LIVERMORE INVESTMENTS GROUP LIMITED

UNAUDITED INTERIM RESULTS FOR SIX MONTHS ENDED 30 JUNE 2018

Livermore Investments Group Limited (the "Company" or "Livermore") today announces its interim results for the six months ended 30 June 2018.

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 2018. References to the Company hereinafter also include its consolidated subsidiaries (note 8). 

During the first half of 2018, the Company generated net income of USD 6.35m (30 June 2017: USD 8.36m), which represents earnings per share of USD 0.03 (30 June 2017: USD 0.04). The NAV of the Company increased by USD 0.20m from the beginning of the year (increase of USD 8.2m including dividend payout). After payment of USD 8m dividend in February 2018, the NAV of the Company as of 30 June 2018 was USD 1.00 per share. During the reporting period, management continued to actively manage the financial portfolio and optimize exposure to US credit markets.

Financial Review

The NAV of the Company as at 30 June 2018 was USD 175.6m (30 June 2017: 167.9m). The profit after tax for the first half of 2018 was USD 6.35m, which represents earnings per share of USD 0.03. The gain relates largely to the performance of the CLO portfolio and exposure to leveraged loans. An additional USD 1.4m of gain was recognized through other comprehensive income, as capital return from the Company's interest in SRS Charminar, which was previously written down entirely.

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

Strong emphasis is given to maintaining sufficient liquidity and low leverage at the overall portfolio level and to re-invest in existing and new investments along the economic cycle. 

Dividend & Buyback

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.

The Board of Directors will decide on the Company's dividend policy for 2018 based on profitability, liquidity requirements, portfolio performance, market conditions, and the share price of the Company relative to its NAV.

The company has no shares in treasury. 

25 September 2018

Review of Activities

Economic & Investment Environment

Overall, global economic growth was solid in the first half of the year. Growth in the US and China was strong and broad-based. The pace of economic expansion slowed in the euro area, however, albeit partly due to temporary factors. In the US, economic growth remained robust and broad-based at 2.2% in the first quarter followed by a 4.2% growth in the second quarter of 2018. In addition, employment continued to increase in the past few months, and the unemployment rate dropped further to 3.8% by May 2018. The economy in the euro area lost some momentum at the beginning of 2018, due in part to temporary factors such as strikes and the exceptionally cold weather. Following on from strong growth in previous quarters, GDP subsequently expanded in the first quarter by only 0.4% in the first and second quarters of 2018. Although private consumption picked up pace, exports and manufacturing receded for the first time in quite a while. In Germany and France, the slowdown was pronounced, whereas in Italy and Spain developments were stable. Meanwhile, the improvement in euro area employment continued, and the unemployment rate declined further.

In the US, inflation has reached the target level set by the US Federal Reserve. The US Federal Reserve therefore continues its plans to normalize monetary policy. In the euro area, by contrast, core inflation has continued to move sideways in recent months. The European Central Bank (ECB) therefore intends to pursue its asset purchase programme until December 2018, and to leave its key rates at their present levels at least through the summer of 2019. Japan is also likely to maintain its highly expansionary monetary policy given the ongoing modest rate of inflation.

The international financial markets have been volatile since the beginning of the year. Market expectations that monetary policy - particularly in the US - could be tightened more quickly than previously assumed prompted a correction in stock market prices. Having hit an all-time high at the end of January, the MSCI World Index fell by around 8% in the space of just a few days, and by mid-March was at roughly the level recorded in mid-December. The volatility of US stocks as measured by option prices (VIX) - which serves as a gauge of market uncertainty - spiked temporarily after having reached historical lows. Sentiment on the international financial markets remained dominated by turbulence and stock markets struggled at times with political uncertainties and protectionist tendencies, but recovered on the back of the continued favourable growth outlook for the global economy. In mid-June, the MSCI World Index was slightly above its mid-March level.

The expectations of a more rapid normalisation of monetary policy also had an impact on the bond markets. Long-term government bond yields rose significantly in virtually all the major advanced economies, with the strongest increases coming in the US. In the US, yields on ten-year government bonds rose temporarily to above 3.0% as a result of monetary policy tightening and rising inflation. Yields in euro area member states presented a mixed picture. In Italy, they increased considerably owing to political uncertainty. They also rose in Europe's peripheral economies, while in Germany, they declined. In Japan, yields on ten-year government bonds remained close to the Bank of Japan's target of 0%.

In the wake of the equity market correction, the US dollar initially weakened on a trade-weighted basis, but recouped some ground by mid-March. Against the euro, it temporarily hit its lowest level since the end of 2014. The euro, pound sterling and yen all trended somewhat firmer on a trade-weighted basis.  In the second quarter, however, the US dollar gained significantly in value on a trade weighted basis, returning in mid-June to its year-back level. It appreciated markedly against the euro. The euro and the yen trended somewhat weaker on a trade weighted basis.

The heightened risk perception on the financial markets also weighed temporarily on commodity prices. Oil prices initially continued to rise in January, reaching a three-year high of just under USD 70 per barrel. However, following a marked increase in oil production in the US, it declined again by mid-March. Subsequently, however, Oil prices rose against a backdrop of higher demand and tighter supply and climbed temporarily to USD 80 per barrel in the wake of the US's announcement to withdraw from the nuclear deal with Iran and its threat of sanctions on importers of Iranian oil. The ongoing crisis in Venezuela also contributed to higher oil prices. Amid plans to increase the oil output in Russia and Saudi Arabia, oil prices recently dropped again.

With the strong and continued economic growth in the US and a resulting rising rate environment, strong demand for floating rate assets such as US senior secured loans and CLOs continued during the first half of the year. According to S&P Capital IQ, total institutional loan issuance was $271 billion during the first half of 2018, slightly below the record $297 billion amount recorded in the first half of 2017, and driven primarily by the significant amount of reset activity thus far in 2018. Leveraged buyout (LBO) and merger & acquisition (M&A) deals increased by 12% year-over-year to $183 billion. Total institutional loans outstanding was $1.048 trillion as of June 30, 2018, up 11% from the prior year. While loan spreads remain compressed, the pace of the tightening has slowed, and notably, no syndicated loan repricing took place in July, according to JP Morgan. Given the length of the credit cycle and the insatiable demand for floating rate instruments, certain loan fundamentals have deteriorated and the loan market exposure to Single-B rated loans is at its highest level. Default rates, however, have continued to stay well below historical levels. The Company anticipates default rates to stay below historical average levels as there are few near-term maturities and interest coverage ratios remain healthy. For the six months ended June 30, 2018, the S&P 500 Index, Merrill Lynch High Yield Master II Index and Credit Suisse Leverage Loan Index ("CSLLI") generated returns of 2.65%, 0.07% and 2.38%, respectively.

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

Financial Portfolio and trading activity      

The Company manages a financial portfolio valued at USD 162.6m as at 30 June 2018, which is invested mainly in fixed income and credit related securities.

The following is a table summarizing the financial portfolio as at 30 June 2018

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.

Continuing the trend in 2017, the leveraged loan market performed well in the first half of 2018 with the Credit Suisse Leveraged Loan Index recording a total return of 2.38%. The demand for floating rate instruments remained strong on the back of rate increases by the US Federal Reserve, and this allowed borrowers to take advantage of the favourable financing conditions and reduce the spread they pay on their loans as well as 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 (1.95% for the S&P/LSTA Leverage Loan Index as at the end of June 2018) and the near to mid-term outlook remains benign.

The demand for floating rate paper was also apparent in the CLO market in the first quarter of 2018 with debt spreads tightening to their tightest levels since the financial crisis. CLO equity investors took advantage of this window and issued new CLO transactions as well as refinanced existing transactions. The tightening trend, however, reversed somewhat in the second quarter as the repeal of Risk Retention requirement brought on anticipation of a significant amount of refinancing supply. CLO equity market was relatively stable during the first half of 2018 on the back of stable credit markets. CLO equity distributions were in line as the Company had refinanced several of its deals in 2017 and reduced the cost of financing. Management continues to proactively work 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. In the first half of 2018, the Company converted its two open warehouses into new CLO transactions at the lowest cost of financing since the crisis, and also refinanced one of its existing transactions. 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. Further, management reduced exposure to deal with shorter reinvestment period and increased exposure to deals with longer reinvestment period. 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 as cash flows remained stable and 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. The warehouses generated strong returns and the Company received net income of USD 2.45m from its warehouse investments. For the period, the CLO and warehouse portfolio generated net gains of USD 7.5m. As of the end of the reporting period, management has one new warehouse open with non-mark-to-market financing. As at 30 June 2018, over 100% of the Company's CLO portfolio is invested in post-crisis US 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 political turmoil, trade tensions, monetary tightening in advanced economies, 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 emerging economies. The investments of these funds into their portfolio companies were mostly done in 2008 and 2009. During the first half of 2018, the Company negotiated and sold its remaining interest in SRS Charminar for USD 1.4m. This investment was previously completely written off. Further, management is in discussions with the fund manager of SRS Private to liquidate the fund or sell its interest in the fund. Overall, 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 2018:

Evolution Venture:  Evolution is an Israel focused venture capital fund. It invests in early stage technology companies. Its main investments include a virtualization technology company and Whitesmoke Software Ltd (a Tel-Aviv listed language enhancement products company). The virtualization technology company has been performing quite well. During the period, the fund exited its investment in a software tool developer. To date, the fund has called 101.5% of committed capital and returned 30% of committed capital to its investors.

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. As the fund is at the end of its life, the fund manager and limited partners are in negotiation to liquidate or sell their interest in the fund.

The following table reconciles the review of activities to the Group's financial assets as at 30 June 2018.  

Events after the reporting date

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

Litigation

Information is provided in note 23 to the interim condensed consolidated financial statements.

Livermore Investments Group Limited

Condensed Consolidated Statement of Financial Position

as at 30 June 2018

Livermore Investments Group Limited

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2018

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

Livermore Investments Group Limited

Condensed Consolidated Statement of Changes in Equity

for the period ended 30 June 2018

Livermore Investments Group Limited

Condensed Consolidated Statement of Cash Flows

for the period ended 30 June 2018