LIVERMORE INVESTMENTS GROUP LIMITED 
By ?LIVERMORE INVESTMENTS GROUP LIMITED
ANNUAL REPORT & CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 2012
Highlights· Net Asset Value per share - USD 0.87 (December 2011: USD 0.57, June 2012: USD 0.74) - representing a net increase of 52.6%.
· Successful value generation from investing in the US loan market.
· Wyler Park property in Bern, Switzerland fully let.
· No material developments in the private equity portfolio.
· During 2012, the Company purchased 56,052,180 shares to be held in treasury.
We are pleased to announce the consolidated financial results for Livermore Investments Group Limited ("Livermore" or "the Company") and its subsidiaries (together "the Group") for the year ended 31 December 2012.
The year-end NAV was USD 0.87 per share (2011 NAV: USD 0.57 per share). Net profit for the year was USD 25.7m (2011 Net Profit: USD 5.4m). The portfolio remained well diversified across sectors and geographies with increased exposure to fixed income securities and senior secured loans as compared to 2011.
During the year, the Group performed well generating an increase of 52.6% on a NAV per share basis. The positive performance is attributed largely to the income from the US credit portfolio partly offset by certain write-downs on legacy private equity investments. Interest and dividend income from the financial portfolio totalled USD 22.1m (2011: USD 18.9m).
Wyler Park, our investment property in Bern, Switzerland performed well, generating over CHF 5.4m in net rent during the year. All of the 39 apartments and commercial spaces are fully rented.
There were no significant developments in the private equity portfolio during the year.
Financial ReviewThe NAV of the Group at 31 December 2012 was USD 173.0m. On a per share basis, NAV increased by 52.6%. Net profit during the year was USD 25.7m, which represents earnings per share of USD 0.12.
Administrative expenses excluding provisions were USD 5.0m (2011: USD 5.3m).
The overall change in the NAV is primarily attributed to the following:
31 December 2012 | 31 December 2011 | ||
US $m | US $m | ||
Shareholders' funds at beginning of year | 145.4 | 142.3 | |
___________ | ___________ | ||
Income from investments | 27.5 | 24.6 | |
Other income | 0.7 | 3.0 | |
Realised gains on investments | 6.8 | 0.1 | |
Loss on impairment on investments | (18.1) | (9.9) | |
Unrealised gains on investments | 36.9 | 4.5 | |
Unrealised exchange losses | (0.0) | (0.2) | |
Administration costs including provisions | (5.0) | (5.0) | |
Net finance costs | (3.6) | (5.2) | |
Tax charge | (1.2) | (1.7) | |
___________ | ___________ | ||
Increase in net assets from operations | 44.0 | 10.2 | |
Purchase of own shares | (16.4) | (7.1) | |
Adjustments for share option charge | - | - | |
___________ | ___________ | ||
Shareholders' funds at end of year | 173.0 | 145.4 | |
------ | ------ | ||
Net Asset Value per share | US $0.87 | US $0.57 |
Given the discount between the market price and the NAV, the Board recommends continuing the share buyback as the most efficient means to generate value for shareholders. No dividend was declared for the year ended 31 December 2012.
During 2012, the Company purchased 56,052,180 shares to be held in treasury for a total cost of USD 16.408m. The total number of shares held in treasury at 31 December 2012 was 105,385,063.
Richard B Rosenberg Noam Lanir
Chairman Chief Executive Officer
20 May 2013
Review of Activities Introduction and Overview2012 was an eventful year with the European debt crisis, the US debt debate and US presidential elections at the forefront. Financial markets remained in risk-on risk-off mode through most of the year but gained steam towards the latter part of the year after the US Federal Reserve announced open ended quantitative easing and the European Central Bank committed to do the needful to support the Euro.
Despite the significant challenges, Livermore generated a NAV/share increase of 52.6% primarily through strong returns on the financial portfolio and value accretion from stock buy-back. Management took advantage of the continued dislocation in credit markets and availability of cheap leverage and increased exposure to the US senior secured loan market which continued to generate strong returns. The corporate bond portfolio performed well and management subsequently reduced exposure at lower yield levels. The Group's investment in Babylon generated significant returns as the company increased revenues and profits to record levels and the share price increased over 200%.
The year-end NAV was USD 0.87 per share (2011 NAV: USD 0.57 per share). The portfolio remained diversified across sectors and geographies with increased exposure to US senior secured loans.
In 2012, the Group generated interest and dividend income of USD 22.1m and investment property income of USD 5.4m. The Group's results (net income of USD 25.7m) relate mainly to gains and interest and dividend income from the financial portfolio. At the same time the results were negatively affected by impairments related to certain legacy investments. Administrative expenses amounted to USD 5.0m. Finance costs were USD 4.2m, of which USD 3.5m relates to the loan against the Wyler Park property.
The Group does not have an external management company structure and thus does not bear the burden of external management and performance fees. Further, the interests of Livermore's management are aligned with those of its shareholders as management members have a large ownership interest in Livermore shares.
Considering the strong liquidity position of Livermore, together with the robustness of its investment portfolio and the alignment of management's interest with those of its shareholders, management believes that the Group is well positioned to benefit from current market conditions.
Global Investment EnvironmentThe pace of US economic recovery slowed during the first half of this year with GDP rising a modest 1.5%. The rate of job gains diminished while consumer price inflation over the first half was lower than in 2011. The European fiscal and banking crisis was a major source of strain on global financial markets. Early in the year, financial stresses within the Euro area moderated somewhat in light of a number of policy actions: ample liquidity to the banks from the ECB, increase in lending capacity of Euro area rescue facilities, and a new assistance package for Greece. However, tensions within the Euro area increased again in the spring as political uncertainties rekindled fears of a disorderly Greek exit from the Euro area and mounting losses at Spanish banks renewed questions about the sustainability of Spain's sovereign debt and of the Euro-area banking system.
Financial markets were volatile over the first half of 2012 mostly due to fluctuating views regarding the crisis in the Euro area and the likely pace of global economic growth. As investors' concerns about the situation in Europe eased early in the year, broad equity price indexes rose and risk spreads in several markets narrowed. Subsequently, however, market participants pulled back from riskier assets amid renewed concerns about the Euro area and evidence of slowing global economic growth.
In the second half of 2012, US GDP rose 1.5% as various headwinds continued to restrain growth. Financial conditions eased over the second half in response to significant additional quantitative easing provided by the US Federal Reserve and a strong commitment by the ECB to combat Euro concerns helped reduce the tail risks priced in financial asset prices. Credit availability, however, remained tight for many households and businesses. In addition, declines in real government purchases continued to weigh on economic activity, as did household and business concerns about the economic outlook, while weak demand restrained exports. Notwithstanding a lessening of signs of financial stress, the Euro area financial stability environment continues to be fragile, and several vulnerabilities remain.
In equity markets, the US S&P 500 Index ended higher by 11.7% from the beginning of the year and the EuroStoxx 50 Index increased 11.2% largely on account of significant monetary policy support in the US and Euro zone.
Despite some volatility during the summer, US corporate credit market performed well in 2012 as the S&P/LSTA Index returned 9.7% for the year. Default rates remained below historical levels with the trailing 12 month default rate of 1.27% for the S&P/LSTA Index. Corporate credit fundamentals remained strong and US loan issuance increased to a five year high of USD 295b in 2012. A sharp increase in new Collateralized Loan Obligation (CLO) issuance supported significant refinancing activity and tightening of new issue spreads, original issue discounts, and LIBOR floors. The size of the so-called "maturity wall" in 2013 and 2014 continued to reduce through repayments and extensions. At the end of 2012, the amount of S&P/LSTA Index loans maturing in 2013 declined to USD 4.7b (about 1% of all outstanding performing loans). With few upcoming maturities, the default rate is expected to stay low in the near term as refinancing risk for borrowers reduces. Looking ahead, approximately 70% of US loans have maturities between 2016 and 2018.
Sources: Board of Governors of the Federal Reserve System, European Central Bank (ECB), Bloomberg
Livermore's StrategyThe financial portfolio is focused on fixed income instruments which generate periodic cash flows and include mainly exposure to senior secured and usually broadly syndicated US loans. This part of the portfolio is geographically focused on the US with some exposure to Europe and emerging markets. In addition, the financial portfolio would include investments in select deep value public equities where management could exert influence.
The remaining portfolio is focused on Switzerland and Asia with investments primarily in real estate and select private equity opportunities. Investments are focused on sectors that Management believes will provide superior growth over the mid to long term with relatively low downside risk.
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.
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