Highlights

·      Net Asset Value per share increased 11.0% to USD 1.00 (December 2016: USD 0.90).

·      For the year ended 31 December 2017, the Company announced an interim dividend of USD 8m (USD 0.04576 per share) to members on the register on 26 January 2018. The dividend was paid on 23 February 2018.

·      CLO portfolio and warehouse performed strongly generating USD 22.1m gains in 2017. 

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 2017. References to the Company hereinafter also include its consolidated subsidiaries (note 10).   

The year-end NAV was USD 1.00 per share (2016 NAV: USD 0.90 per share). Net profit for the year was USD 16.4m (2016 Net Profit: USD 34.0m).

The Company recorded gains from the financial portfolio as the US credit and CLO markets continued to perform well. Management took advantage of lower funding costs to reduce the cost of financing for several of its CLO positions. Interest and distribution income from the financial portfolio totalled USD 28.0m (2016: USD 26.3m).

References to financial statements hereinafter are to the Company's consolidated financial statements.

Financial Review

The NAV of the Company at 31 December 2017 was USD 175.4m (2016: USD 157.2m). Net profit, during the year was USD 16.4m, which represents earnings per share of USD 0.09.

Administrative expenses were USD 6.2m (2016: USD 8.2m - including discontinued operations).

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

Dividend & Buyback

For the year ended 31 December 2017, the Board announced an interim dividend of USD 8m (USD 0.04576 per share) to members on the register on 26 January 2018. The dividend was paid on 23 February 2018.

During 2017, the Company cancelled 129,306,403 Ordinary Shares, which it held as Treasury Shares.  As at 31 December 2017, the Company held no shares in treasury.

Richard B Rosenberg                                                                                        Noam Lanir

Chairman                                                                                                           Chief Executive Officer

28 May 2018

Review of Activities

Introduction and Overview

The Company achieved strong performance in 2017, generating an 11.6% increase in NAV. Active management of its CLO and warehousing portfolio were the key drivers of performance in 2017, demonstrating the knowledge and skills of the management team to create value as well as the resilience of the portfolio.

In 2017, the Company generated interest and distribution income of USD 28.0m. The Company reported NAV/share of USD 1.00 and net profit of USD 16.4m. Administrative expenses amount to USD 6.2m (2016: USD 8.2m - including discontinued operations), finance income USD 0.5m (2016: USD 0m) and finance costs were USD 0m (2016: USD 1.2m - including discontinued operations). The net income was primarily driven by interest and distribution income generated by the CLO and warehousing portfolio partly offset by loss on fair value of investments of USD 5.9m and administrative and financing expenses as noted above.

The Company relies primarily on the interest and distribution income generated by its CLO and warehouse portfolio. During the year, the CLO and warehousing portfolio generated USD 27.8m in income. CLO equity positions typically generate higher cashflow than their expected IRRs because it is expected that future defaults in the loans held by CLOs may erode the residual value over time. Thus, the performance of the company's CLO portfolio is mainly through the cash flow generated on a regular basis.

During 2017, spreads in the US senior secured loan market tightened significantly, and management pro-actively worked with banks and CLO managers to refinance and reduce the financing costs of its individual CLO positions. This helped offset the spread tightening on the assets and increased future potential cashflow from these positions. On the warehousing front, management closed six warehouses generating USD 4m in carry as well as generating cheap entry points into new CLO positions. During the year, the CLO and warehousing portfolio generated 22.7% return on invested capital. 

During the year, the Company invested an additional USD 35.9m in primarily new issue CLO equity positions and disposed USD 26.2m of CLO positions, while the warehouse portfolio increased by USD 8.3m as compared to the beginning of the year.

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 position of Livermore, together with its strong foothold in the US CLO market as well as the robustness of its investment portfolio and the alignment of management's interests with those of its shareholders, management believes that the Company is well positioned to benefit from current market conditions.

Global Investment Environment

The global economy gained further momentum in 2017 and global GDP recorded its strongest growth since 2011. Monetary policies in the major currency areas were still accommodative and financing conditions favourable. Increased investment activity further buoyed the broad-based recovery. In the advanced economies, employment continued to grow and unemployment declined. Economic conditions also developed favourably in the emerging economies. While utilisation of production capacity increased globally, wage and price gains remained subdued.

Global trade in goods rose by 4.5%, driven by the upswing in manufacturing and the recovery in information and communications technology. Higher demand from China further fostered global trade and commodity prices continued to recover in 2017. While the price for Brent crude briefly dipped below USD 50 per barrel in the first half of the year, a reduction in high inventory levels, the favourable global economic conditions and the agreement among the major oil-producing countries to limit production saw the price rise continuously from mid-year, reaching approximately USD 65 per barrel at year-end. Prices for industrial metals also increased in the wake of the global economic upturn.

Consumer and business confidence remained healthy until the end of the year, suggesting that the upturn can be expected to continue. Financing conditions, which remain favourable, are also likely to contribute to this. Moreover, in 2017, several countries saw structural reforms implemented that should boost economic growth in the medium term. Political risks in certain countries, as well as potential international tensions, remain a source of uncertainty.

Economic growth in the US was considerably stronger at 2.3% in 2017 than in the previous year (1.5%). After a weak start at the beginning of the year, the economy gained broad-based momentum. The labour market was close to full employment with the unemployment rate falling to 4.1% by the end of the year. Furthermore, substantial tax cuts approved raised consumer confidence. These tax cuts are likely to provide slight growth stimuli as early as 2018.

The economic upswing in the euro area firmed. Annual GDP growth averaged 2.5% in 2017, compared with 1.8% the previous year. The economy picked up in all euro area countries, with Germany remaining a driving force. Employment continued to gain momentum in most member states, and at year-end, the unemployment rate in the euro area was below 9% for the first time since 2009. Against this backdrop, consumer and business confidence continued to improve; the last comparable boost in confidence was observed in 2000.

However, the situation in the individual Euro zone member states painted an uneven picture with respect to the level of unemployment, public debt levels and structural reform. While some countries, such as France, initiated reforms, other countries only made tentative progress. Moreover, the number of non-performing loans remained high in some EU countries, despite an improvement on the previous year. The future economic relationship between the EU and the UK following the UK's decision to leave the union also presents a challenge.

Inflation, as measured by the CPI, remained below central bank targets in most advanced economies. Compared to 2016, however, annual inflation recorded an increase in most cases, predominantly due to higher energy prices. In the euro area, inflation rose to 1.5% from almost zero in the previous year. Core inflation, however, remained at around 1%. US inflation averaged 2.1% and was thus considerably higher than in the year before (1.3%). Core inflation, however, receded slightly to 1.8%, primarily due to a decline in prices for communication services.

In view of the moderate inflation rates, many central banks maintained their expansionary monetary policy. One exception was the US Federal Reserve, which continued to pursue a cautious normalisation of its monetary policy after US inflation had approached its target and the economy was close to full employment. The Federal Reserve increased the target range for its policy rate in three steps by a total of 0.75 percentage points to 1.25 - 1.50%. In October, it also began to reduce its balance sheet by no longer reinvesting a portion of its matured government bonds and mortgage-backed securities. The European Central Bank (ECB) left its deposit rate at      - 0.4% and the main refinancing rate at 0.0%. It also continued its asset purchase programme, albeit reducing the purchase volume by EUR 20 billion to EUR 60 billion per month in April. Since developments in inflation were regarded as disappointing, the ECB decided in October to further extend the asset purchase programme until at least September 2018, but to halve its monthly purchase volume to EUR 30 billion from January 2018. Key rates are expected to remain unchanged for an extended period of time and well past the horizon of its net asset purchases. The ECB also decided, as part of its regular refinancing operations, to continue supplying banks with unlimited liquidity until at least the end of 2019.

On the back of a strong economic growth and still accommodative monetary policy, risk assets performed well in 2017. The S&P 500 was up every month of the year and ended with a gain of 21.8% while the EuroStoxx 50 and MSCI ACWI Index generated a 9.15% and 24% return for the year respectively. US Credit markets had a good year in 2017 with High Yield bonds returning 7.5% and Leveraged Loans generating a total return of 4.25% as measured by the Bloomberg Barclays US Corporate High Yield Index and the Credit Suisse Leveraged Loan Index respectively. Volatility in the US equity markets remained exceptionally low during the year and the US 10 year Treasury bond yield was little changed.

Sources: Board of Governors of the Federal Reserve System, European Central Bank (ECB), Swiss National Bank, Bloomberg, Morgan Stanley

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 and trading activity    

The Company manages a financial portfolio valued at USD 126.9m as at 31 December 2017, which is invested mainly in fixed income and credit related securities.

The following is a table summarizing the financial portfolio as of year-end 2017

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.

US Leveraged loans continued to perform well in 2017 as demand for floating rate product increased with expectations of higher short terms rates in the US. Net inflows into loan funds amounted to USD 9.4bn as per JP Morgan. The Credit Suisse Leveraged Loan Index had a total return of 4.25% in 2017 and about two-thirds of the loan market was trading over par according to S&P Capital IQ. Borrowers took advantage of the increased demand and successfully refinanced or repriced their spreads at lower levels. At the same time, the 12 month lagging default rate by principal amount on the S&P/LSTA Leveraged Loan Index as of December 2017 was 2.1% versus the long term average of 3%. Market participants expect the default rates to stay at benign levels given economic growth and the corporate tax cuts in the US.  

The cost of financing for new CLOs also declined in line with the spreads in the US loan market. Spreads on the AAA rated tranches of CLOs declined from about 140bps at the start of the year to about 110bps by the end of the year. The Company's management took advantage of availability of lower financing costs in the market to refinance and/or extend the reinvestment period of several of its CLOs. As a result, the spread compression on the loans has been significantly offset on such CLOs and an extension of the reinvestment period has created optionality for CLO managers to take advantage of loan price volatility that may arise in the near-mid term.

The Company's CLO and warehousing portfolio generated cashflow of USD 27.8m and a net return of about USD 22.1m in 2017 (approximately 22.7% on the 2017 invested capital). The Company converted six warehouses into CLOs and generated about USD 4m in carry during the year. As of year end 2017, the Company had two open warehouses which have both been converted to CLOs as of the date of publication of this report. The Company continues to look for opportunities to invest in the first-loss tranche of warehouse facilities with long tenures and no mark-to-market triggers. As of the end of the year 2017, all of the Company's US CLO equity positions were passing their Overcollateralization (OC) tests and remained robust. 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.

Looking into the near future, management believes that default rates should continue to stay below historical averages as only a small percentage of the US Leveraged Loan market matures before 2020 and the US corporate tax cuts and stronger economic growth provide for a stable backdrop. Management continues to focus on sectors such as Retail, Healthcare and Technology that are expected to undergo shifts due to technology or regulation.

While 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 the US, weak commodity markets and geopolitical risks.

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

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 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 material exits of portfolio companies from funds to materialize between 2018 and 2020.  During the reporting period distributions of USD 0.2m were received from SRS Private.

The following summarizes the book value of the private equity funds as at year-end 2017

Evolution Venture: Evolution is an Israel focused Venture Capital fund. It invests in early stage technology companies. Its investments include a carrier-class Mobile Broadband Wireless (MBW) Wi-Fi solutions company, a mobile keyboard and language correction software company, a software company operating in the digital radio market, a software test tool developer, and a virtualization technology company. The virtualization technology company has been performing well and is the main contributor to the funds' NAV.

SRS Private Fund: SRS Private is a private equity fund focused on real estate in India. The fund has invested in residential and mixed use projects in India 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 2017, the fund distributed USD 0.2m from proceeds of its investment in SRS Charminar. As the term of the fund is drawing to a close, the fund manager informed the Company that it is in process of proposing a solution to generate liquidity for the fund investors.

Elephant Capital: India-focused private equity fund, which was AIM quoted (Ticker: ECAP).  The fund delisted from the LSE/AIM market in order to reduce costs given the small size of the remaining fund. Livermore owns 9.9% of the delisted fund.  As of August 2017, the fund reported an unaudited NAV of 0.27 pence per share.

Da Vinci: The fund is primarily focused on Russia and CIS countries and is primarily invested in the Moscow Exchange and a Ukrainian coal company.

Panda Capital: Panda Capital is a China-based private equity fund focused on early-stage industrial operations in China. The fund's main investment is in a bamboo flooring company in China, which provides an innovative low cost alternative to hardwood flooring in shipping containers.  The manager is in the process of building up operational capacity for product manufacturing.

The following table reconciles the review of activities to the Company's financial assets as of 31 December 2017

Events after the reporting date

The two warehouse facilities that the Company invested in, during 2017, were closed in April and May 2018.  For both warehouses, with a carrying amount as at 31 December 2017 of USD 25.5m, the Company invested an additional amount of USD 10m during 2018 (before their closure).   For these warehouses, Livermore's investment amount plus net carry amounting to a total of USD 37.6m became receivable in April and May 2018. 

At 15 January 2018, the Board announced an interim dividend of USD 8m (USD 0.04576 per share) to members on the register on 26 January 2018. The dividend was paid on 23 February 2018. There were no other material events after the end of the reporting year, which have a bearing on the understanding of these 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 31 to the financial statements.

Report of the Directors

The Directors submit their annual report and audited financial statements of the Company for the year ended 31 December 2017.

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 62), 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 51), 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 nineteen 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 50), Executive Director and Chief Investment Officer

Ron was appointed as Executive Director and Chief Investment Officer on 10 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 buy-outs and privatisations. Ron has over 17 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 a LLB (LAW) and BA in Economics from Tel Aviv University.

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.

Substantial Shareholdings

As at 25 April 2018 the Directors are aware of the following interests in 3 per cent or more of the Company's issued ordinary share capital:

Save as disclosed in this report and in the remuneration report, the Company is not aware of any person who 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 29 to the financial statements.

Corporate Governance Statement

Introduction

The Company recognises the importance of the principles of good Corporate Governance and the Board is pleased to accept its commitment to such high standards throughout the year.  As an AIM quoted company, Livermore is not required to follow the provisions of the UK Corporate Governance Code (the "Code").  

The Board Constitution and Procedures

The Company is controlled through the Board of Directors, which currently comprises one Non-Executive Director 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 6 February 2007 and adopted pursuant to shareholder approval at the Company's EGM on 28 February 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.  Following the resignation of one of the Non-Executive Directors, this committee has one member until a new Non-Executive Director is appointed.  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.  Following the resignation of one of the Non-Executive Directors, this committee has one member until a new Non-Executive Director is appointed. The duties of the Committee include monitoring the auditor's performance and reviewing accounting policies and financial reporting procedures. 

Communication with Investors

The Directors are available to meet with shareholders throughout the year.  In particular the Executive Directors prepare a general presentation for analysts and institutional shareholders following the interim and preliminary results announcements of the Company.  The chairman, Richard Rosenberg, is available for meetings with shareholders throughout the year.  The Board endeavours to answer all queries raised by shareholders promptly.

Shareholders are encouraged to participate in the Annual General Meeting at which the Chairman will present the key highlights of the  Company's performance.  The Board will be available at the Annual General Meeting to answer questions from shareholders.

Internal Control

The Board is responsible for ensuring that the Company has in place a system of internal controls and for reviewing its effectiveness.  In this context, control is defined in the policies and processes established to ensure that business objectives are achieved cost effectively, assets and shareholder value safeguarded and that laws and regulations are complied with.  Controls can provide reasonable but not absolute assurance that risks are identified and adequately managed to achieve business objectives and to minimise material errors, frauds and losses or breaches of laws and regulations.

The Company operates a sound system of internal control, which is designed to ensure that the risk of mis-statement 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.

Remuneration Report

The Directors' emoluments, benefits and shareholdings during the year ended 31 December 2017 were as follows:

Directors' Emoluments

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

The dates are presented in day / month / year format.

Directors' Interests

Interests of Directors in ordinary shares 

* after consideration of treasury shares (note 14)

Notes:

a) Noam Lanir is interested in his ordinary shares by virtue of the fact that he owns directly or indirectly all of the issued share capital of Groverton Management Limited.

b) In 2007, loans of USD 5.523m were made to RB Investments GMBH, a company owned by Ron Baron, for the acquisition of shares in the Company. Interest was payable on these loans at 6 month US LIBOR plus 0.25% per annum and the loans were secured on the shares acquired. The loans were repayable on the earlier of the employee leaving the Company or April 2013. In December 2012 the Board decided to renew the outstanding amount of these loans for a period of another five years. Based on the Board's decision, the outstanding amount will be reduced annually on a straight line over five years, as long as the key management employee remains with the Company. The relevant reduction in the loan amount for the year was USD 1.128m. The loans together with their related accrued interest of USD 0.117m were classified as "other assets" and are included under trade and other receivables (note 12).

Another loan of USD 2.500m was made during 2016, for the acquisition of shares in the Company. Interest is payable on the loan at 6 month US LIBOR plus 0.25% per annum and the loan is secured on the shares acquired. The loan, including interest accrued, is repayable on the earlier of the employee leaving the Company or August 2019. The loan is included within trade and other receivables (note 12).

Interests of Directors in share options

The options are exercisable up to 10 years after the date of grant. No options were exercised during the year ended 31 December 2017.

* The exercise price as per the share option scheme is quoted in British Pounds.  The indicative equivalent USD amount shown in the table above is based on the exchange rates as at 31 December 2017.

Share Option Scheme

The Company's remuneration committee (the "Committee") is responsible for administering the Share Option Scheme.  Options to acquire Shares in the Company may be granted under the Share Option Scheme to any employee or Director of the Company or of other Company entities. 

The option exercise price per Ordinary Share is determined by the Committee but will be no less than market value of the Ordinary Shares on the dealing day immediately preceding the date of grant. The options are subject to continuous service conditions but are not subject to any performance criteria.

The Share Option Scheme will terminate ten years after it was adopted by the Company, or earlier in certain circumstances.

Remuneration Policy

The Company's policy has been designed to ensure that the Company has the ability to attract, retain and motivate executive Directors and other key management personnel to ensure the success of the organization.

The following key principles guide its policy:

·      policy for the remuneration of executive Directors will be determined and regularly reviewed independently of executive management and will set the tone for the remuneration of other senior executives

·      the remuneration structure will support and reflect the Company's stated purpose to maximize long-term shareholder value

·      the remuneration structure will reflect a just system of rewards for the participants

·      the overall quantum of all potential remuneration components will be determined by the exercise of informed judgement of the independent remuneration committee, taking into account the success of the Company and the competitive global market

·      a significant personal shareholding will be developed in order to align executive and shareholder interests

·      the assessment of performance will be quantitative and qualitative and will include exercise of informed judgement by the remuneration committee within a framework that takes account of sector characteristics and is approved by shareholders

·      the committee will be proactive in obtaining an understanding of shareholder preferences

·      remuneration policy and practices will be as transparent as possible, both for participants and shareholders

·      the wider scene, including pay and employment conditions elsewhere in the Company, will be taken into account, especially when determining annual salary increases.

Review of the Business and Risks

Risks

The Board considers that the risks the Shareholders face can be divided into external and internal risks.

External risks to shareholders and their returns are those that can severely influence the investment environment within which the Company operates, and include economic recession, declining corporate profitability, higher corporate default rates and lower than historical recoveries, rising inflation and interest rates and excessive stock-market speculation.

The Company's portfolio is exposed to interest rate changes, credit risk, liquidity risk and volatility particularly in the US, EU and India. 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.

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 emerging market countries 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 34 of the financial statements.   

Share Capital

There was no change in the authorised share capital during the year to 31 December 2017. 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 2017 are disclosed in note 29 to the financial statements.

By order of the Board of Directors

Chief Executive Officer

28 May 2018

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 (the ''Company'') and its consolidated subsidiaries Livermore Investments Cyprus Limited and Livermore Capital AG (together with the Company the ''Group''), which comprise the consolidated statement of financial position as at 31 December 2017, the consolidated statements of profit or loss, comprehensive income, changes in equity, and cash flows for the year then ended, and the 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 2017 and of its consolidated financial performance and its consolidated cash flows for the year then ended, in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the consolidated financial statements in Cyprus, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Emphasis of Matter - Uncertain Outcome of a Legal Claim

We draw attention to note 31 to the consolidated financial statements, which describes the uncertain outcome of a legal claim against one of the custodian banks that the Group and the Company uses on its behalf. Our opinion is not modified in respect of this matter.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

We have determined the matters described below to be the key audit matters to be communicated in our report.

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, the Shareholder Information, the Notice of Annual General Meeting and the Corporate Directory, 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.

The Board of Directors is 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 skepticism 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 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 the Board of Directors 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 the Board of Directors 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 the Board of Directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Other Matter

This report, including the opinion, has been prepared for and only for the Company'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 Mr Nicos Mouzouris.

Livermore Investments Group Limited

Consolidated Statement of Financial Position as at 31 December 2017

These financial statements were approved by the Board of Directors on 28 May 2018.

 The notes 1 to 35 form part of these consolidated financial statements.

Livermore Investment Group Limited

Consolidated Statement of Profit or Loss for the year ended 31 December 2017

The profit for the year is wholly attributable to the owners of the parent.

The notes 1 to 35 form part of these consolidated financial statements.

Livermore Investment Group Limited

Consolidated Statement of Comprehensive Income for the year ended 31 December 2017

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

The notes 1 to 35 form part of these consolidated financial statements.