Highlights

·      Net profit for the year was USD 24.7m (2020: net profit of USD 0.845m).

·      Net Asset Value per share increased by 13.8% to USD 1.07 (2020 USD 0.94) after paying 8m interim dividend implying a total return of 19%.

·      On 16 April 2021, the Company paid an interim dividend of USD 8m (USD 0.0488 per share) to members on the register on 19 March 2021.

·      During the year 2021, the Company distributed net USD 6.057m to shareholders via share buyback.

·      On 05 January 2022, the Company announced an interim dividend of USD 24m (USD 0.145 per share) to members on the register on 14 January 2022. The dividend was paid on 07 February 2022.

·      Collateralized Loan Obligations (CLO) portfolio and warehouse generated USD 27.3m in cash distributions and a total return of USD 30.6m in 2021. 

Chairman's and Chief Executive's Review

Introduction

We are pleased to announce the financial results for Livermore Investments Group Limited ("Livermore" or "the Company") for the year ended 31 December 2021. References to the Company hereinafter also include its consolidated subsidiary (note 8). References to financial statements hereinafter are to the Company's consolidated financial statements.

2021 was a year of continued economic recovery from the COVID pandemic. Despite bouts of new lockdowns and newer strains of the coronavirus, effective vaccinations and ample monetary and fiscal support provided the needed impetus for most developed economies to recover to pre-pandemic GDP levels. Short and long-term rates remained at low levels supporting public equity markets to reach record levels. However, concerns about inflation due to strong consumer and business demand straining already fragile global supply-chains prompted a change in rates outlook by global central banks later in the year.

Management was extremely active during the year optimizing the existing portfolio and deploying capital in new investments. The Company refinanced or reset seven of its CLOs and reduced their cost of funding or extended their reinvestment period. In addition, management led the pricing of three new issue CLOs with leading managers including Blackstone Credit, Ares Management and MJX Asset Management and had two new warehouses open as of year-end 2021. Further, management traded certain BB and equity tranches on a relative values basis. CLO equity distributions were very strong due to the additional benefit of LIBOR floors and sustained high loan spreads. Overall, the CLO portfolio generated exceptional returns of 35.1% with USD 27.3m cash distribution from its CLO and warehouse portfolio and an additional USD 3.3m in valuation gains amounting to total gains of USD 30.6m.

Our net profit for the year was USD 24.7m (2020 net profit: USD 0.845m) and the year-end NAV was USD 1.07 per share (2020 NAV: USD 0.94 per share) after paying a dividend payment of USD 8m (USD 0.0488 per share). During the year, the Company bought back 10,888,577 shares and subsequently issued 1,430,000 shares out of treasury, at a net cost of USD 6.057m.

The Company recorded net gains of USD 30.6m from its US CLO and warehousing portfolio. Interest and distribution income from the financial portfolio totalled USD 27.5m (2020: USD 22.0m). The Company ended the year with over USD 45.1m in cash at hand. On 5 January 2022, the Board of the Company announced an interim dividend of USD 24m (USD 0.145 per share) bringing the total distribution to shareholders in the last twelve months to USD 38.057m, which represents 36.9% of the Company's average market capitalization over that period.

Financial Review

The NAV of the Company on 31 December 2021 was USD 177.7m (2020: USD 163.9m). Net profit, during the year was USD 24.7m, which represents earnings per share of USD 0.15. Operating expenses were USD 8.6m (2020: USD 2.8m).

The overall change in the NAV is primarily attributed to the following:

Dividend & Buyback

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

On 05 January 2022, the Company announced an interim dividend of USD 24m (USD 0.145 per share) to members on the register on 14 January 2022. The dividend was paid on 07 February 2022.

The Board of Directors will decide future dividends based on profitability, liquidity requirements, portfolio performance, market conditions, and the share price of the Company relative to its NAV.    

During 2021, the Company bought back 10,888,577 shares to be held in treasury for a total cost of USD 6.973m and re-issued 1,430,000 for a total USD 0.829m.  As at 31 December 2021, the Company held 9,458,577 shares in treasury.

Richard B Rosenberg                                                                                        Noam Lanir

Chairman                                                                                                            Chief Executive Officer

27 May 2022

Review of Activities

Introduction and Overview

Effective vaccinations against COVID-19 and strong monetary and fiscal stimulus in most developed economies supported a continued economic recovery in 2021. Although the effects of the pandemic continued in 2021, the disruptions to economic activity were milder. Labour markets recovered strongly and became quite tight especially in the US as demand for services outstripped supply. Inflation trended higher and was boosted by supply-chain challenges as well as low investment in commodity related sectors over the last several years.

Risk assets were well bid most of the year with the S&P 500 Index continuing its winning streak to end the year at an all-time high of 4766 - an increase of 207% from the pandemic low in 2020.  The NASDAQ Composite Index recorded a peak in November 2021 before ending the year with a gain of 23.2% from the beginning of the year. The Euro Stoxx 50 price Index also recorded impressive gains of 20.6%. In emerging markets, India's NIFTY 50 outperformed its peers with a gain of 23.8% versus losses for China's Hang Seng Index of 14.8% and losses for Brazil's BOVESPA Index of 11.8%. China's negative performance was a reflection of lingering default issues in its large and leveraged property sector as well as China's regulatory crackdown on the technology sector.

With inflation higher and expectations of eventual rate increases in the US, the US Government yield increased from 0.91% to 1.51%. Returns were low to negative in the global government bond and investment grade market as yields increased steadily though the year. The US Dollar gained against most currencies with the DXY Dollar Index gaining 6.45% for the year.

Credit continued to tighten, though, as strong economic recovery and liquid and yield-hungry markets kept default expectations at very low levels. The Bloomberg US Corporate High Yield Total Return Index gained 5.29% in 2021 despite a modest rise in US swap rates and very high levels of new issuance. Similarly, the floating rate leveraged loan market had a strong year with the Credit Suisse Leverage Loan Index ("CSLLI") generating a total return of 5.4%. Rating agencies were busy upgrading credits for most of the year with the Upgrade/Downgrade ratio of 2:1. Default rates declined sharply with the Leveraged Loan Index recording a multi-year low and ending the year with the 12-month trailing default rate of 0.29%.

CLO's performed very well in 2021 and the Company's CLO equity and warehouse portfolio had an excellent year generating over 35% return with cash distributions contributing USD 27.3m out of the total return of USD 30.6m. Management was proactive and busy in 2021. We refinanced or "reset" seven of our CLO transactions reducing their cost of funding or extending their reinvestment periods and thereby adding significant value to the existing portfolio. In addition, management converted three of its warehouses into new issue CLOs with leading CLO managers including Blackstone Credit, Ares Management and MJX Asset Management at very attractive equity arbitrage levels, and generated a net warehouse carry of USD 2.9m. Further, management opened two new warehouses with PGIM and Blackstone Credit. As of the day of publishing this report, both of these warehouses have been converted to a new issue CLO in 2022 generating USD 2.3m in net carry. In 2021, management opportunistically took profits on some of its CLO BB and equity positions.

During 2021, the Company invested USD 2.7m in technology-related start-ups in Israel and the US. In addition, the Company invested USD 4m in a digital assets focussed fund and generated gains of 52% in 2021. As of April 2022, the fund is up 1.1% in 2022.

 For 2021, the Company reported a NAV/share of USD 1.07 and net profit of USD 24.7m. Interest and distribution income amounted to USD 27.5m, of which, USD 27.3m was generated from the CLO and warehousing portfolio. The net return of the CLO and warehousing portfolio was USD 30.6m as mark-to-market changes contributed to a gain of USD 3.3m. In addition, our investment in the digital assets focussed fund grew by 52 % contributing USD 2.8m to the net profit. Operating expenses amounted to USD 8.6m. The Company ended the year with over USD 45m of cash at hand in advance of an interim dividend of USD 24m that was declared in January 2022.  Including the interim dividend in January 2022, the Company has distributed USD 38.14 or 36.1% of its average market capitalization in 2021.

The Company does not have an external management company structure and thus does not bear the burden of external management and performance fees. Furthermore, the interests of Livermore's management are aligned with those of its shareholders as management has a large ownership interest in Livermore shares.

Considering the strong liquidity positions of Livermore, together with its strong foothold in the US CLO markets as well as the robustness of its investment portfolio and the alignment of the management's interests with those of its shareholders, management believes that the company is well positioned to benefit from current conditions.

Global Investment Environment

In 2021, the global economy recovered from the sharp but short COVID-19 lockdown-driven recession the year before amid progress on vaccinations and supported by ample accommodative monetary and fiscal policy. While the coronavirus pandemic continued in its second year, the effects of the pandemic weighed less strongly on economic activity than the year before and the periods of re-opening in most economies saw strong demand from consumers. Financial markets continued their late 2020 exuberant mood into early 2021 and, despite small pull-backs, equity markets continued to make new highs through the year supported by strong corporate earnings and a low rate outlook. Inflation in developed economies continued to pick up throughout the year, and as the year progressed, the higher inflation narrative started to shift from "transitory" to "structural" with strong consumer and rising earnings increasing demand in the face of still-recovering supply chain issues. Energy and commodity prices increased notably on demand pressures and low supply due to persistently low investment in prior years in these sectors. In advanced economies, government yields started to increase since the first half of last year on higher inflation and firming expectations for higher policy rates. In November 2021, the US Federal Reserve acknowledged that inflation in the US was much higher than anticipated and that significant monetary tightening from the very accommodative levels may be needed. The recent Russian invasion of Ukraine adds a significant risk to the inflation and growth problem with both countries being significant exporters of agricultural commodities and given Europe's reliance of Russian energy imports. Looking forward, we anticipate central banks in developed economies to tighten financial conditions to reign in high inflation and potentially doing so into an already slowing global economy. 

USA: After the severe recession in 2020, the US economy rebounded strongly in 2021 with its GDP growing by 5.7%. The US GDP exceeded its pre-COVID level in the second quarter of 2021. The recovery was attributable to progress of vaccinations leading to a reopening of the economy and the significant monetary and fiscal policy measures implemented since the outbreak of the pandemic. However, supply bottlenecks weighed on industrial production in the second half of the year. Labour market conditions improved significantly with the unemployment rate in December 2021 reaching 3.9%, compared with 3.5% before the pandemic. The US Federal Reserve kept the main interest rate near zero and continued its bond buying program (Quantitative Easing) throughout 2021 to support the economy. Inflation continued to tick-up during the year. The personal consumption expenditures (PCE) price index rose 5.8% over the 12 months ending in December, and the index that excludes food and energy items (so-called core inflation) was up 4.9%-the highest levels for both measures in roughly 40 years. In November 2021, the US Federal Reserve acknowledged high inflation as a potential problem and signalled an end of their bond buying program while bringing forward their projections for interest rate increases. With regard to fiscal policy, the Build Back Better Act has been stalled in the Senate since November, and the fiscal impulse to growth is expected to fade much faster than previously anticipated.

Eurozone: The euro area economy also recovered and GDP returned to its pre-crisis level by the year-end 2021. Economic activity initially declined in the first quarter, before rebounding strongly in the second and third quarters owing to the more favourable development in the pandemic situation and a reopening of economies in most member states. The recovery slowed down again thereafter with supply bottlenecks negatively affecting industrial production and renewed lockdowns in some member states to slow the advance of a rapid spread coronavirus variant. Average GDP growth for the year stood at 5.2%, following a 6.5% decline in 2020. The unemployment rate fell significantly, and at 7.0% in December 2021 was below its pre-crisis level. Headline inflation in the euro area rose to 2.6% (2020: 0.3%) while core inflation was also higher at 1.5%. Inflation rose markedly from the Spring onwards and by year-end had reached 2.6%, the highest level in the euro area's history. In Germany, VAT was restored to its previous level after having been temporarily lowered in the second half of 2020. This also contributed to the higher rate of inflation in addition to the global factors mentioned above. In July, the ECB presented the results of its monetary policy strategy review and announced that it would aim for consumer price inflation of 2% over the medium term. The previous inflation target had stood at below, but close to, 2%. In addition, the ECB allowed itself the flexibility, under certain circumstances, for a transitory period in which inflation is moderately above target.

Japan: Japan's GDP grew by 1.7% compared to a decline of 4.5% in 2020. Economic activity fluctuated as a result of the repeated waves of the pandemic and the corresponding responses to contain them. Further, procurement issues in the automotive industry, particularly in the second half of the year, affected the economic activity in Japan. Against this backdrop, GDP remained below its pre-crisis level through to the end of the year. The unemployment rate stood at 2.7% in December, still around half a percentage point higher than before the pandemic. Having stagnated in 2020, consumer prices declined slightly for the 2021 year (- 0.3%). Core inflation was significantly negative (- 0.8%) due to large price reductions for mobile communications. Broader inflation fluctuated significantly over the course of 2021, with higher energy prices lifting it to 0.8% by the end of the year. The Bank of Japan (BoJ) maintained its highly accommodative monetary policy throughout 2021 and left its short-term deposit rate at -0.10% and the target for the 10-year government bond yields to 0%. However, In December, the BoJ announced a scale-back of its corporate debt purchases to pre-pandemic levels.

China: After historically low growth of 2.2% in 2020, China's GDP expanded by 8.1% in 2021. The development through the year was volatile. Strict regional containment measures per its zero-COVID strategy repeatedly weighed on economic activity. In addition, supply bottlenecks and temporary power outages adversely affected its manufacturing sector. Urban unemployment rate was little changed, which had returned to its pre-crisis level at the end of 2020 at 5.2%. The government's regulatory reforms, such as the deleveraging in the real estate sector, also had a curbing effect with several of its large property developers starting to teeter at the edge of default. In 2021, China announced its focus on of achieving more equal income distribution (termed "Common Prosperity") and, amongst many internal changes, targeted large technology platforms that it believed created wealth and concentrated power in the hands of a few people. As a result, investors pulled capital from Chinese technology companies resulting in large declines in their market capitalization. In response to the tighter financial conditions, the People's Bank of China left its policy interest rates unchanged, but lowered the reserve requirement rate in July and December by a total of one percentage point.

Commodities: Commodity prices rose significantly as a result of the global economic recovery coupled with tight supply and persistently low investment in the sector in prior years. A strong investor focus on ESG (Environment, Social, and Governance) criteria also curtailed capital flow into fossil fuels and energy intensive industries. Further, the member countries of the Organization of the Petroleum Exporting Countries and Russia (OPEC+) made only a moderate increase in output despite the strong rise in demand for crude oil. In November, the price of Brent crude temporarily reached its highest level since mid-2018 at over USD 85 per barrel. At the end of 2021, it still stood at just under USD 80, having started the year at USD 50. Oil and commodity prices have continued to rise in 2022 due to Russia-Ukraine conflict as both countries are significant exporters of agricultural commodities and Russia is significant exporter of Oil and Natural Gas especially to European countries. Prices for industrial metals also ended the year higher.

Equities and Bonds: US equity markets continued their buoyant move up from their 2020 lows as continued and plentiful monetary and fiscal policy supported demand for financial assets. Large cap stocks in the US led the charge ending 2021 near a record high. The S&P 500 Index generated returns of 28.7% for the year buoyed by a number of positive developments, including effective vaccinations driving the reopening of the economy, strong corporate earnings and increased consumer demand. Likewise, global markets continued to rise alongside those in the US, despite some setbacks. Global equities, as measured by the MSCI All Country World Index increased 18.54%. Developed international stocks, as represented by the MSCI World ex USA Index, rose 12.62%, notably stronger than emerging markets. The MSCI Emerging Markets Index fell -2.54% largely driven by the property and technology sector losses in China. Exuberant stock markets globally allowed a record number of new IPOs and SPACs to enter the market in 2021. However, as inflation and rate expectations increased in November with the US Federal Reserve signalling an end to pandemic era highly accommodative monetary policy, SPAC mergers and high-growth technology companies with very high valuations quickly fell out of favour resulting in steep stock price declines. Losses in this sector have accelerated into the first quarter of 2022 as investors price in ever higher rates to reign in high inflation.

Developed world bond markets faced a difficult 2021 characterized by rising inflation, continued but waning effects of the pandemic, and the start of monetary policy tightening. US government bond interest rates rose in the first quarter with a steeper curve as investors anticipated strong growth with transitorily high inflation with the 10-year government bond yield rising 81 basis points to 1.74%. However, as the coronavirus mutations spread, concerns over an uneven recovery but still high inflation resulted in some reversal of the steepness with short-term yields modestly higher and the 10-year government bond falling to 1.52% as of year-end 2021. The Morningstar U.S. Core Bond Index, a proxy for typical U.S. bond exposure, dropped by 1.6% for the year - its worst annual return since the taper tantrum in 2013.

Foreign exchange: The U.S. dollar enjoyed a strong 2021, gaining 6.7% for the year against a basket of developed-markets currencies, driven by the US economy's relative strength and the US Fed Reserve's tighter policy outlook. European Central Bank more gradual approach to tightening and slower growth expectations in part from continued supply chain issues caused the Euro to decline 6.9% against the US Dollar. With no end in sight to Japan's low rate and highly accommodative monetary policy, the Japanese Yen weakened from 103 to 115 versus the US Dollar. The Swiss Franc fared relatively well against the Euro and the Japanese Yen but fell a modest 3.7% against the US Dollar.

Loan Market: US Leveraged Loans continued their recovery from their pandemic lows into 2021. For the full year, the Credit Suisse Leveraged Loan Index ("CSLLI") generated a total return of 5.4% - its 28^th positive year return in its 30 years of existence. Strong demand for yield in an otherwise low yield fixed income world allowed the institutional loan market to eclipse its previous new issuance record (including loans for refinancing and repricing) to finish the year at USD 613 billion (2020: USD 287.8 billion), with the total market size swelling to USD 1.35 trillion (2020: USD 1.2 trillion). During the year, net inflows into loan mutual funds and ETFs amounts to USD 47 billion as compared to net outflows of USD 27 billion in 2020. Strong corporate profits, loose financing conditions, and a reopening of the US economy allowed ratings upgrades to outpace downgrades by a 2:1 ratio.

The 12-month trailing par-weighted default rate as of December 2021 dropped to 0.29% (2020: 3.83%), its lowest level in a decade.  Looking ahead, we expect the default rate to increase somewhat from the current very low levels but remain below the historical average of 2.8% as the inflation and increasing rate expectations cloud the economic outlook.

CLO Market: The CLO market was on fire in 2021 with demand for absolute yield and floating rate investments exceeding any prior time in history. In the US, 920 US CLOs priced totalling $421.1bn (374/$183.7bn new issue and 546/$237.4bn refi/reset/re-issue) which compares to the previous record in 2018 when 563 US CLOs priced totalling $278.9bn (242/$129.3bn new issue and 321/$149.7bn refi/reset/re-issue). CLO equity arbitrage was strong as plentiful new issue loan supply and an expanded investor base balanced the strong supply of new issue CLOs.

During the year, CLO debt spreads remained low and rangebound with the average AAA spread inside of 120 basis points of LIBOR. The extremely strong CLO refinancing and reset volumes are not sustainable and we expect a marked decline in 2022 as most of the refinancing and reset candidates were already executed in 2021.

CLO equity distributions were strong in 2021 as new loans provided decent spread compensation and came with LIBOR floors that boosted the pay-outs to equity investors. CLO equity valuations were stable to slightly higher and our portfolio of mainly CLO equity investments generated over 35% total return in 2021.

As we look ahead in 2022, the transition from LIBOR to SOFR is expected to create some basis risk to equity distributions. Further, rising rates are expected to erode the benefit of LIBOR/SOFR floors leading to lower equity distributions as compared to 2021.

Sources: Swiss National Bank, Bloomberg, Board of Governors of the Federal Reserve System, European Central Bank (ECB), Morningstar,JP Morgan, Credit Suisse

Livermore's Strategy

The financial portfolio is focused on fixed income instruments which generate regular cash flows and include exposure mainly to senior secured and usually broadly syndicated US loans and to a limited extent emerging market debt through investments in CLOs. This part of the portfolio is geographically focused on the US.  

Strong emphasis is given to maintaining sufficient liquidity and low leverage at the overall portfolio level and to re-invest in existing and new investments along the economic cycle. 

Financial portfolio         

The Company manages a financial portfolio valued at USD 164.4m as of 31 December 2021, which is composed mainly of cash and investments in fixed income and credit related securities.

The following is a table summarizing the financial portfolio as of year-end 2021.

Senior Secured Loans and Collateralized Loan Obligations (CLO):

US senior secured loans are a floating rate asset class with a senior secured claim on the borrower and with overall low volatility and low correlation to the equity market. CLOs are managed portfolios invested into diversified pools of senior secured loans and financed with long term financing.

In 2021, the US senior secured loan market (leveraged loan market) continued its strong recovery that started in the middle of 2020. Existing borrowers accessed the market to extend their maturities or refinance the cost of margin and new borrowers came to market on the back of strong merger and acquisitions and buyout activity.

Strong demand for loans was supported by new issue CLO creation as well as retail fund inflows. The resilient performance of CLO's during the pandemic as well as previous credit cycles such as the global financial crisis has cemented its position as a mainstream asset class drawing in new capital seeking higher yields than comparable risk assets and CLO debt spreads tightened across all rated tranches. Improving fundamentals, yield hungry investors in a low yield environment, and strong economic growth provided the perfect backdrop for CLO market growth and performance. 920 new US CLOs priced in 2021 for a total of $421.1bn (374/$183.7bn new issue and 546/$237.4bn refi/reset/re-issue) which compares to the previous record in 2018 when 563 US CLOs priced totalling $278.9bn (242/$129.3bn new issue and 321/$149.7bn refi/reset/re-issue). CLO equity arbitrage was strong as plentiful new issue loan supply and an expanded investor base balanced the strong supply of new issue CLOs. Defaults stayed low and hit a decade low in 2021 ending the year at 0.29% on a trailing twelve-month rolling basis. Ample demand and liquid markets allowed most borrowers to extend their maturities further reducing near term default risk.

Our CLO portfolio and warehouse performed strongly generating 35.1% return over the 2021 starting valuation. The Company received USD 27.3m in cash distributions, of which USD 2.9m were from warehouse carry. CLO equity further benefitted from re-emergence of LIBOR floors in new issue loans and better spread than average loan spreads. Valuations for CLO equity increased somewhat but remained steady all the while distributing cash returns of about 30% on 2020 valuations. Tighter debt spreads in the CLO debt market allowed management to aggressively refinance several of its existing CLOs and lower their cost of funding thereby increasing future cash-flows and valuations. During the year, management refinanced or reset about half of the CLO transactions where it has anchor positions. During the year, management opened four new warehouses (in addition to one open warehouse at the beginning of this year) and converted three of them to new issue CLOs at very attractive arbitrage levels. The remaining two open warehouses have been converted to new issue CLOs by April 2022.

Management also took advantage of strong demand in the secondary market and opportunistically took profits of some of its CLO BB and equity positions.

As of the end of the year, all of the Company's US CLO equity positions were passing their Junior Overcollateralization (OC) tests. Management continues to actively monitor the CLO portfolio and position it towards longer reinvestment periods through recycling old CLOs into new or refinancing them with extended reinvestment periods, as well as conducting relative value and opportunistic trading.

As we look ahead in 2022, we expect the US Federal Reserve in increase rates to reign in high inflation. Further, they may reduce their bond holdings and remove liquidity from financial markets. Higher rates will reduce the benefit of LIBOR floors over time and we expect distributions to reduce in 2022 until LIBOR or SOFR reach about 2%. The invasion of Ukraine by Russia is expected to add an additional source of higher input costs of business and consumers in the near-mid-term. Although leverage loan borrower fundamentals are currently strong, we expect high rates to put more pressure on their interest coverage covenants. Tighter financial conditions in the future can increase refinancing and default risk for certain borrowers. The counter-balance to this is most borrowers have addressed their near-term financing needs and very few of them have near-term maturities.

We expect loan default rates to moderately increase from the very low 2021 levels but stay below their long-term averages.

The Company's CLO portfolio is divided into the following geographical areas:

Fund Investments (previously described as Private Equities)   

The fund investments held by the Company are mainly incorporated in the form of Managed Funds (mostly closed end funds) in Israel and the emerging economies. In addition, the Company has some direct venture capital investments.

The following summarizes the book value of the private equity funds as at 31 December 2021.

Cole Capital: Cole Capital is a fund that trades in digital assets such as Bitcoin and it is advised by Frequants. The advisor has developed automated trading algorithms that have outperformed the underlying digital assets performance by consistently avoiding large drawdowns. The Company invested USD 4m in Cole Capital on March 10, 2021 and as of end of the year, the fund had generated 51.7% return.

Fetcherr Ltd: Fetcherr is the Israeli start-up that has developed a proprietary AI-powered goal-based enterprise pricing and workflow optimization system. Founded in 2019 by experts in deep learning, Algo-trading, e-commerce, and digitization of legacy architecture, Fetcherr aims to disrupt traditional rule-based (legacy) revenue systems through reinforcement learning methodologies, beginning with the airline industry. The Company invested USD 2m in 2021. 

Phytech: Phytech is an agriculture-technology company in Israel providing end-to-end solutions for achieving higher yields on crops and trees. Livermore continues to hold 12.2% in Phytech Global Advisors Ltd, which in turns now holds 11.95% on a fully diluted basis in Phytech Ltd.

Say2eat Inc: Say2eat is a company that has proved they can disrupt the existing food delivery (3rd party) marketplace model, with a first party, direct delivery model that is commission free. The company has shown rapid growth in 2020 and is now active in over 20 US states from the east coast all the way to Hawaii working with 200 restaurants.  The Company invested USD 0.750m in 2020.

The following table reconciles the review of activities to the Company's financial assets as at 31 December 2021:

Events after the reporting date

Details of materials events after the reporting date are disclosed in note 27 to the financial statements.

Litigation

At the time of this Report, there is one matter in litigation that the Company is involved in. Further information is provided in note 23 to the financial statements. --

Report of the Directors

The Directors submit their annual report and audited financial statements of the Company for the year ended 31 December 2021.

This report has been prepared on a voluntary basis and it does not contain all of the information that would have been required had it been prepared in accordance with the UK Companies Act 2006 guidance.

The Board's objectives

The Board's primary objectives are to supervise and control the management activities, business development, and the establishment of a strong franchise in the Company's business lines. Measures aimed at increasing shareholders' value over the medium to long-term, such as an increase in NAV are used to monitor performance.

The Board of Directors

Richard Barry Rosenberg (age 66) independent, Non-Executive Director, Chairman of the Board

Richard joined the Company in December 2004. He became Non-Executive Chairman on 31 October 2006.  He qualified as a chartered accountant in 1980 and in 1988 co-founded the accountancy practice SRLV.  He has considerable experience in giving professional advice to clients in the leisure and entertainment sector. Richard is a director of a large number of companies operating in a variety of business segments.

Noam Lanir (age 55), Founder and Chief Executive Officer

Noam founded the Company in July 1998, to develop a specialist online marketing operation. Noam has led the growth and development of the Company's operations over the last twenty years which culminated in its IPO in June 2005 on AIM. Prior to 1998, Noam was involved in a variety of businesses mainly within the online marketing sector.  He is also the major shareholder of Babylon Ltd, an International Internet Company listed on the Tel Aviv Stock Exchange. He is also a major benefactor of a number of charitable organisations.

Ron Baron (age 54), Executive Director and Chief Investment Officer

Ron was appointed as Executive Director and Chief Investment Officer in August 2007. Ron has led the establishment and development of Livermore's investment platform as a leading specialized house in the credit space. Ron also has wide investment and M&A experience. From 2001 to 2006 Ron served as a member of the management at Bank Leumi, Switzerland and was responsible for investment activity. Prior to this he spent five years as a commercial lawyer advising banks and large corporations on corporate transactions, including buyouts and privatisations. Ron has over 18 years of experience as an investment manager with particular focus on the US credit market and CLOs.  He holds an MBA from INSEAD Fontainebleau and an LLB (LAW) and BA in Economics from Tel Aviv University. Ron is also the founder and owner of the Israel Cycling Academy a non-profit professional cycling team. 

Augoustinos Papathomas (age 59) independent, Non-Executive Director

Augoustinos joined the Board in February 2019. He is a trained and qualified UK Chartered Accountant. He is the senior Partner of APP Audit and APP Advisory in Cyprus with over 30 years of experience in assurance, taxation and advisory for local and international clients. He is also an insolvency practitioner with experience in many liquidations and receiverships. Augoustinos has served as a director in various bodies and organisations and currently he is the chairman of the Famagusta Chamber of Commerce and Industry in Cyprus.

Directors' responsibilities in relation to the financial statements

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and International Financial Reporting Standards as adopted by the European Union.

The Directors are required to prepare financial statements for each financial year which give a true and fair view of the financial position of the Company, and its financial performance and cash flows for that period.  In preparing these financial statements, the Directors are required to:

·      Select suitable accounting policies and then apply them consistently;

·      Make judgments and estimates that are reasonable and prudent;

·      State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;

·      Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions, and at any time enable the financial position of the Company to be determined with reasonable accuracy and enable them to ensure that the financial statements comply with the applicable law and International Financial Reporting Standards as adopted by the European Union.  They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website.  Legislation in the British Virgin Islands governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Disclosure of information to the Auditor

In so far as the Directors are aware:

·      there is no relevant audit information of which the Company's auditor is unaware; and

·      the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information.

Substantial Shareholdings

As at 09 May 2022 the Directors are aware of the following interests in 3 per cent or more of the Company's issued ordinary share capital:

  * after consideration of the treasury shares.

Save as disclosed in this report and in the remuneration report, the Company is not aware of any other person or entity that is interested directly or indirectly in 3% or more of the issued share capital of the Company or could, directly or indirectly, jointly or severally, exercise control over the Company.

Details of transactions with Directors are disclosed in note 22 to the financial statements.

Corporate Governance Statement

Introduction

The Company recognises the importance of the principles of good Corporate Governance and the Board is pleased to accept its commitment to such high standards throughout the year. 

The Board Constitution and Procedures

The Company is controlled through the Board of Directors, which comprises of two independent Non-Executive Directors (one of which is the Board's Chairman) and two Executive Directors.  The Chief Executive's responsibility is to focus on co-ordinating the company's business and implementing Company strategy. 

A formal schedule of matters is reserved for consideration by the Board, which meets approximately four times each year.  The Board is responsible for implementation of the investing strategy as described in the circular to shareholders dated 29 December 2006 and adopted pursuant to shareholder approval at the Company's EGM on 17 January 2007.  It reviews the strategic direction of the Company, its codes of conduct, its annual budgets, its progress towards achievement of these budgets and any capital expenditure programmes.  In addition, the Directors have access to advice and services of the Company Secretary and all Directors are able to take independent professional advice if relevant to their duties.  The Directors receive training and advice on their responsibilities as necessary.  All Directors submit themselves to re-election at least once every three years.

Board Committees

The Board delegates clearly defined powers to its Audit and Remuneration Committees. The minutes of each Committee are circulated by the Board. 

Remuneration Committee

The Remuneration Committee comprises of the Non-Executive Chairman of the Board and a Non-Executive Director.  The Remuneration Committee considers the terms of employment and overall remuneration of the Executive Directors and key members of Executive management regarding share options, salaries, incentive payments and performance related pay.  The remuneration of Non-Executive Directors is determined by the Board.

Audit Committee

The Audit Committee comprises of the Non-Executive Chairman of the Board and a Non-Executive Director and is chaired by the Chairman of the Board.  The duties of the Committee include monitoring the auditor's performance and reviewing accounting policies and financial reporting procedures. 

The Audit Committee's key objectives are the provision of effective governance over the appropriateness of the Group's financial reporting, including the adequacy of related disclosures, the performance of external audit function, and the management of the Group's systems of internal control and business risks.

The primary roles and responsibilities delegated to, and discharged by, the Committee include:

•      Monitoring and challenging the effectiveness of internal control and associated functions

•      Approving and amending Group accounting policies

•      Reviewing, monitoring, and ensuring the integrity of interim and annual financial statements, and any formal announcements relating to the Company's financial performance

•      Providing advice (where requested by the Board) on whether the Annual Report and Accounts, taken, is fair, balanced, and understandable, and provides the information necessary for shareholders to assess the Company's position and performance

•      Reviewing and monitoring the external auditor's independence, objectivity, and effectiveness of the audit services

•      Monitoring and approving the scope and costs of audit

Board and committee meetings - 2021 attendance

The Quoted Company Alliance (QCA) Code

The Directors recognise the importance of good corporate governance and have chosen to apply the Quoted Companies Alliance Corporate Governance Code (the 'QCA Code'). The QCA Code was developed by the QCA in consultation with a number of significant institutional small company investors, as an alternative corporate governance code applicable to AIM companies. The underlying principle of the QCA Code is that "the purpose of good corporate governance is to ensure that the company is managed in an efficient, effective and entrepreneurial manner for the benefit of all shareholders over the longer term". The Directors anticipate that whilst the Company will continue to comply with the QCA Code, given the Group's size and plans for the future, it will also endeavour to have regard to the provisions of the UK Corporate Governance Code as best practice guidance to the extent appropriate for a company of its size and nature. To see how the Company addresses the key governance principles defined in the QCA Code please refer to the table listed on the Company's website, which was last reviewed and updated in April 2022.

A complete index of the disclosures required by the QCA Code, including those on the Company's website, can be found at http://www.livermore-inv.com/CorporateGovernance.

Communication with Investors

The Directors are available to meet with shareholders throughout the year.  In particular the Executive Directors prepare a general presentation for analysts and institutional shareholders following the interim and preliminary results announcements of the Company.  The chairman, Richard Rosenberg, is available for meetings with shareholders throughout the year.  The Board endeavours to answer all queries raised by shareholders promptly.

Shareholders are encouraged to participate in the Annual General Meeting at which the Chairman will present the key highlights of the Company's performance.  The Board will be available at the Annual General Meeting to answer questions from shareholders.

Internal Control

The Board is responsible for ensuring that the Company has in place a system of internal controls and for reviewing its effectiveness.  In this context, control is defined in the policies and processes established to ensure that business objectives are achieved cost effectively, assets and shareholder value safeguarded, and that laws and regulations are complied with.  Controls can provide reasonable but not absolute assurance that risks are identified and adequately managed to achieve business objectives and to minimise material errors, frauds and losses or breaches of laws and regulations.

The Company operates a sound system of internal control, which is designed to ensure that the risk of misstatement or loss is kept to a minimum.

Given the Company's size and the nature of its business, the Board does not consider that it is necessary to have an internal audit function.  An internal audit function will be established as and when the Company is of an appropriate size.

The Board undertakes a review of its internal controls on an ongoing basis.

Going Concern

The Directors have reviewed the current and projected financial position of the Company, making reasonable assumptions about interest and distribution income, future trading performance, valuation projections and debt requirements. On the basis of this review, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and accounts.

Independence of Auditor

The Board undertakes a formal assessment of the auditor's independence each year, which includes:

·      a review of non-audit related services provided to the Company and related fees;

·      discussion with the auditor of a written report detailing all relationships with the Company and any other parties which could affect independence or the perception of independence;

·      a review of the auditor's own procedures for ensuring independence of the audit firm and partners and staff involved in the audit, including the rotation of the audit partner;

·      obtaining written confirmation from the auditor that it is independent;

·      a review of fees paid to the auditor in respect of audit and non-audit services.

Remuneration Report

The remuneration report has been formed in accordance with the requirements of AIM rule 19 and is not intended to comply with the UK statutory requirements. 

The Directors' emoluments, benefits and shareholdings during the year ended 31 December 2021 were as follows:

Directors' Emoluments

Each of the Directors has a service contract with the Company.

The dates are presented in day / month / year format.

Directors' Interests

Interests of Directors in ordinary shares 

* after consideration of the treasury shares

Noam Lanir has his interest in ordinary shares through direct or indirect ownership of all of the issued share capital of Groverton Management Limited. Further information is provided in note 22 to the financial statements. --

Remuneration Policy

The Company's policy has been designed to ensure that the Company has the ability to attract, retain and motivate executive Directors and other key management personnel to ensure the success of the organization.

The following key principles guide its policy:

·      policy for the remuneration of executive Directors will be determined and regularly reviewed independently of executive management and will set the tone for the remuneration of other senior executives.

·      the remuneration structure will support and reflect the Company's stated purpose to maximize long-term shareholder value.

·      the remuneration structure will reflect a just system of rewards for the participants.

·      the overall quantum of all potential remuneration components will be determined by the exercise of informed judgement of the independent remuneration committee, taking into account the success of the Company and the competitive global market.

·      a significant personal shareholding will be developed in order to align executive and shareholder interests.

·      the assessment of performance will be quantitative and qualitative and will include exercise of informed judgement by the remuneration committee within a framework that takes account of sector characteristics and is approved by shareholders.

·      the committee will be proactive in obtaining an understanding of shareholder preferences.

·      remuneration policy and practices will be as transparent as possible, both for participants and shareholders

·      the wider scene, including pay and employment conditions elsewhere in the Company, will be taken into account, especially when determining annual salary increases.

Review of the Business and Risks

Risks

The Board considers that the risks the Shareholders face can be divided into external and internal risks.

External risks to shareholders and their returns are those that can severely influence the investment environment within which the Company operates, and include economic recession, declining corporate profitability, higher corporate default rates and lower than historical recoveries, rising inflation and interest rates and excessive stock-market speculation.

The Company's portfolio is exposed to interest rate changes, credit risk, liquidity risk and volatility particularly in the US. In addition, the portfolio is exposed to currency risks as some of the underlying portfolio is invested in assets denominated in non-US currencies while the Company's functional currency is USD. Investments in certain emerging markets are exposed to governmental and regulatory risks. 

The mitigation of these risks is achieved by following micro and macroeconomic trends and changes, regular monitoring of underlying assets and price movements and investment diversification. The Company also engages from time to time in certain hedging activities to mitigate these risks.

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.  At the same time, high inflation seems to be persisting as global supply chain issues and the Russian invasion of Ukraine add further fuel to fire. We anticipate a sharp interest rate tightening cycle in the US as well as withdrawal of liquidity to slow the demand and bring inflation under control. The Company is primarily exposed to the US economy and has benefitted from the economic recovery. The Company continues to be conservatively positioned with cash in excess of USD 45.1m as of 31 December 2021 and plans to maintain strong liquidity and stay debt free.

Internal risks to shareholders and their returns are related to Portfolio risks (investment and geography selection and concentration), balance sheet risk (gearing) and/or investment mismanagement risks. The Company's portfolio has a significant exposure to senior secured loans of US companies and therefore has a concentration risk to this asset class.

A periodic internal review is performed to ensure transparency of Company activities and investments. All service providers to the Company are regularly reviewed. The mitigation of the risks related to investments is effected by investment restrictions and guidelines and through reviews at Board Meetings.

As the portfolio of the Company is currently invested in USD denominated assets, movements in other currencies are expected to have a limited impact on the business.

On the asset side, the Company's exposure to interest rate risk is limited to the interest-bearing deposits and portfolio of bonds and loans in which the Company invests. Currently, the Company is primarily invested in sub-investment grade corporate loans through CLOs, which exposes the Company to credit risk (defaults and recovery rates, loan spreads over base rate) as well as liquidity risks in the CLO market.

Management monitors liquidity to ensure that sufficient liquid resources are available to the Company. The Company's credit risk is primarily attributable to its fixed income portfolio, which is exposed to corporate bonds with a particular exposure to the financial sector and to US senior secured loans.

Further information on financial risk management is provided in note 25 of the financial statements.   

Share Capital

There was no change in the authorised share capital during the year to 31 December 2021. The authorised share capital is 1,000,000,000 ordinary shares with no par value.

Related party transactions

Details of any transactions of the Company with related parties during the year to 31 December 2021 are disclosed in note 22 to the financial statements.

By order of the Board of Directors

Chief Executive Officer

27 May 2022

Independent Auditor's Report to the Members of Livermore Investments Group Limited

Opinion

We have audited the consolidated financial statements of Livermore Investments Group Limited and its subsidiary Livermore Capital AG (the ''Group''), which are presented in pages 25 to 54  and comprise the Consolidated statement of financial position as at 31 December 2021, and the consolidated statement of profit or loss, Consolidated statement of comprehensive income, Consolidated statement of changes in equity and Consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2021, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the ''Auditor's Responsibilities for the Audit of the Consolidated Financial Statements'' section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants' International Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code) together with the ethical requirements that are relevant to our audit of the consolidated financial statements in Cyprus, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter - Uncertain Outcome of a Legal Claim

We draw attention to note 23 of the consolidated financial statements which describes the uncertainty outcome of a legal claim against one of the custodian banks that the Group uses on its behalf. Our opinion is not modified in respect of this matter.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.

Other Information

The Board of Directors is responsible for the other information. The other information comprises the information included in the Highlights, Chairman's and Chief Executive's Review, Review of Activities, Report of the Directors, Corporate Governance Statement, Remuneration report, Review of the Business and Risks, but does not include the consolidated financial statements and our auditor's report thereon.

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

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

Responsibilities of the Board of Directors for the Consolidated Financial Statements

The Board of Directors is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Other Matter

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

The engagement partner on the audit resulting in this independent auditor's report is Mrs Froso Yiangoulli.

Livermore Investments Group Limited

Consolidated Statement of Financial Position as at 31 December 2021

These financial statements were approved by the Board of Directors on 27 May 2022.

 The notes 1 to 27 form part of these consolidated financial statements.

Livermore Investment Group Limited

Consolidated Statement of Profit or Loss for the year ended 31 December 2021

The profit for the year is wholly attributable to the owners of the parent.

The notes 1 to 27 form part of these consolidated financial statements.

Livermore Investment Group Limited

Consolidated Statement of Comprehensive Income for the year ended 31 December 2021

The total comprehensive income / (loss) for the year is wholly attributable to the owners of the parent.

The notes 1 to 27form part of these consolidated financial statements.