Notes to the Interim Condensed Consolidated Financial Statements

1.    Accounting policies

The interim condensed consolidated financial statements of Livermore have been prepared on the basis of the accounting policies stated in the 2020 Annual Report, available on www.livermore-inv.com.

The application of the IFRS pronouncements that became effective as of 1 January 2021 has no significant impact on the Company's consolidated financial statements.

2.    Critical accounting judgements and estimation uncertainty

When preparing the interim condensed consolidated financial statements, management undertakes a number of judgements, estimates and assumptions about recognition and measurement of assets, liabilities, income and expenses. The actual results may differ from the judgements, estimates and assumptions made by management, and will seldom equal the estimated results. The judgements, estimates and assumptions applied in the interim condensed consolidated financial statements, including the key sources of estimation uncertainty were the same as those applied in the Company's last annual consolidated financial statements for the year ended 31 December 2020.

3.    Basis of preparation

These unaudited interim condensed consolidated financial statements are for the six months ended 30 June 2021. They have been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union. They do not include all the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Company for the year ended 31 December 2020.

The financial information for the year ended 31 December 2020 is extracted from the Company's consolidated financial statements for the year ended 31 December 2020 which contained an unqualified audit report.

Investment entity status

Livermore meets the definition of an investment entity, as this is defined in IFRS 10 "Consolidated Financial Statements".

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 and as at the reporting date, one of its subsidiaries provide such services. Note 8 shows further details of the consolidated and unconsolidated subsidiaries.  

References to the Company hereinafter also includes its consolidated subsidiary (note 8).

4.    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.

5.    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.

6.    Financial assets at fair value

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

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

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

·      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. 

7.    Fair value measurements of financial assets and liabilities

The table in note 7.2 below 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.

 7.1   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 makers. 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 based on valuations reported by third-party managers of such investments. Real Estate entities are valued by independent qualified property valuers with substantial relevant experience on such investments. Underlying property values are determined based on their estimated market values. 

·      Investments in subsidiaries are valued at fair value as determined on an adjusted net asset valuation basis. The Company has determined that the reported net asset value of each subsidiary represents its fair value at the end of the reporting period

7.2    Fair Value Hierarchy

Financial assets measured at fair value are grouped into the fair value hierarchy as follows:      

The Company has no financial liabilities measured at fair value.

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 different levels. 

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

The above recognised gains / (losses) are allocated as follows: 

The Company has not developed itself any quantitative unobservable inputs for measuring the fair value of its level 3 financial assets at the reporting date.  Instead the Group used prices from third - party pricing information without adjustment.

Fixed income investments within level 3 represent open warehouses that have been valued based on their net asset value. Their net asset value is primarily driven by the fair value of their underlying loan asset portfolio plus received and accrued interest less the nominal value of the financing and accrued interest on the financing. In all cases, due to the nature and the short life of a warehouse, the carrying amounts of the warehouses' underlying assets and liabilities are considered as representative of their fair values.

Private equities within level 3 represent investments in private equity funds. Their value has been determined by each fund manager based on the funds' net asset value. Each fund's net asset value is primarily driven by the fair value of its underlying investments. In all cases, considering that such investments are measured at fair value, the carrying amounts of the funds' underlying assets and liabilities are considered as representative of their fair values.

Investments in subsidiaries have been valued based on their net asset position. The main assets of the subsidiaries represent investments measured at fair value and receivables from the Company itself. Their net asset value is considered as a fair approximation of their fair value.

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

8.    Investment in subsidiaries

The investments in which the Company has a controlling interest as at the reporting date are as follows:

9.    Trade and other receivables

For the Company's receivables of a financial nature, no lifetime expected credit losses and no corresponding allowance for impairment have been recognised, as their default rates have been determined to be close to 0%.  

No receivable amounts have been written-off during either 2021 or 2020.

10.  Cash and cash equivalents

Cash and cash equivalents included in the consolidated cash flow statement comprise the following:

11.  Share capital, share premium and treasury shares   

Livermore Investments Group Limited (the "Company") is an investment company incorporated under the laws of the British Virgin Islands.  The Company has an issued share capital of 174,813,998 ordinary shares with no par value.

During the period the Company purchased 10,888,577 ordinary shares at an average price of US$0.64 (£0.46) per share to be held in treasury. As at 30 June 2021 the Company had 10,888,577 ordinary shares held in treasury.

In the statement of financial position the amount included as 'share premium and treasury shares' comprises of:

12.  Trade and other payables

13.  Dividend

On 08 March 2021, the Board announced an interim dividend of USD 8m (USD 0.0488 per share) to members on the register on 19 March 2021. The dividend was paid on 16 April 2021.

The Board of Directors will decide on the Company's dividend policy for 2021 based on profitability, liquidity requirements, portfolio performance, market conditions, and the share price of the Company relative to its net asset value.

14.  Net asset value per share

The diluted net asset value per share equals the basic net asset value per share since no potentially dilutive shares exist at any of the reporting dates presented.

15.  Segment reporting

The Company's activities fall under a single operating segment.

The Company's investment income and its investments are divided into the following geographical areas:

Investment income, comprising interest and distribution income as well as fair value gains or losses on investments, is allocated based on the issuer's location. Investments are also allocated based on the issuer's location.

The Company has no significant dependencies, in respect of its investment income, on any single issuer.

16.  Interest and distribution income

Interest and distribution income is analysed between the Company's different categories of financial assets, as follows:

The Company's distribution income derives from multiple issuers. The Company does not have concentration to any single issuer.

17.  Fair value changes of investments

The investments disposed of had the following cumulative (i.e. from the date of acquisition up to the date of disposal) financial impact in the Company's net asset position:   

* difference between disposal proceeds and original acquisition cost

18.  Operating expenses

19.  Finance costs and income

20.  Earnings / (loss) per share

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

The diluted earnings / (loss) per share equals the basic earnings / (loss) per share since no potentially dilutive shares were in existence during 2021 and 2020.

21.  Related party transactions

The Company is controlled by Groverton Management Ltd, an entity owned by Noam Lanir, which

at 30 June 2021 held 75.06% of the Company's voting rights.

(1)  The amounts receivable from unconsolidated subsidiaries and the Directors' current accounts with debit balances are interest free, unsecured, and have no stated repayment date.

(2)  A loan of USD 1m was made to a key management employee and a Company's Director. The loan was free of interest, is unsecured and was repayable on demand. This loan was included within trade and other receivables (note 9). During 2021, the Directors agreed to reclassify the loan with a balance of USD 1m as an advance against future remuneration of the specific Director. The advance is included within trade and other receivables (note 9).

(3)  A loan with a balance at 30 June 2021 of USD 3.7m was made to the Company's parent, Groverton Management Ltd. The loan was free of interest, unsecured and repayable on demand. This loan was included within trade and other receivables (note 9). The loan was fully settled in the first half of 2021.

(4)  The amounts payable to unconsolidated subsidiaries and Directors' current accounts with credit balances are interest free, unsecured, and have no stated repayment date. 

(5)  A loan with a balance at 30 June 2020 of USD 0.149m has been received from a related company (under common control) Chanpak Ltd. The loan is free of interest, unsecured and repayable on demand. This loan is included within trade and other payables (note 12).

(6)  The amount payable to other key management personnel relates to a payment made on behalf of the Company for investment purposes and accrued consultancy fees. 

(7)  These payments were made directly to companies which are related to the Directors.

(8)  Other key management fees are included within professional fees (note 18).

No social insurance and similar contributions nor any other defined benefit contributions plan costs incurred for the Group in relation to its key management personnel in either 2021 or 2020.

22.   Litigation

Fairfield Sentry Ltd vs custodian bank and beneficial owners

One of the custodian banks that the Company uses faces a contingent claim up to USD 2.1m, and any interest as will be decided by a US court and related legal fees, with regard to the redemption of shares in Fairfield Sentry Ltd, which were bought in 2008 at the request of Livermore and on its behalf. If the claim proves to be successful Livermore will have to compensate the custodian bank since the transaction was carried on Livermore's behalf. The same case was also filed in BVI where the Privy Council ruled against the plaintiffs.

As a result of the surrounding uncertainties over the existence of any obligation for Livermore, as well as for the potential amount of exposure, no provision has been made.

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

23.   Commitments

The Company has expressed its intention to provide financial support to its subsidiaries, where necessary to enable them to meet their obligations as they fall due.

Other than the above, the Company has no capital or other commitments as at 30 June 2021.

24.   Impact of COVID-19

As of the date of this report, large-scale vaccination programs and huge fiscal and monetary stimulus seem to have been successful in reducing the spread and health impact of the virus, as well as put most developed countries on a strong recovery course. Unfortunately, the virus continues to spread in less developed regions such as India and the risk of a vaccine-resistant mutated virus remains. The Company is primarily exposed to the US economy and is benefiting from the economic recovery as tighter credit spreads and reduced distressed credits increase the value of the Company's CLO portfolio. The Company invested aggressively in the first half of the year but retains cash in excess of USD 16m as of 31 August 2021. The Company plans to maintain its investments in the CLO market in the near-mid term and to maintain strong liquidity and no debt.

25.   Events after the reporting date

The Company invested an additional amount of USD 8.7m in July and August 2021 to the open warehouse facility as at 30 June 2021, increasing its total investment to USD 34.2m. Livermore's investment amount plus net carry amounting over a total of USD 1.0m is expected to become receivable in September 2021.   The Company also invested the amount of 1.7m for a new warehouse in September 2021. 

The Company granted an additional amount to Company's parent of 6.5m in July 2021, 5.5m of the amount was settled in September 2021. 

There were no other material events after the reporting date, which have a bearing on the understanding of

these interim condensed consolidated financial statements.

26.   Preparation of interim financial statements

Interim condensed consolidated financial statements are unaudited. Consolidated financial statements for Livermore Investments Group Limited for the year ended 31 December 2020, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, on which the auditors gave an unqualified audit report are available on the Company's website www.livermore-inv.com.

Review Report to the Members of Livermore Investments

Group Limited

Review Report on the interim Condensed Consolidated Financial Statements

Introduction

We have reviewed the interim condensed consolidated financial statements of Livermore Investments Group Limited (the ''Company'') and its subsidiary (together with the Company "the Group"), which are presented in pages 8 to 27 and comprise the condensed consolidated statement of financial position as at 30 June 2021 and the consolidated statements of comprehensive income, changes in equity and for the period from 1 January 2021 to 30 June 2021, and notes to the interim condensed consolidated financial statements, including a summary of significant accounting policies.

The Board of Directors is responsible for the preparation and presentation of these interim condensed consolidated financial statements in accordance with International Financial Reporting Standards applicable to interim financial reporting as adopted by the European Union ('IAS34 Interim Financial Reporting'). Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity'. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial information does not present fairly, in all material respects, the financial position of the entity as at June 30, 2021, and of its financial performance and its cash flows for the six month period then ended in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union.

Emphasis of Matter

We draw attention to the note 22 of the interim condensed consolidated financial statements which describes the uncertainty related to the outcome of a legal claim against one of the custodian banks that the Group and the Company uses on its behalf. Our conclusion is not modified in respect of this matter.

Other information    

The Board of Directors is responsible for the other information. The other information comprises the information included in the Chairman's and Chief Executive's Review and Review of Activities, but does not include the condensed consolidated financial statements and our review report thereon.

Our conclusion on the condensed consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our review of the condensed consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the review or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Other Matter

This report, including the conclusion, has been prepared for and only for the Group's members as a body and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whose knowledge this report may come to.