TIDMLIV
RNS Number : 7275Z
Livermore Investments Group Limited
22 May 2019
Highlights
-- Net profit for the year was USD 5.2m (2017: USD 16.4m).
-- Net Asset Value per share remains stable at USD 1.00 (December 2017: USD 1.00).
-- At 15 January 2018, the Company announced an interim dividend
of USD 8m (USD 0.04576 per share) to members on the register on 26
January 2018. The dividend was paid on 23 February 2018.
-- CLO portfolio and warehouse generated USD 29.7m in
distributions and USD 14m in net gains in 2018.
Chairman's and Chief Executive's Review
Introduction
We are pleased to announce the financial results for Livermore
Investments Group Limited ("Livermore" or "the Company") for the
year ended 31 December 2018. References to the Company hereinafter
also include its consolidated subsidiaries (note 8).
The year-end NAV was USD 1.00 per share (2017 NAV: USD 1.00 per
share). Net profit for the year was USD 5.2m (2017 Net Profit: USD
16.4m).
The Company recorded net gains of USD 14m from its US CLO and
warehousing portfolio. Management took advantage of lower funding
costs to reduce the cost of financing or extend some of its CLO
positions as well as created new CLOs with long reinvestment
periods at very low cost of financing in early 2018 as well as sold
some of its short reinvestment period positions. Interest and
distribution income from the financial portfolio totalled USD 31.5m
(2017: USD 28.0m).
References to financial statements hereinafter are to the
Company's consolidated financial statements.
Financial Review
The NAV of the Company at 31 December 2018 was USD 174.3m (2017:
USD 175.4m). Net profit, during the year was USD 5.2m, which
represents earnings per share of USD 0.03.
Administrative expenses were USD 8.9m (2017: USD 6.2m).
The overall change in the NAV is primarily attributed to the
following:
31 December 2018 31 December 2017
US $m US $m
----------------- -----------------
Shareholders' funds at beginning of year 175.4 157.2
----------------- -----------------
___________ ___________
----------------- -----------------
Income from investments 31.5 28.0
----------------- -----------------
Realised losses on investments (0.1) (0.1)
----------------- -----------------
Unrealised losses on investments (15.6) (4.0)
----------------- -----------------
Administration costs (8.9) (6.2)
----------------- -----------------
Net finance income - 0.5
----------------- -----------------
___________ ___________
----------------- -----------------
Increase in net assets from operations 6.9 18.2
----------------- -----------------
Dividends paid (8.0) -
----------------- -----------------
___________ ___________
----------------- -----------------
Shareholders' funds at end of year 174.3 175.4
----------------- -----------------
------ ------
----------------- -----------------
Net Asset Value per share US $1.00 US $1.00
----------------- -----------------
Dividend & Buyback
At 15 January 2018, the Board announced an interim dividend of
USD 8m (USD 0.04576 per share) to members on the register on 26
January 2018. The dividend was paid on 23 February 2018.
The Board of Directors will decide on the Company's dividend
policy for 2019 based on profitability, liquidity requirements,
portfolio performance, market conditions, and the share price of
the Company relative to its NAV.
The company has no shares in treasury.
Richard B Rosenberg Noam Lanir
Chairman Chief Executive Officer
21 May 2019
Review of Activities
Introduction and Overview
Overall, 2018 was a challenging year for most asset classes and
most market participants. Public equities, government bonds, fixed
rate investment bonds as well as most credit markets ended in the
red. In light of the investment environment, the Company achieved a
relatively strong performance in 2018, generating cash
distributions of USD 29.7m from its CLO and warehousing portfolio.
The significant volatility in broader markets, however, impacted
the year-end valuations of CLO positions reducing the net gain on
the CLO and warehousing portfolio to USD 14m (2017: USD 22.1m). As
in previous years, the Company actively managed its CLO and
warehousing portfolio and generated gains in a year that saw most
industry participants experience some losses. The results of 2018
speak to the skills of the management team to create value as well
as the resilience of the portfolio.
In 2018, the Company reported NAV/share of USD 1.00 and net
profit of USD 5.2m. Interest and distribution income amounted to
USD 31.5m, of which, USD 29.7m was generated from the CLO and
warehousing portfolio. The net return of the CLO and warehousing
portfolio was USD 14m as mark-to-market changes contributed to a
loss of USD 16.7m. Administrative expenses amounted to USD 8.9m
including USD 2.6m of one-off administration cost.
The Company's income in 2018 derived mainly from its interest
and distribution income generated by its CLO and warehouse
portfolio. During the year, the CLO and warehousing portfolio
generated USD 29.7m in income. CLO equity positions typically
generate higher cash flow than their expected IRRs because it is
expected that future defaults in the loans held by CLOs may erode
the residual value over time. Thus, the performance of the
Company's CLO portfolio is mainly through the cash flow generated
on a regular basis.
During 2018, spreads in the US senior secured loan market as
well as CLO financing costs tightened in the first half of the
year, and management pro-actively worked with banks and CLO
managers to create two new CLOs and refinance and reduce the
financing cost of another CLO position. Further, management sold
some of its short reinvestment period CLO positions as it deemed
the risk of loan price volatility capped the upside on these
positions. On the warehousing front, management closed four
warehouses generating USD 4m in gains as well as generating cheap
entry points into new CLO positions. In the latter half of the
year, management priced another CLO that had secured tight AAA
funding costs prior to the CLO debt market widening as well as
extending the reinvestment period of another CLO by 5 years.
During the year, the Company invested an additional USD 32.8m in
primarily new issue CLO equity positions and disposed USD 16m of
CLO positions, while the warehouse portfolio increased by USD 13m
as compared to the beginning of the year.
The Company does not have an external management company
structure and thus does not bear the burden of external management
and performance fees. Furthermore, the interests of Livermore's
management are aligned with those of its shareholders as management
has a large ownership interest in Livermore shares.
Considering the strong liquidity position of Livermore, together
with its strong foothold in the US CLO market as well as the
robustness of its investment portfolio and the alignment of
management's interests with those of its shareholders, management
believes that the Company is well positioned to benefit from
current market conditions.
Global Investment Environment
The global economy continued to grow in 2018, supported by the
ongoing expansionary monetary policies in the major currency areas
and favourable financing conditions. Business and consumer
confidence remained relatively healthy, although they did ease back
as the year progressed. Employment rose further in the advanced
economies, and in some countries (US, Japan, Germany) unemployment
fell to its lowest level in decades. Developments varied across the
emerging economies. Growth slowed in China, while economic
conditions in Brazil, India and Russia continued to improve. The
utilisation of production capacity increased worldwide. Against
this background, wage growth picked up in various advanced
economies. By contrast, consumer price inflation remained subdued
overall.
In the second half of the year, the positive economic momentum
was overshadowed by concerns regarding the global economic outlook.
Trade tensions between the US and China as well as several other
countries as well as a number of political issues such as the UK's
imminent exit from the EU dampened prospects. Volatility on the
financial markets increased markedly from October and most stock
markets closed the year with a clear loss.
The US economy gained further momentum in 2018 with annual GDP
growth averaging 2.9%. Growth was stimulated by extensive tax cuts
and higher public spending. Furthermore, companies continued to
benefit from favourable financing conditions. Private consumption
remained a driving force on the back of robust disposable income
growth and upbeat consumer confidence. By contrast, higher mortgage
rates led to a decline in construction investment. The labour
market improved further, and the unemployment rate fell to 3.9% by
the end of the year. Towards the end of the year, however, the
optimism for continued higher growth faded as the US Federal
Reserve indicated their intentions to raise interest rates despite
signs of slowing global growth.
Economic growth in the euro area was unable to match the strong
momentum of 2017. This was partly attributable to special factors,
including adverse weather conditions, strikes and a reduction in
vehicle production in Germany in connection with new emission
standards. Furthermore, business and consumer sentiment cooled
during the course of the year. Nevertheless, domestic demand held
up well overall and GDP grew by 1.8% in 2018 (2017: 2.5%). The
labour market continued to improve. By the end of the year the
unemployment rate had fallen to 7.9%, its lowest level since
October 2008. Against this backdrop, wage growth picked up.
Economic growth in China remained solid at 6.6%. Nevertheless,
momentum slowed during the year, primarily due to modest investment
growth. Higher capital market interest rates and macro-prudential
measures taken by the government dampened the demand for loans,
stabilising household and business debt relative to GDP. The
escalation of trade tensions with the US over the course of the
year constituted a further risk to the Chinese economy. From
September, the US imposed an additional 10% tariff on selected
Chinese products with an annual trade value of around USD 200
billion.
Commodity prices fluctuated sharply. Buoyed by the solid global
economy and the oil output restrictions agreed by major
oil-producing countries, by autumn the price of Brent crude had
risen to USD 86 per barrel. However, the expansion in global oil
production and concerns regarding a global economic slowdown
subsequently led to a price correction. At the end of 2018, the oil
price stood at approximately USD 55 per barrel, slightly lower than
at the beginning of the year. Industrial metal prices also
initially maintained their upward trend before declining in the
second half of the year.
Inflation, as measured by the CPI, rose in most advanced
economies compared with 2017, primarily driven by higher energy and
food prices. Core inflation, which excludes volatile categories of
goods such as oil products and food, thus changed only marginally
in many countries. In the US, annual average headline inflation
rose to 2.5% and core inflation to 2.1%. The Federal Reserve's
preferred price inflation measure, the personal consumption
expenditure (PCE) deflator, which excludes volatile energy and food
prices, was back in line with the Fed's target of 2% for the first
time since 2012.
Headline inflation in the euro area increased to 1.7%. However,
core inflation remained at around 1%, as it has done for some
years. In Japan, headline inflation rose to 1.0% while core
inflation continued to fluctuate around 0% over the course of the
year. Despite the highly expansionary monetary policy, medium-term
inflation expectations persisted significantly below the Bank of
Japan's inflation target of 2%.
In light of the inflation momentum and the improved labour
market conditions, the US Federal Reserve continued to tighten its
monetary policy. It increased the target range for its policy rate
in four steps by a total of 1 percentage point to 2.25 - 2.5%. At
the same time, it carried on reducing its balance sheet, and
emphasised in December that further interest rate rises would be
dependent on economic developments. The European Central Bank left
its deposit rate at - 0.4% and the main refinancing rate at 0.0%,
and said it intended to leave its key rates unchanged at least
through the summer of 2019. The ECB remained confident that
inflation would move towards its target level of just under 2%.
Against this backdrop, it ended its programme of net asset
purchases at the end of 2018, having already reduced it from EUR 60
billion per month to EUR 30 billion per month in January, and again
in October to EUR 15 billion per month. However, it intends to
continue reinvesting maturing bonds for an extended period of
time.
While 2017 was characterized by unusually low volatility in
financial markets, 2018 was another story. Despite a good start to
the year, almost all asset classes had a poor showing. In the US,
although the S&P 500 Index had gained about 8% by the end of
September, it lost about 15% in the last quarter to end the year
down by 7%. The EuroStoxx 50 Index in Europe fared worse losing
about 14% for the year. The SHCOMP Index suffered the worst with
the Index down about 25% in 2018. Although the US government bond
markets performed well in the last quarter, they had a terrible
first 9 months. The US 10-year yields increased from 2.46% at the
start of the year to a high of 3.23% before ending the year at
2.68%. Fixed rate investment grade bonds suffered a similar
fate.
Leveraged Loans was one of the only major asset classes that
generated positive returns. The Credit Suisse Leveraged Loan Index
(CSLLI) was up 1.14% as compared to the 2.25% loss in the US high
yield market as measured by the Merrill Lynch High Yield Master II
Index. Loans performed exceedingly well in the first half of the
year on the back of continued economic growth in the US and a
rising rate environment. Total institutional loans outstanding was
$1.048 trillion as of June 30, 2018, up 11% from the prior year. As
a result of strong inflows and CLO creation, loan spreads continued
to compress. This picture changed in the last two months of the
year as concerns over the future growth of the economy and reduced
chances of rate increases drove outflows from retail funds as the
credit spreads turned wider. Strong demand in 2017 and early 2018
led to weaker documentation and increase in the loan market
exposure of Single-B rated loans. This dynamic has the potential to
create issues if growth slows down in the future or if financing
conditions tighten for an extended period of time.
Sources: Board of Governors of the Federal Reserve System,
European Central Bank (ECB), Swiss National Bank, Bloomberg, Morgan
Stanley
Livermore's Strategy
The financial portfolio is focused on fixed income instruments
which generate regular cash flows and include exposure mainly to
senior secured and usually broadly syndicated US loans and to a
limited extent emerging market debt through investments in CLOs.
This part of the portfolio is geographically focused on the US.
Strong emphasis is given to maintaining sufficient liquidity and
low leverage at the overall portfolio level and to re-invest in
existing and new investments along the economic cycle.
Financial portfolio
The Company manages a financial portfolio valued at USD 139.2m
as at 31 December 2018, which is invested mainly in fixed income
and credit related securities.
The following is a table summarizing the financial portfolio as
of year-end 2018
Name 2018 2017
Book Value Book Value US
US $m $m
---------------------------- ------------- --------------
Investment in the
loan market through
CLOs 97.1 97.2
Open Warehouse facilities 38.4 25.5
Hedge Funds 1.1 1.0
Perpetual Bonds 1.1 1.2
Other Public Equities 1.5 2.0
---------------------------- ------------- --------------
Invested Total 139.2 126.9
---------------------------- ------------- --------------
Cash 26.2 34.2
---------------------------- ------------- --------------
Total 165.4 161.1
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Senior Secured Loans and Collateralized Loan Obligations
(CLO):
US senior secured loans are a floating rate asset class with a
senior secured claim on the borrower and with overall low
volatility and low correlation to the equity market. CLOs are
managed portfolios invested into diversified pools of senior
secured loans and financed with long term financing.
Continuing the trend in 2017, the leveraged loan market
performed well in the first half of 2018 with the Credit Suisse
Leveraged Loan Index recording a total return of 2.38%. The demand
for floating rate instruments remained strong on the back of rate
increases by the US Federal Reserve, and this allowed borrowers to
take advantage of the favourable financing conditions and reduce
the spread they pay on their loans as well as address near term
maturities and reduce the risk of default in the near term.
According to JP Morgan, retail loan funds experienced about USD
15.9bn of inflows in the first nine months of 2018. In the last
quarter of the year, however, concerns of slowing global economic
growth, trade tensions between the US and China, as well as
geopolitical risks such as "Brexit" took hold driving credit
spreads wider. Loan repricing activity slowed down and retail funds
experienced outflows as prospects of higher rates in the US
diminished. The last two month of 2018 was marked by increased
volatility and lack of liquidity in the Leveraged Loan market and
the LSTA/S&P Leveraged Loan Index dropped about 5% from its
peak. Retail funds saw about USD 20bn of outflows with USD 15bn in
December alone. Default rates, however, have continued to stay
below average levels (1.63% for the S&P/LSTA Leverage Loan
Index as of 31 December 2018 vs 3%
long term average) and the near to mid-term outlook remains
benign due to looser covenants and very few near-term loan
maturities. While default rates can stay low, we expect price
volatility to stay at higher levels than prior years. From the
perspective of long-term CLO equity investors, an environment of
technically-driven loan price volatility without an increase in
defaults over the near to medium term is extremely attractive.
The CLO market started on a very strong footing in 2018 with
demand for floating rate paper outstripping supply. The cost of
financing for new CLOs in the first quarter declined to lowest
levels seen in a decade. As supply caught up to the demand, the
tightening bias reversed. By the end of the year, the cost of
financing for new CLOs had risen considerably following the rise in
spreads in the credit markets. Nonetheless, 2018 was a very active
year for CLOs. According to S&P Capital IQ, new US CLO issuance
in 2018 totalled a record USD 128.9 billion. In addition, 2018 also
saw significant volume in resets (USD 122.1bn) and refinancing (USD
33.8bn).
The Company's CLO and warehousing portfolio generated cash flow
of USD 29.7m and a net return of about USD 14m in 2018. The Company
converted four warehouses into CLOs and generated about USD 4m in
carry during the year. Management also refinanced one of its CLOs
to reduce the cost of financing substantially as well as extended
the reinvestment period of another CLO by 5 years. As signs of risk
of loan price volatility increased around the middle of the year,
management sold its short reinvestment period CLO positions at very
high levels. As of year-end 2018, the Company had two open
warehouses, one of which has been converted to a CLO as of the date
of publication of this report. The Company continues to look for
opportunities to invest in the first-loss tranche of warehouse
facilities with long tenures and no mark-to-market triggers. As of
the end of the year 2018, all of the Company's US CLO equity
positions were passing their Overcollateralization (OC) tests and
remained robust. Management continues to actively monitor the CLO
portfolio and position it towards longer reinvestment periods
through recycling old CLOs into new or refinancing them with
extended reinvestment periods, as well as conducting relative value
and opportunistic trading.
Looking into the near future, management believes that default
rates should continue to stay below historical averages as only a
small percentage of the US Leveraged Loan market matures before
2020 and the US corporate tax cuts and stronger economic growth
provide for a stable backdrop. Management continues to focus on
sectors such as Retail, Healthcare and Technology that are expected
to undergo shifts due to technology or regulation.
While management maintains a positive view on the CLO portfolio,
mid-long term performance may be negatively impacted by a strong
pull back in the US or European economy or geo-political events
that could result in a spike in defaults. Despite positive
developments in the overall health of the US economy, we
acknowledge the continued below trend growth globally as well as
headwinds relating to the potential monetary tightening in the US,
weak commodity markets and geopolitical risks.
The Company's CLO portfolio is divided into the following
geographical areas:
2018 Percentage 2017 Amount Percentage
Amount
US $000 US $000
US CLOs 97,081 100.00% 96,536 99.28%
Global Credit - - - -
CLOs
European CLOs - - 699 0.72%
------ ------ ------ ------
97,081 100% 97,235 100%
------ ------ ------ ------
Private Equity Funds
The other private equity investments held by the Company are
incorporated in the form of Managed Funds (mostly closed end funds)
mainly in Israel and the emerging economies of India and China. The
investments of these funds into their portfolio companies were
mostly done in 2008 and 2009. The Company expects material exits of
portfolio companies from funds to materialize over the next couple
of years. During the reporting period distributions of USD 0.7m
were received from SRS Private.
The following summarizes the book value of the private equity
funds as at year-end 2018
Name Book Value
US $m
--------------------------- ------------
Evolution Venture
(Israel) 3.5
Elephant Capital (India) 0.7
Panda Capital (China) 0.4
Da Vinci (Russia) 0.1
Other investments 1.7
Total 6.4
--------------------------- ------------
Evolution Venture: Evolution is an Israel focused Venture
Capital fund. It invests in early stage technology companies. The
fund has now exited its investment in WhiteSmoke and written off
the Wi-Fi solutions and digital radio investments. Its main asset
is its investment in the virtualization technology company, which
continues to perform well.
Elephant Capital: India-focused private equity fund, which was
AIM quoted (Ticker: ECAP). The fund delisted from the LSE/AIM
market in order to reduce costs given the small size of the
remaining fund. Livermore owns 9.9% of the delisted fund. As of
August 2018, the fund reported an unaudited NAV of 0.37 pence per
share.
Da Vinci: The fund is primarily focused on Russia and CIS
countries and is primarily invested in the Moscow Exchange and a
Ukrainian coal company.
The following table reconciles the review of activities to the
Company's financial assets as of 31 December 2018
2018
Name Book Value
US $m
------------------------ -------------
Financial Portfolio 139.2
Private Equity Funds 6.4
------------------------ -------------
Total 145.6
------------------------ -------------
Financial assets at
fair value through
profit or loss (note
4) 138.1
Financial assets at
fair value through
other comprehensive
income (note 5) 7.5
Total 145.6
------------------------ -------------
Events after the reporting date
One of the two warehouse facilities that the Company invested
in, during 2018, with a carrying amount as at 31 December 2018 of
USD 15m, was closed in May 2019. For the closed warehouse,
Livermore's investment amount plus net carry amounting to a total
of USD 15.3m became receivable in May 2019.
After a successful application the Company became a tax resident
in the Republic of Cyprus as from 18 January 2019.
Litigation
At the time of this Report, there is one matter in litigation
that the Company is involved in. Further information is provided in
note 25 to the financial statements. --
Report of the Directors
The Directors submit their annual report and audited financial
statements of the Company for the year ended 31 December 2018.
The Board's objectives
The Board's primary objectives are to supervise and control the
management activities, business development, and the establishment
of a strong franchise in the Company's business lines. Measures
aimed at increasing shareholders' value over the medium to
long-term, such as an increase in NAV are used to monitor
performance.
The Board of Directors
Richard Barry Rosenberg (age 63), Non-Executive Director,
Chairman of the Board
Richard joined the Company in December 2004. He became
Non-Executive Chairman on 31 October 2006. He qualified as a
chartered accountant in 1980 and in 1988 co-founded the accountancy
practice SRLV. He has considerable experience in giving
professional advice to clients in the leisure and entertainment
sector. Richard is a Director of a large number of companies
operating in a variety of business segments.
Noam Lanir (age 52), Founder and Chief Executive Officer
Noam founded the Company in July 1998, to develop a specialist
online marketing operation. Noam has led the growth and development
of the Company's operations over the last twenty years which
culminated in its IPO in June 2005 on AIM. Prior to 1998, Noam was
involved in a variety of businesses mainly within the online
marketing sector. He is also the major shareholder of Babylon Ltd,
an International Internet Company listed on the Tel Aviv Stock
Exchange. He is also a major benefactor of a number of charitable
organisations.
Ron Baron (age 51), Executive Director and Chief Investment
Officer
Ron was appointed as Executive Director and Chief Investment
Officer on 10 August 2007. Ron has led the establishment and
development of Livermore's investment platform as a leading
specialized house in the credit space. Ron also has wide investment
and M&A experience. From 2001 to 2006 Ron served as a member of
the management at Bank Leumi, Switzerland and was responsible for
investment activity. Prior to this he spent five years as a
commercial lawyer advising banks and large corporations on
corporate transactions, including buy-outs and privatisations. Ron
has over 18 years of experience as an investment manager with
particular focus on the US credit market and CLOs. He holds an MBA
from INSEAD Fontainebleau and a LLB (LAW) and BA in Economics from
Tel Aviv University. Ron is also the founder and owner of Israel
Cycling Academy a non-profit professional cycling team.
Augoustinos Papathomas (age 56), Non-Executive Director
Augoustinos joined the Board in February 2019. He is a trained
and qualified UK Chartered Accountant. He is the senior Partner of
APP Audit and APP Advisory in Cyprus with over 30 years of
experience in assurance, taxation and advisory for local and
international clients. He is also an insolvency practitioner with
experience in many liquidations and receiverships. Augoustinos has
served as a director in various bodies and organisations and
currently he is the chairman of the Famagusta Chamber of Commerce
and Industry in Cyprus.
Directors' responsibilities in relation to the financial
statements
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
International Financial Reporting Standards as adopted by the
European Union.
The Directors are required to prepare financial statements for
each financial year which give a true and fair view of the
financial position of the Company, and its financial performance
and cash flows for that period. In preparing these financial
statements, the Directors are required to:
-- Select suitable accounting policies and then apply them consistently;
-- Make judgments and estimates that are reasonable and prudent;
-- State whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
-- Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Company's
transactions, and at any time enable the financial position of the
Company to be determined with reasonable accuracy and enable them
to ensure that the financial statements comply with the applicable
law and International Financial Reporting Standards as adopted by
the European Union. They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the British Virgin Islands
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Disclosure of information to the Auditor
In so far as the Directors are aware:
-- there is no relevant audit information of which the Company's auditor is unaware; and
-- the Directors have taken all steps that they ought to have
taken to make themselves aware of any relevant audit information
and to establish that the auditor is aware of that information.
Substantial Shareholdings
As at 24 April 2019 the Directors are aware of the following
interests in 3 per cent or more of the Company's issued ordinary
share capital:
Number % of issued
of Ordinary ordinary
Shares share capital
------------- ---------------
Groverton Management Ltd 133,936,588 76.62
Ron Baron 25,456,903 14.56
Save as disclosed in this report and in the remuneration report,
the Company is not aware of any person who is interested directly
or indirectly in 3% or more of the issued share capital of the
Company or could, directly or indirectly, jointly or severally,
exercise control over the Company.
Details of transactions with Directors are disclosed in note 23
to the financial statements.
Corporate Governance Statement
Introduction
The Company recognises the importance of the principles of good
Corporate Governance and the Board is pleased to accept its
commitment to such high standards throughout the year.
The Board Constitution and Procedures
The Company is controlled through the Board of Directors, which
throughout 2018 comprised one Non-Executive Director until the
appointment of a new Non-Executive Director in February 2019 and
two Executive Directors. The Chief Executive's responsibility is to
focus on co-ordinating the company's business and implementing
Company strategy.
A formal schedule of matters is reserved for consideration by
the Board, which meets approximately four times each year. The
Board is responsible for implementation of the investing strategy
as described in the circular to shareholders dated 6 February 2007
and adopted pursuant to shareholder approval at the Company's EGM
on 28 February 2007. It reviews the strategic direction of the
Company, its codes of conduct, its annual budgets, its progress
towards achievement of these budgets and any capital expenditure
programmes. In addition, the Directors have access to advice and
services of the Company Secretary and all Directors are able to
take independent professional advice if relevant to their duties.
The Directors receive training and advice on their responsibilities
as necessary. All Directors submit themselves to re-election at
least once every three years.
Board Committees
The Board delegates clearly defined powers to its Audit and
Remuneration Committees. The minutes of each Committee are
circulated by the Board.
Remuneration Committee
The Remuneration Committee comprises of the Non-Executive
Chairman of the Board and a Non-Executive Director. Throughout
2018, this committee had one member until the appointment of a new
Non-Executive Director in February 2019. The Remuneration Committee
considers the terms of employment and overall remuneration of the
Executive Directors and key members of Executive management
regarding share options, salaries, incentive payments and
performance related pay. The remuneration of Non-Executive
Directors is determined by the Board.
Audit Committee
The Audit Committee comprises of the Non-Executive Chairman of
the Board and a Non-Executive Director and is chaired by the
Chairman of the Board. Throughout 2018, this committee had one
member until the appointment of a new Non-Executive Director in
February 2019. The duties of the Committee include monitoring the
auditor's performance and reviewing accounting policies and
financial reporting procedures.
The Quoted Company Alliance (QCA) Code
The Directors recognise the importance of good corporate
governance and have chosen to apply the Quoted Companies Alliance
Corporate Governance Code (the 'QCA Code'). The QCA Code was
developed by the QCA in consultation with a number of significant
institutional small company investors, as an alternative corporate
governance code applicable to AIM companies. The underlying
principle of the QCA Code is that "the purpose of good corporate
governance is to ensure that the company is managed in an
efficient, effective and entrepreneurial manner for the benefit of
all shareholders over the longer term". The Directors anticipate
that whilst the Company will continue to comply with the QCA Code,
given the Group's size and plans for the future, it will also
endeavour to have regard to the provisions of the UK Corporate
Governance Code as best practice guidance to the extent appropriate
for a company of its size and nature. To see how the Company
addresses the key governance principles defined in the QCA Code
please refer to the table listed on the Company's website. Further
information on compliance with the QCA Code will be provided in our
next annual report.
A complete index of the disclosures required by the QCA Code,
including those on the Company's website, can be found at
http://www.livermore-inv.com/CorporateGovernance.
Communication with Investors
The Directors are available to meet with shareholders throughout
the year. In particular the Executive Directors prepare a general
presentation for analysts and institutional shareholders following
the interim and preliminary results announcements of the Company.
The chairman, Richard Rosenberg, is available for meetings with
shareholders throughout the year. The Board endeavours to answer
all queries raised by shareholders promptly.
Shareholders are encouraged to participate in the Annual General
Meeting at which the Chairman will present the key highlights of
the Company's performance. The Board will be available at the
Annual General Meeting to answer questions from shareholders.
Internal Control
The Board is responsible for ensuring that the Company has in
place a system of internal controls and for reviewing its
effectiveness. In this context, control is defined in the policies
and processes established to ensure that business objectives are
achieved cost effectively, assets and shareholder value safeguarded
and that laws and regulations are complied with. Controls can
provide reasonable but not absolute assurance that risks are
identified and adequately managed to achieve business objectives
and to minimise material errors, frauds and losses or breaches of
laws and regulations.
The Company operates a sound system of internal control, which
is designed to ensure that the risk of misstatement or loss is kept
to a minimum.
Given the Company's size and the nature of its business, the
Board does not consider that it is necessary to have an internal
audit function. An internal audit function will be established as
and when the Company is of an appropriate size.
The Board undertakes a review of its internal controls on an
ongoing basis.
Going Concern
The Directors have reviewed the current and projected financial
position of the Company, making reasonable assumptions about
interest and distribution income, future trading performance,
valuation projections and debt requirements. On the basis of this
review, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational existence
for the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing the Annual Report and
accounts.
Independence of Auditor
The Board undertakes a formal assessment of the auditor's
independence each year, which includes:
-- a review of non-audit related services provided to the Company and related fees;
-- discussion with the auditor of a written report detailing all
relationships with the Company and any other parties which could
affect independence or the perception of independence;
-- a review of the auditor's own procedures for ensuring
independence of the audit firm and partners and staff involved in
the audit, including the rotation of the audit partner;
-- obtaining written confirmation from the auditor that it is independent;
-- a review of fees paid to the auditor in respect of audit and non-audit services.
Remuneration Report
The Directors' emoluments, benefits and shareholdings during the
year ended 31 December 2018 were as follows:
Directors' Emoluments
Each of the Directors has a service contract with the
Company.
Director Date of Fees Benefits Reward Total emoluments
agreement US $000 US $000 payments
US $000
------------------ ------------ --------- --------- ----------
2018 2017
US $000 US $000
------------------ ------------ --------- --------- ---------- --------- -----------
Richard
Barry Rosenberg 10/06/05 60 - 71 131 85
------------------ ------------ --------- --------- ---------- --------- -----------
Noam Lanir 10/06/05 400 45 500 945 695
------------------ ------------ --------- --------- ---------- --------- -----------
Ron Baron 01/09/07 350 - 4,304 4,654 2,828
------------------ ------------ --------- --------- ---------- --------- -----------
The dates are presented in day / month / year format.
Directors' Interests
Interests of Directors in ordinary shares
Notes As at 31 December As at 31 December
2018 2017
------------------ ------- ------------------------------ --------------------------------
Number Percentage Number Percentage
of Ordinary of ordinary of Ordinary of ordinary
Shares share capital Shares share capital
------------------ ------- ------------- --------------- ------------- ---------------
Noam Lanir a) 133,936,588 76.620% 133,936,588 76.620%
------------------ ------- ------------- --------------- ------------- ---------------
Ron Baron b) 25,456,903 14.560% 25,456,903 14.560%
------------------ ------- ------------- --------------- ------------- ---------------
Richard
Barry Rosenberg 15,000 0.01% 15,000 0.01%
--------------------------- ------------- --------------- ------------- ---------------
Notes:
a) Noam Lanir has its interest in ordinary shares by virtue of
the fact that he owns directly or indirectly all of the issued
share capital of Groverton Management Limited.
b) In 2016 a loan of USD 2.500m was made to RB Investments GMBH,
a company owned by Ron Baron, for the acquisition of shares in the
Company. Interest was payable on the loan at 6-month US LIBOR plus
0.25% per annum and the loan was secured on the shares acquired.
The loan, including interest accrued, was repayable on the earlier
of the employee leaving the Company or August 2019. The loan
including interest accrued was settled during 2018.
Remuneration Policy
The Company's policy has been designed to ensure that the
Company has the ability to attract, retain and motivate executive
Directors and other key management personnel to ensure the success
of the organization.
The following key principles guide its policy:
-- policy for the remuneration of executive Directors will be
determined and regularly reviewed independently of executive
management and will set the tone for the remuneration of other
senior executives
-- the remuneration structure will support and reflect the
Company's stated purpose to maximize long-term shareholder
value
-- the remuneration structure will reflect a just system of rewards for the participants
-- the overall quantum of all potential remuneration components
will be determined by the exercise of informed judgement of the
independent remuneration committee, taking into account the success
of the Company and the competitive global market
-- a significant personal shareholding will be developed in
order to align executive and shareholder interests
-- the assessment of performance will be quantitative and
qualitative and will include exercise of informed judgement by the
remuneration committee within a framework that takes account of
sector characteristics and is approved by shareholders
-- the committee will be proactive in obtaining an understanding of shareholder preferences
-- remuneration policy and practices will be as transparent as
possible, both for participants and shareholders
-- the wider scene, including pay and employment conditions
elsewhere in the Company, will be taken into account, especially
when determining annual salary increases.
Review of the Business and Risks
Risks
The Board considers that the risks the Shareholders face can be
divided into external and internal risks.
External risks to shareholders and their returns are those that
can severely influence the investment environment within which the
Company operates, and include economic recession, declining
corporate profitability, higher corporate default rates and lower
than historical recoveries, rising inflation and interest rates and
excessive stock-market speculation.
The Company's portfolio is exposed to interest rate changes,
credit risk, liquidity risk and volatility particularly in the US.
In addition, the portfolio is exposed to currency risks as some of
the underlying portfolio is invested in assets denominated in
non-US currencies while the Company's functional currency is USD.
Investments in certain emerging markets are exposed to governmental
and regulatory risks.
The mitigation of these risks is achieved by following micro and
macroeconomic trends and changes, regular monitoring of underlying
assets and price movements and investment diversification. The
Company also engages from time to time in certain hedging
activities to mitigate these risks.
Internal risks to shareholders and their returns are related to
Portfolio risks (investment and geography selection and
concentration), balance sheet risk (gearing) and/or investment
mismanagement risks. The Company's portfolio has a significant
exposure to senior secured loans of US companies and therefore has
a concentration risk to this asset class.
A periodic internal review is performed to ensure transparency
of Company activities and investments. All service providers to the
Company are regularly reviewed. The mitigation of the risks related
to investments is effected by investment restrictions and
guidelines and through reviews at Board Meetings.
As the portfolio of the Company is currently invested in USD
denominated assets, movements in other currencies are expected to
have a limited impact on the business.
On the asset side, the Company's exposure to interest rate risk
is limited to the interest-bearing deposits and portfolio of bonds
and loans in which the Company invests. Currently, the Company is
primarily invested in sub-investment grade corporate loans through
CLOs, which exposes the Company to credit risk (defaults and
recovery rates, loan spreads over base rate) as well as liquidity
risks in the CLO market.
Management monitors liquidity to ensure that sufficient liquid
resources are available to the Company. The Company's credit risk
is primarily attributable to its fixed income portfolio, which is
exposed to corporate bonds with a particular exposure to the
financial sector and to US senior secured loans.
Further information on Financial risk management is provided in
note 28 of the financial statements.
Share Capital
There was no change in the authorised share capital during the
year to 31 December 2018. The authorised share capital is
1,000,000,000 ordinary shares with no par value.
Related party transactions
Details of any transactions of the Company with related parties
during the year to 31 December 2018 are disclosed in note 23 to the
financial statements.
By order of the Board of Directors
Chief Executive Officer
21 May 2019
Independent Auditor's Report to the Members of Livermore
Investments Group Limited
Opinion
We have audited the consolidated financial statements of
Livermore Investments Group Limited (the "Company") and its
consolidated subsidiaries Livermore Investments Cyprus Limited and
Livermore Capital AG (the "Group"), which comprise the consolidated
statement of financial position as at 31 December 2018, the
consolidated statements of profit or loss, comprehensive income,
changes in equity and cash flows for the year then ended, and notes
to the consolidated Financial statements, including a summary of
significant accounting policies.
In our opinion, the accompanying consolidated financial
statements give a true and fair view of the consolidated financial
position of the Group as at 31 December 2018, and of its
consolidated financial performance and its consolidated cash flows
for the year then ended in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union.
Basis for Opinion
We conducted our audit in accordance with International
Standards on Auditing (ISAs). Our responsibilities under those
standards are further described in the "Auditor's Responsibilities
for the Audit of the Consolidated Financial Statements" section of
our report. We are independent of the Group in accordance with the
"International Ethics Standards Board for Accountants' Code of
Ethics for Professional Accountants" (IESBA Code) together with the
ethical requirements that are relevant to our audit of the
consolidated Financial statements in Cyprus, and we have fulfilled
our other ethical responsibilities in accordance with these
requirements and the IESBA Code. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Emphasis of Matter - Uncertain Outcome of a Legal Claim
We draw attention to note 25 to the consolidated financial
statements, which describes the uncertain outcome of a legal claim
against one of the custodian banks that the Group and the Company
uses on its behalf. Our opinion is not modified in respect of this
matter.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
consolidated financial statements of the current period. These
matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters.
We have determined the matter described below to be the key
audit matter to be communicated in our report.
Key audit matter How the matter was addressed
Investments' valuation -- Level Our audit work included,
3 but was not restricted to:
The Group has financial assets -- discussing the valuation
of $50m classified within the methodologies applied by
fair value hierarchy of level the directors and assessing
3, as disclosed in note 7 to the their appropriateness for
consolidated financial statements. each investment;
The fair value of level 3 financial -- obtaining third party
assets is generally determined confirmations indicating
either based on third party valuations, the NAV of the investments
or when not available, based on and comparing to clients'
adjusted Net Asset Value (NAV) records; and evaluating the
calculations using inputs from independent professional
third parties. valuer's competence, capabilities
The Group has invested in four and objectivity;
warehouse facilities, of which -- in cases where the valuations
two have not been converted to have been performed by the
Collateralized Loan Obligations directors, evaluating the
(CLOs) as at the year end. One reasonableness of the underlying
out of these two warehouses were assumptions and verifying
converted to a CLO in April 2019. the inputs used; as from
The other one was not converted reliable third - party sources;
to a CLO before the date of this and
report. The directors classify -- considering the adequacy
these facilities as Financial of consolidated financial
Assets at Fair Value through Profit statement disclosures in
or Loss. Their fair value is determined relation to the valuation
on an adjusted NAV calculation methodologies used for each
based on their actual and expected class of level 3 financial
returns which occur in the post assets.
year end period on their conversion
to CLO.
Due to the use of significant
judgments by the Directors, the
existence of unobservable inputs
and the significant total value
of financial assets within the
Level 3 hierarchy, we consider
the valuation of these investments
as a key audit matter
Other Information
The Board of Directors is responsible for the other information.
The other information comprises the information included in the
Highlights, Chairman's and Chief Executive's Review, Review of
Activities, Report of the Directors, Corporate Governance
Statement, Remuneration Report, Review of the Business and Risks,
the Shareholder Information and the Corporate Directory, but does
not include the consolidated financial statements and our auditor's
report thereon.
Our opinion on the consolidated financial statements does not
cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is
materially inconsistent with the consolidated financial statements
or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing
to report in this regard.
Responsibilities of the Board of Directors for the Consolidated
Financial Statements
The Board of Directors is responsible for the preparation of
consolidated financial statements that give a true and fair view in
accordance with International Financial Reporting Standards as
adopted by the European Union, and for such internal control as the
Board of Directors determines is necessary to enable the
preparation of consolidated Financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Board of
Directors is responsible for assessing the Group's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the Board of Directors either intends to
liquidate the Group or to cease operations, or has no realistic
alternative but to do so.
The Board of Directors is responsible for overseeing the Group's
financial reporting process.
Auditor's Responsibilities for the Audit of the Consolidated
Financial Statements
Our objectives are to obtain reasonable assurance about whether
the consolidated Financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue
an auditor's report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these
consolidated Financial statements.
As part of an audit in accordance with ISAs, we exercise
professional judgment and maintain professional scepticism
throughout the audit. We also:
* Identify and assess the risks of material
misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform
audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The
risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the
override of internal control.
* Obtain an understanding of internal control relevant
to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness
of the Group's internal control.
* Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting estimates
and related disclosures made by the Board of
Directors.
* Conclude on the appropriateness of the Board of
Directors' use of the going concern basis of
accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to
events or conditions that may cast significant doubt
on the Group's ability to continue as a going
concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our
auditor's report to the related disclosures in the
consolidated financial statements or, if such
disclosures are inadequate, to modify our opinion.
Our conclusions are based on the audit evidence
obtained up to the date of our auditor's report.
However, future events or conditions may cause the
Group to cease to continue as a going concern.
* Evaluate the overall presentation, structure and
content of the consolidated financial statements,
including the disclosures, and whether the
consolidated financial statements represent the
underlying transactions and events in a manner that
achieves a true and fair view.
* Obtain sufficient appropriate audit evidence
regarding the financial information of the entities
or business activities within the Group to express an
opinion on the consolidated financial statements. We
are responsible for the direction, supervision and
performance of the group audit. We remain solely
responsible for our audit opinion.
We communicate with the Board of Directors regarding, among
other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide the Board of Directors with a statement that we
have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with the Board of Directors, we
determine those matters that were of most significance in the audit
of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in
our auditor's report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Other Matter
This report, including the opinion, has been prepared for and
only for the Group's members as a body and for no other purpose. We
do not, in giving this opinion, accept or assume responsibility for
any other purpose or to any other person to whose knowledge this
report may come to.
The engagement partner on the audit resulting in this
independent auditor's report is Mr. Nicos Mouzouris.
Nicos Mouzouris
Certified Public Accountant and Registered
Auditor
for and on behalf of
Grant Thornton (Cyprus) Ltd
Certified Public Accountants and Registered
Auditors
Limassol, 21 May 2019
Livermore Investments Group Limited
Consolidated Statement of Financial Position as at 31 December
2018
Note 2018 2017
Assets US $000 US $000
Non-current assets
Property, plant and equipment 21 8
Financial assets at fair value through
profit or loss 4 97,081 97,235
Financial assets at fair value through
other comprehensive income 5 6,387 7,129
Investments in subsidiaries 8 5,205 5,426
Trade and other receivables 9 - 2,553
--------- ---------
108,694 112,351
Current assets --------- ---------
Trade and other receivables 9 3,168 3,166
Financial assets at fair value through
profit or loss 4 41,067 28,612
Financial assets at fair value through
other comprehensive income 5 1,117 1,118
Cash and cash equivalents 10 26,214 34,175
--------- ---------
71,566 67,071
--------- ---------
Total assets 180,260 179,422
--------- ---------
Equity
Share capital 11 - -
Share premium 11 169,187 169,187
Other reserves (20,279) (37,978)
Retained earnings 25,425 44,236
--------- ---------
Total equity 174,333 175,445
--------- ---------
Liabilities
Current liabilities
Trade and other payables 13 5,927 3,977
--------- ---------
5,927 3,977
--------- ---------
Total liabilities 5,927 3,977
--------- ---------
Total equity and liabilities 180,260 179,422
--------- ---------
Net asset value per share
Basic and diluted net asset value per
share (US $) 15 1.00 1.00
--------- ---------
These financial statements were approved by the Board of
Directors on 21 May 2019.
The notes 1 to 29 form part of these consolidated financial
statements.
Livermore Investment Group Limited
Consolidated Statement of Profit or Loss for the year ended 31
December 2018
Note 2018 2017
US $000 US $000
Investment income
Interest and distribution income 17 31,541 28,043
Changes in value of investments 18 (17,484) (5,918)
------ ------
14,057 22,125
Administrative expenses 19 (8,869) (6,204)
------ ------
Operating profit 5,188 15,921
Finance costs 20 (245) (19)
Finance income 20 233 488
------ ------
Profit before taxation 5,176 16,390
Taxation charge 21 (14) (18)
------ ------
Profit for the year 5,162 16,372
------ ------
Earnings per share
Basic and diluted earnings per share
(US $) 22 0.03 0.09
------ ------
The profit for the year is wholly attributable to the owners of
the parent.
The notes 1 to 29 form part of these consolidated financial
statements.
Livermore Investment Group Limited
Consolidated Statement of Comprehensive Income for the year
ended 31 December 2018
2018 2017
US $000 US $000
Profit for the year 5,162 16,372
Other comprehensive income:
Items that will be reclassified subsequently
to profit or loss
Foreign exchange gains from translation
of subsidiaries 12 -
------ ------
5,174 16,372
------ ------
Items that are not reclassified subsequently
to profit or loss
Financial assets designated at fair value
through other comprehensive income
- fair value gains 313 1,899
- capital return 1,400 -
------ ------
Total comprehensive income for the year 6,887 18,271
------ ------
The total comprehensive income for the year is wholly
attributable to the owners of the parent.
The notes 1 to 29 form part of these consolidated financial
statements.
Livermore Investment Group Limited
Consolidated Statement of Changes in Equity for the year ended
31 December 2018
Share Share Treasury Share Translation Investments Retained Total
capital premium Shares option reserve revaluation earnings
Note reserve reserve
US $000 US $000 US $000 US $000 US $000 US $000 US $000 US $000
Balance at 1
January
2017 - 215,499 (46,312) 77 - (39,919) 27,829 157,174
------ ------ ------ ------ ------ ------ ------ ------
Cancellation
of shares 11 - (46,312) 46,312 - - - - -
------ ------ ------ ------ ------ ------ ------ ------
Transactions
with
owners - (46,312) 46,312 - - - - -
------ ------ ------ ------ ------ ------ ------ ------
Profit for the
year - - - - - - 16,372 16,372
Other
comprehensive
income:
Financial assets
at fair value
through
OCI- fair value
gains - - - - - 1,899 - 1,899
Transfer of
realised
gains - - - - - (35) 35 -
------ ------ ------ ------ ------ ------ ------ ------
Total
comprehensive
income for
the year - - - - - 1,864 16,407 18,271
------ ------ ------ ------ ------ ------ ------ ------
Balance at 31
December
2017 - 169,187 - 77 - (38,055) 44,236 175,445
------ ------ ------ ------ ------ ------ ------ ------
Dividends - - - - - - (7,999) (7,999)
Transfer on
expiry
of options - - - (77) - - 77 -
------ ------ ------ ------ ------ ------ ------ ------
Transactions
with
owners - - - (77) - - (7,922) (7,999)
------ ------ ------ ------ ------ ------ ------ ------
Profit for the
year - - - - - - 5,162 5,162
Other
comprehensive
income:
Financial assets
at fair value
through
OCI
- fair value
gains - - - - - 313 - 313
- capital
return - - - - - 1,400 - 1,400
Foreign
exchange
gains arising
from
translation
of
subsidiaries - - - - 12 - - 12
Transfer of
realised
losses - - - - - 16,051 (16,051) -
------ ------ ------ ------ ------ ------ ------ ------
Total
comprehensive
income for
the year - - - - 12 17,764 (10,889) 6,887
------ ------ ------ ------ ------ ------ ------ ------
Balance at 31
December
2018 - 169,187 - - 12 (20,291) 25,425 174,333
------ ------ ------ ------ ------ ------ ------ ------
The notes 1 to 29 form part of these consolidated financial
statements.
Livermore Investments Group Limited
Consolidated Statement of Cash Flows for the year ended 31
December 2018
Note 2018 2017
US $000 US $000
Cash flows from operating activities
Profit before tax 5,176 16,390
Adjustments for
Depreciation 8 7
Interest expense 20 30 19
Interest and distribution income 17 (31,541) (28,043)
Bank interest income 20 (233) (91)
Changes in value of investments 18 17,484 5,918
Exchange differences 20 215 (397)
---------- ----------
(8,861) (6,197)
Changes in working capital
Decrease in trade and other receivables 2,576 2,301
Increase / (decrease)in trade and other
payables 1,950 (3,825)
---------- ----------
Cash flows from operations (4,335) (7,721)
Interest and distributions received 31,748 28,304
Settlement of litigation 24 - (385)
Tax paid (14) (18)
---------- ----------
Net cash from operating activities 27,399 20,180
---------- ----------
Cash flows from investing activities
Acquisition of investments (120,027) (120,675)
Proceeds from sale of investments 91,623 90,140
Proceeds from capital return 1,400 -
---------- ----------
Net cash used in investing activities (27,004) (30,535)
---------- ----------
Cash flows from financing activities
Interest paid (134) (125)
Dividends paid (7,999) (15,000)
---------- ----------
Net cash used in financing activities (8,133) (15,125)
---------- ----------
Net decrease in cash and cash equivalents (7,738) (25,480)
Cash and cash equivalents at the beginning
of the year 34,175 59,227
Exchange differences on cash and cash
equivalents (215) 428
Translation differences on foreign operations' (8) -
cash and cash equivalents
---------- ----------
Cash and cash equivalents at the end
of the year 10 26,214 34,175
---------- ----------
The notes 1 to 29 form part of these consolidated financial
statements.
Notes on the Consolidated Financial Statements
1. General Information
Incorporation, principal activity and status of the Company
1.1. The Company was incorporated as an international business
company and registered in the British Virgin Islands (BVI) on 2
January 2002 under IBC Number 475668 with the name Clevedon
Services Limited. The liability of the members of the Company is
limited.
1.2. The Company changed its name to Empire Online Limited on 5
May 2005 and then to Livermore Investments Group Limited on 28
February 2007.
1.3. The principal activity of the Company changed to investment
activities on 1 January 2007. Before that the principal activity of
the Company was the provision of marketing services to the online
gaming industry and, since 1 January 2006, the operation of online
gaming.
1.4. The principal legislation under which the Company operates
is the BVI Business Companies Act, 2004.
1.5. The registered office of the Company is located at Trident
Chambers, PO Box 146, Road Town, Tortola, British Virgin
Islands.
2. Basis of preparation
The consolidated financial statements ("the financial
statements") of Livermore Investments Group Limited have been
prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the European Union. The financial
statements have been prepared on an accrual basis (other than for
cash flow information) using the significant accounting policies
and measurement bases summarised in note 3, and also on a going
concern basis.
The financial information is presented in US dollars because
this is the currency in which the Company primarily operates (i.e.
the Company's functional currency).
References to the Company hereinafter also include its
consolidated subsidiaries (note 8).
The Directors have reviewed the accounting policies used by the
Company and consider them to be the most appropriate.
3. Accounting Policies
The significant accounting policies applied in the preparation
of the financial statements are as follows:
3.1. Adoption of new and revised IFRS
As from 1 January 2018, the Company adopted any applicable new
or revised IFRS and relevant amendments which became effective, and
also were endorsed by the European Union. IFRS 9 "Financial
Instruments" was applied on 1 January 2016, earlier than its
effective date.
The adoption of the above at 1 January 2018 did not have any
material effect on the financial statements.
The following IFRS (including relevant amendments and
interpretations) had been issued by the date of authorisation of
these financial statements but are not yet effective, or have not
yet been endorsed by the EU, for the year ended 31 December
2018:
Endorsed Effective date
by the (IASB)
EU
No 1 January 2016
* IFRS 14: "Regulatory Deferral Accounts"
Yes 1 January 2019
* IFRS 16: "Leases"
No 1 January 2021
* IFRS 17: "Insurance Contracts"
Yes 1 January 2019
* IFRIC 23: "Uncertainty over Income Tax Treatments"
Yes 1 January 2019
* Annual Improvements to IFRS 2015-2017 Cycle
No 1 January 2020
* Amendment to IFRS 3: "Definition of a Business"
Yes 1 January 2019
* Amendment to IFRS 9: "Prepayment Features with
Negative Compensation"
No to be determined
* Amendment to IFRS 10, and IAS 28: "Sale or
Contribution of Assets between an Investor and its
Associate or Joint Venture"
No 1 January 2020
* Amendments to IAS 1 and IAS 8: "Definition of
Material"
Yes 1 January 2019
* Amendment to IAS 19: "Plan Amendment, Curtailment or
Settlement"
Yes 1 January 2019
* Amendment to IAS 28: "Long--term Interests in
Associates and Joint Ventures"
No 1 January 2020
* Amendments to References to the Conceptual Framework
in IFRS Standards
The Board of Directors expects that when the above Standards or
Interpretations become effective in future periods, they will not
have any material effect on the financial statements.
3.2. Investments in subsidiaries and basis of consolidation
Subsidiaries are entities controlled either directly or
indirectly by the Company.
Control is achieved where the Company is exposed, or has right,
to variable returns from its involvement with a subsidiary and has
the ability to affect those returns through its power over the
subsidiary.
The Directors have determined that Livermore meets the
definition of an investment entity, as this is defined in IFRS 10
"Financial Statements". As per IFRS 10 an investment entity is an
entity that:
(a) obtains funds from one or more investors for the purpose of
providing those investors with investment management services;
(b) commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income, or both; and
(c) measures and evaluates the performance of substantially all
of its investments on a fair value basis.
An investment entity is exempted from consolidating its
subsidiaries, unless any subsidiary which is not itself an
investment entity mainly provides services that relate to the
investment entity's investment activities.
The financial statements consolidate the Company and its
subsidiaries providing such services (note 8 shows further details
of the consolidated and unconsolidated subsidiaries).
Investments in unconsolidated subsidiaries are initially
recognised at their fair value and subsequently measured at fair
value through profit or loss. Subsequently, any gains or losses
arising from changes in their fair value are included in profit or
loss for the year.
Dividends and other distributions from unconsolidated
subsidiaries are recognised as income when the Company's right to
receive payment has been established.
A subsidiary that is not an investment entity itself and which
provides services that relate to the Company's investment
activities is consolidated rather than included within the
investments in subsidiaries measured at fair value through profit
or loss.
The financial statements of the consolidated subsidiaries are
prepared using uniform accounting policies. Where necessary,
adjustments are made to the financial statements of consolidated
subsidiaries to bring their accounting policies into line with
those used by the Company. All consolidated subsidiaries have a
reporting date of 31 December.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
The results and cash flows of any consolidated subsidiaries
acquired or disposed of during the year are consolidated from the
effective date of acquisition or up to the effective date of
disposal.
3.3. Current assets are those which, in accordance with IAS 1
Presentation of Financial Statements are:
-- expected to be realised within the Company's normal operating
cycle, via sale or consumption, or
-- held primarily for trading, or
-- expected to be realised within 12 months from the reporting
date, or
-- cash and cash equivalents not restricted in their use.
All other assets are non-current.
3.4. Interest and distribution income
-- Interest income is recognised based on the effective interest
method.
-- Distribution income is recognised on the date that the
Company's right to receive payment is established, which in the
case of quoted securities is the ex-dividend date.
3.5. Foreign currency
The financial statements of the Company are presented in USD,
which is the currency of the primary economic environment in which
it operates (its functional currency).
Transactions in foreign currencies are recorded at the rates of
exchange prevailing on the dates of the transaction. Monetary
assets and liabilities denominated in non-functional currencies are
translated into functional currency using year-end spot foreign
exchange rates. Non-monetary assets and liabilities are translated
upon initial recognition using exchange rates prevailing at the
dates of the transactions. Non-monetary assets that are measured in
terms of historical cost in foreign currency are not
re-translated.
Gains and losses arising on the settlement of monetary items and
on the re-translation of monetary items are included in the profit
or loss for the year. Those that arise on the re-translation of
non-monetary items carried at fair value are included in the profit
or loss of the year as part of the fair value gain or loss except
for differences arising on the re-translation of non-monetary
financial assets designated at fair value through other
comprehensive income in respect of which gains and losses are
recognised in other comprehensive income. For such non-monetary
items any exchange component of that gain or loss is also
recognised in other comprehensive income.
The results and financial position of consolidated subsidiaries
that have a functional currency different from US dollars are
translated into the presentation currency as follows:
(a) assets and liabilities are translated at the closing rate at the reporting date;
(b) income and expenses and also cash flows are translated at an
average exchange rate (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on
the transaction dates, in which case the items are translated at
the rates prevailing at the dates of the transactions); and
(c) exchange differences arising are recognised in other
comprehensive income within the translation reserve. Such
translation exchange differences are reclassified to profit or loss
in the period in which the foreign operation is disposed of
3.6. Taxation
Current tax is the tax currently payable based on taxable profit
for the year in accordance with the tax laws applicable and
enacted.
Current and deferred tax assets and liabilities are calculated
at tax rates that are expected to apply to their respective period
of realisation, provided they are enacted or substantively enacted
as at the reporting date.
3.7. Equity instruments
Equity instruments issued by the Company are recorded at
proceeds received, net of direct issue costs.
The share premium account includes any premiums received on the
initial issuing of the share capital. Any transaction costs
associated with the issuing of shares are deducted from the premium
received.
3.8. Financial assets
Financial assets are recognised when the Company becomes a party
to the contractual provisions of the financial instrument.
A financial asset is derecognised only where the contractual
rights to the cash flows from the asset expire or the financial
asset is transferred, and that transfer qualifies for
derecognition. A financial asset is transferred if the contractual
rights to receive the cash flows of the asset have been transferred
or the Company retains the contractual rights to receive the cash
flows of the asset but assumes a contractual obligation to pay the
cash flows to one or more recipients. A financial asset that is
transferred qualifies for derecognition if the Company transfers
substantially all the risks and rewards of ownership of the asset,
or if the Company neither retains nor transfers substantially all
the risks and rewards of ownership but does transfer control of
that asset.
The Company classifies its financial assets in the following
measurement categories:
(a) those to be measured at fair value (either through other
comprehensive income, or through profit or loss), and
(b) those to be measured at amortised cost.
At initial recognition, the Company measures a financial asset
at its fair value plus, in the case of a financial asset not at
fair value through profit or loss, transaction costs that are
directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets carried at fair value through
profit or loss are expensed in profit or loss.
Financial assets at fair value through profit or loss
The Company classifies the following financial assets at fair
value through profit or loss:
(a) equity investments that are held for trading;
(b) other equity investments for which the Directors have not
elected to recognise fair value gains and losses through other
comprehensive income; and
(c) debt investments that do not qualify for measurement at
either amortised cost or at fair value through other comprehensive
income.
All financial assets within this category are measured at their
fair value, with changes in value recognised in the profit or loss
when incurred.
Financial assets at fair value through other comprehensive
income
Financial assets at fair value through other comprehensive
income (OCI) comprise equity securities which are not held for
trading, and for which the Company has made an irrevocable election
at initial recognition to recognise changes in fair value through
OCI rather than profit or loss.
Where the Company's management has elected to present fair value
gains and losses on equity investments in other comprehensive
income, there is no subsequent reclassification of fair value gains
and losses to profit or loss. Dividends from such investments
continue to be recognised in profit or loss when the Company's
right to receive payments is established.
Financial assets at amortised cost
Assets that are held for collection of contractual cash flows
where those cash flows represent solely payments of principal and
interest are measured at amortised cost. A gain or loss on a
financial asset that is measured at amortised cost is recognised in
profit or loss when the asset is derecognised or impaired. Interest
income from these financial assets is recognised based on the
effective interest rate method.
The classification of debt instruments depends on the entity's
business model for managing the financial assets and the
contractual terms of the cash flows. Financial assets with embedded
derivatives are considered in their entirety when determining
whether their cash flows are solely payment of principal and
interest.
Impairment
The Company assesses on a forward-looking basis the expected
credit losses associated with its assets carried at amortised cost.
The impairment methodology applied depends on whether there has
been a significant increase in credit risk. For trade and other
receivables only, the Company applies the simplified approach
permitted by IFRS 9, which permits expected lifetime losses to be
recognised from initial recognition of the receivables.
Write offs
The Company writes off a financial asset when there is
information indicating that the counterparty is in severe financial
difficulty and there is no realistic prospect of recovery, e.g.
when the counterparty has been placed under liquidation or has
entered into bankruptcy proceedings. Financial assets written off
may still be subject to enforcement activities, taking into account
legal advice where appropriate. Any recoveries made are recognised
in profit or loss.
3.9. Financial liabilities
Financial liabilities are recognised when the Company becomes a
party to the contractual provisions of the financial
instrument.
A financial liability is derecognised when it is extinguished,
discharged, cancelled or expires.
Financial liabilities are measured initially at fair value plus
transaction costs, except for financial liabilities carried at fair
value through profit or loss, which are measured initially at fair
value.
Financial liabilities at amortised cost
After initial recognition financial liabilities are measured at
amortised cost using the effective interest rate method.
Derivative financial liabilities
The Company's financial liabilities may also include financial
derivative instruments.
All derivative financial instruments (which are not designated
as hedging instruments) are measured at fair value through profit
or loss.
3.10. Cash and cash equivalents
Cash comprises cash in hand and on demand deposits with banks.
Cash equivalents are short term, highly liquid investments that are
readily convertible to known amounts of cash. They include
unrestricted short-term bank deposits originally purchased with
maturities of three months or less.
Bank overdrafts are considered to be a component of cash and
cash equivalents, since they form an integral part of the Company's
cash management.
3.11. Segment reporting
In making investment decisions, Management assesses individual
investments and then, in analysing their performance, it receives
and uses information for each investment product separately rather
than based on any segmental information. Given that, Management
regards that the Company's activities fall under a single operating
segment.
3.12. Critical accounting judgments and key sources of
estimation uncertainty
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates and
requires management to exercise its judgement in the process of
applying the Company's accounting policies. It also requires the
use of assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Although these
estimates are based on management's best knowledge of current
events and actions, actual results may ultimately differ from those
estimates.
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
Critical accounting judgements
(i) Classification of financial assets
Management exercises significant judgement in determining the
appropriate classification of the financial assets of the Company.
The Directors determine the appropriate classification of the
Company's financial assets based on Livermore's business model. An
entity's business model refers to how an entity manages its
financial assets in order to generate cash flows, considering all
relevant and objective evidence. The factors considered include the
contractual terms and characteristics which are very carefully
examined, and also the Company's intentions and expected needs for
realisation of the financial assets.
All investments (except from certain equity instruments that are
designated at fair value through other comprehensive income) are
classified as financial assets at fair value through profit or
loss, because this reflects more fairly the way these assets are
managed by the Company. The Company's business is investing in
financial assets with a view to profiting from their total return
in the form of income and capital growth. This portfolio of
financial assets is managed and its performance evaluated on a fair
value basis, in accordance with a documented investment strategy,
and information about the portfolio is provided internally on that
basis to the Company's Board of Directors and other key management
personnel.
(ii) Consolidation of subsidiaries
Management exercised significant judgment in determining which
of the subsidiaries that are not investment entities themselves,
provide services that relate to the Company's investment activities
and therefore need to be consolidated rather than included within
the investments in subsidiaries measured at fair value through
profit or loss.
Estimation uncertainty
Fair value of financial instruments
Management uses valuation techniques in measuring the fair value
of financial instruments, where active market quotes are not
available. Details of the bases used for financial assets and
liabilities are disclosed in note 7. In applying the valuation
techniques management makes maximum use of market inputs, and uses
estimates and assumptions that are, as far as possible, consistent
with observable data that market participants would use in pricing
the instrument. Where applicable data is not observable (level 3),
management uses its best estimates which may vary from the actual
prices that would be achieved in an arm's length transaction at the
reporting date. Further information on level 3 valuations of
financial assets is provided in note 7.2.
4. Financial assets at fair value through profit or loss
2018 2017
US $000 US $000
Non-current assets
Fixed income investments (CLO Income
Notes) 97,081 97,235
------ ------
97,081 97,235
------ ------
Current assets
Fixed income investments 39,590 26,647
Public equity investments 1,477 1,965
------ ------
41,067 28,612
------ ------
For description of each of the above categories, refer to note
6.
The above investments represent financial assets that are
mandatorily measured at fair value through profit or loss.
The Company treats its investments in the loan market through
CLOs as non-current investments as the Company generally intends to
hold such investments over a period longer than twelve months.
5. Financial assets at fair value through other comprehensive income
2018 2017
US $000 US $000
Non-current assets
Private equities 6,387 7,129
------ ------
Current assets
Hedge funds 1,117 1,118
------ ------
For description of each of the above categories, refer to note
6.
The above investments are non-trading equity investments that
have been designated at fair value through other comprehensive
income.
6. Financial assets at fair value
The Company allocates its non-derivative financial assets at
fair value (notes 4 and 5) as follows:
-- Fixed income investments relate to fixed and floating rate
bonds, perpetual bank debt, investments in the loan market through
CLOs, and investments in open warehouse facilities.
-- Private equities relate to investments in the form of equity
purchases in both high growth opportunities in emerging markets and
deep value opportunities in mature markets. The Company generally
invests directly in prospects where it can exert influence. Main
investments under this category are in the fields of real
estate.
-- Hedge funds relate to equity investments in funds managed by
sophisticated investment managers that pursue investment strategies
with the goal of generating absolute returns.
-- Public equity investments relate to investments in shares of
companies listed on public stock exchanges.
7. Fair value measurements of financial assets and liabilities
The following table (note 7.2) presents financial assets and
liabilities measured at fair value in the consolidated statement of
financial position in accordance with the fair value hierarchy.
This hierarchy groups financial assets and liabilities into three
levels based on the significance of inputs used in measuring the
fair value of the financial assets and liabilities. The fair value
hierarchy has the following levels:
- Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities that the entity can access at the
measurement date;
- Level 2: inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly
or indirectly; and
- Level 3: unobservable inputs for the asset or liability.
The level within which the financial asset is classified is
determined based on the lowest level of significant input to the
fair value measurement.
7.1 Valuation of financial assets
-- Fixed Income Investments and Public Equity Investments are
valued per their closing market prices on quoted exchanges, or as
quoted by market maker. Investments in open warehouse facilities
that have not yet been converted to CLOs, are valued based on an
adjusted net asset valuation.
The Company values the CLOs based on the valuation reports
provided by market makers. CLOs are typically valued by market
makers using discounted cash flow models. The key assumptions for
cash flow projections include default and recovery rates,
prepayment rates and reinvestment assumptions on the underlying
portfolios (typically senior secured loans) of the CLOs.
Default and recovery rates: The amount and timing of defaults in
the underlying collateral and the amount and timing of recovery
upon a default are key to the future cash flows a CLO will
distribute to the CLO equity tranche. All else equal, higher
default rates and lower recovery rates typically lead to lower cash
flows. Conversely, lower default rates and higher recoveries lead
to higher cash flows.
Prepayment rates: Senior loans can be pre-paid by borrowers.
CLOs that are within their reinvestment period may, subject to
certain conditions, reinvest such prepayments into other loans
which may have different spreads and maturities. CLOs that are
beyond their reinvestment period typically pay down their senior
liabilities from proceeds of such pre-payments. Therefore, the rate
at which the underlying collateral prepays impacts the future cash
flows that the CLO may generate.
Reinvestment assumptions: A CLO within its reinvestment period
may reinvest proceeds from loan maturities, prepayments, and
recoveries into purchasing additional loans. The reinvestment
assumptions define the characteristics of the loans that a CLO may
reinvest in. These assumptions include the spreads, maturities, and
prices of such loans. Reinvestment into loans with higher spreads
and lower prices will lead to higher cash flows. Reinvestment into
loans with lower spreads will typically lead to lower cash
flows.
Discount rate: The discount rate indicates the yield that market
participants expect to receive and is used to discount the
projected future cash flows. Higher yield expectations or discount
rates lead to lower prices and lower discount rates lead to higher
prices for CLOs.
-- Private Equities are valued using market valuation techniques
as determined by the Directors, mainly on the basis of valuations
reported by third-party managers of such investments. Real Estate
entities are valued by independent qualified property valuers with
substantial relevant experience on such investments. Underlying
property values are determined based on their estimated market
values.
-- Hedge Funds are valued per reports provided by the funds on a
periodic basis, and if traded, per their closing bid market prices
on quoted exchanges, or as quoted by market maker.
-- Derivative instruments are valued at fair value as provided
by counter parties (banks) of the derivative agreement.
-- Investments in subsidiaries are valued at fair value as
determined on an adjusted net asset valuation basis.
7.2 Fair value hierarchy
Financial assets and financial liabilities measured at fair
value in the consolidated statement of financial position are
grouped into the fair value hierarchy as follows:
2018 2018 2018 2018 2017 2017 2017 2017
US $000 US $000 US $000 US $000 US $000 US $000 US $000 US $000
Level Level Level Total Level Level Level Total
1 2 3 1 2 3
Assets
Fixed income investments 1,100 97,081 38,490 136,671 1,132 97,235 25,515 123,882
Private equities - - 6,387 6,387 - - 7,129 7,129
Public equity investments 1,477 - - 1,477 1,965 - - 1,965
Hedge funds - 1,117 - 1,117 - 1,118 - 1,118
Investments in
subsidiaries - - 5,205 5,205 - - 5,426 5,426
------ ------ ------ ------ ------ ------ ------ ------
2,577 98,198 50,082 150,857 3,097 98,353 38,070 139,520
------ ------ ------ ------ ------ ------ ------ ------
Liabilities - - - - - - - -
------ ------ ------ ------ ------ ------ ------ ------
The methods and valuation techniques used for the purpose of
measuring fair value are unchanged compared to the previous
reporting year.
No financial assets or liabilities have been transferred between
different levels.
Financial assets within level 3 can be reconciled from beginning
to ending balances as follows:
At fair value At fair value Investments
through OCI through in subsidiaries
- Private profit or
equities loss - Fixed
Income
investments Total
US $000 US $000 US $000 US $000
As at 1 January 2017 5,634 17,251 4,339 27,224
Purchases - 83,500 1,200 84,700
Settlement (124) (75,500) - (75,624)
Gains / (losses) recognised
in:
-Profit or loss - 264 (113) 151
-Other comprehensive
income 1,619 - - 1,619
------ ------ ------ ------
As at 1 January 2018 7,129 25,515 5,426 38,070
Purchases - 75,000 - 75,000
Settlement (1,055) (62,500) - (63,555)
Gains / (losses) recognised
in:
-Profit or loss - 475 (221) 254
-Other comprehensive
income 313 - - 313
------ ------ ------ ------
As at 31 December
2018 6,387 38,490 5,205 50,082
------ ------ ------ ------
The above gains and losses recognised can be allocated as
follows:
At fair value At fair value Investments
through OCI through in subsidiaries
- Private profit or
equities loss - Fixed
Income
investments Total
2017 US $000 US $000 US $000 US $000
Profit or loss
- Financial assets held
at year-end - 264 (113) 151
------ ------ ------ ------
Other comprehensive income
- Financial assets held
at year-end 1,619 - - 1,619
------ ------ ------ ------
Total gains / (losses)
for 2017 1,619 264 (113) 1,770
------ ------ ------ ------
At fair value At fair value Investments
through OCI through in subsidiaries
- Private profit or
equities loss - Fixed
Income
investments Total
2018 US $000 US $000 US $000 US $000
Profit or loss
- Financial assets held
at year-end - 990 (221) 769
- Financial assets not
held at year-end - (515) - (515)
------ ------ ------ ------
Other comprehensive income
- Financial assets held
at year-end 313 - - 313
------ ------ ------ ------
Total gains / (losses)
for 2018 313 475 (221) 567
------ ------ ------ ------
The Company has not developed any quantitative unobservable
inputs for measuring the fair value of its level 3 financial assets
at 31 December 2018 and 2017. Instead the Company used prices from
third-party pricing information without adjustment.
Fixed income investments within level 3 represent open
warehouses that have been valued based on their net asset value.
The net asset value of a warehouse is primarily driven by the fair
value of its underlying loan asset portfolio (as determined by the
warehouse's manager) plus received and accrued interest less the
nominal value of the financing and accrued interest on the
financing. In all cases, due to the nature and the short life of a
warehouse, the carrying amounts of the warehouses' underlying
assets and liabilities are considered as representative of their
fair values.
Private equities within level 3 represent investments in private
equity funds. Their value has been determined by each fund manager
based on the funds' net asset value. Each fund's net asset value is
primarily driven by the fair value of its underlying investments.
In all cases, considering that such investments are measured at
fair value, the carrying amounts of the funds' underlying assets
and liabilities are considered as representative of their fair
values.
Investments in subsidiaries have been valued based on their net
asset position. The main assets of the subsidiaries represent
investments measured at fair value and receivables from the Company
itself. Their net asset value is considered as a fair approximation
of their fair value.
A reasonable change in any individual significant input used in
the level 3 valuations is not anticipated to have a significant
change in fair values as above.
8. Investments in subsidiaries
2018 2017
Unconsolidated subsidiaries US $000 US $000
As at 1 January 5,426 4,339
Additions - 1,200
Fair value loss (221) (113)
------ ------
As at 31 December 5,205 5,426
------ ------
Additions in 2017 relate to the fair value of receivable amounts
from two of the Company's unconsolidated subsidiaries, that have
been waived by the Company. The nominal amount of these balances
was a total of USD 4.143m (Livermore Properties Ltd: USD 3.103m,
and Sandhirst Ltd: USD 1.040m).
Details of the investments in which the Company has a
controlling interest as at 31 December 2018 are as follows:
Name of Subsidiary Place of Holding Proportion Principal activity
incorporation of voting
rights
and shares
held
Consolidated subsidiaries
Livermore Capital Switzerland Ordinary 100% Administration
AG shares services
Livermore Investments Cyprus Ordinary 100% Administration
Cyprus Limited shares services
Unconsolidated subsidiaries
Livermore Properties British Virgin Ordinary 100% Holding of investments
Limited Islands shares
Mountview Holdings British Virgin Ordinary 100% Investment vehicle
Limited Islands shares
Sycamore Loan Strategies Cayman Islands Ordinary 100% Investment vehicle
Ltd shares
Livermore Israel Israel Ordinary 100% Holding of investments
Investments Ltd shares
Sandhirst Limited Cyprus Ordinary 100% Holding of investments
shares
9. Trade and other receivables
2018 2017
US $000 US $000
Financial items
Accrued interest and distribution
income 1 2
Amounts due by related parties
(note 23) 3,104 5,577
------ ------
3,105 5,579
Non-financial items
Prepayments 60 130
VAT receivable 3 10
------ ------
3,168 5,719
------ ------
Allocated as:
Current assets 3,168 3,166
Non-current assets (note 23(2)) - 2,553
------ ------
3,168 5,719
------ ------
Allowance for impairment
The allowance related to amounts due by subsidiaries, which were
regarded as credit-impaired and had been assessed on an individual
basis.
2018 2017
US $000 US $000
As at 1 January - 2,940
Eliminated upon waiver of balances
(notes 8 and 23) - (2,940)
------ ------
As at 31 December - -
------ ------
For the remaining receivables of a financial nature, no lifetime
expected credit losses and no corresponding allowance for
impairment have been recognised, as their default rates have been
determined to be close to 0%.
No receivable amounts have been written-off during either 2018
or 2017.
10. Cash and cash equivalents
Cash and cash equivalents included in the consolidated statement
of cash flows comprise the following at the reporting date:
2018 2017
US $000 US $000
Cash at bank 26,214 34,175
------ ------
Cash and cash equivalents 26,214 34,175
------ ------
11. Share capital
Authorised share capital
The Company has authorised share capital of 1,000,000,000
ordinary shares with no par value, and no restrictions.
Issued share capital Number of Share premium
shares arising
US $000
Ordinary shares with no par value
As at 1 January 2017 304,120,401 215,499
Cancellation of shares (129,306,403) (46,312)
---------- ----------
As at 31 December 2017 and 31 December
2018 174,813,998 169,187
---------- ----------
Treasury shares Number of Share premium
shares arising
US $000
As at 1 January 2017 129,306,403 46,312
Cancellation of shares (129,306,403) (46,312)
---------- ----------
As at 31 December 2017 and 31 December - -
2018
---------- ----------
In 2017, the Company cancelled 129,306,403 treasury shares
registered in the name of the Company, as a capital reduction.
12. Share options
The Company had a share option scheme under which it granted
share options to employees for acquiring ordinary shares of the
Company. The options lapsed at the earliest of the expiry date of
exercise period or the termination of the corresponding employee's
service. The last tranche of options lapsed unexercised during the
year.
Outstanding and exercisable options Number of Exercise
options price GBP
As at 1 January and 31 December
2017 500,000 0.30
Options expired (500,000) 0.30
--------
As at 31 December 2018 -
--------
The Company has no outstanding share options at the end of the
period.
13. Trade and other payables
2018 2017
US $000 US $000
Financial items
Trade payables 44 50
Amounts due to related parties
(note 23) 3,731 2,828
Accrued expenses 2,152 1,099
------ ------
5,927 3,977
------ ------
14. Dividends
At 15 January 2018, the Board announced an interim dividend of
USD 8m (USD 0.04576 per share) to members on the register on 26
January 2018. The dividend was paid on 23 February 2018.
15. Net asset value per share
Net asset value per share has been calculated by dividing the
net assets attributable to ordinary shareholders by the closing
number of ordinary shares (net of treasury shares) in issue during
the relevant financial periods.
Diluted net asset value per share is calculated after taking
into consideration any potentially dilutive shares in existence as
at 31 December 2018 and 31 December 2017.
2018 2017
Net assets attributable to ordinary
shareholders (USD 000) 174,333 175,445
------------- -------------
Closing number of ordinary shares in
issue 174,813,998 174,813,998
------------- -------------
Basic net asset value per share (USD) 1.00 1.00
------------- -------------
Net assets attributable to ordinary
shareholders (USD 000) 174,333 175,445
Dilutive share options - exercise amount - 203
------------- -------------
Net assets attributable to ordinary
shareholders including the effect of
potentially diluted shares (USD 000) 174,333 175,648
------------- -------------
Closing number of ordinary shares in
issue 174,813,998 174,813,998
Dilutive share options - 500,000
------------- -------------
Closing number of ordinary shares including
the effect of potentially diluted shares 174,813,998 175,313,998
------------- -------------
Diluted net asset value per share (USD) 1.00 1.00
------------- -------------
The Share options (note 12) had a dilutive effect on the net
asset value per share for 2017, given that their exercise price was
lower than the net asset value per share at 31 December 2017.
16. Segment reporting
The company's activities fall under a single operating
segment.
The Company's investment income and its investments are divided
into the following geographical areas:
2018 2017
Investment Income US $000 US $000
Other European countries (217) 156
United States 13,327 22,255
India (89) (68)
Asia (944) (218)
------ ------
12,077 22,125
------ ------
Investments
Other European countries 2,209 3,047
United States 138,310 125,407
India 712 1,600
Asia 9,626 9,466
------ ------
150,857 139,520
------ ------
Investment income, comprising interest and distribution income
as well as gains or losses on investments, is allocated on the
basis of the issuer's location. Investments are also allocated
based on the issuer's location.
The Company has no significant dependencies, in respect of its
investment income, on any single issuer.
17. Interest and distribution income
2018 2017
US $000 US $000
Interest from investments 101 115
Distribution income 31,440 27,928
------ ------
31,541 28,043
------ ------
Interest and distribution income is analysed between the
Company's different categories of financial assets, as follows:
2018 2017
Interest Distribution Total Interest Distribution Total
from investments income from investments income
Financial assets at US $000 US $000 US $000 US $000 US $000 US $000
fair
value through
profit or loss
Fixed income
investments 75 29,728 29,803 75 27,826 27,901
Public equity
investments - 868 868 - 6 6
------ ------ ------ ------ ------ ------
75 30,596 30,671 75 27,832 27,907
------ ------ ------ ------ ------ ------
Financial assets at
fair
value through other
comprehensive
income
Private equities - 844 844 - 96 96
------ ------ ------ ------ ------ ------
Financial assets at
amortised
cost
Loan receivable (note
23) 26 - 26 40 - 40
------ ------ ------ ------ ------ ------
101 31,440 31,541 115 27,928 28,043
------ ------ ------ ------ ------ ------
The Company's distribution income derives from multiple issuers.
The Company does not have any concentration to any single
issuer.
18. Changes in value of investments
2018 2017
US $000 US $000
Fair value losses on financial
assets through profit or loss (17,159) (5,699)
Fair value loss on investment in
subsidiaries (221) (113)
Bank custody fees (104) (106)
------ ------
(17,484) (5,918)
------ ------
The investments disposed of had the following cumulative (i.e.
from the date of their acquisition up to the date of their
disposal) financial impact in the Company's net asset position:
Disposed in 2018 Disposed in 2017
Realised Cumulative Total Realised Cumulative Total financial
(losses)/ distribution financial (losses)/ distribution impact
gains* or interest impact gains* or interest
US $000 US $000 US $000 US $000 US $000 US $000
Financial assets
at fair value
through profit
or loss
Fixed income investments (7,703) 31,875 24,172 (11,567) 19,686 8,119
Public equities 622 1 623
------ ------ ------ ------ ------ ------
(7,081) 31,876 24,795 (11,567) 19,686 8,119
------ ------ ------ ------ ------ ------
Financial assets
at fair value
through OCI
Private equities (16,051) 1,777 (14,274) 35 - 35
------ ------ ------ ------ ------ ------
(23,132) 33,653 10,521 (11,532) 19,686 8,154
------ ------ ------ ------ ------ ------
* difference between disposal proceeds and original acquisition
cost
19. Administrative expenses
2018 2017
US $000 US $000
Directors' fees and expenses 5,730 3,608
Other salaries and expenses 156 152
Professional fees 1,896 1,385
Legal expenses 27 19
Office costs 382 409
Depreciation 8 7
Other operating expenses 588 512
Audit fees 82 112
------ ------
8,869 6,204
------ ------
Throughout 2018 the Company employed 4 members of staff (2017:
4). Two of those members are the Company's executive Directors.
Other salaries and expenses include USD 13,445 of social
insurance and similar contributions (2017: USD 13,212), as well as
USD 3,252 of defined contributions plan costs (2017: USD
3,223).
20. Finance costs and (income)
2018 2017
US $000 US $000
Finance costs
Bank interest expense 30 19
Foreign exchange loss 215 -
------ ------
245 19
Finance income
Bank interest income (233) (91)
Foreign exchange gain - (397)
------ ------
12 (469)
------ ------
21. Taxation
2018 2017
US $000 US $000
Current tax charge 14 18
------ ------
The Company is a British Virgin Islands (BVI) international
business company and, under the BVI laws, was not subject to
corporation tax for either 2018 or 2017. The current tax charge
relates to the results of the Company's consolidated subsidiaries
in Switzerland and Cyprus (note 8).
22. Earnings per share
Basic earnings per share has been calculated by dividing the
profit for the year attributable to ordinary shareholders of the
Company by the weighted average number of ordinary shares in issue
of the Company during the relevant financial year.
Diluted earnings per share is calculated after taking into
consideration other potentially dilutive shares in existence during
the relevant financial year.
2018 2017
Profit for the year attributable to
ordinary shareholders of the parent
(USD 000) 5,162 16,372
------------- -------------
Weighted average number of ordinary
shares outstanding 174,813,998 174,813,998
------------- -------------
Basic earnings per share (USD) 0.03 0.09
------------- -------------
Weighted average number of ordinary
shares outstanding 174,813,998 174,813,998
Dilutive effect of share options - 183,891
--------- ---------
Weighted average number of ordinary
shares including the effect of potentially
dilutive shares 174,813,998 174,997,889
------------- -------------
Diluted earnings per share (USD) 0.03 0.09
------------- -------------
The Share options (note 12) had a dilutive effect on the
weighted average number of ordinary shares only for 2017, given
that their exercise price was lower than the average market price
of the Company's shares on the London Stock Exchange (AIM division)
during the year ended 31 December 2017.
23. Related party transactions
The Company is controlled by Groverton Management Ltd, an entity
owned by Noam Lanir, which at 31 December 2018 held 76.62% (2017:
76.62%) of the Company's effective voting rights.
2018 2017
US $000 US $000
Amounts receivable from unconsolidated
subsidiaries
Sandhirst Limited 104 24 (1)
------ ------
Amounts receivable from key management
Directors' current accounts 3,000 3,000 (1)
Loan receivable - 2,553 (2)
------ ------
3,000 5,553
------ ------
Amounts payable to unconsolidated
subsidiaries
Livermore Israel Investments Ltd (3,522) (2,603) (3)
------ ------
Amounts payable to other related
party
Loan payable (149) (149) (4)
------ ------
Amounts payable to key management
Directors' current accounts (48) (69) (3)
Other key management personnel (12) (7) (5)
------ ------
(60) (76)
------ ------
Key management compensation
Short term benefits
Executive Directors' fees 795 795 (6)
Executive Directors' reward payments 4,804 2,728
Non-executive Directors' fees 60 59
Non-executive Directors' reward
payments 71 26
Other key management fees 1,084 994 (7)
------ ------
6,814 4,602
------ ------
(1) The amounts receivable from unconsolidated subsidiaries and
the Director's current accounts with debit balances are interest
free, unsecured, and have no stated repayment date.
(2) A loan of USD 2.500m was made to a key management employee,
during 2016, for the acquisition of shares in the Company. Interest
was payable on the loan at 6-month US LIBOR plus 0.25% per annum
and the loan is secured on the shares acquired. The loan, including
interest accrued, was repayable on the earlier of the employee
leaving the Company or August 2019. The loan including interest
accrued was settled during 2018. For 2017, the loan was included
within trade and other receivables (note 9).
(3) The amounts payable to unconsolidated subsidiaries and
Director's current accounts with credit balances are interest free,
unsecured, and have no stated repayment date.
(4) A loan with a balance at 31 December 2018 of USD 0.149m (31
December 2017: USD 0.149m) has been received from a related company
(under common control), Chanpak Ltd. The loan is free of interest,
is unsecured and is repayable on demand. This loan is included
within trade and other payables (note 13).
(5) The amount payable to other key management personnel relates
to a payment made on behalf of the Company for investment purposes
and accrued consultancy fees.
(6) These payments were made directly to companies which are related to the Directors.
(7) Other key management fees are included within professional fees (note 19).
During 2017, the Company waived receivable amounts from its
subsidiaries Livermore Properties Limited (USD: 3.103m) and
Sandhirst Limited (USD: 1.040m) as a means of capital contribution
to the subsidiaries (note 8).
No social insurance and similar contributions nor any other
defined benefit contributions plan costs were incurred for the
Company in relation to its key management personnel in either 2018
or 2017.
Noam Lanir, through an Israeli partnership, is the major
shareholder of Babylon Limited, an Israel based Internet Services
Company. The Company as of 31 December 2018 held a total of 1.941m
shares at a value of USD 0.618m (2017: 1.941m shares at a value of
USD 0.845m) which represents 4% of its effective voting rights. The
investment in Babylon Ltd is held through the subsidiary Livermore
Israel Investments Ltd.
24. Provisions
The movement in provisions for the year is as follows:
2018 2017
US $000 US $000
As at 1 January - 385
Settlements - (385)
----- -----
As at 31 December - -
------ ------
25. Litigation
Fairfield Sentry Ltd vs custodian bank and beneficial owners
One of the custodian banks that the Company used faces a
contingent claim up to USD 2.1m, and any interest as will be
decided by a US court and related legal fees, with regards to the
redemption of shares in Fairfield Sentry Ltd, which were bought in
2008 at the request of Livermore and on its behalf. If the claim
proves to be successful Livermore will have to compensate the
custodian bank since the transaction was carried on Livermore's
behalf. The same case was also filed in BVI where the Privy Council
ruled against the plaintiffs.
As a result of the surrounding uncertainties over the existence
of any obligation for Livermore, as well as for the potential
amount of exposure, the Directors cannot form an estimate of the
outcome for this case and therefore no provision has been made.
No further information is provided on the above case as the
Directors consider it could prejudice its outcome.
26. Commitments
The Company has expressed its intention to provide financial
support to its subsidiaries, where necessary to enable them to meet
their obligations as they fall due.
Other than the above, the Company has no capital or other
commitments as at 31 December 2018.
27. Events after the reporting date
One of the two warehouse facilities that the Company invested
in, during 2018, with a carrying amount as at 31 December 2018 of
USD 15.0m, was closed in May 2019. For the closed warehouse,
Livermore's investment amount plus net carry amounting to a total
of USD 15.3m became receivable in May 2019.
After a successful application the Company became a tax resident
in the republic of Cyprus as at 18 January 2019.
There were no other material events after the end of the
reporting year, which have a bearing on the understanding of these
financial statements.
28. Financial risk management objectives and policies
Background
The Company's financial instruments comprise financial assets at
fair value through profit or loss, financial assets at fair value
through other comprehensive income, and financial assets and
liabilities at amortised cost that arise directly from its
operations. For an analysis of financial assets and liabilities by
category, refer to note 29.
Risk objectives and policies
The objective of the Company is to achieve growth of shareholder
value, in line with reasonable risk, taking into consideration that
the protection of long-term shareholder value is paramount. The
policy of the Board is to provide a framework within which the
investment manager can operate and deliver the objectives of the
Company.
Risks associated with financial instruments
Foreign currency risk
Foreign currency risks arise in two distinct areas which affect
the valuation of the investment portfolio, 1) where an investment
is denominated and paid for in a foreign currency; and 2) where an
investment has substantial exposure to non-US Dollar underlying
assets or cash flows denominated in a foreign currency. The Company
in general does not hedge its currency exposure. The Company
discretionally and partially hedges against foreign currency
movements affecting the value of the investment portfolio based on
its view on the relative strength of certain currencies. Any
hedging transactions represent economic hedges; the Company does
not apply hedge accounting in any case. Management monitors the
effect of foreign currency fluctuations through the pricing of the
investments. The level of financial instruments denominated in
foreign currencies held by the Company at 31 December 2018 is the
following:
2018 2018 2018 2017 2017 2017
US $000 US $000 US $000 US $000 US $000 US $000
Financial Financial Net Financial Financial Net value
assets liabilities value assets liabilities
British Pounds
(GBP) 2,690 (140) 2,550 1,587 (111) 1,476
Euro 482 (27) 455 994 (211) 783
Swiss Francs
(CHF) 3,507 (50) 3,457 4,757 (774) 3,983
Israel Shekels
(ILS) 5,814 (3,522) 2,292 6,253 (2,603) 3,650
------ ------ ------ ------ ------ ------
Total 12,493 (3,739) 8,754 13,591 (3,699) 9,892
------ ------ ------ ------ ------ ------
Also, some of the USD denominated investments are backed by
underlying assets which are invested in non-USD assets. For
instance, investments in certain emerging market private equity
funds are denominated in USD but the funds in turn have invested in
assets denominated in non-USD currencies.
A 10% increase of the following currency rates against the rate
of United States Dollar (USD) at 31 December 2018 would have the
following impact. A 10% decrease of the following currencies
against USD would have an approximately equal but opposite
impact.
2018 2018 2017 2017
US $000 US $000 US $000 US $000
Profit Other comprehensive Profit Other comprehensive
or loss income or loss income
British Pounds (GBP) 184 71 93 55
Euro 46 - 78 -
Swiss Francs (CHF) 346 - 398 -
Israel Shekels (ILS) 229 - 365 -
------ ------ ------ ------
Total 805 71 934 55
------ ------ ------ ------
The above analysis assumes that all other variables in
particular, interest rates, remain constant.
Interest rate risk
The Company is exposed to interest rate risk on its
interest-bearing instruments which are affected by changes in
market interest rates.
As at 31 December 2018 the Company had no financial liabilities
that bore an interest rate risk.
Interest rate changes will also impact equity prices. The level
and direction of changes in equity prices are subject to prevailing
local and world economics as well as market sentiment all of which
are very difficult to predict with any certainty.
The Company has fixed and floating rate financial assets
including bank balances that bear interest at rates based on the
banks floating interest rates. In particular, the fair value of the
Company's fixed rate financial assets is likely to be negatively
impacted by an increase in interest rates. The interest income of
the Company's floating rate financial assets is likely to be
positively impacted by an increase in interest rates.
The Company has exposure to US bank loans through CLO equity
tranches as well as through warehousing facilities. An investment
in the CLO equity tranche or first loss tranche of a warehouse
represents a leveraged investment into such loans. As these loans
(assets of a CLO) and the liabilities of a CLO are floating rate in
nature (typically 3 month LIBOR as the base rate), the residual
income to CLO equity tranches and warehouse first loss tranches is
normally linked to the floating rate benchmark and thus normally do
not carry substantial interest rate risk.
The Company's financial assets and liabilities affected by
interest rate changes are as follows:
2018 2017
US $000 US $000
Financial assets - subject to:
- fair value changes 1,100 1,132
- interest changes 26,214 34,175
------ ------
Total 27,314 35,307
------ ------
An increase of 1% (100 basis points) in interest rates would
have the following impact. An equivalent decrease would have an
approximately equal but opposite impact.
2018 2018 2017 2017
US $000 US $000 US $000 US $000
Profit Other comprehensive Profit Other comprehensive
or loss income or loss income
Financial assets
- fair value changes (160) - (148) -
- interest changes 262 - 342 -
------ ------ ------ ------
102 - 194 -
------ ------ ------ ------
The above analysis assumes that all other variables, in
particular currency rates, remain constant.
Market price risk
By the nature of its activities, most of the Company's
investments are exposed to market price fluctuations. The Board
monitors the portfolio valuation on a regular basis and
consideration is given to hedging or adjusting the portfolio
against large market movements.
The Company had no single major financial instrument that in
absolute terms and as a proportion of the portfolio could result in
a significant reduction in the NAV and share price. Due to the very
low exposure of the Company to public equities, and having no
specific correlation to any market, the equity price risk is low.
The portfolio as a whole does not correlate exactly to any
Index.
Management of risks is primarily achieved by having a
diversified portfolio to spread the market price risk. The Company
mainly has investments in CLO equity tranches as well as first loss
tranches of warehouse facilities. Investments in the equity tranche
of US CLOs represent a levered exposure to senior secured corporate
loans in the US, and are thus subject to many risks including but
not limited to lack of liquidity, credit or default risk, and risks
related to movements in market prices as well as the variations of
risk premium in the market.
Prices of these CLO investments may be volatile and will
generally fluctuate due to a variety of factors that are inherently
difficult to predict, including but not limited to changes in
prevailing credit spreads and yield expectations, interest rates,
underlying portfolio credit quality and market expectations of
default rates on non-investment grade loans, general economic
conditions, financial market conditions, legal and regulatory
developments, domestic and international economic or political
events, developments or trends in any particular industry, and the
financial condition of the obligors that constitute the underlying
portfolio.
A 10% uniform change in the value of the Company's portfolio of
financial assets (excluding level 3 investments) would result in a
7.99% change in the net asset value as at 31 December 2018 (2017:
7.24%), and would have the following impact (either positive or
negative, depending on the corresponding sign of the change):
2018 2018 2017 2017
US $000 US $000 US $000 US $000
Profit Other comprehensive Profit Other comprehensive
or loss income or loss income
Financial assets at
fair value through other
comprehensive income - 112 - 112
Financial assets at
fair value through profit
or loss 13,815 - 12,585 -
------ ------ ------ ------
13,815 112 12,585 112
------ ------ ------ ------
Derivatives
The Investment Manager may use derivative instruments in order
to mitigate market risk or to take a directional investment. These
provide a limited degree of protection and would not materially
impact the portfolio returns if a large market movement did
occur.
Credit risk
The Company invests in a wide range of securities with various
credit risk profiles including investment grade securities and sub
investment grade positions. The investment manager mitigates the
credit risk via diversification across issuers. However, the
Company is exposed to a migration of credit rating, widening of
credit spreads and default of any specific issuer.
The Company only transacts with regulated institutions on normal
market terms which are trade date plus one to three days. The
levels of amounts outstanding from brokers are regularly reviewed
by the management. The duration of credit risk associated with the
investment transactions is the period between the date the
transaction took place, the trade date and the date the stock and
cash are transferred, the settlement date. The level of risk during
the period is the difference between the value of the original
transaction and its replacement with a new transaction.
The Company is mainly exposed to credit risk in respect of its
fixed income investments (mainly CLOs) and to a lesser extend in
respect of its financial assets at amortised cost, and other
instruments held for trading (perpetual bonds).
The Company's maximum credit risk exposure at 31 December 2018
is as follows:
2018 2017
US $000 US $000
Financial assets:
At amortised cost:
Trade and other receivables 3,105 5,579
Cash at bank 26,214 34,175
------ ------
29,319 39,754
Financial assets at fair value through
profit or loss 136,671 123,884
------ ------
165,990 163,638
------- -------
No collaterals are held by the Company itself in relation to the
Company's financial assets subject to credit risk.
The fair values of the above financial assets at fair value
through profit or loss are also affected by the credit risk of
those instruments. However, it is not practical to provide an
analysis of the changes in fair values due to the credit risk
impact for the year or previous periods, nor to provide any
relevant sensitivity analysis.
The Company has exposure to US senior secured loans and to a
lesser degree emerging market loans through CLO equity tranches as
well as warehouse first loss tranches. These loans are primarily
non-investment grade loans or interests in non-investment grade
loans, which are subject to credit risk among liquidity, market
value, interest rate, reinvestment and certain other risks. It is
anticipated that these non-investment grade loans generally will be
subject to greater risks than investment grade corporate
obligations.
A non-investment grade loan or debt obligation or an interest in
a non-investment grade loan is generally considered speculative in
nature and may become a defaulted security for a variety of
reasons. A defaulted security may become subject to either
substantial workout negotiations or restructuring, which may
entail, among other things, a substantial reduction in the interest
rate, a substantial write-down of principal, and a substantial
change in the terms, conditions and covenants with respect to such
defaulted security. In addition, such negotiations or restructuring
may be quite extensive and protracted over time, and therefore may
result in substantial uncertainty with respect to the ultimate
recovery on such defaulted security. Bank loans have historically
experienced greater default rates than has been the case for
investment grade securities.
The Company has no investment in sovereign debt as at 31
December 2018 or 2017.
At 31 December the credit rating distribution of the Company's
asset portfolio subject to credit risk was as follows:
Rating 2018 Percentage 2017 Amount Percentage
Amount
US $000 US $000
AA 18,632 11.2% 16,563 10.1%
A 2,703 1.6% 9,768 6.0%
A- 3,570 2.2% 7,111 4.4%
B 2,073 1.2% - -
BB+ 1,101 0.7% 1,132 0.7%
BBB 1,309 0.8% 734 0.4%
Not Rated 136,602 82.3% 128,330 78.4%
------ ------ ------ ------
165,990 100% 163,638 100%
------ ------ ------ ------
Included within "not rated" amounts are investments in loan
market through CLOs (equity tranches) of USD 97.080m and open
warehouses of USD 38.490m (2017: CLOs of USD 97.237m and open
warehouses of USD 25.139m).
The modelled IRRs on the CLO portfolio as well as the warehouse
first loss tranches are in low teens percentage points.
Liquidity risk
The following table summarizes the contractual cash outflows in
relation to the Company's financial liabilities according to their
maturity.
31 December 2018 Carrying Less than Between Between Over
amount 1 year 1 and 2 and 5 years
2 years 5 years
US $000 US $000 US $000 US $000 US $000
Trade and other
payables 5,927 5,927 - - -
------ ------ ------ ------ ------
Total 5,927 5,927 - - -
------ ------ ------ ------ ------
31 December 2017 Carrying Less than Between Between Over
amount 1 year 1 and 2 and 5 years
2 years 5 years
Trade and other
payables 3,977 3,977 - - -
------ ------ ------ ------ ------
Total 3,977 3,977 - - -
------ ------ ------ ------ ------
A small proportion of the Company's portfolio is invested in
mid-term private equity investments with low or no liquidity. The
investments of the Company in publicly traded securities are
subject to availability of buyers at any given time and may be very
low or non-existent subject to market conditions.
There is currently no exchange traded market for CLO securities
and they are traded over-the-counter through private negotiations
or auctions subject to market conditions. Currently the CLO market
is liquid, but in times of market distress the realization of the
investments in CLOs through sales may be below fair value.
Warehouse facilities are private negotiated financing facilities
and are not traded and have no active market. The Company, however,
can opt to terminate such facility.
Management takes into consideration the liquidity of each
investment when purchasing and selling in order to maximise the
returns to shareholders by placing suitable transaction levels into
the market.
At 31 December 2018, the Company had liquid investments
totalling USD 127.0m, comprising of USD 26.2m in cash and cash
equivalents, USD 97.1m in investments in loan market through CLOs,
USD 1.1m in other fixed income investments, USD 1.5m in public
equities and USD 1.1m in hedge funds. Management structures and
manages the Company's portfolio based on those investments which
are considered to be long term, core investments and those which
could be readily convertible to cash, are expected to be realised
within normal operating cycle and form part of the Company's
treasury function.
Capital management
The Company considers its capital to be its issued total equity
(i.e. its share capital and all of its reserves).
The Company manages its capital to ensure that it will be able
to continue as a going concern while maximising the return to
shareholders through the optimisation of the balance between its
net debt and equity.
Net debt to equity ratio is calculated using the following
amounts as included on the consolidated statement of financial
position, for the reporting periods under review:
2018 2017
US $000 US $000
Cash at bank (26,214) (34,175)
------ ------
Net Debt (26,214) (34,175)
------ ------
Total equity 174,333 175,445
------ ------
Net debt to equity ratio (0.15) (0.19)
------- -------
29. Financial assets and liabilities by class
Note 2018 2017
US $000 US $000
Financial assets:
Financial assets at amortised
cost 9,10 29,382 39,754
Financial assets at fair value
through profit or loss 4 138,148 125,847
Financial assets designated at
fair value through other comprehensive
income 5 7,504 8,247
------- -------
175,034 173,848
------- -------
Financial liabilities:
Financial liabilities at amortised
cost 13 5,927 3,977
------- -------
The carrying amount of the financial assets and liabilities at
amortised cost approximates to their fair value.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SEIFFFFUSEDI
(END) Dow Jones Newswires
May 22, 2019 02:00 ET (06:00 GMT)
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