LIVERMORE INVESTMENTS GROUP LIMITED

 

UNAUDITED INTERIM RESULTS FOR SIX MONTHS ENDED 30 JUNE 2017

 

Livermore Investments Group Limited (the "Company" or "Livermore") today announces its interim results for the six months ended 30 June 2017.

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

Enquiries:

Livermore Investments Group Limited                                                          +41 43 344 3200

Arden Partners plc                                                                                           +44 (0)20 7614 5917

Steve Douglas

 

 

Chairman's and Chief Executive's Review

Introduction

We are pleased to announce the interim financial results for Livermore Investments Group Limited (the "Company" or "Livermore") for the six months ended 30 June 2017. 

During the first half of 2017, the Company generated net income of USD 8.33m (30 June 2016: USD 9.84m), which represents earnings per share of USD 0.04 (30 June 2016: USD 0.06). The NAV of the Company as of 30 June 2017 was USD 0.96 per share. During the reporting period, management continued to actively manage the financial portfolio and optimized exposure to US credit markets.

 

Financial Review

The NAV of the Company as at 30 June 2017 was USD 167.9m (30 June 2016: 150.2m). The profit after tax for the first half of 2017 was USD 8.33m, which represents earnings per share of USD 0.04. The performance relates largely to the CLO portfolio and exposure to leveraged loans.

	30 June 2017		30 June 2016		31 December 2016
	US $m		US $m		US $m
Shareholders' funds at beginning of period	157.2		148.6		148.6
	___________		___________		___________
Income from investments	12.3		15.5		30.4
Disposal Of Wyler Park	-		-		7.6
Other income	-		-		-
Realised losses on investments	(0.1)		(0.7)		0.3
Loss on impairment on investments	-		(7.6)		-
Unrealised (losses) / gains on investments	(0.1)		3.9		(2.9)
Unrealised exchange profit	-		0.4		1.7
Administration costs	(1.9)		(2.0)		(8.2)
Net finance income / (costs)	0.5		0.4		(1.2)
Tax (charge) / credit	-		(0.4)		3.8
	___________		___________		___________
Increase / (decrease) in net assets from operations	10.7		9.5		31.5
Purchase of own shares			(7.9)		(7.9)
Dividends paid			-		(15.0)
	___________		___________		___________
Shareholders' funds at end of period	167.9		150.2		157.2
	------		------		------
Net Asset Value per share	US $0.96		US $0.86		US $0.90

 

 

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. 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. 

 

Repurchase of shares

Between 31 December 2016 and 30 June 2017, the Company did not repurchase any additional shares. On 30 June 2017, the Company held 129,306,403 shares in treasury. No additional shares were purchased between 30 June 2017 and before the beginning of the interim closed period.

 

Dividends

No dividends are declared for the period ended 30 June 2017.

 

The Board of Directors will decide on the Company's dividend policy for 2017 based on profitability, liquidity requirements, portfolio performance, market conditions, and the share price of the Company relative to its NAV.

 

 

Richard Rosenberg	Noam Lanir
Chairman	Chief Executive

 

26 September 2017

Review of Activities

Economic & Investment Environment

Global growth and macro-financial conditions continued to improve in the first half of 2017. Economic growth was more robust than previous quarters, due in large part to an upturn in emerging economies and a firmer recovery in the euro area. Favourable financing conditions alongside more synchronized regional growth dynamics across the world supported the recovery in global growth.

US GDP recorded growth of 1.4% in the first quarter and expanded at the rate of 3% in the second quarter. Labor conditions have continued to improve and there has been general optimism about tax reform from the new government to kick-start higher levels of growth. Inflation, however, has continued to stay at low levels. Against this backdrop, the US Federal Reserve continued to gradually increase interest rates from very low levels.

The euro area economic recovery continued to firm up. Domestic demand supported by the highly accommodative monetary policy continue to drive economic growth. The recovery in investment has been promoted by favorable financing conditions and improvements in corporate profitability, while sustained employment gains provided support to households' real disposable income and thus private consumption. Further, euro area export growth was better on the back of a gradual improvement in global trade.

Labor market conditions continued to improve in line with GDP growth with US, Japan, UK and Germany close to full employment. Employment conditions improved in most European Union member states as well.  Inflation, however, has remained below central bank target levels in most advanced economies.

As synchronized economic growth across the world takes hold, the key risks emanate from central bank policy actions in advanced economies as they attempt to dial back the highly accommodative and new policy tools.

More robust economic growth, optimism over US fiscal policy, and still highly accommodative monetary policies helped ease financial conditions across most advanced economies in the first half of 2017. The S&P 500 Index recorded a total return of 9.34% during this period whereas EuroStoxx 50 Index gained 6.7%. The Indian NIFTY Index was up 16.3% and the respective main stock market indices in Japan and China also recorded gains. Government bond yields in the euro area increased on better growth dynamics as well as spillover future growth optimism in the US post the US election. The strength in the US Dollar witnessed post the presidential elections in the US, however, has reversed as the market dialed back the probability and degree of tax reform that the new US administration may be able to deliver.

Spreads in Investment Grade and High Yield markets continued to tighten as investors assessed better growth prospects and limited investment options. The Leveraged Loan market saw significant inflows as expectations of higher interest rates attracted investors into floating rate assets. The high interest in the asset class along with robust CLO issuance created favorable financing conditions and borrowers refinanced to lower spreads as well as extended their loan maturities. Default activity remained at low levels and it expected to stay low in 2018 as strong liquidity and few maturities reduce default risk. High yield bonds returned 4.9% in the first half of the year as measured by Bloomberg Barclays High Yield Total Return Index whereas the Credit Suisse Leveraged Loans Index was up 1.96% during the same period.

Sources: Swiss National Bank (SNB), European Central Bank (ECB), US Federal Reserve, Bloomberg, JP Morgan

 

 

Financial Portfolio and trading activity      

 

The Company manages a financial portfolio valued at USD 152.0m as at 30 June 2017, which is invested mainly in fixed income and credit related securities.

                   

 

The following is a table summarizing the financial portfolio as at 30 June 2017

Name	30 June 2017 Book Value US $m	30 June 2016 Book Value US $m	31 December 2016 Book Value US $m
Investment in the loan market through CLOs	94.2	78.9	81.8
Open Warehouse facilities	30.5	6.1	17.3
Hedge Funds	1.1	1.1	1.0
Corporate Bonds	1.1	1.1	1.2
Other Public Equities	1.9	2.8	2.0
Invested Total	128.8	90.0	103.3
Cash	23.2	13.2	60.4
Total	152.0	103.2	163.7

 

 

Senior Secured Loans and CLOs:

The US senior secured loan market continued to offer good risk adjusted returns as 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 pre-fixed at the time of issuance.

 

Following a strong 2016, the leveraged loan market remained relatively stable with the Credit Suisse Leveraged Loan Index recording a total return of 1.96% in the first half of the year. The stability, however, does not reflect the tremendous amount of refinancing activity in the market as a large percentage of borrowers took advantage of the seemingly insatiable demand for floating rate assets and reduced the spread they pay on their loans. While lower spreads provide for lower returns, these favourable financing conditions also allowed borrowers to address near term maturities and reduce the risk of default in the near term. During the reporting period, default rates continued to stay below average levels (1.54% for the S&P/LSTA Leverage Loan Index as at the end of June 2017) and the near-mid term outlook remains benign.

 

CLO equity market was relatively stable during the first half of 2017 on the back of stable credit markets. As anticipated, CLO equity distributions reduced as the loan spreads tightened and the libor floor benefit was completely erased due to rate hikes. At the same time, however, CLO debt demand increased significantly. Management has been proactively working on utilizing its option to refinance the cost of CLO liabilities lower where possible, or extend the reinvestment period of its CLO positions, or both. The reduced financing costs should help offset some of the loan spread reduction and provide optionality of higher and longer cash flows from our CLO equity positions. Management continues to follow problem credits and focus on Retail industry exposure due to the expected decline in fundamentals.

 

During the reporting period the Company's US CLO portfolio performed well despite lower cash flows as the value of optionality embedded within CLO equity increased. Management has been proactively working on benefitting from this optionality to lower financing costs or increasing the length of cash flows or both. Further, management converted all three of its open warehouses in new issue CLOs with the lowest cost of financing since the 2007 crisis. The warehouses generated strong returns and the Company received net income of USD 1.5m from the warehouses. As of the end of the reporting period, management had negotiated 3 new attractive warehouses with long tenures and non-mark-to-market financings. Two of these warehouses have already been converted to a CLO and the Company received USD 1.2m from them in the third quarter of the year. As at 30 June 2017, over 93.8% of the Company's CLO portfolio is invested in post-crisis CLOs.

 

Although management maintains a positive view on the CLO portfolio, mid-long term performance may be negatively impacted by a strong pull back in the US or European economy or geo-political events that could result in a spike in defaults.  Despite positive developments in the overall health of the US economy, we acknowledge the continued below trend growth globally as well as headwinds relating to the potential monetary tightening in advanced economies, weak commodity markets and geopolitical risks.

 

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

 

	30 June 2017 Amount	Percentage	30 June  2016 Amount	Percentage
	US $000		US $000
US CLOs	93,446	99.2%	74,752	94.7%
European CLOs	594	0.6%	688	0.9%
Global Credit CLOs	124	0.2%	3,436	4.4%
	------	------	------	------
	94,164	100%	78,876	100%
	------	------	------	------

 

 

Private Equity Funds

The other private equity investments held by the Company are incorporated in the form of Managed Funds (mostly closed end funds) mainly in emerging economies. The investments of these funds into their portfolio companies were mostly done in 2008 and 2009. Overall, during the first half of 2017 the investment environment relating to most funds was challenging and the Company expects that exits of portfolio companies should materialize between 2018 and 2020.

 

The following summarizes the book value of the private equity funds as at 30 June 2017:

Name	Book Value US $m
Evolution Venture (Israel)	4.0
SRS Private (India)	1.3
Other investments	2.4
Total	7.7

 

Evolution Venture:  Evolution is an Israel focused venture capital fund. It invests in early stage technology companies. Its investments include Whitesmoke Software Ltd (a Tel-Aviv listed language enhancement products company), a software company operating in the digital radio market, a software test tool developer, and a virtualization technology company. The virtualization technology company recently raised new capital at much higher levels than the funds'.

 

SRS Private: SRS Private is a private equity fund focused on real estate in India. The fund has invested in residential and commercial projects as well as directly in certain real estate companies. The assets are primarily located in and around major cities of India such as Mumbai and Hyderabad. In the last twelve months, the fund has distributed USD 0.2m to Livermore. Further distributions are expected in 2017 - 18 from two of its investments. Remaining proceeds from the partial sale of their IT project in Mumbai is delayed due to financial condition of the buyer.

The following table reconciles the review of activities to the Group's financial assets as at 30 June 2017.  

Name	30 June 2017 Book Value US $m
Financial portfolio	128.8
Private Equity Funds	7.7
Total	136.5
Financial assets at fair value through profit or loss (note 4)	127.7
Financial assets at fair value through other comprehensive income (note 5)	8.8
Total	136.5

 

Events after the reporting date

Events after the reporting date are described in note 28 to the interim financial statements.

 

Litigation

Information is provided in note 26 to the interim condensed financial statements.

 

 

Livermore Investments Group Limited

Condensed Statement of Financial Position

as at 30 June 2017

	Note	30 June 2017 Unaudited	30 June 2016 Unaudited	31 December 2016 Audited
Assets		US $000	US $000	US $000
Non-current assets
Property, plant and equipment		-	23	-
Financial assets at fair value through profit or loss	4	94,165	80,164	81,769
Financial assets at fair value through other comprehensive income	5	7,835	12,477	5,634
Investment property	8	-	126,185	-
Investments in subsidiaries	10	6,425	-	5,252
Trade and other receivables	11	2,532	564	2,513
		--------	--------	--------
		110,957	219,413	95,168
		--------	--------	--------
Current assets
Trade and other receivables	11	3,620	4,201	5,427
Financial assets at fair value through profit or loss	4	33,568	9,996	20,318
Financial assets at fair value through other comprehensive income	5	1,064	1,024	1,039
Current tax asset		-	4	-
Cash at bank	12	23,158	13,201	60,383
		--------	--------	--------
		61,410	28,426	87,167
		--------	--------	--------
Total assets		172,367	247,839	182,335
		--------	--------	--------
Equity
Share capital	13	-	-	-
Share premium and treasury shares	13	169,187	169,187	169,187
Other reserves		(37,415)	(32,216)	(39,842)
Retained earnings		36,162	13,263	27,829
		--------	--------	--------
Total equity		167,934	150,234	157,174
		--------	--------	--------
Liabilities
Non-current liabilities
Bank loans	15	-	75,956	-
Deferred tax		-	4,408	-
		--------	--------	--------
		-	80,364	-
		--------	--------	--------
Current liabilities
Bank loans	15	-	1,504	-
Bank overdrafts	12	-	14,247	1,160
Trade and other payables	16	4,433	937	8,616
Provisions		-	385	385
Dividend payable		-	-	15,000
Derivative financial instruments		-	168	-
		--------	--------	--------
		4,433	17,241	25,161
		--------	--------	--------
Total liabilities		4,433	97,605	25,161
		--------	--------	--------
Total equity and liabilities		172,367	247,839	182,335
		--------	--------	--------
Net asset valuation per share
Basic and diluted net asset valuation per share (US $)	17	0.96	0.86	0.90
		--------	--------	--------

 

 

Livermore Investments Group Limited Condensed Statement of Profit or Loss for the six months ended 30 June 2017
	Note	Six months ended 30 June 2017 Unaudited	Six months ended 30 June 2016 Unaudited	Year ended 31 December 2016 Audited
		US $000	US $000	US $000
Continuing operations
Investment Income
Interest and dividend income	19	12,345	12,930	26,334
(Loss) / gain on investments	20	(2,599)	(3,602)	1,695
		------	------	------
Gross profit		9,746	9,328	28,029
Administrative expenses	21	(1,882)	(1,812)	(7,888)
		------	------	------
Operating  profit		7,864	7,516	20,141
Finance costs	22	(46)	(129)	(218)
Finance income	22	515	1,143	-
		------	------	------
Profit before taxation		8,333	8,530	19,923
Taxation charge		-	(18)	(38)
		------	------	------
Profit for period / year from continuing operations		8,333	8,512	19,885
Discontinued operations
Profit for period / year from discontinued operations		-	1,327	14,091
		------	------	------
Profit for period / year		8,333	9,839	33,976
		------	------	------
Earnings per share
Basic and diluted  earnings per share (US $)
·      From continuing operations	24	0.04	0.05	0.11
·      On discontinued operations	24	-	0.01	0.08
		------	------	------
		0.04	0.06	0.19
		------	------	------

 

 

 

 

Livermore Investments Group Limited

Condensed Statement of Comprehensive Income

for the six months ended 30 June 2017

		Six months ended 30 June 2017 Unaudited	Six months ended 30 June 2016 Unaudited	Year ended 31 December 2016 Audited
		US $000	US $000	US $000
Profit for the period / year		8,333	9,839	33,976
Other comprehensive income:
Items that will be reclassified subsequently to profit or loss
Foreign exchange gains from translation of subsidiaries		-	403	190
		------	------	------
		8,333	10,242	34,166
		------	------	------
Items that are not reclassified subsequently to profit or loss
Financial assets designated at fair value through other comprehensive income - fair value gains / (losses)		2,427	(779)	(4,301)
		------	------	------
Reclassification to profit or loss
Foreign exchange losses reclassified on disposal of subsidiary		-	-	1,538
		------	------	------
Total comprehensive income for the period / year		10,760	9,463	31,403
		------	------	------

 

 

 

Livermore Investments Group Limited

Condensed Statement of Changes in Equity

for the period ended 30 June 2017

 

	Note	Share capital	Share premium	Treasury  Shares	Share option reserve	Translation  reserve	Investment revaluation reserve	Retained earnings	Total
		US $000	US $000	US $000	US $000	US $000	US $000	US $000	US $000
Balance at 1 January 2016		-	215,499	(38,446)	5,506	(1,728)	(1,147)	(31,047)	148,637
Adjustment on initial application of IFRS 9		-	-	-	-	-	(34,471)	34,471	-
		------	------	------	------	------	------	------	------
As restated		-	215,499	(38,446)	5,506	(1,728)	(35,618)	3,424	148,637
		------	------	------	------	------	------	------	------
Purchase of own shares		-	-	(7,866)	-	-	-	-	(7,866)
Dividends		-	-	-	-	-	-	(15,000)	(15,000)
Transfer on expiry of options		-	-	-	(5,429)	-	-	5,429	-
		------	------	------	------	------	------	------	------
Transactions with owners		-	-	(7,866)	(5,429)	-	-	(9,571)	(22,866)
		------	------	------	------	------	------	------	------
Profit for the year		-	-		-	-	-	33,976	33,976
Other comprehensive income:
Financial assets at fair value through OCI- Fair value losses		-	-	-	-	-	(4,301)	-	(4,301)
Foreign exchange gain arising from translation of subsidiaries		-	-	-	-	190	-	-	190
Foreign exchange losses reclassified on disposal of subsidiary		-	-	-	-	1,538	-	-	1,538
		------	------	------	------	------	------	------	-----
Total comprehensive income for the year		-	-	-	-	1,728	(4,301)	33,976	31,403
		------	------	------	------	------	------	------	------
Balance at 31 December 2016		-	215,499	(46,312)	77	-	(39,919)	27,829	157,174
		------	------	------	------	------	------	------	------
Profit for the period		-	-	-	-	-	-	8,333	8,333
Other comprehensive income:
Financial assets at fair value through OCI- Fair value gains		-	-	-	-	-	2,427	-	2,427
		------	------	------	------	------	------	------	------
Total comprehensive income for the period		-	-	-	-	-	2,427	8,333	10,760
		------	------	------	------	------	------	------	------
Balance at 30 June 2017		-	215,499	(46,312)	77	-	(37,492)	36,162	167,934
		------	------	------	------	------	------	------	------

 

 

 

	Note	Share capital	Share premium	Treasury  Shares	Share option reserve	Translation  reserve	Investment revaluation reserve	Retained earnings	Total
		US $000	US $000	US $000	US $000	US $000	US $000	US $000	US $000
Balance at 1 January 2016		-	215,499	(38,446)	5,506	(1,728)	(1,147)	(31,047)	148,637
Adjustment on initial application of IFRS 9		-	-	-	-	-	(34,471)	34,471	-
		------	------	------	------	------	------	------	------
As restated		-	215,499	(38,446)	5,506	(1,728)	(35,618)	3,424	148,637
		------	------	------	------	------	------	------	------
Purchase of own shares		-	-	(7,866)	-	-	-	-	(7,866)
		------	------	------	------	------	------	------	------
Transactions with owners		-	-	(7,866)	-	-	-	-	(7,866)
		------	------	------	------	------	------	------	------
Profit for the period		-	-	-	-	-	-	9,839	9,839
Other comprehensive income:
Financial assets at fair value through OCI- Fair value losses		-	-	-	-	-	(779)	-	(779)
Foreign exchange gain arising from translation of subsidiaries		-	-	-	-	403	-	-	403
		------	------	------	------	------	------	------	------
Total comprehensive income for the period		-	-	-	-	403	(779)	9,839	9,463
		------	------	------	------	------	------	------	------
Balance at 30 June 2016		-	215,499	(46,312)	5,506	(1,325)	(36,397)	13,263	150,234
		------	------	------	------	------	------	------	------

 

 

 

 

Livermore Investments Group Limited

Condensed Statement of Cash Flows

for the period ended 30 June 2017

	Note	Six months ended 30 June 2017 Unaudited	Six months ended 30 June 2016 Unaudited	Year ended 31 December 2016 Audited
		US $000	US $000	US $000
Cash flows from operating activities
Profit before tax		8,333	8,530	19,923
Adjustments for:
Depreciation expense	21	-	3	7
Interest expense	22	7	129	216
Interest and dividend income	19	(12,345)	(12,930)	(26,334)
Loss / (gains) on investments	20	2,599	3,602	(1,695)
Exchange differences		(430)	(304)	(243)
		------	------	------
		(1,836)	(970)	(8,126)
Changes in working capital
Decrease in trade and other receivables		1,741	543	24,486
(Decrease) / increase  in trade and other payables		(4,183)	(1,257)	4,251
		------	------	------
Cash flows from operations		(4,278)	(1,684)	20,611
Interest and dividend received		12,554	13,169	26,561
Settlement of litigation		(385)	(128)	(128)
Tax paid		-	(16)	(39)
		------	------	------
Net cash generated from operating activities		7,891	11,341	47,005
		------	------	------
Cash flows from investing activities
Proceeds from disposal of subsidiary - net of cash and cash equivalents disposed		-	-	31,752
Acquisition of investments		(68,075)	(16,841)	(37,039)
Proceeds from sale of investments		38,716	500	14,462
Settlement of derivative		-	(743)	(148)
		------	------	------
Net cash from investing activities		(29,359)	(17,084)	9,027
		------	------	------
Cash flows from financing activities
Purchases of own shares		-	(7,866)	(7,866)
Interest paid		(66)	(140)	(331)
Dividends paid		(15,000)	-	-
		------	------	------
Net cash from financing activities		(15,066)	(8,006)	(8,197)
		------	------	------
Net (decrease) / increase in cash and cash equivalents
-  from continuing operations		(36,534)	(13,749)	47,835
-  of discontinued operations		-	(423)	826
Cash and cash equivalents at the beginning of the period / year		59,223	12,562	12,562
Exchange differences on cash and cash equivalents		469	564	(245)
Cash and cash equivalent of subsidiaries, removed on change in investment entity status		-	-	(1,755)
		------	------	------
Cash and cash equivalents at the end of the period / year	12	23,158	(1,046)	59,223
		------	------	------

 

 

 

Notes to the Financial Statements

 

1.     Accounting policies

The interim condensed financial statements of Livermore have been prepared on the basis of the accounting policies stated in the 2016 Annual Report, available on www.livermore-inv.com. The application of the IFRS pronouncements that became effective as of 1 January 2017 has no significant impact on the Company's financial statements.

1.1  Adoption of IFRS 9

The Company elected in 2016 to apply IFRS 9 "Financial Instruments" as issued in July 2014, earlier than its effective date.  The date of the initial application of IFRS 9 was 1 January 2016.  As a result of the adoption of IFRS 9, the comparative figures for the six months ended 30 June 2016 have been restated. 

The most significant impact of the adoption of IFRS 9, was on the classification and measurement of the Company's financial assets.

The impact of the adoption of IFRS 9 on the financial information for the six months ended 30 June 2016, is summarized as follows:

	30 June 2016	1 January 2016
	US $000	US $000
Reclassification out of Available-for-sale financial assets	(93,238)	(81,147)
Reclassification to Financial assets at fair value through profit or loss	79,737	67,196
Designated as Financial assets at fair value through other comprehensive income	13,501	13,951
	------	------
Net assets impact	-	-
	------	------
Adjustment to Retained earnings	38,128	34,471
Adjustment to Investments revaluation reserve	(38,128)	(34,471)
	------	------
Equity impact	-	-
	------	------

 

Also, the profit or loss for the six months ended 30 June 2016 is higher by USD 3.655m (representing an increase of USD 0.02 on basic and diluted earnings per share for the period) due to the adoption of IFRS 9.  This is mostly attributable to the fact that the additional fair value losses recognised in profit or loss are less than the impairment losses on available-for-sale financial assets that would have been recognised based on IAS 39.

The adoption of IFRS 9 did not have any significant impact on the Company's financial liabilities.

   

2.     Critical accounting judgements and estimation uncertainty

When preparing the interim condensed financial statements, Management undertakes a number of judgements, estimates and assumptions about recognition and measurement of assets, liabilities, income and expenses. The actual results may differ from the judgements, estimates and assumptions made by Management, and will seldom equal the estimated results. The judgements, estimates and assumptions applied in the interim condensed financial statements, including the key sources of estimation uncertainty were the same as those applied in the Company's last annual financial statements for the year ended 31 December 2016.

 

3.     Basis of preparation

These unaudited interim condensed financial statements are for the six months ended 30 June 2017. They have been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Company for the year ended 31 December 2016.

The financial information for the year ended 31 December 2016 is extracted from the Company's consolidated financial statements for the year ended 31 December 2016 which contained an unqualified audit report.

3.1 Investment entity status

On 28 October 2016, Livermore disposed to a third party the 100% of the shares of its subsidiary Livermore Investments AG in Switzerland, and as a result discontinued its investment property activities that constituted an operating segment of the Group.  The Directors determined that since the discontinuance of its investment property activities, Livermore meets the definition of an investment entity, as this is defined in IFRS 10 "Consolidated Financial Statements".

In accordance with IFRS 10, 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.

In Livermore's situation, none of its subsidiaries provides such services.

Given the above, these financial statements consolidate the Company's subsidiaries up to 28 October 2016. As of that date, the subsidiaries have been de-consolidated, and recognised as Investments in subsidiaries at their fair value as at 28 October 2016.

 

4.     Financial assets at fair value through profit or loss

	30 June 2017 Unaudited	30 June 2016 Unaudited	31 December 2016 Audited
	US $000	US $000	US $000
Non-current assets
Fixed income investments (CLO Income Notes)	94,165	78,876	81,769
Real estate entities	-	1,288	-
	------	------	------
	94,165	80,164	81,769
	------	------	------
Current assets
Fixed income investments	31,673	7,165	18,368
Public equity investments	1,895	2,831	1,950
	------	------	------
	33,568	9,996	20,318
	------	------	------

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.

 

 

5.     Financial assets at fair value through other comprehensive income

	30 June 2017 Unaudited	30 June 2016 Unaudited	31 December 2016 Audited
	US $000	US $000	US $000
Non-current assets
Private equities	7,835	12,477	5,634
	------	------	------
Current assets
Hedge funds	1,064	1,024	1,039
	------	------	------

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.

 

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, and investments in the loan market through CLOs, and investments in open warehouse facilities. 

 

·      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. 

·      Hedge funds relate to equity investments in funds managed by sophisticated investment managers that pursue investment strategies with the goal of generating absolute returns.

 

·      Public equity investments relate to investments in shares of companies listed on public stock exchanges.

 

·      Real estate entities relate to investments in real estate projects.

 

7.     Fair value measurements of financial assets and liabilities

The following table presents financial assets measured at fair value in the 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 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.

 

Valuation of financial assets and liabilities

·      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 affect 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 collateral prepays impacts the future cash flows that the CLO may generate.

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.  

·      Private Equities are valued using market valuation techniques as determined by the Directors, mainly on the basis of discounted cash flow techniques or valuations reported by third-party managers of such investments. 

·      Hedge Funds are valued per reports provided by the funds on a periodic basis, and if traded, per their closing bid market prices on quoted exchanges, or as quoted by market maker.

·      Real Estates entities are valued by independent qualified property valuers with substantial relevant experience on such investments. Underlying property values are determined based on their estimated market values.    

·      Investments in subsidiaries are valued at fair value as determined on an adjusted net asset valuation basis.

 

Financial assets and financial liabilities measured at fair value in the statement of financial position are grouped into the fair value hierarchy as follows:      

 

30 June 2017	Unaudited US $000	Unaudited US $000	Unaudited  US $000	Unaudited US $000
	Level 1	Level 2	Level 3	Total
Assets
Fixed income investments	1,126	94,165	30,547	125,838
Private equities	-	-	7,835	7,835
Public equity investments	1,895	-	-	1,895
Hedge funds	-	1,064	-	1,064
Investments in subsidiaries	-	-	6,425	6,425
	------	------	------	------
	3,021	95,229	44,807	143,057
	------	------	------	------

 

 

 

30 June 2016	Unaudited US $000	Unaudited US $000	Unaudited  US $000	Unaudited US $000
	Level 1	Level 2	Level 3	Total
Assets
Fixed income investments	1,103	78,876	6,062	86,041
Private equities	-	-	12,477	12,477
Public equity investments	2,831	-	-	2,831
Hedge funds	-	1,024	-	1,024
Real estate entities	-	-	1,288	1,288
	------	------	------	------
	3,934	79,900	19,827	103,661
	------	------	------	------
Liabilities
Forward contract	-	168	-	168
	------	------	------	------
	-	168	-	168
	------	------	------	------

 

 

 

31 December 2016	Audited US $000	Audited US $000	Audited  US $000	Audited  US $000
	Level 1	Level 2	Level 3	Total
Assets
Fixed income investments	1,117	81,769	17,251	100,137
Private equities	-	-	5,634	5,634
Public equity investments	1,951	-	-	1,951
Hedge funds	-	1,038	-	1,038
Investments in subsidiaries	-	-	5,252	5,252
	------	------	------	------
	3,068	82,807	28,137	114,012
	------	------	------	------

The methods and valuation techniques used for the purpose of measuring fair value are unchanged compared to the previous reporting period.

 

No financial assets or liabilities have been transferred between levels, except from a certain equity instrument that was delisted and therefore transferred from Level 1 to Level 3 in 2016.

 

 

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
	Private equities	Fixed Income investments		Total
	US $000	US $000	US $000	US $000
As at 1 January 2017	5,634	17,251	5,252	28,137
Purchases	-	48,500	1,200	49,700
Settlement	-	(35,500)	-	(35,500)
Gains / (losses) recognised in:
-Profit or loss	-	296	(27)	269
-Other comprehensive income	2,201	-	-	2,201
	------	------	------	------
As at 30 June 2017	7,835	30,547	6,425	44,807
	------	------	------	------

 

 

 

 

	At fair value through  OCI	Available-for-sale	At fair value through  profit or loss
	Private equities	Private equities	Real estate	Private equities	Fixed Income investments	Total
	US $000	US $000	US $000	US $000	US $000	US $000
As at 1 January 2016	-	12,518	1,203	330	5,021	19,072
Transfer on initial application of IFRS 9 (note 1.1)	12,848	(12,518)	-	(330)	-	-
Losses recognised in:
-Profit or loss	-	-	85	-	1,041	1,126
-Other comprehensive income	(371)	-	-	-	-	(371)
	------	------	------	------	------	------
As at 30 June 2016	12,477	-	1,288	-	6,062	19,827
	------	------	------	------	------	------