22 September, 2011

LIVERMORE INVESTMENTS GROUP LIMITED

("Livermore" or "Company")

UNAUDITED INTERIM RESULTS FOR SIX MONTHS ENDED 30 JUNE 2011

Livermore Investments Group Limited (the "Company" or "Livermore")today announces its interim results for the six months ended 30 June 2011.

Highlights

·      Net Asset Value per share USD 0.57 (June 2010: USD 0.46, December 2010: USD 0.50) representing a gain of 14.0% during the first six months of 2011

·      Net Profit of USD 6.5m (June 2010: USD 1.5m, December 2010: USD 8.5m)

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

Chairman's and Chief Executive's Review

Introduction

We are pleased to announce the interim financial results for Livermore Investments Group Limited ("Livermore" or "the Company") for the half year ended 30 June 2011. 

During the first half of 2011, the Company generated a robust performance despite weak equity markets and weakening outlook for global growth. Overall NAV increased by 14% to USD 0.57 per share. During the reporting period, management focused on the financial portfolio with increased exposure to the US credit markets, which provided attractive risk adjusted returns.

Wyler Park, our investment property in Bern, Switzerland performed well, generating over CHF 2.7m in rent during the period. The property is fully rented. Market valuation of Wyler Park has remained stable.

There were no significant developments in the private equity portfolio during the period.

In Q3 2011 significant concerns have arisen about headwinds to global growth including among others, sovereign credit distress, downgrade of the US debt by S&P, geopolitical unrest, and volatility in financial markets as well as liquidity constraints in the banking system, resulting in lower economic growth and heightened risk for a double dip recession.

Financial Review

 The NAV of the Group as at 30 June 2011 was approximately USD 154.9m.  The net profit for the first half of 2011 was USD 6.5m, which represents earnings per share of USD 0.02. The increase in NAV relates largely to the financial portfolio and currency gains from non-USD denominated investments partly offset by write downs on certain Indian investments.

Administrative expenses were USD 3.2m.

Livermore's Strategy

Livermore's investment strategy is to establish a balanced and diversified portfolio of private investments with a mid to long term investment horizon and financial investments which provide on-going liquidity.

The first part of the portfolio is focused on Switzerland and Asia and targets investments in real estate and private equity opportunities.  Investments are focused on value opportunities in sectors that management believes will provide strong growth over the mid to long term. 

The financial portfolio is focused on fixed income instruments which usually generate periodic cash flows and includes exposure to corporate bonds, syndicated loans and other credit instruments.  This part of the portfolio is geographically focused on the US and Europe with limited exposure to emerging markets.

Livermore's investments are made directly or alongside professional managers with a proven track record.  Strong emphasis is given to keep leverage low at the overall portfolio level and to re-invest in existing and new investments along the economic cycle. 

Repurchase of shares

Between 31 December 2010 and 30 June 2011, the Company repurchased 9,997,119 shares at an average price of GBP 0.16 per share. As at 30 June 2011, the Company held 31,832,883 shares in treasury. An additional 17,500,000 shares were purchased between 30 June 2011 and before the beginning of the interim close period.

Given that the Group's shares trade at a significant discount to NAV, the Board of Directors decided to continue with the buyback program. The buyback is being carried out subject to profitability, liquidity constraints and market conditions.

Dividends

No dividends are declared for the period ended 30 June 2011.

The Board of Directors will decide on the Company's dividend policy for 2011 based on profitability, liquidity requirements, portfolio performance, market conditions, and the share price of the Group relative to its NAV.

22 September 2011

Review of Activities

Economic & Investment Environment

Economies in most developed and developing countries continued their recovery during the period, albeit at a slower pace than anticipated. Emerging economies battled inflation concerns as commodity prices increased while sovereign debt concerns spread in Europe. Employment and economic data in the US and UK was weak prompting the Central banks to continue to keep short-term interest rates at historically low levels for an extended period of time. Volatility and risk aversion increased substantially in the second quarter driving demand for safe-haven currencies and assets. The Swiss Franc gained 10% versus the US Dollar and 2.5% against the Euro and Gold was up 5.6% during the first six months of 2011. The US and European equity markets declined from their peak in April although still ended positive for the first half with the S&P 500 Index and Euro Stoxx Index up 5% and 2% respectively. The European sovereign concerns intensified further in July and August driving global equity, commodity, and corporate credit markets lower. Global growth outlook has been revised downwards recently posing greater risks on a renewed recession in the US and Europe.

Corporate credit markets in general performed well during the period as investors searched for income in a low interest rate environment. In particular, the High Yield and the Leveraged Loan markets performed well amid improving credit fundamentals, declining default rates, and increased inflows into funds. The U.S. last 12-month institutional loan default rate fell to 0.84% by principal amount, down from 4.02% in June 2010.  The S&P/LSTA Leveraged Loan Index and the CS High Yield Index were up 1.4% and 5% respectively in the first half of the year.

In Q3 2011 significant concerns have arisen about headwinds to global growth including among others, sovereign credit distress, downgrade of the US debt by S&P, geopolitical unrest, and volatility in financial markets as well as liquidity constraints in the banking system, resulting in lower economic growth and heightened risk of a double dip recession.

EURO ZONE: Despite some improvement in global and euro area economic conditions, the overall outlook for financial stability remained very challenging in the euro area. In particular, important decisions to introduce concrete policy measures at the EU level to strengthen backstop mechanisms aimed at mitigating financial vulnerabilities have not been sufficient to overcome all difficulties. In particular, concerns of financial market participants regarding the interplay between sovereign and financial sector risk remain elevated. Fiscal stimulus effects waned in most countries and emphasis on fiscal consolidation grew, especially in the weaker economies, creating a drag on economic growth. Monetary policy was generally loose although the European Central Bank raised policy rates by 50bps to counter inflationary pressures in core European countries. For euro area non-financial corporations, the overall macroeconomic improvement contributed to a continued slight improvement of profitability. Nevertheless, conditions in some segments, such as the small and medium-sized enterprises (SMEs) sector, remained fragile. The Euro Stoxx 50 Price Index was up 2% in H1 2011 but fell 23% in July and August on renewed European debt concerns and the contagion spreading to Italy and Spain.

SWITZERLAND:  The growth of real GDP in Switzerland slowed in the first quarter of 2011, mainly because of the muted advance in private consumption and equipment investment as well as a negative contribution from inventories. By contrast, exports recorded a marked gain as a result of robust international demand, particularly from Germany and Asia, despite the strength of the Swiss franc. The strong momentum in construction also supported growth. Due to the appreciation of the Swiss franc, export-geared companies stayed exposed to strong price competition. In manufacturing, in particular, margins came under very strong pressure. In July and August 2011, the Swiss Franc rallied further on European debt and US slowdown fears, increasing significant risks to the downside for the Swiss economy. In September 2011 the Swiss National Bank intervened in the currency markets committing to a minimum band for the EUR/CHF exchange rate of 1.2. The SMI Index ended the period with a decline of 3.8% for the first half of the year due to European debt issues and the rising Swiss Franc. The SMI extended its declines during July and August 2011.

INDIA:  Signs of some moderation in growth were visible during the period with a deceleration in IIP growth in April-May, poor performance of certain core industries, especially cement and natural gas and consumption deceleration in cement, steel and automobiles. Manufacturing and services PMIs also show that growth is turning softer. Even as some deceleration is expected in 2011-12, overall growth is likely to stay around trend growth of about 8% in the face of still strong consumption demand. Inflation continued to persist due to a series of supply-side shocks that spilled over in the face of strong demand stoking generalised inflation. The Reserve Bank of India continued to tighten monetary policy and has increased operational policy rates by 425bps since March 2010. The Nifty Index was down 8% during H1 2011 in response to monetary tightening, moderating growth and European debt concerns. The Nifty index extended its decline during July and August 2011.

Sources: International Monetary Fund (IMF), Swiss National Bank (SNB), European Central Bank (ECB), Reserve Bank of India (RBI), Bloomberg

Review of Significant Investments

* Net of related loan.

Wyler Park - Switzerland

Wyler Park is a top quality mixed-use property located in Berne, Switzerland. It has over 16,800 square meters of commercial area, 4,100 square meters of residential area, and another 7,800 square meters available for additional commercial development. The commercial part is leased entirely to SBB (AAA rated), the Swiss national transport authority wholly owned by the Swiss Confederation, and serves as the headquarters of their Passenger Traffic division. The commercial lease is 100% linked to inflation and ends in 2019 with two 5 year extension periods thereafter. The annual rental income from the commercial area of the project is CHF 4.26m.

Following the successful development of 39 residential apartments, management has completed renting all of them. The entire property is now fully rented. The annual rental income expected from the residential area is CHF 1.1m.

The property generated rent of CHF 2.7m during the first half of 2011.

Livermore is the sole owner of Wyler Park through its wholly owned Swiss subsidiary, Livermore Investments AG. The loan outstanding on the project is CHF 79m, which is a non-recourse loan to Livermore Investments AG backed only by this property. The loan matures in July 2014.

Management continues to evaluate the potential development of the additional commercial development rights of 7,800 square meters attached to the property.

SRS Charminar - India

Livermore has invested USD 20m in 2008 in a leading Indian Real Estate company, in association with SRS Private and other investors as part of a total investment of USD 154m.

The investment in the investee company was in the form of compulsorily convertible debt and included a put option, which can be exercised if the investee company does not have an IPO within 3 years or if certain terms in the agreement are not met.  The put option is secured by land which was valued at around USD 1.3 billion at the time of investment and guarantees a minimum return of approximately 30% IRR if exercised.

As reported previously, the Manager (Infinite India Limited) for this investment served a put option exercise notice to the promoters in 2009.  Following a dispute on the grounds of the put option notice between the promoters and the fund, the parties agreed to invoke arbitration to be held in Mumbai.

On 14 August 2009, the arbitration process was completed and the arbitrator ruled in favour of investors. The award entitles the investors to investment plus interest amounting to 30% IRR until 14 August 2009 and 18% IRR thereafter.  However, Livermore decided, for prudent reasons, to stop accruing interest on its investment as of February 2009.

Subsequently, the promoters offered to settle and transfer land parcels from the company to the investors. However, Livermore was notified by the manager of the investment that the Indian Income Tax authority had frozen some of these assets.

Meanwhile, the investors have filed and won an interim order for injunction against the promoters and the company to prohibit sales, transfer or encumbering of the assets of the company.  Thereafter, the promoters have filed against the arbitral award and the injunction order. The legal counsel representing the investors believes that the grounds of appeal against the award are limited under applicable laws and that the investors have a strong case to defend.  The Fund manager is of the opinion that the value of the land is sufficient to secure the put option.  As at 31 December 2010 there was no change in the status of this case. Due to the legal complexity of these legal proceedings as well as the various counterparties involved the outcome remains uncertain.

In January 2011, the Corporate Law Board of India (CLB) inducted IL&FS, a leading local infrastructure and finance company, into the target company as the new promoters. The Manager of this investment is currently in discussions with IL&FS to arrive at a settlement.

The carrying amount of the investment is based on discounted expected cash flows. The accrued interest up to February 2009 was reversed during the period ended 30 June 2011 (Notes 2 and 12).

Montana Tech Components AG ("Montana") - Europe

Montana, based in Austria, is a leading components manufacturer in the fields of Aerospace Components, Metal Tech and Micro Batteries.

The Aerospace Components business segment manufactures specialized components for Airbus and Boeing and is the market leader.  The facilities are currently located in the US and in Switzerland with a new low cost facility in Romania under construction.  The company has a significant market share in the US with Boeing and in Europe with Airbus.  The certification process with Airbus for the new Romanian factory was concluded in important areas.

The Micro Batteries business is a market leader in hearing aid batteries and rechargeable batteries with a strong brand (VARTA Micro Power). Recently, VARTA concluded a significant joint venture with the Volkswagen group to research development of batteries for hybrid cars. This business segment registered rising sales during the period due to increasing demand in the OEM business.

The Metal Tech business segment operates in a niche area with 60%-70% of world market share in an otherwise highly fragmented industry.  Sales and results were, as expected below, the previous year mainly because of reduced order intakes.

The Montana Group increased net sales by 17.6% in H1 2011 compared to H1 2010 and recorded revenues of EUR 200.7m (H1 2010: EUR 170.6m). EBITDA for the first half of the year was EUR 26.3m (H1 2010: EUR 24m) or 13.1% and EBIT was 17.9m (H1 2010: EUR 15.4m) or 8.9%.

In January 2011, the shareholders of Montana approved a capital raise from existing shareholders. Livermore has participated with USD 1.6m in the capital increase.  The funds will be used to repay the convertible debt and fund additional build-out for the Romanian factory, and to possibly purchase shares held by non-controlling shareholders in the Romanian subsidiary. As on 18 August 2011, the convertible debt was redeemed in full with interest.

Private Equity Funds

The other private equity investments held by the Group are in the form of Managed Funds (mostly closed end funds) mainly in the emerging economies of India and China. The investments of these funds into their portfolio companies were mostly done in 2008 and 2009. The Company expects that exits of portfolio companies should materialize between 2012 and 2014.

Financial Investments and Corporate Bond Trading

During H1 2011 the Group further increased its exposure to the US syndicated loan market mainly through investment into Collateralized Loan Obligations (CLO) of 2006 and 2007 vintages. These are managed funds invested into large pools of senior secured floating rate loans and financed with term financing pre-fixed at the respective pre-crisis levels. On absolute and relative value bases the loan market offered value as an undervalued, diversified inflation linked asset class with a senior collateralized claim on the borrower and with overall low volatility and low correlation to equity market. New issue loans offered higher spreads (including Libor floors) of 400-600 bps over LIBOR. New issue credit quality improved, especially compared to the pre-crisis vintages, allowing CLO managers to reinvest their prepayment proceeds into collateral of higher quality as well as higher spread.

The CLO portfolio has performed extremely well on account of declining default rates, improving credit fundamentals and increasing weighted average spreads of their underlying loans. US default rates are expected to remain low over the next 12 to 18 months as most borrowers have refinanced loans and pushed maturities out. During H1 2011, the portfolio generated dividend income of USD 8.5m as well as capital gains and was the main performance driver for the overall portfolio.

As of 30 June 2011 all of our investments were passing their coverage tests (thereby making dividend distributions). The excess spread of these CLOs, namely the difference between the interest income generated by a CLO's assets and the cost of financing through its liabilities as well as certain fees (which are locked-in at closing), increased substantially from original levels.

This combination of improving coverage ratios, increasing percentage of loans with libor floors and increasing excess spread has led to increased payments to CLO income notes. Given market volatility in July and August 2011 as well as the headwinds to US and Euro economies and the continued pressure on the major lenders, we believe that the trend of higher excess spread is likely to continue over the next few quarters benefiting CLO income notes. Furthermore, improved coverage ratios are expected to insulate the portfolio from moderate potential future credit losses, implying that performance should remain strong even in the absence of a significant improvement in macroeconomic conditions, so long as another dramatic fundamental downturn or financial market crisis is avoided.

In Q3 2011, concerns arose about a number of potential negative shocks, including among others, sovereign credit distress, geopolitical unrest, and rising commodity prices, resulting in lower economic growth and heightened risk of a double dip recession. If the economic slowdown translates into higher US loans default rates and negative rating migration this could ultimately negatively impact the CLO portfolio. However, the structural cushion built by CLO managers since 2009 as well as the improved overall quality of the underlying credit portfolios should allow these investments to withstand a greater amount of stress than may have been possible only a few quarters earlier. Recently the CLO universe experienced a wave of ratings upgrades, driven by Moody's methodology changes, improving credit quality, and the structural robustness of CLOs.

During H1 2011, the Group maintained its exposure to bonds of highly rated European and US banks. This exposure was reduced following the end of the reporting period. As part of Basel 3 Banks are being required to replace the legacy tier 1 debt by other means of subordinated debt with a conversion or write down features and to boost up their capital adequacy ratios. Management believes that the introduction of Basel 3 including the requirement to phase out from 1 Jan 2013 legacy tier 1 debt should benefit such debt and shorten its maturity. Interest income during H1 2011 from corporate bonds totalled USD 1.6m.

Litigation

At the time of this Report, there are two litigation matters that the Company is involved in. Further information is provided in note 22 to the interim condensed consolidated financial statements.

Livermore Investments Group Limited

Condensed Consolidated Statement of Financial Position

as at 30 June 2011

Livermore Investment Group Limited

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2011

The total comprehensive income for the period is wholly attributable to the owners of the parent company.

Livermore Investments Group Limited

Condensed Consolidated Statement of Changes in Equity

for the period ended 30 June 2011

Livermore Investments Group Limited

Consolidated Statement of Cash Flows

for the period ended 30 June 2011