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

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

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

2.     Basis of preparation

The consolidated financial statements 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 an accrual basis (other than for cash flow information) using the significant accounting policies and measurement bases summarised in note 3, and also on a going concern assumption.

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

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

2.1.   Investment entity status

On 28 October 2016, Livermore disposed to a third party the 100% of the shares of its subsidiary Livermore Investments AG in Switzerland, and as a result discontinued its investment property activities that constituted an operating segment of the Group (notes 23 and 24).  The Directors have determined that since the discontinuance of its investment property activities, Livermore meets the definition of an investment entity, as this is defined in IFRS 10 "Consolidated Financial Statements". As per IFRS 10 an investment entity is an entity that:

(a)      obtains funds from one or more investors for the purpose of providing those investors with investment management services;

(b)      commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and

(c)       measures and evaluates the performance of substantially all of its investments on a fair value basis.

In accordance with IFRS 10, an investment entity is exempted from consolidating its subsidiaries, unless any subsidiary which is not itself an investment entity mainly provides services that relate to the investment entity's investment activities.

In Livermore's situation, none of its subsidiaries provides such services.

Given the above, these financial statements consolidate the Company's subsidiaries up to 28 October 2016. As of that date, the subsidiaries have been de-consolidated, and recognised as Investments in subsidiaries at their fair value as at 28 October 2016 (note 11). No material gains or losses occurred on this transition.

3.     Accounting Policies

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

3.1.   Adoption of new and revised IFRS 

As from 1 January 2016, 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.

In addition to the above, the Company has elected to apply IFRS 9 "Financial Instruments" as issued in July 2014, earlier than its effective date, because the new accounting policies reflect better the Company's business model and provide more reliable and relevant information for its users to assess the amounts and timing of future cash flows.

IFRS 9 replaces IAS 39 ''Financial Instruments: Recognition and Measurement''. The new standard introduces extensive changes to IAS 39's guidance on the classification and measurement of financial assets and introduces a new 'expected credit loss' model for the impairment of financial assets.

The date of the initial application of IFRS 9 is 1 January 2016.  In accordance with the transitional provisions in IFRS 9 (par 7.2.15), comparative figures have not been restated, and therefore are presented in accordance with the previously applied policies in accordance with IAS 39. 

The most significant impact of the adoption of IFRS 9, was on the classification and measurement of the Company's financial assets. The Directors have reviewed the classification and measurement of the Company's financial assets based on the new criteria that consider the assets' contractual cash flows and the business model in which they are managed, and determined that:

·      Financial assets previously classified as "financial assets at amortised cost", shall remain in this same category.

·      Financial assets previously classified as "financial assets at fair value through profit or loss", shall remain in this same category.

·      Financial assets previously classified as "available-for-sale" shall be reclassified as "financial assets at fair value through profit or loss".  However, the Directors on initial application date have made an irrevocable election to designate certain equity investments that are not held for trading, which were previously classified as "available-for-sale", as "financial assets at fair value through other comprehensive income".

The impact of the adoption of IFRS 9 is summarized as follows:

Also, the profit or loss for the year 2016 is higher by USD 3.669m (representing an increase of USD 0.02 on basic and diluted earnings per share for 2016) due to the adoption of IFRS 9.  This is mostly attributable to the fact that the additional fair value losses recognised in profit or loss are less than the impairment losses on available-for-sale financial assets that would have been recognised based on IAS 39.

The adoption of IFRS 9 did not have any significant impact on the Company's financial liabilities.

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 (nor early adopted), or have not yet been endorsed by the EU, for the year ended 31 December 2016:

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 financial statements.

3.2.   Basis of consolidation (policy applied up to 28 October 2016 - refer to note 2.1)

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.

3.3.   Investments in subsidiaries (policy applied since 28 October 2016 - refer to note 2.1)

Subsidiaries are entities controlled either directly or indirectly by the Company.

Investments in subsidiaries are initially recognised at their fair value and subsequently measured at fair value through profit or loss.  Subsequently, any gains or losses arising from changes in their fair value are included in profit or loss for the year.

Dividends and other distributions from subsidiaries are recognised as income when the Company's right to receive payment has been established.

A subsidiary which provides services that relate to the Company's investment activities is consolidated rather than included within the investments in subsidiaries measured at fair value through profit or loss.

3.4.   Investments in associates and joint ventures

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

A joint venture is an arrangement that the Company controls jointly with one or more other investors, and over which the Company 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.

Dividends and other distributions from associates and joint ventures are recognised as income when the Company's right to receive payment has been established.

3.5.   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.

3.6.   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 becomes 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.

3.7.   Interest and dividend income

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

·  Dividend income is recognised on the date that the Company's right to receive payment is established, which in the case of quoted securities is the ex-dividend date. 

3.8.   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. 

3.9.   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 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.

3.10. Investment property

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. 

3.11. 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 costs, 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 received.

3.12. 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 Company 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 Company'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.

3.13. 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 2016 or 2015.

3.14. Financial assets (policy applied as from 1 January 2016 - refer to note 3.1)

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

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

The Company classifies its financial assets in the following measurement categories:

(a)   those to be measured at fair value (either through other comprehensive income, or through profit or loss), and

(b)   those to be measured at amortised cost.

The classification depends on the entity's business model for managing the financial assets and the contractual terms of the cash flows. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.

At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss.

Financial assets at fair value through profit or loss

The Company classifies the following financial assets at fair value through profit or loss:

(a)   equity investments that are held for trading;

(b)   other equity investments for which the Directors have not elected to recognise fair value gains and losses through other comprehensive income; and

(c)   debt investments that do not qualify for measurement at either amortised cost or at fair value through other comprehensive income.

All financial assets within this category are measured at their fair value, with changes in value recognised in the profit or loss when incurred.

Financial assets at fair value through other comprehensive income

Financial assets at fair value through other comprehensive income (OCI) comprise equity securities which are not held for trading, and for which the Company has made an irrevocable election at initial recognition to recognise changes in fair value through OCI rather than profit or loss.

Where the Company's management has elected to present fair value gains and losses on equity investments in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss. Dividends from such investments continue to be recognised in profit or loss when the Company's right to receive payments is established.

Financial assets at amortised cost

Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. A gain or loss on a financial asset that is measured at amortised cost is recognised in profit or loss when the asset is derecognised or impaired. Interest income from these financial assets is recognised based on the effective interest rate method.

Impairment

The Company assesses on a forward looking basis the expected credit losses associated with its assets carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade and other receivables only, the Company applies the simplified approach permitted by IFRS 9, which permits expected lifetime losses to be recognised from initial recognition of the receivables.

Write offs

The Company writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings. Financial assets written off may still be subject to enforcement activities, taking into account legal advice where appropriate. Any recoveries made are recognised in profit or loss.

3.15. Financial assets (policy applied until 31 December 2015 - refer to note 3.1)

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.

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 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. 

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 transaction 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 financial 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.

3.16. Financial liabilities

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

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

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

Financial liabilities at amortised cost

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

Derivative financial liabilities

The Company's financial liabilities also include financial derivative instruments. 

All derivative financial instruments which are not designated as hedging instruments are measured at fair value through profit or loss. 

3.17. Cash and cash equivalents

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

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

3.18. Provisions

Provisions are recognised when the Company 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 Company are charged to the profit or loss as they are incurred.

3.19. Discontinued operations

A discontinued operation is a component of the Group that either has been disposed of, or is classified as held for sale, and:

(a) represents a separate major line of business or geographical area of operations;

(b) is part of a single co‑ordinated plan to dispose of a separate major line of business or geographical area of operations; or

(c) is a subsidiary acquired exclusively with a view to resale.

The results from discontinued operations are presented in a single amount in the profit or loss with further analysis in the notes. This amount comprises the post‑tax profit or loss of discontinued operations and the post‑tax gain or loss resulting from the measurement and disposal of relevant assets. The comparative disclosures for discontinued operations relate to the operations that have been discontinued during the current reporting period.

3.20. 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.

3.21. Critical accounting judgments and key sources of estimation uncertainty

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates and requires management to exercise its judgement in the process of applying the Company's accounting policies. It also requires the use of assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the 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 judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Critical accounting judgements

(i)        Impairment of financial assets at amortised cost

The allowance for impairment on related party receivables (note 13) is based on assumptions about risk of default and expected loss rates for expected lifetime losses. The Company uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Company's past history, existing market conditions as well as forward looking estimates at the end of each reporting period. For details of the key assumptions and inputs used.

The Company assesses at each reporting date whether financial assets at amortised cost are impaired.  If impairment has occurred, this loss is recognised in profit or loss.

(ii)      Classification of financial assets

The Management exercises significant judgement in determining the appropriate classification of the financial assets of the Company. The Directors determine the appropriate classification of the Company's financial assets based on Livermore's business model. An entity's business model refers to how an entity manages its financial assets in order to generate cash flows, considering all relevant and objective evidence.  The factors considered include the contractual terms and characteristics which are very carefully examined, and also the Company's intentions and expected needs for realisation of the financial assets.

All investments (except from certain equity instruments that are designated at fair value through other comprehensive income) are classified as at fair value through profit or loss, because this reflects more fairly the way these assets are managed by the Company. The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided internally on that basis to the Company's Board of Directors and other key management personnel.

Estimation uncertainty

                    Fair value of financial instruments

Management uses valuation techniques in measuring the fair value of financial instruments, where active market quotes are not available. Details of the bases used for financial assets and liabilities are disclosed in note 8.  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.

3.22. Comparatives

The comparative figures in the consolidated statement of profit or loss and the consolidated statement of cash flows have been restated for the effect of discontinued operations.

4.     Available-for-sale financial assets

For description of each of the above categories, refer to note 7.

During 2015, 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 2015 of USD 31.726m are included within loss on investments (note 26), and represent impairment losses arising due to:

5.         Financial assets at fair value through profit or loss

For description of each of the above categories, refer to note 7.

The above investments represent financial assets that are mandatorily measured at fair value through profit or loss.

The Company treats its investments in the loan market through CLOs as non-current investments as the Company generally intends to hold such investments over a period longer than twelve months.

6.         Financial assets at fair value through other comprehensive income

For description of each of the above categories, refer to note 7.

The above investments are non-trading equity investments that have been designated at fair value through other comprehensive income.

7.         Financial assets at fair value

The Company allocates its non-derivative financial assets at fair value (notes 4, 5 and 6) as follows:

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

·      Private equities relate to investments in the form of equity purchases in both high growth opportunities in emerging markets and deep value opportunities in mature markets. The Company generally invests directly in prospects where it can exert influence. Main investments under this category are in the fields of real estate. 

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

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

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

8.         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.

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

·      Fixed Income Investments, and Public Equity Investments are valued per their closing market prices on quoted exchanges, or as quoted by market maker. Investments in open warehouse facilities that have not yet been converted to CLOs, are valued based on an adjusted net asset valuation.   

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

Default and recovery rates: The amount and timing of defaults in the underlying collateral and the amount and timing of recovery upon a default 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.  

·      Private Equities 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. 

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

·      Real Estates entities are valued by independent qualified property valuers with substantial relevant experience on such investments. Underlying property values are determined based on their estimated market values.     

·      Derivative instruments are valued at fair value as provided by counter parties (banks) of the derivative agreement. 

·      Investments in subsidiaries are valued at fair value as determined on an adjusted net asset valuation basis.

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, except from a certain equity instrument that was delisted and therefore transferred from Level 1 to Level 3 in 2016.