28 September 2023

LIVERMORE INVESTMENTS GROUP LIMITED

UNAUDITED INTERIM RESULTS FOR SIX MONTHS ENDED 30 JUNE 2023

Livermore Investments Group Limited (the "Company" or "Livermore") today announces its unaudited interim results for the six months ended 30 June 2023. These results will be made available on the Company's website today.

For further investor information please go to www.livermore-inv.com.

Enquiries:

Livermore Investments Group Limited                                                                                +41 43 344 3200

Gaurav Suri

Strand Hanson Limited (Financial & Nominated Adviser and Broker)                     +44 (0)20 7409 3494

Richard Johnson / Ritchie Balmer

Chairman's and Chief Executive's Review

Introduction

We are pleased to announce the interim financial results for Livermore Investments Group Limited (the "Company" or "Livermore") for the six months ended 30 June 2023. References to the Company hereinafter also include its consolidated subsidiary (note 8). 

The economic developments in 2023 surprised positively. The Eurozone escaped a deep recession as a mild winter helped cool energy prices and the expectations for China re-opening its economy after a long Covid-zero policy increased European export demand. The US also performed much better than expected as consumers continued to spend on the back of excess savings accumulated over the recent years and a lower interest rate sensitivity of the corporate and consumer sectors. Inflation in the US continued to trend downwards without unemployment increasing. High nominal GDP allowed most companies to maintain profit margins and equity markets performed strongly in the first half of the year. The US Dollar continued to weaken supporting investor risk appetite.

Developed market central banks continued to increase short term interest rates as inflation stayed higher than expected. Fixed income markets generally fared poorly despite a brief rally in March after Credit Suisse and a few US regional banks failed. The US treasury and the Federal Reserve, however, created facilities that supported the regional banking sector in the US and markets staged a significant recovery as key risk to the financial system was reduced.

US loans performed well during the first half of the year as higher short-term rates provided significant distributions. Most borrowers did not need to address their loan maturities as strong market conditions in 2021 allowed them to extend their maturities at low credit spreads. Lower leveraged buy-outs and M&A transactions further constrained supply and supported a move higher in loan prices. On the other hand, these borrowers are paying higher interest costs and may face earnings reductions and liquidity issues in the near future, and management is focused on such situations as they arise. CLO equity performance for long reinvestment period positions was strong but remained weak for positions with post-reinvestment CLOs.

During the first half of the year, management continued its defensive stance and stayed invested in primarily US treasury bills. The Company's cash and marketable securities position increased further as CLO distributions were not reinvested in the CLO market and management has no open warehouses. The CLO portfolio performed relatively well as default rates, although higher than in 2021 and 2022, were lower than expected. CLO equity issued in 2021 and later performed well but transactions that have exited their reinvestment periods continue to experience higher stress due to higher exposure to seasoned and weaker credits and lower manager flexibility. The Company's CLO portfolio generated USD 11.0m of cashflow during the period.

As at 30 June 2023, the Company held USD 55.4m in cash and marketable securities (June 2022: USD 37.3m). This should allow management to deploy capital opportunistically into a hopefully weaker market when the US economic cycle bottoms.

During the first half of 2023, the Company recorded a net gain of USD 3.9m (June 2022: net loss of USD 21.6m). The cashflow from the CLO portfolio was somewhat offset by valuation declines of USD 4.8m, primarily from post-reinvestment period CLO transactions. The NAV as at 30 June 2023 was USD 0.80 per share. Management continues to actively manage its financial portfolio and remain in regular contact with CLO managers and market participants.

Financial Review

The NAV of the Company as at 30 June 2023 was USD 131.6m (31 December 2022: USD 127.7m). The profit after tax for the first half of 2023 was USD 3.9m, which represents earnings per share of USD 0.02.

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

Livermore's Strategy

The Company's primary investment objective is to generate high current income and regular cash flows. The financial portfolio is constructed around fixed income instruments such as Collateralized Loan Obligations ("CLOs") and other securities or instruments with exposure primarily to senior secured and usually broadly syndicated US loans.  The Company has a long-term oriented investment philosophy and invests primarily with a buy-and-hold mentality, though from time to time the Company will sell investments to realize gains or for risk management purposes.

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. 

Dividend & Buyback

The Board of Directors will decide on the Company's dividend policy for 2023 based on profitability, liquidity requirements, portfolio performance, market conditions, and the share price of the Company relative to its NAV.

28 September 2023

Review of Activities

Economic & Investment Environment

In the first quarter of 2023, advanced economies experienced modest growth, although hindered by tighter monetary policies, escalating inflation, and energy challenges in Europe. Meanwhile, China's economy gained momentum after lifting coronavirus restrictions. Global economic activity remained subdued, with a dip in global trade. Inflation, particularly core inflation, persisted above central banks' targets, leading to gradual tightening of monetary policies. The global outlook remains cautious due to lingering inflation and tighter policies, with risks including prolonged high inflation in certain countries and a potential energy crisis in Europe in late 2023 and early 2024.

In the US, first-quarter GDP growth was 2% and second quarter GDP growth was 2.1%. Private consumption and exports expanded, but a drop in inventory investment weighed on overall growth. Employment figures continued to rise, with unemployment at a low of 3.7% in May.  The Eurozone grew by 0.1% in both quarters although high inflation and stricter monetary policy impacted domestic demand and export growth. Despite lower gas prices, energy-intensive industries showed only slight recovery, while manufacturing contracted. At the same time, employment remained positive and domestic services sector performed well. Japan's economic recovery continued with 2.7% GDP growth in the first quarter. Domestic demand and service exports improved, but goods exports declined, and industrial output contracted. Unemployment, though slightly higher at 2.6% in April, remained historically low and core inflation increased to 2.5%. China experienced an initial rebound with 9.1% GDP growth in the first quarter, driven by the services sector. However, manufacturing remained subdued due to weaker foreign demand and structural problems in the Chinese property sector. The People's Bank of China lowered official interest rates in June, and the government proposed additional stimulus measures.

Global Markets experienced gains driven by enthusiasm for Artificial Intelligence (AI) and technology stocks. Rising yields and deposit outflow from banks caused severe liquidity issues in the US regional banking sector, and in March, Credit Suisse and a few regional banks failed as a result. The new financing facilities put in place by the US Federal Reserve helped contain the situation and risk assets rallied sharply again. In the first half of 2023, the SPX Index was up 15.9% excluding dividends while the Nasdaq 100 index rose 38.45%. Yields rose globally, with the UK and Australia showing weaker performance due to higher-than-expected inflation. Major central banks raised interest rates throughout the period although the rate of increase was slower than in 2022. Japanese shares experienced strong momentum while the Yen continued to stay weak due to potential extended expansionary policy in Japan. India, South Korea, and Taiwan recorded gains driven by technology stocks and investor enthusiasm for AI-related technologies.

The performance of the US dollar varied against major currencies since the start of 2023. Notably, the dollar saw a significant depreciation against the Mexican peso due to Mexico's robust economic growth and stringent monetary policies. Conversely, the dollar experienced a modest increase against Asian currencies, attributed to diminished external demand in the region and expanding interest rate gaps.

Commodity prices, particularly Brent crude oil, fluctuated around USD 80 per barrel, settling at around USD 77.  The S&P GSCI Index recorded a negative performance, with industrial metals and energy sectors underperforming. Livestock prices rose. Precious metals like gold and silver ended in negative territory.

US Leveraged Loans generated significant gains in the first half of 2023 after a poor showing in 2022. High Libor/SOFR rates increased the income received by loan investors, and low supply due to fewer private equity and merger and acquisition transactions kept loan prices elevated. The loan market generated 6.33% total return in the period as measured by the Credit Suisse Leveraged Loan Index. Trailing 12-month par-weighted default rate ticked up to 1.71% as compared to 0.72% as at the end of 2022 but remain below historical average. At the same time, recoveries on these defaults are expected to be lower than historical averages. Despite a strong performance in the first half, higher rates for longer are expected to increase stress on loan borrowers and we anticipate increased downgrades by rating agencies in the near to mid-term.

CLO debt tranches also performed well as high coupons and price convexity increased their appeal. Further, a slow new issue CLO market constrained supply, driving price performance. CLO equity continued to pay strong distributions as default rates stayed limited. However, price performance varied between those transactions with long reinvestment periods and those with short reinvestment periods.  Long reinvestment period transactions performed well, however post-reinvestment deals continued to see subdued demand.

Sources: Swiss National Bank (SNB), European Central Bank (ECB), US Federal Reserve, Bloomberg, JP Morgan, S&P Capital IQ

Financial Portfolio and trading activity    

The Company manages a financial portfolio valued at USD 122.2m as at 30 June 2023, which is invested mainly in fixed income and credit related securities.

The following is a table summarizing the financial portfolio as at 30 June 2023:

Senior Secured Loans and CLOs

In the first half of 2023, the US senior secured loan market (leveraged loan market) performed well generating 6.63% of total return as measured by the Credit Suisse Leveraged Loan Index. The performance was driven by high coupon distributions and increased prices. The average price increased from 91.89 at the beginning of the year to 93.55 as of end of June 2023. Default rates, while higher than in 2021 and 2022, remained below historical averages. As of 30 June 2023, the par-weighted 12-month default rate was at 1.71%, up from 0.72% at the beginning of the year. Concerns over the weakening credit environment, however, prompted investors to withdraw USD 18.9 billion from mutual funds and ETFs. New issue supply was muted compared to prior years but steady refinancing activity has contributed to a 50% reduction in loans maturing in 2024 and a 25% reduction in loans maturing in 2025.

New issue CLO market was also slower than in previous years recording USD 56 billion in new issuance as compared to USD 73 billion in 2022. CLO liability spreads remained wider than returns offered by loans and modelled new issue equity returns appeared weak. Secondary market, especially for CLO debt tranches were, however, active as high coupons and price convexity incited investors to add risk.

While defaults were lower than expected, we anticipate recoveries to be lower than historical averages and impact seasoned CLO equity tranches and potentially a handful of lower rated CLO debt tranches as well. Increasing interest expenses are likely to prompt increased downgrade activity especially if nominal growth rates slow down, and we anticipate older CLOs to face pressure on their over-collateralization tests. 2021 and 2022 vintage CLOs are likely to perform much better.

Given the uncertain outlook, in light of higher rates for longer, management had already paused investments into CLO equity tranches since April 2022. The Company has no open warehouses as of 30 June 2023. During the period, the portfolio generated cashflow of USD 11.0m. Consistent and robust cashflow from the existing portfolio has allowed the Company to increase its cash and marketable securities position substantially. We are monitoring the CLO and loan market closely and anticipate investing in the market when opportunities present themselves.

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

Private Equity and Fund Investments

The Company has invested in some small private companies with robust growth and potential.

The following summarizes the book value of the fund investments at 30 June 2023:

Fetcherr Ltd ("Fetcherr"):  Fetcherr is an 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. In 2023, Fetcherr raised over USD 10m in the form of a convertible instrument with a valuation cap of USD 100m. Post balance-sheet, the Company purchased additional shares from an ex-employee of Fetcherr at a valuation of about USD 67m.

Phytech Ltd ("Phytech"):  Phytech is an agriculture-technology company in Israel providing end-to-end solutions for achieving higher yields on crops and trees. In September 2020, Phytech raised USD 25m at a pre-money valuation of USD 105m. As part of the capital raise, the manager of the investment reduced its holding in Phytech and distributed USD 471k (versus our investment of USD 394k) in cash. Following these transactions, 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.

The following table reconciles the review of activities to the Group's financial assets at 30 June 2023.  

Events after the reporting date

There were no material events after the reporting date, which have a bearing on the understanding of these interim condensed consolidated financial statements.

Litigation

Information is provided in note 22 to the interim condensed consolidated financial statements.

Going Concern

The Directors have reviewed the current and projected financial position of the Company, making reasonable assumptions about cash and short-term holdings, 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 interim condensed consolidated financial statements.

Livermore Investments Group Limited

Condensed Consolidated Statement of Financial Position

at 30 June 2023

Livermore Investments Group Limited

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2023

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

Livermore Investments Group Limited

Condensed Consolidated Statement of Changes in Equity

for the period ended 30 June 2023

Livermore Investments Group Limited

Condensed Consolidated Statement of Cash Flows

for the period ended 30 June 2023