recognized using the rate of
interest used to discount the future cash flows for the purpose of
measuring the impairment loss.
Investment properties
Investment properties are properties held to earn rental income
and/or for capital appreciation and are not occupied by the
Company. Investment properties are measured initially at cost,
including transaction costs. Subsequent to initial recognition,
investment properties are measured at faire value. Changes in fair
values are recognized in the consolidated statement of income as
part of net change in fair value of investment properties in the
period in which they arise.
Provision
A provision is recognized if, as a result of a past event, the
Company has a present legal or constructive obligation that
can be estimated reliably and it is probable that an outflow of
economic benefits will be required to settle the obligation.
Income tax comprises current and deferred tax. Income tax is
recognized in the consolidated statement of income except to the
extent that it relates to items recognized directly in equity, in
which case the income tax is also recognized directly in equity.
Current income tax is calculated on the basis of the tax laws
enacted or substantively enacted at the consolidated statement of
financial position date in the countries where the Company and
its subsidiaries operate and generate taxable income. Management
periodically evaluates positions taken in tax returns with respect
to situations in which applicable tax regulation is subject to
interpretation. It establishes provisions where appropriate on the
basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognized, using the liability method,
on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated
financial statements. However, deferred tax liabilities are not
recognized if they arise from the initial recognition of goodwill;
deferred income tax is not accounted for if it arises from initial
recognition of an asset or liability in a transaction other than a
business combination that at the time of the transaction affects
neither accounting nor taxable profit or loss. Deferred income tax
is determined using tax rates (and laws) that have been enacted or
substantively enacted at the consolidated statement of financial
position date and will apply when it is expected that the related
deferred income tax asset will be realized or the deferred income
tax liability settled.
Deferred income tax assets are recognized only to the extent that
it is probable that future taxable profit will be available against
which the temporary differences can be used.
Deferred income tax is provided on temporary differences
arising on investments in subsidiaries and associates, except for
deferred income tax liability where the timing of the reversal of
the temporary difference is controlled by the Company and it is
probable that the temporary difference will not reverse in the
foreseeable future.
Deferred income tax assets and liabilities are offset when there
is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets
and liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable
entities where there is an intention to settle the balances on a
net basis.
Interest income and dividend income
Interest income
Interest income is recognized using the effective interest method.
It includes interest income from cash and cash equivalents and
interest on debt securities at fair value through profit or loss.
Dividend income
Dividend income is recognized when the Company’s right to
receive payments is established.
20
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) Transaction costs
Transaction costs are incremental costs that are directly
attributable to the acquisition, issue or disposal of an investment.
Transaction costs related to financial assets and financial
liabilities at fair value through profit or loss are expensed as
incurred. Transaction costs for all other financial instruments are
capitalized, except for instruments with maturity dates, in which
case transaction costs are amortized over the expected life of the
instrument using the effective interest method.
Employee benefits
Post-employment benefit obligations
Employees of companies included in these consolidated financial
statements have entitlements under Company pension plans
which are defined contribution pension plans. The cost of
defined contribution pension plans is charged to expense as
the contributions become payable and is included in the same
line item as the related compensation cost in the consolidated
statement of income.
Share capital
Common shares are classified as equity. Incremental costs directly
attributable to the issue of new common shares or options are
recorded in equity as a deduction, net of tax, from the proceeds.
Dividend distribution
Dividends on the Company’s common shares are recognized in
the Company’s consolidated statement of changes in equity in
the year in which the dividends are declared and approved by the
Company’s Board.
Earnings per share
Basic earnings per share is calculated by dividing the net income
for the year attributable to equity owners of the parent by the
weighted average number of common shares outstanding during
the year.
Diluted earnings per share are calculated by adjusting the
weighted average number of common shares outstanding to
assume conversion of all potentially dilutive instruments. The
Company’s potentially dilutive common shares comprise stock
options granted to employees, directors and senior executives. In
calculating diluted earnings per share, the assumed proceeds on
exercise of options are regarded as having been used to repurchase
common shares at the average market price during the year.
New and amended accounting standard adopted in 2017
The Company has applied
the following standards and
amendments for the first time for their annual reporting period
commencing January 1, 2017:
• Recognition of Deferred Tax Assets for Unrealized Losses –
Amendments to IAS 12, and
• Disclosure Initiative – Amendments to IAS 7 Statement of
Cash Flows.
The adoption of these amendments did not have any impact on
the amounts recognized in prior periods. The amendments will
not affect significantly the current period or future periods.
Accounting standards and amendments issued but not
yet adopted
The Company presents the developments that are relevant to its
activities and transactions. The following revised standards and
amendments are not mandatory for December 31, 2017 reporting
periods and have not been applied in preparing these consolidated
financial statements. The Company has not early adopted these
standards and amendments.
• IFRS 15, Revenue from Contracts with Customers, deals with
revenue recognition and establishes principles for reporting
useful information to users of financial statements about
the nature, amount, timing and uncertainty of revenue and
cash flows arising from an entity’s contracts with customers.
Revenue is recognized when a customer obtains control of a
good or service and thus has the ability to direct the use and
obtain the benefits from the good or service. The standard
replaces IAS 18, Revenue, and IAS 11, Construction Contracts,
and related interpretations. The standard is effective for annual
periods beginning on or after January 1, 2018 and earlier
application is permitted. The Company is in the final stage of
analyzing the impact of the adoption of IFRS 15. The impact is
not expected to be significant.
• In July 2014, the IASB issued the complete version of IFRS 9,
Financial Instruments, first issued in November 2009, which
brings together the classification and measurement, impairment
and hedge accounting phases of the IASB’s project to replace
IAS 39, Financial Instruments: Recognition and Measurement.
• IFRS 9
introduces a principles-based approach to the
classification of financial assets based on an entity’s business
model and the nature of the cash flows of the asset. All financial
assets, including hybrid contracts, are measured at fair value
through profit or loss, fair value through other comprehensive
income or amortized cost. For financial liabilities, IFRS 9
includes the requirements for classification and measurement
previously included in IAS 39. IFRS 9 also introduces an
expected loss impairment model for all financial assets not at
fair value through profit or loss. Finally, IFRS 9 introduces a new
hedge accounting model that aligns the accounting for hedge
relationships more closely with an entity’s risk management
activities, permits hedge accounting to be applied more
broadly to a greater variety of hedging instruments and risks,
and requires additional disclosures. The standard is effective
for annual periods beginning on or after January 1, 2018.
The Company is currently in the final stage of analyzing the
impact of the adoption of IFRS 9 on the consolidated financial
statements. The Company does not expect the new guidance
to significantly affect the classification of measurement of its
financial assets.
• IFRS 16, Leases, was published in January 2016 by the IASB.
This standard will replace the current guidance in IAS 17,
Leases, and require lessees to recognize an asset and a lease
liability reflecting a “right-of-use asset” and future lease
payments, respectively, for virtually all lease contracts. The
standard applies to annual periods beginning on or after
January 1, 2019, with earlier application permitted if IFRS
15 is adopted. The Company is currently assessing the impact
21
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) Income taxes
The Company is subject to income taxes in numerous jurisdictions.
Significant judgment is required in determining the consolidated
provision for income taxes. There are many transactions and
calculations for which the ultimate tax determination is uncertain.
The Company recognizes liabilities for anticipated tax audit
issues based on estimates of whether additional taxes will be due.
Where the final tax outcome of these matters is different from the
amounts that were initially recorded, such differences will impact
the current and deferred income tax assets and liabilities in the
year in which such determination is made.
Critical accounting judgments
Consolidation of entities in which the Company holds less than
50% of the voting rights
Management considers the Company to have de facto control of
Senvest Management L.L.C. (RIMA) and RIMA Senvest Master Fund
GP, L.L.C., two legal entities wholly owned by an executive of the
Company, because of the Company’s Board representation and the
contractual terms of the investment advisory agreement. RIMA is
the investment adviser to the Funds, whereas RIMA Senvest Master
Fund GP, L.L.C. is the General Partner. As compensation for its sub-
advisory services, the Company is entitled to receive 60% of the
management and incentive fees earned by RIMA each fiscal year.
Management considers the Company to have control of Senvest
Master Fund, L.P., Senvest Israel Partners, Master Fund L.P. and
Senvest Cyprus Recovery Investment Fund, L.P. even though the
Company has less than 50% of the voting rights in each of the
Funds. The Company assessed that the removal rights of non-
affiliated unitholders are exercisable but not strong enough given the
Company’s decision-making authority over relevant activities, the
remuneration to which it is entitled and its exposure to returns. The
Company, through its structured entities, is the majority unitholder
of each of the Funds and acts as a principal while there are no other
unitholders forming a group to exercise their votes collectively.
4 Cash and cash equivalents
Cash on hand and on deposit
Short-term investments
2017
$
44,302
8,820
53,122
2016
$
26,616
362
26,978
of this standard on the consolidated financial statements.
As at December 31, 2017, the operating leases disclosed in note
20 to the consolidated financial statements are in scope with
IFRS 16.
• IFRS 10, Consolidated Financial Statements, and IAS 28,
Investments in Associates and Joint Ventures, were amended
in 2014 to address an inconsistency between those standards
when accounting for the sale or a contribution of assets
between an investor and its associate or joint venture. The
main consequence of the amendments is that a full gain or
loss is recognized when the transaction involves a business
combination, whereas a partial gain is recognized when the
transaction involves assets that do not constitute a business.
The mandatory effective date of this amendment will be
determined by the IASB at a future date. Voluntary application
is permitted.
• The amendment to IAS 40, Investment property, related to the
transfers of investment property clarify that transfers to, or
from, investment property can only be made if there has been a
change in use that is supported by evidence that a change in use
as occurred. A change in use occurs when the property meets,
or ceases to meet, the definition on investment property. A
change in intention alone is not sufficient to support a transfer.
The amendments are effective for annual periods beginning on
or after January 1, 2018 with earlier adoption permitted. The
Company is currently assessing the impact of this standard on
the consolidated financial statements.
3 Critical accounting estimates and judgments
Critical accounting estimates
The Company makes estimates and assumptions concerning
the future that will, by definition, seldom equal actual results.
The following are the estimates applied by management that
most significantly affect the Company’s consolidated financial
statements. These estimates have a significant risk of causing
a significant adjustment to the carrying amounts of assets and
liabilities within the next fiscal year.
Fair value of financial instruments
The fair value of financial instruments where no active market
exists or where listed prices are not otherwise available are
determined by using valuation techniques. In these cases, the
fair values are estimated from observable data in respect of
similar financial instruments or by using models. Where market
observable inputs are not available, they are estimated based
on appropriate assumptions. To the extent practical, models
use only observable data; however, areas such as credit risk
(both the Company’s own credit risk and counterparty credit
risk), volatilities and correlations require management to make
estimates.
Changes in assumptions about these factors could affect the
reported fair value of financial instruments.
Refer to note 16 for risk sensitivity information for the Company’s
financial instruments.
22
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) 5 Credit facilities and due from and
due to brokers
a) Credit facilities
Bank advances
In 2014, the Company renegotiated its credit facility with a
bank and has available a demand revolving loan (credit facility)
and a guarantee facility. The credit facility is in the amount of
$3,000 and is payable on demand. As at December 31, 2017,
$2,276 was outstanding (2016 – $509). Under the credit facility,
the Company may, upon delivery of a required notice, opt to
pay interest at the bank’s prime rate plus 0.25%, the bank’s US
base rate plus 0.25% or LIBOR plus 1.75% per annum. All of
the credit facility available is also available by way of banker’s
acceptances plus a stamping fee of 1.75% per annum, or by US
dollar advances.
Guarantee facility
The Company also has available a EUR450,000 guarantee
facility (2016 – EUR450,000) to issue standby letters of credit.
A fee of 1.00% per annum on the face amount of each standby
letter of credit applies. All amounts paid by the bank under the
guarantee facility are payable on demand. As at December 31,
2017, no standby letters of credit were outstanding; however,
the Company has provided a $460 (2016 – $459) term deposit
to guarantee future letters of credit. This term deposit has
been disclosed in restricted short-term investments on the
consolidated statement of financial position.
In addition, a first-ranking movable hypothec in the amount
of $30,000 on all of the Company’s assets has been granted as
collateral for both the credit and guarantee facilities. According
to the terms of the facilities, the Company is required to comply
with certain financial covenants. As at December 31, 2017
and 2016, the Company had met the requirements of all the
covenants.
b) Due from and due to brokers
The Company has margin facilities with its prime brokers. As
at December 31, 2017 and 2016, the Company’s amounts due
to brokers have no specific repayment terms, and they are
governed by the margin terms set forth in the prime brokerage
agreements. As at December 31, 2017, listed equity securities
and due from brokers amounting to $2,615,157 have been
pledged as collateral (2016 – $2,346,784). The fair value of
the collateral-listed equity securities is calculated daily and
compared to the Company’s margin limits. The prime brokers
can at any time demand full or partial repayment of the margin
balances and any interest thereon or demand the delivery of
additional assets as collateral.
Due from and due to brokers balances are presented on a net
basis by broker in the consolidated statement of financial
position. Under the prime broker agreements, the broker
may upon events of default offset, net and/or regroup any
amounts owed by the Company to the broker by amounts
owed to the Company by the broker. The following tables set
out the offsetting of the Company’s various accounts with
prime brokers
Due from brokers
Due to brokers
Due from brokers
Due to brokers
Gross amounts
due from brokers
$
440,284
1,279
Gross amounts
due to brokers
$
140,288
18,063
Gross amounts
due from brokers
$
191,602
14,011
Gross amounts
due to brokers
$
-
70,765
2017
Net
amount
$
299,996
(16,784)
2016
Net
amount
$
191,602
(56,754)
23
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) 6
Equity investments and other holdings, securities sold short and derivative liabilities
Equity investments and other holdings
Note
2017
$
2016
$
Assets
Financial assets held for trading
Equity securities
Debt securities
Derivative financial assets
Financial assets designated as fair value through profit or loss
Equity securities
Unlisted equity securities
Private investments
Less: current portion
Non-current portion
Securities sold short and derivative liabilities
Liabilities
Financial liabilities held for trading
Securities sold short
6(a)
6(b)
2,313,472
62,598
85,728
2,151,422
23,491
60,228
2,461,798
2,235,141
2,143
8,811
60,422
2,004
8,745
43,398
2,533,174
2,289,288
2,461,798
2,235,141
71,376
54,147
Note
2017
$
2016
$
Listed equity securities (proceeds of $803,845; 2016 – $783,973)
Debt securities (proceeds of $15,644; 2016 – nil)
Derivative financial liabilities (proceeds of $130; 2016 – $2,825)
6(a)
892,203
15,696
9,612
917,511
725,798
-
1,846
727,644
24
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) a) From time to time, the Company enters into derivative financial instruments consisting primarily of warrants and options to
purchase or sell equity indices and currencies, equity swaps, foreign currency forward contracts and foreign currency futures
contracts. The following tables list the notional amounts, fair values of derivative financial assets and financial liabilities and net
change in fair value by contract type, including swaps, options, warrants, rights, foreign currency futures contracts, foreign currency
forward contracts and swaps and options sold short included in equity investments and other holdings or securities sold short and
derivative liabilities:
Fair value
of derivative
financial
assets
$
Notional
value
$
245,124
78,844
1,380
3,476
65,234
186,000
-
781
705
31
5,367
Notional
value
$
81,184
2,202
-
-
-
-
200,720
501,214
85,728
284,106
As at
December 31,
2017
Fair value
of derivative
financial
liabilities
$
7,304
148
-
-
-
2,160
9,612
Fair value
of derivative
financial
assets
$
40,043
773
76
9,913
6,571
2,852
Notional
value
$
223,963
14,988
3,999
289,056
186,000
58,672
As at
December 31,
2016
Fair value
of derivative
financial
liabilities
$
139
1,661
-
46
-
-
Notional
value
$
9,581
39,411
-
209,461
-
-
776,678
60,228
258,453
1,846
For the
year ended
December 31,
2017
Net change
in fair value
$
46,859
511
656
(283
)
14,786
(2,316
)
60,213
For the
year ended
December 31,
2016
Net change
in fair value
$
40,060
747
(156
)
(8,350
)
(2,230
)
2,815
32,886
Equity swaps
Equity options
Warrants and rights
Foreign currency options
Foreign currency futures contracts
Foreign currency forward contracts
Equity swaps
Equity options
Warrants and rights
Foreign currency options
Foreign currency futures contracts
Foreign currency forward contracts
b) These holdings are in private entities whose shares/units do not trade in an active market. There is no established market for these
securities. The most likely scenario of a disposal of these holdings is an eventual sale of the underlying entities.
25
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) 7
Investments in associates
The Company has invested in a number of individually insignificant associates that are accounted for using the equity method. The
aggregated financial information on these associates is as follows:
Aggregate carrying amount of individually immaterial associates
Aggregate amounts of the Company’s share of:
Net income (loss) from continuing operations and
comprehensive income
2017
$
12,681
2016
$
12,461
2,182
(505)
Commitments, contingent liabilities and borrowing arrangements of associates
There are no commitments, contingent liabilities or borrowing arrangements relating to the Company’s interests in these associates.
8
Real estate investments
Real estate investments comprise the following:
Financial assets designated as fair value through profit or loss
Investments in private entities
Investments in real estate income trusts
Non-current portion
Note
8(a)
8(b)
2017
$
17,630
13,159
30,789
30,789
2016
$
18,644
17,294
35,938
35,938
a) These investments are minority interests in private entities whose main assets are real estate properties. There is no established
market for these investments. The most likely scenario for a disposal of these investments is an eventual sale of the underlying real
estate properties.
b) These real estate investments are US real estate income trusts (commonly referred to as REITs). A REIT is an entity that owns and
operates income-producing real estate and annually distributes to its holders at least 90% of its taxable income. The Company’s
investments are non-publicly-traded REITs. There is no established market for these REITs. The most likely scenario for a disposal of
these holdings is an eventual sale of the underlying real estate properties of the REITs and the distribution to their holders.
26
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) 9
Investment properties
Opening balance as at January 1
Acquired through a business combination
Capitalized subsequent expenditure
Net gain from fair value adjustment
Currency translation adjustments
Closing balance as at December 31
Non-current portion
a) Amounts recognized in profit or loss for investment properties
Rental income
Direct operating expenses from property that generated rental income
Direct operating expenses from property that does not generate rental income
Net change in fair value of investment properties
b) Contractual obligations
Note
2017
$
1,874
15,482
7,630
1,345
407
26,738
26,738
2017
$
2,770
2,168
937
1,345
2016
$
1,880
-
-
111
(117
)
1,874
1,874
2016
$
-
-
120
111
Refer to note 20 for disclosure of contractual obligations to purchase, construct or develop investment property or for repairs,
maintenance and enhancements.
c) Leasing arrangements
The investment properties are leased to tenants under short-term month to month operating leases with rentals payable monthly.
d) Fair value measurements
This note explains the judgments and estimates made in determining the fair values of the investment properties that are recognized
and measured at fair value in the consolidated financial statements. Based on the reliability of the inputs used in determining the
fair value, the Company has classified its investment properties in Level 3 of the fair value hierarchy (a description of the levels is
provided in note 16). There was no transfers between levels for recurring fair value measurements of investment properties during
the years ended December 31, 2017 and 2016.
i) Valuation techniques used to determine Level 3 fair values
The Company obtains independent valuations for its investment properties annually. At the end of each reporting period, the
directors update their assessment of the fair value of each property, taking into account the most recent independent valuations.
The directors determine a property’s value within a range of reasonable fair value estimates.
The best evidence of fair value is current prices in an active markets for similar properties. Where such information is not
available the independent valuators consider information from a variety of sources including:
• current prices in active markets for properties of similar properties in similar markets and in less active market, adjusted to
reflect those differences;
• discounted cash flow projections based on reliable estimates of future cash flows; and
• capitalized income projections based upon a property’s estimated net market income, and a capitalization rate derived from
an analysis of market evidence.
27
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED)
ii) Fair value measurements using significant unobservable inputs (Level 3)
The following table summarizes the quantitative information about the significant unobservable inputs used in recurring Level
3 fair value measurement. See (i) above for the valuation technique adopted.
Description
Leased buildings –
Storage facilities
Description
Fair value
(rounded)
2017
$
26,738
Fair value
(rounded)
2016
$
Valuation
technique
Comparable sales
approach
Significant
unobservable
inputs
Weighted
average input
Reasonably
possible shifts
+/−
Change in
value
$
Value/m2
1,100
10%
+/-2,700
Valuation
technique
Significant
unobservable
inputs
Weighted
average input
$
Reasonably
possible shifts
+/−
Change in
value
$
Leased buildings –
Storage facilities
Comparable sales
approach
1,874
Value/m2
560
10%
+/-190
The following table presents the changes in Level 3 investment properties:
2017
$
1,874
15,482
7,630
-
1,345
407
26,738
2016
$
1,880
-
-
111
(117
)
1,874
As at December 31, 2016
Acquired through a business combination
Capitalized subsequent expenditure
Disposals
Gains recognized in net income
Currency translation adjustments
As at December 31, 2017
As at December 31, 2015
Acquisition
Disposals
Gains recognized in net income
Currency translation adjustments
As at December 31, 2016
28
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) 10
Financial instruments by category and related income, expenses and gains and losses
Assets (liabilities) at fair
value through profit or loss
Held for
trading
$
Designated
$
Loans and
receivables
$
Financial
liabilities at
amortized cost
$
2017
Total
$
Assets (liabilities) as per consolidated statement
of financial position
Cash and cash equivalents
Restricted short-term investments
Due from brokers
-
-
-
Equity investments and other holdings
2,461,798
Real estate investments
Other assets*
Bank advances
Trade and other payables
Due to brokers
-
-
-
-
-
Securities sold short and derivative liabilities
(917,511
)
Redemptions payable
Subscriptions received in advance
-
-
-
-
-
71,376
30,789
-
-
-
-
-
-
-
53,122
460
299,996
-
-
1,767
-
-
-
-
-
-
-
-
-
-
-
-
(2,276
)
(29,130
)
(16,784
)
53,122
460
299,996
2,533,174
30,789
1,767
(2,276
)
(29,130
)
(16,784
)
-
(917,511
)
(10,265
)
(16,992
)
(10,265
)
(16,992
)
1,544,287
102,165
355,345
(75,447
)
1,926,350
Amounts recognized in consolidated statement
of income
Net change in fair value
Interest income (expense)
Net dividend income
455,939
6,650
4,902
33,768
30
1,038
467,491
34,836
-
324
-
324
-
(40,917
)
-
489,707
(33,913
)
5,940
(40,917
)
461,734
* Includes loans to employees and other financial receivables but excludes capital assets and other non-financial assets.
29
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) Assets (liabilities) at fair
value through profit or loss
Held for
trading
$
Designated
$
Loans and
receivables
$
Financial
liabilities at
amortized cost
$
2016
Total
$
Assets (liabilities) as per consolidated statement
of financial position
Cash and cash equivalents
Restricted short-term investments
Due from brokers
-
-
-
Equity investments and other holdings
2,235,141
Real estate investments
Other assets*
Bank advances
Trade and other payables
Due to brokers
-
-
-
-
-
Securities sold short and derivative liabilities
(727,644
)
Redemptions payable
Subscriptions received in advance
-
-
-
-
-
54,147
35,938
-
-
-
-
-
-
-
26,978
459
191,602
-
-
252
-
-
-
-
-
-
-
-
-
-
-
-
(509
)
(20,055
)
(56,754
)
26,978
459
191,602
2,289,288
35,938
252
(509
)
(20,055
)
(56,754
)
-
(727,644
)
(3,315
)
(2,299
)
(3,315
)
(2,299
)
1,507,497
90,085
219,291
(82,932
)
1,733,941
Amounts recognized in consolidated statement
of income (loss)
Net change in fair value
Interest income (expense)
Net dividend income
324,417
3,846
10,343
2,707
29
218
338,606
2,954
-
309
-
309
-
(18,464
)
-
327,124
(14,280
)
10,561
(18,464
)
323,405
* Includes loans to employees but excludes capital assets and other non-financial assets.
30
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) 11
Trade and other payables
Trade payables
Employee benefits accrued
Mortgages
Interest payable
Other
2017
$
1,008
13,946
4,448
4,482
5,246
29,130
2016
$
614
15,464
-
1,529
2,448
20,055
Mortgages of $4,448 (2016 – nil) are on investment properties acquired through a business combination. The terms of the mortgages
range from four to seven years and bear interest rates of 0.8% to 1.0%. Investment properties of $15,413 are pledged as collateral
against the mortgages.
12
Income taxes
a) Income tax expense
Current tax
Current tax on income for the year
Adjustments in respect of prior years
Deferred tax
Origination and reversal of temporary differences
Changes in deferred tax rates
2017
$
24,296
45
24,341
1,660
(2,717
)
(1,057
)
23,284
2016
$
7,720
6,603
14,323
6,283
-
6,283
20,606
31
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) The tax on the Company’s income before income tax differs from the theoretical amount that would arise using the federal and
provincial statutory tax rate applicable to income of the consolidated entities. The statutory tax rate for 2017 decreased from 26.9% to
26.8%. This decrease is in line with Quebec’s tax rate reduction from 11.9% to 11.8%. The difference between the Company’s income
tax and theoretical tax is as follows:
2017
$
221,089
59,251
(544
)
6,698
(2,717
)
(8,717
)
(956
)
(15,126
)
72
(14,555
)
191
(313
)
23,284
2016
$
137,787
37,065
(1,912
)
2,645
-
(4,616
)
-
(9,017
)
163
(4,175
)
489
(36
)
20,606
2017
$
2016
$
-
-
-
43,485
-
43,485
-
-
-
47,599
-
47,599
Income before income tax
Income tax expense based on statutory rate of 26.8% (2016 – 26.9%)
Prior year adjustments
Difference in tax rate
Change in deferred tax rates
Portion of income recoverable in hands of non controlling interests
Non-taxable dividend
Non-taxable portion of capital gains
Non-deductible expenses
Foreign exchange
Unrecognized deferred income tax assets
Other
Income tax expense
b) The analysis of deferred income tax assets and liabilities is as follows:
Deferred income tax assets
Deferred tax assets to be recovered
After more than 12 months
Within 12 months
Deferred income tax assets
Deferred income tax liabilities
Deferred tax liabilities to be settled
After more than 12 months
Within 12 months
Deferred income tax liabilities
32
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances
within the same tax jurisdiction, is as follows.
Deffered income tax assets
As at December 31, 2015
Credited (charged) to consolidated
statement of income
Foreign exchange differences
As at December 31, 2016
Charged to consolidated
statement of income
Foreign exchange differences
As at December 31, 2017
Deffered income tax liabilities
As at December 31, 2015
Charged (credited) to consolidated
statement of income
Foreign exchange differences
As at December 31, 2016
Charged (credited) to consolidated
statement of income
Effect of tax rate changes
Foreign exchange differences
As at December 31, 2017
Equity
investments
and other
holdings
$
Investments
in
associates
$
Real estate
investments
$
385
1,013
1
1,399
(671
)
(69
)
659
108
(103
)
(5
)
-
-
-
-
487
(240
)
(17
)
230
(140
)
(11
)
79
Tax loss
carry-
forward
$
141
900
8
1,049
(1,014
)
(35
)
-
Equity investments
and other holdings
$
Investments in
associates
$
Real estate
investments
$
3,708
(685
)
(120
)
2,903
2,145
(801
)
(236
)
4,011
32,901
5,012
(914
)
36,999
5,875
(1,876
)
(2,566
)
38,432
1,906
(146
)
(59
)
1,701
47
(40
)
(112
)
1,596
Other
$
495
(474
)
(21
)
-
-
-
-
Other
$
5,602
3,197
(125
)
8,674
(8,198
)
-
(292
)
184
Total
$
1,616
1,096
(34
)
2,678
(1,825
)
(115
)
738
Total
$
44,117
7,378
(1,218
)
50,277
(131
)
(2,717
)
(3,206
)
44,223
Deferred income tax assets for temporary differences totalling $8,518 (2016 – $8,253) and non-expiring capital loss carry-forwards
totalling $9,628 (2016 – $8,974) and non-expiring operating loss carry-forwards of $9,534, of which $8,374 originated from a business
combination, have not been recognized in the consolidated financial statements.
Deferred income tax liabilities have not been recognized on unremitted earnings totalling $69,754 as at December 31, 2017
(2016 – $62,938) with respect to the investment in subsidiaries, branches and associates and interest in joint arrangements because the
Company controls whether the liability will be incurred and it is satisfied that it will not be incurred in the foreseeable future.
33
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) 13
Share capital
Authorized
Unlimited number of common shares, without par value
Movements in the Company’s share capital are as follows:
Balance – Beginning of year
Shares repurchased
Balance – End of year
Number of shares
2,777,824
(38,100
)
2,739,724
2017
Amount
$
23,057
(306
)
22,751
Number of shares
2,817,624
(39,800
)
2,777,824
2016
Amount
$
23,376
(319
)
23,057
In 2017, the Company began a normal course issuer bid to purchase a maximum of 82,000 of its own common shares before August
14, 2018. In 2017, the Company purchased 38,100 common shares (2016 – 39,800) for a total cash consideration of $8,370 (2016 –
$6,060). The excess of the consideration paid over the stated capital was charged to retained earnings in the consolidated statement
of changes in equity.
No dividends were declared in 2017 and 2016
14
Earnings per share
a) Basic
Net income (loss) attributable to owners of the parent
Weighted average number of outstanding common shares
Basic earnings (loss) per share
b) Diluted
For the years ended December 31, 2017 and 2016, there were no dilutive instruments.
2017
$
$165,967
2,764,851
2016
$
$96,783
2,805,213
60.03
34.50
34
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) 15
Supplementary information to consolidated statements of cash flows
a) Adjustments for non-cash items are as follows:
Net change in fair value of equity investments and other holdings
Net change in fair value of real estate investments
Net change in fair value of investment properties
Share of profit (loss) of associates, adjusted for distributions received
Change in redemption amount of redeemable units
Deferred income tax
b) Changes in working capital items are as follows:
Note
12 (a)
Note
Decrease (increase) in
Due from brokers
Income taxes receivable
Other assets
Increase (decrease) in
Trade and other payables
Due to brokers
Income taxes payable
2017
$
(485,893
)
(3,814
)
(1,345
)
(2,182
)
146,030
(1,057
)
(348,261
)
2017
$
(125,233
)
(14,256
)
72
12,300
(37,516
)
(1,211
)
(165,844
)
2016
$
(321,977
)
(5,147
)
(111
)
505
133,726
6,283
(186,721
)
2016
$
(178,156
)
121
27
11,296
(170,268
)
96
(336,884
)
35
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) 16
Financial risks and fair value
Financial risk factors
The Company’s activities expose it to a variety of financial risks: market risk (including fair value interest rate risk, cash flow interest
rate risk, currency risk and equity price risk), credit risk and liquidity risk.
The Company’s overall risk management program seeks to maximize the returns derived for the level of risk to which the Company is
exposed and seeks to minimize potential adverse effects on the Company’s financial performance. Managing these risks is carried out
by management under policies approved by the Board.
The Company uses different methods to measure and manage the various types of risk to which it is exposed; these methods are
explained below.
Market risk
Fair value and cash flow interest rate risks
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in
market interest rates.
The majority of the Company’s debt is based on floating rates, which exposes the Company to cash flow interest rate risk. The Company
does not have a long-term stream of cash flows that it can match against this type of fixed debt, so it prefers to use short-term floating
rate debt. The Company does not mitigate its exposure to interest rate fluctuation on floating rate debt. If interest rates spike, then the
Company could enter into interest rate swaps or more probably just reduce its debt level. As at December 31, 2017, the Company has
listed equity securities of $2,315,615 (2016 – $2,153,426). It can sell these securities to reduce its floating rate debt. As at December
31, 2017, a 1% (2016 – 1%) increase or decrease in interest rates, with all other variables remaining constant, would impact interest
expense by approximately $191 over the next 12 months (2016 – $573).
The Company’s exposure to interest rate risk is summarized as follows:
Cash and cash equivalents
Restricted short-term investments
Debt securities
Loans to employees
Credit facilities
Bank advances
Guarantee facility
Trade and other payables
Due to brokers
Mortgages
2017
2016
Between nil and 1.0%
Between nil and 0.81%
Between 0.30% and 0.50%
Between 0.15% and 0.30%
Between 1.016% and 12.0%
Between 1.26% and 11.0%
Non-interest bearing
Non-interest bearing
Prime rate plus 0.25%
Prime rate plus 0.25%
1.0%
Non-interest bearing
0.00% to 1.17%
0.80% to 1.0%
1.0%
Non-interest bearing
0.00% to 0.88%
-
36
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) The Company also holds debt securities held for trading of $62,598 (2016 – $23,491). Debt securities are usually highly sensitive to
interest rate changes. Theoretically, when interest rates rise, it causes the value of debt securities to decline. The opposite generally
happens when interest rates fall, then debt securities usually rise in value. However, interest rates are only one factor affecting the
value of debt securities. Other factors such as the creditworthiness of the issuer and the spreads attached thereto, the state of the
economy and market sentiment can also have a significant effect on debt securities. At any time, one or more factors may have more
or less of an effect on the fair value of debt securities than the change in interest rates. If all other factors are assumed not to change,
then a change of 100 basis points in the yield to maturity will affect the fair value of the debt securities held for trading as follows.
Estimated effect on the fair value of debt securities due to:
An increase of 100 basis points in the yield to maturity
A decrease of 100 basis points in the yield to maturity
Currency risk
2017
$
(914
)
1,030
2016
$
(709
)
749
Currency risk is the risk that the value of monetary financial assets and financial liabilities denominated in foreign currencies will
vary as a result of changes in underlying foreign exchange rates. The Company is exposed to currency risk due to potential variations
in currencies other than the US dollar. The following tables summarize the Company’s main monetary financial assets and financial
liabilities whose fair value is predominantly determined in currencies other than the US dollar, the Company’s functional currency, and
the effect on pre-tax net income of a 10% change in currency exchange rates:
Canadian dollar
British pound sterling
Euro
Swedish Krone
Israeli shekel
Canadian dollar
British pound sterling
Euro
Norwegian krone
Japanese yen
Israeli shekel
Financial
assets
$
816
-
1,356
-
-
2,172
Financial
assets
$
138,618
9,431
2,171
-
-
-
150,220
Financial
liabilities
$
(134,497
)
(816
)
(6,959
)
(2,456
)
(11,091
)
(155,819
)
Financial
liabilities
$
(6,852
)
(2,888
)
(10,247
)
(791
)
(2,865
)
(22,144
)
(45,787
)
2017
Net effect of a
10% increase
or decrease
$
(13,368
)
(82
)
(560
)
(246
)
(1,109
)
(15,375
)
2016
Net effect of a
10% increase
or decrease
$
13,177
654
(808
)
(79
)
(287
)
(2,214
)
10,443
Net
exposure
$
(133,681
)
(816
)
(5,603
)
(2,456
)
(11,091
)
(153,647
)
Net
exposure
$
131,766
6,543
(8,076
)
(791
)
(2,865
)
(22,144
)
104,433
37
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) Equity price risk
Equity price risk is the risk that the fair value of equity investments and other holdings and equities sold short and derivatives will
vary as a result of changes in the market prices of the holdings. The majority of the Company’s equity investments and other holdings
and all of the equities sold short and derivatives are based on quoted market prices as at the consolidated statement of financial
position date. Changes in the market price of quoted securities and derivatives may be related to a change in the financial outlook of
the investee entities or due to the market in general. Where non-monetary financial instruments − for example, equity securities − are
traded in currencies other than the US dollar, the price, initially expressed in a foreign currency and then converted into US dollars,
will also fluctuate because of changes in foreign exchange rates.
Securities sold short represent obligations of the Company to make future delivery of specific securities and create an obligation
to purchase the security at market prices prevailing at the later delivery date. This creates the risk that the Company’s ultimate
obligation to satisfy the delivery requirements will exceed the amount of the proceeds initially received or the liability recorded in the
consolidated financial statements. In addition, the Company has entered into derivative financial instruments which have a notional
value greater than their fair value which is recorded in the consolidated financial statements. This information is disclosed in note 6(a)
to these consolidated financial statements. This creates a risk that the Company could settle these instruments at a value greater or less
than the amount that they have been recorded in the consolidated financial statements.
The Company’s equity investments and other holdings have a downside risk limited to their carrying value, while the risk of equities
sold short and derivatives is open-ended. The Company is subject to commercial margin requirements which act as a barrier to the
open-ended risks of the equities sold short and derivatives. The Company closely monitors both its equity investments and other
holdings and its equities sold short and derivatives.
The impact of a 30% change in the market prices of the Company’s listed equity investments and other holdings and equities sold short
and derivatives would be as follows:
Equity investments and other holdings
Listed equity securities and derivatives
Equities sold short and derivative liabilities
Pre-tax impact on net income
Equity investments and other holdings
Listed equity securities and derivatives
Equities sold short and derivative liabilities
Pre-tax impact on net income
Fair value
$
2,395,241
(899,655
)
Fair value
$
2,194,242
(727,598
)
Estimated fair value
with a 30%
price increase
$
3,113,813
(1,169,551
)
448,676
2017
Estimated fair value
with a 30%
price decrease
$
1,676,668
(629,758
)
(448,676
)
2016
Estimated fair value
with a 30%
price increase
$
Estimated fair value
with a 30%
price decrease
$
2,852,515
(945,877
)
439,993
1,535,969
(509,319
)
(439,993
)
The above analysis assumes that listed equity investments, derivatives and equities sold short would increase or decrease at the same
rate. As these portfolios are not hedged together, a change in market prices will affect each one differently.
38
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) Credit risk
Credit risk is the risk that a counterparty will fail to fulfill its obligations under a contract and will cause the Company to suffer a loss.
All transactions in listed securities are settled or paid for upon delivery using approved brokers. The risk of default is considered
minimal, as delivery of securities sold is executed only once the broker has received payment. Payment is made on a purchase once
the securities have been received by the broker. The trade will fail if either party fails to meet its obligations.
The Company is also exposed to counterparty credit risk on its cash and cash equivalents, restricted short-term investments and due
from brokers.
The Company manages counterparty credit risk by dealing only with parties approved by the Board.
From time to time, the Company enters into derivative financial instruments consisting primarily of warrants and options to purchase
or sell equity indices and currencies, equity swaps, foreign currency forward contracts and foreign currency futures contracts. These
derivative instruments are marked to market. There is deemed to be no credit risk for futures and certain options because they are
traded on exchanges. The warrant contracts and certain options are not traded on an exchange and allow the Company to purchase
underlying equities at a fixed price. Equity swaps represent future cash flows that are agreed to be exchanged between the Company
and counterparties at set dates in the future. Foreign currency forward contracts are contracts to buy or sell foreign currencies at a
specified price at a point in time in the future.
The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if
available on Standard & Poor’s, Moody’s or Fitch rating agencies) or to historical information about counterparty default rates. Credit
ratings are presented using Standard & Poor’s rating scale as follows:
Financial assets
Cash and cash equivalents
Restricted short-term investments
Due from brokers
Debt securities
Debt securities
Financial liabilities
Debt securities sold short
Mortgages
Rating
A
A
A
B-
CCC and below
B-
A
Counterparties without external credit rating
Loans to employees*
* Related parties with which the Company has not experienced defaults in the past.
Liquidity risk
2017
$
53,122
460
299,996
5,304
57,294
15,696
4,448
2017
$
127
2016
$
26,978
459
191,602
-
23,491
-
-
2016
$
252
Liquidity risk is the risk the Company will encounter difficulties in meeting its financial obligations. The Company’s largest assets are
equity investments and other holdings. Most of these assets are made up of equities in listed companies which can be liquidated in
a relatively short time. Due to its large investments in liquid assets, the Company believes that it has sufficient resources to meet its
obligations as they come due.
All financial liabilities other than equities sold short and derivative liabilities as at the consolidated statement of financial position
date mature or are expected to be repaid within one year (2016 – one year). The liquidity risk related to these liabilities is managed by
maintaining a portfolio of liquid investment assets.
39
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED)
Capital risk management
The Company’s objective when managing its capital is to maintain a solid capital structure appropriate for the nature of its business.
The Company considers its capital to be its equity. The Company manages its capital structure in light of changes in economic
conditions. To maintain or adjust its capital structure, the Company initiates normal course issuer bids or adjusts the amount of
dividends paid. The Company monitors capital on the basis of its net debt-to-capital ratio. Net liabilities used in the net debt-to-capital
ratio is calculated by subtracting the due from broker balances from total liabilities. The net debt-to-capital ratio is as follows:
Total liabilities
Total equity
Debt-to-capital ratio
2017
$1,612,645
$1,063,385
1.52
2016
$1,429,053
$942,562
1.52
The Company’s objective is to maintain a debt-to-capital ratio below 2.0. The Company believes that limiting its debt-to-capital ratio
in this manner is the best way to monitor risk. The Company does not have any externally imposed restrictive covenants or capital
requirements, other than those included in the credit facilities (note 5).
Fair value estimation
The tables below analyze financial instruments carried at fair value by the inputs used in the valuation method. The different levels
have been defined as follows:
Level 1 –
Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 –
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly
(that is, as prices) or indirectly (that is, derived from prices); and
Level 3 –
Inputs that are not based on observable market data.
The level in the fair value hierarchy within which the fair value measurement is categorized in its entirety is determined on the basis of
the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is
assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant
adjustment based on unobservable inputs, that measurement is a Level 3. Assessing the significance of a particular input to the fair
value measurement in its entirety requires judgment, considering factors specific to the asset or liability.
The determination of what constitutes “observable” requires significant judgment by the Company. The Company considers observable
data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and
provided by independent sources that are actively involved in the relevant market.
40
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED)
The following tables analyze within the fair value hierarchy the Company’s financial assets and financial liabilities measured at fair
value as at December 31, 2017 and 2016:
Assets
Financial assets held for trading
Equity securities
Debt securities
Derivative financial assets
Financial assets designated as fair value
through profit or loss
Equity securities
Real estate investments
Liabilities
Financial liabilities held for trading
Equity holdings sold short
Debt securities
Derivative liabilities
Assets
Financial assets held for trading
Equity securities
Debt securities
Derivative financial assets
Financial assets designated as fair value
through profit or loss
Equity securities
Real estate investments
Liabilities
Financial liabilities held for trading
Equity holdings sold short
Derivative liabilities
Level 1
$
Level 2
$
Level 3
$
2,303,077
-
5,367
2,133
-
10,395
50,029
80,361
8,821
-
-
12,569
-
60,422
30,789
2017
Total
$
2,313,472
62,598
85,728
71,376
30,789
2,310,577
149,606
103,780
2,563,963
892,203
15,696
9,612
917,511
2016
Total
$
2,151,422
23,491
60,228
54,147
35,938
2,325,227
892,203
-
-
892,203
-
15,696
9,612
25,308
-
-
-
-
Level 1
$
Level 2
$
Level 3
$
-
-
-
43,108
35,938
79,046
2,150,822
-
6,571
1,984
-
2,159,377
725,798
-
725,798
600
23,491
53,657
9,055
-
86,804
-
1,846
1,846
-
-
-
725,798
1,846
727,64
41
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) Financial instruments in Level 1
The fair value of financial assets and financial liabilities traded in active markets are based on quoted market prices at the close of
trading on the year-end date. The quoted market price used for financial assets and financial liabilities held by the Company is the
close price. Investments classified in Level 1 include active listed equities and derivatives traded on an exchange.
Financial instruments in Level 2
Financial instruments classified with Level 2 trade in markets that are not considered to be active but are valued based on quoted
market prices, broker quotations or valuation techniques such as financial models that use market data. These valuation techniques
maximize the use of observable market data where available and rely as little as possible on entity-specific estimates. If all significant
inputs required to fair value an instrument are observable, the instrument is included in Level 2. These include corporate bonds, thinly
traded listed equities and derivatives, over-the-counter derivatives and private equities.
The Company uses a variety of methods and makes assumptions that are based on market conditions existing at each year-end date.
Valuation techniques used for non-standardized financial instruments such as options and other over-the-counter derivatives include
the use of comparable recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash
flow analyses, option-pricing models and other valuation techniques commonly used by market participants, making maximum use of
market inputs and relying as little as possible on entity-specific inputs:
Description
Equity securities
Private equities
Debt securities
Derivatives
Valuation technique
Quoted market prices or broker quotes for similar instruments
Valuation techniques or net asset value based on observable inputs
Quoted market prices or broker quotes for similar instruments
Quoted market prices or broker quotes for similar instruments
Financial instruments in Level 3
Investments classified in Level 3 have significant unobservable inputs, as they trade infrequently. Level 3 instruments consist of
unlisted equity investments, debt securities and real estate investments. As observable prices are not available for these securities, the
Company has used valuation techniques to derive the fair value.
Level 3 valuations are reviewed by the Company’s chief financial officer (CFO), who reports directly to the Board on a quarterly basis
in line with the Company’s reporting dates. The Board considers the appropriateness of the valuation models and inputs used. On
an annual basis, close to the year-end date, the Company obtains independent, third party appraisals to determine the fair value of
the Company’s most significant Level 3 holdings. The Company’s CFO reviews the results of the independent valuations. Emphasis is
placed on the valuation model used to determine its appropriateness, the assumptions made to determine whether it is consistent with
the nature of the investment, and market conditions and inputs such as cash flow and discount rates to determine reasonableness.
As at December 31, 2017 and 2016, Level 3 instruments are in various entities and industries.
Real estate investments are disclosed in more detail in note 8, comprising investments in private real estate companies and in real
estate income trusts. The real estate companies are involved with various types of buildings in different geographical locations. For the
main Level 3 instruments, the Company relied on appraisals carried out by independent third party valuators. There was no established
market for any of these investments, so the most likely scenario is a disposal of the underlying assets. For the investments in real estate
income trusts, the Company relied mainly on audited financial statements, valuing the assets at fair value. The most likely scenario is
an eventual sale of the underlying properties and the subsequent distribution to the holders.
42
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED)
The following tables present the changes in Level 3 instruments:
As at December 31, 2016
Transferred out of Level 3
Purchases
Sales proceeds
Distributions
Gains (losses) recognized in net income
On financial instruments held at end of year
On financial instruments disposed of during the year
Currency translation adjustments
As at December 31, 2017
As at December 31, 2015
Purchases
Distributions
Gains (losses) recognized in net income
On financial instruments held at end of year
On financial instruments disposed of during the year
Currency translation adjustments
As at December 31, 2016
Real estate
investments
$
Unlisted
securities
$
35,938
(1,078
)
2,561
-
(8,199
)
3,814
-
(2,247
)
30,789
43,108
-
25,412
(21,111
)
-
18,430
11,132
(3,980
)
72,991
Real estate
investments
$
Unlisted
securities
$
47,482
520
(15,662
)
5,147
-
(1,549
)
35,938
42,102
3,956
-
2,257
(4,009
)
(1,198
)
43,108
2017
Total
$
79,046
(1,078
)
27,973
(21,111
)
(8,199
)
22,244
11,132
(6,227
)
103,780
2016
Total
$
89,584
4,476
(15,662
)
7,404
(4,009
)
(2,747
)
79,046
In 2016, there were no transfers between levels in the Company’s consolidated financial instruments.
43
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED)
The table below presents the investments whose fair values are measured using valuation techniques classified as Level 3 as at
December 31, 2017.
Description
Unlisted private equity
holdings -
Internet services
-Equity securities
Unlisted private equity
holdings -
Internet services
-Convertible bonds
Unlisted private equity
holdings -
Pharmaceuticals
Unlisted private equity
holdings -
Food and beverage
Unlisted private equity
holdings -
Software developers
Unlisted private equity
holdings -
Other
Fair value
(rounded)
2017
$
29,700
Valuation
technique
Significant
unobservable
inputs
Weighted
average
input
Reasonably
possible
shifts +/−
Change in
value
$
Comparable
company
approach
Recent
transaction
Black-Scholes
option pricing
Enterprise value/
users
vs Revenue/users
Number of
users
EV/User
10M
10%
+/-400
+/-700
none
-
-
-
Share price
0.38
10%
+/-15
12,600
Comparable
debt method
Yield to maturity
8.08%
10%
+/-255
13,200
11,000
Recent
Transaction
Comparable
company
approach
Recent
transaction
4,000
Recent
transaction
none
-
-
-
Revenue estimate
Revenue multiple
$17,000
2.31
$1M
10%
+/-100
+/-100
none
none
-
-
-
-
-
-
Comparable
company
approach
2,400
Revenue estimate
$80.57M
Revenue multiple
1.56
$1M
10%
+/-15
+/-100
REITs
14,500
Discounted
cash flows
Discount rate
Capitalization
rate
Discounted
cash flow term
7.0%-12%
5.0%-9.0%
10-13 years
Rental
growth rate
(12.0)%-
39.10%
The REITs consist of numerous
investments in commercial and
residential properties, each
with different unobservable
inputs tailored to best estimate
their fair value. The inputs
disclosed cover the range used
for all the real estate holdings
in the REITs. A general analysis
of the change in inputs would
not reveal a fair change in
value.
Real estate investments in
private entities
16,300
Capitalization
model
Rate of
return
7.0%
1,0%
+2,200
-1,600
44
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED)
The table below presents the investments whose fair values are measured using valuation techniques classified as Level 3 as at
December 31, 2016.
Description
Fair value
(rounded)
2016
$
Valuation
technique
Significant
unobservable inputs
Weighted
average
input
Reasonably
possible
shifts +/−
Unlisted private equity holdings
Software developers
12,000
Unlisted private equity holdings
Internet services
15,000
Comparable
company
approach
Comparable
company
approach
Revenue estimate
$36,000
$3,000
Revenue multiple
M&A multiple
Number of users
EV/User
1.57
3.97
114.4M
113.69
10%
10%
10M
10%
Change in
value
$
+/-300
+/-400
+/-800
+/-800
+/-900
Unlisted private equity holdings
Other
16,000
Comparable
company
approach
Revenue estimate
$8M-11.5M
$1,000
+/-100
Revenue multiple
1.97-3.55
10% +/-50-100
M&A multiple
Yield to maturity
Probability of success
1.88
12.48%-
12.92%
78%
WACC
11.19%
10%
+/-100
10%
10%
2%
+/-100
+/-600
+/- 2,000
+/-1,000
REITs
17,300
Discounted
cash flows
Discount rate
7.0%-12.0%
Capitalization rate
5.5%-9.0%
Discounted cash
flow term
Rental growth rate
10-13 years
(12.0)%-
39.10%
The REITs consist of
numerous investments
in commercial and
residential properties,
each with different
unobservable inputs
tailored to best estimate
their fair value. The inputs
disclosed cover the range
used for all the real estate
holdings in the REITs. A
general analysis of the
change in inputs would
not reveal a fair change
in value.
Real estate investments
in private entities
18,700
Capitalization
model
Rate of return
8.0%
1.0%
+1,700
-1,300
Assets and liabilities not carried at fair value but for which fair value is disclosed
The carrying amount of cash and cash equivalents, restricted short-term investments, due from brokers, bank advances, credit
facilities, trade and other payables, due to brokers, redemptions payable, and subscriptions received in advance represent a reasonable
approximation of their respective fair value due to their short-term nature.
45
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) 17
Disclosure of the composition of the Company
Principal subsidiaries and structured entities
The consolidated financial statements include the accounts of the Company and all of its subsidiaries and structured entities as at
December 31, 2017 and 2016. The principal operating subsidiaries and structured entities and their activities are as follows.
Name
Senvest Global (KY) L.P.
Senvest Global L.P.
RIMA Senvest Master Fund GP, L.L.C.
Senvest Israel Partners GP, L.L.C.
Argentina Capital Inc.
Pennsylvania Properties Inc.
Senvest Equities Inc.
Senvest Fund Management Inc.
Senvest Management L.L.C.
Senvest Master Fund, L.P.
Senvest Israel Partners Master Fund, L.P.
Senvest Cyprus Recovery Investment Fund, L.P.
Punto Box SL
Bogas Costa Del Sol, SL
Global Box Arganda, SL
Global Box Rivas, SL
Country of
incorporation
Cayman Islands
United States
United States
United States
Canada
United States
Canada
United States
United States
Cayman Islands
Cayman Islands
Cayman Islands
Spain
Spain
Spain
Spain
% Interest held
2017
2016
100
100
-
-
100
100
100
100
-
45
53
73
100
100
100
100
100
100
-
-
100
100
100
100
-
45
47
59
100
10
10
10
Nature of
business
Investment company
Investment company
General partner of Senvest Master
Fund, L.P.
General partner of Senvest Israel
Partners Master Fund L.P.
Real estate
Real estate
Investment company
Investment company
Investment manager of the Funds
Investment fund
Investment fund
Investment fund
Real estate
Real estate
Real estate
Real estate
The total non-controlling interest for the year is $24,401 (2016 – $18,277), which is mostly attributed to Senvest Management L.L.C.
The change in redemption amount of liability for redeemable units for the year is $146,030 (2016 – $133,726), all of which is attributed
to the Funds.
46
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) Set out below is the summarized financial information for each subsidiary that has non-controlling interest that is material to the
group. The amounts disclosed are before inter-company eliminations.
Summarized balance sheets
Senvest Management L.L.C.
Assets
Liabilities
Net assets
Accumulated NCI
2017
$
113,027
8,994
104,033
104,033
The participation owned by the parent company is reflected as a liability in the subsidiary’s financial statements.
Summarized statements of comprehensive income (loss)
Revenue and net investment gains
Expenses
Net income
Other comprehensive loss
Total comprehensive income
Net income allocated to NCI
2017
$
37,269
14,866
22,403
(4,773
)
17,630
22,403
2016
$
253,064
157,225
95,839
95,839
2016
$
42,044
22,325
19,719
(2,153
)
17,566
19,719
The participation allocated to the parent company is reflected as a part of the statement of income (loss) in the subsidiary’s financial
statements.
Summarized statements of cash flows
Cash flow from operating activities
Cash flow from financing activities
Net decrease in cash and cash equivalents
2017
$
4,609
(2,597
)
2,012
2016
$
1,640
(1,772
)
(132
)
No guarantees or collateral were provided to the subsidiaries and structured entities except for the guarantee of an operating lease of
Senvest Management L.L.C. The amounts in question have been included in the Company’s commitments in note 20(a). The Company
is not liable for any other contingent liabilities arising in its subsidiaries and structured entities and will not settle any other liabilities
on their behalf.
47
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) 18
Acquisition of a subsidiaries
On January 16, 2017, the Company acquired the remaining share capital of Bogas Costa Del Sol SL, Global Box Arganda SL, Global Box
Rivas SL and Coldstream SL. Prior to the acquisition on January 16, 2017, the Company owned as an investment in real estate an interest
of 10% in each of the entities acquired. These companies are all incorporated in Spain and are engaged in the short-term rental of
storage facilities. The purchase price paid for all four entities was a cash consideration of $9,658. There is no contingent consideration.
The transaction was accounted for under the purchase method. The net assets of the acquired companies were valued at fair value, and
there was no resulting goodwill on the purchase. The related debt against the investment properties as at December 31, 2017 totaled
$4,448 and has been included as part of trade and other payables on the consolidated Statement of Financial Position.
Details of the assets and liabilities recognized as a result of the acquisition are as follows:
Cash and cash equivalents
Investment properties
Other assets
Trade and other payables
Mortgages
Net identifiable assets acquired
Less: Non-controlling interest
Net assets acquired
Fair value
$
104
15,482
670
(502
)
(5,018
)
10,736
1,078
9,658
The acquired businesses contributed revenues of $2,770 and net loss of $330 to the for the period from January 16, 2017 to
December 31, 2017.
19
Related party transactions
Key management compensation
Key management includes the Board, the president and chief executive officer, the vice-president, the secretary-treasurer and the CFO.
The compensation paid or payable to key management for employee services is as follows:
Salaries and other short-term employee benefits
Post-employment benefits – Defined contribution
Management fees
2017
$
13,121
39
13,160
2016
$
9,423
39
9,462
Certain employees and related parties that have invested in the Funds do not pay management fees that are charged to outside
investors. The amount invested by these participants in 2017 totals $103,454 (2016 – $73,762).
48
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) 20
Commitments
a) The future minimum rental payments for premises under long-term leases are as follows:
2018
2019
2020
2021
2022
Thereafter
$
1,182
1,217
1,267
1,088
1,088
2,353
b) As required by certain of the Company’s equity investments and other holdings, the Company has capital commitments of $1,589.
c) As required by certain of the Company’s real estate investments, the Company has capital commitments of $7,085.
d) As required by certain of the Company’s investment properties, the Company has capital commitments of $967.
21
Segmented and geographical information
The Company operates in a single reportable segment, which is the management of its own investments and those of the Funds.
The following tables summarize the Company’s revenues by geographical area for the years ended December 31:
United
States
$
5,450
(6,776
)
903
United
States
$
3,266
7,890
278
Canada
$
485
7,229
470
Canada
$
313
(22
)
532
Great
Britain
$
-
181
-
Great
Britain
$
1
605
-
Rest of
European
Union
$
1,037
840
1,131
Rest of
European
Union
$
(396
)
450
-
Argentina
$
-
1,133
-
Argentina
$
-
104
-
Other
$
-
3,333
-
Other
$
1,000
1,534
-
2017
Total
$
6,972
5,940
2,504
2016
Total
$
4,184
10,561
810
Revenue
Interest income
Net dividend income
Other income
Revenue
Interest income
Net dividend income
Other income
49
2017 annual reportNotes to Consolidated Financial StatementsDECEMBER 31, 2017 AND 2016(IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE STATED) Board of Directors
Officers
Victor Mashaal
Chairman of the Board & President
Frank Daniel
Secretary-Treasurer
Richard Mashaal
Vice-President
George Malikotsis C.A., C.P.A.
Vice-President, Finance
Senvest Capital Inc.
1000 Sherbrooke West, Suite 2400
Montréal (Québec) H3A 3G4
(514) 281-8082
Victor Mashaal
Chairman of the Board & President
Senvest Capital Inc.
*Ronald G. Assaf
Business Executive
Frank Daniel
Secretary-Treasurer
Senvest Capital Inc.
*David E. Basner
Business Executive
*Jeffrey L. Jonas
Partner, Brown Rudnick L.L.P.
Richard Mashaal
Vice-President
Senvest Capital Inc.
*Member of the Audit Committee
Investor Information
AUDITORS
PricewaterhouseCoopers L.L.P.
Montréal (Canada)
LEGAL COUNSEL
Howard M. Levine
Blake, Cassels & Graydon L.L.P.
1 Place Ville-Marie
Suite 3000
Montreal (Quebec) H3B 4N8
TRANSFER AGENT & REGISTRAR
Computershare Trust Company of Canada
1500 Robert-Bourassa Boulevard
7th Floor
Montréal (Québec) H3A 3S8
Computershare Trust Company of Canada
100 University Street
Toronto (Ontario) M5J 2Y1
50
2017 annual report