Livermore Investments Group Limited
Annual Report 2021

Plain-text annual report

2021 21 Table of Contents Table of Contents 4 Highlights 6 Chairman’s and Chief Executive’s Review 7 Introduction 7 Financial Review 7 Dividend & Buyback 8 Review of Activities 9 Introduction and Overview 9 Global Investment Environment 10 Livermore’s Strategy 14 Financial portfolio 14 Events after the Reporting Date 17 Litigation 17 Report of the Directors 18 The Board’s Objectives 18 The Board of Directors 18 Directors’ responsibilities in relation to the financial statements 19 Disclosure of information to the Auditor 19 Substantial Shareholdings 20 Corporate Governance Statement 21 Introduction 21 The Board Constitution and Procedures 21 Board Committees 21 Remuneration Committee 21 Audit Committee 21 The Quoted Company Alliance (QCA) Code 21 Communication with Investors 22 Internal Control 23 Going concern 23 Independence of Auditor 23 4 Annual Report 2021Remuneration Report 24 Directors’ Emoluments 24 Directors’ Interests 24 Remuneration Policy 25 Review of the Business and Risks 26 Risks 26 Share Capital 27 Related Party Transactions 27 Independent Auditor’s Report to the Members of Livermore Investments Group Limited 28 Consolidated Statement of Financial Position as at 31 December 2021 33 Consolidated Statement of profit or loss for the year ended 31 December 2021 34 Consolidated Statement of Comprehensive Income for the year ended 31 December 2021 35 Consolidated Statement of changes in equity for the year ended 31 December 2021 36 Consolidated Statement of cash flows for the year ended 31 December 2021 37 Notes on the Financial Statements 39 Shareholder Information 73 Registrars 73 Website 73 Direct Dividend Payments 73 Lost Share Certificate 73 Duplicate Shareholder Accounts 73 Corporate Directory 74 5 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 6 Annual Report 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) 7 The overall change in the NAV is primarily attributed to the following: Shareholders’ funds at beginning of year Income from investments Unrealised gains / (losses) on investments Unrealised exchange gains Operating expenses Net finance income Tax charge Increase / (decrease) in net assets from operations Dividends paid Issuance / purchase of own shares Shareholders’ funds at end of year Net Asset Value per share Dividend & Buyback 31 December 2021 US $m 31 December 2020 US $m 163 9 27 5 9 4 0 1 (8 6) (0 4) (0 1) 27 9 (8 0) (6 1) 173 1 22 0 (22 6) - (2 8) 0 3 (0 1) (3 2) (6 0) - 177 7 163 9 US $1 07 US $0 94 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 Chairman 27 May 2022 Noam Lanir Chief Executive Officer 8 Annual Report 2021 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 9 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 10 Annual Report 2021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 11 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 12 Annual Report 2021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 28th 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 13 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 Name Investment in the loan market through CLOs Open Warehouse facilities Public Equities Invested total Cash Total 2021 US $m 101 7 7 6 10 0 119 3 45 1 164 4 2020 US $m 77 0 10 1 12 5 99 6 50 4 150 0 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 14 Annual Report 2021 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: 2021 Amount US $000 Percentage US CLOs 101,667 100% 2020 Amount US $000 77,006 Percentage 100% 15 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 Name Cole Capital Fund Fetcherr Ltd Phytech (Israel) Say2eat Inc Other investments Total US $m 6 0 3 3 1 9 0 8 0 4 12 4 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 16 Annual Report 2021The following table reconciles the review of activities to the Company’s financial assets as at 31 December 2021: Name Financial Portfolio Fund investments Total Financial assets at fair value through profit or loss (note 4) Financial assets at fair value through other comprehensive income (note 5) Total US $m 119 3 12 4 131 7 119 3 12 4 131 7 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 17 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 18 Annual Report 2021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 19 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: Number of Ordinary Shares % of issued ordinary share capital % of voting rights* Groverton Management Ltd 123,048,011 Ron Baron 25,456,903 70 39 14 56 74 41 15 40 * 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 20 Annual Report 2021 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 21 • 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 Number of meetings attended Board Audit Remuneration Richard Barry Rosenberg Noam Lanir Ron Baron Augoustinos Papathomas 4 of 4 4 of 4 4 of 4 4 of 4 2 of 2 1 of 1 - - - - 2 of 2 1 of 1 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 22 Annual Report 2021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 23 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 Total emoluments Director Date of agreement Fees US $000 Benefits US $000 Reward payments US $000 2021 US $000 2020 US $000 Richard Barry Rosenberg 10/06/05 Noam Lanir 10/06/05 Ron Baron 01/09/07 Augoustinos Papathomas 01/02/19 73 400 350 35 - 45 - - - 73 1,000 2,000 1,445 2,350 - 35 69 445 350 37 The dates are presented in day / month / year format Directors’ Interests Interests of Directors in ordinary shares As at 31 December 2021 As at 31 December 2020 Number of Ordinary Shares Percentage of ordinary share capital Percentage of voting rights * Number of Ordinary Shares Percentage of ordinary share capital Percentage of voting rights * Noam Lanir 123,048,011 70 39% 74 41% 133,936,588 76 62% Ron Baron 25,456,903 14 56% 15 40% 25,456,903 14 56% 76 62% 14 56% Richard Barry Rosenberg 15,000 0 01% 0 01% 15,000 0 01% 0 01% 24 Annual Report 2021*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 25 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 26 Annual Report 2021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 27 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 28 Annual Report 2021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 Investments’ valuation Level 3 Refer to note 7 of the consolidated financial statements The Key audit matter How the matter was addressed in our audit The Group has financial assets of $27m (2020: $21m) classified within fair value hierarchy at level 3, as disclosed in note 7 The fair value of level 3 financial assets is generally determined either based on third party valuations, or when not available based on adjusted Net Asset Value (NAV) calculations using inputs from third parties Due to the use of significant judgments by the Board of Directors, the existence of unobservable inputs and the significant total value of financial assets within the level 3 hierarchy, we consider the valuation of these investments as a key audit matter • Our audit work included, but was not restricted to: obtaining an understanding of the valuation • methodologies applied by the Board of directors and assessing their appropriateness for each investment; obtaining third party confirmations indicating the NAV / fair value of the financial assets and comparing to clients’ records; and evaluating the independent professional valuer’s competence, capabilities and objectivity; in cases where the valuations have been performed by the Board of Directors, evaluating the reasonableness of the underlying assumptions and verifying the inputs used by checking them to third party sources; and considering the adequacy of consolidated financial statement disclosures in relation to the valuation methodologies used for each class of level 3 financial assets • • Key observations We concluded that the judgements and estimates used by the management in determining the fair value of investments were reasonable and the disclosures made in relation to these matters in the consolidated financial statements were appropriate 29 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: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion The risk of not detecting a material misstatement resulting from fraud is higher than 30 Annual Report 2021for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors • • Conclude on the appropriateness of the Board of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report However, future events or conditions may cause the Group to cease to continue as a going concern Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves a true and fair view • • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements We are responsible for the direction, supervision and performance of the group audit We remain solely responsible for our audit opinion 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 31 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 Froso Yiangoulli Certified Public Accountant and Registered Auditor for and on behalf of Grant Thornton (Cyprus) Ltd Certified Public Accountants and Registered Auditors Nicosia, 27 May 2022 32 Annual Report 2021Livermore Investments Group Limited Consolidated Statement of Financial Position as at 31 December 2021 Note 2021 US $000 2020 US $000 Assets Non-current assets Property, plant and equipment Right-of-use assets Financial assets at fair value through profit or loss Financial assets at fair value through other comprehensive income Investments in subsidiaries Current assets Trade and other receivables Financial assets at fair value through profit or loss Cash and cash equivalents Total assets Equity Share capital Share premium and treasury shares Other reserves Retained earnings Total equity Liabilities Non-current liabilities Lease liability Current liabilities Trade and other payables Lease liability – current portion Current tax payable Total liabilities Total equity and liabilities Net asset value per share 4 5 8 9 4 10 11 11 12 52 176 101,667 12,435 7,196 121,526 366 17,553 45,130 63,049 32 272 77,006 3,729 6,813 87,852 8,238 22,577 50,407 81,222 184,575 169,074 - 163,130 (18,026) 32,618 - 169,187 (21,285) 16,005 177,722 163,907 88 181 6,641 88 36 6,765 4,868 91 27 4,986 6,853 184,575 5,167 169,074 Basic and diluted net asset value per share (US $) 14 1 07 0 94 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 33 Livermore Investments Group Limited Consolidated Statement of Profit or Loss for the year ended 31 December 2021 Investment income Interest and distribution income Fair value changes of investments Note 16 17 2021 US $000 2020 US $000 27,495 6,250 33,745 22,010 (18,483) 3,527 Operating expenses 18 (8,599) (2,808) Operating profit Finance costs Finance income Profit before taxation Taxation charge Profit for the year Earnings per share 19 19 20 25,146 (398) 18 24,766 (66) 24,700 719 (40) 293 972 (127) 845 Basic and diluted earnings per share (US $) 21 0 15 0 005 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 34 Annual Report 2021 Livermore investments Group Limited Consolidated Statement of Comprehensive Income for the year ended 31 December 2021 Profit for the year Note 2021 US $000 24,700 2020 US $000 845 Other comprehensive income: Items that will be reclassified subsequently to profit or loss Foreign exchange gains on translation of consolidated subsidiary 59 4 Items that are not reclassified subsequently to profit or loss Financial assets designated at fair value through other comprehensive income – fair value gains / (losses) 5 3,200 (4,022) Total comprehensive income / (loss) for the year 27,959 (3,173) The total comprehensive income / (loss) for the year is wholly attributable to the owners of the parent The notes 1 to 27 form part of these consolidated financial statements 35 Livermore Investments Group Limited Consolidated Statement of Changes in Equity for the year ended 31 December 2021 Note Share premium US $000 169,187 Treasury Shares US $000 Translation reserve US $000 Investments revaluation reserve US $000 Retained earnings US $000 Total US $000 Balance at 1 January 2020 Dividends Transactions with owners Profit for the year Other comprehensive income: Financial assets at fair value through OCI - fair value losses Foreign exchange gains on translation of consolidated subsidiary Transfer of realised gains Total comprehensive loss for the year Balance at 31 December 2020 Dividends Purchase of own shares Re-issue of shares Transactions with owners Profit for the year Other comprehensive income: Financial assets at fair value through OCI - fair value gains 5 Foreign exchange gains on translation of consolidated subsidiaries Total comprehensive income for the year 169,187 17 13 11 11 - - - - - - - - - (6,973) 916 (6,057) - - - - - - - - - - - - - - - - - - - Balance at 31 December 2021 169,187 (6,057) The notes 1 to 27 form part of these consolidated financial statements. 21 (20,619) 24,491 174,333 - - - - 4 - 4 - - - (6,000) (6,000) (6,000) (6,000) 845 845 (4,022) - - - 3,331 (3,331) (4,022) 4 - (691) (2,486) (3,173) 25 (21,310) 16,005 163,907 - - - - - 59 59 84 - - - - (8,000) (8,000) - (6,973) (87) 829 (8,087) (14,144) - - 24,700 24,700 3,200 - - - 3,200 59 3,200 24,700 27,959 (18,110) 32,618 177,722 36 Annual Report 2021 Livermore Investments Group Limited Consolidated Statement of Cash Flows for the year ended 31 December 2021 Note 2021 US $000 2020 US $000 Cash flows from operating activities Profit before tax Adjustments for Depreciation Interest expense Interest and distribution income Bank interest income Fair value changes of investments Exchange differences Changes in working capital Decrease / (increase) in trade and other receivables Increase / (decrease) in trade and other payables Cash flows from / (used in) operations Interest and distributions received Tax paid Net cash from operating activities Cash flows from investing activities Acquisition of investments Proceeds from sale of investments Net cash used in investing activities Cash flows from financing activities Lease liability payments Interest paid Dividends paid Purchases of own shares 24,766 109 35 972 102 40 (27,495) (22,010) (18) (6,250) 363 (8,490) 7,817 1,774 1,101 27,512 (50) 28,563 (119,905) 100,629 (19,276) (109) (35) (8,000) (6,057) (119) 18,483 (174) (2,706) (60) (78) (2,844) 22,204 (133) 19,227 (49,552) 30,201 (19,351) (102) (40) (6,000) - 19 16 19 17 19 19 13 11 Net cash used in financing activities (14,201) (6,142) 37 Note 2021 US $000 2020 US $000 Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the year Exchange differences on cash and cash equivalents Cash and cash equivalents at the end of the year 19 10 (4,914) 50,407 (363) 45,130 (6,266) 56,499 174 50,407 The notes 1 to 27 form part of these consolidated financial statements 38 Annual Report 2021 Notes on the Consolidated Financial Statements 1 General Information 1 1 The Company was incorporated as an international business company and registered in the British Virgin Islands (BVI) on 2 January 2002 under IBC Number 475668 The principal legislation under which the Company operates is the BVI Business Companies Act, 2004 The liability of the members of the Company is limited 1 2 The principal activity of the Company is to carry out investment activities 1 3 The Company is tax resident in the Republic of Cyprus 1 4 The registered office of the Company is located at Trident Chambers, PO Box 146, Road Town, Tortola, British Virgin Islands 2 Basis of preparation The consolidated financial statements (“the financial statements”) of Livermore Investments Group Limited have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (EU) The financial statements have been prepared on an accrual basis (other than for cash flow information) using the significant accounting policies and measurement bases summarised in note 3, and also on a going concern basis The financial information is presented in US dollars because this is the currency in which the Company primarily operates (i e , the Company’s functional currency) References to the Company hereinafter also include its consolidated subsidiary (note 8) The Directors have reviewed the accounting policies used by the Company and consider them to be the most appropriate 3 Accounting Policies The significant accounting policies applied in the preparation of the financial statements are as follows: 3 1 Adoption of new and revised IFRS As from 1 January 2021, the Company adopted any applicable new or revised IFRS and relevant amendments and interpretations which became effective, and also were endorsed by the EU The following IASB or IFRIC documents were issued by the date of authorisation of these financial statements but are not yet effective for the year ended 31 December 2021, or have not yet been endorsed by the EU by 31 December 2021: 39 Endorsed by EU IASB Effective date • Amendments to IFRS 3: “Reference to the Conceptual Framework” Yes 1 January 2022 • Amendment to IFRS 10, and IAS 28: “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” • IFRS 14: “Regulatory Deferral Accounts” • Amendment to IFRS 16: “COVID-19 Related Rent Concessions beyond 30 June 2021” • IFRS 17: “Insurance Contracts”, amendments of 2020 including • Amendment to IFRS 17: “Initial Application of IFRS 17 and IFRS 9 – Comparative Information” No No Yes Yes No to be determined 1 January 2016 1 April 2021 1 January 2023 1 January 2023 • Amendments to IAS 1: “Classification of Liabilities as Current or Non-current” No 1 January 2023 • Amendments to Statement 2: policies” IAS 1 and IFRS Practice “Disclosure of Accounting Yes 1 January 2023 • Amendments to IAS 8: “Definition of Accounting Estimates” Yes 1 January 2023 • Amendment to IAS 12: “Deferred Tax related to Assets and Liabilities arising from a Single Transaction” • Amendments to IAS 16: “Property, Plant and Equipment: Proceeds before Intended Use” • Amendments to IAS 37: “Onerous Contracts – Cost of Fulfilling a Contract” • Annual Improvements to IFRS Standards 2018- 2020 No 1 January 2023 Yes Yes Yes 1 January 2022 1 January 2022 1 January 2022 The Board of Directors expects that when the above become effective in future periods, they will not have any material effect on the financial statements 3 2 Investments in subsidiaries and basis of consolidation Subsidiaries are entities controlled either directly or indirectly by the Company Control is achieved where the Company is exposed, or has right, to variable returns from its involvement with a subsidiary and has the ability to affect those returns through its power 40 Annual Report 2021 over the subsidiary The Directors have determined that Livermore meets the definition of an investment entity, as this is defined in IFRS 10 “Financial Statements” As per IFRS 10 an investment entity is an entity that: (a) obtains funds from one or more investors for the purpose of providing those investors with (b) investment management services; commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and (c) measures and evaluates the performance of substantially all of its investments on a fair value basis An investment entity is exempted from consolidating its subsidiaries, unless any subsidiary which is not itself an investment entity mainly provides services that relate to the investment entity’s investment activities The financial statements consolidate the Company and one of its subsidiaries providing such services (note 8 shows further details of the consolidated and unconsolidated subsidiaries) Investments in unconsolidated subsidiaries are initially recognised at their fair value and subsequently measured at fair value through profit or loss Subsequently, any gains or losses arising from changes in their fair value are included in profit or loss for the year Dividends and other distributions from unconsolidated subsidiaries are recognised as income when the Company’s right to receive payment has been established A subsidiary that is not an investment entity itself and which provides services that relate to the Company’s investment activities is consolidated rather than included within the investments in subsidiaries measured at fair value through profit or loss The financial statements of the consolidated subsidiary are prepared using uniform accounting policies Where necessary, adjustments are made to the financial statements of consolidated subsidiary to bring its accounting policies into line with those used by the Company The consolidated subsidiary has a reporting date of 31 December All intra-group transactions, balances, income and expenses are eliminated on consolidation The results and cash flows of any consolidated subsidiary acquired or disposed of during the year are consolidated from the effective date of acquisition or up to the effective date of disposal 3 3 Interest and distribution income • • Interest income is recognised based on the effective interest method Distribution income is recognised on the date that the Company’s right to receive payment is established, which in the case of quoted securities is the ex-dividend date 3 4 Foreign currency The financial statements of the Company are presented in USD, which is the currency of the primary economic environment in which it operates (its functional currency) 41 Transactions in foreign currencies are recorded at the rates of exchange prevailing on the dates of the transaction Monetary assets and liabilities denominated in non-functional currencies are translated into functional currency using year-end spot foreign exchange rates Non-monetary assets and liabilities are translated upon initial recognition using exchange rates prevailing at the dates of the transactions Non-monetary assets that are measured in terms of historical cost in foreign currency are not subsequently re-translated Gains and losses arising on the settlement of monetary items and on the re-translation of monetary items are included in the profit or loss for the year Those that arise on the re-translation of non-monetary items carried at fair value are included in the profit or loss of the year as part of the fair value gain or loss except for differences arising on the re-translation of non-monetary financial assets designated at fair value through other comprehensive income in respect of which gains and losses are recognised in other comprehensive income For such non-monetary items any exchange component of that gain or loss is also recognised in other comprehensive income The results and financial position of consolidated subsidiaries that have a functional currency different from US dollars are translated into the presentation currency as follows: (a) assets and liabilities are translated at the closing rate at the reporting date; (b) income and expenses and also cash flows are translated at an average exchange rate (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case the items are translated at the rates prevailing at the dates of the transactions); and exchange differences arising are recognised in other comprehensive income within the translation reserve Such translation exchange differences are reclassified to profit or loss in the period in which the foreign operation is disposed of (c) 3 5 Taxation Current tax is the tax currently payable based on taxable profit for the year in accordance with the applicable tax laws Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted as at the reporting date 3 6 Equity instruments Equity instruments issued by the Company are recorded at proceeds received, net of direct issue costs The share premium account includes any premiums received on the initial issuing of the share capital Any transaction costs associated with the issuing of shares are deducted from the premium received 3 7 Financial assets Financial assets are recognised when the Company becomes a party to the contractual provisions of the financial instrument A financial asset is derecognised only where the contractual rights to the cash flows from the asset expire or the financial asset is transferred, and that transfer qualifies for 42 Annual Report 2021 derecognition A financial asset is transferred if the contractual rights to receive the cash flows of the asset have been transferred or the Company retains the contractual rights to receive the cash flows of the asset but assumes a contractual obligation to pay the cash flows to one or more recipients A financial asset that is transferred qualifies for derecognition if the Company transfers substantially all the risks and rewards of ownership of the asset, or if the Company neither retains nor transfers substantially all the risks and rewards of ownership but does transfer control of that asset The Company classifies its financial assets in the following measurement categories: (a) those to be measured at fair value through profit or loss; (b) those to be measured at fair value through other comprehensive income; and (c) those to be measured at amortised cost At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss Financial assets at fair value through profit or loss The Company classifies the following financial assets at fair value through profit or loss: (a) equity investments that are held for trading; (b) other equity investments for which the Directors have not elected to recognise fair value gains and losses through other comprehensive income; and (c) debt investments that do not qualify for measurement at either amortised cost or at fair value through other comprehensive income All financial assets within this category are measured at their fair value, with changes in value recognised in the profit or loss when incurred Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income (OCI) comprise equity securities which are not held for trading, and for which the Company has made an irrevocable election at initial recognition to recognise changes in fair value through OCI rather than profit or loss Where the Company’s management has elected to present fair value gains and losses on equity investments in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss Dividends from such investments continue to be recognised in profit or loss when the Company’s right to receive payments is established Financial assets at amortised cost Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost A gain or loss on a financial asset that is measured at amortised cost is recognised in profit or loss when the asset is derecognised or impaired Interest income from these financial assets is recognised based on the effective interest rate method The classification of debt instruments depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows Financial assets with embedded derivatives are considered in their entirety when determining whether their cash 43 flows are solely payment of principal and interest Impairment The Company assesses the expected credit losses associated with its assets carried at amortised cost, on a forward-looking basis The impairment methodology applied depends on whether there has been a significant increase in credit risk For trade and other receivables only, the Company applies the simplified approach permitted by IFRS 9, which permits expected lifetime losses to be recognised from initial recognition of the receivables Write offs The Company writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery, e g , when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings Financial assets written off may still be subject to enforcement activities, taking into account legal advice where appropriate Any recoveries made are recognised in profit or loss 3 8 Financial liabilities Financial liabilities are recognised when the Company becomes a party to the contractual provisions of the financial instrument A financial liability is derecognised when it is extinguished, discharged, cancelled or expires Financial liabilities at amortised cost Financial liabilities are measured initially at fair value plus transaction costs After initial recognition financial liabilities are measured at amortised cost using the effective interest rate method 3 9 Cash and cash equivalents Cash comprises cash in hand and on demand deposits with banks Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash They include unrestricted short-term bank deposits originally purchased with maturities of three months or less Any bank overdrafts are considered to be a component of cash and cash equivalents, since they form an integral part of the Company’s cash management 3 10 Segment reporting In making investment decisions, Management assesses individual investments and then, in analysing their performance, it receives and uses information for each investment product separately rather than based on any segmental information Given that, Management regards that all the Company’s activities fall under a single operating segment 3 11 Critical accounting judgments and key sources of estimation uncertainty The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates and requires management to exercise its judgement in the process of applying the Company’s accounting policies It also requires the use of assumptions that affect the reported amounts of assets and liabilities and disclosure of 44 Annual Report 2021 contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances Critical accounting judgements (i) Classification of financial assets Management exercises significant judgement in determining the appropriate classification of the financial assets of the Company The Directors determine the appropriate classification of the Company’s financial assets based on Livermore’s business model An entity’s business model refers to how an entity manages its financial assets in order to generate cash flows, considering all relevant and objective evidence The factors considered include the contractual terms and characteristics which are very carefully examined, and also the Company’s intentions and expected needs for realisation of the financial assets All investments (except from certain equity instruments that are designated at fair value through other comprehensive income) are classified as financial assets at fair value through profit or loss, because this reflects more fairly the way these assets are managed by the Company The Company’s business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth This portfolio of financial assets is managed, and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided internally on that basis to the Company’s Board of Directors and other key management personnel (ii) Consolidation of subsidiary Management exercised significant judgment in determining which of the subsidiaries that are not investment entities themselves, provide services that relate to the Company’s investment activities and therefore need to be consolidated rather than included within the investments in subsidiaries measured at fair value through profit or loss Estimation uncertainty Fair value of financial instruments Management uses valuation techniques in measuring the fair value of financial instruments, where active market quotes are not available Details of the bases used for financial assets and liabilities are disclosed in note 7 In applying the valuation techniques management makes maximum use of market inputs, and uses estimates and assumptions that are, as far as possible, consistent with observable data that market participants would use in pricing the instrument Where applicable data is not observable (level 3), management uses its best estimates which may vary from the actual prices that would be achieved in an arm’s length transaction at the reporting date Further information on level 3 valuations of financial assets is provided in note 7 2 45 4 Financial assets at fair value through profit or loss Non-current assets Fixed income investments (CLOs) 101,667 77,006 2021 US $000 2020 US $000 Current assets Fixed income investments Public equity investments 7,584 9,969 17,553 10,036 12,541 22,577 For description of each of the above categories, refer to note 6 The above investments represent financial assets that are mandatorily measured at fair value through profit or loss The Company treats its investments in the loan market through CLOs as non-current investments as the Company generally intends to hold such investments over a period longer than twelve months The movement in financial assets at fair value through profit or loss during the year was as follows: At 1 January Purchases Sales Settlements Fair value gains / (losses) 2021 US $000 99,583 114,399 (28,408) (72,221) 5,867 2020 US $000 101,255 47,892 (30,574) - (18,990) At 31 December 119,220 99,583 46 Annual Report 2021 5 Financial assets at fair value through other comprehensive income Non-current assets Fund investments 2021 US $000 2020 US $000 12,435 3,729 For description of each of the above categories, refer to note 6 The above investments are non-trading equity investments that have been designated at fair value through other comprehensive income The movement in financial assets at fair value through other comprehensive income during the year was as follows: At 1 January Purchases Settlements Fair value gains / (losses) 2021 US $000 3,729 5,506 - 3,200 2020 US $000 6,204 1,650 (103) (4,022) At 31 December 12,435 3,729 Dividends of USD 0 128m were received in 2021 (2020: USD 0m), in relation to financial assets at fair value through other comprehensive income that are held at the reporting date 6 Financial assets at fair value The Company allocates its non-derivative financial assets at fair value (notes 4 and 5) as follows: • Fixed income investments relate to fixed and floating rate bonds, perpetual bank debt, investments in the loan market through CLOs, and investments in open warehouse facilities Public equity investments relate to investments in shares of companies listed on public stock exchanges Fund investments (previously described as Private equities) relate to investments in the form of equity purchases in both high growth opportunities in emerging markets and deep value opportunities in mature markets The Company generally invests directly in prospects where it can exert influence Main investments under this category are in the fields of real estate • • 7 Fair value measurements of financial assets and liabilities The table in note 7 2 presents financial assets and liabilities measured at fair value in the consolidated statement of financial position in accordance with the fair value hierarchy This hierarchy groups financial assets and liabilities into three levels based on the significance of 47 inputs used in measuring the fair value of the financial assets and liabilities The fair value hierarchy has the following levels: - - - Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3: unobservable inputs for the asset or liability The level within which the financial asset is classified is determined based on the lowest level of significant input to the fair value measurement 7 1 Valuation of financial assets • Fixed Income Investments and Public Equity Investments are valued per their closing market prices on quoted exchanges, or as quoted by market maker Investments in open warehouse facilities that have not yet been converted to CLOs, are valued based on an adjusted net asset valuation The Company values the CLOs based on the valuation reports provided by market makers CLOs are typically valued by market makers using discounted cash flow models The key assumptions for cash flow projections include default and recovery rates, prepayment rates and reinvestment assumptions on the underlying portfolios (typically senior secured loans) of the CLOs Default and recovery rates: The amount and timing of defaults in the underlying collateral and the amount and timing of recovery upon a default are key to the future cash flows a CLO will distribute to the CLO equity tranche All else equal, higher default rates and lower recovery rates typically lead to lower cash flows Conversely, lower default rates and higher recoveries lead to higher cash flows Prepayment rates: Senior loans can be pre-paid by borrowers CLOs that are within their reinvestment period may, subject to certain conditions, reinvest such prepayments into other loans which may have different spreads and maturities CLOs that are beyond their reinvestment period typically pay down their senior liabilities from proceeds of such pre-payments Therefore, the rate at which the underlying impacts the future cash flows that the CLO may generate collateral prepays Reinvestment assumptions: A CLO within its reinvestment period may reinvest proceeds from loan maturities, prepayments, and recoveries into purchasing additional loans The reinvestment assumptions define the characteristics of the loans that a CLO may reinvest in These assumptions include the spreads, maturities, and prices of such loans Reinvestment into loans with higher spreads and lower prices will lead to higher cash flows Reinvestment into loans with lower spreads will typically lead to lower cash flows Discount rate: The discount rate indicates the yield that market participants expect to receive and is used to discount the projected future cash flows Higher yield expectations or discount rates lead to lower prices and lower discount rates lead to higher prices for CLOs • Fund investments are valued using market valuation techniques as determined by the Directors, mainly on the basis of valuations reported by third-party managers 48 Annual Report 2021 of such independent qualified investments property Underlying property values are determined based on their estimated market values Real Estate entities are valued by investments valuers with relevant experience on substantial such • Investments in subsidiaries are valued at fair value as determined on a net asset valuation basis The Company has determined that the reported net asset value of each subsidiary represents its fair value at the end of the reporting period 7 2 Fair value hierarchy Financial assets measured at fair value are grouped into the fair value hierarchy as follows: 2021 US $000 Level 1 2021 US $000 Level 2 2021 US $000 Level 3 2021 US $000 Total 2020 US $000 Level 1 2020 US $000 Level 2 2020 US $000 Level 3 2020 US $000 Total Fixed income investments Fund investments - - Public equity investments 9,969 Investments in subsidiaries - 101,667 7,584 109,251 - - - 12,435 12,435 - 9,969 12,541 7,255 7,255 - - - 77,006 10,036 87,042 - - - 3,729 3,729 - 12,541 6,813 6,813 9,969 101,667 27,274 138,910 12,541 77,006 20,578 110,125 The Company has no financial liabilities measured at fair value The methods and valuation techniques used for the purpose of measuring fair value are unchanged compared to the previous reporting year No financial assets have been transferred between different levels 49 Financial assets within level 3 can be reconciled from beginning to ending balances as follows: At fair value through OCI At fair value through profit or loss Investments in subsidiaries Fund investment US $000 Fixed Income investments US $000 As at 1 January 2020 Purchases Settlement Gains / (losses) recognised in: 6,204 1,650 (103) - Profit or loss - - Other comprehensive income As at 1 January 2021 Purchases Settlement Gains recognised in: - Profit or loss - Other comprehensive income (4,022) 3,729 5,506 - - 3,200 - 25,000 (15,000) 36 - 10,036 69,805 (72,221) (36) - US $000 5,787 - - 1,026 - 6,813 - - 442 - Total US $000 11,991 26,650 (15,103) 1,062 (4,022) 20,578 75,311 (72,221) 406 3,200 As at 31 December 2021 12,435 7,584 7,255 27,274 50 Annual Report 2021 The above gains and losses recognised can be allocated as follows: At fair value through OCI At fair value through profit or loss Investments in subsidiaries Fund investment US $000 Fixed Income investments US $000 US $000 Total US $000 - 36 1,026 1,062 2020 Profit or loss - Financial assets held at year-end Other comprehensive income - Financial assets held at year-end Total gains / (losses) for 2020 (4,022) (4,022) - 36 - (4,022) 1,026 (2,960) At fair value through OCI At fair value through profit or loss Investments in subsidiaries Fund investment US $000 Fixed Income investments US $000 US $000 Total US $000 2021 Profit or loss - Financial assets held at year-end Other comprehensive income - Financial assets held at year-end Total gains / (losses) for 2021 - (36) 442 406 3,200 3,200 - (36) - 442 3,200 3,606 51 The Company has not developed any quantitative unobservable inputs for measuring the fair value of its level 3 financial assets at 31 December 2021 and 2020 Instead, the Company used prices from third-party pricing information without adjustment Fixed income investments within level 3 represent open warehouses that have been valued based on their net asset value The net asset value of a warehouse is primarily driven by the fair value of its underlying loan asset portfolio (as determined by the warehouse’s manager) plus received and accrued interest less the nominal value of the financing and accrued interest on the financing In all cases, due to the nature and the short life of a warehouse, the carrying amounts of the warehouses’ underlying assets and liabilities are considered as representative of their fair values Fund investments within level 3 represent investments in private equity funds Their value has been determined by each fund manager based on the funds’ net asset value Each fund’s net asset value is primarily driven by the fair value of its underlying investments In all cases, considering that such investments are measured at fair value, the carrying amounts of the funds’ underlying assets and liabilities are considered as representative of their fair values Investments in subsidiaries have been valued based on their net asset position The main assets of the subsidiaries represent investments measured at fair value and receivables from the Company itself as well as third parties Their net asset value is considered as a fair approximation of their fair value A reasonable change in any individual significant input used in the level 3 valuations is not anticipated to have a significant change in fair values as above 8 Investments in subsidiaries Unconsolidated subsidiaries As at 1 January Fair value gains As at 31 December 2021 US $000 2020 US $000 6,813 383 7,196 5,787 1,026 6,813 52 Annual Report 2021 Details of the investments in which the Company has a controlling interest as at 31 December 2021 are as follows: Name of Subsidiary Place of incorporation Holding Voting rights and shares held Principal activity Consolidated subsidiary Livermore Capital AG Switzerland Ordinary shares 100% Administration services Unconsolidated subsidiaries Livermore Properties Ltd Mountview Holdings Ltd British Virgin Islands British Virgin Islands Ordinary shares 100% Ordinary shares 100% Sycamore Loan Strategies Ltd Cayman Islands Ordinary shares 100% Livermore Israel Investments Ltd Israel Ordinary shares 100% Sandhirst Limited Cyprus Ordinary shares 100% Holding of investments Investment vehicle Investment vehicle Holding of investments Holding of investments 53 9 Trade and other receivables Financial items Amounts due by related parties (note 22) Non-financial items Prepayments VAT receivable 2021 US $000 2020 US $000 289 65 12 366 8,151 67 20 8,238 For the Company’s receivables of a financial nature, no lifetime expected credit losses and no corresponding allowance for impairment have been recognised, as their default rates have been determined to be close to 0% No receivable amounts have been written-off during either 2021 or 2020 10 Cash and cash equivalents Cash and cash equivalents included in the consolidated statement of cash flows comprise the following at the reporting date: Demand deposits Cash at bank 2021 US $000 45,130 45,130 2020 US $000 50,407 50,407 54 Annual Report 2021 11 Share capital Authorised share capital The company has authorised share capital of 1,000,000,000 ordinary shares with no par value, and no restrictions Issued share capital Ordinary shares with no par value Number of shares Share premium US $000 As at 31 December 2021 and 2020 174,813,998 169,187 Treasury shares As at 1 January 2021 Additions (note 22) Re-issued As at 31 December 2021 Number of shares Share premium US $000 - 10,888,577 1,430,000 9,458,577 - 6,973 (916) 6,057 During the year 1,430,000 of the Company’s treasury shares were re-issued to a key management member (note 22) in full settlement of an accrued amount of USD 0 7m The re-issued shares had an average cost of USD 0 916m and a fair value of USD 0 829m, as determined based on their market price, resulting in the recognition of a loss in retained earnings of USD 0 087m The difference between the fair value and the accrued amount is included in professional fees (note 18) In the consolidated statement of financial position, the amount included as share premium and treasury shares comprises of: Share premium Treasury shares 12 Trade and other payables Financial items Trade payables Amounts due to related parties (note 22) Accrued expenses 2021 US $000 169,187 (6,057) 163,130 2020 US $000 169,187 - 169,187 2021 US $000 2020 US $000 36 6,193 412 6,641 34 4,464 370 4,868 55 13 Dividend At 8 March 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 The dividend was paid on 16 April 2021 14 Net asset value per share Net asset value per share has been calculated by dividing the net assets attributable to ordinary shareholders by the closing number of ordinary shares in issue during the relevant financial periods Net assets attributable to ordinary shareholders (USD 000) Closing number of ordinary shares in issue Basic net asset value per share (USD) Number of Shares Ordinary shares Treasury shares Closing number of ordinary shares in issue 2021 177,722 2020 163,907 165,355,421 174,813,998 1 07 0 94 174,813,998 (9,458,577) 174,813,998 - 165,355,421 174,813,998 The diluted net asset value per share equals the basic net asset value per share since no potentially dilutive shares exist as at 31 December 2021 and 2020 56 Annual Report 2021 15 Segment reporting The Company’s activities fall under a single operating segment The Company’s investment income and its investments are divided into the following geographical areas: Investment Income Other European countries United States Asia Investments Other European countries United States Asia 2021 US $000 94 33,109 542 33,745 3,435 127,071 8,345 138,851 2020 US $000 (486) 3,384 629 3,527 3,102 98,985 8,038 110,125 Investment income, comprising interest and distribution income as well as fair value gains or losses on investments, is allocated on the basis of the issuer’s location Investments are also allocated based on the issuer’s location The Company has no significant dependencies, in respect of its investment income, on any single issuer 16 Interest and distribution income Interest from investments Distribution income 2021 US $000 669 26,826 27,495 2020 US $000 782 21,228 22,010 57 Interest and distribution income is analysed between different categories of financial assets, as follows: 2021 2020 Interest from investments US $000 Distribution income US $000 Total US $000 Interest from investments US $000 Distribution income US $000 Total US $000 Financial assets at fair value through profit or loss Fixed income investments Public equity investments 669 26,632 27,301 782 21,195 21,977 - 194 194 - 33 33 669 26,826 27,495 782 21,228 22,010 The Company’s distribution income derives from multiple issuers The Company does not have concentration to any single issuer 17 Fair value changes of investments Fair value gains / (losses) on financial assets through profit or loss Fair value gains on investments in subsidiaries Fair value losses on derivatives 2021 US $000 5,867 383 - 6,250 2020 US $000 (18,990) 1,026 (519) (18,483) 58 Annual Report 2021 The investments disposed of had the following cumulative (i e , from the date of their acquisition up to the date of their disposal) financial impact in the Company’s net asset position: Disposed in 2021 Disposed in 2020 Realised (losses)/ gains* US $000 Cumulative distribution or interest US $000 Total financial impact US $000 Realised (losses)/ gains* US $000 Cumulative distribution or interest US $000 Total financial impact US $000 Financial assets at fair value through profit or loss Fixed income investments Public equities Derivatives Financial assets at fair value through OCI Private equities 1,099 1,454 - 2,553 - 2,553 2,237 3,336 111 1,565 - - 2,384 4,901 324 84 (519) (111) 2,683 3,007 11 - 2,694 95 (519) 2,583 - - 2,384 4,901 (3,331) (3,442) 752 3,446 (2,579) 4 * difference between disposal proceeds and original acquisition cost 18 Operating expenses Directors’ fees and expenses Other salaries and expenses Professional fees Legal expenses Bank custody fees Office costs Depreciation Other operating expenses Audit fees Tax fees 2021 US $000 3,903 201 3,528 53 102 277 109 349 75 2 2020 US $000 900 177 851 9 99 240 102 352 76 2 8,599 2,808 59 Professional fees include a share-based payment to a key management member of USD 0 129m (notes 11 and 22) Throughout 2021 the Company employed 4 members of staff (2020: 4) Two of those members are the Company’s executive Directors Other salaries and expenses include USD 18,977 of social insurance and similar contributions (2020: USD 16,527), as well as USD 3,461 of defined contributions plan costs (2020: USD 3,148) 19 Finance costs and income Finance costs Bank interest expense Foreign exchange loss Finance income Bank interest income Foreign exchange gain 20 Taxation Current tax charge 2021 US $000 2020 US $000 35 363 398 18 - 18 40 - 40 119 174 293 2021 US $000 66 2020 US $000 127 The Company is a tax resident in the Republic of Cyprus and is subject to taxation under the tax laws and regulations in Cyprus The current tax charge relates to the results of the Company for 2021, as explained above, and the Company’s consolidated subsidiary in Switzerland (note 8) 60 Annual Report 2021 21 Earnings per share The basic earnings per share has been calculated by dividing the profit for the year attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares in issue of the Company during the relevant financial year Profit for the year attributable to ordinary shareholders of the parent (USD 000) Weighted average number of ordinary shares outstanding 2021 24,700 2020 845 165,327,512 174,813,998 Basic earnings per share (USD) 0 15 0 005 The diluted earnings per share equals the basic earnings per share since no potentially dilutive shares were in existence during 2021 and 2020 61 22 Related party transactions The Company is controlled by Groverton Management Ltd, an entity owned by Noam Lanir, which at 31 December 2021 held 74 41% (2020: 76 62%) of the Company’s voting rights 2021 US $000 2020 US $000 Amounts receivable from unconsolidated subsidiary Sandhirst Ltd 289 221 (1) Amounts receivable from key management Loan receivable Amounts receivable from parent company Loan receivable Amounts payable to unconsolidated subsidiary - - 1,000 6,930 Livermore Israel Investments Ltd (3,046) (3,522) Amounts payable to other related party Loan payable Amounts payable to key management Directors’ current accounts Other key management personnel Key management compensation Short term benefits Executive Directors' fees Executive Directors' reward payments Non-executive Directors' fees Other key management fees (149) (1,011) (1,987) (2,998) 795 3,000 108 2,829 6,732 (149) (93) (700) (793) 795 - 105 408 1,308 (2) (3) (4) (5) (4) (6) (7) (8) (1) The amounts receivable from unconsolidated subsidiary are interest free, unsecured, and have no stated repayment date (2) A loan of USD 1m was made during 2019 to a key management employee and a Company’s Director The loan was free of interest, unsecured and was repayable on demand The loan was fully settled 62 Annual Report 2021 during 2021 This loan was included within trade and other receivables (note 9) (3) A loan of USD 6 93m was made to the Company’s parent, Groverton Management Ltd The loan was free of interest, unsecured and was repayable on demand The loan was fully settled during 2021 This loan was included within trade and other receivables (note 9) (4) The amounts payable to unconsolidated subsidiary and Director’s current accounts with credit balances are interest free, unsecured, and have no stated repayment date (5) A loan with a balance at 31 December 2021 of USD 0 149m has been received from a related company (under common control), Chanpak Ltd The loan is free of interest, is unsecured and is repayable on demand This loan is included within trade and other payables (note 12) (6) The amount payable to other key management personnel relates to payments made on behalf of the Company for investment purposes and accrued consultancy fees During the year, an accrued amount of USD 0 7m was settled by re-issuing 1,207,624 of the Company’s treasury shares at their fair value as at the date of transfer (7) These payments were made directly to companies which are related to the Directors (8) During the year 222,376 of the Company’s treasury shares were re-issued to a key management member for no consideration and no vesting conditions The fair value of these shares at the date of transfer was USD 0 129m Other key management fees are included within professional fees (note 18) During 2021, the Company bought back 10,888,577 shares from Groverton Management Ltd, to be held in treasury, for a total cost of USD 6 973m, as determined based on the market price of the shares No social insurance and similar contributions nor any other defined benefit contributions plan costs were incurred for the Company in relation to its key management personnel in either 2021 or 2020 23 Litigation Fairfield Sentry Ltd vs custodian bank and beneficial owners One of the custodian banks that the Company used faces a contingent claim up to USD 2 1m, and any interest as will be decided by a US court and related legal fees, with regards to the redemption of shares in Fairfield Sentry Ltd, which were bought in 2008 at the request of Livermore and on its behalf If the claim proves to be successful Livermore will have to compensate the custodian bank since the transaction was carried on Livermore’s behalf The same case was also filed in BVI where the Privy Council ruled against the plaintiffs As a result of the surrounding uncertainties over the existence of any obligation for Livermore, the Directors cannot form an estimate of the outcome for this case and therefore no provision has been made 24 Commitments The Company has expressed its intention to provide financial support to its subsidiaries, where necessary, to enable them to meet their obligations as they fall due Other than the above, the Company has no capital or other commitments as at 31 December 2021 63 26 Financial risk management objectives and policies Background The Company’s financial instruments comprise financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income, and financial assets and liabilities at amortised cost that arise directly from its operations For an analysis of financial assets and liabilities by category, refer to note 26 Risk objectives and policies The objective of the Company is to achieve growth of shareholder value, in line with reasonable risk, taking into consideration that the protection of long-term shareholder value is paramount The policy of the Board is to provide a framework within which the investment manager can operate and deliver the objectives of the Company Risks associated with financial instruments Foreign currency risk Foreign currency risks arise in two distinct areas which affect the valuation of the investment portfolio, 1) where an investment is denominated and paid for in a foreign currency; and 2) where an investment has substantial exposure to non-US Dollar underlying assets or cash flows denominated in a foreign currency The Company in general does not hedge its currency exposure The Company discretionally and partially hedges against foreign currency movements affecting the value of the investment portfolio based on its view on the relative strength of certain currencies Any hedging transactions represent economic hedges; the Company does not apply hedge accounting in any case Management monitors the effect of foreign currency fluctuations through the pricing of the investments The Company’s exposure to financial instruments denominated in foreign currencies is the following: 2021 US $000 2021 US $000 2021 US $000 2020 US $000 2020 US $000 2020 US $000 Financial assets Financial liabilities Net value Financial assets Financial liabilities Net value British Pounds (GBP) 1,677 Euro Swiss Francs (CHF) Israel Shekels (ILS) 417 22 6,203 (110) (21) (2,099) (3,046) 1,567 396 (2,077) 3,157 1,911 367 14 (114) (68) (27) 1,797 299 (13) 6,175 (3,522) 2,653 Total 8,319 (5,276) 3,043 8,467 (3,731) 4,736 Also, some of the USD denominated investments are backed by underlying assets which are invested in non-USD assets For instance, investments in certain emerging market private equity funds are denominated in USD but the funds in turn have invested in assets denominated in non-USD currencies 64 Annual Report 2021 A 10% increase of the following currency rates against the rate of United States Dollar (USD) at 31 December would have the following impact A 10% decrease of the following currencies against USD would have an approximately equal but opposite impact 2021 US $000 2021 US $000 2021 US $000 2020 US $000 2020 US $000 2020 US $000 Profit or loss Other comprehensive income British Pounds (GBP) Euro Swiss Francs (CHF) Israel Shekels (ILS) Total 157 40 (208) 316 305 - - - - - Equity 157 40 (208) 316 305 Profit or loss Other comprehensive income Equity 180 30 (1) 265 474 - - - - - 180 30 (1) 265 474 The above analysis assumes that all other variables in particular, interest rates, remain constant Interest rate risk The Company is exposed to interest rate risk on its interest-bearing instruments which are affected by changes in market interest rates As at 31 December 2021 and 31 December 2020, the Company had no financial liabilities that bore an interest rate risk Interest rate changes will also impact equity prices The level and direction of changes in equity prices are subject to prevailing local and world economics as well as market sentiment all of which are very difficult to predict with any certainty The Company has fixed and floating rate financial assets including bank balances that bear interest at rates based on the banks floating interest rates In particular, the fair value of the Company’s fixed rate financial assets is likely to be negatively impacted by an increase in interest rates The interest income of the Company’s floating rate financial assets is likely to be positively impacted by an increase in interest rates The Company has exposure to US bank loans through CLO equity tranches as well as through warehousing facilities An investment in the CLO equity tranche or first loss tranche of a warehouse represents a leveraged investment into such loans As these loans (assets of a CLO) and the liabilities of a CLO are floating rate in nature (typically 3-month LIBOR as the base rate), the residual income to CLO equity tranches and warehouse first loss tranches is normally linked to the floating rate benchmark and thus normally do not carry substantial interest rate risk The Company’s financial assets affected by interest rate changes are as follows: 65 2021 US $000 2020 US $000 Financial assets – subject to: • interest changes 45,130 50,407 An increase of 1% (100 basis points) in interest rates would have the following impact in profit or loss and consequently to equity as well An equivalent decrease would have an approximately equal but opposite impact There would be no impact in other comprehensive income Financial assets • interest changes 2021 US $000 2020 US $000 Profit or loss Profit or loss 451 504 The above analysis assumes that all other variables, in particular currency rates, remain constant 66 Annual Report 2021  Market price risk By the nature of its activities, most of the Company’s investments are exposed to market price fluctuations The Board monitors the portfolio valuation on a regular basis and consideration is given to hedging or adjusting the portfolio against large market movements The Company had no single major financial instrument that in absolute terms and as a proportion of the portfolio could result in a significant reduction in the NAV and share price Due to the very low exposure of the Company to public equities, and having no specific correlation to any market, the equity price risk is low The portfolio as a whole does not correlate exactly to any Index Management of risks is primarily achieved by having a diversified portfolio to spread the market price risk The Company mainly has investments in CLO equity tranches as well as first loss tranches of warehouse facilities Investments in the equity tranche of US CLOs represent a levered exposure to senior secured corporate loans in the US, and are thus subject to many risks including but not limited to lack of liquidity, credit or default risk, and risks related to movements in market prices as well as the variations of risk premium in the market Prices of these CLO investments may be volatile and will generally fluctuate due to a variety of factors that are inherently difficult to predict, including but not limited to changes in prevailing credit spreads and yield expectations, interest rates, underlying portfolio credit quality and market expectations of default rates on non-investment grade loans, general economic conditions, financial market conditions, legal and regulatory developments, domestic and international economic or political events, developments or trends in any particular industry, and the financial condition of the obligors that constitute the underlying portfolio A 10% uniform change in the value of the Company’s portfolio of financial assets (excluding level 3 investments) would result in a 6 28% change in the net asset value as at 31 December 2021 (2020: 5 46%), and would have the following impact in profit or loss and consequently to equity as well (either positive or negative, depending on the corresponding sign of the change) There would be no impact in other comprehensive income 2021 US $000 Profit or loss 11,163 2020 US $000 Profit or loss 8,955 Financial assets at fair value through profit or loss Derivatives The Investment Manager may use derivative instruments in order to mitigate market risk or to take a directional investment These provide a limited degree of protection and would not materially impact the portfolio returns if a large market movement did occur No derivatives were held either at 31 December 2021 or 2020 67 Credit Risk The Company invests in a wide range of securities with various credit risk profiles including investment grade securities and sub investment grade positions The investment manager mitigates the credit risk via diversification across issuers However, the Company is exposed to a migration of credit rating, widening of credit spreads and default of any specific issuer The Company only transacts with regulated institutions on normal market terms which are trade date plus one to three days The levels of amounts outstanding from brokers are regularly reviewed by the management The duration of credit risk associated with the investment transactions is the period between the date the transaction took place, the trade date and the date the stock and cash are transferred, the settlement date The level of risk during the period is the difference between the value of the original transaction and its replacement with a new transaction The Company is mainly exposed to credit risk in respect of its fixed income investments (mainly CLOs) and to a lesser extend in respect of its financial assets at amortised cost, and other instruments held for trading (perpetual bonds) The Company’s maximum credit risk exposure at 31 December is as follows: Financial assets: At amortised cost Trade and other receivables Cash at bank At fair value through profit or loss 2021 US $000 2020 US $000 289 45,130 45,419 109,251 154,670 8,151 50,407 58,558 87,042 145,600 No collaterals are held by the Company itself in relation to the Company’s financial assets subject to credit risk The fair values of the above financial assets at fair value through profit or loss are also affected by the credit risk of those instruments However, it is not practical to provide an analysis of the changes in fair values due to the credit risk impact for the year or previous periods, nor to provide any relevant sensitivity analysis The Company has exposure to US senior secured loans and to a lesser degree emerging market loans through CLO equity tranches as well as warehouse first loss tranches These loans are primarily non-investment grade loans or interests in non-investment grade loans, which are subject to credit risk among liquidity, market value, interest rate, reinvestment and certain other risks It is anticipated that these non-investment grade loans generally will be subject to greater risks than investment grade corporate obligations 68 Annual Report 2021 A non-investment grade loan or debt obligation or an interest in a non-investment grade loan is generally considered speculative in nature and may become a defaulted security for a variety of reasons A defaulted security may become subject to either substantial workout negotiations or restructuring, which may entail, among other things, a substantial reduction in the interest rate, a substantial write-down of principal, and a substantial change in the terms, conditions and covenants with respect to such defaulted security In addition, such negotiations or restructuring may be quite extensive and protracted over time, and therefore may result in substantial uncertainty with respect to the ultimate recovery on such defaulted security Bank loans have historically experienced greater default rates than has been the case for investment grade securities The Company has no investment in sovereign debt as at 31 December 2021 or 2020 At 31 December the credit rating distribution of the Company’s asset portfolio subject to credit risk was as follows: Rating US $000 Percentage US $000 Percentage 2021 2020 AA A B BBB B- BB- Not Rated 26,063 12,872 922 6,195 4,576 5,280 98,762 154,670 16 9% 8 3% 0 6% 4 0% 3 0% 3 4% 63 8% 100% 31,415 16,350 3,998 2,642 1,148 8,818 81,229 145,600 21 6% 11 2% 2 7% 1 8% 0 8% 6 1% 55 8% 100% Included within “not rated” amounts are investments in loan market through CLOs (equity tranches) of USD 91 179m and open warehouses of USD 7 583m (2020: CLOs of USD 77 006m and open warehouses of USD 10 036m) The modelled internal rates of return on the CLO portfolio as well as the warehouse first loss tranches are in low teens percentage points 69 Liquidity risk The following table summarizes the contractual cash outflows in relation to the Company’s financial liabilities according to their maturity Carrying amount US $000 Less than 1 year US $000 31 December 2021 Trade and other payables 6,641 6,641 Carrying amount US $000 Less than 1 year US $000 31 December 2020 Trade and other payables 4,868 4,868 A small proportion of the Company’s portfolio is invested in mid-term private equity investments with low or no liquidity The investments of the Company in publicly traded securities are subject to availability of buyers at any given time and may be very low or non-existent subject to market conditions There is currently no exchange traded market for CLO securities and they are traded over-the-counter through private negotiations or auctions subject to market conditions Currently the CLO market is liquid, but in times of market distress the realization of the investments in CLOs through sales may be below fair value Warehouse facilities are private negotiated financing facilities and are not traded and have no active market The Company, however, can opt to terminate such facility Management takes into consideration the liquidity of each investment when purchasing and selling in order to maximise the returns to shareholders by placing suitable transaction levels into the market At 31 December 2021, the Company had liquid investments totalling USD 156 7m, comprising of USD 45 1m in cash and cash equivalents, USD 101 7m in investments in loan market through CLOs, USD 9 9m in public equities Management structures and manages the Company’s portfolio based on those investments which are considered to be long term, core investments and those which could be readily convertible to cash, are expected to be realised within normal operating cycle and form part of the Company’s treasury function Capital management The Company considers its capital to be its total equity (i e , its share capital and all of its reserves) 70 Annual Report 2021 The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the balance between its net debt and equity During 2021 and 2020, the Company’s only borrowing is a loan payable to a related party of USD 0 149m (note 22) and therefore to a significant extent it is capital funded Net debt to equity ratio is calculated using the following amounts as included on the consolidated statement of financial position, for the reporting periods under review: Borrowings Cash at bank Net Debt Total equity Net debt to equity ratio 26 Financial assets and liabilities by class 2021 US $000 149 (45,130) (44,981) 177,722 (0 25) 2020 US $000 149 (50,407) (50,258) 163,907 (0 31) Note 2021 US $000 2020 US $000 Financial assets: Financial assets at amortised cost 9,10 45,419 Financial assets at fair value through profit or loss Financial assets designated at fair value through other comprehensive income 4 5 119,220 58,558 99,583 12,435 3,729 177,074 161,870 Financial liabilities: Financial liabilities at amortised cost 12 6,641 4,868 The carrying amount of the financial assets and liabilities at amortised cost approximates to their fair value 27 Events after the reporting date The following non-adjusting events occurred after 31 December 2021: • On 5 January 2022, the Board announced an interim dividend of USD 24m (USD 0 145 per 71 • • share) to members on the register on 13 January 2022 The dividend was paid on 07 February 2022 The Company invested an additional amount of USD 8 9m to the open warehouse facilities as at 31 December 2021, increasing its total investment to USD 16 5m Livermore’s investment amount plus net carry amounting to a total of USD 17 6m became receivable in April and May 2022 In February 2022, Russia attacked Ukraine and the ensuing conflict has resulted in significant humanitarian losses for the Ukrainian people In response, the US, UK, Japan and European member states have enacted significant sanctions against Russia including exclusion of Russia from the SWIFT system and access to hard currencies Russia and Ukraine and significant exporters of agricultural commodities and Russia is a significant export of Oil and Gas, especially to Europe The conflict has led to large increases in commodity prices and loss of agricultural supply This is expected to have potentially significant and unexpected negative impact to global growth and business performance We expect the most direct and significant impact to European member states and less developed economies while US is expected to fare better with somewhat delayed and muted affects The Company does not have direct exposure to European or emerging markets with most of the portfolio exposed to US domestic market companies Still, the conflict has only recently begun and given the uncertain outcome, it is difficult to quantify the impact on the Company’s portfolio at this stage In response, the Company intends to be conservatively positioned with sufficient cash balances and cashflow to whether the uncertainty and position itself to take advantage of potential dislocations in the market • During 2022, the Board decided to waive the amount receivable of USD: 0 289m from its unconsolidated subsidiary Sandhirst Limited (note 22), as a means of capital contribution to the subsidiary There were no other material events after the end of the reporting year, which have a bearing on the understanding of these financial statements 72 Annual Report 2021 Shareholder Information Registrars All enquiries relating to shares or shareholdings should be addressed to: Link Group 10th Floor Central Square 29 Wellington Street Leeds LS1 4DL Change of Address Shareholders can change their address by notifying Link Asset Services in writing at the above address Website www livermore-inv com The Company’s website provides, amongst other things, the latest news and details of the Company’s activities, share price details, share price information and links to the websites of our brands Direct Dividend Payments Dividends can be paid automatically into shareholders’ bank or building society accounts Two primary benefits of this service are: • • There is no chance of the dividend cheque going missing in the post; and The dividend payment is received more quickly because the cash sum is paid directly into the account on the payment date without the need to pay in the cheque and wait for it to clear As an alternative, shareholders can download a dividend mandate and complete and post to Link Asset Services Lost Share Certificate If your share certificate is lost or stolen, you should immediately contact Link Asset Services on 0871 664 0300who will advise on the process for arranging a replacement Duplicate Shareholder Accounts If, as a shareholder, you receive more than one copy of a communication from the Company you may have your shares registered in at least two accounts This happens when the registration details of separate transactions differ slightly If you wish to consolidate such multiple accounts, please call Link Asset Services on 0871 664 0300 Please note that the Directors of the Company are not seeking to encourage shareholders to either buy or sell the Company’s shares 73 Corporate Directory Secretary Chris Sideras Registered Office Trident Chambers PO Box 146 Road Town Tortola British Virgin Islands Company Number 475668 Registrars Link Group 10th Floor Central Square 29 Wellington Street Leeds LS1 4DL Auditor Grant Thornton (Cyprus) Ltd 41-49, Agiou Nicolaou Street Nemeli Court – Block C 2408 Engomi Nicosia P O Box 239071687 1687 Nicosia Cyprus Solicitors Travers Smith 10 Snow Hill London EC1A 2AL England Broker Arden Partners plc 125 Old Broad Street London EC2N 1AR England Nominated And Financial Adviser Strand Hanson Limited 26 Mount Row W1K 35Q England Principal Bankers Banque J Safra Sarasin (Luxembourg) SA 17 - 21, Boulevard Joseph II L-1840 Luxembourg CBH Compagnie Bancaire Helvétique SA Löwenstrasse 29 Zurich 8021 Switzerland Credit Suisse AG Seeefldstrasse 1 Zurich 8070 Switzerland UBS AG Paradeplatz 6 CH-8098 Zürich Switzerland Bank Julius Baer & Co Ltd Bahnhofstrasse 36, CH-8010 Zurich, Switzerland 74 Annual Report 2021 21 

Continue reading text version or see original annual report in PDF format above