Highlights

·      Net loss for the year was USD 24.4m (2021: net profit of USD 24.7m).

·     Net Asset Value per share declined to USD 0.77 (2021 USD 1.07) after paying USD 24m interim dividend implying a net return of -16.7% for the year.

·      The Company is conservatively positioned with over USD 43.9m of cash deposits and Government bonds. 

·      On 5 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 7 February 2022.

·     Collateralized Loan Obligations (CLO) portfolio and warehouse generated USD 23.2m in cash distributions and a total net negative return of USD 19.8m in 2022. 

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 2022. 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.

2022 was a challenging year for the global economy. Inflation across most developed countries rose to multi-decade highs and geopolitical tensions increased with Russia's attack on Ukraine. Sanctions applied to Russia and loss of production in Ukraine further increased energy and agricultural commodity prices. Developed economy central banks were forced to apply the economic breaks and increase interest rates in order to contain inflation. Financial markets declined with both fixed income and equity markets recording significant losses in 2022. The US Dollar rallied sharply against most currencies in the first three quarters as the US Federal Reserve led the monetary policy tightening race.

In anticipation of sharp interest rate increases and the potential for higher default and credit losses, management positioned the Company to be able to reduce risk, and rapidly and successfully converted its two open warehouses into new issue CLOs at amongst the lowest financing costs in 2022. Over the year, the Company increased its cash, deposit, and government bond position from USD 21.1m after paying a USD 24m interim dividend in January 2022 to USD 43.9m by year-end. Management believes that a high liquidity position will allow the Company to benefit from opportunistic trading and price dislocations as and when they appear during the process of inflation normalisation. 

The US senior secured loan and CLO market is directly exposed to rising interest rates. Management anticipates higher borrowing costs for loan issuers, higher default rates and potentially significant rating downgrades - all of which are negative for the Company's CLO equity portfolio. This was also reflective in the valuation declines of USD 42.7m during the year. Overall, the Company received USD 23.2m in cash distributions from its CLO and warehousing portfolio resulting in a net negative contribution of USD 19.8m to the financial statements. Most of these declines occurred in the first half of the year.

Our net loss for the year was USD 24.4m (2021 net profit: USD 24.7m) and the year-end NAV was USD 0.77 per share (2021 NAV: USD 1.07 per share) after paying a dividend payment of USD 24m (USD 0.145 per share).

The Company ended the year with over USD 43.9m of cash invested mainly in deposits and US government debt.

Financial Review

The NAV of the Company on 31 December 2022 was USD 127.7m (2021: USD 177.7m). Net loss, during the year was USD 24.4m, which represents loss per share of USD 0.15. Operating expenses were USD 3.0m (2021: USD 8.6m).

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

Dividend & Buyback

On 5 January 2022, the Company announced an interim dividend of USD 24m (USD 0.145 per share) to members on the register as at 14 January 2022. The dividend was paid on 7 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.    

Richard B Rosenberg                                                                                        Noam Lanir

Chairman                                                                                                            Chief Executive Officer

19 May 2023

Review of Activities

Introduction and Overview

High and rising inflation coupled with Russia's attack on Ukraine and the resulting disruptions to energy and commodity markets drove central banks in developed economies to rapidly tighten monetary policy in 2022. Strong economic momentum from 2021 slowed down in 2022 and financial markets declined sharply in the first half of the year. The safe government bond markets also suffered their largest declines in decades as record low yields collided with the sharpest increases.

During the year, the S&P 500 Index declined by 18.1%, marking its largest fall since the global financial crisis, and the 10-year US Treasury note generated negative returns of 16.9%. European markets were particularly hard hit as energy prices skyrocketed due the Russia's war on Ukraine. Chinese markets continued to decline as the Chinese government continued their "Covid-zero" lockdown policies until October 2022. The Hang Seng Index declined by 15.6% in 2022, but was down over 35% before recovering sharply after the government announced they would loosen their lockdown policy. The US Dollar increased in value against most currencies as investors sought safety and the US Federal Reserve was the most aggressive in raising rates amongst the developed market economies.

Fixed Income markets fared poorly on account of higher interest rates and concerns about the economic outlook. The Bloomberg US Corporate Total Return index lost 15.76% and the High Yield Total Return lost 11.19% in 2022. The US leveraged loan market performed much better losing only 1.06% as their floating rate characteristics protected investors from interest rate risk. At the same time, the future outlook for leveraged loan borrowers is concerning as they face rising interest burdens in the near term. We expect higher default rates and potentially lower recoveries from weaker borrowers if the US economy enters a recessionary environment.

CLOs equity had a poor year as anticipation of higher default rates due to higher interest rates affected prices significantly, especially those positions that were out of or close to their reinvestment end dates. CLO debt tranche spreads also widened sharply. Management anticipated this reaction and promptly converted its two open warehouses into new issue CLOs. Over the course of the year, management did not reinvest the dividends received from CLOs and increased its cash and marketable securities position significantly. Cashflows from CLO equity remained strong but were lower on account of loss of the Libor floor benefit and also the increased basis between 1-month and 3-month Libor. Over the past few years, most CLO assets (loans) have switched to pay on a monthly basis with a 1-month Libor base rate setting whereas CLO liabilities pay on a quarterly basis with a 3-month Libor base rate setting. In 2022, the basis between 1-month and 3-month Libor widened to very high levels as the market priced in larger than normal rate increases by the US Federal Reserve resulting in CLO liabilities being paid at higher base rates than the income received from CLO assets and therefore CLO equity received smaller distributions than anticipated in early 2022. Further, CLO equity received higher than normal distributions in 2021 as most assets came with a Libor floor whereas CLO liabilities did not have this benefit. When 3m Libor turned higher than the average floor on the assets in 2022, this benefit to CLO equity was eroded. While credit spreads have widened and loan prices have declined, defaults in the loan market stayed low in 2022. However, we expect higher default and stressed situations in 2023. At the same time, lower loan prices allowed CLO managers to build excess par which should offset some losses from defaults in the future. We are positioned conservatively with mostly recent vintage CLOs with long reinvestment periods that are expected to perform better. Further, our high cash position should enable us to take advantage of opportunities in the secondary markets in the near to mid-term. During the year, the CLO and warehouse portfolio generated USD 23.2m in cash distributions.

For the 2022 year-end, the Company reported a NAV/share of USD 0.77 after a dividend payment of USD 24m (USD 0.145 per share) and net loss of USD 24.4m. Interest and distribution income amounted to USD 23.7m, of which, USD 23.2m was generated from the CLO and warehousing portfolio. The net loss of the CLO and warehousing portfolio was USD 19.8m as mark-to-market changes offset distributions from the portfolio. Management redeemed USD 2.0m from the digital assets focussed fund in 2022. Operating expenses amounted to USD 3.0m. The Company ended the year with over USD 43.9m of cash, deposits, and investments in US treasury bills after paying an interim dividend of USD 24m in February 2022.  

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

The global economy slowed down in 2022, and inflation in advanced economies continued to rise. This was due to a combination of factors, including supply bottlenecks, renewed waves of the pandemic, and Russia's attack on Ukraine. The resulting decline in consumer and business sentiment led to weakened demand and purchasing power, and financial conditions became more restrictive as central banks tightened monetary policy. Bond yields rose, and stock markets suffered losses. Differences in the scale and pace of monetary policy tightening by central banks led to larger movements on foreign exchange markets, with the US dollar strengthening against most currencies. While international supply chain problems eased gradually, global demand momentum declined in the second half of the year, weighing on global trade. Commodity prices fluctuated strongly, especially for energy sources.

USA: In 2022, the US economy slowed due to high inflation, tighter monetary policy, and less expansionary fiscal policy. Real GDP fell in the first half of 2022, however rose at a 3% pace in the second half. Consumer spending endured to rise, supported by savings accumulated during the pandemic. Despite the slowdown, the labour market remained strong, with above-average growth in employment and low unemployment rates at 3.5%. Inflation in advanced economies, including the US, continued to rise, with energy and food prices being key drivers due to war in Ukraine. In the US, inflation stood at 8.0% in contrast to 4.7% in 2021, the highest seen in around 40 years. The personal consumption expenditures (PCE) price index rose to 6.2% over the 12 months ending in December, and the index that excludes food and energy items (so-called core inflation) was up 5.0%. Due to high inflation and a strong labour market, the Federal Reserve significantly tightened its monetary policy, raising its policy rate by a total of 4.25 percentage points ending the year at 4.25 - 4.50%. Further, the Federal Reserve started reducing its balance sheet and signalled additional interest rate hikes to curb inflation.

Eurozone: In 2022, the euro area's GDP grew by 3.5%, although growth slowed down over the year due to higher inflation caused by Russia's attack on Ukraine and reduced gas deliveries. The labour market remained favourable, and the unemployment rate reached a historical low of 6.6% in December. Headline inflation rose to 8.4%, driven by higher energy and food prices, while core inflation reached 5.2%, reflecting higher inflation in services and price increases for various goods. The ECB raised its key rates gradually from July, and in December, its deposit facility rate reached 2.0%. The ECB discontinued its net asset purchases under the Pandemic Emergency Purchase Program in March, and under the Asset Purchase Program in July, with plans to gradually reduce the asset portfolio in 2023. However, the ECB approved the Transmission Protection Instrument in July to combat a tightening in financing conditions not warranted by fundamentals that impedes the transmission of monetary policy.

Japan: Japan's GDP grew by 1.1% in 2022 due to the expansionary monetary and fiscal policy. Economic activity fluctuated as a result of the repeated waves of the pandemic and procurement problems in the automotive industry in the first half of the year. Rising inflation led to a loss in real income and dampened the recovery in consumption. The unemployment rate declined marginally and stood at 2.5% in December, still higher than before the pandemic. Consumer prices rose by 2.5%. Inflation fluctuated significantly over the course of 2022, being slightly positive (0.2%) in the first half of the year but rose again and stood at 1.5% in December. 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 decided to expand the range of fluctuation for long-term bond yields to improve market functioning.

China: In 2022, China's GDP growth was modest at 3.0% due to the impact of the coronavirus pandemic and containment measures taken as part of zero-COVID policy. Ongoing crisis in the residential real estate market weight on the economy, hence increasing unemployment. To support the economy, the Chinese government announced measures such as infrastructure investment, tax relief for companies, and support for the real estate market. Inflation in China stood at 2.0%, with higher food prices being the primary driver. Core inflation remained essentially unchanged at 0.9%. The People's Bank of China lowered policy interest rates slightly in January and August, including a 0.2 percentage point reduction in the reverse repo rate to 2.0%, lowered reserve requirement ratio for banks and used targeted monetary policy instruments to support the economy.

Commodities: Commodity prices were affected by the war in Ukraine and the sanctions imposed on Russia. At the beginning of the year, a barrel of Brent crude cost just under USD 80, rose to USD 130 per barrel in March; and at the end of the second quarter 2022, the price of Brent crude hovered around USD 110 per barrel, thus remaining considerably higher than at the beginning of the year. As the global supply of oil increased thereafter and demand weakened in the wake of the economic slowdown, the oil price fell again and stood at slightly over USD 80 at the end of 2022. In Europe, natural gas and electricity prices rose strongly, in particular due to a reduction in the supply of gas from Russia. Energy-saving measures and well-stocked gas storage facilities contributed to the situation easing again somewhat towards the end of the year. Industrial metal prices also fluctuated strongly over the course of 2022, closing slightly lower than at the beginning of the year.

Equities and Bonds: In 2022, global financial markets experienced volatility and decline due to several factors, including the ongoing COVID-19 pandemic, supply chain issues, inflation, political instability, and energy price concerns following Russia's invasion of Ukraine. A midterm US election shifted more power to Republicans but left Democrats in a stronger position than some had expected. Despite some rallies, the S&P 500 Index fell by 18.1%, its worst annual return since 2008, and global stock markets ended with their largest declines since the financial crisis. Global equities, as measured by the MSCI All Country World Index, fell 18.4%. Developed international stocks, as represented by the MSCI World ex USA Index, lost 14.3%, while emerging markets declined even further, with the MSCI Emerging Markets Index down 20.1%. Small capitalization stocks performed slightly better than large cap stocks. Cryptocurrencies and technology stocks were hit hard, with bitcoin falling to about 75% lower than its high in November 2021 and the large mega-cap tech stocks losing trillions in market value. Benchmark US Treasuries also posted their worst annual returns in decades, with 10-year Treasury notes losing 16.3%, reflecting the rare occurrence of tandem declines for equities and fixed income. The yield curve was inverted at year's end, with the 2-year yield just above 4.4%, being higher than the 10-year yield just below 3.9%, reflecting the higher short-term rates. The Morningstar U.S. Corporate Bond Index had its worst decline in the 23-year history of the benchmark with a 15.7% loss.

Foreign exchange: The broad dollar index-a measure of the trade-weighted value of the dollar against foreign currencies-continued to rise over the summer and through the beginning of the fourth quarter. Widening yield differentials between the U.S. and the rest of the world and concerns around foreign growth pushed the dollar higher through October of last year, prompting several central banks, especially in Asia, to intervene in foreign exchange markets to support their currencies. Since peaking in October, the dollar has largely retraced those gains, reflecting softer inflation data in the U.S., tighter monetary policy abroad, and better prospects for foreign economic growth. Still, the broad dollar index remains stronger than it was in early 2021. After reaching multidecade lows against the dollar in October, the Japanese yen rebounded following the adjustment of the Bank of Japan's yield curve control policy.

Loan Market: The Credit Suisse Leverage Loan Index (CSLLI) generated a negative total return of -1.06% in 2022, which is only the third negative year for the CSLLI in its 31-year history. However, the loan asset class has shown greater resilience and outperformance compared to other risk assets such as equities, high-yield, and investment grade. The loan market experienced significant price volatility due to inflation, recessionary fears, and rate hikes, with lower-rated loans underperforming their higher quality peers. Retail loan funds experienced regular net outflows throughout the year, as mutual funds and ETF investors rotated out of risk assets. During the year, net inflows into loan mutual funds and ETFs amounts to net outflows of USD 13 billion, compared to net inflows of USD 47 billion in 2021. Institutional loan issuance totalled USD 225 billion in 2022, down from a record USD 614 billion in 2021, with the total market size swelling to USD 1.41 trillion. Loan refinancing activity meaningfully increased in the fourth quarter. The twelve-month trailing default rate fell to 0.72% at year-end, and the loan prepayment rate remained in the mid-teens throughout 2022, allowing CLOs to reinvest those proceeds into attractive loans at higher spreads and lower prices, creating significant value within a CLO.

CLO Market: The CLO market was not immune to the broader investment environment. CLO debt tranche spreads widened significantly during the year impeding what would have been a record year of issuance after a record breaking 2021. Still, the CLO market saw USD 129bn of new issuance - the second highest of record. This despite poor arbitrage (difference between spread of loan assets and the spread of CLO debt tranches). Most of the issuance was due to investors stuck in warehouses open prior to the Russian attack on Ukraine and the remaining from investors attempting to capture loan price discounts during period of volatility. The refinancing and reset market remained on pause as debt spreads were wider than on existing tranches.

CLO equity distributions stayed consistent in 2022 but were lower on account of loss of Libor floor benefit and the abnormally large difference between 1-month and 3-month Libor due to large anticipated rate increases by the US Federal Reserve.

As we look ahead in 2022, we expect higher stress from the loan universe continuing to pressure CLO equity and lower mezzanine positions. At the same time, we expect to see significant opportunities in the secondary market.

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 117.4m as of 31 December 2022, 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 2022.

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 2022, US leveraged loans were the best performer in the fixed income asset class. The Credit Suisse Leverage Loan Index ("CSLLI") generated a total return of -1.06% in 2022, its third negative year in its 30+ years of existence. The floating-rate characteristics of leveraged loans protected investors from rising interest rates. Although leveraged loans typically have low volatility, 2022 was an outlier experiencing significant swings during the course of the year.

Institutional loan issuance was USD 225 billion (2021: USD 614 billion) as capital markets remained muted in the face of significant rate and credit spread volatility. While new issue activity was relatively low, the fourth quarter saw higher quality issuers refinancing and extending maturities of their outstanding loans. As a result, most of the maturities are in 2025 and beyond.

Institutional loan issuance totalled USD 225 billion in 2022, compared to a record USD 614 billion in 2021. Total institutional loans outstanding stood at $1.41 trillion as of December 31, 2022, up slightly from USD 1.35 trillion at the beginning of the year. While primary issuance remained limited in the fourth quarter, loan refinancing activity meaningfully increased as U.S. corporates rushed to address upcoming maturities before year-end, including large par repayments from higher quality issuers

Loan defaults stayed relatively low in 2022, but the twelve-month trailing default rate increased to 0.72% as at year end 2022 from the 0.29% at the beginning of the year. The historical long-term default rate is around 2.7%. As interest rates rise higher, we anticipate the default rate to increase towards historical averages over the near to mid-term.

Despite declining loan issuance and widening CLO liabilities, the CLO market ended 2022 with its second highest annual new issuance on record, at a total volume of USD 129 billion. Most of this activity was driven by warehouses open coming into the year as investors contended with very low returns to term out their financing, as well as opportunistic issuance to take advantage of significant loan price drops during certain periods.

With a significant share of high-quality issuers trading at discounted prices, CLO collateral managers were well positioned to improve underlying loan portfolios through relative value credit selection in the secondary market, as well as take advantage of a high-quality primary market, at discounted prices.

Despite the loan price volatility and widening credit spreads, CLO equity distributions were not disrupted. However, the distributions were lower than initially anticipated at the beginning of the year on account of loss of Libor floor benefit and the rising basis between 1-month and 3-month Libor. Many loan borrowers took advantage of a lower 1-month rate, while CLO liabilities pay at the 3-month rate. As this mismatch resolves with slowing pace of rate increases, we believe equity distributions will increase for many CLOs over the coming quarters.

Our CLO portfolio was also negatively affected during 2022. Despite significant and consistent cashflow, valuations of CLO equity positions declined meaningfully due to wider spreads, higher anticipated defaults and low liquidity. During the year, the CLO and warehouse portfolio generated USD 23.2m in cash distributions but valuations declined by USD 42.7m resulting in a negative return of USD 19.8m. Management anticipated a negative reaction from the expected inflation fight and promptly converted its two open warehouses into new issue CLOs in the first four months of the year. This transaction recorded the lowest cost of debt for 2022 vintage CLOs. Over the course of the year, management did not reinvest the dividends received from CLOs and increased its cash and marketable securities position significantly. While credit spreads have widened and loan prices have declined, defaults in the loan market stayed low in 2022. However, we expect higher default and stressed situations in 2023. At the same time, lower loan prices allowed CLO managers to build excess par (i.e. buying CLO eligible loans at prices below par but receive par treatment for the purposes of CLO over-collateralization tests) which should offset some losses from defaults in the future. We are positioned conservatively with mostly recent vintage CLOs with long reinvestment periods that are expected to perform better. Further, our high cash position should enable us to take advantage of opportunities in the secondary markets in the near to mid-term.

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.

From July 2023, Libor is expected to cease to exist. In the US, SOFR (Secured Overnight Funding Rate) will be the base rate for most floating rate contracts. Most US CLOs are expected to transition their liabilities to term SOFR plus a credit spread adjustment as per the Libor transition language in their respective documents. Most US Leveraged Loans are also expected to transition to SOFR but the timing of such transitions may not match the transition of CLO liabilities. This may introduce a Libor-SOFR basis for a short period of time.

As we look ahead, we expect the interest rates staying high to combat high inflation. Although leverage loan borrower fundamentals are currently satisfactory, 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 counterbalance 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 2022 levels towards their long-term averages.

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

Fund Investments

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. Also, the Company has some direct venture capital investments.

The following summarizes the book value of the private equity funds at 31 December 2022.

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 10 March 2021 and in 2022 we redeemed and received from the fund 3.5m. The residual value of the Company's investment as of year-end 2022 in the fund was USD 2m. Post year-end, the Company has redeemed the remaining USD 2m.

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 (3^rd 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 at 31 December 2022:

Investments in Subsidiaries

The subsidiaries include investments in public equity investments and investments in the fields of real estate.  The resulting fair value changes are mainly attributed to changes in quoted share prices of the underlying investments.

Events after the reporting date

Details of material events after the reporting date are disclosed in note 28 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 2022.

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 67) 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 56), 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 55), 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 60) independent, Non-Executive Director

Augoustinos joined the Board in February 2019. He is a trained and qualified UK Chartered Accountant. He is a Partner of FRP Advisory Cyprus and 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; and

·      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 02 May 2023, 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; and

•      monitoring and approving the scope and costs of audit.

Board and committee meetings - 2022 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; and

·      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 2022 were as follows:

Directors' Emoluments

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

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 the whole issued share capital of Groverton Management Limited. Further information is provided in note 22 to the financial statements. --

Ron Baron has his interest in ordinary shares through ownership of the whole issued share capital of Livermore Management Limited.

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 COVID-19 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 43.9m of cash, deposits, and investments in US treasury bills as of 31 December 2022 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 26 of the financial statements.   

Share Capital

There was no change in the authorised share capital during the year to 31 December 2022. 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 2022 are disclosed in note 22 to the financial statements.

By order of the Board of Directors

Chief Executive Officer

19 May 2023

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 26 to 53  and comprise the Consolidated statement of financial position as at 31 December 2022, 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 2022, 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' Code of Ethics for Professional Accountants (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 uncertain 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.

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 at 31 December 2022

These financial statements were approved by the Board of Directors on 19 May 2023.

The notes 1 to 28 form part of these consolidated financial statements.

Livermore Investment Group Limited

Consolidated Statement of Profit or Loss for the year ended 31 December 2022

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

The notes 1 to 28 form part of these consolidated financial statements.

Livermore Investment Group Limited

Consolidated Statement of Comprehensive Income for the year ended 31 December 2022

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

The notes 1 to 28 form part of these consolidated financial statements.