26 September, 2024

LIVERMORE INVESTMENTS GROUP LIMITED

UNAUDITED INTERIM RESULTS FOR SIX MONTHS ENDED 30 JUNE 2024

Livermore Investments Group Limited (the "Company" or "Livermore") today announces its unaudited interim results for the six months ended 30 June 2024. These results will be made available on the Company's website today.

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

Enquiries:

Livermore Investments Group Limited                                                                         +41 43 344 3200

Gaurav Suri

Strand Hanson Limited (Financial & Nominated Adviser and Broker)                     +44 (0)20 7409 3494

Richard Johnson / Ritchie Balmer

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 2024. References to the Company hereinafter also include its consolidated subsidiary (note 8). 

During the first half of 2024, the Company's NAV increased by 16.8% (USD 22.9m) from the beginning of the year to USD 158.7m (Dec 2023: USD 135.8m; Jun 2023: USD 131.6m). The CLO and financial portfolio delivered USD 12.1m in gains and our investment in Fetcherr Ltd ("Fetcherr") was valued higher by USD 13.3m as of end of June 2024. These gains were offset partially by administration and other expenses of about USD 2.3m. The NAV per share as at 30 June 2024 was USD 0.96. As at 30 June 2024, the Company held USD 52.2m in cash and marketable securities (June 2023: USD 55.4m).

The positive economic development in 2023 continued in the first half of 2024. Services sectors continued to drive growth while manufacturing remained weak. Although the growth rates in the US have slowed down, they are at sustainable levels with the employment market in better balance. Inflation rates continued on their path to normalization, albeit with some jumps earlier in the year. Central banks are now starting to shift their focus to interest rate reductions to keep real rates at normalized levels. The Swiss National Bank (SNB) and European Central Bank (ECB) have begun their rate reduction cycles with the US following in late September 2024.

In the US, large technology companies continued to lead the world in innovation and market capitalization gains. Developments in Artificial Intelligence (AI) continued to capture the imaginations of individuals, corporates, and governments alike. The pace of capital expenditures by large data centre companies to reposition their businesses for higher computational workloads is unprecedented. Most corporates are keen to evaluate solutions that may bring benefits of AI to various areas of their business.

In 2021, the Company had invested in a start-up ("Fetcherr") that focused on applying AI techniques to deliver real-time pricing and revenue enhancement solutions for the airline industry. Over the last 3 years, Fetcherr has succeeded in demonstrating its superiority and acquired airline clients large and small across the globe. Their pipeline of clients willing to adopt their product continues to grow faster than they can keep pace. Fetcherr recently signed a top 3 US airline and raised capital at a valuation of USD 250m.  In May 2024, the Company invested USD 6.5m to purchase shares in a secondary offering in parallel with the capital raise in order to maintain its stake in Fetcherr. Post balance sheet, in July 2024, the Company invested an additional USD 3.46m and now holds 11.84% of Fetcherr on a fully diluted basis.

In credit markets, demand for CLO debt and US Senior Secured Loans (US Loans) was robust in the first half of 2024, as higher coupons of floating rate securities and good economic growth attracted income-oriented investors. US loans have been further well supported by healthy new CLO issuance and reset market activity. Inflation has been generally good for credit over the last few years, and unless growth slows meaningfully, credit is expected to hold up better as an asset class on a relative basis. While supply of CLO debt in the primary market has kept pace with strong demand, there have been spots where debt has come in weaker than expected, mainly in non-investment grade CLO tranches. The Company has been successful in taking some advantage of the technical dislocation and has added some BB rated and equity tranches at attractive levels. Overall, we expect more volatility in the next few quarters, which should bring some interesting opportunities to deploy capital. 

During the first half, the Company took advantage of strong performance of CLO equity and reduced some positions. Further, as the Company did not materially invest in warehouses and new CLO equity between April 2022 to Jan 2024, the CLO portfolio has amortized and is currently much smaller than in 2021. Management expects to gradually increase the size of its CLO portfolio to normalized levels. So, in Jan 2024, the Company returned to the new issue CLO equity market. In January 2024, management invested in a warehouse managed by Blackstone. This warehouse has been converted to a CLO in September 2024. In March 2024, the Company invested in a warehouse managed by MJX. This warehouse was converted to a CLO in June 2024. The Company generated over USD 0.7m in carry from the MJX warehouse. Post balance sheet, the Company has opened a new warehouse managed by PGIM. The CLO and warehouse portfolio generated USD 12.1m of gains in the first half of 2024.

Financial Review

The NAV of the Company as at 30 June 2024 was USD 158.7m (31 December 2023: USD 135.8m). The profit after tax for the first half of 2024 was USD 9.7m, which represents earnings per share of USD 0.06.

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

Livermore's Strategy

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

The Board of Directors will decide on the Company's dividend policy for 2024 based on profitability, liquidity requirements, portfolio performance, market conditions, and the share price of the Company relative to its NAV.

25 September 2024

Review of Activities

Economic & Investment Environment

The global economy continued to grow moderately in the first half of 2024, with some regional disparities. The US saw relatively robust growth, while other regions experienced modest activity. Global manufacturing remained weak, though goods trade increased slightly. Inflation continued to ease from the previous year's highs but stayed above central banks' targets in many countries, leading to sustained restrictive monetary policies. Future global economic growth is expected to remain moderate due to previous monetary tightening and less expansionary fiscal policies, with risks including potentially prolonged high inflation and rising geopolitical tensions.

Since the December 2023 monetary policy assessment by the US Federal Reserve, inflation and monetary policy expectations have driven financial markets. Central banks indicated that interest rates would not rise further and might decrease in 2024, initially leading to expectations for rapid rate cuts. However, strong US economic performance and a focus on persistent inflation moderated these expectations, causing ten-year government bond yields to rise since the start of the year. Some central banks, however, were able to begin easing monetary policies after two years of tightening.

In the U.S., GDP growth slowed to a sustainable 1.3% in the first quarter of 2024. Private domestic demand remained strong, while public spending and export growth were minimal. The unemployment rate held steady at 4.0% in May 2024, with wage growth remaining above average but showing signs of slowing. The Federal Reserve maintained the federal funds rate at 5.25-5.5% during its May and June meetings, continuing the rate level set in July 2023, which may be the peak of the current tightening cycle. The Federal Reserve has reduced its holdings of Treasury and mortgage-backed securities by approximately $1.4 trillion since mid-2023, contributing to tighter financial conditions. Despite these conditions, however, credit remained generally available, though at higher rates, leading to a slowdown in lending activity. As of May 2024, the Personal Consumption Expenditures (PCE) price index increased by 2.6% over the previous 12 months, down from a peak of 7.1% in June 2022. Despite this moderation, the US labour market remained strong.

The euro area economy has been stagnant for over a year, primarily due to reduced household purchasing power from inflation, tighter monetary policy, and less expansionary fiscal policies. Despite these headwinds, the unemployment rate remained historically low at 6.4% in both January and April 2024, with employment figures continuing to rise. The services sector continued to perform well while the manufacturing sector has continued to be under pressure. Strong wage growth is expected to further stimulate private consumption throughout the year. Consumer price inflation in the euro area was 2.6% in both February and May 2024, exceeding the European Central Bank's (ECB) 2% target. Core inflation remained elevated, at 3.1% in February and 2.9% in May, largely due to high services inflation fuelled by strong wage growth. The ECB maintained restrictive key interest rates, with the deposit facility rate at 4.0% until June 2024. At their June meeting, the ECB lowered its key interest rates by 25 basis points, reducing the deposit facility rate to 3.75%. The ECB indicated that further rate cuts might be possible, contingent on future economic data.

Economic growth in China continued to underwhelm with weakness in services and manufacturing, though government infrastructure spending provided support. China continues to struggle with their real estate crisis and weak sentiment, but expansionary policies and central bank easing measures have helped stabilize the economy somewhat. Consumer price inflation was 0.7% in February 2024, driven by holiday-related price increases, while core inflation rose to 1.2%. In the first quarter of 2024, GDP growth accelerated to 6.6% due to stimulus measures and favourable exports. Inflation weakened, with consumer price inflation near 0% in May and core inflation at 0.6%.

Stock markets in the developed world continued to benefit from favourable financial conditions, with the MSCI World Index reaching an all-time high and the VIX indicating low volatility. The US dollar appreciated against most currencies with the DXY index, up 4.5%, while the euro remained stable and the yen depreciated sharply. Oil prices increased to around USD 85 per barrel due to geopolitical tensions and OPEC+ production cuts, while gas prices fell and overall commodity prices saw a slight rise. Tensions in the middle-east continued to persist and there is still no end in sight for the Russia-Ukraine conflict.

In the first half of 2024, the US Loan market performed well with the Credit Suisse Leverage Loan Index (CSLLI) generating a total return of 4.44%. Loan refinancing and repricing activity remained elevated with high base rates maintaining attractive coupons on floating-rate loans. Default rates declined with the trailing 12-month par-weighted default rate at 0.92% by June 2024. Strong demand for US loans drove prices for higher quality loans over 100, initiating significant refinancing activity. As of 30 June 2024, less than 3% of the loan market is set to mature before 2026, with significant reductions in maturities for 2025 and 2026.

In the first half of 2024, CLO new issuance reached approximately $102 billion, driven by tighter CLO AAA spreads and significant CLO refinancing and reset activity, totalling over $110 billion. The market is on track to surpass the 2021 issuance records.

CLO equity and debt tranches performed well as high coupons continued to keep up the appeal of floating rate securities. CLO equity continued to pay strong distributions as default rates stayed limited. Transactions with cleaner or newer portfolios benefitted more as better loan prices stayed elevated despite refinancings. Lower quality loans continued to struggle under the weight of still high base rates and poor business outlook.

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 125.5m as at 30 June 2024, which is invested mainly in fixed income and credit related securities.

The following is a table summarizing the financial portfolio at 30 June 2024:

Senior Secured Loans and CLOs

In the first half of 2024, the US Loan market was stable and performed well. The Credit Suisse Leverage Loan Index (CSLLI) achieved a non-annualized total return of 4.44%. Loan refinancing and repricing activity increased in Q2, with elevated interest rates maintaining attractive coupons on floating-rate loans. Average loan prices rose to 95.68 from 95.32 at the start of the year. Loan issuance reached $289 billion, up from $103 billion in the same period of 2023.

The trailing 12-month par-weighted default rate decreased to 0.92% by June, down from 1.53% at the end of 2023, and is below the long-term average of 2.65%. The 12-month trailing loan prepayment rate increased to 25.3%, driven by over $44 billion in Loans repaying at par in June. As of 30 June 2024, less than 3% of the loan market is set to mature before 2026, with significant reductions in maturities for 2025 and 2026.

In the first half of 2024, CLO new issuance reached approximately $102 billion, marking the fastest pace ever and an increase of over 80% compared to the same period in 2023. This surge was driven by tighter CLO AAA spreads and significant CLO refinancing and reset activity, totalling over $110 billion. The market is on track to surpass the 2021 issuance records.

As of 30 June 2024, CLO AAA discount margins averaged 142 basis points over SOFR, down 33 basis points from the end of 2023. CLO equity and debt tranches performed well as high coupons continued to keep up the appeal of floating rate securities. CLO equity continued to pay strong distributions as default rates stayed limited. Transactions with cleaner or newer portfolios benefitted more as better loan prices stayed elevated despite refinancings. Lower quality loans continued to struggle under the weight of still high base rates and poor business outlook.

During the first half of 2024, the Company successfully took advantage of the technical dislocations and added some CLO BB rated tranches and CLO equity at attractive levels. As well, management booked profits in some CLO equity positions after the strong performance of CLO equity. In January 2024, management invested in a warehouse managed by Blackstone. This warehouse will be converted to a CLO in September 2024. In March 2024, the Company invested in a warehouse managed by MJX. This warehouse was converted to a CLO in June 2024. The Company generated over USD 0.724m in carry from the MJX warehouse. Post balance sheet, the Company has opened a new warehouse managed by PGIM. The CLO and warehouse portfolio generated USD 12.1m of gains in the first half of 2024.

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

Private Equity and Fund Investments

The Company has invested in some small private companies with robust growth and potential.

The following summarizes the book value of the private equity and fund investments at 30 June 2024:

Fetcherr Ltd ("Fetcherr"):  Fetcherr is the Israeli start-up that has developed proprietary large market AI models

for dynamic pricing systems. Fetcherr is disrupting traditional revenue systems in the airline industry and has signed-up airlines such as Virgin Airlines, Westjet, and a top 3 US airline among others. Fetcherr continues to gain clients and market shares. Livermore invested USD 2m in 2021 and another USD 0.695m in a secondary transaction in 2023 at about a USD 67m valuation. Around the same time in 2023, Fetcherr raised capital in the form of a SAFE (convertible debt instrument) at a maximum valuation of USD 100m. In May 2024, Fetcherr raised USD 25m from Battery Ventures at a USD 250m valuation. Livermore invested USD 6.5m in May 2024 in a secondary offering parallel to the abovementioned capital raise. In July 2024, Livermore invested an additional USD 3.46m and now owns 11.84% of Fetcherr issued share capital.

Phytech Ltd ("Phytech"):  Phytech is an agriculture-technology company in Israel providing end-to-end solutions for achieving higher yields on crops and tree data. Livermore continues to hold 12.2% in Phytech Global Advisors Ltd, which in turns now holds 11.95% on a fully diluted basis in Phytech Ltd.

The following table reconciles the review of activities to the Group's financial assets at 30 June 2024.  

Litigation

Information is provided in note 22 to the interim condensed consolidated financial statements.

Events after the reporting date

Information is provided in note 24 to the interim condensed consolidated financial statements.

Going Concern

The Directors have reviewed the current and projected financial position of the Company, making reasonable assumptions about cash and short-term holdings, 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 interim condensed consolidated financial statements.

Livermore Investments Group Limited

Condensed Consolidated Statement of Financial Position

at 30 June 2024

Livermore Investments Group Limited

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2024

The total comprehensive income for the period / year 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 2024

Livermore Investments Group Limited

Condensed Consolidated Statement of Cash Flows

for the period ended 30 June 2024