Notes on the Financial Statements

1.     General Information

Incorporation, principal activity and status of the Company

1.1.   The Company was incorporated as an international business company and registered in the British Virgin Islands (BVI) on 2 January 2002 under IBC Number 475668 with the name Clevedon Services Limited. The liability of the members of the Company is limited.  

1.2.   The Company changed its name to Empire Online Limited on 5 May 2005 and then changed to Livermore Investments Group Limited on 28 February 2007.

1.3.   The principal activity of the Group changed to investment services on 1 January 2007. Before that the principal activity of the Group was the provision of marketing services to the online gaming industry and, since 1 January 2006, the operation of online gaming.

1.4.   The principal legislation under which the Company operates is the BVI Business Companies Act, 2004.

1.5.   The registered office and head office of the Company is located at Trident Chambers, PO Box 146, Road Town, Tortola, British Virgin Islands.

2.     Accounting Policies

2.1.   The significant accounting policies applied in the preparation of the financial information are as follows:

a)    Basis of preparation

The consolidated financial statements of Livermore Investments Group Limited have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and on a going concern basis.  The consolidated financial statements have been prepared on the historical cost basis except for the following:

·      Derivative financial instruments are measured at fair value.

·      Financial instruments at fair value through profit or loss are measured at fair value.

·      Available- for- sale financial assets are measured at fair value.

·      Investment property is measured at fair value.

 

The financial information is presented in US dollars because this is the currency in which the Group primarily operates.

The directors have reviewed the accounting policies used by the Group and consider them to be the most appropriate.

b)    Adoption of new and revised IFRSs

As from 1 January 2010, the Group adopted all the IFRSs and International Accounting Standards (IAS), which became effective and also were endorsed by the European Union and are relevant to its operations. The adoption of these Standards did not have any material effect on the consolidated financial statements.

All IFRSs issued by the International Standards Board (IASB) which are effective for the year ended 31 December 2010, have been adopted by the EU through the endorsement procedure established by the European Commission, with the exception of certain provisions of IAS 39: "Financial Instruments: Recognition and Measurement" relating to portfolio hedge accounting.

 

The following Standards, Amendments to Standards and Interpretations had been issued by the date of authorisation of these consolidated financial statements but are not yet effective for the year ended 31 December 2010:

 

 

 

 

Standards and Interpretations adopted by the EU

 

·      IAS 24 (Revised): "Related Party Disclosures" (effective for annual periods beginning on or after 1 January 2011).

·      IFRIC 19: "Extinguishing Financial Liabilities with Equity Instruments" (effective for annual periods beginning on or after 1 July 2010) .

·      Improvements to IFRSs ‑ 2010 (effective for annual periods beginning on or after 1 July 2010 / 1 January 2011).

·      Amendment to IFRS 1: "Limited Exemption from Comparative IFRS 7 Disclosures for First‑time Adopters" (effective for annual periods beginning on or after 1 July 2010).

·      Amendment to IAS 32: "Classification of Rights Issues" (effective for annual periods beginning on or after 1 February 2010).

·      Amendment to IFRIC 14: "Prepayments of a Minimum Funding Requirement" (effective for annual periods beginning on or after 1 January 2011).

 

Standards and Interpretations not adopted by the EU

 

·      IFRS 9: "Financial Instruments: Classification and Measurement" (effective for annual periods beginning on or after 1 January 2013)

·      Amendment to IFRS 1: "Severe Hyperinflation and Removal of Fixed Dates for First‑time Adopters" (effective for annual periods beginning on or after 1 July 2011).

·      IFRS 10: "Consolidated Financial Statements" (effective for annual periods beginning on or after 1 January 2013)

·      IFRS 11: "Joint Arrangements" (effective for annual periods beginning on or after 1 January 2013)

·      IFRS 12: "Disclosure of Interests in Other Entities" (effective for annual periods beginning on or after 1 January 2013)

·      IFRS 13: "Fair Value Measurement" " (effective for annual periods beginning on or after 1 January 2013)

·      IAS 27 (Revised): "Separate Financial Statements" (effective for annual periods beginning on or after 1 January 2013)

·      IAS 28 (Revised): "Investments in Associates and Joint Ventures" (effective for annual periods beginning on or after 1 January 2013)

·      Amendment to IFRS 7: "Disclosures ‑ Transfers of Financial Assets" (effective for annual periods beginning on or after 1 July 2011).

·      Amendment to IAS 12: "Deferred Tax: Recovery of Underlying Assets" (effective for annual periods beginning on or after 1 January 2012).

 

The Board of Directors expects that when these standards or interpretations become effective in future periods they will not have a material effect on the financial statements of the Group.

Exception to the above is the implementation of the amendment to IAS 12: "Deferred Tax: Recovery of Underlying Assets", under which the deferred tax liability for investment properties will be calculated based on the assumption of ultimate sale of these properties.  Given that the capital gains tax rate in Switzerland is higher than the corporation tax rate, the implementation will result in a significant increase of deferred tax liability.

c)     Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities (including special purpose entities) controlled by the Company (its subsidiaries).  Control is achieved where the company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. 

The financial statements of all the Group companies are prepared using uniform accounting policies.  Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

The results and cash flows of any subsidiaries acquired or disposed of during the year are included in the consolidated financial statements from the effective date of acquisition or up to the effective date of disposal.

d)    Current assets are those which, in accordance with IAS 1 Presentation Of Financial Statements are:

 • expected to be realised within normal operating cycle, via sale or consumption, or

• held primarily for trading, or

• expected to be realised within 12 months from the balance sheet date, or 

• cash and cash equivalent not restricted in their use.

All other assets are non-current.

e)     Investment in associate

The Group's interests in associates, being those entities over which it has significant influence and which are neither subsidiaries nor joint ventures, are accounted for using the equity method. 

Under the equity method, the investment in an associate is carried in the statement of financial position at cost plus post acquisition changes in the Group's share of the net assets of the associate and less any impairment in the value of the individual investment. The Group's profit or loss includes the share of the associate's results after tax.  The Group's other comprehensive income includes the share of any other comprehensive income and expenses recognised by the associate. 

Financial statements of associates are prepared for the same period as the Group's. Adjustments are made to bring the associate's accounting policies in line with those of the Group.

On disposal of an associate the carrying amount is derecognised and a disposal gain or loss is recognised in the profit or loss.  The disposal gain or loss is adjusted for the Group's share of the associate's available-for-sale fair value gains or losses and also the relevant cumulative foreign exchange translation differences that are reclassified from other comprehensive income to profit or loss.  Other amounts recognised in other comprehensive income in relation to the associate are transferred to retained earnings. 

f)     Investment property revenue

Rental income is recognised on a straight line basis over the lease term.  Service charges and management fees are recognised as the related costs are incurred and charged.  Changes to rental income that arise from reviews to open market rental values or increases that are indexed linked on a periodic basis are recognised from the date on which the adjustment became due.  Lease incentives granted are recognised as an integral part of the net consideration for the use of the property.  Lease incentives are allocated evenly over the life of the lease.  Rental income and services charged are stated net of vat and other related taxes.

g)     Investment Income

Investment income comprises interest income on funds invested, dividend income, and investment property income.  Interest income is recognised based on applicable effective interest rates.  Investment property income is recognised as described above.  Dividend income is recognised on the date that the Group's right to receive payment is established, which in the case of quoted securities is the ex-dividend date. 

h)    Foreign currency

The individual financial statements of each group company are presented in the currency of the primary economic environment in which it operates (its functional currency).  For the purpose of the consolidated financial statements, the results and financial position of each group company are expressed in USD, which is the functional currency of the parent company and the presentation currency for the consolidated financial statements.  

Transactions in foreign currencies other than each group entity's functional currency are recorded at the rates of exchange prevailing on the dates of the transaction.  Monetary assets and liabilities denominated in non-functional currencies are translated into functional currency equivalents using year-end spot foreign exchange rates.  Non-monetary assets and liabilities are translated using exchange rates prevailing at the dates of the transactions.  Non-monetary assets that are measured in terms of historical cost in foreign currency are not re-translated. 

Gains and losses arising on the settlement of monetary items and on the re-translation of monetary items are included in the profit or loss for the year.  Those that arise on the re-translation of non-monetary items carried at fair value are included in the profit or loss of the year except for differences arising on the re-translation of non-monetary items in respect of which gains and losses are recognised in other comprehensive income.  For such non-monetary items any exchange component of that gain or loss is also recognised in other comprehensive income.      

The results and financial position of all Group entities that have a functional currency different from US dollars are translated into the presentation currency as follows:

(i)       assets and liabilities are translated at the closing rate at the reporting date; and

(ii)      income and expenses and also cash flows  for each income statement item 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 income and expenses are translated at the rates prevailing at the dates of the transactions); and

(iii)     exchange differences on the net investment in subsidiary entities with a different functional currency to the group are recognised in other comprehensive income.

i)     Taxation

Current tax is the tax currently payable based on taxable profit for the year.

Deferred income taxes are calculated using the liability method on temporary differences.  Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases.  However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit.  Deferred tax on temporary differences associated with shares in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the group and it is probable that reversal will not occur in the foreseeable future.  In addition, tax losses available to be carried forward as well as other income tax credits to the group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided in full, with no discounting.  Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income.  Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the reporting date.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity (such as the revaluation of land) in which case the related deferred tax is also charged or credited directly to equity.

j)     Property, plant and equipment

Property, plant and equipment is stated at historical cost less accumulated depreciation.  Carrying amounts are reviewed at each reporting date for impairment indications.

Depreciation is calculated using the straight-line method, at annual rates estimated to write off the cost of the assets less any estimated residual values over their expected useful lives.  The annual depreciation rates used are as follows:

Computer Hardware	33.3%
Fixtures and Fittings	10%
Office Renovation	25%
Motor Vehicles	25%

k)     Investment property

Certain of the Group's properties are classified as investment property, being held for long term investment gains and to earn rental income. 

Investment properties are measured initially at cost, and thereafter are stated at fair value, which reflects market conditions at the reporting date.  Gains or losses arising from changes in the fair values of investment properties are included in the profit or loss in the year in which they arise.

Investment property is valued at fair value based on valuations provided by a certified external appraiser.

l)     Equity instruments

Equity instruments issued by the Company are recorded at proceeds received, net of direct issue costs.

Own equity instruments purchased by the Company are recorded at the consideration paid, including directly associated assets and is deducted from total equity as treasury shares until they are sold or cancelled.  Where such shares are subsequently sold, any consideration received is included in total equity.

The share premium account includes any premiums received on the initial issuing of the share capital. Any transaction costs associated with the issuing of shares are deducted from the premium paid.

m)   Share Options

IFRS 2 "Share-based Payment" requires the recognition of equity settled share based payments at fair value at the date of grant.

The Group issues equity-settled share based payments to certain employees and other advisors. The fair value of share-based payments to employees at grant date is measured using the Binomial pricing model. The fair value of share-based payments to other advisors, are measured directly at the fair value of the services provided.

The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. The corresponding credit is taken to the share option reserve.

On exercise or lapse of the options any related amounts recognised in the share option reserve are transferred to retained earnings.

n)    Leases

Leases where a significant portion of the risk and rewards of ownership are retained by the lessor are classified as operating leases and rentals are charged to income on a straight-line basis over the term of the lease.

o)    Borrowing costs

Borrowing costs primarily comprise interest on the Group's borrowings.  Any borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of the corresponding assets.  All other borrowing costs are expensed in the period in which they are incurred and reported within "finance costs".

p)    Financial assets

Financial assets are recognised when the Group becomes a party to the contractual provisions of the financial instrument.

A financial asset is derecognised only where the contractual rights to the cash flows from the asset expire or the financial asset is transferred and that transfer qualifies for derecognition.  A financial asset is transferred if the contractual rights to receive the cash flows of the asset have been transferred or the Group retains the contractual rights to receive the cash flows of the asset but assumes a contractual obligation to pay the cash flows to one or more recipients.  A financial asset that is transferred qualifies for derecognition if the Group transfers substantially all the risks and rewards of ownership of the asset, or if the Group neither retains nor transfers substantially all the risks and rewards of ownership but does transfer control of that asset.

Financial assets are measured initially at fair value plus transaction costs, except for financial assets and financial liabilities carried at fair value through profit or loss, which are measured initially at fair value.

Financial assets are measured subsequently as described below.

All financial assets except for those at fair value through profit or loss are subject to review for impairment at least at each reporting date. Financial assets are impaired when there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial assets, which are described below.

 

Trade and other receivables

Trade and other receivables are recognised and carried at the original transaction value.  An estimate for doubtful debts is made when collection of the full amount is no longer probable.  Bad debts are written off when identified.  Where the time value of money is significant receivables are carried at amortized cost. 

Cash and cash equivalents

Cash comprises cash in hand and balances with banks.  Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash.  They include unrestricted short-term bank deposits originally purchased with maturities of three months or less.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets that are either classified as held for trading or are designated by the Group to be carried at fair value through profit or loss upon initial recognition.  All assets within this category are measured at their fair value, with changes in value recognised in the profit or loss when incurred.  Upon initial recognition, attributable transactions costs are recognised in profit or loss when incurred.

From 1 January 2008 all new financial assets acquired have been designated at fair value through profit or loss upon initial recognition, because management consider this to more fairly reflect the way these assets are managed by the Group. The Group's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth.  This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided internally on that basis to the Group's Board of directors and other key management personnel. 

Available-for-sale financial assets

Available-for-sale financial assets include non-derivative financial assets that are either designated as such or do not qualify for inclusion in any of the other categories of financial assets.  Financial assets within this category are measured at fair value, with changes in fair value recognised in other comprehensive income.  Unquoted equity investments for which the fair value cannot be reliably measured are stated at cost less impairments.  Gains and losses arising from investments classified as available-for-sale are recognised in the profit or loss when they are sold or when the investment is impaired.

In the case of impairment of available-for-sale assets, any loss previously recognised in other comprehensive income is reclassified to profit or loss.  Impairment losses recognised in the profit or loss on equity instruments are not subsequently reversed through the profit or loss.  Impairment losses recognised previously on debt securities are reversed through the profit or loss when the increase in fair value can be related objectively to an event occurring after the impairment loss was recognised in the profit or loss.

An assessment for impairment is undertaken at least at each reporting date.

q)    Financial liabilities

Financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument.

A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

Financial liabilities are measured initially at fair value plus transactions costs, except for financial liabilities carried at fair value through profit or loss, which are measured initially at fair value.

Financial liabilities at amortised cost

After initial recognition financial liabilities are measured at amortised cost using the effective interest rate method.

Derivative financial liabilities

The group's financial liabilities also include financial derivative instruments.  Derivative instruments consist of interest rate swaps and forward currency contracts. 

All derivative financial instruments that are not designed and effective as hedging instruments are accounted for at fair value through profit or loss. 

 

Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.

After initial recognition, financial guarantee contracts are measured at the higher of:

(i)        the amount determined in accordance with IAS 37; and

(ii)      the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with IAS 18.

r)     Legal and other disputes

Provision is made where a reliable estimate can be made of the likely outcome of legal and other disputes against the Group. In addition, provision is made for legal and other expenses arising from claims received or other disputes. No provision is made for other possible claims or where an obligation exists but it is not possible to make a reliable estimate. Costs associated with claims made by the Group are charged to the profit or loss as they are incurred.

s)     Segment reporting

In identifying its operating segments, management generally follows the Group's investment activity lines. Each of these operating segments is managed separately as each of these investment activity lines requires different monitoring and strategic decision making process as well as allocation of resources.

The measurement policies the Group uses for segment reporting under IFRS 8 are the same as those used in its consolidated financial statements. Any inter-segment transfers are carried out at arm's length prices.

t)     Critical accounting judgments and key sources of estimation uncertainty

The following is the significant management judgment in applying the accounting policies of the Group that has the most significant effect on the consolidated financial statements.

Impairment of available-for-sale financial assets

The Group follows the guidance in IAS 39 on determining when an investment is impaired.  This determination requires significant judgments.  In making this judgment, the Company evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost and the financial health and near-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and financing cash flow. 

The Group assesses at each reporting date whether financial assets are impaired.  If impairment has occurred, this loss is recognised to profit or loss.

If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the current market rate of return of similar financial assets.  

Further details of provisions are provided in note 5.

u)    Estimation uncertainty

The following are the significant estimates that have the most significant effect on recognition and measurement of relevant items. 

 

Fair value of financial instruments

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 6.  In applying the valuation techniques management makes maximum use of market inputs, and uses estimates and assumptions that are, as far as possible, consistent with observable data that market participants would use in pricing the instrument. Where applicable data is not observable, management uses its best estimate about the assumptions that market participants would make. These estimates may vary from the actual prices that would be achieved in an arm's length transaction at the reporting date.

 

 

 

Provision for legal and other cases

Determining whether provisions for legal and other disputes shall be recognised, requires the Group to assess the likelihood of an economic outflow occurring as a result of past events.  Where an economic outflow is considered probable, a provision has been made for the estimated outflow.  Where an outflow is considered possible, but not probable, it has only been disclosed.

Where the information required by IAS 37 "Provisions, Contingent Liabilities and Contingent Assets" is expected to prejudice the outcome of legal and other disputes, it has not been disclosed on these grounds. 

Further details of provisions are provided in note 35.

v)     Comparatives

Since 1 January 2010, management has changed its monitoring and strategic decision making process in relation to its investments, separating them into two activity lines, which have also been identified as operating segments. As a result, the Group initially applies IFRS 8 "Operating Segments" for the year ended 31 December 2010. Segmental information is also provided for 2009 for comparison purposes.

The Group does not present a third statement of financial position as at 1 January 2009 since the initial application of IFRS 8, as described above, does not affect in any way the financial position of the Group in any previously published consolidated financial statements.

 

3.     Property, plant and equipment

	Office Renovation	Computer Hardware	Fixtures and Fittings	Motor Vehicles	Total
	US $000	US $000	US $000	US $000	US $000
Cost
As at 1 January 2009	315	134	88	-	537
Additions	10	2	7	26	45
	------	------	------	------	------
As at 1 January 2010	325	136	95	26	582
Additions	35	9	11	-	55
	------	------	------	------	------
As at 31 December 2010	360	145	106	26	637
	------	------	------	------	------
Accumulated depreciation
As at 1 January 2009	(83)	(80)	(22)	-	(185)
Charge for the year	(67)	(36)	(19)	(1)	(123)
	------	------	------	------	------
As at 1 January 2010	(150)	(116)	(41)	(1)	(308)
Charge for the year	(86)	(29)	(27)	(6)	(148)
	------	------	------	------	------
As at 31 December 2010	(236)	(145)	(68)	(7)	(456)
	------	------	------	------	------
Net book value
As at 31 December 2010	124	-	38	19	181
	------	------	------	------	------
As at 31 December 2009	175	20	54	25	274
	------	------	------	------	------

 

4.     Intangible assets

	Computer Software
	US $000
Cost
As at 31 December 2009 and at 31 December 2010	147
	--------
Accumulated amortisation
As at 1 January 2009	(138)
Charge for the year	(9)
	--------
As at 1 January 2010 and 31 December 2010	(147)
	--------
Net book value
As at 31 December 2010	-
	---------
As at 31 December 2009	-
	---------

5.     Available-for-sale financial assets

	2010 US $000	2009 US $000
Non-current assets
Fixed income investments	25,827	10,426
Private equities	18,070	18,193
Financial and minority holdings *	18,919	22,092
Other investments	5,620	5,151
	------	------
	68,436	55,862
	------	------
Current assets
Fixed income investments	11,886	10,177
Public equity investments	5,826	5,635
Hedge funds	2,842	4,102
	------	------
	20,554	19,914
	------	------

Available-for-sale financial assets, comprising principally investments in bonds and equity are fair valued annually at least at each reporting date.  For investments traded in active markets, fair value is determined by reference to Stock Exchange quoted bid prices.  For other investments, fair value is estimated by reference to the current market value of similar instruments or by reference to the discounted cash flows of the underlying assets.  Equity investments for which fair values cannot be measured reliably are recognised at cost less impairment.

* Financial and minority holdings relate to significant investments (of over USD 5m) which are strategic for the Company and are done in the form of equity purchases or convertible loans.  Main investments under this category are in the fields of real estate and media. 

Included in the Financial and minority holdings investments is the investment in SRS Charminar Investments Ltd, with carrying amount of USD 17.8m for which the investors have filed and won an arbitration award and an interim order for injunction against the promoters or the company to sell, transfer, or encumber the assets of the real estate company in which SRS Investments Ltd has invested in India. Thereafter, the promoters have filed against the arbitral award.  Legal counsel representing the investors believes that the grounds of appeal against the award are limited under applicable laws and that the investors have a strong case to defend. The Fund manager is of the opinion that the value of the land is sufficient to secure the put option. As at 31 December 2010 there was no change in the status of this case. Due to the legal complexity of these legal proceedings as well as the various counterparties involved the outcome remains uncertain.

Available-for-sale financial assets are classified as non-current, unless they are expected to be realised within twelve months of the reporting date or unless they will need to be sold to raise operating capital.

The Group's portfolio is structured based on those investments which are considered to be long term, core investments and those which could be readily convertible to cash and are expected to be realised within normal operating cycle and form part of the Group's treasury function.

During 2010 for the purpose of annual impairment and due to market conditions, management considered the impairment of certain available-for-sale financial assets.  Impairment testing indicated that for those financial assets their carrying amount may not be recoverable. 

The related charges in 2010, of USD 6.330m (2009 USD 28.235m), are included within loss on investments.

6.      Financial assets at fair value through profit or loss

	2010	2009
	US $000	US $000
Non-current assets
Private equities	2,844	2,903
Real estate entities	1,763	2,982
	------	------
	4,607	5,885
	------	------
Current assets
Fixed income investments	33,453	22,062
Public equity investments	5,878	742
Hedge funds	1,710	798
	------	------
	41,041	23,602
	------	------

The Financial assets at fair value through profit or loss, comprising principally investments in bonds and equity, are fair valued at least at each reporting date.

The Group's portfolio is structured based on investments which are considered to be long term, core investments and those which could be readily convertible to cash and are expected to be realised within normal operating cycle and form part of the Group's treasury function.

7.      Fair value measurements of financial assets

The following table presents financial assets measured at fair value in the consolidated statement of financial position in accordance with the fair value hierarchy.  This hierarchy groups financial assets and liabilities into three levels based on the significance of inputs used in measuring the fair value of the financial assets and liabilities. The fair value hierarchy has the following levels:

 

-       Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

-       Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or  liability, either directly (ie as prices) or indirectly (ie derived from prices); and

-       Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

The level within which the financial asset is classified is determined based on the lowest level of significant input to the fair value measurement.

 

Valuation of financial assets

·      Public equities, Credit Notes and Bonds are valued per their closing bid market prices on quoted exchanges, or as quoted by market maker.

·      Hedge Funds and Private Equity funds are valued per reports provided by the funds on a periodic basis, and if traded, per their closing bid market prices on quoted exchanges, or as quoted by market maker.

·      Private Equities and Unlisted Investments are valued using market valuation techniques as determined by the directors.

·      Derivative instruments are valued at fair value as provided by counter parties of the derivative agreement.  Derivative instruments consist of interest rate swaps and forward currency contracts.

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:

	2010 US $000	2010 US $000	2010 US $000	2010 US $000	2009 US $000	2009 US $000	2009 US $000	2009 US $000
	Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
Assets
Fixed income investments	45,339	25,827	-	71,166	32,239	10,426	-	42,665
Private equities	2,850	-	18,064	20,914	4,669	-	16,427	21,096
Financial and minority holdings	-	-	18,919	18,919	-	-	22,092	22,092
Other investments	5,620	-	-	5,620	5,151	-	-	5,151
Public equity investments	11,704	-	-	11,704	6,377	-	-	6,377
Hedge funds	-	4,552	-	4,552	-	4,900	-	4,900
Real estate entities	-	-	1,763	1,763	-	-	2,982	2,982
	------	------	------	------	------	------	------	------
	65,513	30,379	38,746	134,638	48,436	15,326	41,501	105,263
	------	------	------	------	------	------	------	------
Liabilities
Interest rate swaps	-	-	8,723	8,723	-	-	8,537	8,537
Forward contracts	-	-	-	-	-	-	39	39
	------	------	------	------	------	------	------	------
			8,723	8,723			8,576	8,576
	------	------	------	------	------	------	------	------

The methods and valuation techniques used for the purpose of measuring fair value are unchanged compared to the previous reporting period.

 

No financial assets or liabilities have been transferred between levels.

 

The Group's financial assets and liabilities classified in Level 3 use valuation techniques based on significant inputs that are not based on observable market data.

 

Financial assets within this level can be reconciled from beginning to ending balances as follows:

 

	Available-for-sale		At fair value through  profit or loss
	Financial and minority holdings	Private equities	Real estate	Private equities	Total
	US $000	US $000	US $000	US $000	US $000
At 1 January 2009	43,796	15,129	4,443	3,138	66,506
Sales	-	-	-	(364)	(364)
Purchases	-	1,157	-	-	1,157
Gains losses recognised in:
-Profit or loss	(22,484)	-	(889)	129	(23,244)
-Other comprehensive income	-	(2,762)	-	-	(2,762)
Exchange difference	780	-	15	-	795
Settlements	-	-	(587)	-	(587)
	------	------	------	------	------
At 1 January 2010	22,092	13,524	2,982	2,903	41,501
Purchases	-	1,965	-	-	1,965
Gains losses recognised in:
-Profit or loss	(3,896)	(1,944)	(1,210)	(59)	(7,109)
-Other comprehensive income	-	1,734	-	-	1,734
Exchange difference	723	-	(9)	-	714
Settlements		(59)	-	-	(59)
	------	------	------	------	------
At 31 December 2010	18,919	15,220	1,763	2,844	38,746
	------	------	------	------	------

 

 

Financial liabilities within this level can be reconciled from beginning to ending balances as follows:

 

	Interest rate swaps	Forward contracts	Total
	US $000	US $000	US $000
At 1 January 2009	7,539	610	8,149
Additions	1,911	-	1,911
Gains losses recognised in:
-Profit or loss	(1,346)	(571)	(1,917)
-Exchange differences	433	-	433
	------	------	------
At 1 January 2010	8,537	39	8,576
Gains losses recognised in:
-Profit or loss	536	(39)	497
-Exchange differences	(350)	-	(350)
	------	------	------
At 31 December 2010	8,723	-	8,723
	------	------	------

A reasonable change in any individual significant input used in the level 3 valuations is not anticipated to have a significant change in fair values as above.

8.      Investment property

	2010	2009
	US $000	US $000
Valuation as at 1 January	106,333	104,520
Additions	-	152
Change in fair value	1,114	(1,358)
Exchange difference	11,571	3,019
	------	------
As at 31 December	119,018	106,333
	------	------

The investment property relates to Wyler Park property in Switzerland, which is used for earning rental income.

 

The investment property was valued by Wuest & Partners as at 31 December 2010 and 2009 on the basis of open market value in accordance with the appraisal and valuation guidelines of the Royal Institute of Certified Surveyors, and the European Group of Valuers' Associations.

 

Wuest & Partners are independent qualified valuers with substantial relevant experience. 

 

Wyler Park property investment loan is secured on the property itself.

 

The future minimum rental income under non-cancellable rental agreements, is receivable as follows:

 

	2010	2009
	US $000	US $000
Less than 1 year	5,194	4,506
Between 1 and 5 years	20,922	19,982
Over 5 years	12,553	15,985
	------	------
	38,669	40,473
	------	------

 

Rental agreements are quoted in Swiss Francs.  The equivalent USD amounts shown in the table above are based on the exchange rates as at 31 December 2010 and 31 December 2009 correspondingly.

9.     Investment in associate

	2010	2009
	US $000	US $000
As at 1 January	10,936	39,939
Share of loss for the year	(2,141)	(14,530)
Additions for the year	-	1,668
Sales for the year	(3,939)	(550)
Share of other comprehensive loss	-	(2,918)
Exchange differences	(4,856)	640
Impairment charge	-	(13,313)
	------	------
As at 31 December	-	10,936
	------	------

 

The company disposed of its 21.71% interest in Atlas Estates Limited after taking the opportunity of a public cash offer.  The disposal has the following impact in the results of the Group for the year ended 31 December 2010:

	US $000
Proceeds received	13,729
Carrying amount of investment in associate	(3,939)
Translation losses reclassified to profit or loss	(7,154)
	------
Net gain on disposal of associate	2,636
	------

 

The following table illustrates summarised financial information of the Group's investment in Atlas Estates Ltd:

	2010	2009
	US $000	US $000
Share of the associate's Financial Position
Non-current assets	-	87,312
Current assets	-	48,595
Assets classified as held for sale	-	8,275
	------	------
Share of gross assets	-	144,182
	------	------
Current liabilities	-	(65,958)
Non-current liabilities	-	(36,727)
Liabilities classified as held for sale	-	(6,051)
	------	------
	-	(108,736)
Minority interest	-	(227)
	------	------
Share of gross liabilities	-	(108,963)
	------	------
Share of net assets	-	35,219
Impairment provision	-	(24,283)
	------	------
	-	10,936
	------	------

 

The investment's fair value based on its quoted market price as at 31 December 2009 of USD 1.07 per share was USD 10.936m.   

10.  Details of Group undertakings

Details of the investments in which the Group has a controlling interest are as follows:

Name of Subsidiary	Place of incorporation	Holding	Proportion of voting rights and shares held	Principal activity
Livermore Properties Limited	British Virgin Islands	Ordinary shares	100%	Holding of investments
Livermore Management Limited	British Virgin Islands	Ordinary shares	100%	Holding of investments
Livermore Israel Investments Limited	Israel	Ordinary shares	100%	Holding of investments
Livermore Capital AG	Switzerland	Ordinary shares	100%	Administration services
Livermore Investments AG	Switzerland	Ordinary shares	100%*	Real Estate management
Livermore Real Estate I AG	Switzerland	Ordinary shares	100%	Real Estate management, (Dormant)
Enaxor S.a.r.l	Luxembourg	Ordinary shares	100%	Real Estate Owner
Livermore Investments Cyprus Limited	Cyprus	Ordinary shares	100%	Administration services
Sandhirst Ltd	Cyprus	Ordinary shares	100%	Holding of investments

 

*Held by a Subsidiary undertaking.

 

Livermore Management Limited and Livermore Israel Investments Limited have been established by the Group during the year.    

11.  Deferred tax 

The company is an international business company based in the British Virgin Islands (BVI) and, under its laws, is not subject to taxation.  Deferred taxes relate to the temporary differences between carrying amounts and corresponding tax base of its subsidiaries.

 

The deferred tax shown in the consolidated statement of financial position relates to the following items:

	2010	2009
	US $000	US $000
Investment property	(2,271)	(1,332)
Derivative financial instruments	1,746	1,740
Tax losses	2,324	1,515
	------	------
Net deferred tax asset	1,799	1,923
	------	------

 

The movement on the deferred taxation account is as follows:

	Investment property	Derivative financial instruments	Tax losses	Total
	US $000	US $000	US $000	US $000
At 1 January 2009	(790)	1,350	1,138	1,698
(Charged) / credited to profit or loss (note 30)	(554)	410	394	250
Exchange difference	12	(20)	(17)	(25)
	------	------	------	------
At 1 January 2010	(1,332)	1,740	1,515	1,923
(Charged) / credited to profit or loss (note 30)	(763)	(176)	620	(319)
Exchange difference	(176)	182	189	195
	------	------	------	------
At 31 December 2010	(2,271)	1,746	2,324	1,799
	------	------	------	------

The Group expects that future taxable profits will be available in the jurisdiction where the deferred tax assets occurred (Switzerland) so as to utilise the carrying amount of the deferred tax assets recognised as at the end of the year.

As at 31 December 2010 and 2009 there is no unrecognised deferred tax asset.

12.  Trade and other receivables

	2010	2009
	US $000	US $000
Accrued interest and dividend income	9,886	7,615
Other receivables	33	173
Prepayments	212	-
	------	------
	10,131	7,788
	------	------

The carrying amount of trade and other receivables approximates to their fair value.

An amount of USD 3.7m (2009: USD 1.5m) is neither past due nor impaired and is due from institutions that the Group never faced any difficulties. 

The ageing analysis of these past due but not impaired amounts is as follows:

	2010	2009
	US $000	US $000
Less that 3 months	-	-
Between 3 and 6 months	-	-
Between 6 and 12 months	-	-
More than 1 year	6,152	6,152
	------	------
	6,152	6,152
	------	------

The amounts due for more than one year relate to accrued interest income receivable from SRS Charminar Investments Ltd.

13.  Cash and cash equivalents

Cash and cash equivalents included in the consolidated statement of cash flows comprise the following at the reporting date:

	2010	2009
	US $000	US $000
Cash at bank	3,294	5,898
	------	------
	3,294	5,898
Bank overdrafts used for cash management purposes	(13,289)	(5,198)
	------	------
Cash and cash equivalents for the purposes of the consolidated statement of cash flows	(9,995)	700
	------	------

 

 

 

 

 

14.  Share capital

Authorised share capital

The Company has authorised share capital of 1,000,000,000 ordinary shares with no par value, and no restrictions.

 

Issued share capital	Number of  shares	Share premium arising US $000
Ordinary shares with no par value
As at 31 December 2009 and at 31 December 2010	304,120,401	215,499
	----------	----------

 

Treasury shares	Number of  shares	US $000
As at 1 January 2009	12,141,961	8,969
Additions	1,284,005	641
	----------	---------
As at 1 January 2010	13,425,966	9,610
Additions	8,409,798	2,037
	----------	---------
As at 31 December 2010	21,835,764	11,647
	----------	----------

In the consolidated statement of financial position the amount included comprises of:      

	2010	2009
	US $000	US $000
Share premium	215,499	215,499
Treasury shares	(11,647)	(9,610)
	--------	--------
	203,852	205,889
	--------	--------

 

15.  Share options

The Company has a share option scheme for acquiring ordinary shares of the Company. 

Outstanding options	Number of  options	Average exercise price GBP	Average exercise price* USD
At 1 January 2009 and 31 December 2009	12,045,555	0.82	1.28
Expired in the year	(705,555)	1.90	2.97
	----------
At 31 December 2010	11,340,000	0.75	1.18
	----------

 

 

 

 

 

 

 

 

Exercisable options	Number of  options	Average exercise price GBP	Average exercise price* USD
At 1 January 2009	8,162,221	0.87	1.36
Exercisable during the year	3,550,000	0.76	1.18
	----------
At 1 January 2010	11,712,221	0.84	1.31
Exercisable during the year	166,667	0.30	0.47
Expired	(705,555)	1.90	2.97
	----------
As at 31 December 2010	11,173,333	0.76	1.19
	----------

                              

Details of share options outstanding at 31 December 2010

Number of options	Grant date	Vesting date	Earliest exercise date	Expire date of exercise period	Exercise price GBP	Exercise Price* USD	Fair value at grant date USD
230,000	07/12/05	07/12/06	07/12/06	07/12/15	0.71	1.11	82,739
230,000	07/12/05	07/12/07	07/12/07	07/12/15	0.71	1.11	94,333
230,000	07/12/05	07/12/08	07/12/08	07/12/15	0.71	1.11	103,948
3,383,333	19/07/06	19/07/07	19/07/07	19/07/16	0.78	1.22	1,608,710
3,383,333	19/07/06	19/07/08	19/07/08	19/07/16	0.78	1.22	1,824,133
3,383,333	19/07/06	19/07/09	19/07/09	19/07/16	0.78	1.22	2,001,774
166,667	13/05/08	13/05/09	13/05/09	13/05/18	0.30	0.47	21,703
166,667	13/05/08	13/05/10	13/05/10	13/05/18	0.30	0.47	24,115
166,667	13/05/08	13/05/11	13/05/11	13/05/18	0.30	0.47	25,820
----------							----------
11,340,000							5,787,275
----------							----------

The fair value of options granted to employees was determined using the Binomial valuation model.  The model takes into account a volatility rate of 41-45% calculated using the historical volatility of a peer group of similar companies and a risk free interest rate of 4.0-4.4% and it has been assumed the options have an expected life of two years post date of vesting.

 

* The exercise prices as per the share option scheme are quoted in British Pounds.  The indicative equivalent USD amounts shown in the table of details above as well as the average exercise prices are based on the exchange rates as at 31 December 2010.

 

16.  Bank Loans

	2010	2009
	US $000	US $000
Long term bank loan	84,722	76,436
	------	------

The long term bank loan is related to Wylerpark property investment purchase and is secured on this property.  The increase in the loan amount from 2009 to 2010 reflects only the effects of currency translation from CHF to USD.

 

Interest is payable at 3M CHF Libor + 0.85%.  The Group has fixed the variable element of interest to 3.3% using an interest rate swap (Note 17).   Consequently, the loan's effective interest rate is 4.15%. 

The loan balance is repayable on 12 July 2014. 

 

 

 

17.  Derivative Financial Instruments

	2010	2009
	US $000	US $000
Interest rate swaps	8,723	8,537
Forward contracts	-	39
	------	------
	8,723	8,576
	------	------

The Company uses interest rate swaps to manage its exposure to interest rate movements on its bank borrowings by swapping a proportion from floating rates to fixed rates as follows:

 

Notional contract amount	Underlying floating rate	Contract  fixed  rate	Contract termination date
CHF 79,135,000	3M CHF Libor	3.30%	30 July 2014
CHF 10,000,000	6M CHF Libor	3.255%	17 June 2014
CHF 10,000,000	6M CHF Libor	3.1675%	17 November 2014

 

The calculation of the fair value of swaps is based on discounted cash flows of future anticipated interest payments on the swap agreements in place compared with the discounted cash flows of anticipated interest payments at market swap interest rates at the reporting date.

The interest rate swap with CHF 79,135,000 notional amount relates to fixing the interest rate on the loan against Wyler Park at 3.3%.

For the year ended 31 December 2010 a fair value gain of USD 497,175 (2008: loss USD 1,913,606) has been recognised in the profit or loss in relation to all derivative financial instruments.

18.  Bank Overdrafts

	2010	2009
	US $000	US $000
Short term bank overdrafts	13,289	5,198
	------	------

Short term bank overdrafts bear Libor + lender's margin and have an average interest rate of 1.23% (2009 1.97%).

19.  Short term bank loans

	2010	2009
	US $000	US $000
Short term bank loans	17,128	13,987
	------	------

Short term bank loans bear Libor + lender's margin and have an average interest rate of 1.96% (2009 1.04%).  Their repayment period is usually one to three months and upon repayment date usually they are renewed.

20.  Trade and other payables

	2010	2009
	US $000	US $000
Other payables and accrued expenses	1,159	1,295
	------	------
	1,159	1,295
	------	------

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.  All amounts fall due within one year. 

 

 

21.  Current tax payable

	2010	2009
	US $000	US $000
Corporation tax payable	163	155
	------	------

22.  Net asset value per share

Net asset value per share has been calculated by dividing the net assets attributable to ordinary shareholders by the closing number of ordinary shares (net of treasury shares) in issue during the relevant financial periods. 

Diluted net asset value per share is calculated after taking into consideration the potentially dilutive shares in existence as at 31 December 2010 and 31 December 2009.

 

	2010	2009
Net assets attributable to ordinary shareholders (US $000)	142,292	128,568
	-------------	-------------
Closing number of ordinary shares in issue	282,284,637	290,694,435
	-------------	-------------
Basic net asset value per share (US $)	0.50	0.44
	-------------	-------------
Closing number of ordinary shares including the effect of potentially diluted shares	282,284,637	290,694,435
	-------------	-------------
Diluted net assets value per share (US $)	0.50	0.44
	-------------	-------------
Number of Shares
Ordinary shares	304,120,401	304,120,401
Treasury shares	(21,835,764)	(13,425,966)
	-------------	-------------
Closing number of ordinary shares in issue	282,284,637	290,694,435
	-------------	-------------

The Share options do not impact the diluted net asset value per share for 2010 and 2009 as their exercise price was higher than the average market price of the Company's shares on the London Stock Exchange (AIM division) during the year ended 31 December 2010 and 2009. 

23.  Segment reporting

Since 1 January 2010, management has changed its monitoring and strategic decision making process in relation to its investments, separating them into two activity lines, which have also been identified as operating segments. These operating segments are monitored and strategic decisions are made on the basis of segment operating results.

 

Segment information can be analysed as follows.  Segmental information is also provided for 2009 for comparison purposes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

	Equity and debt instruments investment activities		Investment property activities		Total per financial statements
	2010	2009	2010	2009	2010	2009
Segment results	US $000	US $000	US $000	US $000	US $000	US $000
Investment income
Interest and dividend income	10,490	3,211	-	-	10,490	3,211
Investment property revenue	-	-	4,734	4,432	4,734	4,432
Loss on  investments	(3,090)	(29,697)	1,114	(1,358)	(1,976)	(31,055)
Gain / (loss) from investment in associate	495	(26,869)	-	-	495	(26,869)
	------	------	------	------	------	------
Gross profit/ (loss)	7,895	(53,355)	5,848	3,074	13,743	(50,281)
Administrative expenses	(823)	(8,853)	(195)	(78)	(1,018)	(8,931)
	------	------	------	------	------	------
Operating profit / (loss)	7,072	(62,208)	5,653	2,996	12,725	(59,212)
Finance costs	(326)	(702)	(3,225)	(3,080)	(3,551)	(3,782)
Finance income	99	-	-	-	99	-
	------	------	------	------	------	------
Profit / (loss) before taxation	6,845	(62,910)	2,428	(84)	9,273	(62,994)
Taxation (charge) / credit	(88)	(24)	(698)	228	(786)	204
	------	------	------	------	------	------
Profit / (loss) for year from continuing operations	6,757	(62,934)	1,730	144	8,487	(62,790)
Discontinued operations
Gain for year from discontinued operations	-	1,665	-	-	-	1,665
	------	------	------	------	------	------
Profit / (Loss) for the year	8,487	(61,269)	8,487	144	8,487	(61,125)
	------	------	------	------	------	------
Segment assets	149,001	130,326	120,060	108,089	269,061	238,415
	------	------	------	------	------	------

 

The Group's interest and dividend income, investment property revenue and its investments are divided into the following geographical areas:

	Equity and debt instruments investment activities		Investment property activities		Total per financial statements
	2010	2009	2010	2009	2010	2009
Revenue	US $000	US $000	US $000	US $000	US $000	US $000
Switzerland	204	121	4,734	4,432	4,938	4,553
Other European countries	1,814	462	-	-	1,814	462
United States	8,396	2,571	-	-	8,396	2,571
India	76	57	-	-	76	57
	------	------	------	------	------	------
	10,490	3,211	4,734	4,432	15,224	7,643
	------	------	------	------	------	------
Investments
Switzerland	-	-	119,018	106,333	119,018	106,333
Other European countries	42,603	38,202	-	-	42,603	38,202
United States	55,629	39,817	-	-	55,629	39,817
India	31,061	33,355	-	-	31,061	33,355
Asia	5,345	4,825	-	-	5,345	4,825
	------	------	------	------	------	------
	134,638	116,199	119,018	106,333	253,656	222,532
	------	------	------	------	------	------

 

Interest and dividend income, investment property revenues are allocated on the basis of the customer's geographical location in the case of the investment property activities segment and the issuer's location in the case of the equity and debt instruments investment activities segment. Investments are allocated based on the issuer's location.

During 2010, 80.5% of the Group's rent relate to rental income from a single customer (SBB - Swiss national transport authority) in the investment property activities segment (2009: 89%).

24.  Interest and dividend income

	2010		2009
	US $000		US $000
Interest from investments	1,970		1,172
Dividend income	8,520		2,039
	------		------
	10,490		3,211
	------		------

25.  Investment property revenue

	2010		2009
	US $000		US $000
Gross rental income	5,196		4,751
Direct expenses	(462)		(319)
	------		------
	4,734		4,432
	------		------

26.  Loss on investments

	2010		2009
	US $000		US $000
Loss on sale of investments	(573)		(6,092)
Investment property revaluation	1,114		(1,358)
Foreign exchange gain	4,146		3,480
Loss due to significant fall in value of available-for-sale instruments	(6,330)		(28,235)
Fair value (losses) / gains on financial assets through profit or loss	(830)		3,064
Fair value gains / (losses) on derivative instruments	497		(1,914)
	------		------
	(1,976)		(31,055)
	------		------

The investments disposed of during the year resulted in the following realised gains/(losses) (i.e. in relation to their original acquisition cost):

	2010		2009
	US $000		US $000
Available-for-sale	(573)		(6,092)
At fair value through profit or loss	1,198		433
	------		------
	625		(5,659)
	------		------

27.  Gain / (loss) from investment in associate

	2010		2009
	US $000		US $000
Atlas Estates Ltd	495		(26,869)
	------		------
Share of loss for the year	(2,141)		(14,530)
Gain on bargain purchase	-		1,409
Gain / (loss) on disposal	9,790		(435)
Impairment charge	-		(13,313)
Foreign exchange loss reclassified from translation reserve	(7,154)		-
	------		------
	495		(26,869)
	------		------

 

 

 

 

 

 

 

 

 

 

 

 

28.  Administrative expenses

	2010		2009
	US $000		US $000
Operational expenses	385		675
Legal expenses	626		1,384
Directors' fees and expenses	864		913
Share option expense	14		359
Consultants' fees and expenses	266		259
Other salaries and expenses	420		408
Office cost	283		247
Other administration costs	157		198
Depreciation and amortisation of assets	148		132
Provision for legal and other matters - (credit) / charge for the year	(2,248)		4,200
Audit fees	103		72
Audit fees prior year	-		84
	------		------
	1,018		8,931
	------		------

Throughout 2010 the Group employed 7 staff (2009: 8).

29.  Finance costs and income

	2010	2009
	US $000	US $000
Finance costs
Bank interest and fees	222	290
Bank interest on investment property loan	3,225	3,080
Bank custody fees	104	85
Foreign exchange loss	-	327
	------	------
	3,551	3,782
	------	------
Finance income
Foreign exchange gain	99	-
	------	------
Net finance costs	3,452	3,782
	------	------

 

 

30.  Taxation

	2010	2009
	US $000	US $000
Current tax charge	169	46
Prior year tax charge	298	-
Deferred tax charge / (credit)	319	(250)
	------	------
	786	(204)
	------	------
The tax credit for the year can be reconciled to the accounting profit / (loss) as follows:
Profit / (loss) before tax	10,217	(62,994)
	------	------
Tax effect of applicable corporation tax rates	52	(260)
Effect of current year losses	-	275
Tax effect of expenses not deductible for tax purposes	-	8
Effect of tax due to prior year	298	-
Interest withholding tax	45	-
Property tax	72	23
Deferred tax charge / (credit)	319	(250)
	------	------
Tax for the year	786	(204)
	------	------

The Company is an international business company based in the British Virgin Islands (BVI) and, under its laws, is not subject to corporation tax. Corporation tax is calculated with reference to the results of the Company's subsidiaries.

31.  Discontinued operations

The gains from discontinued operations represent adjustments made as a result of resolution of uncertainties in relation to operations discontinued in 2007.

32.  Earnings / (loss) per share from continuing operations

Basic earnings / (loss) per share has been calculated by dividing the profit / (loss) for the year from continuing operations by the weighted average number of ordinary shares in issue of the parent Company during the relevant financial periods. 

Diluted earnings / (loss) per share is calculated after taking into consideration other potentially dilutive shares in existence during the year ended 31 December 2010 and the year ended 31 December 2009.

 

	2010	2009
Profit / (loss) for year from continuing operations ($000)	8,487	(62,790)
	-------------	-------------
Weighted average number of ordinary shares in issue	286,552,752	291,602,250
	-------------	-------------
Basic earnings / (loss) per share (US $)	0.03	(0.22)
	-------------	-------------
Weighted average number of ordinary shares including the effect of potentially dilutive shares	286,552,752	291,602,250
	-------------	-------------
Diluted earnings / (loss) per share (US $)	0.03	(0.22)
	-------------	-------------

 

The Share options do not impact the diluted earnings per share for 2010 and 2009 as their exercise price was higher than the average market price of the Company's shares on the London Stock Exchange (AIM division) during the year ended 31 December 2010 and 2009 correspondingly. 

 

33.  Earnings / (loss) per share

Basic earnings / (loss) per share has been calculated by dividing the profit / (loss) for the year attributable to ordinary shareholders of the parent Company by the weighted average number of ordinary shares in issue of the parent during the relevant financial periods. 

Diluted earnings / (loss) per share is calculated after taking into consideration other potentially dilutive shares in existence during the year ended 31 December 2010 and the year ended 31 December 2009.

	2010	2009
Profit / (loss) for the year attributable to ordinary shareholders of the parent ($000)	8,487	(61,125)
	-------------	-------------
Weighted average number of ordinary shares in issue	286,552,752	291,602,250
	-------------	-------------
Basic earnings / (loss) per share (US $)	0.03	(0.21)
	-------------	-------------
Weighted average number of ordinary shares including the effect of potentially dilutive shares	286,552,752	291,602,250
	-------------	-------------
Diluted earnings / (loss) per share (US $)	0.03	(0.21)
	-------------	-------------

The Share options do not impact the diluted earnings per share for 2010 and 2009 as their exercise price was higher than the average market price of the Company's shares on the London Stock Exchange (AIM division) during the year ended 31 December 2010 and 2009 correspondingly. 

 

34.          Related party transactions

 

The Group is controlled by Groverton Management Ltd, an entity owned by Mr. Noam Lanir, which at 31 December 2010 held 56.71% (2009: 53.12%) of the company's voting rights.

 

	2010	2009
	US $000	US $000
Amounts owed by key management	5,523	5,000
	-------	-------
Amounts owed to Directors	(9)	(38)
	-------	-------
Key management compensation (including executive directors)
Fees for the period*	795	797
Share option expense	-	321
Non-executive directors compensation
Fees for the period	69	118
Share option expense	14	38
	------	------
	878	1,274
	-------	-------

* These payments were made either directly to them or to the companies to which they are related.   

Loans with a balance at 31 December 2010 of USD 5.5m (31 December 2009: USD 5m) were made to key management during the year ended 31 December 2007 for the acquisition of shares in the Company and were renewed during the year 31 December 2010. Interest is payable on these loans at US LIBOR plus 0.25% per annum and the loans are secured on the shares acquired. The loans are repayable on the earlier of the employee leaving the Company or April 2013. These loans are classified as financial assets available for sale in the consolidated statement of financial position.

 

 

 

 

35.  Provisions

Corporate guarantee

The Company provided a corporate guarantee to a bank in the amount up to €2.1m as part of a shareholders' guarantee required by a financing bank as condition to a loan facility provided to DTH-Boom.  DTH-Boom is in a restructuring process and in breach of its loan covenants.  The Group is currently negotiating with the said bank a possible settlement of the guarantee but no agreement has been reached yet.

 

The guarantee has been accounted for as a financial guarantee contract and an appropriate amount has been provided for based on the management's best estimate.

 

No further information is provided as the Directors consider it could prejudice the outcome of any claim. 

 

Litigation

For litigation refer to note 36.

 

The movement in the provisions for the year is as follows:

 

	2010	2009
	US $000	US $000
Legal and other cases
At 1 January	4,200	-
Exchange differences	(367)	-
Provided for the year	-	4,200
Amounts reversed	(2,248)	-
	-----	-----
At 31 December	1,585	4,200
	------	------

During the year the Group's management have decided to reverse an amount of USD 2.2m for the provisions made during 2009 based on their estimate of the expected outcome of the legal and other cases involving the Group.

36.  Litigation

Ex employee vs Empire Online Ltd

In Q3 2007 an ex employee of Empire Online Limited (the Company's former name) filed a law suit against one of its Directors and the Company in the Labor Court in Tel Aviv. According to the lawsuit the plaintiff claims compensation relating to the sale of all commercial activities of Empire Online Limited until the end of 2006, and the dissolution of the company and the terms of termination of his employment with Empire Online Limited.

 

Prior to the filing of the lawsuit in Israel, the Company filed a claim against the plaintiff in the Court in Cyprus based upon claims concerning breach of faith of the plaintiff towards his employers. As of yet, both litigation procedures are in progress both in Israel and in Cyprus.

 

No further information is provided on the above case as the Directors consider it could prejudice the outcome of any claim.

 

Secretline vs Livermore

In Q3 2009, Secretline Investments Ltd. ("Secretline"), a supplier of DTH Boom, filed a claim against the Company and certain other DTH Boom shareholders in the District Court in Tel Aviv. The claim is related to guarantees provided by Livermore and certain other DTH Boom shareholders to Secretline to secure a payment from DTH Boom to Secretline.  The guarantee has been accounted for as a financial guarantee contract.

 

The procedures were concluded during Q1 2011 and there was a settlement during the same period that is fully provided at 31 December 2010.

 

 

 

37.  Commitments and contingencies

The Group has commitments as at 31 December 2010, for investing an additional USD 8m in JM Financial India Property Fund.  As at 31 December 2010, JM Financial India Property Fund had called a second drawdown USD 2m, which the Group has not funded. The Group is currently negotiating a reduction of its commitment amount.  In the event no agreement is reached and the Group does not fulfil its commitment, then it may be subject to forfeiture of all its participating shares.  Alternatively the Group has the option to cap its total commitments up to and including the second drawdown contribution by investing the USD 2m subject to incurring a penalty, which is also currently in negotiation.  As of 31 December 2010, the Group has decided to treat the existing investment as if all participating shares were forfeited and impair the investment completely.

38.  Events after the reporting date

There were no material events after the end of the reporting year, which have a bearing on the understanding of these consolidated financial statements.

39.  Financial risk management objectives and policies

Background

The Group's financial instruments comprise available for sale financial assets, financial assets at fair value through profit or loss, derivatives, cash balances and receivables and payables that arise directly from its operations.

Risk objectives and policies

The objective of the Group is to achieve growth of shareholder value, yet in line with reasonable risk, taking into consideration that the protection of long-term shareholder value is paramount. The policy of the Board is to provide a framework within which the investment manager can operate and deliver the objectives of the Group.

Risks associated with financial instruments

Foreign currency risk

Foreign currency risks arise in two distinct areas which affect the valuation of the investment portfolio, 1) where an investment is denominated and paid for in a currency other than US Dollars; and 2) where an investment has substantial exposure to non-US Dollar underlying assets or cash flows. Although the Group reports in USD, some of the Group's assets are in non-USD currencies and the Company in general does not hedge its currency exposure. The Group discretionally partially hedges against foreign currency movements affecting the value of the investment portfolio based on its view on the relative strength of certain currencies. The Management monitors the effect of foreign currency fluctuations through the pricing of the investments. The level of investments denominated in foreign currencies held by the Group at 31 December 2010 is the following:

	2010 US $000	2010 US $000	2010 US $000	2009 US $000	2009 US $000	2009 US $000
	Financial assets	Liabilities	Net value	Financial assets	Liabilities	Net value
British Pounds (GPB)	10,312	(4,014)	6,298	4,661	(2,320)	2,341
Euro	23,437	(16,255)	7,182	14,657	(4,653)	10,004
Swiss Francs (CHF)	43,928	(5,668)	38,260	42,937	(8,460)	34,477
Indian Rupee (INR)	26,206	(2)	26,204	25,589	-	25,589
Others	1,297	(4,120)	(2,823)	299	-	299
	------	------	------	------	------	------
Total	105,180	(30,059)	75,121	88,143	(15,433)	72,710
	------	------	------	------	------	------

Some of the USD denominated investments are backed by underlying assets which are invested in non-USD assets.

A 10% increase of the following currency rates against the rate of United States Dollar (USD) at 31 December 2010 would have the following impact.  A 10% decrease of the following currencies against USD would have an approximately equal but opposite impact.

 

	2010 US $000	2010 US $000	2009 US $000	2009 US $000
	Profit or loss	Other comprehensive income	Profit or loss	Other comprehensive income
British Pounds (GPB)	630	-	234	-
Euro	718	-	1,000	-
Swiss Francs (CHF)	3,826	-	3,448	-
Indian Rupee (INR)	2,620	-	2,559	-
	------	------	------	------
Total	7,794	-	7,241	-
	------	------	------	------

The above analysis assumes that all other variables in particular, interest rates, remain constant.  The analysis does not include the impact arising from the translation of foreign operations from their functional to the presentation currency.  

Interest rate risk

The Group is exposed to interest rate risk on its interest-bearing instruments which are affected by changes in market interest rates. The Group has borrowings of USD 84.7m (2009: USD 76.4m) related to a real estate asset (Wylerpark, Bern), which have been fixed through the use of an interest rate swap.

The Group has banking credit lines which are available on short notice for the Company to use in their investment activities, the costs of which are based on variable rates plus a margin. When an investment is made utilising the facility, consideration is given to the financing costs which would impact the returns. The level of banking facilities used is monitored by both the Board and the management on a regular basis. The level of banking facilities utilised at 31 December 2010 was USD 30.4m (2008: USD 19.2m)

As at 31 December 2010 the Group had no financial liabilities that bore an interest rate risk, other than the previously disclosed bank facilities.

Interest rate changes will also impact equity prices. The level and direction of changes in equity prices are subject to prevailing local and world economics as well as market sentiment all of which are very difficult to predict with any certainty.

The Group has fixed and floating rate financial assets including bank balances that bear interest at rates based on the banks floating interest rates.  In particular, the fair value of the Group's fixed rate financial assets is likely to be negatively impacted by an increase in interest rates.  The interest income of the Group's floating rate financial assets is likely to be positively impacted by an increase in interest rates.

The Group's interest bearing assets and liabilities are as follows:            

	2010 US $000	2009 US $000
Financial assets - subject to:
- fair value changes	35,348	20,008
- interest changes	40,101	18,129
	------	------
Total	75,449	38,137
	------	------
Financial liabilities - subject to:
- interest changes	115,139	95,621
- both fair value and interest changes	8,723	8,537
	------	------
Total	123,862	104,158
	------	------

Changes in market interest rates will affect the valuation of fixed rate interest bearing instruments. A 1% (100 basis points) change in market interest rates would result in an estimated 2.25% change in the net asset value as at 31 December 2010 (2009: 3.08%)

Particularly 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, except for the financial liabilities' fair value impact in profit or loss that would have been USD (3.7)m (31 December 2009: USD (2.9)m).

	2010 US $000	2010 US $000	2009 US $000	2009 US $000
	Profit or loss	Other comprehensive income	Profit or loss	Other comprehensive income
Financial assets
- fair value changes	(1,580)	85	(722)	118
- interest changes	401	-	181	-
Financial liabilities
- fair value changes	4,406	-	4,380	-
- interest changes	(90)	-	1	-
	------	------	------	------
	3,137	85	3,840	118
	------	------	------	------

The above analysis assumes that all other variables, in particular currency rates, remain constant. 

Equity price risk

By the nature of its activities, most of the Group's investments are exposed to market price fluctuations. The Board monitors the portfolio valuation on a regular basis and consideration is given to hedging or adjusting the portfolio against large market movements.

The Group had no single major financial instrument that in absolute terms and as a proportion of the portfolio that could result in a significant reduction in the NAV and share price.  Due to the very low exposure of the Group to public equities, and having no specific correlation to any market, the equity price risk is low.  The portfolio as a whole does not correlate exactly to any Index.

Management of risks is primarily achieved by having a diversified portfolio to spread the equity price risk. A 10% uniform change in the value of the Group's portfolio of financial instruments (excluding private equities and financial and minority holdings) would result in a 6.19% change in the net asset value as at 31 December 2010 (2009: 4.29%), and would have the following impact (either positive or negative, depending on the corresponding sign of the change):

	2010 US $000	2010 US $000	2009 US $000	2009 US $000
	Profit or loss	Other comprehensive income	Profit or loss	Other comprehensive income
Available-for-sale financial assets	99	4,546	642	3,044
Financial assets at fair value through profit or loss	4,223	-	2,471	-
	------	------	------	------
	4,322	4,645	3,113	3,044
	------	------	------	------

 

Derivatives

The Investment Manager may use derivative instruments in order to mitigate market risk or to take a directional investment. These provide a limited degree of protection against a rise in interest rates and would not materially impact the portfolio returns if a large market movement did occur.

Credit Risk

The Group invests in a wide range of securities with various credit risk profiles including investment grade securities and sub investment grade positions. The investment in debt instruments is usually in investment grade securities, however, the Group may invest also in sub investment grade or unrated debt instruments. The investment manager mitigates the credit risk via diversification across issuers. However, the Group is exposed to a migration of credit rating, widening of credit spreads and default of any specific issuer.

The Group only transacts with regulated institutions on normal market terms which are trade date plus one to three days. The levels of amounts outstanding from brokers are regularly reviewed by the management. The duration of credit risk associated with the investment transactions is the period between the date the transaction took place, the trade date and the date the stock and cash are transferred, the settlement date. The level of risk during the period is the difference between the value of the original transaction and its replacement with a new transaction. The Group is mainly exposed to credit risk in respect of its interest bearing investments of USD 72.2m (2009: USD 32.2m).  The Group's maximum credit risk exposure at 31 December 2010 is USD 85.6m (2009: USD 45.9m)

The fair values of the Group's investments in bonds and other debt instruments are also affected by the credit risk of those instruments.  However, it is not practical to provide an analysis of the changes in fair values due to the credit risk impact for the year or previous periods, nor to provide any relevant sensitivity analysis.     

At 31 December the credit rating distribution of the Group's asset portfolio subject to credit risk (bonds and other debt instruments, bank balances and receivables) was as follows:

 

Rating	2010 Amount	Percentage	2009 Amount	Percentage
	US $000		US $000
AA	5,692	7%	6,266	14%
AA+	-	-	1,360	3%
AA-	321	0%	1,939	4%
A	13,231	15%	17,449	38%
A-	6,161	7%	3,730	8%
BBB	5,735	7%	1,642	3%
BBB+	9,879	12%	3,015	7%
BBB-	-	-	3,096	7%
B	2,959	4%	846	1%
BB	2,750	3%	2,079	4%
BB+	5,993	7%	221	1%
BB-	760	1%	258	1%
C	242	0%	-	-
CCC+	5,275	6%	3,850	8%
Not Rated	26,583	31%	173	1%
	------	------	------	------
	85,581	100%	45,924	100%
	------	------	------	------

For past due financial assets refer to note 12.

Liquidity Risk

The major financial liability of the Group is the bank loan of CHF 79m (USD 84.7m) used for purchase of a real estate property, which has a maturity in 2014.  The loan is collateralized by property valued at CHF 111.2m (USD 119.0m) in December 2010.  The loan is non-recourse, i.e. the holding company and its assets (apart from the Wyler Park property) are neither pledged for this loan nor liable for recovery in case of default.  The following table summarizes the Group's financial liabilities according to their maturity duration.

31 December 2010	Less than 1 year	Between 1 and 2 years	Between 2 and 5 years	Over 5 years
	US $000	US $000	US $000	US $000
Borrowings	31,281	864	86,234	-
Derivative financial instruments	3,257	2,958	2,632	-
Other financial liabilities	2,447	-	-	-
	------	------	------	------
Total	36,985	3,822	88,866	-
	------	------	------	------

 

 

 

 

31 December 2009	Less than 1 year	Between 1 and 2 years	Between 2 and 5 years	Over 5 years
	US $000	US $000	US $000	US $000
Borrowings	20,027	842	78,612	-
Derivative financial instruments	2,904	2,868	7,850	-
Other financial liabilities	4,744	-	-	-
	------	------	------	------
Total	27,675	3,710	86,462	-
	------	------	------	------

 

A large proportion of the Group's portfolio is invested in mid term private equity investments with low or no liquidity. The investments of the Group in publicly traded securities are subject to availability of buyers at any given time and may be very low or non existent subject to market conditions.

The management take into consideration the liquidity of each investment when purchasing and selling in order to maximise the returns to shareholders by placing suitable transaction levels into the market. Special consideration is given to investments that represent more than 5% of the investee.

At 31 December 2010, the Group had liquid investments totalling USD 64.9m, comprised of USD 3.3m in cash and cash equivalents, USD 45.3m in fixed income investments, USD 11.7m in public equities and USD 4.6m in hedge funds.

Management structures and manages the Group's portfolio based on those investments which are considered to be long term, core investments and those which could be readily convertible to cash, are expected to be realised within normal operating cycle and form part of the Group's treasury function.

The following table lists the Group's financial assets with a contractual maturity based on their maturity.

31 December 2010	Less than 1 year	Between 1 and 2 years	Between 2 and 5 years	Over 5 years
	US $000	US $000	US $000	US $000
Available-for-sale financial assets	4,645	5,275	-	27,794
Financial assets designated at fair value through profit or loss	-	-	1,497	31,956

 

31 December 2009	Less than 1 year	Between 1 and 2 years	Between 2 and 5 years	Over 5 years
	US $000	US $000	US $000	US $000
Available-for-sale financial assets	-	4,502	3,850	12,250
Financial assets designated at fair value through profit or loss	-	1,399	3,343	17,320

 

Capital Management

The Group considers its capital to be its issued share capital and reserves.

Net debt to equity

The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the balance between its net debt and equity.

Net debt to equity ratio is calculated using the following amounts as included on the consolidated statement of financial position, for the reporting periods under review:

 

 

 

 

 

 

 

	2010	2009
	US $000	US $000
Cash at bank	(3,294)	(5,898)
Bank overdrafts	13,289	5,198
Bank loans	84,722	76,436
Short term bank loans	17,128	13,987
	------	------
Net Debt	111,845	89,723
	------	------
Total equity	143,236	128,568
	------	------
Net debt to equity ratio	0.78	0.70
	-------	-------

 

The increase of the ratio in 2010 is mainly attributable to foreign exchange differences that arose on the translation of the bank loans from functional to presentation currency that increased net debt by USD 8.3m and at the same time decreased equity by the same amount.  The Board believes that the ratio remains at an acceptable level.

Re-purchase of own shares

The Board believes that the ability of the Company to re-purchase its own Ordinary shares in the market may potentially benefit equity shareholders of the Company. The re-purchase of Ordinary shares at a discount to the underlying net asset value enhances the net asset value per share of the remaining equity shares.

Under this policy, in 2010, the Company bought 8,409,798 of its Ordinary shares at an average price of USD 0.24 per share.

 

Financial assets by category:

	2010  US $000	2009 US $000
Non current assets
Available-for-sale financial assets	68,436	55,862
Financial assets at fair value through profit or loss	4,607	5,885
Current assets
Loans and receivables:
Trade and receivables	9,919	7,788
Cash at bank	3,294	5,898
Available-for-sale financial assets	20,554	19,914
Financial assets at fair value through profit or loss	41,041	23,602

 

Financial liabilities by category:

	2010 US $000	2009 US $000
Non current liabilities
Financial liabilities at amortised cost:
Bank loan	84,722	76,436
Financial liabilities at fair value through profit or loss:
Derivative financial instruments	8,723	8,576
Current liabilities
Financial liabilities at amortised cost:
Bank overdrafts	13,289	5,198
Short term bank loans	17,128	13,987
Other financial liabilities	2,447	4,744