ANNUAL REPORT & CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013

Highlights

·     Net Asset Value per share - USD 0.86 (December 2012: USD 0.87)

·     Performance driven as in past years by profitable activity in the US loan market partially offset by a decline in the share price of Babylon.

·     Wyler Park property in Bern, Switzerland fully let.

·     No material developments in the private equity portfolio.

·     During 2013, the Company purchased 3,445,755 shares to be held in treasury. 

Notes on the Financial Statements

1.     General Information

Incorporation, principal activity and status of the Company

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

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

1.3.  The principal activity of the Group changed to investment activities 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 of the Company is located at Trident Chambers, PO Box 146, Road Town, Tortola, British Virgin Islands.

2.     Accounting Policies

The significant accounting policies applied in the preparation of the consolidated financial statements are as follows:

2.1.  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:

·    Financial instruments at fair value through profit or loss (including derivatives) are measured at fair value.

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

·    Investment property is measured at fair value.

·    Investments in associates and joint ventures are 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.

2.2.  Adoption of new and revised IFRS 

As from 1 January 2013, the Company adopted all the new or revised IFRS and relevant amendments which became effective and also were endorsed by the European Union, and are relevant to its operations.

The adoption of the above did not have a material effect on the consolidated financial statements, other than as described below:

·      IFRS 10: ''Consolidated Financial Statements'' (IFRS 10) supersedes IAS 27: ''Consolidated and Separate Financial Statements'' and SIC 12: ''Consolidation‑Special Purpose Entities'' in relation to consolidation. IFRS 10 revises the definition of control and provides extensive new guidance on its application. These new requirements have the potential to affect which of the Group's investees are considered to be subsidiaries and therefore to change the scope of consolidation. The requirements on consolidation procedures, accounting for changes in non‑controlling interests and accounting for loss of control of a subsidiary are unchanged.

Management has reviewed its control assessments in accordance with IFRS 10 and has concluded that there is no effect on the classification (as subsidiaries or otherwise) of any of the Group's investees held during the periods covered by these consolidated financial statements.

·      In accordance with IFRS 11: "Joint Arrangements", which supersedes IAS 31: "Interests in Joint Ventures" the method of proportionate consolidation of jointly controlled entities is eliminated. Based on IFRS 11 such interests are equity accounted in accordance with the revised IAS 28: "Investments in Associates and Joint Ventures".

·      IFRS 12: ''Disclosure of Interests in Other Entities'' (IFRS 12) integrates and makes consistent the disclosure requirements for various types of investments, including unconsolidated structured entities. It introduces new disclosure requirements about the risks to which an entity is exposed from its involvement with structured entities.

·      IFRS 13 'Fair Value Measurement' clarifies the definition of fair value and provides related guidance and enhanced disclosures about fair value measurements. It does not affect which items are required to be fair‑valued. The scope of IFRS 13 is broad and it applies for both financial and non‑financial items for which other IFRSs require or permit fair value measurements or disclosures about fair value measurements, except in certain circumstances. IFRS 13 applies prospectively, hence its disclosure requirements need not be applied to comparative information in the first year of application (unless required previously by IFRS 7 'Financial Instruments: Disclosures').

·      The Amendment to IAS 1: "Presentation of Items of Other Comprehensive Income" requires entities to group items presented in other comprehensive income (OCI) into those that, in accordance with other IFRSs, will not be reclassified subsequently to profit or loss, and those that will be reclassified subsequently to profit or loss when specific conditions are met. The existing option to present items of OCI either before tax or net of tax remains unchanged; however, if the items are presented before tax, then the Amendments to IAS 1 require the tax related to each of the two groups of OCI to be shown separately.

All IFRS issued by the International Standards Board (IASB) which are effective for the year ended 31 December 2013, 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 financial statements but are not yet effective for the year ended 31 December 2013:

The Board of Directors expects that when the above Standards or Interpretations become effective in future periods they will not have a material effect on the consolidated financial statements of the Group.

In relation to IFRS 9, the Management has not yet assessed the likely impact of the application of this Standard, since the Management has not yet determined its accounting policy to be followed under the new Standard.

2.3.  Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and all of its subsidiaries. Control is achieved where the Company is exposed, or has right, to variable returns from its involvement with a subsidiary and has the ability to affect those returns through its power over the subsidiary.  

The financial statements of all the Group companies are prepared using uniform accounting policies.  Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Group.  All subsidiaries have a reporting date of 31 December.

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

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

2.4.  Investments in associates and joint ventures

An associate is an entity over which the Group is able to exert significant influence but not control.

A joint venture is an arrangement that the Group controls jointly with one or more other investors, and over which the Group has rights to a share of the arrangement's net assets rather than direct rights to underlying assets and obligations for underlying liabilities.

Investments in associates and joint ventures are measured at fair value through profit or loss in accordance with IAS 39, based on the exemption available by IAS 28 "Investments in Associates and Joint Ventures" for entities that are venture capital organisations or similar entities.

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

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

• held primarily for trading, or

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

• cash and cash equivalent not restricted in their use.

All other assets are non-current.

2.6.  Investment property income

Rental income is recognised on a straight line basis over the lease term.  Service charges and management fees are recognised as the related costs are incurred and charged.  Changes to rental income that arise from reviews to open market rental values or increases that are indexed linked on a periodic basis are recognised from the date on which the adjustment 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.

2.7.  Interest and dividend income

·  Interest income is recognised based on the effective interest method. 

·  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. 

2.8.  Foreign currency

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

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

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

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

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

(ii)      income and expenses and also cash flows are translated at an average exchange rate (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case the items are translated at the rates prevailing at the dates of the transactions); and

(iii)     exchange differences arising are recognised in other comprehensive income within the translation reserve.  Such translation exchange differences are reclassified to profit or loss in the period in which the foreign operation is disposed of. 

2.9.  Taxation

Current tax is the tax currently payable based on taxable profit for the year in accordance with the tax laws applicable in jurisdictions where the Group operates.

Deferred 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 as at the reporting date.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense within profit or loss, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.

2.10.               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%

2.11.               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 valuer.   

2.12.               Equity instruments

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

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

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

2.13.               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. The fair value of share-based payments to employees at grant date is measured using the Binomial pricing model.

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 of the options any related amounts recognised in the share option reserve are transferred to share premium.

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

2.14.               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 recognised to profit or loss on a straight-line basis over the term of the lease.

2.15.               Borrowing costs

Borrowing costs primarily comprise interest on the Group's borrowings.  Any borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of the corresponding assets until such time as the assets are substantially ready for their intended use or sale.  All other borrowing costs are expensed in the period in which they are incurred and reported within "finance costs".

No borrowing costs have been capitalised for either 2013 or 2012.

2.16.               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 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 also described below.

Loans and receivables

·     Trade and other receivables

Trade and other receivables are initially recognised and carried at their fair value which normally is their original transaction value, and are subsequently measured at their amortised cost.  An estimate for doubtful debts is made when collection of the full amount is no longer probable.  Bad debts are written off when identified.  Where the time value of money is significant receivables are discounted to present value. 

·     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.

Bank overdrafts are considered to be component of cash and cash equivalents, since they form an integral part of the Group's cash management.  

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.

Available-for-sale financial assets

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

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

An assessment for impairment is undertaken at least at each reporting date, following the IAS 39 guidance.

2.17.               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.  The Group's derivative instruments consist of interest rate swaps and forward currency contracts. 

All derivative financial instruments which are not designated 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.

2.18.               Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Company expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.

No provision is made for possible claims or where an obligation exists but it is not possible to make a reliable estimate.

Costs associated with claims made by the Group are charged to the profit or loss as they are incurred.

2.19.               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.

2.20.               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 judgment in the process of applying the Group's accounting policies. It also requires the use of assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Although these estimates are based on management's best knowledge of current events and actions, actual results may ultimately differ from those estimates.

Estimates and judgments 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)       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 Group 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.  

(ii)      Classification of financial assets

The Management exercises significant judgment in determining the appropriate classification of the financial assets of the Group, especially for its investments and the identification of any embedded derivatives.  The factors considered include the contractual terms and characteristics which are very carefully examined, and also the Group's intentions and expected needs for the realisation of the financial assets.

All new investments (other than additions to existing financial assets and investments in loan market through CLOs) are classified as at fair value through profit or loss upon initial recognition, because this reflects more fairly 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.

(iii)    Determination of the nature of the investment in Silvermore (note 9)

Management exercised its judgment in determining that the investment in Silvermore, where the Group holds 50% of equity interests and another investor holds the other 50%, is in substance a joint arrangement, as defined in IFRS 11. The type of the arrangement has been determined to be a joint venture. 

(iv)     Determination of the nature of the investment in Covenant Credit Partners LLC (note 9)

Management exercised its judgment in determining that the investment in Covenant Credit Partners LLC is in substance an investment in associate. In arriving to this conclusion, Management considered that although the Group through its subsidiary Blackline Investments Inc. has a 52.5% equity interest, the other investor holding 47.5% in effect controls the relevant activities of Covenant Credit Partners LLC by virtue of an agreement.

(v)           Deferred tax assets

The tax rules applicable for the relevant Company's operations are carefully taken into consideration for the recognition of a deferred tax asset. If a positive forecast of taxable income indicates the probable use of a deferred tax asset, especially when it can be utilised without a time limit, that deferred tax asset is usually recognised in full. The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties is assessed individually by management based on the specific facts and circumstances.

Estimation uncertainty

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

(i)       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, 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.

Refer also to note 4 for estimation uncertainty over the fair value determination of the investment in SRS Charminar.

(ii)      Fair value of investments in associate and joint venture

Management uses valuation techniques in measuring the fair value of the investments in associate and joint venture. Details of the bases used 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 investments. 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.

(iii)    Fair value of investment property

Investment property is stated at fair value.  The fair valuation is based on discounted cash-flow (DCF) method. Under this method, the current market value of the property is determined as the total of all projected future net earnings (before interest, taxes, depreciation and amortization) discounted to present-day equivalents. These net earnings are discounted individually for property with due allowance for specific opportunities and threats, and with adjustment in line with market conditions and risks.  A one-period DCF model was adopted under which the valuation period extends for 100 years from the valuation date, with an implicit residual value in the 11th period. Discounting is based on a risk-adjusted interest rate of 4.20% determined individually for each property on the basis of appropriate benchmarks derived from arm's-length transactions. The valuations assume 1% annual inflation for income and all expenditure.

(iv)     Provisions

Determining whether provisions 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 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. 

(v)        Comparatives

The interest cost in relation to two interest rate swaps, both with a notional of CHF 10,000,000 - see note 17, have been reclassified from the interest from investments to finance costs (note 29).

The above reclassification has no impact on the Group's financial position at any comparative reporting date; therefore, no consolidated statement of financial position at 1 January 2012 is presented.

3.     Property, plant and equipment

4.     Available-for-sale financial assets

For description of each of the above categories, refer to note 6.

Available-for-sale financial assets are fair valued 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.

During 2013, the Group's exposure to CLO Income Notes increased by USD 18.7m. The total investment in CLO Income Notes as at 31 December 2013 amounts to USD 91.9m.

During 2013, due to market conditions, management considered the impairment of certain available-for- sale financial assets. Impairment testing indicated that for those financial assets their carrying amount may not be recoverable.

The related impairment charges in 2013, of USD 2.499m (2012 USD 18.133m), are included within loss on investments (note 26), and represent impairment losses arising due to:

Investment in SRS Charminar

Included in the Financial and minority holdings is the investment in SRS Charminar Investments Ltd ("SRS Charminar"), a private company incorporated in the Republic of Mauritius.  Livermore invested USD 20m in SRS Charminar acquiring a 15% ownership stake. SRS Charminar through its wholly owned subsidiaries invested INR 5.2b (USD 132.1m at date of investment) which is equivalent to USD 83m as at 31 December 2013 (2012: 98.9m) in a real estate company in India ("investee company"). The investment in the investee company was in the form of Compulsorily Convertible Debentures ("CCDs"), that included a put option which was exercisable either if the investee company did not have an IPO within 3 years or if certain terms in the Investment Agreement were not met. The put option is secured by land which was valued at around USD 1.3 billion at the time of investment and guarantees a minimum return of approximately 30% IRR if exercised.

SRS believes that there had been material breaches of the terms of the Investment Agreement and that the funds invested in the investee company had been utilized in a manner contrary to the terms agreed. The material breaches were incurable in nature and therefore constituted Events of Default. Accordingly, SRS exercised their rights under the Put Option Agreement and issued a put option notice in January 2009 requiring the investee company and other counterparties to payback the CCDs.

Following a dispute on the grounds of the put option notice between the promoters and the investors, the parties agreed to invoke arbitration to be held in Mumbai. On 14 August 2009, the arbitration process was completed and the arbitrator ruled in favour of investors. The award entitles the investors to investment plus interest amounting to 30% IRR until 14 August 2009 and 18% IRR thereafter. Meanwhile, the investors filed and won an interim order for injunction against the promoters and the investee company to prohibit sale, transfer or encumbering of the assets secured under the put option. Thereafter, the promoters have filed against the arbitral award and the injunction order. As of 31 December 2013, there was no change in the status of this case.

On 13 January 2011 the Company Law Board ("CLB") passed an order and allowed Infrastructure Leasing & Financial Services Limited ("IL&FS") to become 80% shareholder and control the management of the investee company. Since 2011 the investors and IL&FS have been in negotiations.

On 15 January 2013, the investee company together with IL&FS agreed to purchase back the CCDs from the investors for the amount of US$162m (INR 8.500 thousand) in four tranches over a period of five years. According to the settlement terms SRS shall receive US$140m (INR 7.366 thousand). The agreement will, however, be subject to regulatory approvals including clearances from the Reserve Bank of India and the Foreign Investment Promotion Board since it involves a foreign fund. At the date of issuance of the consolidated financial statements, the necessary Regulatory Approvals were not obtained.

Due to the legal complexity and the receipt of the regulatory and court approvals required for the implementation of the proposed settlement as well as the various counterparties involved, the outcome remains uncertain.

The carrying amount of the investment in SRS Charminar at 31 December 2013 is USD 8.9m (2012: USD 10.1m), which represents its estimated fair value. SRS Charminar's only holding is its investment in the investee company (through its wholly owned subsidiaries) and thus its fair value is wholly attributable to the above mentioned investment.  The fair value is based on discounted cash flow expectations and approximates the 15% share of the original investment in the real estate company as translated to USD.

Also included in the Private equities is the investment in SRS Private Investments, L.P. ("SRS Private") with a carrying amount at reporting date of USD 3.6m (2012: USD 4m) which is based on a net asset valuation (NAV). SRS Private through a fund has invested in various real estate projects in India as well as in SRS Charminar, and its investment in SRS Charminar as at 31 December 2013 amounts approximately to 13.1% (2012: 16.2%) of its net assets.

5.         Financial assets at fair value through profit or loss

For description of each of the above categories, refer to note 6.

 The Financial assets at fair value through profit or loss are fair valued at least at each reporting date. 

6.         Categories of financial assets at fair value

The Group categorises its financial assets at fair value as follows:

·     Fixed income investments relate to fixed and floating rate bonds, perpetual bank debt, and investments in the loan market through CLOs.

·     Private equities relate to investments 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 significant influence.

·     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. 

·     Hedge funds relate to investments in funds managed by sophisticated investment managers that pursue investment strategies with the goal of generating absolute returns.

·     Public equity investments relate to investments in shares of companies listed on public stock exchanges.

·     Real estate entities relate to investments in real estate projects.

7.         Fair value measurements of financial assets and liabilities

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

-      Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

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

-      Level 3: unobservable inputs for the asset or liability.

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

Valuation of financial assets and liabilities

·     Public Equities, and Fixed Income Investments are valued per their closing bid market prices on quoted exchanges, or as quoted by market maker.

The Group values the CLOs based on the valuation reports provided by market makers. CLOs are typically valued by market makers using discounted cash flow models. The key assumptions for cash flow projections include default and recovery rates, prepayment rates and reinvestment assumptions on the underlying portfolios (typically senior secured loans) of the CLOs.

Default and recovery rates: The amount and timing of defaults in the underlying collateral and the amount and timing of recovery upon a default affect are key to the future cash flows a CLO will distribute to the CLO equity tranche. All else equal, higher default rates and lower recovery rates typically lead to lower cash flows. Conversely, lower default rates and higher recoveries lead to higher cash flows.

Prepayment rates: Senior loans can be pre-paid by borrowers. CLOs that are within their reinvestment period may, subject to certain conditions, reinvest such prepayments into other loans which may have different spreads and maturities. CLOs that are beyond their reinvestment period typically pay down their senior liabilities from proceeds of such pre-payments. Therefore the rate at which the underlying collateral prepays impacts the future cash flows that the CLO may generate.

Reinvestment assumptions: A CLO within its reinvestment period may reinvest proceeds from loan maturities, prepayments, and recoveries into purchasing additional loans. The reinvestment assumptions define the characteristics of the loans that a CLO may reinvest in. These assumptions include the spreads, maturities, and prices of such loans. 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.

·     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, mainly on the basis of discounted cash flow techniques or valuations reported by third-party managers of such investments. 

·     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.

·     The investment in joint venture is valued based on its underling agreement (ISDA) entered (i.e. a total return swap). The agreement's fair value is provided by counter party bank. 

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:                    

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.

Financial assets within level 3 can be reconciled from beginning to ending balances as follows:

The above gains and losses recognised can be allocated as follows:

The Group has not developed any quantitative unobservable inputs for measuring the fair value of its level 3 financial assets at 31 December 2013 and 2012.  Instead the Group used prices from third-party pricing information without adjustment.

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

8.         Investment property

The investment property relates to Wyler Park property in Bern, Switzerland, which is used for earning rental income. The Group has no restriction on the realizability of the property or the remittance of income and any proceeds of disposal.

Wyler Park property investment loan (note 16) is secured on the property itself.

Fair valuation

The investment property is the Group's only non-financial asset measured at fair value on a recurring basis, and its fair value is classified within the fair value hierarchy as level 3.

The investment property was valued by the independent professional valuers Wüest & Partners as at 31 December 2013 and 2012 on the basis of open market value in accordance with the appraisal and valuation guidelines of the Royal Institute of Certified Surveyors, and the European Group of Valuers' Associations. The investment property is revalued annually on 31 December.

The significant inputs and assumptions are developed in close consultation with management. The valuation processes and fair value changes are reviewed by the Board of Directors at each reporting date.

The fair values of investment property are estimated using the discounted cash-flow (DCF) method. With this method, the current market value of a property is determined as the total of all projected future net earnings (before interest, taxes, depreciation and amortization) discounted to present-day equivalents. These net earnings are discounted individually for each property with due allowance for specific opportunities and threats, and with adjustment in line with market conditions and risks. All projected cash flows are presented to ensure maximum transparency.

The valuations are based on the following assumptions:

- The property has been appraised as continuation scenario. That means, that no change of use scenarios have been calculated as well that would result to a higher value.

- A one-period DCF model was adopted. The valuation period extends for 100 years from the valuation date, with an implicit residual value in the 11th period.

- Discounting is based on a risk-adjusted interest rate. Rates are determined individually for each property  on the basis of appropriate benchmarks derived from arm's-length transactions. They may be broken down as follows: risk-free interest rate + property risk (immobility of capital) + premium for macro-location + premium for micro-location depending on use + premium for property quality and income risk + any other specific premiums.

- Unless otherwise stated, the valuations assume 1% annual inflation for income and all expenditure. Where a nominal discount rate is applied, this is adjusted accordingly.

- Credit risks posed by specific tenants are not explicitly factored into the valuation.

- Allowance is made for the specific indexing provisions in existing leases. An indexing factor of 80% (Swiss average) is assumed for the period following lease expiry.

- For existing tenancies, the timing of individual payments is assumed to comply with the terms of the lease.

Following lease expiry, cash flows for commercial premises are taken to be quarterly in advance, for housing monthly in advance.

- In terms of running costs, entirely separate service charge accounts are assumed, with no tenancy-related ancillary costs to be borne by the owner.

- The maintenance (repair and upkeep) costs were calculated by means of a lifecycle analysis of the individual building elements. The building structure's remaining lifespan was estimated and periodic refurbishments modelled on the basis of the general condition of the fabric as determined during the property inspection.

Appropriate annual reserves were calculated accordingly and plausibility tested using comparables and Wüest & Partner's own benchmarks. The calculation factors in 100% of repair costs in the first 10 years; the proportion applied from year 11 onwards is limited to the value-preserving investments (recoverable share).

The valuations are sensitive to the above inputs, all of which are unobservable. 

Future rental income

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

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 2013 and 31 December 2012 respectively.

9.     Investments in associate and joint venture

*Held by the subsidiary Blackline Investments Inc.

The activities of both the joint venture and the associate are in line with the Group's activities and strategy.

The joint venture does not prepare any financial information. As at year end Silvermore was a contractual party to a Total Return Swap (ISDA) agreement with Citibank N.A. with market price of US$ 5.5m. As at that date Silvermore had no other assets or liabilities.

The associate also does not prepare any financial information. As at year end Covenant Credit Partners had not entered into any contractual arrangements. As at that date Covenant Credit Partners had a net liability position of USD 0.807m mainly due to the incurrence of administrative expenses.

10.  Details of subsidiaries

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

* Blackline Investments Inc. was established during the year.

** Held by Enaxor S.a.r.l.

Livermore Management Limited has been closed by the Group during the year.

Livermore Real Estate I AG has been liquated 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, in Switzerland.

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

The movement on the deferred taxation account is as follows:

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 2013 and 2012 there is no unrecognised deferred tax asset.

12.  Trade and other receivables

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

Included within accrued interest and dividend income, is an amount of USD 0.79m (2012: USD 0.313m) which is neither past due nor impaired and has been received in the first four months following each reporting date.  

Other receivables include an amount of USD 0.277m (2012: USD 0.578m) paid on behalf of Wyler Park tenants, in relation to property common expenses, under management service agreement. 

The other assets relate to loans made to a key management employee, the outstanding amount of which is to be reduced annually on a straight line over five years, as long as the key management employee remains with the Company. The relevant reduction in the loan amount for the year was USD 1.128m. The amount of non-current assets shown above relates wholly to this item.

13.  Cash and cash equivalents

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

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.

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

15.  Share options

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

Details of share options outstanding at 31 December 2013

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

The options lapse at the earliest of the expiry date of exercise period or the termination of the corresponding employee's service.

* 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 2013.

16.  Bank loans

The bank loan relates to Wyler Park investment property purchase (note 8) and is secured on this property.  The loan balance is fully repayable on 12 July 2014.  However, the Group is currently negotiating the refinancing of this loan with a Swiss Bank for a term of another five years.  

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%. 

17.  Derivative financial instruments

During 2013 and 2012 the Group used forward currency contracts; however, no such derivatives were open at 31 December 2013 or 2012.

The Group 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:

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 78,981,921 notional amount relates to fixing the interest rate on the loan against Wyler Park at 3.3%.

For the year ended 31 December 2013 a fair value gain of USD 3,524,094 (2012: gain USD 3,112,852) has been recognised in the profit or loss in relation to all derivative financial instruments.

18.  Bank overdrafts

Short term bank overdrafts bear Libor + lender's margin and have an average interest rate of 1.77% (2012 2.46%).

The Group's bank overdraft facilities are secured by the Group's financial assets portfolio up to an amount, as at 31 December 2013, of USD 53m.

19.  Short term bank loans

Short term bank loans bear Libor + lender's margin and had an average interest rate of 2.66% (2012 1.64%).

The Group's short term bank loan facilities were secured by the Group's financial assets portfolio.

20.  Trade and other payables

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 (asset) / payable

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 2013 and 31 December 2012.

The Share options (note 15) granted on 13 May 2008 have a dilutive effect on the net asset value per share, given that their exercise price is lower than the net asset value per Company's share at 31 December 2013 and 2012.  All other share options do not impact the diluted earnings per share for 2013 and 2012 as their exercise price was higher than the net asset value per Company's share at 31 December 2013 and 2012.

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 2013, the Company bought 3,445,755 (2012: 56,052,180) of its Ordinary shares at an average price of USD 0.50 (2012: USD 0.29) per share.

23.  Segment reporting

The Group's monitoring and strategic decision making process in relation to its investments is separated into two activity lines which are also identified as the Group's operating segments. These operating segments are monitored and strategic decisions are made on the basis of segment operating results.

Segment information can be analysed as follows.