Livermore Investments : Annual

Highlights

• Net profit for the year was USD 0.845m (2019: net loss of USD 1.1m).
• Net Asset Value per share remains stable at USD 0.94 (2019: USD 0.99).
• On 08 March 2021, the Company announced an interim dividend of USD 8m (USD 0.0488 per share) to members on the register on 19 March 2021. The dividend was paid on 16 April 2021.
• CLO portfolio and warehouse generated USD 21.9m in distributions and USD 1.8m in net gains in 2020.

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 2020. References to the Company hereinafter also include its consolidated subsidiary (note 8). References to financial statements hereinafter are to the Company's consolidated financial statements.

The COVID-19 outbreak across the world has triggered tremendous human and economic hardship. Since February 2020, protective measures taken to contain spread of COVID-19 (lockdown) supressed demand in many sectors of the global economy and resulted in supply chain constraints globally. This led to immense job losses and exceptional turbulence in financial markets. In light of the extra-ordinary situation, the Company focussed on protecting its capital, maintaining continuous operations, and ensuring well-being of its employees and consultants.

Management cut warehousing risk before the COVID-19 related market sell-off took hold and maintained a high cash positions of over USD 60m through the end of the first half of the year. This conservative positioning helped the Company navigate the tremendous volatility and uncertainty that ensued and allowed the Company to participate in the recovery phase by deploying capital opportunistically.

We are pleased to report that the Company was successful in achieving all of the above objectives. Our net profit for the year was USD 0.845m (2019 net loss: USD 1.1m) and the year-end NAV was USD 0.94 per share (2019 NAV: USD 0.99 per share) after a dividend payment of USD 6m (USD 0.0343 per share).

The Company recorded net gains of USD 1.8m from its US CLO and warehousing portfolio. Interest and distribution income from the financial portfolio totalled USD 22.0m (2019: USD 29.0m). The Company ended the year with over USD 50.4m in cash at hand. During the second half of the year, the Company added exposure to US equity index ETFs as well as profitably traded some CLO BB tranches.

Financial Review

The NAV of the Company on 31 December 2020 was USD 163.9m (2019: USD 173.1m). Net profit, during the year was USD 0.845m, which represents earnings per share of USD 0.005.

Operating expenses were USD 2.8m (2019: USD 5.1m).

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

	31 December 2020		31 December 2019
	US $m		US $m
Shareholders' funds at beginning of year	173.1		174.3
	___________		___________
Income from investments	22.0		29.0
Unrealised losses on investments	(22.6)		(25.5)
Operating expenses	(2.8)		(5.1)
Net finance income	0.3		0.5
Tax charge	(0.1)		(0.1)
	___________		___________
Decrease in net assets from operations	(3.2)		(1.2)
Dividends paid	(6.0)		-
	___________		___________
Shareholders' funds at end of year	163.9		173.1
	------		------
Net Asset Value per share	US $0.94		US $0.99

Dividend & Buyback

At 21 February 2020, the Company paid an interim dividend of USD 6m (USD 0.0343 per share) to members on the register on 24 January 2020, as announced by the Board on 30 December 2019.

The Board of Directors will decide future dividends based on profitability, liquidity requirements, portfolio performance, market conditions, and the share price of the Company relative to its NAV.

During 2021, the Company bought back 10,888,577 shares to be held in treasury for a total cost of USD 6.9m. The Company had no shares in treasury as at 31 December 2020.

Richard B Rosenberg	Noam Lanir
Chairman	Chief Executive Officer
25 May 2021

Review of Activities

Introduction and Overview

2020 will forever be etched in our minds. The COVID-19 pandemic, its immense economic and human devastation, and humanity's fight to survive - through medical and scientific breakthroughs, unparalleled monetary and fiscal stimulus, and individual stories of courage and sacrifice - will all go down in the annals of world history.

Although the year started well for most asset classes and ended even better, only their movements through the year tell the whole story. Once the virus spread out from China, equity and credit markets collapsed globally and developed nation bond yields declined sharply with safe-haven currencies such as the Swiss Franc and US Dollar appreciating, as country after country enforced lockdowns to protect its citizens and prevent their healthcare systems from complete collapse. Central banks and governments across the world responded swiftly and in good measure and seem to have saved the world from a deep economic depression. Global equity markets recovered sharply on these steps taken and hope for effective vaccines against COVID-19 propelled risk markets to further highs.

Floating rate loans in the US declined in line with the broader credit assets but were slower to recover on expectations of very low rates for very long. Rating agencies also acted quickly and downgraded a significant portion of the leveraged loan and high-yield market. The downgrades and a handful of defaults eroded over- collateralization cushions in most CLOs and resulted in steep decline in market valuations of CLO tranches. However, there were almost no forced sales. In April, over 25% of CLO equity in the market (especially short reinvestment period deals) tripped key tests and as expected, diverted some cash away from equity investors to bolster the CLO structure. By October, most CLO deals had recovered, and distributions were made to equity tranches.

Although the Company's CLO portfolio suffered mark-to-market declines, our CLO portfolio received distributions from almost all of our positions as we were positioned with stronger deals with longer reinvestment periods. Further, management had taken a very conservative approach focussed on capital preservation and retained a very high cash position of over USD 50m, allowing us to weather this storm and opportunistically add value through trading secondary CLO positions. For the 2020 year, our CLO and warehouse portfolio generated cash distributions of USD 21.9m. Management had one warehouse open pre-COVID-19 and swiftly converted it to a CLO prior to the market declines. Although the CLO market started to heal towards the end of the year, the mark- to-market declines did not fully recover and adjusted for the valuations, the net gain on the CLO and warehousing portfolio was USD 1.8m (2019: USD 3.35m). Our conservative approach resulted in gains in a year that saw most CLO equity investors experience losses.

For 2020, the Company reported NAV/share of USD 0.94 and net profit of USD 0.845m. Interest and distribution income amounted to USD 22.0m, of which, USD 21.9m was generated from the CLO and warehousing portfolio. The net return of the CLO and warehousing portfolio was USD 1.8m as mark-to-market changes contributed to a loss of USD 19m. Operating expenses amounted to USD 2.8m. In addition, the Company wrote down its investment in Evolution Venture and Elephant Capital. These write downs contributed to USD 3.7m in NAV decline.

During 2020 management added exposure to equity index ETFs mostly in the US to capture some market beta in light of the immense liquidity injected by Central Banks globally. In December 2020, the Company invested USD 10m in a new warehouse that has since been converted to a CLO, in April 2021, and generated a gain of USD 1.8m for 2021. The Company reduced its cash position somewhat ending the year with over USD 50.4m of cash at hand.

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

Global Investment Environment

An already weak global economy on account of trade tensions between the US and China as well as the uncertainty over the UK's exit from the European Union, was plunged sharply into a recession as the COVID-19 outbreak spread rapidly across the world. Preventive measures to slow the infection rate shut down several businesses sectors, disrupted global supply chains, and movement of people across borders was also restricted which varied from country to country. The resulting jobs losses, especially in the travel, entertainment and retail sectors, inflicted significant economic damage in addition to the health crisis. Due to lower global production capacity utilization and lower oil prices, consumer price inflation declined in advanced economies. In the second

quarter of 2020, GDP in most countries was 10% to 20% lower than at the end of 2019. Unemployment levels rose in most countries and are still above pre crisis levels.

Thankfully, central Banks across the world acted swiftly to lower rates substantially and injected unprecedented amounts of liquidity to ensure orderly functioning of the global markets. In addition, governments responded quickly to provide stimulus, such as forgivable business financing, generous unemployment benefits and short- term work schemes, to blunt the impact of the crisis. These aggressive measures helped stabilize markets and supported household spending which in turn improved sentiments on financial markets by end of March. The decline in new infections, easing of the containment measures in the Summer months, and hopes for an effective vaccine to prevent COVID-19, increasingly allowed a strong recovery of the global economy in the third quarter.

USA: COVID-19 restrictions imposed by governments and the resulting behavioural changes by consumers and businesses resulted in GDP decline of 10% over the first half of 2020, and the unemployment rate spiked to a high of 14.8% in April. To counter the economic decline, the US Federal Reserve (the Fed) eased monetary policy significantly and cuts its policy rate by 1.5%, announced purchase of Treasury and mortgage-backed securities, and introduced various credit facilities to support the flow of credit to households and businesses and support functioning of financial markets. The US government also launched several fiscal measures to support the economy. Still, overall GDP declined 2.5% in 2020. The unemployment rate rose from 3.6% at the beginning of the year to nearly 15% but recovered to 6.3%. Headline inflation fell to 1.2%, from 1.8% in 2019 and remained below pre-COVID-19 levels. In August 2020, the Fed announced that it would seek to achieve inflation that averages 2% over time and is on track to moderately exceed 2% for some time.

Eurozone: COVID-19 spread throughout Europe from mid-February 2020 and most countries introduced restrictive public health measures to limit the spread of the pandemic. Although the measures were eased in May 2020, new strains and colder temperatures caused COVID-19 cases to spread again later in the year. Overall, GDP declined by 6.8% on average for the year. The unemployment rate in the Eurozone area increased, although the rapid expansion of short-time work schemes curtailed the rise. Unemployment rate in the Eurozone was 8.3% in December compared with 7.3% at the beginning of 2020. Eurozone countries and the European Central Bank (ECB) provided extensive fiscal policy support from March 2020 onwards. The ECB eased the conditions and increased the volume of its asset purchase programme. In addition to the short-time work schemes, member states provided liquidity support and loan guarantees for businesses, tax relief and investment in infrastructure. By the end of the year, the ECB had increased the programme to about 15% of GDP and planned to continue it until March 2022. The ECB signalled that it would not raise its key interest rates until inflation had sufficiently firmed.

Headline inflation in the Eurozone area fell to 0.3% in 2020, down from 1.2% in 2019. Core inflation was dampened in particular by declining prices for tourism services owing to the pandemic and a temporary reduction in value added tax in Germany.

Japan: In Japan, GDP declined by 4.9% as a result of the pandemic. In the first quarter, the public health measures were still moderate, but a six-week state of emergency declared in mid-April 2020 had a strong impact on economic activity. With the easing of measures in May2020, supported by fiscal policy and global demand, the economy recovered quickly although GDP had still not returned to pre-crisis levels by the end of the year. Labour market conditions remained difficult despite employment subsidies to avoid redundancies. Unemployment rose by almost 1% within the year and stood at 2.9% in December. In Japan, core inflation was slightly negative as prices for tourism services, in particular, declined sharply in the second half of December 2020.

Since 2016, the Bank of Japan (BoJ) has placed yield curve control at the centre of its monetary policy. In 2020, it maintained the target for 10-year government bond yields at around 0% and its short-term deposit rate at - 0.1%. Further, it announced purchasing Japanese government bonds without an upper limit to stabilise the yield curve across all maturities. It also introduced measures to facilitate banks' lending to small and medium-sized enterprises in particular and increased its purchases of corporate bonds and equity exchange-traded funds (ETFs).

China: China recorded positive GDP growth of 2.3% despite the pandemic. Stringent containment measures put in place in January 2020 resulted in a decline in new infections. The measures were relaxed again in March 2020. After a historic contraction in the first quarter, economic activity recovered quickly, and China's GDP surpassed its pre-crisis level in the third quarter. The recovery was supported by public spending, financial assistance and temporary duty relief for companies. Exports benefited from the increased global demand for medical protective equipment and technical equipment for working from home. The labour market recovered significantly by the end of the year and in urban areas the unemployment rate in December 2020 was back in line with the 2019 levels of 5.2%. Headline inflation was slightly lower at 2.5%, while core inflation hit its lowest level in more than ten years at 0.8%.

To support the recovery, the People's Bank of China lowered its key rates, including its seven-day reverse repo rate by 0.3% to 2.2%, and reduced the reserve requirement ratio for smaller banks.